In a recent decision in the case In re Sperry (15-14583), Judge Hoffman overruled a mortgage servicer’s objection to confirmation of a Chapter 13 plan due to a provision that required the servicer to provide monthly mortgage statements to the Debtors. The Debtors had proposed a so-called “cure and maintain” plan, in which they would cure a pre-petition default over 60 months and maintain regular monthly payments to the lender. At issue was a provision in the plan that required the mortgage servicer to “send the Debtors monthly mortgage statements consistent with its pre-petition practice.”
The mortgage servicer argued that regulations promulgated under the Truth and Lending Act and (“Regulation Z”) and the Real Estate Settlement Procedures Act (“Regulation X”) exempted it from sending monthly statements to Chapter 13 debtors, and therefore the mortgage servicer could not be required to do so. The mortgage holder also argued that the requirement was an impermissible modification of its rights and was therefore prohibited under section 1322(b)(2) and, finally, that logistical limitations prevented it from producing accurate post-petition statements.
The Debtors in turn argued that the mortgage statement provision was permissible under section 1322(b)(11) which allows a plan to “include any other appropriate provision not inconsistent with [the Bankruptcy Code].” The Debtors also argued that the mortgage statement provision was consistent with the overall objectives of Regulations X and Z, which are to promote the informed use of consumer credit by requiring disclosures about its terms and cost and to promote the flow of greater and timely information between mortgage creditors and debtors, respectively.
The Court agreed with the Debtors, finding that Regulations X and Z merely exempted mortgagees from the providing periodic statements but did not in any way prohibit them from doing so. The Court also rejected the mortgagee’s argument that the mortgage statement provision violated section 1322(b)(2), concluding that it imposed an obligation rather than modifying a right. That burden of that obligation, the Court found, was outweighed by the harm to the Debtors if they were not provided the monthly statements.
The full opinion is available here.
This post was contributed by Marques C. Lipton of Parker & Associates. For information regarding contributing case summaries or other posts, contact the editors of The Disclosure Statement, Kathleen Ryan ([email protected]) and Timothy Carter (TCarter @goulstonstorrs.com).