On September 20, 2017, Bank filed a Notice of Postpetition Mortgage Fees, Expenses, and Charges as a supplement to its Proof of Claim for $24,700.95 (“Claim No. 6”), which is secured by a mortgage on the debtors’ residence. Through that Notice, the Bank asserts that it is entitled to recover, from the debtors or against the debtors’ residence, attorney fees of $8,689.81 that the Bank incurred between January 5, 2017 and August 31, 2017; an appraisal fee of $475.00 that the Bank incurred on May 15, 2017; and post-petition payments due from October 14, 2016 to August 14, 2017 in the amount of $2,282.06.
The debtors object, asserting that the attorney fees and appraisal fee (the “Fees”) may not be added to Claim No. 6 because the Bank is undersecured on that claim, rendering the addition of Fees to the claim impermissible under 11 U.S.C. § 506(b). The debtors also contend that the Fees are not recoverable under its agreements with the Bank and applicable nonbankruptcy law because the Bank failed to give the notice that the debtors’ mortgage requires. The debtors ask the Court to construe their agreements with the Bank against the Bank, as contracts of adhesion.
In reply, the Bank argues that 11 U.S.C. § 1322(e) renders the limitations of section 506(b) inapplicable here because the debtors are proposing to cure defaults on Claim No. 6 under 11 U.S.C. § 1322(b)(5). The Bank contends that both its mortgage and its credit agreement with the debtors give it the right to collect fees that it incurs to protect its interest in the debtors’ residence, that the Fees at issue here so qualify, and that the debtors were on notice that the Bank would incur fees to protect its interest when they filed a plan that would have stripped off the Bank’s second mortgage. The Bank also asserts that if it is entitled to the Fees under the mortgage, then the Fees will have to be cured over the term of the plan under section 1322(e), and that if it is instead entitled to the Fees under the credit agreement, then the Fees will be capitalized and payable over the term of the loan.
The Court is first tasked with deciding whether a creditor may recover postpetition fees that it incurs to protect its interest in a residence that serves as security for its claim against a chapter 13 debtor when the debtor is seeking to cure a default on that claim and the claim is not entirely secured by the value of the residence. If a creditor may recover fees in that scenario, the question is then whether the mortgage and/or the credit agreement between the Bank and the debtors entitle the Bank to recover postpetition fees from the debtors.