There are pending rule changes for Rule 3002.1, which you may wish to review. Ryan Johnson, Clerk, Northern District Bankruptcy Court Clerk, included them in the agenda for the Northern District bar meeting on June 14, 2021.
In the meantime, the current rule requires that mortgage creditor file a Notice of Mortgage Payment Change at least 21 days prior to the effective date of the change. If the mortgage is paid through the trustee, my office will set up the change as of the effective date—unless it is not timely filed. At which point, we will file an objection as late-filed and will not make the change.
Assuming a timely filed Notice, the staffer who enters the payment change does a feasibility workup to determine if this change makes a difference to the distribution in the case. Sometimes, it would appear that the change is so minute as to not cause an issue, but if the debtor has been chronically late on payments or defaulted on payments, even a small change in the mortgage payment can make a difference. If the feasibility workup shows that the plan as confirmed will no longer “cash flow” and allow the debtor to complete the case as scheduled, we have filed motions to dismiss for failure to modify the plan.
Earlier this month, we implemented a change to this procedure—we are filing a Motion to Modify the Confirmed Plan, which will be our procedure going forward. The information in the Motion is very much the same as the information that was in the motion to dismiss and we attempt to deal with any issues in the case which came to light as a result of the feasibility analysis with the new Mortgage Payment Change. Debtor’s counsel will have an opportunity to object to the motion and/or to the notice of payment change. A proposed order modifying the plan will be filed with the motion.
Since the Rule went into effect, our office has attempted to deal with the need for changes in the plan in various ways. We initially filed Notices of a Payment Change, which were largely ignored, and didn’t take into account any other problems with the case. When I discovered that many other trustees were moving to dismiss, we initiated that practice. But we waited two, three, even four months to file the motion to allow debtors’ counsel an opportunity to take action. In the majority of cases, no action was taken by counsel in the intervening months. HOWEVER, that meant that the mortgage payment increase had been in effect several months without a corresponding increase in the plan payment. So, the amount needed on a monthly basis was greater than it would have been in the same month the Notice was filed. So, then we started filing the motion immediately upon entering the payment change. But that meant it was filed prior to debtor’s counsel even having an opportunity to do anything—including an objection to the Notice—which created some consternation by some debtors’ counsel.
Since we are preparing the motion at the time we enter the Notice of Payment Change, we are calculating the increased plan payment with two months (which is the month in which the notice is received and the following month) at the current plan payment to allow for wage withholding orders or set-up plan payments to be changed and implemented, and then the increased payments over the months remaining in the case. NOTE: the increase is based on the debtors making
the regular plan payments for those two months. Failure to do so will result in a motion to dismiss for failure to maintain plan payments and any agreed order will require a higher plan payment than in the original motion/order.
The other Notice that is filed by the mortgage creditors is the Notice of Payments, Fees and Charges. This is for the payment by the creditor of related expenses AFTER the case is filed. I have objected to Notices of payments that were incurred prior to the case being filed. Those can and should be included in the proof of claim. This Notice must be filed within 180 days of the expense being paid by the creditor.
One thing I have frequently noticed is that some creditors, who had to pay insurance or property tax, will pro rate that as an escrow payment and file a Notice of Mortgage Payment Change. While I hope that not many of these have escaped me, it is my intention to file an objection—if debtor’s counsel doesn’t. The creditor cannot unilaterally change a non-escrow loan into an escrow loan. The creditor may be entitled to be reimbursed for the payment if the loan documents/deed of trust allow it, but the creditor is not entitled to convert a non-escrow loan into an escrow loan. The proper procedure for the creditor is to file a Notice of Expenses, Fees and Charges, which my office sets up as a separate but related mortgage claim.
Again, we do a feasibility workup to see if the claim will cause the plan to fail and will file a motion to modify if the plan will no longer cash flow. If this creates a cash-flow/completion issue, we will file a motion to modify.
These procedures ONLY apply to mortgages being paid through the trustee. If debtor’s counsel has elected to have the debtors pay the mortgage directly, my office does not monitor the changes in payments or additional charges. Since my office is not curing a pre-petition default on the mortgage, I am not required to file a Notice of Final Cure which determines whether the debtor is current if the debtor is paying the claim directly. On a direct pay mortgage, debtor’s counsel may file the Notice of Final Cure or other motion to determine the status of the mortgage at the end of the case. I am not aware of any debtor’s attorney in either Northern or Southern District doing so.
It has long been my policy, even prior to Rule 3002.1, that if the mortgage was paid through the trustee, we would do a motion (prior to the Notice of Final Cure) to determine that the mortgage is current. Using the current Notice form, if there is no pre-petition arrearage, we mark that as zero and file the documentation as to what the trustee has paid on the claim. If the plan proposes to pay the mortgage in full through the trustee, my office files a motion to determine the mortgage is paid in full if we do not otherwise receive confirmation that the mortgage is satisfied.