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June A. Mann
Mann Law Firm PLLC
Arlington, Texas
October 2012
No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or
retrieval system, without prior written permission of the authors. No part of this publication is intended to constitute legal
advice, and the contents herein are provided solely as a starting point for persons seeking to research bankruptcy related
issues. Persons in need of legal advice should consult with a licensed attorney, preferably one that regularly practices
in the field of bankruptcy. The contents of this publication are not to be employed for any purposes which run counter
to any existing laws governing the use or application of federal or state laws. The views expressed herein are solely those
of the authors and not necessarily those of the mortgage industry, Wall Street, or DFW Area Chapter Seminars, Inc. This
paper was previously presented in China at the 8th Annual International Bankruptcy Seminar sponsored by the State Bar
of Texas Bankruptcy Law Section. The paper was thereafter copied and imported and looks just like the original but
is only half the price and gets better mileage. Portions of this paper previously appeared in Mortgage Creditor Proofs
of Claim and Objections: A Primer for Paralegals which was presented by David Aaron DeSoto at the 2nd Annual
Bankruptcy Paralegal Seminar sponsored by Houston Association of Bankruptcy Paralegals in Houston, Texas.
June Ann Mann
Mann Law Firm PLLC
2180 North Loop 610 West, Suite 250
Houston, Texas 77018
(713) 893-8961 direct
jmann@mannlawtexas.com
June A. Mann is a Partner in the Houston, Texas office of the Mann Law Firm, PLLC. Prior
to establishing the Mann Law Firm, June was the bankruptcy partner at Mann & Stevens, P.C. and
primarily represented mortgage lenders and other secured creditors in Texas in bankruptcies, real
estate foreclosures, evictions, litigation, and all matters relating to the servicing of mortgage loans
and the mortgage banking industry.
June received a B.S. from the University of Texas and her J.D. from the University of
Houston Law Center. She clerked for the Honorable Edward J. Ryan, United States Bankruptcy
Judge, a bankruptcy judge from New York who was recalled to serve as a visiting judge in the
Southern District of Texas. In 1996 she changed the focus of her primarily Chapter 11 practice
when she began representing secured creditors in the mortgage banking sector in consumer cases.
June has authored several articles on the bankruptcy issues relating to the mortgage banking industry
and has conducted in-house seminars for mortgage banking clients.
June is admitted to practice in the Bankruptcy Courts for the Southern, Western, Northern
and Eastern Districts of Texas, as well as the Fifth Circuit. She is a member of the American Bar
Association, the Houston Bar Association, the American Bankruptcy Institute, the College of the
State Bar of Texas, Moller/Foltz Bankruptcy Inns of Court, Houston Association of Consumer
Bankruptcy Attorneys, and the Bankruptcy Section of the State Bar of Texas. She has served on
several committees in the Southern, Northern and Western Districts of Texas relating to bankruptcy
issues.
Mortgage Creditor Proofs of Claim and Objections DFW Consumer Bankruptcy Conference October 2012
Introduction
The amendments to Rule 3001 of the Federal Rules of Bankruptcy Procedure, effective
December 1, 2011, combined with the promulgation of a revised Official Proof of Claim form, the
Supreme Court’s recent decisions in Stern v. Marshall, 131 S. Ct. 2594 (2011) and United Student
Aid Funds, Inc., v. Espinosa, 130 U.S. 1367 (2010), will have a tremendous impact on how mortgage
claim objections are handled. Under the revised Rules, mortgage claimants must meet what is
perceived to be a much higher standard in the preparation of their claims and may be barred from
introducing evidence that was absent from their filed claim, essentially closing the door to any
defense from defeat. This will, without question, speed up the objection process. This should, as
well, have the intended effect of making creditors more vigilant in the preparation of their claims.
While these new requirements may appear burdensome, careful attention and compliance may reduce
the amount of litigation regarding amounts set forth in claims and the attached documentation.
Noncompliance with the new Rules can result in the exclusion of evidence necessary to support a
claim, in addition to the imposition of sanctions.
Solely examining the objections process is like signing up for swimming lessons after the
lifeboats have left a sinking ship. This article is intended to assist attorneys on both the creditor and
debtor side of the aisle and will provide a cursory review of things to consider in the process of
preparing both the proof of claim and the objection.
I. The Claim
A. A Factory Demands Quantity, but a Profession Demands Quality
The proof of claim is the genesis of the objection process. A well drafted and thoroughly
reviewed claim can minimize or abrogate the need for an objection. A sloppy, rushed and
incomplete proof of claim, on the other hand, is certain to draw fire or spontaneously combust.
Preparation of a proof of claim can be viewed in two distinctly different manners; the
mechanical completion of a recently revised Official Form B10 or the careful assembly of a legal
document. The forms are relatively easy to read and fill out, which in turn makes the process appear
Mortgage Creditor Proofs of Claim and Objections DFW Consumer Bankruptcy Conference October 2012
deceptively simple. Beneath the surface of simplicity, however, there are several things to consider
when completing a claim. Given the current amount of litigation over poorly filed claims and
defective documents, preparation should be approached with the mindset that the claim will be
objected to immediately after filing and that it must therefore be free of holes and dead weight before
it is cast into the rough seas.
to receive payment.
* If it cannot be explained or described in the claim, it cannot be explained in court. If it
cannot be explained in court, it should most likely not be included in the claim and may need to be
waived by the secured creditor.
1
RESPA is the Real Estate Settlement Procedures Act. It is not a Mexican snowcone.
Mortgage Creditor Proofs of Claim and Objections DFW Consumer Bankruptcy Conference October 2012
proof of claim. If the documents are not available, the claimant must provide an explanation for their
absence.
Instruction 7 contained in Form B10 requires that the claimant “Attach redacted copies of
any documents that show the debt exists and a lien secures the debt. You must also attach documents
that evidence perfection of any security interest.” The instructions for this section of the form
explain that summaries of supporting documents may be attached only in addition to the documents
themselves. “You may also attach a summary in addition to the documents themselves.” (Emphasis
added) It should be carefully noted that the phrase “in addition to” appears both within the
Committee Comments in addition to the form with regard to documents supporting summaries.
Particular attention should also be given to the verbiage “any documents that show the debt exists,”
since “debt” is defined within the Bankruptcy Code as “liability on a claim.” 11 U.S.C. §101(12).
A summary, in and of itself, is not sufficient to meet the requirements of the revised Rule.
Summaries are to be used as an aid and not as a replacement for the actual supporting documents.
Reliance cannot be placed upon Rule 1006 of the Federal Rules of Evidence, which provides
that voluminous writings that cannot be conveniently examined in court may be presented in the
form of a chart, summary or calculation.2 In order for a summary to be admissible into evidence, it
must meet the three-prong test set forth in United States v. Brady, 139 F.3d 1104 (6th Cir. 1998).
First, the summary must relate to documents that are so numerous as to make “comprehension
difficult and . . . inconvenient.” Brady at 1112. Second, the documents must have been made
“available for examination or copying, or both, by other parties at a reasonable time and place”
consistent with Rule 1006. Third, the underlying documents must be admissible into evidence.
Brady at 1109.
2
Rule 1006 of the Federal Rules of Evidence (as recently amended and effective December 12, 2011)
provides as follows:
“Rule 1006: Summaries to Prove Content
The proponent may use a summary, chart, or calculation to prove the content of voluminous writings, recordings,
or photographs that cannot be conveniently examined in court. The proponent must make the originals or duplicates
available for examination or copying, or both, by other parties at a reasonable time and place. And the court may
order the proponent to produce them in court.”(Pub. L. 93–595, §1, Jan. 2, 1975, 88 Stat. 1946; Apr. 26, 2011, eff.
Dec. 1, 2011.)
Mortgage Creditor Proofs of Claim and Objections DFW Consumer Bankruptcy Conference October 2012
Even if the documents were made available to the debtors, debtors’ counsel, the Chapter 13
trustee and the United States Trustee consistent with Rule 1006, the first and third prongs of the
Brady test cannot be satisfied. Inclusion of the actual single page property inspection reports and
BPOs will not, in most events, render “comprehension difficult and . . . inconvenient.” The third
prong, asserting admissibility of the underlying documents, is problematic in light of the new Rule
governing disallowance of information omitted from the claim once an objection is filed. Under the
revised Rule 3001, the proponent of a summary would be unable to prove that the documents are
admissible into evidence since the failure to attach documents to a claim can lead to their exclusion
from evidence as addressed further below. In addition, the proponent would not be able to establish
that the underlying documents were made available to the debtor, debtors’ counsel, the Chapter 13
trustee and the United States Trustee for inspection.
3
Here’s a fun cocktail party topic if you want to alienate your friends and watch members of the opposite
sex flee the room. With witty charm usually reserved for self-medicating game show hosts, casually educate them on
the difference between endorsement and indorsement. “Endorse” is a term in the English language that is used to
indicate your support or approval of a person, place or thing. “Indorse” is a legal term under the Uniform
Commercial Code that indicates the transfer of a negotiable instrument. “Indorse” comes the Latin in dorso which is
derived from the Latin word dorsum. In dorso was shortened to indorsare in Medieval Latin and remains an active
word in the Italian vocabulary.
Mortgage Creditor Proofs of Claim and Objections DFW Consumer Bankruptcy Conference October 2012
information have been redacted from the documents. This should not be limited to invoices only,
but should instead include the actual BPO or property inspection data since the invoice, in and of
itself, does not evidence that the work was performed. Also, particular attention should be paid to
these summaries to ensure that they reflect the date that the charges were incurred, not just the date
when the charges were paid.4 If challenged, a representative from the vendor who performed the
service would need to appear and testify. Given the minimal sums at issue, live testimony is not a
prudent or cost-effective replacement for supporting documents.
* If an original document has been destroyed, a statement setting forth the circumstances of
the loss or destruction should be filed with the claim. Fed. R. Bankr. P. 3001(c). If a document
cannot be produced, and its absence cannot be explained through loss or destruction, the claimant
should consider exclusion of the associated charges from the claim. The potential cost for inclusion
of the charge without supporting documentation is sanctions and attorneys’ fees. Thus, sheer
economics should be employed in calculating the worth of including unsupported charges. See In
re Shank, 315 B.R. 799, 814 (Bankr. N.D. Ga. 2004)(Claimants filing false or “overstated claims in
the expectation that their claims will not be scrutinized . . . do so at their own peril.”)
* Remember, what is included in a mortgage claim can be as important as what may be
missing.
4
The date that the services were performed versus the date the invoices were paid has a new and elevated
importance under the new Rule 3002.1 since the deadline within which to file a Notice Relating to Claim Secured by
Security Interest in the Debtor’s Principal Residence is “180 days after the date when the fees, expenses or charges
were incurred.” (emphasis added) The date that a charge was incurred is different than the date that the creditor
advanced funds to pay the incurred charge.
Mortgage Creditor Proofs of Claim and Objections DFW Consumer Bankruptcy Conference October 2012
other legal document. This is not just a matter of making sure that the B10 is completed and all of
the documents are attached. Correctness requires an examination of the totality of the contents of the
claim package.
years, or both. The practical practice tip? Don’t file a fraudulent claim. See In re Shank, 315 B.R.
799, 814 (Bankr. N.D. Ga. 2004)(Claimants filing false or “overstated claims in the expectation that
their claims will not be scrutinized . . . do so at their own peril.”)
Under the new Rule 3001, there are also consequences for filing a “bad” claim. Sloppiness
is not a crime but now carries a stiff penalty. As set forth above, poorly prepared claims may result
in the claimant being barred from producing additional information to defend against a claim
objection. While a $500,000.00 fine for filing a fraudulent claim may appear steep, imagine the
consequences of filing an incomplete claim for a million dollar property and then not being able to
defend against a claim objection.5
The new B10 includes a declaration which, according to the Committee Notes, “is intended
to impress upon the filer the duty of care that must be exercised in filing a proof of claim.” Persons
signing the form do so under penalty of perjury and must attest that the information is true and correct
to the best of their information, belief and knowledge. Similar verbiage appears in the bankruptcy
schedules and documents filed by the debtors. This places the seriousness of attestation on an equal
footing for both debtors and creditors alike.6
5
The resulting consequence for the claimant is the potential loss of the property and a malpractice action
against its counsel if counsel signed the claim. It will be interesting to see what effect this has on malpractice
insurance premiums for attorneys who continue to sign off on mortgage lender claims after the effective date of the
new rules.
6
This also arguably reflects the increased level of intimate familiarity with the contents that the person
signing the claim must possess.
Mortgage Creditor Proofs of Claim and Objections DFW Consumer Bankruptcy Conference October 2012
7
Robosigning occurs when an individual executes documents without actually reviewing them on what
amounts to an assembly line process. Moreover, some of the persons executing the documents did not have authority
to do so and, in some instances, were not the person whose name appeared on the signature line. All of foregoing
have received a tremendous amount of media attention and have resulted in more intense scrutiny of documents filed
by mortgage lenders in bankruptcy cases.
8
Imagine the reaction of debtor’s counsel if they were to receive the following telephone call: “Prove to
my client that the debtor will be one of the 30% of debtors who will successfully complete his plan. While we are at
it, hand over the last year of the debtor’s billing statements, paychecks, and grocery receipts, I just don’t believe he is
magically living within the artificial guidelines that for all but the most disciplined would be an existence akin to
asceticism.”
9
Preferably with a realistic amount of time for the creditor to amend its claim.
Mortgage Creditor Proofs of Claim and Objections DFW Consumer Bankruptcy Conference October 2012
Before proceeding with a claim objection based upon “lack of documentation,” careful
attention should be paid to the recent opinion of In re Davis, 2011 WL 1302222 (Bankr. E.D. Texas
March 31, 2011). In the Davis case, the debtor objected to all twelve of the unsecured claims filed
in her bankruptcy case on the basis that there were no records attached to the claim and that she could
not verify whether the claim was enforceable against her due to the lack of documentation. The
debtor’s objections were premised on the fact that the creditors had failed to full comply with Rule
3001 by failing to attach documentation. Judge Brenda T. Rhoades held that “the Bankruptcy Rules
do not and cannot contravene the substantive rights contained in the Bankruptcy Code.” Davis at *8,
citing In re Waindel, 65 F.3d 1307, 1309 (5th Cir. 2009). Stated simply, the court held that 11 U.S.C.
§502 sets forth the exclusive grounds for disallowance of a claim. Lack of documentation in and of
itself is not grounds for disallowance but instead goes to the sufficiency of the prima facie validity
of the clam.10
The Davis case is one of a growing number of opinions addressing the doctrines of exclusivity
and non-exclusivity. Adherents of the non-exclusivity doctrine maintain that Rule 3001, and not just
11 U.S.C. §502, provides a mechanism whereby claims may be disallowed. Followers of the
exclusivity approach maintain that disallowance of claims is solely governed by 11 U.S.C. §502.
10
The Davis opinion also contains a rather stern dressing-down of debtor’s counsel for his conduct in
filing the claim objections. In light of the “death penalty” sanction under the new Rule 3001, it is certain that Judge
Rhoades’ excellent analysis in Davis will be revisited and reviewed since the new procedural rule will greatly impact
the substantive rights of claimants.
Mortgage Creditor Proofs of Claim and Objections DFW Consumer Bankruptcy Conference October 2012
in establishing the level of diligence with which the objection was handled.
* It is common in some jurisdictions for counsel to file last minute objections to claims just
to get the case confirmed without any obstacles. Absent a sufficient basis for objection to the claim,
this is neither a wise nor ethical practice and may give rise to a counterclaim by the creditor.
* Debtors filing claims on behalf of creditors should carefully review Fed. R. Bankr. P. 3004
which allows a debtor or trustee to file a claim for the creditor if the creditor failed to file a claim and
thirty (30) days have passed since the bar date. Creditors should be wary of other parties filing claims
on their behalf prior to confirmation, not only because doing so is most likely in derogation of Fed.
R. Bankr. P. 3004, but also because of the binding effect of 11 U.S.C. §1327 as expressed in
Espinosa, infra.
B. Ethical Considerations
Prior to filing an objection to claim, one should bear in mind the mandates of Fed. R. Bankr.
P. 9011. Rule 9011 requires that parties not make representations (which include pleadings) to the
court for an improper purpose, without proper support or without adequate investigation.11
11
The relevant provisions of Rule 9011 are as follows:
“Rule 9011. Signing of Papers; Representations to the Court; Sanctions; Verification and Copies of Papers
(a) Signing of papers.
Every petition, pleading, written motion, and other paper, except a list, schedule, or statement, or
amendments thereto, shall be signed by at least one attorney of record in the attorney's individual name. A party who
is not represented by an attorney shall sign all papers. Each paper shall state the signer's address and telephone
number, if any. An unsigned paper shall be stricken unless omission of the signature is corrected promptly after
being called to the attention of the attorney or party.
(b) Representations to the court. By presenting to the court (whether by signing, filing, submitting, or later
advocating) a petition, pleading, written motion, or other paper, an attorney or unrepresented party is certifying that
to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the
circumstances,—
(1) it is not being presented for any improper purpose, such as to harass or to cause unnecessary
delay or needless increase in the cost of litigation;
(2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a
nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law;
(3) the allegations and other factual contentions have evidentiary support or, if specifically so
identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery;
and
(4) the denials of factual contentions are warranted on the evidence or, if specifically so identified,
are reasonably based on a lack of information or belief.
(c) Sanctions. If, after notice and a reasonable opportunity to respond, the court determines that subdivision
(b) has been violated, the court may, subject to the conditions stated below, impose an appropriate sanction upon the
Mortgage Creditor Proofs of Claim and Objections DFW Consumer Bankruptcy Conference October 2012
Failure to abide by the mandates of Rule 9011 can result in sanctions being issued against the
offending party. For example, filing a claim objection with the sole intention of coercing a loan
modification out of the mortgage creditor is not a good idea.
Are you under an obligation to confer with claim counsel prior to filing an objection?
Absolutely not. There are likewise not any rules which state that you must hold doors open for the
elderly, that you should not chew with your mouth open whilst waving your cutlery, or that you
should not stare obsessively at the stranger standing next to you in the elevator. Nope, those are
known as “social conventions” and, while they are not laws, they dictate what society expects of its
civilized inhabitants. If you are still drawing pictures of animals on your office walls and your letter
opener is made of flint tied to a stick, by all means skip making a conference call.
There are also ethical considerations regarding the counseling of clients. Attorneys are
required to render candid advice to their clients, and such advice “often involves unpleasant facts and
alternatives that a client may be disinclined to confront.” Rule 2.01, Texas Disciplinary Rules of
Professional Conduct.
Lastly, what is the true purpose of your objection? If it is solely intended to maim and destroy,
you may wish to reconsider your area of practice and try family law instead. If it is a legitimate
objection, by all means press forward.
attorneys, law firms, or parties that have violated subdivision (b) or are responsible for the violation.
Mortgage Creditor Proofs of Claim and Objections DFW Consumer Bankruptcy Conference October 2012
C. Choice of Law
Prior to filing your claim, it is very important that a determination be made regarding whether
you are pleading causes of action that arise under state common law. The recent Supreme Court
opinion in Stern v. Mashall, infra, may or may not limit the ability of the bankruptcy judge to hear
all or portions of the objection depending on how it is plead. Be mindful of the fact that if the suit
is removed to state court, it may be subject to the new “loser pays” Texas statute.12 Consideration
should also be given to the fact that, if the objection is removed to federal district court, the cost of
prosecuting or of losing the objection may be increased.
12
Texas House Bill 274 went into effect on September 1, 2011 and provides that unsuccessful litigants
may in some instances be required to pay the legal costs incurred by the successful party. The legislation was met
with critical backlash as its opponents assert that it is making it more difficult for the average citizen to have their
day in court. The effectiveness of the new legislation has generated mixed results though it is still in its infancy.
Mortgage Creditor Proofs of Claim and Objections DFW Consumer Bankruptcy Conference October 2012
Get to the point and stay there until the point is made.
* Be realistic. Do not request $10,000.00 in attorneys’ fees and a free house for your client
because the creditor left off an invoice for a single property inspection.
* Be educated. Expand your skill set with a meaningful familiarity of how escrow accounts
work, what the requirements are for a valid home equity loan, how credit reporting works, and how
to read mortgage payment histories and loan history screen shots.
13
Rule 15 of the Federal Rules of Civil Procedure is made applicable through Rule 7015 of the Federal
Rules of Bankruptcy Procedure. The Rule did not apply just to proofs of claim, but all pleadings.
Mortgage Creditor Proofs of Claim and Objections DFW Consumer Bankruptcy Conference October 2012
prevent last minute amendments that result in trial by ambush or increase the costs of litigation.
Rule 3001 as amended does not contain the same 21 day leniency for amendments.14 While
one could argue that Rule 7015 and Rule 3001 are at odds with one another, Rule 3001 was enacted
specifically to deal with proofs of claim and not pleadings in general, so expectations of a 21 day
amendment period should be placed in line with the Easter Bunny, Santa and a balanced federal
budget.
14
Why? Because creditors are sophisticated business people. But aren’t accounts and lawyers and
business people often debtors as well? Show me a perfect business, and I will show you a world with many less
lawyers. Show me a perfect person, and I can assure you that they are not a lawyer. Bankruptcy exists because of
errors and the unexpected, lapses and accidents, misfortune and circumstance. The revised Rule 3001 requires a
willing suspension of disbelief that none of those forces exist. Debtors are often compelled to amend their plans and
schedules several times over the course of a bankruptcy case. The distinction between creditors and debtors in this
regard is that the debtors are moving forward in a very fluid state and their plan and schedules must accommodate
these changes. A proof of claim, on the other hand, reflects a very solid point in time as of the date of the filing of
the case.
15
The common law doctrine of “just because” is a variant of the doctrine of “just cause,” but without all of
that fancy thinking and logic stuff. The jurisprudential history of “just because” has been traced back to a boy named
Skippy who first asserted the doctrine in his defense after being caught playing “popcorn”with Skittles in the
microwave.
Mortgage Creditor Proofs of Claim and Objections DFW Consumer Bankruptcy Conference October 2012
Rule 12 of the Federal Rules of Civil Procedure is an important resource for dealing with “just
because” objections. Under Rule 12, a party can move to dismiss an objection for failure to state a
claim upon which relief can be granted. Rule 12 also allows a party to request that the objecting party
redraft his pleadings so that the basis for the objection and relief requested are asserted with greater
clarity.
Motions to dismiss and for more definite statement will often help narrow the focus of what
is at issue in the claim. They can also have the undesired effect of exponentially increasing the sense
of manifest unjustness perceived by the objecting party, who may now be convinced that there is a
conspiracy afoot and that is why the claimant is seeking dismissal of the objection.
Sometimes you will need more than one witness. Creditors are often reluctant to provide
more than one witness at an evidentiary due to cost, travel and staffing concerns. By the same token,
debtors will often be loath to call upon an employer, a spouse, or a counselor to appear and be heard.
* Before requesting loan origination documents, talk to your client and verify that they were
honest as Eagle Scouts on their loan applications. Creditor counsel will review the documents before
handing them over, and you do not want a fight over escrow to suddenly turn into a criminal matter
based upon a fraudulent loan application.
Bankr. P. 3008. Reconsideration may be granted after cause has been shown. 11 U.S.C. §502(j).
If the claim objection was litigated by the parties, relief from the judgment can be sought based upon
“mistake, newly discovered evidence, fraud, a void or satisfied judgment or any other similar
reasoning justifying relief.” In re Gomez, 250 B.R. 397, 401 (Bankr. M.D. Fla. 1999). If the
objection was not litigated, cause for reconsideration will take into account the following factors: 1)
extent and reasonableness of the delay, 2) prejudice to any party in interest, 3) effect on the efficient
administration of the court, and; 4) the good faith of the moving party. Id. It should be noted that any
claimant asserting “mistake” or “newly discovered evidence” will have difficulty requesting
reconsideration of a disallowed claim unless the claimant has complied with Fed. R. Bankr. P.
3001(c). The claimant should include an attached statement setting forth the relevant circumstances.
Upon conclusion of the objection process (and any appeals and reconsiderations), follow up
and make sure that any adjustments to the claim and account are expeditiously effectuated by the
secured creditor. If no adjustments to the claim and account were necessary, make certain that the
final order indicates such to prevent revisiting the same matter outside of bankruptcy.
* Continue attending seminars such as this one. There is no excuse for lack of an excellent
education in the iWorld.
* Keep track of your time and expenses. This is not just a matter of billing; this also allows
some parties to know when the end is near which is right here and now.
Mortgage Creditor Proofs of Claim and
Objections: A Practical Primer for Practice
Under the Revised Rules
June A. Mann
Mann Law Firm PLLC
Arlington, Texas
October 2012
No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or
retrieval system, without prior written permission of the authors. No part of this publication is intended to constitute
legal advice, and the contents herein are provided solely as a starting point for persons seeking to research bankruptcy
related issues. Persons in need of legal advice should consult with a licensed attorney, preferably one that regularly
practices in the field of bankruptcy.
Mortgage Creditor Proofs of Claim and Objections DFW Consumer Bankruptcy Conference October 2012
At least one of the Northern District of Texas Chapter 13 bankruptcy trustees is filing
objections to requests by mortgage lenders for additional fees pursuant to Rule 3002.1(e)
(supplemental proofs of claim) by asserting that:
(a) The preparation of a Proof of Claim “is a ministerial task that does not require the
assistance of legal counsel and is routinely performed by non-legal assistants through the
bankruptcy industry. Said Proof of Claim does not claim any attorney fees for the
preparation of said document.”;
(b) The mortgage lender has “asserted a claim of $50.00 attorney fees associated with
the ‘Attorney Fees for Preparation and Filing of ARM/Escrow Change Letter.’ The Chapter
13 Trustee contends that irrespective of the filing of the bankruptcy case, the debtor is
entitled to and does routinely receive notices of ARM escrow changes without a cost or the
consultation of any attorney. Preparing and filing the ARM escrow change letter form is a
ministerial task that does not require the assistance of legal counsel and is routinely
performed by non-legal assistants throughout the bankruptcy industry.”; and
(c) The mortgage creditor has “assessed attorney fees which have not been approved.”
As of October 15, 2012, the Court has not yet ruled on any of the pending Trustee objections.
Ruling: In a recent decision in the Southern District of Texas, the Court sustained the
Debtors’ objection to the mortgage lender’s payment change notices because the creditor
sought recovery of past due uncollected amounts from previous years through a payment
change letter under Rule 3002.1(e). In re: Greg Garza and Elvera Garza, Case
08-60088-V-13 (S.D. Tex. October 1, 2012). The issues were submitted to the Court solely
on stipulated facts.
Background: The mortgage lender filed two Notices of Payment Change under Bankruptcy
Rule 3002.1 and the Debtors filed objections to both of the notices and requested their
attorneys’ fees as well as other relief. The mortgage lender filed its first Notice of Payment
Change but later withdrew it after the Debtors filed an objection. The mortgage lender then
filed a second Notice of Mortgage Payment Change under Rule 3002.1(b) and the Debtors
again objected because the creditor was seeking to increase the mortgage payment due to
escrow shortages which had accrued since the bankruptcy filing.
Mortgage Creditor Proofs of Claim and Objections DFW Consumer Bankruptcy Conference October 2012
Because the Chapter 13 Trustee was paying both the pre-petition arrears as well as the
on-going mortgage payments, the Debtors filed an emergency motion to stay the effectuation
of the increase to their mortgage payments and the stay was granted by the Court.
(1) The mortgage lender failed to comply with Rule 3002.(1)(c) which requires the
holder of a claim secured by a lien in a debtor’s principal resident to file and serve
a notice itemizing all fees, expenses and other post-petition charges within 180 days
after charges are incurred.
(2) Because Rule 3002.1 did not become effective until December 1, 2011, which is after
some of the amounts were incurred, the Court had to look to other applicable law.
(3) The mortgage lender had failed to respond to the Chapter 13 Trustee’s “Notice of
Bar Date for Asserting Claim for Post-Petition Charges Accruing on Residential
Mortgage Claims” within the 60 days after the Trustee’s notice was issued.
(4) The Debtors had “dutifully made their required plan payments since late 2008.”
(5) Because the mortgage lender could not produce any evidence that it had complied
with the requirements of RESPA and sent the annual escrow statements, the Court
concluded that RESPA statements had not been sent to the Debtors. The Court
deemed the escrow shortages waived due to the mortgage lender’s failure to provide
the annual statements.
(6) All deficiencies on the loan accruing for the years 2008 through 2011 were ordered
waived by the Court and the Court ordered the mortgage lender to place the RESPA
buffer (1/6 of the annual escrow disbursements) into the Debtors’ escrow account.
(7) The court awarded Debtors’ counsel reduced attorneys’ fees.
Issues Not Decided: Will attorneys’ fees be awarded to debtor’s counsel when a Rule
3002.1 notice is filed and it includes amounts which were incurred prior to the effective date
of Rule 3002.1? Does it make any difference whether they were previously disclosed?