This is a case which, at its conclusion, roused “a sleeping giant and fill[ed] him with a terrible resolve.” A chapter 13 plan confirmation order is entitled to finality, absent a timely appeal or proceeding to revoke confirmation, and the parties are protected from having to re-litigate issues that were or could have been decided before plan confirmation. As the mortgage holder now disputes the confirmed plan, however, the Court must determine whether Debtors have fully paid their home mortgage, including interest, through their chapter 13 plan when the mortgage holder never filed a proof of claim, but instead accepted payments from the chapter 13 trustee by and through a debtor filed proof of claim, and ultimately, determine whether Debtors are entitled to receive a discharge.
On August 12, 2011, the Debtors filed for relief under chapter 13. Simultaneously, Debtors filed their Schedules in which they listed their homestead property, which was valued at $80,110.00 and secured by a lien in the amount of $29,860.28 on Schedule A. Schedule D lists Montanaro, a secured creditor, as holding the first mortgage in the amount of $23,320.00 on Debtors’ Homestead. Additionally, various County taxing entities have secured claims in a total amount of $6,540.28 for ad valorem taxes.
Although Debtors were below-medium income wage earners, they proposed a 60-month plan that provisioned a pro-rata payment of Montanaro’s claim, e.g. $23,320.00, at 5.25% interest over a period of 54 months. Additionally, the Plan states that “[s]ubject to disposition of a timely filed motion to avoid a lien under § 522, or a complaint to determine the validity of a lien filed under Fed. R. Bankr. P. 7001, each secured creditor shall retain the lien securing its claim.” Finally, the Plan provides that “[t]he lien shall be enforceable to secure payment of the claim the lien secures, as that claim may be modified by the plan.”
On January 6, 2012, Trustee filed her Notice of Confirmation Hearing, Summary of Chapter 13 Plan and Notice and Motion for Valuation of Security, Setting of Interest and Lien Avoidance Notice which provisioned, inter alia, for the amount of $23,320.00 at 5.25% to be paid on a pro-rata basis to Montanaro under the Plan. Importantly, the certificate of service for the Notice of Confirmation Hearing and the BNC certificate of notice lists Montanaro as a party to receive notice at the address previously listed on Schedule D.
On February 2, 2012, Debtors’ Plan was confirmed without objection. The Confirmation Order provides, inter alia, that “each secured creditor shall retain the lien existing prior to the commencement of the case to secure payment of the allowed amount of its claim until the Debtor is discharged.” A copy of the Confirmation Order was mailed to Montanaro by the BNC on February 4, 2012.
On October 31, 2012, Debtors, on behalf of Montanaro, filed a Secured Proof of Claim in the amount of $23,320.00 to be paid at 5.25% interest, valuing the Homestead at $80,110.00, and listing as the Homestead security for the claim and listing the same address as used on Schedule D and in the Creditor Matrix. No objections were lodged against Claim No. 12; therefore, it was allowed as filed.
On September 8, 2016, Trustee filed her Notice of Plan Completion, certifying that “Debtors . . . have made all payments to the Chapter 13 Trustee as required by the Order Confirming the Chapter 13 Plan and all approved modifications.” On September 13, 2016, Debtors filed their Certification and Motion for Entry of Chapter 13 Discharge. Debtors’ Certification states that Debtors “have made all payments required by [their] confirmed chapter 13 plan.” Nevertheless, on September 29, 2016, Debtors filed an Expedited Motion To Abate Entry of Discharge stating that Montanaro contacted Debtors and advised that there was still a balance of more than $30,000.00 owed on the Homestead, which the Debtors dispute.
Additionally, and on the same date, Debtors filed a Motion to Deem Mortgage Fully Paid. The Debtors assert that although Montanaro alleges that there is a remaining balance on its claim, Debtors filed Claim No. 12 on Montanaro’s behalf, and which was fully paid by Trustee through the confirmed Plan. Id. Importantly, Montanaro accepted all payments from the Trustee made by the Debtors under the Plan. Ex. 16. In their Motion to Deem, Debtors raise several issues:
i. that Montanaro has alleged that it is owed approximately $30,000.00 because all Trustee payments were being applied to accrued interest, late charges, penalties and other fees instead of to principal;
ii. that Montanaro has asserted that its claim is based on a note and Deed of Trust that is different from the Note and Deed of Trust that the Debtors believed was the basis of the claim that was filed in their case;
iii. that during the course of this case, Montanaro would frequently not cash Trustee’s checks, but rather allowed the checks to go stale;
iv. that it was only upon Debtors’ counsel insistence, by and through correspondence to Montanaro, that Montanaro began cashing Trustee’s checks;
v. that Montanaro will not release its lien on the Homestead until it is paid the remaining $30,000.00 balance.
At the November 7, 2016 Hearing, Debtors’ Counsel appeared, informed the Court that Montanaro was sent notice of the Motion to Deem and of the Hearing, but neither filed a response nor appeared at the hearing. Debtors’ Counsel did not believe that Montanaro was represented by bankruptcy counsel, despite being represented by an attorney in real estate matters.
This Court held a hearing on the Motion to Deem on March 7, 2017, during which counsel for Debtors and Montanaro, respectively, presented oral arguments, but did not offer any additional evidence on the matter. Debtors’ position can be summarized as follows:
i. An adversary proceeding is not required because Debtors are not seeking to void or invalidate Montanaro’s lien;
ii. Montanaro’s secured lien has been fully paid pursuant to the Plan;
iii. A creditor is bound to the Plan if they received notice and participated at any point in the Plan, whether or not the participation occurred prior to confirmation;
iv. Montanaro is bound to the terms of the Plan because it participated in the Plan.
Montanaro responded by asserting that:
i. An adversary proceeding is required because Debtors are asking the Court to determine the extent of Montanaro’s lien, which was paid under the Plan at 5% interest despite a 14% contract interest rate;
ii. A plan is binding on creditors who participate in the confirmation process;
iii. Montanaro did not participate in the confirmation process and therefore is not bound by the terms of the Plan;
iv. Montanaro’s act of cashing checks from Trustee after confirmation does not qualify as active participation in a Plan;
v. Montanaro admitted receiving notice of the bankruptcy and the Plan.
At the conclusion of the Hearing, the matter was taken under advisement. Briefing has now closed and the matter is ripe for consideration.
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