In Re Wells

MEMORANDUM

I.INTRODUCTION

Shirlene R. Wells (“the Debtor”) is the owner of her residence, the real property located at 180 Walton Drive, Morrisville, PA (“the Property”). The Debtor commenced the above chapter 13 bankruptcy case on September 8, 2010. On February 16, 2011, PE-NC, LLC (“PE-NC”) filed a secured proof of claim (“the PE-NC Proof of Claim”), asserting that it is the holder of a note secured by a mortgage on the Property with an unpaid balance of $309,714.99 and pre-petition arrears of $137,529.12.

Presently before the court is the Debt- or’s objection to the PE-NC Proof of Claim (“the Objection”), filed on March 2, 2011. (See Bky. No. 10-17593, Doc. # 21). An evidentiary hearing on the Objection was held on July 6, 2011 and September 20, 2011 (together, “the Hearing”). At the court’s request, the parties submitted post-hearing memoranda, the last of which was filed on October 24, 2011.

For the reasons set forth below, the Objection will be sustained in part, resulting in a partial disallowance of the arrears claim. 1 PE-NC’s secured claim for pre-petition arrears will be allowed in the amount of $92,586.34.

II. FINDINGS OF FACT

the note, the mortgage and the ñrst assignment thereof

1. Since approximately 1980, the Debtor has owned the Property.

2. On August 10, 2002, the Debtor entered into a mortgage loan transaction with Cresleigh Financial Services, Inc. (“Cresleigh”).

3. In the mortgage loan transaction, the Debtor executed a thirty (30) year, adjustable rate note (“the Note”) in the amount of $166,000.00, repayable at an initial yearly interest rate of 6.9% and an initial monthly instalment of $1,093.28. 2

*323 4. The Note further provides that, commencing September 2004, the interest rate is to change every six months. The adjustable interest rate is indexed to the interbank rates known as “LIBOR.” The Note provides for a minimum interest rate of 6.9% and a maximum interest rate of 13.9%.

5. In the transaction, the Debtor also executed a mortgage on the Property (“the Mortgage”) in favor of Cresleigh. 3

6. The Mortgage provides that, absent a waiver, the Debtor must make “escrow” payments to the lender for annual real estate taxes and property insurance and that the lender shall administer the escrow account in accordance with “RES-PA,” 4 although the record does not reflect the extent to which the mortgagee has, in fact, accepted escrow payments and administered an escrow account since 2002.

7. The Mortgage also includes an “adjustable rate rider,” with terms consistent with those of the Note.

8. On or about January 23, 2004, Cres-leigh assigned the Mortgage to MorEq-uity, Inc. (“MorEquity”). (See Bky. No. 10-17953, Attachment to Proof of Claim No. 7).

the state court foreclosure action

9. On September 30, 2005 MorEquity instituted a mortgage foreclosure action against the Debtor in the Court of Common Pleas, Bucks County (“the Foreclosure Action”). The action was docketed as No. 2005-06462. 5

10. MorEquity obtained a judgment by default in the Foreclosure Action on December 13, 2005 and took steps to schedule a sheriffs sale of the Property.

the Debtor’s 2006 bankruptcy case

11. On March 6, 2006, the Debtor filed a chapter 13 bankruptcy case in this court, docketed at Bky. No. 06-10850 (“the 2006 Case”).

12. The filing stayed a sheriffs sale of the Property scheduled in the Foreclosure Action.

13. In her initial chapter 13 plan, the Debtor proposed to pay pre-petition mortgage arrears to MorEquity and identified that amount as being $40,270.71. (See Bky. No. 06-10850, Doc. # 3).

14. On March 15, 2006, MorEquity filed a proof of claim (“the MorEquity 2006 Proof of Claim”), asserting that the Debtor owed pre-petition arrears of $43,432.74. (Bky. No. 06-10850, Claim No. 2). 6

*324 15. On June 13, 2006, after MorEquity filed its proof of claim, the Debtor filed an amended chapter 13 plan in which she proposed to cure the pre-petition default on the Mortgage by paying the full amount of the arrears claim. The Plan stated that the Debtor would pay two (2) plan payments of $388.00 followed by fifty-eight (58) plan payments of $810.40. (Bky. No. 06-10850, Doc. #17).

16. By order dated August 10, 2006, about five months after the filing, the court dismissed the 2006 Case.

17. When the 2006 Case was dismissed, the Debtor had paid a total of $1,120.00 to the Trustee. (See Bky. No. 06-10850, Doc. # 25, Chapter 13 Trustee’s Final Report). 7

the 2006 assignment of the Mortgage from MorEquitg to Private Capital Group, LLC

18. By assignment dated March 16, 2006 (the day after it filed its proof of claim in the 2006 Case), MorEquity assigned the Mortgage to Private Capital Group, LLC (“PCG”). (See Bky. No. 10-17593, Claim No. 7).

the Debtor’s 2007 bankruptcg case

19. On October 10, 2007, the Debtor filed another chapter 13 bankruptcy case, docketed at Bky. No. 07-15925 (“the 2007 Case”).

20. The filing stayed a sheriffs sale of the Property scheduled in the Foreclosure Action.

21. In her initial chapter 13 plan, filed on the same day as her bankruptcy petition, the Debtor proposed to pay a total of $47,040.00 under the Plan (twelve (12) payments of $400.00, followed by forty-eight (48) payments of $880.00). (See Bky. No. 07-15925, Doc. # 5).

22. In the Plan, the Debtor proposed to pay the pre-petition mortgage arrears to MorEquity and again identified that amount as being $43,432.74 (the same amount set forth in the MorEquity 2006 Proof of Claim filed nineteen (19) months earlier).

23. In her bankruptcy Schedule D, however, while the Debtor listed MorEquity as the holder of a mortgage, she also listed “Plaza Equities” as an “assignee” of MorEquity. (Bky. No. 07-15925, Doc. # 1).

24. In her bankruptcy Schedule J and Amended Schedule J, the Debtor represented that her ongoing monthly mortgage payment was $1,611.00 per month.

25. For reasons not explained, on May 21, 2008, more than two (2) years after assigning the Mortgage to PCG and seven (7) months after the commencement of the Debtor’s 2007 bankruptcy case, MorEquity filed a proof of claim (“the MorEquity 2007 Proof of Claim”). The MorEquity 2007 Proof of Claim was based upon the Mortgage and the Note, but stated that there were $0.00 in arrears and that “the Account is paid in full.” (See Bky. No. 07-15925, Claim No. 8).

26. Thereafter, on June 11, 2008, the Debtor filed an amended chapter 13 *325 plan, reducing the plan funding from $47,040.00 to $10,900.00 ($400.00 per month for eight (8) months, followed by twenty-eight (28) payments of $275.00). (Bky. No. 07-15925, Doe. # 27).

27.On the next day, however, June 12, 2008, the court dismissed the 2007 Case on motion of the Chapter 13 Trustee. (Bky. No. 07-15925, Doc. # 31).

the 2010 assignment of the Mortgage from PCG to Plaza Equities,

LLC

28.By assignment dated July 30, 2010, PCG assigned the Mortgage to Plaza Equities, LLC (“Plaza”). (See Bky. No. 10-17593, Claim No. 7).

the Debtor’s present chapter 13 case

29. On September 8, 2010, the Debtor filed her current chapter 13 bankruptcy case (“the Present Case”). 8

30. The filing stayed a sheriffs sale of the Property scheduled in the Foreclosure Action.

31. In her bankruptcy Schedule D, the Debtor listed North Shore Investment, LLC (“North Shore”) as the holder of a mortgage on the Property with an unpaid balance of $296,357.00 and the Tax Claim Bureau as holding a secured claim of $15,337.74.

32. North Shore is an entity that has some sort of business relationship with Plaza. (Testimony of Michael Bode). 9

33. In her Schedules I & J, filed on September 21, 2010, the Debtor represented that her monthly income is $3,697.00, her monthly expenses are $2,893.00 and that her monthly expenses include a monthly mortgage payment of $1,611.00. (See Bky. No. 10-17593, Doc. #8, Schedules I & J). 10

34. On September 21, 2010, the Debtor filed a chapter 13 plan which proposed plan payments totaling $48,000.00 ($800.00/month x 60 mos.) for payment of the secured claims of the Tax Claim Bureau (estimated in the Plan to be $15,337.74) 11 and North Shore (estimated in the Plan to be $134,375.97). (See Bky. No. 10-17593, Doc. # 10). 12

the 2010 assignment to PE-NC

35. By assignment dated November 10, 2010, Plaza assigned the Mortgage to PE-NC. (See Bky. No. 10-17593, Claim No. 7).

36. PE-NC is another entity that is related Plaza. It “manages” and “works out” assets acquired by Plaza. (Testimony of Michael Bode).

PE-NC’s Proof of Claim in the Present Case

37. On February 16, 2011, PE-NC, LLC filed a secured proof of claim (again, “the PE-NC Proof of Claim”) asserting that it is the holder of the Note, that the *326 Debtor may have scheduled the holder as “North Shore Inve,” that the total secured claim is in the amount of $309,714.99 and that the prepetition arrears are $137,529.12. (See Bky. No. 10-17593, Claim No. 7).

38.Although PE-NC’s Proof of Claim does not separately itemize the arrears, its itemization of the entire claim ($309,-714.99) includes the following charges allegedly due on the account as of the commencement of this bankruptcy case:

late charges (“accrued from prior servicer”) 7,980.94

taxes paid 10,210.00

PIP insurance 9,546.62 13

IOA 6,971.16 14

corporate advances 18.00

BPO/Inspections 835.00

paid legal fees ll,170.20 15

39. The arrears claimed in the PE-NC Proof of Claim do not account for $20,000.00 that PE-NC is presently holding in “suspense.”

40. The $20,000.00 is derived from insurance proceeds arising from a claim under a property insurance policy on the Property.

III. DISCUSSION

A. The Standard for Determining the Allowance of a Proof of Claim

A proof of claim is deemed allowed unless a party in interest objects. 11 U.S.C. § 502(a). If properly filed, see Fed. R. Bankr.P. 3001(c), 16 a proof of claim is prima facie evidence of the validity and amount of the claim, even if an objection is filed. See Fed. R. Bankr.P. 3001(f). 17 In other words, “if a proof of claim complies with the Rules of Court and is self-sustaining (ie., it sets forth the facts necessary to state a claim and is not self-contradictory), it is prima facie valid and the objecting party has the burden of producing evidence to refute the claim.” In re Sacko, 394 B.R. 90, 98 (Bankr.E.D.Pa.2008). That evidence, “if believed, [must] refute at least one of the allegations that is essential to the claim’s legal sufficiency.” In re Allegheny Int'l, Inc., 954 F.2d 167, 173-74 (3d Cir.1992). If the objector meets that burden of production, the claimant must produce evidence to prove the validity of the claim, id. at 174, because “the ultimate burden of persuasion is always on the claimant,” In re Holm, 931 F.2d 620, 623 (9th Cir.1991).

In connection with an objection to a proof of claim for mortgage arrears, which commonly includes numerous itemized components, I have previously held that:

• to the extent that a claim for mortgage arrears includes different components with different sources of proof, each component should be analyzed separately when applying the burden of proof principles articulated in Rule 3001(f);

*327 • Rule 3001(e)’s requirement that a claimant attach the writing on which a claim is “based” need not be read expansively to encompass all of the relevant documents that might be produced in discovery in ordinary civil litigation to support the claimant’s entitlement to each component of the mortgage arrears claim, but is limited to the documents that generally give rise to the claimant’s right to payment (the note and mortgage); and

• given the conservative application of the requirements of Rule 3001(c) as stated above, it is appropriate to employ an elastic approach in evaluating whether the objector has met the burden of production under Rule 3001(f)

Sacko, 394 B.R. at 100.

B. Application of the Legal Standard to Determine the Allowed Amount of PE-NC’s Proof of Claim

In this contested matter, the Debtor has not questioned the prima facie validity of PE-NC’s proof of claim. 18 Therefore, consistent with 11 U.S.C. § 502(a) and Fed. R. Bankr.P. 3001(f), I must consider whether the Debtor has come forward with evidence sufficient to refute one or more eom-ponents of the PE-NC Proof of Claim to meet her burden of production and, if so, whether PE-NC has then offered sufficient evidence to meet its burden of proof.

In her post-trial submission, the Debt- or’s primary argument is that PE-NC’s proof of claim provides “no credible and definitive breakdown of the unpaid mortgage payment, late charges, taxes paid, legal fees, FIP insurance or IOA.” (Debtor Memorandum at 2 (unpaginated)). 19 As explained below, I find that the Debtor is partially correct and, therefore, that PE-NC’s proof of claim should be disallowed in part.

1. delinquent monthly instalments and late charges

I begin my analysis by determining the amount of the pre-petition arrears attributable to delinquent monthly instalments in repayment of principal, interest and late charges.

The attachment to PE-NC’s Proof of Claim indicates the mortgage account is delinquent from December 2004. At the Hearing, the Debtor testified that when she filed the 2006 Case in March 2006, she may have been as much as eighteen (18) months behind in her mortgage payments, *328 which would take the delinquency back to September 2004. However, the MorEquity 2006 Proof of Claim states that the delinquency commenced in February 2005.

I find that the Morequity 2006 Proof of Claim is likely more accurate than either the Debtor’s recollection in 2011 of the state of her delinquency in 2006 or the claim of MorEquity’s successor in interest, PE-NC. Consequently, when the Present Case was filed in September 2010, this account was delinquent for sixty-nine (69) months, from December 2004 through September 2010.

Because the interest rate on the Note is variable and PE-NC has not presented evidence regarding all of the interest rate and monthly instalment changes since December 2004, it is not possible to calculate precisely the additional arrears attributable to the unpaid monthly instal-ments in this time period. However, I am able to make a reasonable approximation of the amount of the arrears which is sufficient for present purposes.

In the absence of any evidence from the claimant regarding the application of the variable rate provision of the Note and because the claimant bears the burden of proof, I will make the assumption most favorable to the Debtor — that interest rates dropped during the period in question sufficient to lower the Debtor’s monthly instalment to the “floor level” of the Note: $1,093.28. 20 Thus, in the period from December 2004 through September 2010, $75,436.32 in monthly instalments fell due (69 mos. x $1,093.28). 21 In addition, $7,543.63 in late charges accrued on the account, 22 resulting in a pre-petition delinquency of $82,979.95 attributable to delinquent monthly instalments and late charges.

2. unpaid real estate taxes

The next component of the arrears claim is for “unpaid taxes.” In support of this charge, PE-NC produced documentary evidence showing payments made by its predecessor in interest, PCG, to various taxing authorities totaling $10,209.70 for 2008 real estate taxes on the Property. (Ex. C-9). The Debtor introduced no convincing evidence to the contrary. 23 Therefore, $10,209.70 of this component of the arrears claim will be allowed.

3. forced placed insurance

PE-NC includes a charge for FIP Insurance of $9,546.62. The Debtor introduced evidence to refute the allowability of this charge. She testified that, at all times, she has maintained property insurance on *329 the Property. Absent any documentary corroboration, the Debtor’s testimony alone might be suspect, but it also was undisputed that the Debtor made a property insurance claim that resulted in a payment of $20,000.00 to PE-NC (or a predecessor) that is currently in “suspense.” Thus, it is clear that the Debtor had a property insurance policy during at least some period of time since she defaulted on her mortgage payments.

In response, PE-NC introduced into evidence a series of Certificates of Insurance (which include the premium amounts) issued to its predecessor, PCG, for policy periods running from May 2006 through March 2010. (See Exs. C-7 and C-8). The evidence also demonstrates that the Debtor received a credit in 2010 when the Debtor provided Plaza with evidence that the Debtor had herself procured a homeowner’s insurance policy on the Property.

After considering all of the sparse evidence presented on this topic, I consider it more likely than not that the Debtor had property insurance in place in or around 2010 and that policy resulted in the $20,000.00 insurance claim presently being held in suspense by PE-NC. However, without some further documentation verifying that the Debtor had maintained the insurance in place back to May 2006,1 am not convinced, based on her testimony alone, that she had such insurance prior to 2010. Accordingly, I find that PE-NC has sustained its burden of proof and the charges for forced placed insurance will be allowed.

4. legal expenses

The last component of the arrears that I will address is the claim for “paid legal fees.” 24 At the Hearing, PE-NC submitted a detailed written summary of the legal expenses that PE-NC and its predecessors allegedly incurred in connection with this account. (See Ex. C-6). The legal expenses fall into two (2) categories: (1) legal fees and costs incurred in connection with foreclosure proceedings instituted against the Property in the Bucks County Court of Common Pleas (“the Foreclosure Action”) and (2) legal fees and costs incurred in connection with this bankruptcy case. 25

The documentation submitted by PE-NC indicates that the law firm of Mancini and Associates (“Mancini”) handled the foreclosure through August 2010, after which Hoegen & Associates (“Hoegen”) took over the representation.

the Mancini legal expenses

PE-NC’s documentary evidence establishes that PE-NC and its predecessor, PCG, paid Mancini a total of $7,356.85 for services rendered and costs incurred in the Foreclosure Action docketed as MorEquity, Inc. v. Wells, No. 2005-06462 (C.P. Bucks). First, on October 30, 2007, PCG paid Mancini $4,523.50. Subsequently, in October and November 2010, PE-NC made payments to Mancini totaling $2,833.35. 26

*330 MorEquity obtained a judgment by default on December 13, 2005. Since then, three (3) sheriffs sales have been scheduled: April 2006, October 2007 and September 2010. All three (3) sales were stayed by chapter 13 bankruptcy filings.

The PCG payment to Mancini of $4,523.50 in October 2007 was made after the stay of the second sheriffs sale. The records submitted as part of Ex. C-6 do not include any itemization of the services rendered or costs incurred in support of this payment. However, the docket in the Foreclosure Action, see n.5, supra, reflects that before each of two sheriffs sales that were scheduled on Mancini’s “watch,” Mancini advanced a $2,000.00 deposit, but later received a refund of approximately $1,200.00 after each sale was stayed. Thus, Mancini expended a net amount of $1,600.00 in out-of-pocket expenses relating to the two sheriffs sales. I estimate that Mancini advanced approximately $400.00 additional in costs related to the entry of judgment and the scheduling of the two (2) sheriffs sales, resulting in a total expenditure of $2,000.00 in costs. Consequently, the balance of the $4,523.50 payment to Mancini (ie., $2,523.50) represents attorney’s fees, as opposed to costs. I find this fee to be reasonable for the services rendered in initiating the Foreclosure Action, obtaining a judgment by default, scheduling two (2) sheriffs sales and staying the sales after the Debtor’s bankruptcy cases were filed.

Thus, the entire first payment to Mancini of $4,523.50 is allowable.

In October and November 2010 PE-NC two (2) payments to Mancini, the first for $2,674.19 and the second for $159.16, for a total of $2,833.35. These payments fall into two categories: (1) $250.00 in attorney’s fees and $2,583.35 in reimbursement of Mancini’s out-of-pocket expenses incurred in connection with the third sheriffs sale (scheduled to be held in September 2010 and stayed by the current bankruptcy case).

I find the $250.00 expense for attorney’s fees to be reasonable. That amount will allowed.

As for the expenses, only some of the expenses are allowable. The allowable expenses total $1,229.30:

(1) $26.25 for the writ of execution;

(2) $300.00 for a title report update;

(3) $19.69 for mailing expenses;

(4) $849.20 for the deposit paid to the sheriff; and

(5) $34.16 for an overnight fee.

The balance of the claimed expenses (totaling $1,354.05) will be disallowed, either because they were not actually incurred, the Debtor is not obligated to pay them under the Mortgage or they are not adequately explained or supported. 27

The allowable legal expenses attributable to the October and November 2010 payments to Mancini total $1,479.30 ($250.00 legal fees + $1,229.30 in expenses).

*331 The total amount of allowable legal expenses attributable to the Mancini representation is $6,002.80. 28

the Hoegen legal expenses

The balance of the legal fee component of PE-NC’s claim is for $3,999.77 in fees and expenses paid to Hoegen. All of these expenses were incurred post-petition and, therefore, are not part of the pre-petition arrears. However, under the Debtor’s plan, and in order to satisfy the “maintenance of payments” requirement of 11 U.S.C. § 1322(b)(5), the Debtor must pay those legal expenses that the loan documents authorize the lender to shift to her. See In re Padilla, 389 B.R. 409, 438-39 & n. 52 (2008). It is more favorable to the Debtor to pay such post-petition legal expenses over the life of a chapter 13 plan rather than in a lump sum, as is arguably required by the Mortgage. By including the expenses in its Proof of Claim, PE-NC appears willing to accommodate the Debt- or in this regard. Therefore, I will evaluate the allowability of this component of the PE-NC Proof of Claim.

My review of Hoegen’s itemized bills included as part of Ex. C-6 suggests that the legal services Hoegen provided to PE-NC involved representation in connection with: (1) the Foreclosure Action and the stayed sheriffs sale; (2) the Debtor’s insurance claim; (3) PE-NC’s Proof of Claim; (4) the Debtor’s § 341 hearing; (5) title issues with respect to the Property; (6) the assignment of the Mortgage to PE-NC; and (7) defending PE-NC’s Proof of Claim against the Debtor’s Objection.

On the whole, I find Hoegen’s legal expenses reasonable and assessable against the Debtor under the terms of the Mortgage. I take exception only to one (1) time entry referencing work on the stayed Foreclosure Action and the time spent and costs incurred relating to the assignment of the Mortgage to PE-NC. I fail to see the necessity of spending time working on a foreclosure action that is subject to the automatic stay, and PE-NC has not pointed to any provision of the Mortgage that provides for expenses related to the assignment of the mortgage to be passed on to the mortgagor. These non-compensable matters cause me to disallow $100.00 in legal fees and $52.50 in costs. After such deductions are made, $3,847.27 in Hoegen legal expenses are allowable.

Based on the allowances and disallow-ances stated above, the total allowable legal expenses are $9,850.07. 29

5. insurance claim

At the Hearing, PE-NC’s witness conceded that it is holding $20,000.00 in suspense that is not reflected in its Proof of Claim. Therefore, the arrears claim will be reduced by $20,000.00.

IV. CONCLUSION

For the reasons explained above, the Objection will be sustained in part and overruled in part. PE-NC’s Proof of Claim for pre-petition mortgage arrears will be allowed in the amount of $92,586.34, calculated as follows:

delinquent monthly instalments and

late charges $82,979.95

unpaid real estate taxes 10,209.70

forced placed insurance 9,546.62

legal expenses 9,850.07

(suspense account) ($20,000.00)

Total Arrears $92,586.34

The outcome of this contested matter makes it highly unlikely that the Debtor *332 will be able to propose, confirm and perform a chapter 13 plan. The Debtor’s present plan is funded at a level that is significantly less than the amount needed to pay PE-NC’s allowed claim for arrears. The Debtor’s filed income and expense statements (Amended Schedules I and J) suggest that the Debtor lacks the net monthly income adequately to fund a plan that will provide for a cure of the pre-petition default on the Mortgage. Further, the Debtor’s difficulties in this case must be considered against the backdrop of two (2) prior, failed chapter 13 bankruptcy cases as well as a sustained period in which the Debtor has not made monthly mortgage payments.

A hearing is presently scheduled on January 10, 2012 to consider confirmation of the Debtor’s (presently unconfirmable) chapter 13 plan and the Chapter 13 Trustee’s Motion to Dismiss this case. In order to avoid dismissal at that hearing, the Debtor will need to make a showing that she is able to propose a feasible chapter 13 plan that is confirmable in the immediate future.

ORDER

AND NOW, upon consideration of the Debtor’s Objection to the Proof of Claim of PE-NC, LLC, and after a hearing, and for the reasons stated in the accompanying Memorandum,

It is hereby ORDERED that:

1. The Objection is SUSTAINED IN PART AND OVERRULED IN PART.

2. PE-NC LLC’s Proof of Claim (Claim No. 7) is ALLOWED as a secured claim for pre-petition mortgage arrears in the amount of $92,586.34.