Jones v. Wells Fargo Home Mortgage (In Re Jones)
57 Collier Bankr. Cas. 2d 1622, 2007 Bankr. LEXIS 1349, 366 B.R. 584 (2007)
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Rule of Law:
A creditor that knowingly assesses and collects undisclosed post-petition fees and miscalculated charges from a debtor's estate property, by diverting payments intended for other court-approved debts, willfully violates the automatic stay under 11 U.S.C. § 362.
Facts:
- Michael L. Jones was obligated to Wells Fargo Home Mortgage, Inc. (Wells Fargo) on a debt secured by his residence.
- After Jones fell behind on payments, Wells Fargo initiated a state court foreclosure action against him.
- On August 26, 2003, Jones filed for Chapter 13 bankruptcy, which included a court-confirmed plan for him to make current mortgage payments directly to Wells Fargo while a Trustee paid the pre-petition arrearages.
- In November 2003, Jones suffered a heart attack and missed four mortgage payments, which he and Wells Fargo agreed to cure via a Consent Order.
- Jones later obtained approval to refinance his mortgage to pay off Wells Fargo and his remaining plan obligations.
- On January 3, 2006, Wells Fargo provided a payoff statement for $231,463.97, which Jones believed was incorrect but paid under duress to avoid losing his refinancing commitment.
- The payoff amount included undisclosed post-petition fees, miscalculated interest, and an improperly assessed Sheriff's commission of $6,741.67 that was not due because of the bankruptcy.
- Wells Fargo had also misapplied Jones's direct payments and payments from the Trustee to unauthorized charges rather than to the principal and interest as required by the plan.
Procedural Posture:
- Wells Fargo filed a foreclosure action against Jones in a Louisiana state court.
- Jones filed a voluntary petition for Chapter 13 relief in the U.S. Bankruptcy Court for the Eastern District of Louisiana, which automatically stayed the state foreclosure proceeding.
- Wells Fargo filed a proof of claim in the bankruptcy case for pre-petition arrearages totaling $22,259.69.
- The Bankruptcy Court confirmed Jones's Chapter 13 reorganization plan on October 28, 2003.
- After Jones defaulted post-petition, the parties entered into a Consent Order, approved by the court, to cure the default.
- The Bankruptcy Court granted Jones's motion for authority to refinance the Wells Fargo debt on December 7, 2005.
- After paying the disputed payoff amount, Jones initiated an adversary proceeding (a lawsuit within the bankruptcy case) against Wells Fargo to recover the overpayment.
- The Bankruptcy Court conducted a trial on the merits on January 5, 2007.
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Issue:
Does a creditor violate the automatic stay under 11 U.S.C. § 362 by assessing and collecting undisclosed post-petition fees and miscalculated charges from estate property, without court approval, by misapplying payments intended for other court-approved debts?
Opinions:
Majority - Magner, Bankruptcy Judge
Yes, a creditor violates the automatic stay by assessing and collecting undisclosed post-petition fees and miscalculated charges from estate property without court approval. Wells Fargo's conduct constituted a willful violation of the automatic stay under 11 U.S.C. § 362. The court found that Wells Fargo's accounting was a 'tangled mess,' full of errors, including misapplication of payments, improper interest calculations, and the assessment of unreasonable and undisclosed post-petition fees for inspections and attorneys. Furthermore, Wells Fargo improperly included a large Sheriff's commission in the payoff amount that the Sheriff's office testified would have been waived had it been notified of the bankruptcy. These actions of assessing and then satisfying these charges with funds from the debtor's estate—payments made by the Debtor and the Trustee intended for other purposes—were an exercise of control over property of the estate (§ 362(a)(3)) and an act to collect a claim (§ 362(a)(6)). The violation was willful because Wells Fargo knew of the bankruptcy stay yet intentionally took these actions without court authority. Therefore, the debtor is entitled to recover the overpayments and seek damages for the violation.
Analysis:
This case serves as a stern warning to mortgage lenders servicing loans for debtors in Chapter 13 bankruptcy, emphasizing that opaque accounting and the unilateral assessment of fees are unacceptable. The decision establishes that secretly assessing charges and misapplying payments is not a mere bookkeeping error but a willful violation of the automatic stay, exposing lenders to significant liability. This precedent reinforces the requirement for creditors to seek court approval for post-petition fees and prohibits them from collecting such fees by diverting funds intended for confirmed plan payments, thereby protecting the integrity of the bankruptcy process and the debtor's fresh start.
