California Bankruptcy Court’s local form mandating enhanced reporting requirements for creditors approved by Bankruptcy Appellate Panel

In Re Herrera, BAP No. CC-09-1155 (Bankr., 9th Cir., January 5, 2010) involved three separate Chapter 13 cases whereby the mortgagees holding mortgages on the debtors’ primary residences objected to confirmation of proposed plans that incorporated a local form containing optional plan provisions approved by the district’s bankruptcy judges. The form imposed various post-confirmation reporting and other duties on the mortgagees. The mortgagees argued 1) that Congress intended that RESPA occupy the field requiring reports from mortgage creditors to debtors regarding loans on primary residences, to the exclusion of the states and other branches of the federal government, including the courts, and 2) that inclusion of the challenged form in the debtors’ confirmed plans violated the Bankruptcy Code’s antimodification provision. The bankruptcy judges overruled the objections and the creditor’s appealed. For the first argument, the Bankruptcy Appellate Panel found that use of the form did not violate the separation of powers doctrine because judges were not compelled to use the form. Use of the form was optional. Also, RESPA undercuts the argument that Congress intended that RESPA occupy the field when it comes to the mortgagee’s obligations to report to mortgagors. RESPA provides a floor, a minimum set of disclosures required of mortgage creditors to borrowers; it does not limit it. The court noted that the recent amendment to the Truth in Lending Act imposes even more substantially intrusive reporting requirement on mortgage creditors than RESPA’s requirements reporting requirements on mortgagees. See, 12 C.F.R. § 226.36(c)(1)(iii) suggesting that RESPA is not the final word on reporting. As for the form’s alleged violation of the anti-modification provision in the mortgages, the court found there was nothing in the form that limits or modifies these rights. The mortgagees’ right to seek recovery of all post-petition charges under the mortgage was not impacted by the debtors’ confirmed plans or the form provisions. More significantly, there was no provision in the mortgage instruments that grants the mortgagees a right to decline to provide accountings and reports to the debtors or a trustee beyond those prescribed by the mortgage contracts, or any sort of bargained for prohibition on modification of duties under the contract. On the other hand, the contracts expressly acknowledge that RESPA imposes duties on the mortgagees to provide account reports. As such while reporting may be a duty it is not a right. Consequently, the anti-modification provision was not applicable in this dispute.

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