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Mortgage Servicers filing POCs: take ‘notice' of your proof of claim

By Jason Weber • Thursday, October 1, 2015

The first step to defending a debtor's objection to proof of claim is knowing one was filed.   Debtors are required to provide notice to creditors.  The Federal Rules of Bankruptcy Procedure contain numerous rules governing notice, each describing the form, content and time periods for establishing their adequacy.  Deviating from these rules could result in the relief requested being denied, despite an otherwise justifiable claim.  Conversely, a creditor's untimely recognition and response to a debtor's properly noticed objection may result in harsh consequences, which was a lesson made painfully clear by the court in Quintana. Case No. 14-15316-BKC-MER, ECF 86 (Bankr. D. Col. Sept. 4, 2015) (J. Romero).  Here, the United States Bankruptcy Court for the District of Colorado denied the creditor's efforts to vacate an objection to its proof of claim based on an assertion of improper notice and entitled them to receive only the pre-petition arrearage provided for in the debtor's confirmed Chapter 13 Plan.


On November 28, 2014, the debtors filed an objection to a creditor's proof of claim disputing the amount of arrears and fees sought in the claim.  The objection was served on the creditor at the same address as that listed under “Name and address where notices should be sent” on the proof of claim filed by the creditor.  On January 22, 2015, the Court directed the debtors to file a notice regarding the objection and, on January 28, 2015, the debtors filed a notice of their objection giving the creditor until February 27, 2015, to file a response.  Again, the notice was sent to the same address as indicated in the “notice” section in the creditor's proof of claim and the address listed in the section entitled “name and address where payments should be sent.”  When the creditor failed to file a response, the court entered an order on June 2, 2015, sustaining the debtors objection and striking the arrearage claimed on the creditors proof of claim.  

After entry of the order, creditor moved to vacate pursuant to Fed. R. Civ. P. 60(b) and argued that notice was improper because debtors did not serve an officer, managing agent, or any other agent, as required by Fed. R. Bank. P. 9014 and 7004(b)(3).  The debtors countered by claiming service was proper since both the objection and notice were mailed to the addresses listed by the creditor in its proof of claim.


Before ruling on the merits of creditors motion, the court noted that creditor incorrectly sought reconsideration under Rule 60 and instead should have sought relief under section 502(j) of the Bankruptcy Code.  According to section 502(j) “a claim that has been allowed or disallowed may be reconsidered for cause.  A reconsidered claim may be allowed or disallowed according to the equites of the case.”  In an effort to substitute section 502(j) for Rule 60, the court cited In re Disney for its interpretation of section 502(j) which found “Congress chose not to limit the circumstances under which a court may reconsider a claim, but used the broad ‘for cause' language that requires the bankruptcy court to examine the circumstances on a case by case basis to determine if cause exists.”  In re Disney, 386 B.R. 292, 298 (Bankr. D. Col. 2008).  By applying the Disney case and its more flexible standard, the court agreed to review the creditor's motion under section 502(j) and Rule 3008, weighing the equities of the case.

Sadly for the creditor, the court found the debtors' objection was properly served under both 502(j) and the equities of the case.  First, the court determined that the creditor consented to service at the address listed in its proof of claim and, for support, relied on Bankruptcy Rule 3001, which sets forth the form to be used when filing a proof of claim, and Bankruptcy Rule 2002(g)(1)(A), that states “a proof of claim filed by a creditor…that designates a mailing address constitutes a filed request to mail notices to that address….”  Similarly, the court cited to a Tenth Circuit case that held “a party ‘cannot submit an address to the court as that to which all notices should be sent and then argue that it was not properly served when notices are sent to that address.'''  In re Karbel, 220 B.R. 108, 112 (10 Cir. BAP 1198) (quoting In re Village Craftsman, Inc., 160 B.R. 740, 745 (Bankr. D. N.J. 1993)).  Consequently, the court found the creditor had consented to service and concluded the absence of an officer or agent in its proof of claim was voluntary.  Finally, the court held the equities of the case did not support overruling the debtor's objection, noting the creditor “cannot reasonably expect to file a proof of claim with a specific address for receipt of notices, which lacks reference to any officer, agent or representative, and then receive notices other than at that address.”

Best Practices

The example demonstrated in the Quintana opinion reflects the thousands of dollars of unrecoverable arrears and fees lost to the creditor, but also serves as a cautionary tale to debtors, creditors and practitioners of the importance of knowing the rules governing notice.  Specifically, greater attention must be paid to the name and address listed in the proof of claim, and creditors must be prepared to accept service based on that address.  Equally important, creditors' internal mail procedures must be diligent and cannot allow for gaps or missed opportunities to respond to objections.   While failure may result in severe consequences, as such was the case for the creditor in Quintana.

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