§ 83.6     Late Charges, Attorneys' Fees, Costs and Other Charges
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 83.6, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

In a footnote in Rake v. Wade,1 Justice Thomas observed that “[t]he arrearages portion of respondent’s oversecured claim in this case included the amounts past due on the notes and the ‘other charges’ to which the Tenth Circuit referred.”2 The “other charges” were “attorney’s fees and default penalties owing under the respective mortgage instruments.”3 Rake holds that an oversecured mortgagee is entitled to preconfirmation and postconfirmation interest on the entire arrearage claim, including interest on attorney fees, late charges and other costs, when a Chapter 13 plan cures default under § 1322(b)(5). With respect to oversecured residential mortgages entered into before October 22, 1994, Rake allows the recovery of interest on arrearages, including interest on fees and other charges.4

[2]

The preconfirmation and postconfirmation interest Rake allowed the oversecured claim holder on fees, costs and other charges was not required by the contract. The Supreme Court in Rake found an entitlement to preconfirmation interest with respect to oversecured creditors in its earlier decision in United States v. Ron Pair Enterprises, Inc.5

[3]

We know from the footnote in Rake that the contract in Rake did include a right to attorney fees and other charges. For an oversecured mortgage contract before October 22, 1994, § 506(b) allows the oversecured creditor to add reasonable fees, costs and other charges provided by contract to its claim after the petition and until confirmation of a plan.6 Rake then allows both pre- and postconfirmation interest on those preconfirmation fees, costs and other charges without regard to whether the contract requires interest.

[4]

There is a silly twist on the right of an oversecured creditor to fees, costs and other charges when the Chapter 13 plan cures default for a contract before October 22, 1994. If the contract is a mortgage on the debtor’s principal residence protected from modification by § 1322(b)(2) and Nobelman,7 there is a minor difference between the entitlement to fees, costs and other charges protected by § 1322(b)(2) and the amounts allowed by § 506(b). Section 506(b) allows “any reasonable fees, costs or charges provided under the agreement.”8 Even an unreasonable contract provision for fees, costs or other charges would be protected from modification by § 1322(b)(2) and Nobelman.

[5]

Rake does not answer the question whether postpetition fees, costs and other charges would be payable to cure default through a Chapter 13 plan for an oversecured creditor with a pre-October 22, 1994 contract that does not provide for fees, costs and other charges. Section 506(b) does not allow postpetition fees, costs and other charges absent a contract right even for an oversecured creditor. Ron Pair could not be used to extend § 506(b) with respect to attorney fees, costs and other charges in the way the Supreme Court used Ron Pair to extend § 506(b) to require postpetition interest on an oversecured claim. In Ron Pair, the Supreme Court made this clear distinction between postpetition interest and fees, costs and charges: “Recovery of fees, costs, and charges . . . is allowed only if they are reasonable and provided for in the agreement under which the claim arose. . . . [I]n the absence of an agreement, postpetition interest is the only added recovery available.”9 Nobelman would not be in play because there would be no contract right to protect from modification under § 1322(b)(2). Without a contract right to fees, costs and other charges, the Code allows a Chapter 13 debtor to cure default on an oversecured mortgage by paying only pre- and postconfirmation interest on arrearages (not including fees, costs and other charges) under Rake.

[6]

For contracts before October 22, 1994, if the debt is undersecured and the contract is silent with respect to fees, costs and other charges, there is no provision of the Bankruptcy Code that allows postpetition fees, costs or other charges to cure default through a Chapter 13 plan. Section 506(b) would not be applicable for two reasons—the debt is undersecured, and there is no contract provision for fees, costs or charges as required by § 506(b). Rake and Ron Pair would be no help to the mortgage holder because, as explained above, the postpetition interest rule gathered from Ron Pair by the Supreme Court in Rake applies only to oversecured claims and does not extend to fees, costs or charges.

[7]

For some of the same reasons discussed above with respect to interest,10 there is a bit of uncertainty whether fees, costs and other charges provided by contract are recoverable by an undersecured residential mortgage holder when the plan cures default on a contract before October 22, 1994. If the mortgage is undersecured, Rake, § 506(b) and Ron Pair are not implicated. But if the mortgage requires the debtor to pay fees, costs and other charges and if the contract is protected from modification by § 1322(b)(2),11 the plan cannot modify the mortgage holder’s entitlement even if the claim is undersecured and without regard to whether the charges accrue before or after the petition.12

[8]

Some courts have (over?)read § 506(b) to preclude an undersecured creditor from recovering postpetition fees, costs and other charges provided for by a pre-October 22, 1994 agreement even when the claim is protected from modification by § 1322(b)(2) and Nobelman.13 If the mortgage is protected from modification and if the plan cures default under § 1322(b)(5), either all pre- and postpetition fees, costs and other charges become elements of the default that must be cured through the plan or these charges will accrue and survive discharge.14 It is a stretch to interpret § 506(b) to invalidate contract provisions for postpetition fees and other charges when the Chapter 13 plan cures default with respect to an undersecured mortgage before October 22, 1994, that is protected from modification by § 1322(b)(2).

[9]

For home mortgages entered into after October 22, 1994, new § 1322(e) defines the amount necessary to cure default through a Chapter 13 plan by reference to the underlying agreement and applicable nonbankruptcy law.15 Section 1322(e) allows attorney fees, costs and other charges if the agreement and nonbankruptcy law so provide, and interest is allowed on those fees, costs and other charges if also provided by contract and not prohibited by nonbankruptcy law.

[10]

For contracts entered into after October 22, 1994, 11 U.S.C. § 1322(e) makes no distinction between oversecured and undersecured claims. If a Chapter 13 plan cures default on an undersecured residential mortgage that was entered into after October 22, 1994, the amount necessary to cure default includes fees, expenses and other charges and interest to the extent allowed by the agreement and by nonbankruptcy law.16 The extent of security is irrelevant to new § 1322(e)—even if the residential mortgage is entirely unsecured, if the plan cures default, the mortgage holder will be entitled to recover whatever charges are allowed by the underlying agreement and nonbankruptcy law.17

[11]

There is the possibility of ambiguity with respect to the treatment of postpetition, preconfirmation fees, costs and other charges when the plan cures default for an oversecured mortgage after October 22, 1994. If the plan did not cure default, § 506(b) would add to the oversecured claim “reasonable” fees, costs or other charges that are “provided under the agreement.”18 Section 1322(e) mandates that the amount necessary to cure default shall be “determined in accordance with the underlying agreement and applicable nonbankruptcy law.”19 The two sections differ in two respects: there is no “reasonableness” condition on curing default in § 1322(e); there is no requirement of compliance with “applicable nonbankruptcy law” in § 506(b).

[12]

Whatever potential there may be for conflict between § 506(b) and § 1322(e) is dissipated by statutory construction and the history of enactment. 11 U.S.C. § 1322(e) begins, “Notwithstanding . . . sections 506(b) and 1325(a)(5) . . . .”20 Section 1322(e) was enacted to overrule Rake.21 In Rake, Justice Thomas cross-referenced §§ 506(b) and 1325(a)(5) to explain why an oversecured mortgage holder was entitled to preconfirmation and postconfirmation interest on arrearages cured through the Chapter 13 plan.22 Ordinary canons of statutory construction would interpret the “notwithstanding” in § 1322(e) to mean that § 1322(e) controls whether and to what extent fees, costs and other charges are allowed to cure default with respect to all mortgages entered into after October 22, 1994—including oversecured mortgages and including entitlements during the period between the petition and confirmation of a plan.23 One reported district court opinion somewhat confuses the exclusivity of § 1322(e) with respect to curing default by finding nothing in § 1322(e) to preclude the recovery of fees and charges that would otherwise be recoverable by an oversecured mortgage holder under § 506(b).24

[13]

It is not universal for residential mortgage contracts to call for interest on attorney fees, costs, late charges and other amounts that are recoverable from the borrower upon default. In Chapter 13 cases with mortgage contracts after October 22, 1994, counsel will have to carefully review the instruments to see whether other charges accrue interest. In the absence of a contract provision for interest, Chapter 13 debtors will have to pay the other charges to cure default but without interest.

[14]

Before and after the Bankruptcy Reform Act of 1994, the predicate for including attorney fees, late charges and other costs in the arrearage claim is a contract provision that allows these other charges. In the absence of a contract provision, the mortgage holder is not entitled to recover fees or other charges either as part of its primary claim or as an element of curing default. For example, when the oversecured lien arises by statute or judgment and not by contract,25 in the absence of a statute or court order requiring the payment of attorney fees or other charges, the lienholder has no right to payment of such charges through a Chapter 13 plan.

[15]

This is a different outcome than for postpetition interest as an element of curing default. As discussed above,26 in Rake—by incorporation of the holding in Ron Pair—the Supreme Court found in § 506(b) an entitlement to postpetition interest for oversecured claim holders not dependent on the contract. No similar rule applies to postpetition fees, costs and other charges: these other charges must be provided for by contract to be included as an element of curing default even with respect to an oversecured claim.

[16]

It is usually an advantage to the mortgage holder that attorney fees, late charges, and other costs are included in the default that must be cured under § 1322(b)(3) or § 1322(b)(5). When defaults are cured under § 1322(b)(5), these other charges must be paid “within a reasonable time.”27 If attorney fees and other charges are not part of the arrearage claim, they would probably be added to principal and paid over the remaining term of the contract. Characterization as arrearages permits the oversecured mortgage holder to accelerate recovery of the other charges. Also, and more importantly perhaps, including other charges in the defaults allows the mortgage holder to recover interest under Rake or § 1322(e).

[17]

Because the contract is always relevant to both the entitlement to other charges and the recovery of interest, the case law (before and after Rake) that interprets contract provisions for other charges will have application in Chapter 13 cases involving agreements entered into before and after the 1994 amendments. There were many pre-Rake cases in which mortgage holders were allowed professional fees, foreclosure costs and late charges as elements of curing default.28 Many of the reported cases dealing with the allowance of other charges involved miscalculation by the mortgagee or disputes about the coverage of the contract. Prior to Rake, the courts strictly construed mortgage provisions allowing attorney fees, costs, expenses and other charges.

[18]

For example, one court held that late charges were allowable to a mortgage holder consistent with its contract, but the amount was reduced to correct improper calculation.29 An oblique reference in the mortgage to other documents was insufficient to entitle the mortgagee to attorney fees as an element of curing default in a Chapter 13 case.30 An oversecured claim holder was entitled to foreclosure costs as part of its arrearage claim because foreclosure costs were clearly described in the mortgage instruments; however, the mortgage holder was not entitled to legal fees or title examination costs that were not clearly described.31 Insurance advances were allowed as an element of curing default when the mortgage contract required reimbursement of insurance advances; however, court costs were not covered in the agreement and were excluded from the arrearage claim.32

[19]

The pre-Rake cases also emphasize that the mortgage holder must timely assert its rights to collect the components of its arrearage claim. For example, a mortgage holder’s right to postpetition fees and charges was forfeited when the creditor failed to seek fees and costs before the debtor completed payments under the plan.33 The message for mortgage holders is to object to confirmation of any Chapter 13 plan that purports to cure defaults without paying all contractual fees, charges and costs in full with interest. Also, the mortgage holder should timely file and, if necessary, amend its arrearage claim to reflect the accrual of postpetition charges.

[20]

Even before Nobelman, the courts generally recognized that contractual late charges were recoverable as an element of curing default in a Chapter 13 case.34 After Rake, Nobelman and the enactment of § 1322(e), late charges are potentially very troublesome.

[21]

For mortgages entered into after October 22, 1994, a contract right to late charges (unless inconsistent with nonbankruptcy law) would be included in the amount necessary to cure default under 11 U.S.C. § 1322(e).35 The collection of pre- and postconfirmation interest on late charges for contracts entered into after October 22, 1994, will be determined by the underlying agreement and nonbankruptcy law.36 These rules apply under § 1322(e) without regard to the strength of the collateral.

[22]

An oversecured mortgage before October 22, 1994, is entitled by § 506(b) to add postpetition, preconfirmation late charges if provided by contract. If the pre-October 22, 1994 contract is protected from modification by § 1322(b)(2) and contains a provision for late charges, it is arguable that late charges are recoverable without regard to when they arise and even if the mortgage is undersecured.

[23]

Postpetition and postconfirmation interest on contract late charges is allowed to oversecured mortgages with pre-October 22, 1994 contracts by § 506(b), § 1325(a)(5) and Rake. A pre-October 22, 1994 undersecured mortgage with contract late charges may be entitled to preconfirmation and/or postconfirmation interest depending on whether § 1322(b)(2) and Nobelman protect the right to interest and depending on the extent to which the late charges can be allocated to the secured portion of the claim.37

[24]

Prior to Nobelman and Rake, it was held that a contractual late charge could be assessed only once on a delinquent prepetition installment, without regard to how long that installment remained in default, and the mortgage holder was prohibited from collecting a late charge with respect to untimely postpetition installments.38 After Nobelman, the contract language controls, and the mortgage holder’s right to collect late charges on untimely pre- or postpetition installments may be protected from modification by § 1322(b)(2) if the claim is secured only by real property that is the debtor’s principal residence.

[25]

The timely payment of mortgage installments during the Chapter 13 case is problematic. If the plan permits the debtor to pay directly to the mortgage holder,39 at the beginning of the case, debtors often miss a payment or two or are late as they adjust to the new budget that includes payments to the Chapter 13 trustee. Gaps in postpetition payments will generate late charges and multiply the cost of curing defaults through the plan.

[26]

The timing of monthly distributions by the Chapter 13 trustee may create late charge problems when the trustee is making postpetition mortgage payments. Mortgage contracts typically require that monthly installments be paid on or before a date certain each month to avoid a late charge. Chapter 13 trustees usually cannot adjust the day in the month on which they distribute payments to creditors to reflect the payment due date on mortgage contracts in individual cases. Instead, most Chapter 13 trustees issue all payments to creditors on the same day each month. It will be pure happenstance if a particular trustee’s monthly distribution date is early enough in the month to avoid late payment to some or all mortgage holders that receive payments through confirmed plans.

[27]

It is likely that mortgage servicers will accrue postpetition late charges on payments of home mortgages in Chapter 13 cases. This practice will inevitably lead to lots of litigation when Chapter 13 debtors complete payments under their plans and are immediately confronted by a mortgage foreclosure.40 Reported decisions, including an opinion from the U.S. Court of Appeals for the Fifth Circuit, indicate that mortgage holders may have difficulty enforcing a contract right to postpetition late charges when payment discrepancies result from the timing of payments by the Chapter 13 trustee.41

[28]

To avoid accruing contract late charges, some Chapter 13 trustees program their computers to pay home mortgage installments “in advance” through the plan. For example, if the Chapter 13 plan is confirmed in January and the first distribution to the mortgage holder will be on January 25, the trustee schedules the first payment as the “February” installment. This requires increasing the arrearage claim by one additional (postpetition) installment, but it avoids the monthly accumulation of contractual late charges after confirmation.

[29]

One reported bankruptcy court decision finds that late fees are subject to review for reasonableness as an element of curing default in a Chapter 13 case. In In re Barcelli,42 a condominium association was entitled by contract to a late fee on unpaid monthly assessments that increased $100 per month after the fourth missed payment. Under this scheme, by the fifth or sixth month of defaults, the late fee nearly equaled the regular monthly assessment. Looking in part to state law, the bankruptcy court found that a late fee “greater than 10% of the lost value of money is unreasonable.”43 The association was allowed a monthly late fee not to exceed $50.

[30]

For contracts after October 22, 1994, a “reasonableness” limitation on late charges must be found in the contract or in nonbankruptcy law to fit within § 1322(e). The reasonableness requirement in § 506(b) or otherwise implied by federal law is not applicable under § 1322(e), except as provided in the contract or state law.44

[31]

Reported cases indicate that Chapter 13 debtors’ attorneys are looking more closely at the “other charges” included by mortgage holders in arrearage claims. For example, in Snow v. Countrywide Home Loans, Inc. (In re Snow),45 the mortgage holder filed a preconfirmation arrearage claim that included “property inspection fees” totaling $193. After confirmation, the debtor filed a class action asserting that inspection fees violated state law. The complaint was dismissed based on the preclusive effect of the confirmed plan46—leaving open the question whether inspection fees will survive scrutiny in a preconfirmation objection.

[32]

Attorney fees have received extra scrutiny as a component of curing default on home mortgages in Chapter 13 cases. When provided for by contract, it has long been recognized that a mortgage holder is entitled to recover pre- and postpetition attorney fees as an element of curing default.47 The 1994 Act is not likely to change this outcome because most mortgage instruments require the payment of attorney fees and state law is rarely contrary.48 One notable exception is Ohio: because contract provisions for payment of attorney fees in notes and mortgages are against public policy and unenforceable under Ohio law, contract attorney fees are not recoverable as an element of curing default under § 1322(e) for Ohio Chapter 13 debtors.49

[33]

In part because § 506(b) allows an oversecured creditor to add to its claim only reasonable fees, the courts have often held that attorney fees included in an arrearage claim must meet a “reasonableness” test.50 When § 506(b) is not applicable,51 and with respect to all agreements after October 22, 1994,52 the Bankruptcy Code does not impose a reasonableness condition on attorney fees as an element of curing defaults—if allowed by contract and state law, even unreasonable attorney fees may creep into the arrearage claim. Because § 1322(e) looks to the agreement and state law to determine the amount necessary to cure default, a reasonableness requirement—or any other limitation—found in the agreement or state law will condition the amount of attorney’s fees that must be paid to cure default for contracts after October 22, 1994.53

[34]

The mortgage holder must be prepared to prove the precise language of the contract and the amount of fees incurred. For example, attorney fees were denied an oversecured mortgage holder notwithstanding a contract provision for fees, when the creditor failed to prove the amount of fees actually paid.54 When the attorney failed to properly document the work done, attorney fees were disallowed in full notwithstanding a contract right to fees.55 When the contract allowed reasonable attorney fees “in the event of reinstatement,” the preparation and filing of a proof of claim and objecting to confirmation were reasonably related to reinstatement; but litigation of a “hot” legal issue in the Chapter 13 case was not reasonably allowed in full against one debtor.56 Because debtors’ attorneys are “regularly faced with a lack of information as to the attorney fees and costs added to the prepetition arrearage amount by mortgage holders,” one bankruptcy court concluded, “where a prepetition mortgage arrearage is at issue that includes attorney’s fees and expenses, the creditor’s failure to present evidence demonstrating that the fees and costs were actually incurred and that they are reasonable will result in denial of the fees and costs except to the extent conceded by the debtor.”57 The message for creditors is that recovery of attorney fees as an element of curing default in a home mortgage requires a clear contract, careful record keeping and good evidence preparation when the debtor or trustee objects.

[35]

There may be another obstacle to recovery of attorney fees as an element of curing default through a Chapter 13 plan: Bankruptcy Rule 2016. It is common practice across the country for mortgage holders (and other creditors) to include contract attorney fees in the proofs of claim filed in Chapter 13 cases.58 It is not common for creditors claiming attorney fees to file a separate application for allowance of fees. A plain reading of Bankruptcy Rule 2016(a) requires an application for attorney fees from any creditor that seeks payment of fees (or expenses) from a Chapter 13 estate:

An entity seeking . . . 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. . . . 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.59
[36]

There is exposure in Bankruptcy Rule 2016(a) for the creditor that includes contract attorney fees in a proof of claim but does not file a Bankruptcy Rule 2016 application. The Bankruptcy Court for the Western District of North Carolina has entertained a class action against NationsBanc to recover attorney fees included in proofs of claim in Chapter 13 cases but with respect to which NationsBanc did not comply with Bankruptcy Rule 2016.60

[37]

Other courts have concluded that creditors can seek attorney fees either by filing a Bankruptcy Rule 2016(a) application or by including attorney fees in a proof of claim.61 But even in these courts, the disclosure of attorney fees in the proof of claim must be clear enough to permit the debtor and trustee to assess reasonableness.62 In a series of class actions in the Southern District of Alabama, the bankruptcy court awarded substantial damages, including several million dollars of punitive damages against creditors that buried attorney fees in proofs of claim in ways that impeded review for reasonableness.63

[38]

Postconfirmation late charges, attorney fees, costs and other charges are another story altogether. Many courts have recognized that a Chapter 13 debtor can cure default with respect to postpetition defaults using §§ 1322(b)(3) or 1322(b)(5).64 The mechanism for doing this is not altogether clear. By definition, postconfirmation fees and other charges will not be known at the time of confirmation and can’t easily be rolled up into the arrearage claim for payment through the plan after confirmation. In one reported decision, the bankruptcy court rejected a plan provision that would have required a mortgage holder to file applications for postconfirmation fees and costs.65

[39]

The accrual of postconfirmation attorney fees and other charges can be a real problem for Chapter 13 debtors. Without some reporting mechanism, these fees and charges will accrue and confront the debtor at the end of the case after the completion of payments to other creditors. The U.S. Court of Appeals for the Eleventh Circuit has held that postconfirmation fees and other charges are not part of the creditor’s secured claim in a Chapter 13 case.66 The U.S. Court of Appeals for the First Circuit has held that the accrual of postconfirmation fees and charges by a creditor entitled by contract is not a violation of the automatic stay.67 This is a deadly combination for Chapter 13 debtors. Some Chapter 13 trustees have been inspired to make motions near the end of payments under the plan to declare that long-term debts such as a home mortgage are current in an effort to flush into the open any accruals of fees and expenses after confirmation.68


 

1  508 U.S. 464, 113 S. Ct. 2187, 124 L. Ed. 2d 424 (1993).

 

2  508 U.S. at 475 n.12.

 

3  Wade v. Hannon, 968 F.2d 1036, 1037 (10th Cir. 1992).

 

4  See § 134.1 [ In General: Rake and Contracts before October 22, 1994 ] § 83.1  In General: Rake and Contracts before October 22, 1994.

 

5  489 U.S. 235, 109 S. Ct. 1026, 103 L. Ed. 290 (1989).

 

6  See § 116.1 [ Oversecured Claim Holders ] § 78.5  Oversecured Claim Holders. See, e.g., In re Waterman, 248 B.R. 567, 573 (B.A.P. 8th Cir. 2000) (Oversecured creditor is entitled to add pre- and postpetition attorneys’ fees and other charges to its arrearage claim to the extent allowed by contract and by § 506(b). “[I]f Ditto was oversecured, she is entitled under § 506(b) to reasonable fees, costs or charges provided for under the agreement with Debtor and can add post-petition attorneys’ fees to her claim . . . . Ditto is an oversecured creditor and entitled to post-petition attorneys’ fees under § 506(b).”).

 

7  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.

 

8  11 U.S.C. § 506(b) (emphasis added).

 

9  489 U.S. at 241.

 

10  See § 137.1 [ Undersecured Mortgage and Interest to Cure Default ] § 83.5  Undersecured Mortgage and Interest to Cure Default.

 

11  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.

 

12  There may be an exception to this statement for wholly unsecured home mortgages. See § 128.1 [ Modification of Unsecured Home Mortgage: Before and After BAPCPA ] § 80.13  Modification of Unsecured Home Mortgage: Before and After BAPCPA.

 

13  See, e.g., In re Gray, 182 B.R. 15, 17 (Bankr. W.D. Va. 1995) (It is not an impermissible modification under § 1322(b)(2) to refuse to pay attorney fees and late charges to the holder of an undersecured home mortgage. Section 506(b) only requires the payment of attorney fees where there is equity in the collateral. “Although § 1322(b)(2) states that a Plan may not modify a creditor’s rights, ‘it does not prevent modification by another bankruptcy statute such as . . . § 506(b)’s limitation of attorney’s fees.’”). See also In re Hatcher, 202 B.R. 626 (Bankr. E.D. Okla. 1996) (Undersecured mortgage holder not entitled to postpetition attorney fees because § 506(b) is not applicable; mortgage holder is limited to prepetition attorney fees of 15% of the mortgage debt under Oklahoma law, notwithstanding prepetition foreclosure judgment that awarded more than 15%.), aff’d in part, dismissed in part for lack of jurisdiction, 208 B.R. 959, 964–65 (B.A.P. 10th Cir. 1997) (Undersecured mortgage holder that has already been allowed its contractual 15% attorney fees cannot recover additional postpetition attorney fees as an element of curing default under either Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993) or Rake v. Wade, 508 U.S. 464, 113 S. Ct. 2187, 124 L. Ed. 2d 424 (1993). The mortgage holder “fails . . . to identify where under either the Note or state law he has a ‘right’ to attorney’s fees in addition to the fifteen per cent identified by the Bankruptcy Court in its uncontested findings of fact. In this case, § 1322(b)(2) and Nobelman do nothing to provide for [the mortgage holder’s] post-petition attorney’s fees. No ‘right’ to fees is modified by the Plan contrary to Nobelman. . . . [The mortgage holder] argues that § 506(b) does not apply in this case because § 1322(b)(2), as interpreted in Nobelman, preempts § 506(b), and thus it cannot be used to adversely modify the ‘rights’ of a mortgagee. . . . Rake concluded that § 506(b) applies to mortgagees during the post-petition, pre-confirmation period. . . .  If § 506(b) applies to mortgagees despite § 1322(b)(2), [the mortgage holder’s] post-petition attorney’s fees are disallowed because they don’t meet the third requirement of § 506(b) that the attorney’s fees are provided for under the agreement from which the claim arose. . . . Rake and § 1325(a)(5)(B)(ii) provide no basis for this court to expand the concept of present value to include non-contractual post-petition attorney’s fees to an undersecured creditor. . . . [T]he ‘amount of the allowed secured claim’ in section 1325(a)(5)(B)(ii) ‘is determined in accordance with the provisions of sections 506(a) and (b).’ . . .  [Section] 506(b) makes the allowance of post-petition attorney’s fees totally dependent on the terms of the agreement between the parties.”). See also § 137.1 [ Undersecured Mortgage and Interest to Cure Default ] § 83.5  Undersecured Mortgage and Interest to Cure Default.

 

14  See, e.g., Telfair v. First Union Mortgage Corp., 216 F.3d 1333 (11th Cir. 2000) (Mortgage holder is entitled to recover postconfirmation attorney fees and premiums for force-written hazard insurance without regard to § 506(b) because § 506(b) only governs recovery by an oversecured mortgage holder until confirmation. Confirmed plan provided for mortgage holder under § 1322(b)(5). Mortgage holder incurred attorney fees for postconfirmation motions for relief from the stay. Mortgage holder recovered its attorney fees after discharge by applying payments it received from the debtor or from the trustee consistent with the contract. Force-written hazard insurance premiums are recoverable notwithstanding that mortgage holder contracted for more expensive insurance and received substantial commissions from insurance company.), cert. denied, 531 U.S. 1073, 121 S. Ct. 765, 148 L. Ed. 2d 666, reh’g denied, 531 U.S. 1185, 121 S. Ct. 1173, 148 L. Ed. 2d 1030 (2001). See also §§ 351.1 [ Long-Term Debts ] § 158.7  Long-Term Debts and 358.1 [ On Liens ] § 162.3  On Liens.

 

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

 

16  See § 137.1 [ Undersecured Mortgage and Interest to Cure Default ] § 83.5  Undersecured Mortgage and Interest to Cure Default. See, e.g., In re Taylor, No. 02-10695, 2003 WL 22282173, at *3 (Bankr. D. Vt. Oct. 1, 2003) (unpublished) (Undersecured mortgage holder can recover reasonable postpetition attorney fees under § 1322(e). “Only an oversecured creditor is entitled . . . to include reasonable attorney’s fees as a part of its secured claim. See § 506(b). . . . [T]hat VHFA was not an oversecured creditor does not disqualify it from collecting attorney’s fees under § 1322(e). . . . [Section] 1322(e) applies to all costs incurred in the curing of a default, including reasonable attorney’s fees.”).

 

17  But see § 128.1 [ Modification of Unsecured Home Mortgage: Before and After BAPCPA ] § 80.13  Modification of Unsecured Home Mortgage: Before and After BAPCPA for discussion of modification of wholly unsecured home mortgages.

 

18  11 U.S.C. § 506(b).

 

19  11 U.S.C. § 1322(e).

 

20  11 U.S.C. § 1322(e).

 

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

 

22  See § 134.1 [ In General: Rake and Contracts before October 22, 1994 ] § 83.1  In General: Rake and Contracts before October 22, 1994.

 

23  See In re Plant, 288 B.R. 635, 643 (Bankr. D. Mass. 2003) (When the plan cures default on a debt incurred after October 22, 1994, attorneys fees, costs and expenses are determined under § 1322(e), not § 506(b). “By enacting § 1322(e), Congress expressly overruled the [Rake v. Wade, 508 U.S. 464, 113 S. Ct. 2187, 124 L. Ed. 2d 424 (1993),] holding, disconnecting in this respect § 506(b)’s application where a debtor cures a default through a Chapter 13 plan. . . . [Section] 1322(e) applies with respect to interest, fees and costs to every contract effective after October 22, 1994.”).

 

24  See In re Trabal, 254 B.R. 99, 103–04 (D.N.J. 2000) (Mortgage holder is entitled under § 1322(e) to recover late charges, prepetition legal fees, property inspection fees and NSF fees with interest at the contract rate as elements of curing default. “Pursuant to Bankruptcy Code § 506, the over secured creditor may recover reasonable costs and expenses, including attorney fees provided for in the loan documents. . . . [T]here was nothing in § 1322(e) to preclude the recovery of attorney fees. . . . Where taxes on property are the responsibility of the mortgagor, but paid by the mortgagee for the benefit of the mortgaged property, the mortgagee is entitled to be reimbursed and can add any uncollected monies to the mortgage debt.”).

 

25  See, e.g., § 119.2 [ Statutory Liens and Judgment Liens, Including Foreclosure Judgments ] § 80.2  Statutory Liens and Judgment Liens, Including Foreclosure Judgments.

 

26  See § 134.1 [ In General: Rake and Contracts before October 22, 1994 ] § 83.1  In General: Rake and Contracts before October 22, 1994.

 

27  11 U.S.C. § 1322(b)(5). See § 133.1 [ Reasonable Time to Cure Defaults ] § 82.4  Reasonable Time to Cure Defaults.

 

28  See Longwell v. Banco Mortgage Co., 38 B.R. 709 (N.D. Ohio 1984); In re Aguirre, 150 B.R. 922, 925 (Bankr. N.D. Tex. 1993) (Decided before Rake v. Wade, 508 U.S. 464, 113 S. Ct. 2187, 124 L. Ed. 2d 424 (1993), oversecured mortgage holder is “entitled to both pre- and postpetition interest, costs and attorney’s fees to the extent the Bank’s documents provide for them.”); In re Day, 139 B.R. 674 (Bankr. N.D. Ohio 1991); In re Smith, 125 B.R. 240 (Bankr. W.D. Mo. 1991); In re Thomas, 115 B.R. 305 (Bankr. E.D. Okla. 1990); In re Penick, 108 B.R. 776 (Bankr. W.D. Okla. 1989); Vitelli v. Cheltenham Fed. Sav. & Loan Ass’n (In re Vitelli), 93 B.R. 889 (Bankr. E.D. Pa. 1988); In re Jordan, 91 B.R. 673 (Bankr. E.D. Pa. 1988); In re Brown, 91 B.R. 19 (Bankr. E.D. Va. 1988); In re Seibel, 82 B.R. 463 (Bankr. S.D. Ohio 1987); Andrews v. Fleet Real Estate Funding Corp. (In re Andrews), 78 B.R. 78 (Bankr. E.D. Pa. 1987); In re Smith, 76 B.R. 426 (Bankr. E.D. Pa. 1987); Jackson v. Boulevard Mortgage Co. (In re Nickleberry), 76 B.R. 413 (Bankr. E.D. Pa. 1987); In re Ward, 73 B.R. 119 (Bankr. N.D. Ga. 1987); In re Lejeune, 73 B.R. 98 (Bankr. N.D. Ga. 1987); Cervantes v. General Elec. Mortgage Co. (In re Cervantes), 67 B.R. 816 (Bankr. E.D. Pa. 1987); In re LaLonde, 65 B.R. 237 (Bankr. S.D. Ohio 1986); In re Colvin, 57 B.R. 299 (Bankr. D. Utah 1986).

 

29  Andrews v. Fleet Real Estate Funding Corp. (In re Andrews), 78 B.R. 78 (Bankr. E.D. Pa. 1987).

 

30  In re Day, 139 B.R. 674 (Bankr. N.D. Ohio 1991) (Cardinal Federal Savings & Loan Ass’n v. Colegrove (In re Colegrove), 771 F.2d 119 (6th Cir. 1985) entitles mortgage holder to interest on arrearages, but even an oversecured mortgage holder is not entitled to attorney fees unless the security agreement provides for attorney fees. Even if this mortgage holder were oversecured, it would not be entitled to attorney fees because an oblique reference to “Title 38” in the mortgage documents is not sufficient to create a contract right to attorney fees.).

 

31  In re Seibel, 82 B.R. 463 (Bankr. S.D. Ohio 1987).

 

32  In re LaLonde, 65 B.R. 237 (Bankr. S.D. Ohio 1986).

 

33  In re Rathe, 114 B.R. 253 (Bankr. D. Idaho 1990) (Oversecured mortgage holder is entitled to include prepetition attorney fees, late charges, professional fees, and other charges in its arrearage claim. Mortgage holder’s failure to object to plan with respect to the amount and treatment of the prepetition arrearage claim precludes the mortgage company from making claim for such fees and charges after the completion of payments and the entry of discharge under § 1328(a)(1). Postpetition late charges, interest, fees, and costs provided for under the mortgage are allowable, but the mortgage holder must seek court approval for the payment of such fees under § 506(b) during the life of the plan. Failure to raise the issue until after the plan was completed is fatal to the § 506(b) claim.).

 

34  In re Thomas, 115 B.R. 305 (Bankr. E.D. Okla. 1990) ($5-per-payment late penalty is required under the note and mortgage and is included in the arrearage that must be cured under the plan.); In re Rathe, 114 B.R. 253 (Bankr. D. Idaho 1990) (Oversecured mortgage holder is entitled to include late charges in its arrearage claim. Postpetition late charges are also allowable, but the mortgage holder must seek payment before the completion of payments under the plan.); In re Penick, 108 B.R. 776 (Bankr. W.D. Okla. 1989) (Charge of “$5.00 or 5% of the installment in default, whichever is less” is a late charge that may be collected only once on a delinquent prepetition installment, without regard to how long that installment remains in default. The mortgage holder cannot collect the penalty as to postpetition installments that may be untimely.); Andrews v. Fleet Real Estate Funding Corp. (In re Andrews), 78 B.R. 78 (Bankr. E.D. Pa. 1987) (Late charges are allowed but reduced in amount to reflect improper calculation by the mortgage company.); In re Ward, 73 B.R. 119 (Bankr. N.D. Ga. 1987) (Late charges, other costs and interest after maturity on defaulted payments are allowed by § 1322(b)(2) without regard to § 506(b). Section 506 determines whether the claim is secured or unsecured; § 1322(b)(2) entitles the creditor to other charges if such is the creditor’s right under the mortgage. Likewise, creditor is entitled to attorney fees under § 1322(b)(2) to the extent that the debtor is liable to pay them under the contract.); In re Lejeune, 73 B.R. 98 (Bankr. N.D. Ga. 1987); In re Richardson, 63 B.R. 112 (Bankr. W.D. Va. 1986) (Applying Mack Fin. Corp. v. Ireson, 789 F.2d 1083 (4th Cir. 1986), oversecured claim holder is entitled to contractual late charges as an element of curing default.).

 

35  See above in this section and see § 135.1 [ Section 1322(e): Contracts after October 22, 1994 ] § 83.2  Section 1322(e): Contracts after October 22, 1994. See, e.g., In re Guarnieri, 297 B.R. 365, 368–69 (Bankr. D. Conn. 2003) (Late charges after acceleration are not recoverable as an element of curing default under § 1322(e) and Connecticut law. “[U]nder Connecticut law . . . paragraph 7(A) of the Note does not create an enforceable obligation for post-acceleration late charges because post-acceleration late charges are unenforceable under Connecticut law. . . . The underlying logic is simple: once the borrower is in default and the loan is accelerated, the full amount of the loan becomes due immediately, and there remains no obligation by the borrower to continue making monthly installment payments. In the absence of an obligation to make monthly payments, payments cannot be ‘late.’ . . . [D]etermination of the amount ‘necessary’ to effectuate a ‘cure’ under Section 1322(b)(5) occurs as a precondition to confirmation. Thus, the determination of the ‘amount necessary to cure’ is made as of a time no later than immediately before plan confirmation. As of that time, the subject debt still remained accelerated and the Disputed Charges still constituted unenforceable post-acceleration late charges.”); In re Koster, 294 B.R. 737 (Bankr. E.D. Mo. 2003) (Mortgage holder gets late charges as an element of curing default under § 1322(b)(5) and § 1322(e).).

 

36  See 11 U.S.C. § 1322(e), discussed above in this section and in § 135.1 [ Section 1322(e): Contracts after October 22, 1994 ] § 83.2  Section 1322(e): Contracts after October 22, 1994. See, e.g., In re Koster, 294 B.R. 737 (Bankr. E.D. Mo. 2003) (Although mortgage holder is entitled to late charges as an element of curing default under § 1322(e), underlying agreement does not provide for interest on late charges.); In re Trabal, 254 B.R. 99 (D.N.J. 2000) (Mortgage holder is entitled under § 1322(e) to recover late charges with interest at the contract rate as an element of curing default.); In re Wines, 239 B.R. 703, 708 n.7 (Bankr. D.N.J. 1999) (To calculate amount due when debtors sold house and paid off mortgage during Chapter 13 plan, late charges are allowed according to the contract. In a note, “Fleet could have charged interest on the fees and expenses included in its arrears, but chose not to.”).

 

37  See above in this section, and see §§ 134.1 [ In General: Rake and Contracts before October 22, 1994 ] § 83.1  In General: Rake and Contracts before October 22, 1994 and 137.1 [ Undersecured Mortgage and Interest to Cure Default ] § 83.5  Undersecured Mortgage and Interest to Cure Default.

 

38  In re Penick, 108 B.R. 776 (Bankr. W.D. Okla. 1989). See Smith v. Keycorp Mortgage, Inc., 151 B.R. 870 (N.D. Ill. 1993) (Court denies class certification for debtor’s suit against mortgage-servicing corporation for damages and equitable relief where mortgage company attempted after discharge to collect late charges accumulated during 58-month plan. Mortgage company claimed its demand for late charges was in “error” and the foreclosure it threatened was a “mistake.” Court retained jurisdiction to determine whether mortgage company’s effort to collect late charges was violation of Illinois consumer protection statutes.).

 

39  A bad idea. See §§ 59.1 [ Make Payments to Creditors Unless Plan or Confirmation Order Provides Otherwise ] § 53.10  Make Payments to Creditors Unless Plan or Confirmation Order Provides Otherwise, 103.2 [ Direct Payment of Secured Claims by Debtor ] § 74.8  Direct Payment of Secured Claims by Debtor before BAPCPA and 147.1 [ Direct Payment of Mortgage or Payment by Trustee ] § 85.6  Direct Payment of Mortgage or Payment by Trustee.

 

40  See §§ 351.1 [ Long-Term Debts ] § 158.7  Long-Term Debts and 358.1 [ On Liens ] § 162.3  On Liens.

 

41  See, e.g., In re Lee, 167 B.R. 417, 426–29 (Bankr. S.D. Miss. 1992), aff’d, 168 B.R. 319 (S.D. Miss. 1993), aff’d, 22 F.3d 1094 (5th Cir. 1994) (Secured claim holder is not entitled to postconfirmation relief from the stay based on minor discrepancies in payments caused by the timing of payments by debtors’ employers to the Chapter 13 trustee and caused by the payment of administrative expenses during the early months of distributions under plans. “A post-confirmation default must be material in order to constitute grounds for relief from the automatic stay. . . . Green Tree’s argument that the Court should hold the Debtors responsible for the manner in which the Trustee disburses funds is wholly unfounded. . . . Where an administrative expense, such as the debtor’s attorney fee in this instance, is paid in full during the early part of the plan, other creditors necessarily receive less than their designated portion of the total plan payment during these months of preemption. However, once the preempting administrative expense is paid in full, the creditors then receive a monthly amount greater than the amount designated by the plan for a period of time. Assuming the debtor completes the plan, the creditors will receive the appropriate amount over the life of the plan. . . . [T]he Trustee’s office disburses between 10,000 and 15,000 checks to creditors each month. It would be extremely burdensome for the Chapter 13 Trustee to review every contract involving a home mortgage, determine the due date, and pay each individual creditor in accordance with its particular contract. If Green Tree’s argument were accepted by this Court, then the only way a debtor could comply with the Bankruptcy Code would be to pay any secured creditor protected from modification of its rights under § 1322(b)(2) outside of the plan. Such a result is not mandated by § 1322(b)(2).”); In re Williams, 190 B.R. 365, 367–68 (Bankr. E.D. Mo. 1996) (“[T]he Trustee holds funds received through employer withholding orders for ten (10) days before distributing the proceeds to creditors according to the terms of the confirmed Chapter 13 plans. . . . [T]he purpose of this ten day policy is to ensure the funds deposited are actually collected. Next, the Trustee’s payment policy is to disburse funds to creditors once monthly on the 25th day of each month. The combined effect of the Trustee’s ten day policy and the monthly distribution is that all checks received on or prior to the 15th of any month are distributed in that month. Conversely, checks received from the 16th to the 24th of any month result in disbursements on the 25th day of the following month. . . . The Court endorses the Trustee’s ten day policy and holds that it is both a prudent and reasonable policy. Additionally, the once monthly distribution policy of the Trustee is appropriate as no other Chapter 13 trustee in the three state United State [sic] Trustee Region 13 distributes funds more than once per month, and this Court knows of no such practice anywhere in the country.”). See also Harris v. Washington Mut. Home Loans, Inc. (In re Harris), 297 B.R. 61, 68 (Bankr. N.D. Miss. 2003) (Chapter 13 debtors’ adversary proceeding alleging that Washington Mutual wrongfully assessed late charges on postconfirmation mortgage payments states a cause of action within bankruptcy court jurisdiction and with respect to which § 105 authorizes a remedy. Citing In re Lee, 167 B.R. 417 (Bankr. S.D. Miss. 1992), aff’d, 168 B.R. 319 (S.D. Miss. 1993), aff’d, 22 F.3d 1094 (5th Cir. 1994), “[f]or purposes of deciding the motion to dismiss, the court must assume, as alleged in the complaint, that Washington Mutual’s practice of assessing late charges against the plaintiffs was improper. However, once the actual merits of the complaint are reached, the plaintiffs should not expect relief if they made their payments untimely to the trustee, which, in turn, unreasonably delayed the trustee’s remittance to Washington Mutual. On the other hand, the outcome might well be different if the plaintiffs timely made their payments to the trustee which allowed the trustee to then remit to Washington Mutual in conformity with the trustee’s standard distribution procedures.”).

 

42  270 B.R. 837 (Bankr. S.D. Ohio 2001).

 

43  270 B.R. at 841.

 

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

 

45  270 B.R. 38 (D. Md. 2001).

 

46  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.

 

47  See Longwell v. Banco Mortgage Co., 38 B.R. 709 (N.D. Ohio 1984) (Oversecured creditor is entitled to pre- and postpetition attorney fees as an element of curing default.); In re Smith, 125 B.R. 240 (Bankr. W.D. Mo. 1991) (Oversecured claim holder may be entitled to attorney fees provided for in mortgage agreement.); In re Rathe, 114 B.R. 253 (Bankr. D. Idaho 1990) (Oversecured mortgage holder is entitled to include prepetition and postpetition attorney fees in its arrearage claim, but the mortgage holder must seek court approval for postpetition fees before completion of payments under the plan.); Vitelli v. Cheltenham Fed. Sav. & Loan Ass’n (In re Vitelli), 93 B.R. 889 (Bankr. E.D. Pa. 1988); In re Jordan, 91 B.R. 673 (Bankr. E.D. Pa. 1988); In re Brown, 91 B.R. 19 (Bankr. E.D. Va. 1988) (Mortgagee is entitled to reasonable legal fees provided for in deed of trust.); In re Smith, 76 B.R. 426 (Bankr. E.D. Pa. 1987) (Pre- and postpetition attorney fees are allowed if provided for under the agreement between the debtor and the mortgagee.); Jackson v. Boulevard Mortgage Co. (In re Nickleberry), 76 B.R. 413 (Bankr. E.D. Pa. 1987); In re Harmon, 72 B.R. 458 (Bankr. E.D. Pa. 1987); Cervantes v. General Elec. Mortgage Co. (In re Cervantes), 67 B.R. 816 (Bankr. E.D. Pa. 1986); In re Colvin, 57 B.R. 299 (Bankr. D. Utah 1986).

 

48  As discussed above in this section and in § 135.1 [ Section 1322(e): Contracts after October 22, 1994 ] § 83.2  Section 1322(e): Contracts after October 22, 1994, for mortgages entered into after October 22, 1994, 11 U.S.C. § 1322(e) includes pre- and postpetition attorney fees in the amount necessary to cure default if provided for in the underlying agreement and applicable nonbankruptcy law.

 

49  See In re Shaffer, 287 B.R. 898, 900–01 (Bankr. S.D. Ohio 2002) (Attorney fees in connection with postconfirmation stay relief are not recoverable under § 506(b); even if postpetition fees arose before confirmation, they are not recoverable as part of arrearage claim under § 1322(e) because public policy in Ohio prohibits the recovery of attorney fees. “[T]he recovery of attorney’s fees under § 506(b) in a reorganization case is . . . limited to postpetition, preconfirmation attorney’s fees. . . . Generally, an oversecured creditor’s preconfirmation fees are recoverable under § 506(b), notwithstanding state law to the contrary, so long as the fees are reasonable and contemplated by the parties’ agreement. . . . However, when the preconfirmation attorney’s fees are to be added to an arrearage claim, the general rule that state law does not apply has been superseded by Congress’s 1994 enactment of 11 U.S.C. § 1322(e). . . . Because Altegra’s fee stipulations are unenforceable under Ohio law, § 1322(e) precludes the addition of Altegra’s preconfirmation attorney’s fees to its arrearage claim pursuant to § 506(b).”); In re Roach, 285 B.R. 676, 679 (Bankr. S.D. Ohio 2002) (Applying Dollar Bank v. Petroff (In re Petroff), No. 00-8085, 2001 WL 34041797 (B.A.P. 6th Cir. July 25, 2001), “Ohio law and public policy prohibit a lender from collecting attorneys fees incident to foreclosure in ordinary mortgage transactions.”); In re Landrum, 267 B.R. 577 (Bankr. S.D. Ohio 2001) (Because provision of note for the payment of attorney fees is contrary to public policy and void under Ohio law, mortgage holder cannot add attorney fees to arrearage claim as an element of curing default under § 1322(e).); In re Lake, 245 B.R. 282, 285–87 (Bankr. N.D. Ohio 2000) (Attorney fees are not recoverable as an element of curing default under § 1322(e) because, under Ohio law, contract provision for attorney fees is not enforceable. “The amount of [cure under § 1322(e)] is determined by looking to two sources: (1) the existing agreement between the parties; and (2) applicable nonbankruptcy law, which in this case is Ohio law. . . . Because there is nothing in the statute to suggest that § 1322(e) is limited to interest charges, the Court finds that it also applies to determine whether attorney fees must be paid as part of ‘the amount necessary to cure’ this default. . . . The Ohio Supreme Court has held that contractual stipulations for the payment of attorney fees included in notes and mortgages are invalid and unenforceable based on public policy. . . . Ohio law renders void provisions in notes and mortgages for the payment of attorney fees if the provisions were not reached through free and understanding negotiation. Under that law, [the mortgage holder] cannot enforce these contract terms because they were not arrived at through such a negotiation. The attorney fees are not, then, an appropriate component of the cure amount under § 1322(e).”).

 

50  See In re Center, 282 B.R. 561, 565–67 & n.2 (Bankr. D.N.H. 2002) (Prepetition attorney fees and other costs can be added to an oversecured claim to the extent allowed by contract but subject to the reasonableness requirement in § 506(b). “[T]his Court agrees with the majority view and holds that section 506(b) preempts state law with respect to the addition to an allowed secured claim in a bankruptcy proceeding of interest and reasonable fees, costs or charges provided for under the agreement under which such claim arose when the value of the collateral securing the claim exceeds the amount of the claim. . . . [S]ince the fees, costs and charges assessed by oversecured creditors is senior even to first priority claims it makes sense to apply a single federal standard to their allowance. . . . Section 506(b) requires the Court to review the amount of an oversecured creditor’s attorneys’ fees to be included in an allowed secured claim to insure that they are reasonable. . . . ‘It is well established in this circuit that a reasonable [attorneys’] fee will first be computed in accordance with the “lodestar” method.’” In a footnote, “Chase has included the $800.00 claim for attorneys fees for bankruptcy services within that portion of its claim identified as ‘prepetition arrearage.’ The inclusion of this amount under that heading appears to be erroneous.”); In re Pak, 252 B.R. 215 (Bankr. M.D. Fla. 2000) (Oversecured mortgage holder is entitled to reasonable attorney fees, but request for $6,948 is reduced to $1,856 because mortgage was current at the petition, plan proposed to continue the regular payments and to cure arrearages, the debtor consented to adequate protection payments and case contained no unique issues.); In re Giordano, 234 B.R. 645, 651 (Bankr. E.D. Pa. 1999) (In debtor’s third Chapter 13 case, mortgage arrearage claim is reduced from $26,412.30 to $13,413.43 primarily by eliminating legal fees and other costs charged by the mortgagee during a decade of litigation with the debtor. “When the claimant offers no basis to evaluate the reasonableness of the fees claimed, the court will allow only those items of costs which the objector admits are reasonable.”); In re Smith, 230 B.R. 437 (Bankr. N.D. Fla. 1999) (Oversecured mortgage holder is entitled to add to its arrearage claim a reasonable attorneys’ fee; $800 for supervising and filing a proof of claim is excessive. Attorney fees reduced to $305, and a $20 fee for an inspection that did not take place is disallowed.); In re Scott, 229 B.R. 811 (Bankr. E.D. Okla. 1999) (Oversecured mortgage holder is entitled by contract to include in its arrearage claim attorney fees and costs in bankruptcy proceeding; bankruptcy court determines whether fees and costs are reasonable.); In re Good, 207 B.R. 686 (Bankr. D. Idaho 1997) (Oversecured mortgage holder’s entitlement to fees and expenses is subject to reasonableness requirement and is reduced to reflect paralegal time that was clerical and lower rate for travel time for attorneys. Late charges are also allowable but cannot be determined without further proceedings because note provides late charges will be paid first, but deed of trust provides late charges will be paid last.); In re Lund, 187 B.R. 245, 252–55 (Bankr. N.D. Ill. 1995) (The fees and costs allowable to an oversecured claim holder under § 506(b) must meet the “reasonableness” and “necessity” tests. Creditor’s claim for attorney fees totaling $41,006 is excessive to collect a debt of approximately $13,000. “An expense is necessary if it was incurred because it was required to accomplish the proper representation of the client. . . . Expenses are to be reimbursed, not to add to profit. . . . [W]here the debtor has specifically agreed to pay late charges, and those charges are reasonable, courts have allowed same to an oversecured creditor. . . . [T]he late charges of $25.00 per month . . . are reasonable. . . . [A]ttorney time totaling $41,006.00 to collect an approximate $13,000 debt is patently unreasonable. . . . As piling on is not permitted by the rules of football, neither is it allowed under § 506(b) to the taxing of an oversecured creditor’s attorneys’ fees to a debtor. . . . As an elephant is not needed to swat a fly, neither was a virtual squad of attorneys needed to obtain the orders to exterminate the roaches, clean up the debris and fix the water leak.” Fees of $13,313.26 are allowed.); In re Henson, 182 B.R. 588 (Bankr. N.D. Okla. 1995) (Mortgage holder is entitled to recover attorney fees as part of its arrearage claim; however, $2,125 is excessive where “[t]he monetary difference between the two parties’ suggested interest amounts equates to about $9.00 during the term of the plan (forty-four months) or about twenty cents (20 cents) per payment. . . . Suffice to say the time expended has no economic relationship to the monies involved. . . . [T]he Court finds that an appropriate fee in this matter is in the sum of $350.00.”). See also § 304.1 [ Claims for Creditors’ Attorneys’ Fees ] § 138.2  Claims for Creditors’ Attorneys’ Fees.

 

51  All mortgages that are not oversecured. See § 116.1 [ Oversecured Claim Holders ] § 78.5  Oversecured Claim Holders.

 

52  11 U.S.C. § 1322(e) controls and disconnects § 506(b). See above in this section and see § 135.1 [ Section 1322(e): Contracts after October 22, 1994 ] § 83.2  Section 1322(e): Contracts after October 22, 1994.

 

53  See In re Taylor, No. 02-10695, 2003 WL 22282173, at *3 (Bankr. D. Vt. Oct. 1, 2003) (unpublished) (“[Section] 1322(e) applies to all costs incurred in the curing of a default, including reasonable attorney’s fees. . . . [T]he Mortgage unequivocally requires the borrower to ‘pay all expenses incurred in enforcing this [Mortgage], including but not limited to, reasonable attorney’s fees’ in the event of reinstatement.”); In re Hatala, 295 B.R. 62 (Bankr. D.N.J. 2003) (When mortgage required debtor to pay reasonable attorney fees in a foreclosure proceeding, arrearage claim under § 1322(e) includes only fees allowed by New Jersey law in a foreclosure action; fees are not recoverable for representing the creditor in the bankruptcy case because Chapter 13 is not a foreclosure proceeding.); In re Coates, 292 B.R. 894, 900 (Bankr. C.D. Ill. 2003) (Attorney fees included in arrearage claim are disallowed because mortgage holder failed to prove entitlement under contract and Illinois law. “§ 1322(e) . . . directs inquiry not only to the terms of the mortgage and note but also to applicable nonbankruptcy law . . . . Under Illinois law, whether expressly stated in the contract provision or not, a standard of reasonableness will be implied to all requests for reimbursement of attorney fees and expenses assessed by one party to a contract against the other. . . . The party seeking recovery of attorney fees bears the burden of proving the fees are reasonable.”); In re McMullen, 273 B.R. 558 (Bankr. C.D. Ill. 2001) (Pre- and postpetition attorney fees are allowable parts of mortgage holder’s arrearage claim subject to state law “reasonableness” standard under § 1322(e). Six hundred dollar fee for prepetition foreclosure was unreasonable because only part of foreclosure was completed. Four hundred fifty dollars for representing mortgage holder in Chapter 13 case was reasonable for preparation of the proof of claim and objection to plan and appearance at the related court hearings.).

 

54  In re Smith, 125 B.R. 240 (Bankr. W.D. Mo. 1991).

 

55  In re Harmon, 72 B.R. 458 (Bankr. E.D. Pa. 1987). Accord In re Giordano, 234 B.R. 645, 651 (Bankr. E.D. Pa. 1999) (“When the claimant offers no basis to evaluate the reasonableness of the fees claimed, the court will allow only those items of costs which the objector admits are reasonable.”).

 

56  In re Taylor, No. 02-10695, 2003 WL 22282173, at *3–*6 (Bankr. D. Vt. Oct. 1, 2003) (unpublished) (“[T]he Mortgage unequivocally requires the borrower to ‘pay all expenses incurred in enforcing this [Mortgage], including but not limited to, reasonable attorney’s fees’ in the event of reinstatement. . . . [T]he only attorney’s fees which were related to reinstatement are those that dealt directly and primarily with the Debtor’s right to reinstate and those that dealt directly and primarily with the amount due in order to reinstate. . . . [T]he preparation and filing of its proof of claim . . . and . . . objecting to the confirmation of the Plan . . . should be allowed, to the extent they are reasonable. . . . [I]t would be unreasonable to assess . . . fees against just one borrower who happened to have a case pending at the time a ‘hot’ legal issue was presented.”).

 

57  In re Coates, 292 B.R. 894, 904 (Bankr. C.D. Ill. 2003).

 

58  See § 280.1 [ Secured Claim Holders ] § 132.7  Secured Claim Holders.

 

59  Fed. R. Bankr. P. 2016(a) (emphasis added).

 

60  Tate v. NationsBanc Mortgage Corp. (In re Tate), 253 B.R. 653, 665–68 (Bankr. W.D.N.C. 2000) (Attorney fees included in proofs of claim were “per se unreasonable” because “[t]he fees sought by NationsBanc under § 506(b) would be paid from property of the Chapter 13 estate; therefore NationsBanc must comply with Rule 2016. . . . NationsBanc failed to follow Rule 2016 when it inserted the disputed fee into its proof of claim. . . . [T]he claim objection mechanism is not a reasonable substitute for a fee reimbursement application. . . . Without a motion, notice to creditors, and court approval, the Attorney Fee cannot be termed ‘reasonable’ under § 506. . . . [Section] 506(b) authorizes the payment of attorney fees to a creditor from estate assets when certain conditions are met. . . . However, Rule 2016 also places an affirmative duty on creditors who are seeking payment to file the requisite fee application.”). Accord In re Plant, 288 B.R. 635, 643–44 (Bankr. D. Mass. 2003) (When the plan cures default on a debt incurred after October 22, 1994, attorneys’ fees, costs and expenses are determined under § 1322(e) and procedure is governed by Bankruptcy Rule 2016. “[A]llowance of a creditor’s attorneys fees and costs for purposes of calculating the arrearage to be cured in a Chapter 13 plan may be conditioned on the filing and allowance of a fee application conforming to FRBP 2016 . . . . Where the amount sought to be applied is not challenged by the debtor, there is no reason for a creditor to incur the time and expense attendant to preparing a fee application.”); In re Gifford, 256 B.R. 661, 662 n.2 (Bankr. D. Conn. 2000) (In a footnote, “[t]he court now agrees with the reasoning of Tate v. NationsBanc Mortgage Corp. (In re Tate), 253 B.R. 653, 660 (Bankr. W.D.N.C. 2000), and henceforth will disallow oversecured creditors’ attorney’s fees for bankruptcy court services included in a proof of claim. Such fees require an application pursuant to Fed. R. Bankr. P. 2016.”).

 

61  Atwood v. Chase Manhattan Mortgage Co. (In re Atwood), 293 B.R. 227, 232 (B.A.P. 9th Cir. 2003) (Agreeing with In re Powe, 281 B.R. 336 (Bankr. S.D. Ala. 2001), and disagreeing with Tate v. NationsBanc Mortgage Corp. (In re Tate), 253 B.R. 653 (Bankr. W.D.N.C. 2000), “in addition to a Rule 2016(a) application, a proof of claim may be procedurally appropriate” for an oversecured mortgage holder to seek attorney fees.).

 

62  See Atwood v. Chase Manhattan Mortgage Co. (In re Atwood), 293 B.R. 227 (B.A.P. 9th Cir. 2003) (Because Chase’s proof of claim merely listed $450 in attorney fees without any supporting information, Chase was not entitled to the evidentiary presumption in Bankruptcy Rule 3001(f) and Chase failed to carry its burden to prove the reasonableness of its fees.).

 

63  See Slick v. Norwest Mortgage, Inc. (In re Slick), Case No. 98-14378-MAM, Adv. No. 99-1136 (Bankr. S.D. Ala. May 10, 2002) (Text available at www.alsb.uscourts.gov) (After trial in class action, failure to disclose attorney fees added for preparation of proofs of claim is fatal to allowance and subjects Norwest to $2 million in punitive damages. “[Telfair v. First Union Mortgage Corp., 216 F.3d 1333 (11th Cir. 2000), cert. denied, 531 U.S. 1073, 121 S. Ct. 765, 148 L. Ed. 2d 666, reh’g denied, 531 U.S. 1185, 121 S. Ct. 1173, 148 L. Ed. 2d 1030 (2001),] reasons that postconfirmation fees are not part of the creditor’s secured claim in a chapter 13 bankruptcy case, but preconfirmation fees are. . . . Since the fees are to be treated as part of Norwest’s secured claim, two things must happen. The proof of claim fee must be disclosed so that the debtor knows the fee is part of the secured claim. Second, the fee should be included in the arrearage claim portion of the debt so that debtor can pay the fee through his or her plan as allowed by 11 U.S.C. § 1322(b)(5). . . . Norwest cannot decide for the debtor what arrearage or costs the debtor may pay in his or her plan and what arrearages he may not pay in his plan by picking and choosing which § 506(b) costs to disclose. . . . Norwest failed to disclose a $75–125 fee. . . . [O]nly ‘reasonable’ attorneys fees are to be added to the debt. If the fees are not disclosed, no reasonableness determination can be made. . . . [Section] 506(b) states that a secured claim includes all prepetition debt and all postpetition interest, fees, costs and charges to the effective date of the plan. The § 506(b) charges can be paid through the plan. . . . If a creditor fails to disclose those charges, they cannot be added later. Norwest has no choice in the matter. If the fee is not disclosed, it is discharged.”); Harris v. First Union Mortgage Corp. (In re Harris), Case Nos. 96-14029-MAM, 00-11321-MAM-13, Adv. No. 99-1144 (Bankr. S.D. Ala. May 10, 2002) (Text available at www.alsb.uscourts.gov) (After trial in class action, failure to disclose attorney fees charged for the filing of proofs of claim subjects First Union to punitive damages of $2 million, an injunction and an award of attorney fees: “[Telfair v. First Union Mortgage Corp., 216 F.3d 1333 (11th Cir. 2000), cert. denied, 531 U.S. 1073, 121 S. Ct. 765, 148 L. Ed. 2d 666, reh’g denied, 531 U.S. 1185, 121 S. Ct. 1173, 148 L. Ed. 2d 1030 (2001)] reasons that postconfirmation fees are not part of the creditor’s secured claim in a chapter 13 bankruptcy case, but preconfirmation fees are. . . . Since the fees are to be treated as part of First Union’s secured claim, two things must happen. The proof of claim fee must be disclosed so that the debtor knows the fee is part of the secured claim. Second, the fee should be included in the arrearage claim portion of the debt so that debtor can pay the fee through his or her plan as allowed by 11 U.S.C. § 1322(b)(5). . . . First Union cannot decide for the debtor what arrearage or costs the debtor may pay in his or her plan and what arrearages he may not pay in his plan by picking and choosing which § 506(b) costs to disclose. . . . If the fees are not disclosed, no reasonableness determination can be made.”). See also Harris v. First Union Mortgage Corp. (In re Harris), 281 B.R. 327 (Bankr. S.D. Ala. 2001); Harris v. First Union Mortgage Corp. (In re Harris), 281 B.R. 323 (Bankr. S.D. Ala. 2001); Dean v. First Union Mortgage Corp. (In re Harris), 280 B.R. 876 (Bankr. S.D. Ala. 2001); Dean v. First Union Mortgage Corp. (In re Harris), 280 B.R. 724, 726 (Bankr. S.D. Ala. 2001) (First Union Mortgage Corporation is not entitled to summary judgment in debtor’s action for failure to reveal postpetition attorney fees as part of its arrearage claim: “The proof of claim filed by First Union disclosed no postpetition fees with any specificity. Only a total arrearage sum was stated which may or may not have included the $150 attorneys fee the Court now knows was posted to Dean’s account.”).

 

64  See § 131.1 [ Postpetition Defaults ] § 82.2  Postpetition Defaults.

 

65  In re Araujo, 277 B.R. 166, 167 (Bankr. D.R.I. 2002) (Citing Telfair v. First Union Mortgage Corp., 216 F.3d 1333 (11th Cir. 2000), cert. denied, 531 U.S. 1073, 121 S. Ct. 765, 148 L. Ed. 2d 666, reh’g denied, 531 U.S. 1185, 121 S. Ct. 1173, 148 L. Ed. 2d 1030 (2001), and distinguishing In re Tate, 253 B.R. 653 (Bankr. W.D.N.C. 2000), bankruptcy court rejects plan provision that would require mortgage holder to file applications for postconfirmation fees or costs and that would “retain exclusive jurisdiction” in the bankruptcy court to review fees and costs after confirmation. “If such issues do arise, they are not part of Countrywide’s pre-confirmation secured claim and they will exist separate from the plan, and apart from this bankruptcy case. I agree with the Telfair holding that the terms of the note and mortgage, freely agreed to by the Debtor and Countrywide, are not subject to modification, and that in the absence of proof on the issue, there is no presumption that without Court supervision there are or will be abuses by secured lenders.”).

 

66  See Telfair v. First Union Mortgage Corp., 216 F.3d 1333 (11th Cir. 2000), cert. denied, 531 U.S. 1073, 121 S. Ct. 765, 148 L. Ed. 2d 666, reh’g denied, 531 U.S. 1185, 121 S. Ct. 1173, 148 L. Ed. 2d 1030 (2001). Accord Harris v. First Union Mortgage Corp. (In re Harris), Case Nos. 96-14029-MAM, 00-11321-MAM-13, Adv. No. 99-1144 (Bankr. S.D. Ala. May 10, 2002) (Text available at www.alsb.uscourts.gov) (“[Telfair v. First Union Mortgage Corp., 216 F.3d 1333 (11th Cir. 2000), cert. denied, 531 U.S. 1073 (2001), reh’g denied, 531 U.S. 1185, 121 S. Ct. 1173, 148 L. Ed. 2d 1030 (2001),] reasons that postconfirmation fees are not part of the creditor’s secured claim in a chapter 13 bankruptcy case, but preconfirmation fees are.”); In re Tomasevic, 275 B.R. 86, 99–100 (Bankr. M.D. Fla. 2001) (Oversecured mortgage holder’s arrearage claim includes prepetition attorney fees, late fees, property inspection fees and other costs included in prepetition foreclosure judgment; attorney fees and other costs after the petition are not included in the arrearage claim and are not within bankruptcy court jurisdiction. “[T]he order confirming the plan specifically provides that the trustee will pay the ‘pre-petition [arrearage] claim of [Washington Mutual] in full without interest.’ . . . [T]he order confirming plan does not provide for the payment of post-petition attorney’s fees and costs through the plan. . . . Post-petition claims that are not included within the plan . . . are outside the scope of the bankruptcy court’s jurisdiction. See Telfair v. First Union Mortgage Corp., 216 F.3d 1333, 1339 (11th Cir. 2000). . . . [T]he court will disallow without prejudice Washington Mutual’s claim for post-petition attorney’s fees . . . . Subject only to the automatic stay, Washington Mutual may seek to recover its post-petition fees and costs directly from the debtor, outside the protection of the bankruptcy court and pursuant to non-bankruptcy law, to the extent the terms of the debt instruments permit.”).

 

67  See Mann v. Chase Manhattan Mortgage Corp., 316 F.3d 1 (1st Cir. 2003), discussed in § 75.1 [ Examples of Stay Violations, and Not ] § 62.1  Examples of Stay Violations, and Not.

 

68  See § 351.1 [ Long-Term Debts ] § 158.7  Long-Term Debts.