D. A Fresh Look at Curing Mortgage Defaults in Chapter 13
As more homeowners in foreclosure seek relief in bankruptcy, the time has come to fix the systemic problems in chapter 13 related to curing mortgage defaults. Although cure plans have been part of chapter 13 practice since the Code’s enactment, mortgage creditors continue to struggle with the application of payments in a manner which the law requires. This article looks at ways in which interested parties in the bankruptcy system may take steps to encourage compliance with the Code’s cure provisions, primarily through plan provisions implementing the new remedy found in § 524(i) created by BAPCPA.2
Problems with Curing Defaults on Home Loans
The effect of a cure in a chapter 13 case is to nullify all consequences of the prebankruptcy default.3 Once the debtor’s chapter 13 plan is confirmed in a case involving a long-term mortgage, the debtor’s ongoing regular mortgage payments should be applied from the petition date based on the mortgage contract terms and original loan amortization as if no default exists.4 As recognized by the Supreme Court in Rake v. Wade,5 all prebankruptcy arrearages are paid separately under the plan as a part of the mortgage servicer’s allowed claim.
The problem is that mortgage creditors continue to treat timely payments received after the bankruptcy is filed as if they were late. This occurs because of the industry practice outside of bankruptcy of crediting payments received to the oldest outstanding installment due. While servicers attempt to manually override their automated systems, it is unrealistic to expect that this can be done regularly without error every month for the three to five years of the plan.
What this means for consumer debtors is additional costs in the form of unauthorized fees. As payments are deemed late or insufficient, the automated systems treat payments as unapplied and divert them to suspense accounts, impose late fees and additional interest charges, and order property inspections and other default related services.6 Legal fees are imposed on debtors for groundless stay relief motions, typically without disclosure to the debtor or court approval.
This breakdown of the servicing system also results in debtors often not being notified of interest rate adjustments on adjustable rate mortgages or payment changes on escrow accounts. It is not uncommon for debtors who successfully complete their chapter 13 plans to receive a bill for thousands of dollars of previously undisclosed improper fees once they emerge from bankruptcy. For example, in In re Dominique,7 the servicer failed to send escrow account statements during the chapter 13 plan and just before plan completion, provided debtors with an escrow account review showing that a $6,397 escrow deficiency was owed.8
Making Use of § 524(i)
A new and specific cause of action to remedy plan payment application problems was created by BAPCPA. Under § 524(i), a creditor’s willful failure to properly credit payments received under a confirmed plan constitutes a violation of the injunction under § 524(a).9 This provision is enforceable only after the debtor obtains a discharge.10 Unlike other discharge injunction enforcement proceedings, a § 524(i) enforcement proceeding will in most instances involve actions taken by a creditor before the discharge is entered.
To make use of § 524(i), the debtor’s chapter 13 plan must contain precise language directing how payments are to be applied. In other words, § 524(i) is not self-executing and can only be invoked if the debtor proves that the creditor failed to “credit payments in the manner required by the plan.” A recent First Circuit opinion involving pre-BAPCPA law provides compelling justification for adoption of § 524(i) plan provisions as discussed in this article. In In re Nosek,11 the First Circuit held that sanctions could not be imposed on the servicer for misapplication of plan and mortgage payments because the debtor’s plan failed to specify how payments were to be applied. The First Circuit noted that Congress added § 524(i) in 2005 precisely to address the payment application problems raised in the case, noting that plan provisions dealing with payment application are necessary:
Notwithstanding these legal conclusions, we are not unsympathetic to Nosek’s predicament as a debtor seeking to satisfy the terms of her chapter 13 Plan and stave off foreclosure of her home. Her circumstances are all too common today. Given their prevalence, it is troubling that Ameriquest had not established a more efficient and accurate way of handling the accounting issues revealed by this case at the time of trial. We fully understand the bankruptcy court’s concerns about the practices that it described.
Nevertheless, the bankruptcy court’s legitimate concerns did not justify the remedy that it invoked. Nosek did not demonstrate here that Ameriquest’s accounting practices caused her any economic harm or threatened her right to cure her pre-petition default. Moreover, even if such a threat had been demonstrated by those practices, there was no language in Nosek’s Plan, as it was confirmed, or in§ 1322(b), that addressed how Ameriquest was to apply the payments it received from Nosek or from the trustee. Under such circumstances, the Plan would have to be amended to prescribe the accounting practices necessary to protect Nosek’s right to cure before Ameriquest could be sanctioned for a violation of an order of the bankruptcy court. In the absence of such specificity, there was no violation of § 1322(b) or the Plan and therefore no basis upon which to award Nosek damages under§ 105(a).12
Courts may wish to take a fresh look at model plans, local rules, and plans proposed by debtors to ensure that the intent of Congress in enacting § 524(i) is implemented. While there are many different ways to approach these issues, and several courts have already taken on this task,13 several sample plan provisions are discussed below.14
§ 524(i) Chapter 13 Plan Provisions
Effect of Cure
This first provision specifies how ongoing post-petition payments received by the mortgage creditor are to be applied under the terms of the plan:
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.
Consistent with case law interpreting § 1322(b)(5), this provision requires the creditor to override its regular payment application regime of applying payments to the first installment due.15 It also requires the creditor to app?’ payments in the customary order of priority under the terms of the mortgage,16 and recognizes fees may be charged only if post-petition payments.17 A similar plan provision approved in In re Collins,18 requires the mortgage creditor to “apply the 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….”19
Another approach approved by the court in In re Jones20 focuses on the bifurcation required by a cure plan and specifies that the debtor’s mortgage account shall be “divided into two new, internal administrative accounts.” The first account consists of the amounts to be disbursed under the plan for the pre-petition arrearage. The second account is the principal amount due on the petition date, and includes post-petition interest accrual and escrow expenses.21 The plan would then provide that the “debtor’s regular monthly note payments will be posted to this [second] account, reducing post-petition interest accrual, post-petition property and tax expenditures, and principal.”22
Escrow and ARM Issues
The next provision attempts to avoid the problem of debtors being surprised by large, catch-up bills after emerging from bankruptcy for amounts the creditor was entitled to based on escrow and interest rate changes but which were never disclosed:
Postpetition Payment Changes. Holders and/or servicers of mortgage claims shall make adjustments to the ongoing installment payment amount as required by the note and security agreement and applicable nonbankruptcy law, including changes based on an escrow analysis for amounts required to be deposited in any escrow account or based on an interest rate provision in an adjustable rate mortgage. Holders and /or servicers shall timely notify the debtors, debtors’ attorney and trustee of such payment adjustments and any shortage, deficiency or surplus of funds in any escrow account.
This provision simply requires mortgage creditors to service the loan in the customary manner as they would for homeowners outside of bankruptcy. Based on the Real Estate Settlement Procedures Act, this would mean performing an annual escrow analysis and notifying borrowers of any changes in escrow deposits and balances at least once per year within 30 days of the analysis.23 The creditor must also inform the debtor if there are insufficient funds in the escrow account.24 For adjustable rate mortgages based on the Truth in Lending Act, it would require notification of payment amount changes at least 21 days before the due date for the new payment amount.25 A similar plan provision was approved by the court in Collins,26 requiring notice not less than 60 days in advance of the effective date of any payment change. Other courts have similarly approved such provisions, noting that the imposition of procedural notice requirements does not violate § 1322(b)(2).27
Compliance with RESPA and TILA during a chapter 13 case promotes successful plan completion and is consistent with§ 1322(e), which states that the amount necessary to cure a default in a chapter 13 plan shall be determined in accordance with the “underlying agreement and applicable nonbankruptcy law.” Applicable nonbankruptcy law includes federal non-Code statutes such as TILA and RESPA, and a determination of the cure amount includes consideration of ongoing post-petition payments based on § 1322(b)(5) and its reference to the “maintenance of payments while the case is pending.”
Amendments to the Federal Rules of Bankruptcy Procedure, effective Dec. 1, 2011, are consistent with this plan provision. Rule 3001(c)(2)(C) requires a creditor whose claim is secured by the debtor’s principal residence to attach to its proof of claim a new Official Form, the Mortgage Proof of Claim Attachment form?28 The form instructs the creditor to disclose and itemize the components of the pre-petition mortgage arrearage. If the mortgage account includes an escrow account, the mortgage creditor must also attach to the proof of claim an escrow account statement prepared as of the petition date “in a form consistent with applicable nonbankruptcy law.” The Real Estate Settlement Procedures Act (RESPA) is the applicable nonbankruptcy law for purposes of an escrow statement.
Additionally, Rule 3002.1(b) requires the mortgage creditor to file and serve “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.”29 The notice must be given on Official Form 10 (Supplement 1), the Notice of Mortgage Payment Change.30 The new Supplement 1 form requires the mortgage creditor to state the basis for the changed payment amount, the current and new payment amounts, and the date when the change will take effect.
Separate Treatment of Arrearages
The next provision deals with the payment of the pre-petition arrearages and compels the mortgage creditor to separately treat these payments:
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 (and post-petition arrearages, if any) as contractually current upon confirmation of the plan.
A mortgage account being cured in a chapter 13 is not fully reinstated until the pre-petition arrearage has been paid.31 To effectuate a cure plan and avoid the imposition of late fees and other charges, however, it is critical that the mortgage creditor segregate payments being made on the pre-petition arrearage and treat the arrearage amounts as if they are not in default.32 Several court have approved similar provisions.33 In rejecting an argument that such a plan provision was an impermissible modification under§ 1322(b)(2), the court in Collins34 stated:
[A] provision requiring [creditor] to ‘deem’ the prepetition arrearage amounts contractually ‘current’ as of confirmation is merely procedural and requires only that [creditor] update its accounting procedures to ensure that the Debtors’ account is not subject to any additional charges associated with any prepetition default.
This provision does not take a position on whether certain fees may be properly included in the arrearage amount, such as post-petition, pre-confirmation bankruptcy fees. Some courts have held that the inclusion in a proof of claim of attorney fees incurred in connection with a bankruptcy case which are to be paid from estate property is improper unless the fees have been sought and approved under Federal Rule of Bankruptcy Procedure 2016.35 The more widely accepted position as to post-petition, pre-confirmation fees, however, is that a creditor may include such fees in a proof of claim without filing a Rule 2016 application if the claim is sufficiently detailed and provides adequate notice to the debtor.36
Several courts have expressed concern about the “deemed” current language.37 Although the court in In re Hudak refused to confirm a plan provision that used the term “deem,” it nevertheless indicated that “alternative language, such as ‘deeming’ the loan contractually current on confirmation—but ‘subject to and contingent on successful completion of mortgage cure payments and regular monthly mortgage payments under the plan’” was acceptable and would not modify the creditor’s lien rights.38
The Hudak court also noted that the language adopted by the U.S. Bankruptcy Court for the District of Kansas in its Standing Order 08-1 was acceptable, which orders mortgage creditors to:
[d]eem the pre-petition Arrearage (and post-petition Arrearage, if any) contractually current upon confirmation of the plan so as to preclude the imposition of late payment charges or other default related fees and services based solely on any pre-petition default or the payments referred to in paragraph V(B), above. This obligation will have no force and effect if the case is dismissed or converted.39
Post-Confirmation Fees
The more significant concern has been with the lack of disclosure of post confirmation fees.40 The final provision sets up a procedure, which mandates disclosure of such fees and provides interested parties with an opportunity to seek a court determination on the allowance of such fees. The following plan provision was suggested when this article was first published:
Mortgage Current upon Discharge. The holder and/or servicer of a mortgage claim shall provide to the debtors, debtors’ attorney and trustee a notice of any fees, expenses, or charges which have accrued during the bankruptcy case on the mortgage account and which the holder and /or servicer contends are 1) allowed by the note and security agreement and applicable nonbankruptcy law, and 2) recoverable against the debtors or the debtors’ account. The notice shall be sent annually, beginning within 30 days of the date one yea r after entry of the initial plan confirmation order, and each year thereafter during the pendency of the case, with a final notice sent within 30 days of the filing of the trustee’s final account under Bankruptcy Rule 5009. The failure of a holder and/or servicer to give 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 yea r, 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 the debtors’ account during the case or after entry of the order granting a 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.
However, this provision has been largely supplanted by Bankruptcy Rule 3002.1(c). This rule requires the mortgage creditor to give notice of any post-petition fees or charges assessed against the debtor’s account within 180 days of when they are incurred. The notice must be given on Official Form 10 (Supplement 2), the Notice of Postpetition Mortgage Fees, Expenses and Charges.41 Debtors who wish to invoke § 524(i) with respect to fee disclosure problems may simply incorporate by reference Rule 3002.1(c) as a plan provision.
Before adoption of Rule 3002.1(c), some mortgage creditors had argued that a fee disclosure provision amounts to an impermissible modification in violation of § 1322(b)(2). They primarily argued that the provision violated the clause in the uniform security agreement permitting the creditor to “do and pay for whatever is reasonable or appropriate to protect Lender’s interest in the Property and rights under this Security Instrument.”42 However, consistent with the opinion in Mann v. Chase Manhattan Mortgage Corp.,43 such a provision does not prohibit the creditor from tracking in its internal bookkeeping fees it believes may be assessed to the debtor’s account. Fee disclosure provisions which simply require the creditor to notify the debtor and interested parties if it intends to charge the debtor for such fees have generally been approved and have been held not to violate § 1322(b)(2).44
The recent bankruptcy rule amendments also establish a procedure for resolving fee disputes. If the debtor or trustee disputes that post-petition fees are owed, they may file and serve a motion within one year after service by the mortgage creditor of the fee notice (Form 10 - Supplement 2) seeking a determination of the propriety of the fee.45 If a motion is filed, the court shall determine, after notice and hearing, whether any claimed fee, expense or charge is required by the mortgage agreement and applicable nonbankruptcy law to cure a default or maintain payments under Code § 1322(b)(5). This clearly defined procedure should be helpful to debtors in certain jurisdictions in which courts have previously refused to address disputes involving post-petition fees, particularly in cases in which the debtor is the disbursing agent for ongoing mortgage payments.
The rule amendments also provide a procedure for the debtor to obtain a ruling that the mortgage has been completely cured upon plan completion. Rule 3002.1(f) provides that “[w]ithin 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.”46 The notice must also inform the creditor of its obligation to file a response to the notice. If for some reason the trustee does not file the notice within the 30-day period following plan completion, it may be filed and served by the debtor.
The mortgage creditor is then given 21 days to respond to the notice by filing a statement indicating (1) whether it agrees that the debtor has fully cured the default on the claim, and (2) whether the debtor is current on all post-petition payments consistent with the “maintenance of payments” requirement in section 1322(b)(5). If the creditor states that post-petition amounts are owed, it must itemize any amounts it claims are due and unpaid as of the date of the statement.47 The debtor or the trustee may, within 21 days after service of the creditor’s statement, file and serve a motion requesting the court to determine whether the claimed amounts are owed and seeking an order declaring that the debtor has cured the default and paid all required post-petition amounts.48 It is advisable for the debtor to file this motion even if the mortgage holder has failed to respond to the Notice of Final Mortgage Cure Payment in order to obtain an order that the mortgage has been fully cured and current.
Conclusion
In conclusion, there are certainly different and better ways to address these issues than the sample plan provisions provided here. Importantly, though, a process should begin, if not started already, to formulate plans which avoid the problems that have plagued cure plans for the past 30 years. Courts which have approved model chapter 13 plans should convene local rules committees or working groups to consider modifications which will make cure plans work the way they were intended and carry out the intent of Congress in implementing § 524(i).
1 This article was originally published in the American Bankruptcy Institute Journal at 27 American Bankr. Inst. Journal 14 (Feb. 2008) and is reprinted with the permission of the ABI. It has been updated to include discussion of more recent court opinions and the adoption of Bankruptcy Rule 3002.1 in December 2011.
14 The National Consumer Law Center has created a website that collects model chapter 13 plans and local rules addressing payment application issues in chapter 13 cases. The website may be accessed at www.bankruptcymortgageproject.org.
15 See In re Jones, 366 B.R. 584 (Bankr. E.D. La. 2007) (confirmation of plan providing for cure “recalibrates” amounts due as of petition date).
16 For post-January 2001 Fannie Mae/Freddie Mac uniform instruments, the order of application of payments is (1) interest; (2) principal; (3) escrow; (4) late fees, and (5) any other charges due under the security instrument.
17 See In re Perez, 339 B.R. 385 (Bankr. S.D. Tex. 2006) (finding that Home Mortgage Payment Procedures and Uniform Plan approved in district which limit assessment of post-petition late fees was not impermissible modification of mortgage-holder’s rights).
18 2007 WL 2116416 (Bankr. E.D. Tenn. July 19, 2007).
19 See also In re Hudak, 2008 WL 4850196, *5 (Bankr. D. Colo. Oct. 24, 2008) (approving plan provisions requiring creditor “to apply the direct mortgage payments paid [to the Creditor] by Debtor to the month in which they were made under the plan whether they are immediately applied to the loan or are placed into suspense”).
20 2007 WL 2480494 (Bankr. E.D. La. Aug. 29, 2007) affirmed in part and reversed in part, 391 B.R. 577 (E.D. La. 2008).
21 To avoid double payment, the principal amount should be based on the original amortization as if the account were current on the petition date since the arrearage amount typically includes the entire past due installment payments which provide for payment of principal. A similar analysis of the post-petition escrow payments must be done to avoid double payment of pre-petition escrow charges. See In re McCormack, 203 B.R. 521 (Bankr. D.N.H. 1996)(noting that escrow account must be “zeroed out” post-confirmation to exclude any pre-confirmation amounts being paid under the plan).
22 Jones, supra, 2007 WL 2480494 at *5.
23 12 U.S.C. § 2609. See In re Herrera, 422 B.R. 698 (B.A.P. 9th Cir. 2010) (proposed plans incorporating provisions approved by the district’s bankruptcy judges that imposed reporting and other requirements on mortgage creditors do not conflict with the Real Estate Settlement Procedures Act or violate § 1322(b)(2)), aff’d, In re Monroy, 650 F.3d 1300 (9th Cir. 2011).
24 Several courts have held that a servicer’s failure to notify debtors during the plan of escrow account shortages and deficiencies as required by RESPA amounts to a waiver of the servicer’s right to collect those amounts. See Chase Manhattan Mortg. Corp. v. Padgett, 268 B.R. 309 (S.D. Fla. 2001); In re Dominique, 368 B.R. 913 (Bankr. S.D. Fla. 2007).
25 12 C.F.R. § 226.20(c).
26 2007 WL 2116416, supra at * 18,
27 In re Ramsey, 421 B.R. 431 (Bankr. M.D. Tenn. 2009); In re Segura, 2009 WL 416847 (Bankr. D. Colo. Jan. 9, 2009); In re Watson, 384 B.R. 697 (Bankr. D. Del. 2008); In re Hudak, 2008 WL 4850196 (Bankr. D. Colo. Oct 24, 2008); In re Anderson, 382 B.R. 496 (Bankr. D. Or. 2008); In re Patton, 2008 WL 5130096 (Bankr. E.D. Wis. Nov. 19, 2008); In re Aldrich, 2008 WL 4185989 (Bankr. N.D. Iowa Sept. 4, 2008). But see In re Madera, 445 B.R. 509 (Bankr. D .S.C. 2011); In re Booth, 399 B.R. 316 (Bankr. E.D. Ark. 2009).
28 Fed. R. Bankr. P. 3001(c)(2)(C).
29 Fed. R. Bankr. P. 3002.l(b)
30 Fed. R. Bankr. P. 3002.l(d).
31 In re Wilson, 321 B.R. 222 (Bankr. N.D. 111. 2005).
32 Newcomer v. Litton Loan Servicing, L.P., 438 B.R. 527 (Bankr. D. Md. 2010) (ordering servicer to recalculate money due on mortgage including removal of post-petition obligation used to pay pre-petition escrow deficiencies).
33 In re Ramsey, 421 B.R. 431 (Bankr. M.D. Tenn. 2009); In re Booth, 399 B.R. 316 (Bankr. E.D. Ark. 2009); In re Emery, 387 B.R. 721 (Bankr. E.D. Ky. 2008); In re Patton, 2008 WL 5130096 (Bankr. E.D. Wis. Nov. 19, 2008); In re Andrews, 2007 WL 2793401 (Bankr. D. Kan. Sept. 26, 2007).
34 2007 WL 2116416, supra at *14.
35 e.g., In re Tate, 253 B.R. 653 (Bankr. W.D.N.C. 2000).
36 In re Atwood, 293 B.R. 227 (B.A.P. 9th Cir. 2003) (proof of claim lacking specific detail fails to meet creditor’s evidentiary burden on reasonableness of fees); In re Madison, 337 B.R. 99 (Bankr. N.D. Miss. 2006); In re Powe, 281 B.R. 336 (Bankr. S.D. Ala. 2001).
37 In re Segura, 2009 WL 416847 (Bankr. D. Colo. 2009); In re Anderson, 382 B.R. 496 (Bankr. D. Or. 2008).
38 In re Hudak, 2008 WL 4850196, * 5 (Bankr. D. Colo. Oct 24, 2008). See also In re Nelson, 408 B.R. 394 (Bankr. D. Colo. 2009); In re Winston, 2009 WL 2883158 (Bankr. N.D.N.Y. May 7, 2009).
39 Id. at* 5.
40 In re Sanchez, 372 B.R. 289, 297 (Bankr. S.D. Tex. 2007) (“in order for the bankruptcy system to function—every entity involved in a bankruptcy proceeding must fully disclose all relevant facts”); In re Jones, 366 B.R. 584, 602-03 (Bankr. E.D. La. 2007) (“Bankruptcy courts cannot function if secured lenders are allowed to assess postpetition fees without disclosure and then divert estate funds to their satisfaction without court approval.”).
41 Fed. R. Bankr. P. 3002.1(d).
42 See, e.g., Fannie Mae/Freddie Mac Uniform Instruments, First Lien Security Instruments, at www.freddiemac.com/uniforrn/unifsecurity.html.
43 316 F.3d 1 (1st Cir. 2003).
44 In re Segura, 2009 WL 416847 (Bankr. D. Colo. Jan. 9, 2009); In re Watson, 384 B.R. 697 (Bankr. D. Del. 2008); In re Patton, 2008 WL 5130096 (Bankr. E.D. Wis. Nov. 19, 2008); In re Aldrich, 2008 WL 4185989 (Bankr. N.D. Iowa Sept. 4, 2008) (finding plan term requiring annual notice and notice 90 days before final payment be “presumptively acceptable” to the court).
45 Fed. R. Bankr. P. 3002.1(e).
46 Fed. R. Bankr. P. 3002.1(£).
47 Fed. R. Bankr. P. 3002.1(g).
48 Fed. R. Bankr. P. 3002.1(h). See sample Motion for Determination of Final Cure and Payment of All Postpetition Payments, Form 146, Appx. G.12, NCLC’s Consumer Bankruptcy Law and Practice (2011 Supp.).
2 There have been recent encouraging signs of progress. In addition to court approval of plan provisions implementing § 524(i), the NACTT and representatives from several major servicers have developed a set of best practices. See Henry E. Hildebrand III, “Won’t You Come Home, George Bailey? Best Practices for a Troubled Mortgage Service Industry,” 27 Am. Bankr. Inst. J. 10, 51 (May 2008).
3 The House Report to the Bankruptcy Reform Act of 1994 reaffirms that this is the intent of Congress. See H.R. Rep. No. 835, I 03d Cong., 2d Sess. 55 (1994) reprinted in 1994 U.S.C.C.A.N. 3340 (“It is the Committee’s intention that a cure pursuant to a plan should operate to put the debtor in the same position as if the default had never occurred.”).
4 See In re Wines, 239 B.R. 703 (Bankr. D.N.J. 1999); In re Rathe, 114 B.R. 253 (Bankr. D. Idaho 1990).
5 508 U.S. 464, 473 (1993)(noting that as authorized by § 1322(b)(5), mortgage creditor’s claim is effectively “split...into two separate claims—the underlying debt and the arrearages”).
6 In In re Nosek, 363 B.R. 643 (Bankr. D. Mass. 2007), the bankruptcy court awarded under § 105(a) $250,000 in actual damages to the debtor for her emotional distress and $500,000 in punitive damages based on the servicer’s violation of § 1322 by diverting plan payments to a suspense account. In reversing this judgment, the First Circuit held that sanctions could not be imposed on the servicer for misapplication of plan and mortgage payments because the debtor’s plan failed to specify how payments were to be applied. See In re Nosek, 544 F.3d 34 (1st Cir. 2008).
7 368 B.R. 913 (Bankr. S.D. Fla. 2007).
8 See also PNC Bank v. Black, 2010 WL 5418898 (S.D. Ind. Dec. 23, 2010) (affirming bankruptcy court order deeming mortgage current and prohibiting mortgage creditor from collecting $23,232.63 in undisclosed post-petition escrow advances); In re Ellzey, 2010 WL 3924011 (E.D. La. Sept. 29, 2010) (mortgage creditor willfully violated stay and discharge order by reinstituting foreclosure proceeding after chapter 13 discharge entered and attempting to collect pre-petition arrearage amounts); In re Foreman, 2010 WL 2696630 (M.D.N.C. July 7, 2010) (creditor waived its right to collect post-petition arrears because it did not comply with plan that required notice of change in monthly payment and instead permitted a $12,000 arrearage to accrue); In re Jones, 366 B.R. 584 (Bankr. E.D. La. 2007) (mortgage creditor collected additional $24,450 in unlawful post-petition fees and interest charges at closing on court-approved refinancing).
9 Section 524(i) provides a response to decisions which had questioned whether bankruptcy court authority exists to remedy a creditor’s failure to credit post-petition payments properly. For example, it provides a remedy found missing in Telfair v. First Union Mortgage Corp., 216 F.3d 1333 (11th Cir. 2000).
10 In re Mattox, 2011 WL 3626762 (Bankr. E.D. Ky. Aug. 17, 2011) (§ 524(i) provides clear remedy for misapplication of plan payments once discharge injunction is entered).
11 544 F.3d 34 (1st Cir. 2008).
12 In re Nosek, 544 F.3d 34, 49-50 (1st Cir. 2008) (footnotes omitted).
13 See, e.g., Standing Order 08-1, as adopted by the U.S. Bankruptcy Court for the District of Kansas, which provides: Confirmation of the plan shall impose an affirmative duty and legal obligation on the Real Property Creditor to do all of the following: