Objection to Plan based upon Escrow Shortage that was addressed in Loan Mod
Posted: Wed May 16, 2012 9:42 pm
Debtor obtained loan mod from Chase, with impound account. Due to timing versus property tax due date there was a built in shortage in the Escrow account for the first property tax payment. Written modification agreement specifically states that the first 60 months of trust deed payments are increased to cure that built in escrow shortage. Debtor made all subsequent payments timely and in full. Debtor filed a Chapter 13 case and now lender maintains that the contract terms do not apply and that the escrow shortage is prepetition arrears that have to be paid through the plan. Lender lowered the alleged amount due on each postpetition trust deed payment to offset the extra amount added under the agreement. Of course Chase did not send out any type of notice explaining this change. Instead Chase waited a couple months and then wasted a whole bunch of people's time, mostly mine of course, by filing an objection to Plan for not including the alleged arrears, without explaining how there were any, and for the plan being unfeasible because of the alleged arrears.
After spending a couple hours discussing the matter with the debtor, pouring through the modificiation agreement and payment history, I corresponded with the creditor's counsel about how in the world there were any arrears since under the terms of the agreement debtor was current? Response: "The inclusion of escrow shortages as a pre-petition (sic for Dennis' benefit) arrear is required by the bankruptcy code and court precedent, and that portion cannot be collected as part of Debtors' post-petition (sic) payments.... Had Debtors not filed bankruptcy, their payments would have continued to include that portion being applied to escrow. However, since Debtors filed bankruptcy, their payments have actually decreased as a result of the collection of the escrow shortage in the proof of claim. Unless the Plan is amended to account for the escrow shortage indicated in the objection, the objection will remain on file."
That is how I learned the monthly pospetition trust deed payments were reduced.
I do not see how Chase can argue there are prepetition arrears when the escrow shortage is addressed by and included in the modification agreement.
Although common sense dictates that if the trust deed payment is decreased by $75 per month that means there is $75 more to pay into the plan, Chase still objected on feasibility grounds! Ultimately the difference is the escrow shortage would be paid through the plan instead of under the modification agreement, but why should the debtor have to pay in an extra $430 to cover the Chapter 13 trustee's percentage in this zero percent plan?
Any one else face this issue?
Mark Jessee
The post was migrated from Yahoo.