§ 79.3     “Best Practices” and the Protection from Modification in § 1322(b)(2)
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 79.3, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

Detailed immediately above,1 the general rule is that a debtor may not modify the terms of a home mortgage, when it is “a claim secured only by a security interest in real property that is the debtor’s principal residence.”2 This section focuses on “modification” and on the many court decisions addressing whether the specific terms of the Chapter 13 plan transgress the protection from modification in § 1322(b)(2).3

[2]

For many good reasons, it is often desirable to quite specifically address the management of home mortgage claims in the Chapter 13 plan. For example, a plan provision to cure default and maintain payments on a home mortgage under § 1325(b)(5)4 requires several components: an arrearage amount; an arrearage payment; a total debt amount; an ongoing monthly payment; and, sometimes, an escrow adjustment.5 Plans often time-shift the commencement of ongoing payments, requiring explanation of the start dates for various payments and details for calculation of each part of the payment stream. During the years of a Chapter 13 case, home mortgages often adjust by contract with respect to interest rate, monthly payment, fees, expenses, escrow amounts and the like. To stay current and accurate during the years of a Chapter 13 plan, there has to be a constant flow of information among the mortgage holder or servicer, the trustee and the debtor.

[3]

These inherent complications with the management of mortgage claims in Chapter 13 cases have been magnified enormously by the unwillingness or inability of the mortgage-servicing industry to properly account for payments in Chapter 13 cases. Detailed elsewhere,6 hundreds of reported decisions document that mortgage servicers—including some of the largest industry members—cannot accurately account for payments in Chapter 13 cases, cannot reliably inform trustees, debtors and courts when adjustments are necessary during Chapter 13 cases and cannot accurately determine the status of a mortgage when a Chapter 13 case completes payments.

[4]

There has been an avalanche of litigation in Chapter 13 cases between debtors and home mortgage servicers. When payments are not properly allocated according to a confirmed plan, debtors face foreclosure soon after completing their plans, and the obvious response is to sue the foreclosing creditor and everyone else in sight under every theory imaginable.7 When a mortgage creditor or servicer charges fees or expenses to the mortgage account without notice or court approval, an invisible default results that eventually triggers automatic stay litigation or discharge injunction problems.8 Litigation between debtors and their mortgage lenders or servicers frequently involves not only Bankruptcy Code issues but also causes of action under other statutes such as the Real Estate Settlement Procedures Act or Truth in Lending Act.9

[5]

As the volume of litigation involving debtor challenges to the conduct of mortgage holders and servicers has boiled over, it is no surprise that Chapter 13 debtors, trustees and bankruptcy courts have cast about for ways to reduce both the underlying tensions inherent in the management of mortgages through Chapter 13 cases and the difficulties of reforming a broken industry in a litigation context. Chapter 13 offers a unique platform—every case includes some form of a plan, and that plan can contain terms addressing the treatment and administration of mortgage claims. Chapter 13 plans that manage mortgage claims and mortgage servicers are permissible under § 1322(b)(2) so long as the specific provisions do not modify the rights of the claim holder. Chapter 13 plan provisions that manage mortgage holders and servicers have come to be called “Best Practices” provisions.10 Some Best Practices plan terms address how payments through the plan are to be allocated by the mortgage holder or servicer. Other Best Practices specify actions that a creditor or servicer must or may not take during the years of plan administration. Challenge to a Best Practices plan provision that manages some aspect of the home mortgage claim typically requires the bankruptcy court to measure the specific plan provisions against the protection from modification in § 1322(b)(2).

[6]

The bankruptcy court in In re Collins11 was one of the first to look in depth at whether plan terms managing payments to and responsibilities of a mortgage creditor violated the protection from modification in § 1322(b)(2). Several courts subsequent to Collins—including the first appellate court to address the appropriateness of Best Practices plan terms12—have recognized that Judge Stair broke new ground in Collins and have referred to the Collins opinion as the starting point for analysis.

[7]

The mortgage creditor in Collins had a first lien securing debt that was supposed to be repaid over 15 years, with monthly installments and an escrow for insurance and property taxes. When the Chapter 13 case was filed, the debtors were in default. The plan proposed to cure the arrearage and maintain ongoing payments. Section 12 of the plan, to which Beneficial Tennessee, Inc., objected, contained these Best Practices provisions:

(a) Mortgage and/or Long Term Lien claim balances survive the plan and the Trustee shall not pay any future mortgage increases or decreases due to escrow and interest rate changes, unless the plan is modified to change such amounts. . . . Confirmation of the plan shall impose an affirmative duty and legal obligation on the holders and/or servicers of any claims secured by liens, mortgages and/or deeds of trust on the principal residence of the Debtors to do the following:
(1) To apply the payments received from the trustee on the prepetition arrearages, if any, and only to such arrearages. For purposes of this plan, the “pre-petition” arrears shall include all sums included in a “corporate advance” equal to the total of all sums included in the said claim. During the term of the plan, payments from the trustee shall be credited against the “corporate advance” account. The “corporate advance arrearage account” shall have a “0” balance upon entry of the Discharge Order in this case.
(2) To deem the pre-petition arrearages as contractually cured upon confirmation of the plan, thereby precluding the imposition of late payment charges or other default-related fees and services based solely on the pre-petition default or defaults. Such action shall be taken by making a “corporate advance” in a sufficient amount to “cure” the pre-petition arrears as established by the “allowed” proof of claim.
(3) To apply the direct post-petition monthly mortgage payments paid by the trustee or by the Debtors to the month in which they were designated to be made under the plan or directly by the Debtors, whether or not such payments are immediately applied to the outstanding loan balance or are placed into some type of suspense, forbearance or similar account. All such post-petition payments must be first applied to the outstanding post-petition interest and then to the principal balance and may not be used for any other purpose without the approval of the Bankruptcy Court after proper notice and a hearing.
(4) To notify the trustee, the Debtors and the attorney for the Debtors in writing of any changes in the interest rate for any non-fixed rate or any adjustable rate mortgages and the effective date of any such adjustment or adjustments. The failure to comply with such notice requirements shall constitute a waiver of any increase in the rate until such notice is provided. In the event the rate should be reset to a rate lower than the rate as of the petition date, then any failure to provide notice as herein provided shall constitute a violation of 524(i) to the extent that the [Debtors] suffer [ ] aggregate damages of more than $50.00.
(5) To notify the trustee, the Debtors and the attorney for the Debtors in writing of any changes in the property taxes and/or the property insurance premiums that would either increase or reduce the escrow portion, if any, of the monthly mortgage payments and the effective date of any such adjustment or adjustments. The failure to comply with such notice requirements shall constitute a waiver of any right to recover any enhanced escrow payments [or] to recover any such increases until such notice is provided, on the condition that it is provided more than 11 months before the completion of the plan.
(6) To refrain from directly paying or attempting to pay any pre-petition tax obligation that the Debtors included in their plan to be paid under their plan unless a motion is filed to modify the plan with adequate notice and a hearing or unless a notice of assignment of the tax claim is filed from the taxing authority to the servicer and/or holder of the mortgage loan(s).
(7) To refrain from ever assessing, charging, imposing, advancing or billing any type of fees or charges (such a [sic] legal fees, broker price opinion fees, property inspection fees, property preservation fees, proof of claim fees, notice of appearance fees, plan review fees, or any type of legal fees, or any type of fee or charge) to the mortgage loan of the Debtors, either post-petition and pre-confirmation, either post-confirmation and pre-discharge, or post-discharge unless such fees or charges have been approved by the Bankruptcy Court upon filing of a proper application for the approval of such fees and charges under Rule 2016(a) of the Federal Rules of Bankruptcy Procedure and after adequate notice of hearing. To the extent such fees are not approved, but are provided in any type of notice to the Debtors, such action shall be deemed to constitute a material violation of this provision and a violation of either the automatic stay or the discharge injunction, whichever provision may be applicable.
Violations of this Section. Any violation of this provision shall be deemed a willful violation of 11 U.S.C. Section 524(i) in the event that the mortgage loan or loans is [sic] not serviced in a manner in strict compliance with this provision of the plan and to the extent the improper servicing results in improper fees and charges of more than $50.00.13
[8]

To evaluate Beneficial’s claim that these provisions violated § 1322(b)(2), the Collins court first looked at § 524(i). Detailed elsewhere,14 § 524(i) was new to the Code in 2005 and provides that a creditor’s willful failure to credit payments under a Chapter 13 plan consistent with the plan can be a violation of the discharge injunction when listed, albeit improbable, conditions are present. The Collins court concluded that new § 524(i) did not

provide a basis for the incorporation of proposed language in a Chapter 13 plan. Instead, it merely provides debtors a potential remedy, post-discharge, if a creditor has failed to honor the terms of a confirmed plan by not properly crediting payments received as required by the plan.15
[9]

The court acknowledged that the binding effect of confirmation under § 1327 established the ongoing relationship between the mortgage creditor and debtor,16 but upon timely objection to confirmation, the protection from modification in § 1322(b)(2) imposed limitations on what a plan could require Beneficial to do or not do. Citing Nobelman v. American Savings Bank,17 “[t]he focus of § 1322(b)(2) is upon the ‘rights’ of the creditor and not upon the creditor’s claim.”18 Nobelman recognized that many provisions of the Bankruptcy Code affect a mortgage creditor’s rights, including the § 362 automatic stay,19 the § 1322(b)(5) power to cure defaults,20 and the general authority in § 1322(b)(11) to include plan provisions that are not inconsistent with the Code.21 Judge Stair concluded in Collins that determining whether particular plan provisions violate § 1322(b)(2) required balancing the flexibility that the Code allows in the construction of a plan with the protection of mortgage creditors’ rights.

[10]

Chapter 13 debtors who own homes typically want to use the plan to cure mortgage defaults and to maintain correct, regular payments during the life of the plan. To accommodate these goals, some courts have adopted form or model plans that seek to standardize the process of determining and paying both prebankruptcy arrears and postconfirmation entitlements of the mortgagee. The court in In re Wilson,22 cited by the Collins court, expressed the purpose of mortgage terms in its form plan as

provid[ing] a mechanism for resolving disagreements as to a default or amounts owed that accrued during the Chapter 13 case. By providing a procedure for the parties to use to definitively ascertain what a debtor owes his home lender, the Model Plan does not modify a mortgage holder’s rights in violation of § 1322(b)(2). Instead, it merely provides a framework within which to enforce those rights according to the loan document terms.23

Accomplishing the goal that a completed plan cures arrearages and produces a mortgage that is current requires plan provisions that direct how the mortgage creditor must credit payments, “distinguishing between prepetition and post-petition payments, by requiring payments be credited when received or in an otherwise timely manner, and by requiring a creditor show that payments under a plan are current.”24 Plan terms that direct application of mortgage payments cannot alter contractual payment amounts or interest rates,25 but the ultimate issue is whether these directions modify the mortgagee’s rights or are merely procedural means to accomplish curing and currency.

[11]

With these points in mind, the Collins court analyzed each proposed plan term. First out of the box, the prohibition against changing payments without plan modification in § 12(a) was inconsistent with § 1329(a) because secured creditors lack standing to seek modification of confirmed plans.26 A provision that mortgage payments would not begin until the debtor’s attorney fees were paid in full also impermissibly modified the mortgage contract, which required monthly payments—the contract simply did not permit suspension of mortgage payments by subordination to attorney fees.27

[12]

Section 12(a)(1) of the Collins plan, imposing an affirmative duty on the mortgage creditor to apply arrearage cure payments only to arrearages, was “not only reasonable but required.” Requiring Beneficial “to set up and designate payments into a specific ‘corporate advance arrearage account’ is overreaching and unnecessary.”28 It was enough that Beneficial was required to separately account for arrearage and maintenance payments to permit curing of default.

[13]

Section 12(a)(2) of the Collins plan “deemed” prepetition arrearages “contractually” cured at confirmation. The arrearage would not actually be cured until paid in full, but “deeming” the mortgage current as of confirmation was

merely procedural and requires only that Beneficial update its accounting procedures to ensure that the Debtors’ account is not subject to any additional charges associated with any prepetition default. In other words, as of the date of confirmation, as long as the prepetition arrearage is provided for in the plan and payments are made as set forth therein, Beneficial must, pursuant to § 1322(b)(5), divide the Debtors’ mortgage into a “current” prepetition balance and a post-petition maintenance balance which, as of the date of confirmation, is, with respect to the arrearage claim, contractually “current.” This provision addresses Beneficial’s claims, not its rights, and is not an impermissible modification under § 1322(b)(2).29
[14]

With some qualifications, other courts have concurred that deeming the mortgage current at confirmation is permissible under § 1322(b)(2). For example, two Colorado decisions allowed language deeming the mortgage contractually current at confirmation conditioned “on successful completion of mortgage cure payments and regular monthly payments under the plan.”30 A bankruptcy court in Wisconsin observed that plans would be less likely to draw objection if the provision deeming the mortgage current at confirmation “stated that the mortgage holder upon confirmation would treat the debt as if it were contractually current for the purpose of assessing penalties or remedies, or words to that effect.”31

[15]

Deeming the mortgage current at confirmation is intended to prevent “assessing late fees or commencing foreclosure proceedings, not that the debt is actually current.”32 Deeming the mortgage current at confirmation is complementary to requiring proper application of plan payments, which in turn implements the debtor’s statutory opportunity to cure default under § 1322(b)(5).33 As explained by a bankruptcy court in Arkansas:

The right to cure pre-petition arrearages under § 1322(b)(5) would be meaningless if the creditor did not deem pre-petition arrearages as contractually current and, accordingly, continued to accrue post-petition default interest, costs, and fees on payments that are otherwise permissibly addressed in the debtor’s plan. The “catch 22” effect would be an ever-increasing pre-petition arrearage amount that totally negates the debtor’s statutorily conferred right to address, in his plan, a presumably fixed pre-petition arrearage amount. . . . Additionally, the right to cure pre-petition arrearages would be equally meaningless if the mortgage holder was allowed to take ongoing payments and apply them to the oldest outstanding payment, thus rendering the current payments immediately past due. Again, past due charges, interest, and fees would accrue.34
[16]

Section 12(a)(3) of the Collins plan imposed two obligations on the creditor—apply postpetition maintenance payments to the designated month, whether applied immediately or first placed in a suspense account; and apply payments first to interest and then to principal. The first obligation did not offend the mortgage contract. But the second requirement collided with provisions of the note and deed of trust that applied payments first to late charges and escrow funds. Requiring payments to be applied first to interest was an impermissible modification for § 1322(b)(2) purposes.35

[17]

Sections 12(a)(4) and (5) of the Collins plan obligated the creditor to notify the debtors, their attorney, and the trustee in writing of any changes to interest rate and escrow amounts. Judge Stair found requiring notice in advance of payment changes was not only reasonable, but “essential to the orderly administration of the plan.”36 Subsequent decisions have agreed that “requiring timely notice of adjustments that affect the amount of the debtor’s mortgage payments” is not a modification of the creditor’s rights and is procedurally essential to a successful plan.37 Going further, however, the provision of the Collins plan that failure to give advance notice automatically waived any payment increases was an impermissible modification of the creditor’s rights.38

[18]

Section 12(a)(6) of the Collins plan—providing that the creditor refrain from paying prepetition taxes that the debtors proposed to pay through their plan—was on its face appropriate. But once again the plan went too far by obligating the mortgage creditor to seek plan modification before paying prepetition taxes. The same theme here—§ 1329(a) does not give secured creditors standing to move for postconfirmation modification.39

[19]

Section 12(a)(7) of the Collins plan prohibited the mortgage creditor from “assessing, charging, imposing, advancing or billing” various fees or charges without following Bankruptcy Rule 2016(a) and obtaining court approval. Judge Stair rejected this provision on this logic:

Pursuant to § 1322(b)(2), the security documents and underlying state law govern Beneficial’s “rights” with respect to any post-petition maintenance payments, and as long as the note and security documents between the parties provides [sic] for the assessment of charges, including but not limited to late fees, attorney fees, and inspection fees, a provision limiting those rights is an impermissible modification thereof.40

Detailed below,41 there is controversy in decisions before and after Collins with respect to whether Bankruptcy Rule 2016 applies to mortgage creditors in Chapter 13 cases.

[20]

Having approved some and rejected other provisions of the proposed plan, the Collins court then offered this standard Best Practices language for use in plans in the district:

Confirmation of the plan shall impose an affirmative duty on the holders and/or the servicers of any claims secured by liens, mortgages and/or deeds of trust on the principal residence of the Debtors to do all of the following:
(1) To apply the payments received from the trustee on the prepetition arrearages, if any, only to such arrearages. For purposes of this plan, the “prepetition” arrears shall include all sums included in the “allowed” proof of claim and shall have a “0” balance upon entry of the Discharge Order in this case.
(2) To deem the prepetition arrearages as contractually current upon confirmation of the plan, thereby precluding the imposition of late payment charges or other default[ ]-related fees and services based solely on the prepetition default or defaults.
(3) To apply the direct post-petition monthly mortgage payments paid by the trustee or by the Debtors to the month in which each payment was designated to be made under the plan or directly by the Debtors, whether or not such payments are immediately applied by the creditor to the outstanding loan balance or are placed into some type of suspense, forbearance or similar account.
(4) To notify the trustee, the Debtors, and the attorney for the Debtors in writing of any changes in the interest rate for any non-fixed rate or any adjustable rate mortgages and the effective date of any such adjustment or adjustments not less than 60 days in advance of such change or at such time as the change becomes known to the holder if the change is to be implemented in less than 60 days.
(5) To notify the trustee, the Debtors, and the attorney for the Debtors in writing of any change in the property taxes and/or the property insurance premiums that would either increase or reduce the escrow portion, if any, of the monthly mortgage payments and the effective date of any such adjustment or adjustments not less than 60 days in advance of such change or at such time as the change becomes known to the holder if the change is to be implemented in less than 60 days.
(6) MODIFICATIONS. The holders of claims secured by a mortgage on real property of the debtor, proposed to be cured in section 12(a) of this plan shall adhere to and shall be governed by the following:
(A) Prepetition defaults. If the debtor pays the cure amount specified in section 12(a), or in such lesser amount as may be established by the creditor’s proof of claim, while timely making all required post-petition payments, the mortgage will be reinstated according to its original terms, extinguishing any right of the holder to recover any amount alleged to have arisen prior to the filing of the petition.
(B) Post-petition defaults. Within 30 days of issuing the final payment of the cure amount specified in section 12(a), the Trustee shall serve upon the holder, the debtor, and the debtor’s attorney a notice stating that (1) the cure amount has been paid, satisfying all prepetition arrearage obligations of the debtor; (2) the holder is required to treat the mortgage as reinstated and fully current unless the debtor has failed to make timely payments of post-petition obligations; (3) if the debtor has failed to make timely payments of any post-petition obligations, within 60 days after the Trustee’s notice, the holder is required to file a Statement of Outstanding Obligations, consisting of an itemization of all outstanding payment obligations as of the date of its statement, with service upon the Trustee, the debtor, and the debtor’s attorney; (4) if the holder fails to file and serve a Statement of Outstanding Obligations within the required time, the holder is required to treat the mortgage as reinstated according to its original terms and fully current as of the date of the Trustee’s notice; and (5) if the holder does serve a Statement of Outstanding Obligations within the required time, the debtor may (i) within 30 days of service of the Statement, challenge the accuracy thereof by motion filed with the court, to be served upon the holder and the Trustee, or (ii) propose a modified plan to provide for payment of additional amounts that the debtor acknowledges or the court determines are due. To the extent that amounts set forth on a timely filed Statement of Outstanding Obligations are not determined by the court to be invalid or are not paid by the debtor through a modified plan, the right of the holder to collect these amounts will be unaffected. No liability shall result from any nonwillful failure of the Trustee to serve the notice required by this subparagraph.
(C) Costs of collection. Costs of collection, including attorneys’ fees, incurred by the holder after the filing of this bankruptcy case shall be claimed pursuant to section 12(a)(6)(B) above.42
[21]

Subsequent decisions have built on Judge Stair’s good work in Collins. In 2008, the U.S. Court of Appeals for the First Circuit in Ameriquest Mortgage Co. v. Nosek (In re Nosek)43 reversed a substantial award of damages by the bankruptcy court that was based on a mortgage holder’s failure to properly distinguish between and apply pre- and postpetition payments—not because the plan could not require that distinction, but because the plan in Nosek was not sufficiently precise to impose liability for what the creditor failed to do.

[22]

Nosek was quickly interpreted by other courts as an invitation to be quite specific and precise with respect to plan language managing mortgage payments in Chapter 13 cases. The Bankruptcy Appellate Panel for the Ninth Circuit in Greenpoint Mortgage Funding, Inc. v. Herrera (In re Herrera)44 noted that the First Circuit in Nosek had “admonished the bankruptcy court for failing to require additional accounting and reporting by the creditor and that such additional reporting would not have been a prohibited modification under § 1322(b)(2).”45 The Herrera panel then approved these Best Practices provisions from the Model Plan for the Central District of California over the objections of a mortgage lender:

A2. Except as provided in paragraphs (3) and (4) below, if the Mortgage Creditor provided monthly statements to the debtor pre-petition, the Mortgage creditor must provide monthly statements to the debtor. The monthly statements must contain at least the following information concerning post-petition payments to be made outside the Plan: (a) The date of the statement and the date of the next payment due; (b) The amount of the current monthly payment; (c) The portion of the payment attributable to escrow, if any; (d) The post-petition amount past due, if any, and from what date; (e) Any outstanding late charges; (f) The amount and date of receipt of all payments received since the date of the last statement; (g) A telephone number and contact information that the debtor or the debtor’s attorney may use to obtain reasonably prompt information regarding the loan and recent transactions; and (h) The proper payment address.
A4. If, pre-petition, the Mortgage Creditor provided the debtor with “coupon books” or some other preprinted, bundled evidence of payments due, the Mortgage Creditor is not required to provide monthly statements under subsection (2) of this section. However, the Mortgage Creditor must supply the debtor with additional coupon books as needed or requested in writing by the debtor. If a Mortgage Creditor does send a monthly statement to the debtor or the chapter 13 trustee and the statement complies with subsection (B)(2) below, the Mortgage Creditor is entitled to the protections set out in such subsection.
A5. The Mortgage Creditor must provide the following information to the debtor upon reasonable written request of the debtor: (a) The principal balance of the loan; (b) The original maturity date; (c) The current interest rate; (d) The current escrow balance, if any; (e) The interest paid to date; and (f) The property taxes paid year to date, if any.
A6. The Mortgage Creditor must provide the following information to the debtor, the debtor’s attorney and, when the debtor is making ongoing mortgage or arrearage payments through the chapter 13 trustee, the chapter 13 trustee, at least quarterly, and upon reasonable written request of the debtor or the chapter 13 trustee: (a) any other amounts due or proposed change in payments arising from an adjustable interest rate, charges paid by the Mortgage Creditor for taxes, insurance, attorney’s fees or any other expenses or fees charged or incurred by the Mortgage Creditor, such as property inspection fees, servicing fees or appraisal fees; (b) the nature of the expense or charge; and (c) the date of the payment.
B3. As a result of a Mortgage Creditor’s alleged non-compliance with this Addendum, the debtor may file a Motion for Order to Show Cause in compliance with Local Bankruptcy Rule 9020–1 no earlier than sixty days after the Mortgage Creditor’s failure to comply with sections (A) or (B). Before filing the motion, the debtor must make good faith attempts in writing to contact the Mortgage Creditor and to determine the cause of non-compliance, and must indicate in the Motion for Order to Show Cause the good faith steps taken, together with a summary description of any response provided by the Mortgage Creditor.
B4. If a Mortgage Creditor’s regular billing system can provide a statement to the debtor that substantially complies with this Addendum, but does not fully conform to all its requirements, the Mortgage Creditor may request that the debtor accept such statement. If the debtor declines to accept the non-conforming statement, a Mortgage Creditor may file a motion, on notice to the debtor, the debtor’s attorney and the chapter 13 trustee, seeking a declaration of the Court that cause exists to allow such non-conforming statements to satisfy the Mortgage Creditor’s obligations under this Addendum. For good cause shown, the Court may grant a waiver for purposes of this case and for either a limited or unlimited period of time.46
[23]

The Herrera panel examined the reporting duties imposed on mortgage lenders by the Model Plan against the backdrop of this somewhat limited view of the “rights” protected by § 1322(b)(2):

Courts that have examined the meaning of modification of rights of mortgage creditors in bankruptcy have held that only a mortgage creditor’s rights to payment are protected from modification.47

The BAP cited Fourth Circuit authority for the proposition that the protection from modification in § 1322(b)(2) “only applied to ‘fundamental’ aspects of a claim, i.e., the payment terms.”48 Perhaps ironically, the Herrera panel found these focused views of “rights” and “modification” were consistent with the Supreme Court’s expansive analysis of “rights” in Nobelman.

[24]

With respect to the notice and reporting requirements in the Model Plan, the Herrera panel examined the documents and found that the mortgages did not include reporting provisions that were bargained for by the parties. If anything, reporting obligations were imposed by RESPA, and the panel was not persuaded that “enhanced reporting duties by mortgage creditors in chapter 13 cases are barred by the anti-modification provision of § 1322(b)(2).”49 Herrera noted that Collins found procedural noticing and reporting obligations imposed on a mortgage creditor in a plan were “permissible and even desirable.”50 The panel concluded that none of the noticing or reporting provisions in the Central District of California’s form plan modified creditors’ rights.51

[25]

Changes to the Bankruptcy Code by BAPCPA have figured into the analysis whether a Best Practices provision violates the protection from modification in § 1322(b)(2). An Oregon bankruptcy court in In re Anderson52 agreed with Collins that § 524(i) was a remedy available to debtors at the end of the case, but that § 524(i) “does not dictate what is permissible under a Chapter 13 plan. Rather, that task is governed by §§ 1322 and 1325.”53 An Alabama bankruptcy court echoed that § 524(i) has no application at confirmation but is available as a post-discharge remedy.54

[26]

Other courts have found a bit more connection between § 524(i) and plan confirmation. In re Emery55 held that plan provisions controlling the application of arrearage and ongoing payments and requiring advance notice of payment changes did not modify creditor rights. On the way to that holding, the court observed that the predicate to liability under § 524(i)—“willful failure . . . to credit payments received . . . in a manner required by the plan”—was an acknowledgment that debtors “will craft plan language that directs the application of payments.”56 Seen in this light, the issue is not whether § 524(i) supports specific plan terms at confirmation, but whether specific plan terms are consistent with the potential remedy.57 In In re Hudak,58 a Colorado bankruptcy court reviewed the House Report that accompanied BAPCPA59 and concluded that a plan term requiring a mortgage creditor to comply with § 524(i) “is designed to compel compliance with a confirmed plan and force transparency and proper accounting by Creditor.”60 With this purpose in mind, the plan term was appropriate, remembering that, at the conclusion of the case, the debtor would be required to “show that creditor has willfully failed to credit payments in a manner in which debtor has been materially injured.”61

[27]

Application of payments in accordance with plan provisions is not easily distinguished from the debtor’s right to cure defaults—perhaps explaining why the limits on plan provisions that control the application of payments are not clearly defined in the reported decisions. For example, the Anderson court rejected an “ambiguous” plan provision that required the mortgage creditor to apply and credit postpetition payments “as if the mortgage were current.”62 The court reasoned that if the debtors “fall behind in their post-petition maintenance payments, the plan appears to force the home lenders to account for these late payments as current. This would modify their rights in contravention of § 1322(b)(2).”63 Requiring lenders to credit payments without penalty would impermissibly modify the creditor’s rights to assess late fees whenever the debtors made partial payments that did not bring the account current.

[28]

In contrast, the bankruptcy court in Hudak concluded that a plan term requiring the mortgage creditor to apply payments “to the month in which they were made whether they are immediately applied to the loan or are placed into suspense” was not a modification of rights under the deed of trust but served the goal to prevent the loan from constantly being in late status if payments were applied first to the oldest month in arrears.64 As explained by Judge Brooks in Hudak:

While requiring post-petition mortgage payments made under a plan to be credited to the post-petition month in which the payment is made may be an accounting headache for Creditor, it does not improperly modify the loan under 11 U.S.C. § 1322(b)(2). More importantly, leaving the loan in “late” status . . . for the duration of a confirmed Chapter 13 plan and beyond is likely violative of 11 U.S.C. §§ 362 and 524(a)(2) and (i).65
[29]

There are decisions that find payment application provisions to be inconsistent with other provisions of the Bankruptcy Code or to just be confusing and unnecessary. For example, a provision requiring the lender to apply payments to the amount necessary to cure default was found by the Anderson court to be surplusage since the Bankruptcy Code already provided after BAPCPA that “if the home lenders don’t apply these payments to the arrears, they expose themselves to a § 524(i) claim for contempt.”66 Another plan term in Anderson that presumed to define “arrears” was rejected because § 1322(e) requires arrears to be determined under the parties’ agreement and applicable nonbankruptcy law.67 The bankruptcy court in In re Carlton68 cited avoidance of clutter and, strangely, the absence of historical problems with mortgage creditors as reasons to reject a comprehensive plan term that managed mortgage payments:

[T]o recapitulate in detail the manner in which the payments are to be applied adds nothing but clutter, creates ambiguity and uncertainty with regard to whether something more or less than what the Code allows was intended, and otherwise enhances the opportunity for mischief and fosters litigation. Historically, at least in this Court, the treatment of mortgage claims in chapter 13 cases, and the application of plan payments to those claims, have worked as intended under Section 1322(b)(5) without attempts at fine-tuning by way of excess plan verbiage of uncertain consequences.69
[30]

Mentioned above in the discussion of Collins, requiring notice of changes in payments during the plan is viewed by some courts as a procedural matter, merely supplementing the debtor’s right to cure default and maintain the account as current. A plan term in Anderson—requiring advance notice from the lender of any changes in installment payments due to interest rate or escrow adjustments—was consistent with the trust deed and was “procedural,” not impermissible modification.70 A local bankruptcy rule in the Eastern District of Wisconsin, requiring the mortgage creditor to give annual notice of fees, expenses or charges accrued during the case, did not impose an “onerous” obligation on the lender or servicer and did not violate § 1322(b)(2).71 Requiring enhanced notice of payment changes has been held to be consistent with the Real Estate Settlement Procedures Act (RESPA) and its regulations:72

In sum, the federal statute and the regulations implementing the statute unambiguously and unequivocally impose upon a loan servicer the obligation to do an escrow analysis annually and to provide a borrower with notice, no less than annually, of any shortfall or deficiency.73
[31]

But not all courts characterize enhanced notice as a simple procedural matter. The outcome may turn on whether the plan only requires advance notice of payment changes or whether it also penalizes the creditor that fails to comply. For example, the Patton court had no concern with additional notice requirements with respect to payment changes by itself but drew the line at waiver of changes for which notice was not given. Judge McGarity stated,

[T]he plan should not impose affirmative duties upon creditors to protect their rights, which duties do not otherwise exist under the applicable contract, nor under state or federal law. . . . [F]ailure to give the notice does not necessarily mean that the charges cannot be made or that they are waived. Waiver would be inconsistent with the nonmodification provision of 11 U.S.C. § 1322(b)(2).74
[32]

At least one court has imagined a collision between the proof of claim rules and a plan provision requiring notice of charges and assessments during the Chapter 13 case. The plan in Carlton required annual notice of all postpetition fees, costs and other charges assessed by the mortgage creditor. The bankruptcy court characterized this notice as “tantamount to a proof of claim, and requiring a secured creditor to file such a notice or forfeit its right to reimbursement is contrary to the Eleventh Circuit’s holding in Universal American Mortgage Co. v. Bateman (In re Bateman).75 In Bateman, in the context of assessing the effect of confirmation on a lienholder, the Eleventh Circuit observed that secured creditors are not required to file proofs of claim to preserve a security interest in property.76 The Carlton court conflated this overstatement77 by the Eleventh Circuit into a limitation on the ability of debtors to determine and pay what mortgage holders claim to be owed in Chapter 13 cases.

[33]

It is increasingly common for a local bankruptcy rule or standing order to require notice of payment changes, accrued fees, charges and expenses, during the administration of Chapter 13 cases in a district. In Anderson, the local rule insulated creditors from potential stay violations by deeming Chapter 13 debtors to have authorized notices from lenders.78

[34]

When the confirmed plan includes a requirement that the mortgage creditor give advance notice of payment changes and the creditor fails to comply, the binding effect of confirmation may prevent the creditor from asserting a deficiency at the end of the plan.79 Detailed elsewhere,80 § 1327(a) provides that “the provisions of a confirmed plan bind the debtor and each creditor.” The Supreme Court in United Student Aid Funds, Inc. v. Espinosa81 made clear that if a creditor has notice of the plan and fails to object or appeal, even an objectionable plan term that imposes obligations on the creditor or that impermissibly modifies contractual rights will be binding.

[35]

In In re Foreman,82 the creditor admitted receipt of the confirmation order that required it to inform both the trustee and debtor in advance and in writing of any changes in payments during the plan. The creditor noticed changes to the debtor, but failed to tell the trustee. The trustee continued to disburse monthly payments at the original amount. The creditor received the incorrect amounts, watched its arrearage grow, yet did nothing to alert the trustee of the shortfall. Not surprisingly, the Foreman court found that the creditor waived any right to collect the increased payments.83

[36]

Then there are procedural issues with respect to determining whether the mortgage is current at the end of the Chapter 13 plan. As acknowledged by the bankruptcy court in In re Jackson:84

        The Code itself does not provide a mechanism for determining prior to discharge and closing of a case whether the cure and mortgage payments made during the plan period have been properly applied, or whether additional fees and charges have been tacked onto the mortgage.85

To deal with the problem, the court in Jackson approved a plan term empowering the debtor to file a motion to deem the mortgage loan current with notice and opportunity for objection and a hearing given to the mortgage creditor. If the creditor failed to timely respond, the Jackson plan permitted entry of an order finding that all postpetition payments were made.86 In Anderson, a plan provision empowering mortgage creditors to seek a determination whether payments were current at the end of a plan was “unremarkable, and probably unnecessary”;87 but a provision that required creditors to obtain such a determination to preserve the right to collect unpaid attorney fees and costs was not permissible.88 Detailed below,89 predischarge motions to determine that home mortgage defaults have been cured and that payments are current going forward have become common practice in the bankruptcy courts—whether filed by the debtor or the trustee90—and this practice will become the norm under pending amendments to the Bankruptcy Rules.91

[37]

Some courts specifically retain jurisdiction after confirmation to determine compliance with the plan and reasonableness of fees or charges incurred by a mortgage creditor during pendency of the plan.92 This practice is not universal. Especially after discharge and closing of the Chapter 13 case, courts have found jurisdictional barriers to consideration whether a home mortgage is current and/or whether the mortgage holder has appropriately accounted for payments, fees, charges and other expenses during the Chapter 13 case.93

[38]

Notwithstanding a growing consensus supporting Best Practices provisions in Chapter 13 plans, there is a notable lack of agreement whether mortgage creditors are required to seek court approval before charging attorney fees or other postpetition costs to the mortgage account. The focus of this dispute is whether Bankruptcy Rule 201694 applies to mortgage creditors. Some bankruptcy courts have construed Rule 2016(a) to apply without restriction to home mortgage creditors. For example, a Texas bankruptcy court in Padilla v. Wells Fargo Home Mortgage, Inc. (In re Padilla)95 easily concluded that

plain language and case-law require creditors to file a Rule 2016(a) application before seeking compensation for Reimbursable Expenses incurred post-petition but prior to a plan’s confirmation.96

The Padilla court rejected the argument that Bankruptcy Rule 2016(a) would conflict with the protection from modification in § 1322(b)(2) if applied to home mortgage creditors. Also, although Code § 506(b) more specifically controls recovery of fees and expenses for oversecured creditors only until confirmation,97 the court concluded that Bankruptcy Rule 2016(a) continues to apply after confirmation:98

Rule 2016(a)’s plain language encompasses post-confirmation fees and expenses equally with pre-confirmation fees and expenses. The Rule applies to any “entity seeking interim or final compensation for services or reimbursement of necessary expenses, from the estate.” The Rule does not distinguish between pre and post-confirmation attempts to collect Reimbursable Expenses. The Rule’s plain language covers Reimbursable Expenses sought anytime after an estate comes into being and for so long as it remains in existence.99
[39]

The Padilla court characterized Rule 2016(a) as a procedural rule that did not dictate whether the creditor was entitled to recover postpetition fees or expenses, merely that it must seek court approval before imposing the charge. Moreover, “Rule 2016(a)’s application is . . . necessary for the administration of chapter 13 cases and enforcement of chapter 13 Code provisions and plans.”100 To the extent a mortgage creditor attempted collection of unreasonable fees or expenses or charges that were not authorized by contract or state law,101 requiring compliance with the pre-approved process in Rule 2016(a) was a gatekeeper.

[40]

Confusingly, in an unrelated case with a similar name—Padilla v. GMAC Mortgage Co. (In re Padilla)102—a Pennsylvania bankruptcy court disagreed. The confirmed plan in the Pennsylvania Padilla case did not include any provisions that imposed an obligation on GMAC Mortgage “to give notice or make demand for payment of postpetition legal expenses during the pendency of the case.”103 Contrary to Texas Padilla, Pennsylvania Padilla held that neither § 506(b) nor Bankruptcy Rule 2016(a) applied to mortgage creditors’ postpetition legal fees or charges if allowed by contract. As to § 506(b):104

        From a policy perspective, a rational, and perhaps even compelling case, can be made that the bankruptcy system should impose disclosure and/or other procedural requirements on a secured creditor’s right to assess legal expenses arising postpetition in a case in which the creditor’s claim is being treated and cured in a confirmed chapter 13 plan through 11 U.S.C. § 1322(b)(5). The debtor’s performance of the postpetition contractual obligations takes place within the context of a court supervised financial rehabilitation process. Any assessments by the secured creditor for legal expenses incurred postpetition constitute part of the amount necessary to cure the default and directly impact the debtor’s prospects for a successful chapter 13 rehabilitation. The failure to notify the debtor can have pernicious consequences.
        Nevertheless, whatever merits of [sic] the policy arguments may have, I find no source of law that imposes a requirement that a secured creditor provide a debtor with notice of postpetition legal expenses incurred by the creditor and chargeable to the debtor under the mortgage being treated under § 1322(b)(5) of the debtor’s chapter 13 plan [sic]. In short, I am not persuaded that the policy argument is grounded sufficiently in either the Bankruptcy Code or the rules of court to afford it the force of law in this case.105
[41]

The Pennsylvania court gave these two reasons why Bankruptcy Rule 2016(a) did not apply to postpetition fees and charges:

        First, Rule 2016(a) does not apply because at no point did the creditor in this case seek payment of legal expenses “from the estate,” as required for the rule to apply. Instead, GMACM sought payment from the Debtor only after the bankruptcy estate ceased to exist by operation of law. See 11 U.S.C. § 554(c) (all unadministered property of the estate is abandoned to the debtor at the time the case is closed). Under the plain language of Rule 2016(a), it does not apply.
        Second, reliance on Rule 2016(a) as a source of authority for the proposition at issue here also suffers from the same infirmities as reliance upon 11 U.S.C. §§ 506(b) and 1322(b)(5). Under its plain language, the rule does not apply to a creditor who does not seek legal expenses from the bankruptcy estate. The application of the rule to a creditor who makes no demand for payment during the pendency of the bankruptcy case puts undue emphasis on a few words (“even though the application is filed by a creditor or other entity”) without considering the context in which those words are used. That context must include consideration of § 1328(a), which leaves the secured creditors’ contractual rights unaltered at the conclusion of a chapter 13 plan that provides for the cure of a default under § 1322(b)(5).106
[42]

Sharing the view of the Pennsylvania Padilla court, several other courts have denied confirmation of plans that would require the mortgage creditor to comply with Rule 2016(a).107 A bankruptcy court in Arkansas stated, “There is no requirement in the bankruptcy code or rules that a creditor must obtain prior approval of its post-petition charges or fees before including those fees in its proof of claim[.]”108 Some courts have made a distinction between recovery from the bankruptcy estate or recovery from the debtor, holding that Rule 2016(a) doesn’t apply when the mortgage creditor seeks recovery from the debtor:

Creditor has no obligation to routinely obtain court approval of postpetition fees, charges, and costs, if any, to be reimbursed for legal services performed after the filing of the case under the terms of the Deed of Trust when those postpetition fees, charges, or costs for legal services are sought from the Debtor and not the estate.109
[43]

Linking application of Bankruptcy Rule 2016(a) to the source of payments to a mortgage creditor injects a nasty additional problem. Detailed elsewhere,110 there is almost complete anarchy with respect to whether property of the Chapter 13 estate vests in the debtor at confirmation under § 1327(b) and, if so, with what effect. To oversimplify, there are at least five different interpretations of the vesting effect at confirmation and to further complicate the issue, there is no consistency across districts with respect to whether the plan or confirmation order overcomes the statutory vesting in § 1327(b). Figuring out whether payment to a mortgage creditor after confirmation is from “property of the estate” or from some other source is anything but simple, and that tangle ensnares Bankruptcy Rule 2016(a) analysis.

[44]

For example, the Texas bankruptcy court that decided Padilla, in a subsequent discussion of Rule 2016(a) and postconfirmation fees and charges, analyzed the different approaches to vesting and adopted the “reconciliation approach,” under which the bankruptcy estate does not cease to exist at confirmation but continues to be funded by postpetition income and assets.111 Applying this view of vesting, the court easily concluded that “Rule 2016 applies to acts to collect fees from post-petition earnings of the debtor because such earnings are property of the estate.”112

[45]

Although rare, the creditor can voluntarily waive § 1322(b)(2) protection. In In re Wilcox,113 the mortgage creditor agreed to reduce its debt and monthly payments in settlement of the debtor’s motion to strip off the lien. That settlement put the trustee in the awkward position of arguing (unsuccessfully) that the agreement was prohibited by § 1322(b)(2):

By choosing to voluntarily modify its claim for purposes of the Debtors’ Amended Plan, the Credit Union has voluntarily and knowingly waived any protection of its interests afforded by § 1322(b)(2). . . .
        In the end, bankruptcy is about solutions and the Trustee’s position sets up an artificial—and legally unsound—barrier to the efforts of the interested parties to reach a solution that works for both sides. Sound public policy encourages the voluntary settlement of disputes.114
[46]

Though there is a strong trend in favor of confirming plans that manage the administration of mortgage claims with one form or another of Best Practices provisions, there are a few decisions that simply reject the whole notion. The bankruptcy court in In re Carlton115 refused an entire menu of Best Practices terms, based on this systemic fear:

[T]he most compelling argument (if the Bank had chosen to argue) against confirmation of the Mortgage Provisions[116] is the countless variations among similar provisions that inevitably will be scripted into chapter 13 plans by a bevy of debtors’ attorneys in different bankruptcy courts throughout the country. . . .The potential is unlimited. Provisions allowed by the Northern District of Alabama may be different from those permitted by the Southern and Middle Districts of Alabama, or the Southern District of New York, or the District of Alaska. Potentially, and at considerable costs, mortgage creditors will be required to comply with a hodgepodge of nonconforming instructions, controls, directives and restrictions put into chapter 13 plans by imaginative debtors’ attorneys throughout the 50 States, the District of Columbia, Puerto Rico and beyond.117
[47]

Concern for the lack of consistency of plan terms across districts, coupled with the high volume of Best Practices litigation, caught the attention of the Advisory Committee on Bankruptcy Rules. The result is an important proposed new Federal Bankruptcy Rule 3002.1. Assuming Congress takes no contrary action, new Rule 3002.1 will be effective on December 1, 2011.118

[48]

In many ways, new Bankruptcy Rule 3002.1 reflects the Best Practices discussion above. This new rule will robustly empower the management of home mortgage claims in Chapter 13 cases by requiring notice of payment changes and notice of assessments for fees and expenses, and by providing a procedure to ensure that home mortgages are current at the end of the plan. Here is new Bankruptcy Rule 3002.1 in its entirety with the Advisory Committee Note.

New Rule 3002.1 will provide:

Notice Relating to Claims Secured by Security Interest in the Debtor’s Principal Residence
        (a) IN GENERAL. This rule applies in a chapter 13 case to claims that are (1) secured by a security interest in the debtor’s principal residence, and (2) provided for under § 1322(b)(5) of the Code in the debtor’s plan.
        (b) NOTICE OF PAYMENT CHANGES. The holder of the claim shall file and serve on the debtor, debtor’s counsel, and the trustee a notice of any change in the payment amount, including any change that results from an interest rate or escrow account adjustment, no later than 21 days before a payment in the new amount is due.
        (c) NOTICE OF FEES, EXPENSES, AND CHARGES. The holder of the claim shall file and serve on the debtor, debtor’s counsel, and the trustee a notice itemizing all fees, expenses, or charges (1) that were incurred in connection with the claim after the bankruptcy case was filed, and (2) that the holder asserts are recoverable against the debtor or against the debtor’s principal residence. The notice shall be served within 180 days after the date on which the fees, expenses, or charges are incurred.
        (d) FORM AND CONTENT. A notice filed and served under subdivision (b) or (c) of this rule shall be prepared as prescribed by the appropriate Official Form, and filed as a supplement to the holder’s proof of claim. The notice is not subject to Rule 3001(f).
        (e) DETERMINATION OF FEES, EXPENSES, OR CHARGES. On motion of the debtor or trustee filed within one year after service of a notice under subdivision (c) of this rule, the court shall, after notice and hearing, determine whether payment of any claimed fee, expense, or charge is required by the underlying agreement and applicable nonbankruptcy law to cure a default or maintain payments in accordance with § 1322(b)(5) of the Code.
        (f) NOTICE OF FINAL CURE PAYMENT. Within 30 days after the debtor completes all payments under the plan, the trustee shall file and serve on the holder of the claim, the debtor, and debtor’s counsel a notice stating that the debtor has paid in full the amount required to cure any default on the claim. The notice shall also inform the holder of its obligation to file and serve a response under subdivision (g). If the debtor contends that final cure payment has been made and all plan payments have been completed, and the trustee does not timely file and serve the notice required by this subdivision, the debtor may file and serve the notice.
        (g) RESPONSE TO NOTICE OF FINAL CURE PAYMENT. Within 21 days after service of the notice under subdivision (f) of this rule, the holder shall file and serve on the debtor, debtor’s counsel, and the trustee a statement indicating (1) whether it agrees that the debtor has paid in full the amount required to cure the default on the claim, and (2) whether the debtor is otherwise current on all payments consistent with § 1322(b)(5) of the Code. The statement shall itemize the required cure or postpetition amounts, if any, that the holder contends remain unpaid as of the date of the statement. The statement shall be filed as a supplement to the holder’s proof of claim and is not subject to Rule 3001(f).
        (h) DETERMINATION OF FINAL CURE AND PAYMENT. On motion of the debtor or trustee filed within 21 days after service of the statement under subdivision (g) of this rule, the court shall, after notice and hearing, determine whether the debtor has cured the default and paid all required postpetition amounts.
        (i) FAILURE TO NOTIFY. If the holder of a claim fails to provide any information as required by subdivision (b), (c), or (g) of this rule, the court may, after notice and hearing, take either or both of the following actions:
(1) preclude the holder from presenting the omitted information, in any form, as evidence in any contested matter or adversary proceeding in the case, unless the court determines that the failure was substantially justified or is harmless; or
(2) award other appropriate relief, including reasonable expenses and attorney’s fees caused by the failure.

Advisory Committee Note:

        This rule is new. It is added to aid in the implementation of § 1322(b)(5), which permits a chapter 13 debtor to cure a default and maintain payments on a home mortgage over the course of the debtor’s plan. It applies regardless of whether the trustee or the debtor is the disbursing agent for postpetition mortgage payments.
        In order to be able to fulfill the obligations of § 1322(b)(5), a debtor and the trustee have to be informed of the exact amount needed to cure any prepetition arrearage, see Rule 3001(c)(2), and the amount of the postpetition payment obligations. If the latter amount changes over time, due to the adjustment of the interest rate, escrow account adjustments, or the assessment of fees, expenses, or other charges, notice of any change in payment amount needs to be conveyed to the debtor and trustee. Timely notice of these changes will permit the debtor or trustee to challenge the validity of any such charges, if appropriate, and to adjust postpetition mortgage payments to cover any undisputed claimed adjustment. Compliance with the notice provision of the rule should also eliminate any concern on the part of the holder of the claim that informing a debtor of a change in postpetition payment obligations might violate the automatic stay.
        Subdivision (a). Subdivision (a) specifies that this rule applies only in a chapter 13 case to claims secured by a security interest in the debtor’s principal residence.
        Subdivision (b). Subdivision (b) requires the holder of a claim to notify the debtor, debtor’s counsel, and the trustee of any postpetition change in the mortgage payment amount at least 21 days before the new payment amount is due.
        Subdivision (c). Subdivision (c) requires an itemized notice to be given, within 180 days of incurrence, of any postpetition fees, expenses, or charges that the holder of the claim asserts are recoverable from the debtor or against the debtor’s principal residence. This might include, for example, inspection fees, late charges, or attorney’s fees.
        Subdivision (d). Subdivision (d) provides the method of giving the notice under subdivisions (b) and (c). In both instances, the holder of the claim must give notice of the change as prescribed by the appropriate Official Form. In addition to serving the debtor, debtor’s counsel, and the trustee, the holder of the claim must also file the notice on the claims register in the case as a supplement to its proof of claim. Rule 3001(f) does not apply to any notice given under subdivision (b) or (c), and therefore the notice will not constitute prima facie evidence of the validity and amount of the payment change or of the fee, expense, or charge.
        Subdivision (e). Subdivision (e) permits the debtor or trustee, within a year after service of a notice under subdivision (c), to seek a determination by the court as to whether the fees, expenses, or charges set forth in the notice are required by the underlying agreement or applicable nonbankruptcy law to cure a default or maintain payments.
        Subdivision (f). Subdivision (f) requires the trustee to issue a notice to the holder of the claim, the debtor, and the debtor’s attorney within 30 days after completion of payments under the plan. The notice must (1) indicate that all amounts required to cure a default on a claim secured by the debtor’s principal residence have been paid, and (2) direct the holder to comply with subdivision (g). If the trustee fails to file this notice within the required time, this subdivision also permits the debtor to file and serve the notice on the trustee and the holder of the claim.
        Subdivision (g). Subdivision (g) governs the response of the holder of the claim to the trustee’s or debtor’s notice under subdivision (f). Within 21 days after service of notice of the final cure payment, the holder of the claim must file and serve a statement indicating whether the prepetition default has been fully cured and also whether the debtor is current on all payments in accordance with § 1322(b)(5) of the Code. If the holder of the claim contends that all cure payments have not been made or that the debtor is not current on other payments required by § 1322(b)(5), the response must itemize all amounts, other than regular future installment payments, that the holder contends are due.
        Subdivision (h). Subdivision (h) provides a procedure for the judicial resolution of any disputes that may arise about payment of a claim secured by the debtor’s principal residence. Within 21 days after the service of the statement under (g), the trustee or debtor may move for a determination by the court of whether any default has been cured and whether any other non-current obligations remain outstanding.
        Subdivision (i). Subdivision (i) specifies sanctions that may be imposed if the holder of a claim fails to provide any of the information as required by subdivisions (b), (c), or (g).
        If, after the chapter 13 debtor has completed payments under the plan and the case has been closed, the holder of a claim secured by the debtor’s principal residence seeks to recover amounts that should have been but were not disclosed under this rule, the debtor may move to have the case reopened in order to seek sanctions against the holder of the claim under subdivision (i).
[49]

New Rule 3002.1 broadly embraces the view that mortgage creditors can be required to give notice to the debtor, debtor’s attorney and the trustee of changes in payments during the plan and of postpetition fees, expenses or charges recoverable from the debtor or from mortgaged property. Time limits for noticing are set, and an opportunity is given for the debtor or trustee to object to reasonableness of any noticed fee, expense or charge. Potential sanctions are specified when a creditor does not comply with notice obligations.

[50]

The Rule adopts the Best Practice, already followed by many trustees and courts, of confirming that defaults have been cured and mortgage payments are current at the end of the plan through a series of notices and responses. Ordinarily, at or near the completion of payments under the plan, the trustee will issue a notice to the mortgage creditor and debtor that payments under the plan are completed. The mortgage creditor will have 21 days to contest whether defaults have been cured and whether all mortgage payments have been made consistent with § 1322(b)(5). The new rule contemplates a timely determination by the court of any dispute with respect to curing default or currency.

[51]

New Rule 3002.1 adopts many of the judicially approved Best Practices discussed in the cases cited above. The new rule also incorporates some procedures that some courts have found to be inconsistent with the protection from modification in § 1322(b)(2). It can be anticipated that there will be litigation over the validity of portions of new Bankruptcy Rule 3002.1.

[52]

In conjunction with new Rule 3002.1, there will be new Official Forms, including attachments or supplements to Official Form 10, the proof of claim form.119 The new forms will require mortgage creditors to more fully document a home mortgage claim. The new forms will prescribe how a mortgage creditor should give notice of postpetition changes in monthly payment amounts and notice of postpetition fees, expenses and charges incurred by the creditor. These new forms will address many of the uniformity concerns expressed by the courts in the Best Practices cases.120


 

1  See § 118.1 [ Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman ] § 79.1  Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman.

 

2  11 U.S.C. § 1322(b)(2). Section 1322(b)(2) was not amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), Pub. L. No. 109-8, 119 Stat. 23 (2005), although other amendments by BAPCPA may affect implementation of § 1322(b)(2). See, e.g., § 454.1 [ Principal Residence Redefined? ] § 79.2  Principal Residence Redefined by BAPCPA, discussing the new definition of “incidental property” in 11 U.S.C. § 101(27B).

 

3  See also § 118.1 [ Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman ] § 79.1  Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman.

 

4  See discussion of curing default beginning at § 81.1  Overview: General Rules for Saving Debtor’s Home .

 

5  See, e.g., § 141.1 [ Calculating Plan Payments to Cure Default on Mortgages after October 22, 1994 ] § 84.3  Calculating Plan Payments to Cure Default on Mortgages after October 22, 1994.

 

6  See §§ 75.1 [ Examples of Stay Violations, and Not ] § 62.1  Examples of Stay Violations, and Not, 306.1 [ Truth-in-Lending and Other Consumer Protection Statutes ] § 138.5  Truth-in-Lending and Other Consumer Protection Statutes, 308.2 [ Mortgage Claim Issues ] § 138.8  Mortgage Claim Issues, 357.1 [ In General, Including Discharge Hearing and Discharge Injunction ] § 162.1  In General, Including Discharge Hearing and Discharge Injunction and 559.1 [ Discharge Injunction and New § 524(i) ] § 162.2  Discharge Injunction and § 524(i) after BAPCPA. See, e.g., In re Wilson, No. 07-11862, 2011 WL 1337240, at *12 (Bankr. E.D. La. Apr. 7, 2011) (Magner) (recounting difficulties that court had experienced with “the puzzle of loan administration”).

 

7  See §§ 357.1 [ In General, Including Discharge Hearing and Discharge Injunction ] § 162.1  In General, Including Discharge Hearing and Discharge Injunction and 559.1 [ Discharge Injunction and New § 524(i) ] § 162.2  Discharge Injunction and § 524(i) after BAPCPA.

 

8  See §§ 75.1 [ Examples of Stay Violations, and Not ] § 62.1  Examples of Stay Violations, and Not and 357.1 [ In General, Including Discharge Hearing and Discharge Injunction ] § 162.1  In General, Including Discharge Hearing and Discharge Injunction.

 

9  See § 306.1 [ Truth-in-Lending and Other Consumer Protection Statutes ] § 138.5  Truth-in-Lending and Other Consumer Protection Statutes.

 

10  This term first came to the attention of the authors during a multi-year failed negotiation between a consortium of mortgage servicers and representatives of the National Association of Chapter 13 Trustees that began in 2005. A term sheet circulated many times during that negotiation labeled Best Practices. The Best Practices on that term sheet failed to gain approval of major mortgage servicers, and the negotiation failed. But many of the Best Practices terms developed during that negotiation reappeared in reported decisions and in more recent drafts of proposed amendments to the Bankruptcy Rules. See below in this section. See also In re Carlton, 437 B.R. 412 (Bankr. N.D. Ala. Sept. 9, 2010) (Robinson) (reproducing Addendum-2 Best Practices for Trustees and Mortgage Servicers in Chapter 13, as endorsed by the National Association of Chapter 13 Trustees).

 

11  No. 07-30454, 2007 WL 2116416 (Bankr. E.D. Tenn. July 19, 2007) (unpublished) (Stair).

 

12  See Greenpoint Mortgage Funding, Inc. v. Herrera (In re Herrera), 422 B.R. 698 (B.A.P. 9th Cir. Jan. 5, 2010) (Pappas, Hollowell, Dunn), discussed below in this section.

 

13  2007 WL 2116416, at *2–*4.

 

14  See § 559.1 [ Discharge Injunction and New § 524(i) ] § 162.2  Discharge Injunction and § 524(i) after BAPCPA.

 

15  2007 WL 2116416, at *4 (footnote omitted). See § 559.1 [ Discharge Injunction and New § 524(i) ] § 162.2  Discharge Injunction and § 524(i) after BAPCPA for discussion of § 524(i). See also In re Nelson, 408 B.R. 394, 398 (Bankr. D. Colo. Dec. 23, 2008) (Tallman) (Agreeing with Collins, “[t]he court’s focus must be on insuring that the plans at issue meet the requirements of plan confirmation.”).

 

16  See 11 U.S.C. § 1327(a), discussed in § 229.1 [ 11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors ] § 120.2  11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors.

 

17  508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993), discussed in § 118.1 [ Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman ] § 79.1  Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman.

 

18  2007 WL 2116416, at *5.

 

19  See §§ 68.1 [ Usual Protections ] § 58.1  Usual Protections and 75.1 [ Examples of Stay Violations, and Not ] § 62.1  Examples of Stay Violations, and Not.

 

20  See § 78.4  Curing Default, Waiving Default, Maintaining Payments and Combinations and discussion of 11 U.S.C. § 1322(b)(5) beginning at § 81.1  Overview: General Rules for Saving Debtor’s Home.

 

21  2007 WL 2116416, at *6 (citing Nobelman v. American Sav. Bank, 113 S. Ct. at 2110). See also § 203.1 [ Plan Complies with Bankruptcy Code ] § 113.1  Plan Complies with Bankruptcy Code.

 

22  In re Wilson, 321 B.R. 222 (Bankr. N.D. Ill. Feb. 25, 2005) (Hollis).

 

23  321 B.R. at 225.

 

24  2007 WL 2116416, at *9.

 

25  See In re Maxwell, 343 B.R. 278 (Bankr. M.D. Fla. Sept. 26, 2005) (Proctor) (Section 1322(b)(2) prohibits plan provision that mortgage would receive no interest, late charges or other fees unless court specifically approved modification of plan.).

 

26  See § 253.1 [ Standing, Timing and Procedure ] § 126.1  Standing, Timing and Procedure for discussion of standing and procedure under 11 U.S.C. § 1329.

 

27  2007 WL 2116416, at *12. See also § 449.1 [ “Adequate Protection” after Confirmation ] § 74.15  “Adequate Protection” after Confirmation after BAPCPA for discussion of the requirement for equal monthly payments added to 11 U.S.C. § 1325(a)(5) by BAPCPA.

 

28  2007 WL 2116416, at *13.

 

29  2007 WL 2116416, at *14 (emphasis in original). See discussion of 11 U.S.C. § 1322(b)(5) beginning at § 81.1  Overview: General Rules for Saving Debtor’s Home. 

 

30  In re Hudak, No. 08-10478-SBB, 2008 WL 4850196, at *5 (Bankr. D. Colo. Oct. 24, 2008) (unpublished) (Brooks). Accord In re Nelson, 408 B.R. 394, 399 (Bankr. D. Colo. Dec. 23, 2008) (Tallman) (With the Hudak court’s qualification, “it should be quite clear to mortgage creditors that the provision merely requires them to treat the account as if it is current for the purpose of accounting for ongoing mortgage payments during the pendency of the plan.”). See also In re Segura, No. 08-14280 MER, 2009 WL 416847, at *3 (Bankr. D. Colo. Jan. 9, 2009) (unpublished) (Romero) (Stating that it was disagreeing with Collins and agreeing with Hudak, holding that language “requiring Chase to deem the prepetition arrearages as contractually cured by confirmation violates the provisions of § 1322.” Presumably, if the plan contained the qualification specified in Hudak, the court would have been satisfied.).

 

31  In re Patton, No. 08-23038, 2008 WL 5130096, at *4 (Bankr. E.D. Wis. Nov. 19, 2008) (unpublished) (McGarity) (“I interpret the word ‘deem’ to mean that the debt is ‘treated as if’ it were current for the purpose of assessing late fees or commencing foreclosure proceedings, not that the debt actually is current.”). Accord In re Coria, No. 09-30946-svk, 2009 WL 3210035 (Bankr. E.D. Wis. Oct. 7, 2009) (unpublished) (Kelley).

 

32  2008 WL 5130096, at *4.

 

33  See In re Winston, 416 B.R. 32, 38 (Bankr. N.D.N.Y. May 7, 2009) (Littlefield) (Section 1322(b)(5) provides exception to § 1322(b)(2), allowing cure of prepetition mortgage defaults; plan provision requiring mortgage holder and servicer to deem prepetition arrearages contractually cured at confirmation is “not only sensible, but legally proper under § 1322(b)(5). . . . This bifurcation of the mortgage debt is clearly within the intent of § 1322(b)(5), as it provides a means to accurately liquidate the default and provide the debtor the opportunity to cure the arrearage.”).

 

34  In re Booth, 399 B.R. 316, 326–27 (Bankr. E.D. Ark. Jan. 14, 2009) (Taylor). See also discussion of curing default beginning at § 81.1  Overview: General Rules for Saving Debtor’s Home. 

 

35  2007 WL 2116416, at *14.

 

36  2007 WL 2116416, at *15.

 

37  In re Nelson, 408 B.R. 394, 399 (Bankr. D. Colo. Dec. 23, 2008) (Tallman). Accord In re Foreman, No. 06-81434, 2010 WL 2696630, at *2 (Bankr. M.D. N.C. July 7, 2010) (unpublished) (Carruthers) (“Additional notice requirements imposed upon mortgage creditors by a Chapter 13 plan to aid in administration are permissible.); In re Ramsey, 421 B.R. 431 (Bankr. M.D. Tenn. Oct. 2, 2009) (Paine) (“Notice to the debtors, debtors’ counsel, and the trustee is a procedural mechanism aiding in the administration of the chapter 13 plan rather than a modification of Wells’ mortgage rights.”); In re Armstrong, 394 B.R. 794 (Bankr. W.D. Pa. Oct. 8, 2008) (Bentz); In re Anderson, 382 B.R. 496 (Bankr. D. Or. Feb. 12, 2008) (Radcliffe); In re Wilson, 321 B.R. 222 (Bankr. N.D. Ill. Feb. 25, 2005) (Hollis).

 

38  2007 WL 2116416, at *15. See discussion below in this section of proposed Bankruptcy Rule 3002.1.

 

39  2007 WL 2116416, at *16.

 

40  2007 WL 2116416, at *16. See also In re Carlton, 437 B.R. 412, 423 (Bankr. N.D. Ala. Sept. 9, 2010) (Robinson) (Finding a plan term requiring advance notice before the creditor made “protective advances” for insurance and taxes to be a violation of § 1322(b)(2), “[v]irtually all mortgages, including that attached to the Bank’s proof of claim, provide that the mortgagor’s obligation to reimburse the mortgage creditor for protective advances are [sic] secured by mortgage and accrue interest; if confirmed, [the objectionable term] would take away that security and the attendant interest.”).

 

41  See below in this section. See also §§ 138.1 [ Late Charges, Attorneys' Fees, Costs and Other Charges ] § 83.6  Late Charges, Attorneys' Fees, Costs and Other Charges and 308.2 [ Mortgage Claim Issues ] § 138.8  Mortgage Claim Issues.

 

42  2007 WL 2116416, at *17–*18 (emphasis in original) (footnotes omitted).

 

43  544 F.3d 34 (1st Cir. Oct. 3, 2008) (Lipez, Merritt, Howard), vacating 363 B.R. 643 (Bankr. D. Mass. Mar. 6, 2007) (Rosenthal), on remand from 354 B.R. 331 (D. Mass. Nov. 13, 2006) (Young).

 

44  422 B.R. 698 (B.A.P. 9th Cir. Jan. 5, 2010) (Pappas, Hollowell, Dunn).

 

45  422 B.R. at 721.

 

46  422 B.R. at 705–06.

 

47  422 B.R. at 718 (citing Grubbs v. Houston First Am. Sav. Ass’n, 730 F.2d 236, 246–47 (5th Cir. Apr. 19, 1984) (en banc); In re Larkins, 50 B.R. 984, 986 (W.D. Ky. Feb. 14, 1985) (Johnstone); Capital Res. Corp. v. McSorley (In re McSorley), 24 B.R. 795, 798 (Bankr. D.N.J. Nov. 23, 1982) (Lipkin)).

 

48  422 B.R. at 719 (citing Litton v. Wachovia Bank (In re Litton), 330 F.3d 636, 643–44 (4th Cir. May 27, 2003) (Michael, King, Shedd)).

 

49  422 B.R. at 721. See also In re Carlton, 437 B.R. 412, 421 (Bankr. N.D. Ala. Sept. 9, 2010) (Robinson) (RESPA provides a means for the debtor to discover, through written request, information about the mortgage account.); In re Dominique, 368 B.R. 913 (Bankr. S.D. Fla. May 14, 2007) (Isicoff) (Section 1322(b)(2)’s prohibition against modification of home mortgage includes all ongoing debt obligations; however, lender’s rights may be altered by other forces such as when lender has violated Truth in Lending Act or Real Estate Settlement Procedures Act.).

 

50  422 B.R. at 722.

 

51  422 B.R. at 724.

 

52  382 B.R 496 (Bankr. D. Or. Feb. 12, 2008) (Radcliffe).

 

53  382 B.R. at 503.

 

54  In re Carlton, 437 B.R. 412, 427 (Bankr. N.D. Ala. Sept. 9, 2010) (Robinson) (“Section 524(i) provides that a creditor’s willful misapplication of payments received during the term of the plan constitutes a violation of the discharge injunction imposed under Section 524(a)(2); that injunction does not arise until after the plan is completed and the debtor receives a discharge.”). See also In re Patton, No. 08-23038, 2008 WL 5130096, at *2 (Bankr. E.D. Wis. Nov. 19, 2008) (unpublished) (McGarity).

 

55  387 B.R. 721 (Bankr. E.D. Ky. May 16, 2008) (Howard).

 

56  387 B.R. at 724.

 

57  See In re Ballard, No. 07-03203-JW, 2007 WL 7340479 (Bankr. D.S.C. Sept. 13, 2007) (Waites) (Plan can include “Best Practices” provisions with respect to management of home mortgage debt to encourage compliance with § 524(i) without violating mortgage creditor’s rights under § 1322(b)(2).).

 

58  No. 08-10478-SBB, 2008 WL 4850196 (Bankr. D. Colo. Oct. 24, 2008) (unpublished) (Brooks).

 

59  H.R. Rep. No. 31-109 § 202 (2005).

 

60  2008 WL 4850196, at *9.

 

61  2008 WL 4850196, at *9 (emphasis in original).

 

62  382 B.R. at 503.

 

63  382 B.R. at 503.

 

64  2008 WL 4850196, at *5.

 

65  2008 WL 4850196, at *5 (footnote omitted).

 

66  382 B.R. at 505.

 

67  See 11 U.S.C. § 1322(e), discussed in § 135.1 [ Section 1322(e): Contracts after October 22, 1994 ] § 83.2  Section 1322(e): Contracts after October 22, 1994.

 

68  437 B.R. 412 (Bankr. N.D. Ala. Sept. 9, 2010) (Robinson).

 

69  437 B.R. at 419. Accord Beskin v. Maupin (In re Maupin), 384 B.R. 421 (Bankr. W.D. Va. Nov. 1, 2007) (Anderson) (Plans should not be crowded with terms that present questionable interpretations of Bankruptcy Code provisions.). See also In re Carlton, 437 B.R. at 429 (“This Court is aware of anecdotal evidence of abuses practiced by mortgage creditors against chapter 13 debtors; however, there are a minuscule number of adversary proceedings filed in the Court in which debtors allege violations by mortgage creditors of the automatic stay or the discharge injunction. Admittedly, there are more objections by debtors and trustees directed at the legitimacy and reasonableness of post-petition advances and expenses charged by mortgage creditors, but most are settled or withdrawn after discovery; and, at least in this Court, their numbers do not support a finding of systemic abuse by the mortgage industry. Perhaps abuses are more prevalent in other districts, but the solution is not an assortment of plan-imposed controls that will vary from district to district, and perhaps from judge to judge within the same district.”).

 

70  In re Anderson, 382 B.R 496, 505 (Bankr. D. Or. Feb. 12, 2008) (Radcliffe). See also In re Segura, No. 08-14280 MER, 2009 WL 416847, at *5 (Bankr. D. Colo. Jan. 9, 2009) (unpublished) (Romero) (“[T]he plan language requiring notification to the Trustee, the Debtors and the Debtors’ attorney of changes in taxes or insurance constitutes a reasonable procedure to aid case administration, and it is permitted.”).

 

71  In re Teran, No. 09-37858, 2010 WL 1655892 (Bankr. E.D. Wis. Apr. 23, 2010) (unpublished) (McGarity).

 

72  12 U.S.C. § 2609(b). See also 24 C.F.R. § 3500.17(f) and § 306.1 [ Truth-in-Lending and Other Consumer Protection Statutes ] § 138.5  Truth-in-Lending and Other Consumer Protection Statutes.

 

73  In re Dominique, 368 B.R. 913, 916 (Bankr. S.D. Fla. May 14, 2007) (Isicoff) (Also noting that Florida law imposed a deadline for lenders to notice borrowers of an escrow account deficiency and that the automatic stay did not prevent the lender’s giving of such notice.).

 

74  2008 WL 5130096, at *4–*5.

 

75  331 F.3d 821 (11th Cir. May 22, 2003) (Birch, Dubina, Kravitch).

 

76  Bateman is discussed in §§ 229.1 [ 11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors ] § 120.2  11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors, 233.1 [ Notice and Due Process Considerations, Including Claims Allowance and Valuation ] § 121.2  Notice and Due Process Considerations, Including Claims Allowance and Valuation, 258.1 [ To Suspend Payments ] § 127.1  To Suspend Payments and 287.1 [ Timing, Procedure and Evidence Presumption ] § 135.1  Timing, Procedure and Evidence Presumption.

 

77  See discussion of the potential consequences of the failure of a secured creditor to file a proof of claim in a Chapter 13 case in §§ 280.1 [ Secured Claim Holders ] § 132.7  Secured Claim Holders, 290.1 [ Untimely Filed Claims in Cases Filed after October 22, 1994 ] § 135.7  Untimely Filed Claims in Cases Filed after October 22, 1994, 358.1 [ On Liens ] § 162.3  On Liens and 560.1 [ Effects of Discharge on Liens after BAPCPA ] § 162.4  Effects of Discharge on Liens after BAPCPA.

 

78  In re Anderson, 382 B.R 496, 505 (Bankr. D. Or. Feb. 12, 2008) (Radcliffe). See also In re Hudak, No. 08-10478-SBB, 2008 WL 4850196, at *5 (Bankr. D. Colo. Oct. 24, 2008) (unpublished) (Brooks) (A plan requirement for advance notice of changes in interest or escrow was permissible and not inconsistent with Bankruptcy Rule 7004(b)(9).); Armstrong v. Lasalle Bank Nat’l Ass’n, 394 B.R. 794 (Bankr. W.D. Pa. Oct. 8, 2008) (Bentz) (Lender’s failure to comply with local rule requiring prompt advance notice of changes in monthly mortgage payments resulted in waiver of right to collect increased payments.).

 

79  See 11 U.S.C. § 1327(c), discussed in §§ 229.1 [ 11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors ] § 120.2  11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors and 233.1 [ Notice and Due Process Considerations, Including Claims Allowance and Valuation ] § 121.2  Notice and Due Process Considerations, Including Claims Allowance and Valuation. See, e.g., Armstrong v. Lasalle Bank Nat’l Ass’n, 394 B.R. 794 (Bankr. W.D. Pa. Oct. 8, 2008) (Bentz) (Creditor was bound by confirmed plan that incorporated local rule requiring notice to debtor, debtor’s attorney and trustee of postconfirmation changes in monthly payment.).

 

80  See §§ 229.1 [ 11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors ] § 120.2  11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors and 233.1 [ Notice and Due Process Considerations, Including Claims Allowance and Valuation ] § 121.2  Notice and Due Process Considerations, Including Claims Allowance and Valuation.

 

81  __U.S. ___, 130 S. Ct. 1367, 1767 L. Ed. 2d 158 (Mar. 23, 2010), discussed in §§ 229.1 [ 11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors ] § 120.2  11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors and 233.1 [ Notice and Due Process Considerations, Including Claims Allowance and Valuation ] § 121.2  Notice and Due Process Considerations, Including Claims Allowance and Valuation.

 

82  No. 06-81434, 2010 WL 2696630 (Bankr. M.D.N.C. July 7, 2010) (unpublished) (Carruthers).

 

83  2010 WL 2696630, at *3. Accord In re Passavant, 444 B.R. 378 (Bankr. S.D. Ohio Oct. 19, 2010) (Caldwell) (Motion at completion of payments to deem mortgage current was granted when plan obligated mortgage creditor to notify trustee and debtors’ counsel by amended proof of claim of changes in monthly payments and creditor failed to do so. Creditor waived right to assert arrearage claim when it did not follow confirmed plan. Even if plan violated protection from modification in § 1322(b)(2), creditor with notice that failed to object was bound—citing United Student Aid Funds, Inc. v. Espinosa, __ U.S. __, 130 S. Ct. 1367, 176 L. Ed. 2d 158 (Mar. 23, 2010)); In re Dominique, 368 B.R. 913, 918–19 (Bankr. S.D. Fla. May 14, 2007) (Isicoff) (Section 1327(a) “provides that every creditor of the debtor, as well as the debtor, is bound by the provisions of the plan. The plan is res judicata as to all matters addressed by the Plan.”).

 

84  In re Jackson, No. 09-15137 EEB, 2009 WL 5943245 (Bankr. D. Colo. Aug. 31, 2009) (unpublished) (Brown).

 

85  2009 WL 5943245, at *3.

 

86  2009 WL 5943245, at *5 (The provisions “serve a useful purpose” and did not modify the rights of mortgage holders. “They simply provide a procedural framework for the Debtors to find out whether they are emerging from bankruptcy with a current mortgage, or whether any undisclosed and potentially impermissible fees and charges have been assessed.”).

 

87  In re Anderson, 382 B.R 496, 508 (Bankr. D. Or. Feb. 12, 2008) (Radcliffe).

 

88  382 B.R. at 508 n.20.

 

89  See below in this section.

 

90  See, e.g., In re Foreman, No. 06-81434, 2010 WL 2696630 (Bankr. M.D.N.C. July 7, 2010) (unpublished) (Carruthers); In re Jackson, No. 09-15137 EEB, 2009 WL 5943245, at *6 (Bankr. D. Colo. Aug. 31, 2009) (unpublished) (Brown) (approving plan term requiring such motion). See also § 357.1 [ In General, Including Discharge Hearing and Discharge Injunction ] § 162.1  In General, Including Discharge Hearing and Discharge Injunction for discussion whether the discharge injunction is implicated when the debtor and a creditor disagree about the currency of a home mortgage.

 

91  See Proposed Fed. R. Bankr. P. 3002.1, discussed below in this section.

 

92  See In re Nelson, 408 B.R. 394, 400 (Bankr. D. Colo. Dec. 23, 2008) (Tallman) (Court retained jurisdiction after confirmation to determine reasonableness of fees and charges incurred during the pendency of the plan. “[T]he fact that a bankruptcy court may retain post-confirmation jurisdiction over a chapter 13 plan is a given.” Language in a plan for such retention “cannot be objectionable.”).

 

93  See §§ 308.2 [ Mortgage Claim Issues ] § 138.8  Mortgage Claim Issues, 357.1 [ In General, Including Discharge Hearing and Discharge Injunction ] § 162.1  In General, Including Discharge Hearing and Discharge Injunction and 359.2 [ Reopening Closed Cases ] § 162.6  Reopening Closed Cases.

 

94  Bankruptcy Rule 2016(a) states:

(a) Application for Compensation or Reimbursement.
An entity seeking interim or final compensation for services, or reimbursement of necessary expenses, from the estate shall file an application setting forth a detailed statement of (1) the services rendered, time expended and expenses incurred, and (2) the amounts requested. An application for compensation shall include a statement as to what payments have theretofore been made or promised to the applicant for services rendered or to be rendered in any capacity whatsoever in connection with the case, the source of the compensation so paid or promised, whether any compensation previously received has been shared and whether an agreement or understanding exists between the applicant and any other entity for the sharing of compensation received or to be received for services rendered in or in connection with the case, and the particulars of any sharing of compensation or agreement or understanding therefor, except that details of any agreement by the applicant for the sharing of compensation as a member or regular associate of a firm of lawyers or accountants shall not be required. The requirements of this subdivision shall apply to an application for compensation for services rendered by an attorney or accountant even though the application is filed by a creditor or other entity. Unless the case is a chapter 9 municipality case, the applicant shall transmit to the United States trustee a copy of the application.

 

95  379 B.R. 643 (Bankr. S.D. Tex. Aug. 3, 2007) (Isgur).

 

96  379 B.R. at 655 (citing Jones v. Wells Fargo Home Mortg. (In re Jones), 366 B.R. 584, 594–95 (Bankr. E.D. La. Apr. 13, 2007) (Magner); In re Tate, 253 B.R. 653, 665 (Bankr. W.D.N.C. Oct. 2, 2000) (Whitley); In re Allen, 215 B.R. 503, 504 (Bankr. N.D. Tex. Dec. 12, 2007) (Akard); In re Greenwich Showboat Ltd. P’ship, 117 B.R. 54, 60 (Bankr. D. Conn. Aug. 10, 1990) (Shiff); In re Lane Poultry of Carolina, Inc., 63 B.R. 745 (Bankr. M.D.N.C. July 30, 1986) (Wolfe); In re Dooley, 41 B.R. 31 (Bankr. N.D. Ga. Jan. 31, 1984) (Norton)).

 

97  See § 78.5  Oversecured Claim Holders and § 78.6  Oversecured Claims after BAPCPA.

 

98  379 B.R. at 656. See §§ 138.1 [ Late Charges, Attorneys' Fees, Costs and Other Charges ] § 83.6  Late Charges, Attorneys' Fees, Costs and Other Charges and 308.2 [ Mortgage Claim Issues ] § 138.8  Mortgage Claim Issues for further discussion of Bankruptcy Rule 2016(a).

 

99  379 B.R. at 657.

 

100  379 B.R. at 658.

 

101  See § 135.1 [ Section 1322(e): Contracts after October 22, 1994 ] § 83.2  Section 1322(e): Contracts after October 22, 1994.

 

102  389 B.R. 409 (Bankr. E.D. Pa. June 30, 2008) (Frank).

 

103  389 B.R. at 435.

 

104  See also § 78.5  Oversecured Claim Holders and § 83.6  Late Charges, Attorneys' Fees, Costs and Other Charges.

 

105  389 B.R. at 437 (footnote omitted).

 

106  389 B.R. at 443.

 

107  See In re Aldrich, No. 08-00520, 2008 WL 4185989 (Bankr. N.D. Iowa Sept. 4, 2008) (Kilburg).

 

108  In re Alanis, 316 B.R. 323, 325 (Bankr. W.D. Ark. Oct. 18, 2004) (Taylor). Accord In re Manus, 324 B.R. 85 (Bankr. W.D. Ark. May 12, 2005) (Taylor); In re Booth, 399 B.R. 316 (Bankr. E.D. Ark. Jan. 14, 2009) (Taylor). See also In re Segura, No. 80-14280 MER, 2009 WL 416847, at *4 (Bankr. D. Colo. Jan. 9, 2009) (unpublished) (Romero) (Plan language “creat[ing] a duty on the part of Chase to apply for post-petition fees and costs . . . could easily double or triple the number of fee applications the Court and the Trustee are required to review . . . . Unless such fees and costs are paid from the bankruptcy estate, or unless they are disputed by the debtor, the Court believes the Plan mandates unnecessary and burdensome requirements.”); In re Collins, No. 07-30454, 2007 WL 2116416, at *16 (Bankr. E.D. Tenn. July 19, 2007) (unpublished) (Stair).

 

109  In re Hudak, No. 08-10478-SBB, 2008 WL 4850196, at *7 (Bankr. D. Colo. Oct. 24, 2008) (unpublished) (Brooks) (citing Padilla v. GMAC Mortg. Corp. (In re Padilla), 389 B.R. 409, 418–19 (Bankr. E.D. Pa. 2008) (Frank)).

 

110  See § 230.1 [ 11 U.S.C. § 1327(b): Vesting Effect on Property of Estate ] § 120.3  11 U.S.C. § 1327(b): Vesting Effect on Property of Estate.

 

111  Rodriguez v. Countrywide Home Loans, Inc. (In re Rodriguez), 421 B.R. 356 (Bankr. S.D. Tex. Dec. 9, 2009) (Isgur).

 

112  421 B.R. at 378.

 

113  438 B.R. 428 (Bankr. D. Colo. Sept. 7, 2010) (Tallman).

 

114  438 B.R. at 431–32.

 

115  437 B.R. 412 (Bankr. N.D. Ala. Sept. 9, 2010) (Robinson).

 

116  The provisions at issue in Carlton, 437 B.R. at 430–31 (Addendum-1) were:

        1. Postpetition Mortgage Payments. Payments received by holders and/or servicers of mortgage claims for ongoing postpetition installment payments shall be applied and credited to the debtors’ mortgage account as if the account were current and no prepetition default existed on the petition date in the order of priority specified in the note and security agreement and applicable nonbankruptcy law. Postpetition installment payments made in a timely manner under the terms of the note shall be applied and credited without penalty.
        2. Duty of Mortgage Servicer to file Notice of Payment Change due to escrow analysis: The Mortgage Servicer shall perform an annual escrow analysis and shall file yearly a Notice of Payment Change with a copy of the escrow analysis showing the taxes and insurance paid for the prior year consistent with 12 U.S.C. § 2609(c)(2)(A) and (B). Absent objection, the fixed monthly payment is adjusted in accordance with the Notice provided and the Trustee shall file a Notice of the increase or decrease in the debtor’s plan payment due to the change in the fixed payment. Absent objection, the debtor’s payment becomes the amount in the Trustee’s Notice. The monthly mortgage payment is a pass through payment that shall be made at a higher priority than other secured fixed monthly payments.
        3. Duty of Mortgage Servicer to file Notice of Protective Advances: The Mortgage Servicer shall timely file a Notice with the Court if the servicer advances funds under the terms of the mortgage as a protective advance e.g. forced placed insurance or advance of taxes due to non payment. Absent objection, those amounts advanced are deemed allowed as an administrative expense and paid through the estate as an allowed claim pro rata with Priority Claims. The Trustee shall file a Notice of the increase in the debtor’s plan payment resulting from this additional administrative expense. Absent objection, the debtor’s payment becomes the amount in the Trustee’s Notice.
        4. Prepetition Arrearages. Payments disbursed by the trustee to holders and/or servicers of mortgage claims shall be applied and credited only to the prepetition arrearages necessary to cure the default, which shall consist of amounts listed on the allowed proof of claim and authorized by the note and security agreement and applicable nonbankruptcy law. Holders and/or servicers of mortgage claims shall deem the prepetition arrearages as contractually current upon confirmation of the plan.
        5. Duty of Mortgage Servicer to file Notice of Post Petition Fees and Costs Assessed pursuant to the Mortgage. The Mortgage Servicer shall file yearly a Notice of all Post–Petition fees, costs of collection, and all other contract charges assessed under the mortgage document, including attorney’s fees. The notice shall be filed annually, beginning within 30 days of the date one year after entry of the initial plan confirmation order, and each year thereafter during the pendency of the case, with a final notice filed within 30 days of the filing of the trustee’s final account under Bankruptcy Rule 5009. Absent objection, those fees and costs would be deemed allowed as an administrative expense and paid through the estate as an allowed claim pro rata with Priority Claims. The failure of a holder and/or servicer to timely file such notice for any given year of the case’s administration shall be deemed a waiver for all purposes of any claim for fees, expenses or charges accrued during that year, and the holder and/or servicer shall be prohibited from collecting or assessing such fees, expenses or charges for that year against the debtors or debtors’ account during the case or after entry of the order granting a discharge. All costs of collection, including attorneys’ fees, post-petition costs and other contract charges that accrue under the mortgage that arise during the pendency of this case shall be claimed by the mortgage holder pursuant to the provisions of this section, and if not so claimed, shall be waived. The Trustee shall file a notice of the increase in the debtor’s plan payments resulting from these additional charges. Absent objection, the debtor’s payment becomes the amount in the Trustee’s notice.
        6. Duty of Mortgage Servicer to file Notice of Payment Change due to interest and ARM changes: The Mortgage Servicer shall timely file a Notice of Payment Change that contains the calculation of the new payment, the new interest rate and the date of the payment change. Absent objection, the Trustee shall adjust the fixed monthly payment in accordance with this Notice and shall file a Notice of the new debtor payment resulting from the change in this fixed monthly payment. Absent objection, the debtor’s payment becomes the amount in the Trustee Notice.
        7. Mortgage Current upon Discharge. Unless the Court orders otherwise, an order granting a discharge in this case shall be a determination that all prepetition and postpetition defaults with respect to the debtors’ mortgage have been cured, and that the debtors’ mortgage account is deemed current and reinstated on the original payment schedule under the note and security agreement as if no default had ever occurred.
        8. No late charges, fees or other monetary amounts shall be assessed based on the timing of any payments made by the Trustee under the provisions of the Plan, unless allowed by Order of the Court.

 

117  437 B.R. at 428–29 (footnote omitted). See also In re Russell, No. 10-11720-SSM, 2010 WL 2671496, at *4 (Bankr. E.D. Va. June 30, 2010) (unpublished) (Mitchell) (“Best Practices” provisions in plan for payment of arrears and ongoing payments imposed specific obligations and restrictions on SunTrust mortgage that impermissibly deviated from district’s form plan. Although proposed provisions were not particularly offensive, “it would utterly defeat the purpose of a uniform plan, and impose a wholly unreasonable burden on mortgage servicers, if they had to comply with potentially dozens of variations as each law firm crafted what it believed to be the ideal set of best practices for mortgage loan administration in chapter 13.”).

 

118  At least one bankruptcy court adopted an earlier version of Rule 3002.1. See In re Dominquez, No. 09-41010-JBR, 2009 WL 2029977 (Bankr. D. Mass. July 13, 2009) (unpublished) (Rosenthal) (Citing proposed Bankruptcy Rules 3001 and 3002.1, when mortgagee argued that it was not required to notify debtor of postpetition mortgage statements or to provide annual notice of postpetition fees, court ordered debtor to file amended plan implementing requirements of proposed rules.).

 

119  See §§ 272.1 [ Official Bankruptcy Form 10 and Variations ] § 131.1  Official Bankruptcy Form 410 and Variations and 507.1 [ New Official Form 10 ] § 131.2  Official Form 410 after BAPCPA.

 

120  See, e.g., In re Carlton, 437 B.R. at 429–30.