It’s not that hard. All a home loan creditor needs to file a proof of claim is an amount due, a payment record, copies of the relevant writings, an escrow account report current at the date of the petition, and a reliable calculation of the arrearages that may be due. Official Forms 410 and 410A are designed to elicit that information so that the creditor, the debtors, the chapter 13 trustee, and the judge can determine whether the debtors’ chapter 13 plan adequately treats the creditor’s claim. All four constituencies rely heavily on the proof of claim—that’s why creditors are required to execute it under penalty of perjury. Of course, people make mistakes, but when they do, it shouldn’t be that hard to correct them. When a creditor (i) files an incorrect claim that overstates the debtor’s liability, (ii) ignores the debtors’ informal efforts to correct it, (iii) forces the debtor to file a claim objection, and then (iv) ignores the debtor’s discovery requests, the debtors, the trustee and the Court are put to unnecessary expense, effort, and frustration. That’s exactly what happened here.
Ocwen Loan Servicing L.L.C. owns and services Debtors’ home mortgage loan. When the Debtors filed this chapter 13 case, Ocwen filed a proof of claim and a mortgage proof of claim attachment that overstated the Debtors’ escrow shortage by over $4,000 despite what its escrow statement of account stated. After the Debtors’ counsel’s informal inquiries elicited no response, she filed an objection to the claim and issued written discovery. Ocwen never responded to the discovery requests and, only a few days before the hearing on the claim objection, Ocwen amended its claim to reflect the correct escrow shortage of $369 rather than $4,383. In their objection, the debtors seek sanctions under Fed. R. Bankr. P. 3001(c)(2)(D). After hearing Husband’s testimony and carefully reviewing the documents provided with the two claim filings, I find that Ocwen’s claim as amended should be allowed, but that Ocwen should be assessed as provided in Fed. R. Bankr. P. 3001(c)(2)(D) for the attorneys’ fees and expenses incurred by the debtors in bringing its errors to light.
The Debtors filed this chapter 13 case on March 21, 2017. Ocwen’s counsel, Shapiro & Kreisman, acting through Garrett Gasper, Esq., entered an appearance and request for notices in the case on March 27, 2017. Because the debtors were current on their home mortgage when they filed, they proposed to pay their mortgage outside their plan. On July 13, Ocwen employee Aaron Friedlander signed and filed Ocwen’s Claim 16-1. The proof of claim set out the Debtors’ mortgage debt to Ocwen and the required Mortgage Proof of Claim Attachment (“Attachment”) that details what is owed and how it is calculated, stated that the debtors owed a “projected escrow shortage” of $4,383.26. Ocwen claimed that amount as its alleged pre-petition mortgage arrearage. In the body of the proof of claim form, Ocwen asserted that amount as the “amount necessary to cure” the mortgage default on the date of the petition. On July 18, debtors’ counsel, January Bailey, e-mailed Mr. Friedlander and Mr. Gasper seeking an explanation. Other than receiving brief responses from a “Ms. Hegde” at Ocwen and Mr. Gasper, each advising that they would inquire, Ms. Bailey never received any more information. Shapiro & Kreisman filed an Official Form 410S2 notice of postpetition mortgage fees, also signed under penalty of perjury, on August 31, 2017 that requested an additional allowance of $400 for “Bankruptcy/proof of claim fees.” The invoice attached in support states that the fee was incurred on March 31 for “ATTORNEY FEE—BK PLAN REVIEW.”
On October 18, 2017, chapter 13 Trustee Carl B. Davis filed a notice of allowed claims that proposed to allow Ocwen’s arrearage claim for $4,383.26 unless the claim was objected to or otherwise resolved. After months of fruitless inquiries to both Ocwen and its counsel, Ms. Bailey filed this objection to claim on October 19, alleging that the arrearage claim had no basis in fact because the debtors weren’t in arrears, and noting that Ocwen had failed to attach to the proof of claim an escrow analysis run as of the date of the petition. Ocwen’s response to the objection filed on November 21, 2017 admitted all allegations except that it denied that it sought to double-charge the escrow shortage (as debtors alleged) and, instead, claimed that it had insufficient information about when it had run the escrow analysis or how much the escrow shortage was. Amazingly, Ocwen also denied any knowledge of whether it had responded to Ms. Bailey’s inquiries. After a status conference, the debtors served written discovery on Ocwen in January of 2018.14 Ocwen answered none of it. The ignored discovery included requests for admission that are now deemed admitted.
Ocwen admits and its claim exhibits support a finding that, on the petition date, the Debtors’ escrow account contained $5,520.27. It filed two escrow account reporting documents with its claim. One, the “Annual Escrow Account Disclosure Statement Bankruptcy Account History” (“History”) set out the history of the escrow account from June of 2016 through March 2017, the month the case was filed. It indicated that the Debtors’ escrow account held $5,520.27 on the petition date. But the mortgage Attachment showed an escrow balance of only $1,506.27. The other report, titled “Escrow Account Disclosure Statement—Bankruptcy,” (“EADS”) contained a statement that the Debtors’ escrow was expected to be short during the 2017-2018 year by $369.26 and contained an escrow projection month by month for that 12-month period.19 Post-petition, Ocwen paid the Debtors’ hazard insurance annual premium of $4,104. Though Ocwen admitted that the analyses it provided hadn’t been prepared as of the petition date, that does not appear to be the case from my review of the History and the EADS. Contrary to these documents, Ocwen did overstate the arrearage, both on its proof of claim and its Attachment, and understated the escrow balance on the Attachment.
Unfortunately, Ocwen waited until February 6, 2018, just 8 days before trial (and 210 days after it filed its incorrect claim) to amend its proof of claim, modifying the Attachment to reflect the actual prepetition escrow shortage of $369.26. At the claim objection hearing, Mr. Gasper admitted that Ocwen filed an erroneous initial claim, conceded that the escrow shortage was much less than represented, and apologized for his client’s error. He could not explain why it took so long to correct the error. This delay in resolving the disputed claim is all the more baffling given that the History and the EADS attached to the original claim were the exact same documents appended to the amended claim; the original EADS clearly showed a pre-petition escrow shortage of $369.26 all along. For whatever reason, that figure never got transferred to the initial claim form or the mortgage Attachment. Counsel even conceded that the assessment of attorneys’ fees was in order, but not in the amount the debtor seeks. However, Ocwen opposed the debtors’ demand that, as a further sanction, Ocwen forfeit the escrow shortage.
Husband testified that the unresolved error in Ocwen’s claimed escrow arrearage had caused him and his family concern, if not discomfort, and had cost him attorney’s fees and a day’s lost wages to testify at the trial. He did not state how much he had lost. An Ocwen representative was in the courtroom, but he was not called to testify. Ocwen instead relied solely on its exhibits and arguments. Counsel offered NO explanation for Ocwen’s error, nor did he explain why Ocwen failed to respond meaningfully to either Ms. Bailey’s informal inquiries or her formal written discovery. I left the record open to allow Ms. Bailey to supplement her attorney fees request to recognize her time spent in preparing for and conducting the trial. Ms. Bailey claims that her attorney’s fees and expenses in this matter amount to $5,875.00, 23.5 hours of work billed at her customary rate of $250. Ocwen questioned the amount of Ms. Bailey’s fees at trial, but filed no response to the supplement she filed, despite given an opportunity to do so.
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