Nicole A. Correale-Darling

In the Motion for Relief, MERS asserts that it is the holder of the first mortgage on 41
Tilesboro Street, Dorchester, Massachusetts. MERS attached a copy of the mortgage to the
Motion for Relief indicating that it is the nominee of Quick Fund, Inc. There is no mention of
Flagstar Bank in the Motion for Relief, and Flagstar Bank does not indicate the nature of its
interest in the Motion to Clarify. Additionally, in the Motion to Clarify, Flagstar Bank is
repeatedly referred to as “Flagstaff Bank.” Because I am not granting relief from stay without a
further hearing on the matter, for purposes of this opinion I will assume, without deciding, that
MERS has standing to bring such a motion in order to decide the narrower issue, namely,
whether the mortgagee is barred from seeking relief from stay. I note, however, that standing
will be a threshold issue at any further hearing on the Motion for Relief. See In re Hayes, 07-
13967-JNF, 2008 WL 3870820 (Bankr. D. Mass. Aug. 19, 2008).
1
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS
EASTERN DIVISION
____________________________________
IN RE:
NICOLE A. CORREALE-DARLING, Chapter 13
DEBTOR Case No. 07-14395-WCH
____________________________________
MEMORANDUM OF DECISION
I. INTRODUCTION
The matters before the Court are the Motion for Relief from Stay (the “Motion for Relief”)
filed by Mortgage Electronic Registration Systems, Inc. (“MERS”), the opposition filed by Nicole
A. Correale-Darling (the “Debtor”), and the Motion to Clarify Trustee’s Modification of Plan Prior
to Confirmation (the “Motion to Clarify”) filed by Flagstar Bank. The Debtor asserts that the1
doctrine of laches bars MERS’ from seeking relief from stay because the Debtor has, for
approximately one year, in good faith, complied with the terms of a plan to which MERS’ never
objected. For the reasons set forth below, I will enter an order scheduling the Motion for Relief for
further hearing.
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Docket No. 18.2
Docket No. 19.3
2
II. BACKGROUND
The Debtor filed a skeletal Chapter 13 petition on July 16, 2007. On August 15, 2007, the
Debtor filed the outstanding Schedules and Statements. On Schedule A- Real Property (“Schedule
A”), the Debtor lists an ownership interest in real property located at 4 Tilesboro Street in
Dorchester, Massachusetts (the “Property”). Based on the address listed on her petition cover sheet,
the Property is not her primary residence. On Schedule A, the Debtor valued her interest in the
Property at $180,000, while listing a secured claim in the amount of $203,452. Schedule D -
Creditors Holding Secured Claims (“Schedule D”), lists Flagstar Bank as the holder of the allegedly
undersecured claim on the Property. Schedule J - Current Expenditures of Individual Debtor(s)
(“Schedule J”), discloses that the Debtor has monthly net income of $75.22 after the payment of her
average monthly expenses, including a monthly mortgage payment of $1,320.78.
The Debtor also filed a Chapter 13 plan (the “Plan”) on August 15, 2007. The Plan’s
certificate of service reflects that the Debtor served the Plan on Flagstar Bank, as well as the Harmon
Law Offices, P.C. The Plan itself provides under Section V. OTHER PROVISIONS as follows:2
First mortgage of Flagstar will be bifurcated pursuant to Section 506. Secured
portion of $180,000.00 to be paid pursuant to the attached Mortgage calculator
exhibit (8% interest on 30 year amortization, balloon on 60th month). Debtor will
pay Flagstar directly $1,320.78 for 59 months. In July 2012 and prior to the entry of
her discharge, she will pay bank a balloon payment of $170,945.00. Unsecured
portion will be treated in accordance with Section IV infra.3
Section IV. UNSECURED CLAIMS provides that Flagstar Bank will be paid a dividend of not less
than 0% on account of the $23,452 unsecured portion of its claim.
The Court issued the Notice of Chapter 13 Bankruptcy Case, Meeting of Creditors, &
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The docket reflects that the first date set for the meeting of creditors was actually4
August 29, 2007. This date was rescheduled the next day when Denise Pappalardo was
appointed Chapter 13 trustee after Carolyn Bankowski filed her rejection. Because this date was
never noticed out to any parties in interest, I will not consider it for purposes of calculating the
objection deadline.
I note, however, that pursuant to an agreed order between the Debtor and the Chapter 135
trustee (the “Trustee”), on September 4, 2007, I extended the deadline for the Trustee to file an
objection to confirmation to October 10, 2007.
Docket No. 30.6
3
Deadlines (the “Notice”) on July 17, 2007. The Notice scheduled the meeting of creditors for
August 31, 2007, and indicated that objections to confirmation of a Chapter 13 plan shall be filed
no later than fifteen days after this date. Accordingly, pursuant to Massachusetts Local Bankruptcy
Rule (“MLBR”) 13-8(a), the deadline for filing an objection to the confirmation of the Plan was
September 17, 2007. No objections were filed by that date.4 5
On May 29, 2008, the Debtor filed an amended Schedule J without a motion to amend,
notice of amendment, or certificate of service. The amended Schedule J increased the Debtor’s
monthly net income from $75.22 to $1,518. Notably, the Debtor’s amended Schedule J reduced her
monthly mortgage payment from $1,320.78 to $0. The balance of the increase is attributed to a $122
reduction in her monthly discretionary expenditures, including food, recreation, and miscellaneous
expenses.
On June 10, 2008, the Trustee filed a Modification of the Plan Prior to Confirmation (the
“Modification”) increasing the Debtor’s monthly plan payments from $75 to $1,518. The
Modification further provided that “[s]ecured claim of Flagstar of $77,926.02 to be paid through
plan.” The Trustee’s Summary of Disbursements to be Made Under the Plan (the “Summary”)6
attached to the proposed confirmation order filed the same day explains the treatment of Flagstar
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Docket No. 29. I note that this document is not available on the public docket.7
The total proposed monthly payments of $77,926.02 plus the balloon payment of8
$170,945 equals $248,871.02. The Debtor, however, asserts that the secured portion of the claim
is only $180,000.
Flagstar Bank was likely unaware of the amended Schedule J as no certificate of service9
was filed indicating that the amendment was properly served.
4
Bank’s claim as follows:
The first mortgage of Flagstar will be bifurcated pursuant to Section 506. The
secured portion of the $180,000.00 will be 8% interest amortized of 30 years with a
balloon payment in the 60th month. Debtor will pay Flagstar $77,926.02 through the
plan in the sum of $1,298.77 each month. In July 2012 and prior to the entry of her
discharge, Debtor will pay the bank a balloon payment of approximately
$170,945.00. The unsecured portion will be treated in accordance with Section D,
above.7
Section D of the Summary indicates that the Plan will pay a 0% dividend to unsecured creditors.
On June 12, 2008, only two days after the Modification was filed, Flagstar Bank filed the
Motion to Clarify. It observed that the Debtor’s proposed treatment of its claim exceeds the value
that the Debtor lists as the secured. Moreover, Flagstar Bank asserted that the Modification8
increased the proposed monthly payment to an amount higher than the Debtor’s monthly net income
as disclosed on Schedule J. Accordingly, in the Motion to Clarify, Flagstar Bank requested that the9
Modification be clarified as to the amount that the Debtor will be paying through the Plan with
respect to both the secured and unsecured portions of its claim.
On June 27, 2008, prior to a hearing on the Motion to Clarify, MERS filed the Motion for
Relief from Stay with respect to the Property. MERS alleged that it is the holder of a first mortgage
on the Property in the amount of $218,879.88. Including an execution in the amount of $1,801.82
held by E.B. Horn Co., MERS asserted that the secured encumbrances on the Property totaled
$220,681.70. Using the $180,000 fair market value disclosed in the Debtor’s schedules, MERS
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determined that the liquidation value of the Property is approximately $167,879.20. As the Debtor
has no equity in the Property, MERS asserted that relief was warranted pursuant to 11 U.S.C. §
362(d)(2) because it is not necessary for an effective reorganization. Moreover, MERS alleged that
the Debtor failed to make any post-petition loan payments since August 1, 2007, entitling it to relief
under 11 U.S.C. § 362(d)(1). At the time the Motion for Relief was filed, MERS alleged the total
post-petition arrearage was $21,113.49.
The Debtor filed her opposition to the Motion for Relief on July 10, 2008. In it, she admitted
her lack of equity in the property, but disputed both the pre- and post-petition arrearage figures
alleged by MERS. The Debtor further responded that MERS “gives no credence to the fact that the
debtor’s plan which was not objected to calls for a cram down of [MERS’] claim.” Pursuant to the
Plan, to which the Debtor argues she has been acting in good faith and abiding by the terms thereof
for almost a year, the Debtor asserts that she has paid real estate taxes and insurance on the Property,
and has made regular payments to the Trustee. The Debtor contends that these payments adequately
protects MERS’ interest in the Property. Moreover, while the Debtor concedes that she has no equity
in the Property at this time, she asserts that it is necessary for an effective reorganization because
rental income from the Property allows her to make the payments under the Plan. The Debtor also
anticipates a “rebound” in the real estate market which will afford her equity in the Property.
Relying on the doctrine of laches, the Debtor argues that MERS should be barred from seeking relief
from the automatic stay because it failed to object to the Plan timely and now seeks relief one year
later because it does not like the Plan’s terms. Implicitly, the Debtor’s position is that MERS is
bound by the treatment provided in the Plan.
I conducted a hearing on the Motion to Clarify and the Motion for Relief on August 14, 2008.
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Due to a technical malfunction of the Electronic Court Recording System, a transcript10
of the hearing is unavailable.
I note that if the Modification increased the unsecured portion of the claim, which11
under the Plan will receive a dividend of less than 0%, a modification was inappropriate and the
Debtor should have filed an amended plan and a motion to approve the amended plan pursuant to
MLBR 13-10(b).
In re Melillo, 385 B.R. 476, 481 (Bankr. D. Mass. 2008).12
6
After oral arguments, I took both matters under advisement.10
III. DISCUSSION
Addressing the Motion to Clarify first, Flagstar Bank correctly observes that the Plan is
improperly calculated. The Plan, pre-Modification, calls for payments of $1,320.78 to be paid to the
secured creditor for fifty-nine months, with a balloon payment of $170,945 in the sixtieth month,
while treating the balance of $23,452 as unsecured debt. The sum of these amounts is $272,323.03,
$68,871.02 more than what the Debtor alleges is the total amount of the secured claim. The
Modification compounds the problem by stating that the Debtor will make payments of $1,298.77
for fifty-nine months totaling $77,926.02, when properly calculated it only amounts to $76,627.43.
While the Summary increases the unsecured portion to $23,971, this does not account for the
difference in figures.11
Aside from the mathematical errors discussed above, the Modification ultimately renders
the Plan un-confirmable. As I previously held in In re Melillo, plans that provide for secured
creditors to be paid periodic payments for the term of the plan with a lump sum payment in the final
month violates the “equal monthly payment” requirement of 11 U.S.C. § 1325(a)(5)(B)(iii)(I).12
Moreover, even in the absence of an objection from the secured creditor, I have “an affirmative duty
to review [a Chapter 13 plan] and ensure its provisions comply with the provisions of the Bankruptcy
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Id. (quoting In re Bethoney, 384 B.R. 24, 26 (Bankr. D. Mass. 2008).13
The Debtor also fails to consider the effect of the Modification on the rights of the14
creditors. Pursuant to MLBR 13-8(a), as amended May 1, 2008, “any objection to confirmation
of a chapter 13 plan shall be filed no later than . . . thirty (30) days after service of a modified
plan, unless otherwise ordered by the Court.” Accordingly, even if the Motion for Relief was
simply a veiled objection to confirmation, it was timely.
7
Code.” Accordingly, I will order the Debtor to file an amended Chapter 13 plan to correct and13
clarify the treatment of the secured claim. To the extent that the Debtor shall file an amended plan,
the Motion to Clarify is moot.
To the extent that I find the Plan, as modified, improperly calculated and un-confirmable, the
Debtor’s laches argument is moot. Moreover, I note that the Debtor’s characterization of the Motion
for Relief as simply a late objection to confirmation, albeit in a different form, also fails to capture
the essence of the motion. At its core, the Motion for Relief does not object to the Plan, but rather14
alleges that the Debtor has not complied with it. The Plan, both prior and subsequent to the
Modification, provides that the secured creditor would receive monthly payments on account of the
secured portion of the claim. The Motion for Relief from stay alleges, inter alia, that the Debtor has
failed to make any payments on account of the mortgage since August 1, 2007. Even if the Plan had
been confirmed as modified, MERS would remain entitled to seek relief from stay for cause under
11 U.S.C. § 362(d)(1). Because the issue of non-payment was not addressed at the August 14, 2008
hearing, I will schedule the Motion for Relief for further hearing.
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IV. CONCLUSION
In light of the foregoing, I will enter an order directing the Debtor to file an amended Chapter
13 plan, mooting the Motion to Clarify, and scheduling the Motion for Relief for further hearing.
______________________________
William Hillman
United States Bankruptcy Judge
Dated: August 25, 2008
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