Court: United States Bankruptcy Court, D. New Hampshire; September 23, 2014; Us Bankruptcy; United States Bankruptcy Court
A hearing was held on cross-motions for summary judgment regarding the liability of Citi-Mortgage, Inc. and Freddie Mac, filed by Plaintiffs Timothy J. and Cathy N. Bates. The Plaintiffs seek partial summary judgment, while the Defendants also move for summary judgment. The Court previously denied a related motion by the Plaintiffs. During the hearing, both parties agreed that the Court could consider the record from the earlier denied motion along with the new submissions.
The Plaintiffs' First Amended Complaint includes six counts against Citi and Freddie Mac, each alleging violations of the discharge injunction under 11 U.S.C. § 524(a) and seeking contempt sanctions under 11 U.S.C. § 105(a). The Court has jurisdiction over the matter as a core proceeding.
To succeed in a summary judgment motion, the moving party must demonstrate no genuine dispute of material fact and entitlement to judgment as a matter of law. A creditor's violation of the discharge injunction is established if it has notice of the discharge, intends the action violating the injunction, and acts in a manner that coerces or harasses the debtor.
In Count I, the Plaintiffs claim that Citi violated the discharge injunction by sending monthly statements indicating past due amounts and requesting payment. The Court found that these statements, while potentially problematic in their wording, did not constitute coercion in and of themselves, as sending such statements is permissible under the Bankruptcy Code when related to valid mortgage payments. Thus, the Court ruled that Citi's actions did not per se violate the discharge injunction.
Plaintiffs recognize that § 524(j) restricts the discharge injunction's application concerning creditors like Citi when pursuing periodic mortgage payments. Nonetheless, they argue that this provision does not shield Citi from the discharge injunction's terms or from liability for its violations. The court finds no evidence that Citi sought to collect the discharged debt from the Plaintiffs personally, as the relevant statements clearly indicated they were for informational purposes only and did not constitute an attempt to collect. Consequently, the court denies the Plaintiffs’ request for partial summary judgment on Count I and grants summary judgment for the Defendants.
In Count II, the Plaintiffs allege a violation of the discharge injunction due to a letter from Citi dated September 22, 2009, which forwarded a Loan Modification Agreement. The letter included references to delinquent interest added to the principal and required payments to accept the modification terms. Both parties acknowledge the letter's content, and the Plaintiffs later signed the Loan Modification Agreement and made required payments until November 2010. They discovered in September 2010 that Citi was not reporting their payments to credit bureaus, as they had not reaffirmed the debt in bankruptcy. The Loan Modification Agreement included a rider confirming that it did not affect the discharge of personal liability for the debt. The Plaintiffs claim that Citi’s actions were coercive and harassing, while Citi argues that, following the bankruptcy discharge, the loan was in default, justifying their foreclosure rights. The Plaintiffs’ acceptance of the Loan Modification Agreement explicitly stated it did not revive personal liability for the mortgage debt.
The summary judgment record shows no material dispute regarding the facts surrounding the Plaintiffs’ request for partial summary judgment on Count II. The Plaintiffs failed to provide new evidence indicating they were coerced into paying a discharged debt as part of the Loan Modification Agreement, which explicitly stated it did not reaffirm or revive their liability discharged in bankruptcy. Citi maintains, and the Plaintiffs do not contest, that the agreement was an alternative to foreclosure. The Debtors had a strong incentive to keep mortgage payments current to avoid losing their home. The First Circuit has noted that while debtors face difficult choices, they must navigate the trade-offs involved in bankruptcy.
The Court concludes that the Loan Modification Agreement and related correspondence comply with § 524(j) regarding post-discharge actions, leading to the denial of the Plaintiffs’ request for partial summary judgment on Count II and the granting of Citi's request for summary judgment on that count.
In Count III, the Plaintiffs allege that Citi violated the discharge injunction by attempting to collect a discharged debt through the Loan Modification Agreement. However, there are no material factual disputes regarding the agreement's negotiation and terms. The Loan Modification was initiated by the Plaintiffs to avoid foreclosure and included provisions indicating that it did not affect their discharge of personal liability. The Plaintiffs made substantial payments under this agreement for about a year but stopped when they learned that these payments would not be reported to credit agencies since they did not reaffirm the debt. After the Plaintiffs defaulted, Citi foreclosed on their home. The Plaintiffs claimed they felt compelled to make payments due to fear of incurring additional debt if they defaulted. The Court finds that Citi's actions regarding the Loan Modification Agreement are permissible under § 524(j)(3), which allows creditors to seek periodic payments associated with a valid security interest instead of pursuing in rem relief.
Count III's claims are dismissed as the actions described are permitted under the Bankruptcy Code, resulting in the denial of the Plaintiffs' partial summary judgment request and the granting of the Defendants' summary judgment request. Count IV alleges that Citi violated the discharge injunction by failing to report payments from the Plaintiffs under a Loan Modification Agreement and denying them online account access. The court finds no material factual dispute; Citi's non-reporting was due to the Plaintiffs not reaffirming their debt. The Plaintiffs' claims of harassment by Citi lack evidentiary support, and the payments made were voluntary, with Citi not seeking personal collection post-payment cessation. Consequently, the Plaintiffs' request for partial summary judgment on Count IV is denied, and the Defendants' summary judgment request is granted.
Count V alleges that Freddie Mac violated the discharge injunction by attempting to hold the Plaintiffs personally liable for mortgage debt via an IRS Form 1099-A, which the Plaintiffs argue was incorrectly marked to indicate personal liability. The summary judgment record shows no conduct by Freddie Mac beyond delivering the form. The form's instructions clarify its purpose and the tax implications for the Plaintiffs, directing them to consult with a tax advisor. The court finds no basis for liability against Freddie Mac regarding the Form 1099-A issuance, thus denying the Plaintiffs' request for summary judgment and granting that of the Defendants.
The summary judgment record shows no communication between Freddie Mac and the Plaintiffs after foreclosure, except for the delivery of IRS Form 1099-A, which does not demand payment or indicate taxable income must be reported. The form, created by the IRS, merely states it contains tax information that could affect the Plaintiffs' tax situation for the 2011 tax year. The Court found no basis to support the Plaintiffs' claims that Freddie Mac was attempting to collect a discharged debt, leading to a denial of the Plaintiffs’ request for partial summary judgment on Count V and granting the Defendants’ request on the same count.
Count VI alleges that Citi contacted the Plaintiffs in June 2013, attempting to coerce payment of the discharged debt. The record confirms one phone call from Citi requesting proof of insurance on the Plaintiffs’ former residence, which Citi claims was made in error and not intended as coercive. The Plaintiffs found the call distressing, feeling burdened by the demand for insurance on a property they believed they were no longer liable for. Since the contact occurred after the discharge of personal liability and the extinguishing of the mortgage debt, the Court determined that Citi's actions violated the discharge injunction. Consequently, the Court denied the Defendants’ summary judgment request for Count VI and granted the Plaintiffs’ request for partial summary judgment regarding liability, reserving the issue of damages for a future hearing.
In conclusion, the Court denied the Plaintiffs' motions for summary judgment on Counts I through V while granting it for Count VI concerning liability. The Defendants' motions for summary judgment were granted for Counts I through V and denied for Count VI. The order was entered in Manchester, New Hampshire.
