Rights afforded to mortgagee under RESPA to recover escrow ‘cushion’ through required shortage contribution could not be modified via Chapter 13 plan

The debtors contended in In re Rodriguez, 07-24687 (Bkrtcy.D.N.J., July 22, 2008) that Countrywide’s post-petition escrow analysis of the mortgage account constituted an unlawful post-petition collection of a pre-petition obligation resulting in repetitive and excessive payments by the Debtor of significantly more than what would have been paid but for the bankruptcy, or what Countrywide would be entitled to through the Debtor’s Bankruptcy (sic) Chapter 13 Plan. Judge Kaplan disagreed. He found that the rights afforded lenders under RESPA cannot be abrogated in the context of a Chapter 13 bankruptcy proceeding. Debtors’ required shortage contribution is a charge authorized by and calculated in accordance with RESPA, as well as the underlying loan agreement; as such, any modification of such rights would contravene the prohibition against modifying the rights of a holder of a claim secured by a security interests in a debtor’s principal residence. He expressly denied the debtors claim that Countrywide must include in its pre-petition arrearage, to be paid over the life of the Chapter 13 plan, not only sums actually disbursed by Countrywide for items such as taxes and insurance, but also such additional sums the Debtors should have paid into the escrow account prior to filing. In doing so he rejected the recent analysis made by Judge Manger in _In re Fitch_, 2008 WL 1791197 (Bankr.E.D.La.2008) where she concluded that debtors are afforded the benefit of a hypothetical positive balance in their escrow account for purposes of calculating their post-petition escrow obligations. To quote Judge Kaplan: This Court is troubled by such a result and is not prepared to leap into the Alice in Wonderland approach to mortgage servicing, in which lenders are required to credit an escrow account for payments not made, while coming out of pocket to advance additional payments of taxes and insurance on behalf of Chapter 13 debtors. Indeed, as argued by Countrywide, this is the very result RESPA seeks to avoid in allowing the collection of the shortage component.


  • Solomon Maman

    Solomon has nearly two decades of experience representing financial institutions, real estate investors and privately owned business entities. Solomon concentrates his practice in the areas of banking, consumer financial services, real estate, business law and related litigation and appellate practice.

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