Velazquez v. Countrywide Home Loans Servicing Allows for Lender’s Attorney Fees Recovery
November 1, 2011
By: David M. Serafin
In Velazquez v. Countrywide Home Loans Servicing, the married debtors filed for chapter 13 bankruptcy relief having previously executed a joint promissory note over a year earlier – secured by a deed of trust - for the purchase of a home in Texas. Shortly after the bankruptcy was filed, Countrywide timely filed a Proof of Claim claiming that debtors had defaulted on their mortgage payments and were in arrears by over $16,000. The Proof of Claim also claimed arrears for $200 of “Post-Petition Attorneys Fees” and $150 for preparation of a Fee Application (for the attorneys fees). No objections to the Proof of Claim were timely filed.
Before the Bankruptcy Court, Countrywide pointed to a contractual provision in the Deed of Trust allowing for the mortgage lender to take reasonable actions to protect its security interest in the property and require the borrower(s) to pay reasonable attorneys’ fees for the costs incurred in for the lender to attempt to protect its security interest. The Bankruptcy Court found that the language in the Deed of Trust was inapplicable because chapter 13 applied to prohibit post bankruptcy modification of a lender’s rights and held that Countrywide was not entitled to the additional fees enumerated in the Proof of Claim.
In overturning the Bankruptcy Court’s decision, the 5th Circuit Court of Appeals first examined the loan documents in determining the parties’ contractual intent. Although the court refused to address whether Bankruptcy Rule 2016 – which controls how creditors collect fees from the Bankruptcy Estate – applied in this case, the court held that Countrywide was still entitled to protect its security interest and rights outlined by the Deed of Trust and charge reasonable fees.
In my Denver and Aurora, Colorado bankruptcy and foreclosure defense practice, I make sure that the lender only charges reasonable fees for any pre- or post-bankruptcy defaults. A reasonable fee likely will be incurred due to missed or late mortgage payments whereby the lender’s attorneys will incur fees and costs for filing a Proof of Claim. Chapter 13 allows one to make up any missed mortgage payments, plus the lender’s fees/costs, in a 3 to 5 year plan. If these full payments are made, the lender is enjoined from foreclosing on the property and must continue to accept plan payments (plus the regularly monthly mortgage payment outside of the bankruptcy). The lender in chapter 13 will typically file an Objection to Confirmation prior to the Meeting of Creditors after which I can Amend the Plan to cure the arrears and fees.
The curing of post-bankruptcy mortgage payments is a different story. Here, in the event of default, the lender will request Relief from Automatic Stay so that it can eventually pursue foreclosure outside of the bankruptcy court. If the lender prove establish the borrower’s default, Relief from Stay will be granted after which the borrower would need to cure 100% of the arrears in a lump sum payment made to the Public Trustee (in the county of where the property is located) by 12 Noon of the business day prior to the foreclosure sale date. However, I am typically able to negotiate for the lender’s additional fees incurred post bankruptcy to be added back into the plan by modifying the plan after confirmation.
Where the lender is requesting what I believe to be excessive fees, I have successfully filed objections to the lender’s Proof of Claim and requested denial of the excessive portion of the fees.