Even though the mortgage servicer’s monthly statements after filing said they were for informational purposes only, the Ninth Circuit Bankruptcy Appellate Panel held that the servicer nonetheless violated the automatic stay by listing part of the pre-petition debt in the portion of the statement showing the amount for the debtor to pay after filing.
The April 14 opinion is noteworthy because the BAP is enforcing a strict contempt standard for mortgage servicers even after Taggart v. Lorenzen, 139 S. Ct. 1795, 1799 (2019), where the Supreme Court held that a court “may impose civil contempt sanctions [for violating the discharge injunction] when there is no objectively reasonable basis for concluding that the creditor’s conduct might be lawful under the discharge order.” To read ABI’s report on Taggart, click here.
The Post-Petition Mortgage Statements
A couple filed a chapter 13 petition and were current on their home mortgage. The mortgage servicer filed a secured proof of claim for about $160,000. Shortly thereafter, the servicer filed Official Form 410S2, titled, “Notice of Postpetition Mortgage Fees, Expenses, and Charges.” The notice asserted a claim for $950 in attorneys’ fees for filing the claim and reviewing the debtors’ plan.
According to the BAP’s nonprecedential opinion, the servicer conceded that the $950 was a pre-petition claim to be handled under the plan.
Nonetheless, the servicer sent a monthly statement to the debtors listing the $950 in the portion of the statement showing the amount the debtor should pay the following month, in addition to the usual payment. Believing that they would default on their mortgage, the debtors immediately paid the $950.
The servicer’s monthly statements all contained disclaimers stating that they were for informational purposes only and were not requests or demands for payment.
Several months later, the debtors filed a motion for contempt. The servicer wasted little time in refunding the $950 to the debtors, but the debtors pressed the motion.
Even though the $950 was a pre-petition claim, the bankruptcy judge saw no violation of the automatic stay because the monthly statements were permitted communications; the debtors needed the information to formulate their plan, and the debtors made the payment voluntarily.
The BAP Reverses
In a nonprecedential, memorandum opinion, the BAP reversed. The panel consisted of Bankruptcy Judges Scott H. Gan, Frederick P. Corbit and Julia W. Brand.
The panel saw no violation of Section 362(a)(1), because the statements were not an “action or proceeding.” However, the statement could violate Section 362(a)(6) as an “act to collect a prepetition debt.”
To evaluate whether the statements violated Section 362(a)(6), the BAP cited its own precedent from 2010 for the proposition that providing information to the debtor can be a permissible communication. On the other hand, the same precedent said that “direct or circumstantial evidence” can show that a communication was “geared toward collection of a prepetition debt” and nullify a disclaimer saying that the statement was for informational purposes only. Zotow v. Johnson (In re Zotow), 432 B.R. 252, 258-259 (B.A.P. 9th Cir. 2010).
The BAP said there was “only one reasonable interpretation:” The disclaimer was “geared toward collecting the attorneys’ fees,” because the $950 was contained in the portion of the monthly statement listing the regular monthly payment requiring immediate payment.
The BAP said that the servicer “could have easily averted the violation by listing the fees with prepetition arrears in the section which indicated those amounts were not part of ongoing payments.” Indeed, had the $950 been contained in the portion of the statement listing prepetition arrears, the panel said it would have concluded that the statement was “merely informational.”
The BAP said it is “incumbent upon creditors who send postpetition communications to clarify they are not attempting to collect prepetition debts.”
Finding a violation of Section 362(a)(6), the panel reversed and remanded but said it “expect[s] damages in this case to be relatively minimal.”
Even though the mortgage servicer’s monthly statements after filing said they were for informational purposes only, the Ninth Circuit Bankruptcy Appellate Panel held that the servicer nonetheless violated the automatic stay by listing part of the pre-petition debt in the portion of the statement showing the amount for the debtor to pay after filing.
The April 14 opinion is noteworthy because the BAP is enforcing a strict contempt standard for mortgage servicers even after Taggart v. Lorenzen, 139 S. Ct. 1795, 1799 (2019), where the Supreme Court held that a court “may impose civil contempt sanctions [for violating the discharge injunction] when there is no objectively reasonable basis for concluding that the creditor’s conduct might be lawful under the discharge order.”