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Do You Need to Change Your Monthly Statements? A Recent Ruling May Impact Monthly Statement Formatting
While the Orlansky v. Quicken Loans, LLC, No. NV-22-1181-GCB, 2023 WL 2947616, at *1 (B.A.P. 9th Cir.) (not for publication) case is not published, the Court’s decision is important. The fact that it is not published means that it cannot be cited as precedent. However, that does not mean that debtors will not reference it in an attempt to influence court decisions.
As with many cases that impact the contents of a mortgage monthly statement, this case has very specific facts. After filing a Proof of Claim, Rocket fka Quicken Loans, filed Notice of Post-Petition Fees for the fees associated with the filing of the Proof of Claim and reviewing the Chapter 13 Plan.
In addition, Rocket sent monthly statements which contained the requisite bankruptcy disclaimer language. The remainder of the contents of the monthly statements are the key to the Court’s ruling. The arrears which had been included in the Proof of Claim were included on the statement in a section entitled “Amounts Past Due Before Banrkuptcy Filing.” The Court highlighted additional language in this section advising that other fees and costs might appear here as well as the fact that payments were being received from the Trustee which were separate from the regular monthly payments. The fees from the Notice of Post-Petition fees appeared in a section entitled “Advances on Your Behalf” which was a subsection under “Next Payment Breakdown (Post-Petition Payment).” The amounts from “Next Payment Breakdown (Post-Petition Payment)” were also included in the “Total Payment Amount.”
Debtors paid the fees from the Notice of Post-Petition Fees. That amount then continued to appear in the “Advances on Your Behalf” section and the “Partial payment (Unapplied)” which resulted in the “Total Payment Amount” returning to the regular monthly payment amount.
Then, Debtors filed an Objection to Proof of Claim and Notice of Post-Petition Fees. The Proof of Claim was eventually amended, and the Notice of Post-Petition Fees withdrawn. Shortly thereafter, Debtors filed a Motion for Contempt for violation of the automatic stay by including the attorneys’ fees in the monthly statements and accepting and keeping the payment for same. The Bankruptcy Court determined that Rocket had not violated the automatic stay because the statements were permitted communications. Further, the Bankruptcy Court determined that Debtors had notice of the fees but did not immediately dispute them. In addition, the Bankruptcy Court held that the Debtors paid the fees voluntarily and not due to pressure from the monthly statements. The Debtors appealed to the 9th Circuit BAP.
The BAP reviewed what is and is not a violation of the automatic stay. Of importance, monthly statements are not violations of the stay by simply providing information to the debtor. However, communications or monthly statements which pressure a debtor to pay are prohibited. In order to determine if the monthly statements here were violations, the BAP noted that the issue was fact driven requiring a review of the substance and context.
In the analysis, the BAP credited Rocket for the disclaimer language. Despite including the appropriate disclaimer language, the BAP held that the substance and context negated it because they were intent upon collecting the attorneys’ fees. If the attorneys fees had been included with the pre-petition arrears in the “Amounts Past Due Before Bankruptcy Filing”, they would have been informational because that section specifically indicated those amounts were to be paid through the Plan. By including the fees in the section related to the payment of the regular monthly payment, Rocket was demanding immediate payment to be included with the regular payment.
From there, the BAP shifted to the mental state of a debtor. It noted that debtors understand the negative consequences for failing to make payments, and debtors understand they are expected to make monthly payments to ensure the mortgage is current. However, the inclusion of the fees in the amount due amounted to pressure to pay the fees. While Rocket was obligated to file the Notice of Post-Petition Fees, doing so does not protect Rocket from later attempts to collect the fees directly from Debtors. Further, the Nevada Chapter 13 Plan specifically provides that fees from a Notice of Post-Petition Fees will be paid by the Trustee. Lastly, characterizing the fees in the statement separately from other pre-petition claims eliminated the informational purpose aspect of the monthly statement because those fees had become different.
Of the upmost importance in its ruling, the BAP cautioned creditors that any communications with debtors must be clear that the creditor is not attempting to collect a pre-petition debt. Disclaimers can be contradicted by demands for payment.
Based upon the BAP’s warning, all creditors should carefully review the format of their monthly statements to ensure that they do not accidentally cause the inclusion of fees from a Notice of Post-Petition Fees to become a demand for payment of those fees.
This post was prepared by Kristin A. Zilberstein, Esq.
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