Residential Capital, LLC

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
In re:
RESIDENTIAL CAPITAL, LLC, et al.,
Debtors.
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NOT FOR PUBLICATION
Case No. 12-12020 (MG)
Chapter 11
(Jointly Administered)
MEMORANDUM OPINION AND ORDER SUSTAINING THE RESCAP BORROWER
CLAIMS TRUST’S OBJECTION TO CLAIM NOS. 1687 AND 1689
FILED BY ROBERT KENNETH HARRIS
A P P E A R A N C E S:
ROBERT KENNETH HARRIS
Pro Se
909 Patton Lane
Westwego, Louisiana 70094
By: 	Robert Kenneth Harris
MORRISON & FOERSTER LLP
Attorneys for the ResCap Borrower Claims Trust
250 West 55th Street
New York, New York 10019
By: 	Norman S. Rosenbaum, Esq.
Jordan A. Wishnew, Esq.
Jessica J. Arett, Esq.
MARTIN GLENN
UNITED STATES BANKRUPTCY JUDGE
Robert Kenneth Harris (“Harris”) timely filed Claim Numbers 1687 and 1689
(collectively, the “Harris Claims”) against Debtor GMAC Mortgage, LLC (“GMACM”),
asserting secured claims for $45,999.45 and $108,609.46, respectively.1 The ResCap Borrower
Claims Trust (the “Trust”) objects to the Harris Claims, arguing that the amounts asserted in the
1 	The Claims relate to mortgage loans secured by real property located in the state of Louisiana.
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Harris Claims do not have a basis and therefore they seek to allow the Harris Claims in a
modified, reduced amount (the “Modified Claim Amounts”).
The Trust adequately shifted the burden by rebutting the prima facie validity of the Harris
Claims and Harris has failed to meet his burden to establish the viability of his Claims.
Therefore, the Objection is SUSTAINED and the Harris Claims are REDUCED and are
ALLOWED in the Modified Claim Amounts of $2,216.21 and $6,183.62 as general unsecured
claims.
I. 	BACKGROUND
Pending before the Court is the ResCap Borrower Claims Trust’s Eighty-Ninth Omnibus
Objection to Claims ((I) No Liability Borrower Claims and (II) Reduce and Allow Borrower
Claims) (the “Objection,” ECF Doc. # 9201),2 solely with respect to the Harris Claims. The
Trust seeks to reduce and modify the Harris Claims because they do not reflect the correct
amount of liability owed by the Debtors. Harris filed an opposition to the Objection (the “Harris
Opposition,” ECF Docs. # 9285, 9286). The Trust then filed a reply (the “Reply,” ECF Doc.
# 9318). 3
On March 21, 2013, the Court entered an order (the “Procedures Order,” ECF Doc. #
3294) authorizing the Debtors to file omnibus objections to no more than 150 claims at a time on
various grounds, including those set forth in Bankruptcy Rule 3007(d) and those additional
grounds set forth in the Procedures Order. The Procedures Order also includes specific
protections for borrowers and sets forth a process for the Debtors (and now the Trust as the
Debtors’ successor-in-interest) to follow before objecting to certain categories of borrower
2 	The Objection is supported by the declarations of Sara Lathrop (the “Lathrop Declaration,” ECF Doc.
# 9201-3) and Norman S. Rosenbaum (the “Rosenbaum Declaration,” ECF Doc. # 9201-4).
3 	The Reply is supported by the supplemental declaration of Ms. Lathrop (the “Lathrop Supplemental,” ECF
Doc. # 9318-1).
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claims. Before objecting to certain borrower claims, the Debtors must send the applicable
borrower a letter (a “Request Letter”) requesting additional documentation in support of the
purported claim. (See Procedures Order at 4.)
A. 	Harris’ Loan History
According to the Debtors’ books and records, non-Debtor Aegis Mortgage Corporation
d/b/a UC Lending (“UC Lending”) originated a $51,000.00 loan to Harris on March 29, 2002
(the “Westwego Loan”), secured by a mortgage on a property located on 905 Patton Lane,
Westwego, LA 70094 (the “Westwego Property”). (Reply ¶ 9.) Debtor Residential Funding
Company (“RFC”) purchased the Westwego Loan from UC Lending and transferred its interest
on or about June 1, 2002 when the loan was securitized and JP Morgan Chase Bank, NA was
appointed as trustee. (Id.) Claim 1687 relates to the Westwego Loan.
Non-Debtor Home Loan Center, Inc., d/b/a LendingTree Loans (“Lending Tree”)
originated a $116,250.00 loan to Harris on March 22, 2006 (the “Marrero Loan”), secured by a
mortgage on property located at 6220 3rd Ave., Marrero, LA 70072 (the “Marrero Property”).
(Id.) RFC purchased the Marrero Loan from Lending Tree and transferred its interest on or
about April 1, 2006 when the loan was securitized and Deutsche Bank Trust Company Americas
was appointed as trustee. Claim 1689 relates to the Marrero Loan. (Id.)
Debtor Homecomings Financial, LLC (“Homecomings”) serviced the Westwego Loan
from May 31, 2002 and the Marrero Loan from March 22, 2006 until servicing of both loans was
transferred to GMACM on July 1, 2009. (Id. ¶ 10.) GMACM serviced both loans until servicing
was transferred to non-Debtor Ocwen Loan Servicing, LLC (“Ocwen”) on February 16, 2013.
(Id.) Harris’s last payment on the Westwego Loan before servicing was transferred to Ocwen
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was $688.95 on December 14, 2012. (Id.) Harris’s last payment on the Marrero Loan before
servicing was transferred to Ocwen was $1,083.90 on January 11, 2013. (Id.)
On January 7, 2011, the Debtors referred the Westwego Loan to foreclosure because the
account was owing for the October 2011 payment. (Id. ¶ 11.) The foreclosure did not take place
because Harris brought the account current before April 15, 2011. (Id.) On April 8, 2011, the
Debtors referred the Marrero Loan to foreclosure because it was owing for the January 2011
payment. (Id. ¶ 12.) The foreclosure did not take place because Harris brought the account
current before May 20, 2011. (Id.)
B. 	The Harris Claims
Harris filed Claim Numbers 1687 and 1689 against GMACM, asserting secured claims
for $45,999.45 and $108,609.46, respectively. (Id. ¶ 8.) The Debtors sent Harris a Request
Letter on May 20, 2013. (Id. ¶ 5, n.2.) Harris responded on June 24, 2013, detailing the amount
he claimed was owed on account of each claim (the “1687 Diligence Response” and the “1689
Diligence Response,” Lathrop Supp. Ex. A). (Id. ¶ 6, n.3.) In the 1687 Diligence Response, he
alleged that he was owed $2,216.21 because GMACM purportedly failed to properly apply
payments to the Westwego Loan account. (Id. ¶ 13.) In the 1689 Diligence Response, Harris
alleged that he was owed $6,183.62 because (i) GMACM allegedly improperly charged him
escrow for property tax to the Marrero Loan account, and (ii) purportedly wrongfully initiated a
foreclosure proceeding in 2011. (Id.) Harris has not provided any reason why the Harris Claims
should be classified as secured claims.
C. 	The Objection
The Trust seeks to reduce and allow the Harris Claims to the amounts asserted by Harris
in the 1687 and 1689 Diligence Responses. (Obj. Ex. 1-B.) With respect to Claim 1687, the
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Trust seeks to reduce and allow it as a general unsecured claim in the amount of $2,216.21
against GMACM. 4 (Id.) The $2,216.21 represents the amount of damages asserted by Harris in
the 1687 Diligence Response that were allegedly caused by GMACM’s improper servicing of
the Westwego Loan. (Id.) The Debtors note that Lending Tree originated the loan on March 22,
2006, Homecomings serviced the loan from April 17, 2007 until servicing was transferred to
GMACM on or about July 1, 2009, and GMACM serviced the loan until servicing was
transferred to Ocwen on February 16, 2013. (Id.)
With respect to Claim 1689, the Trust seeks to reduce and allow it in the amount of
$6,183.62 as a general unsecured claim against GMACM.5 (Id.) The $6,183.62 represents the
amount of damages asserted by Harris in the 1689 Diligence Response that were allegedly
caused by GMACM improperly initiating foreclosure proceedings against him. (Id.) The
Debtors note that UC Lending originated the loan on March 29, 2002, Homecomings serviced
the loan from May 31, 2002 until servicing was transferred to GMACM on or about July 1, 2009,
and GMACM serviced the loan until servicing was transferred to Ocwen on February 16, 2013.
(Id.)
D. 	The Harris Opposition
In the Harris Opposition with respect to Claim 1689, Harris contends that, as a result of
Ocwen’s “underhanded tactics,” he was forced to mortgage a piece of property. (Harris Opp. at
1.) Harris contends that his mortgage payment was changed on two occasions from regular
payments of $855.36 to $1,410.94 and again to $2,422.13. (Id.) He alleges that his credit has
4 	The Debtors note that Harris asserts “Mortgage/Note” as the basis for claim in box 2 of the proof of claim
form. (Id.) The Debtors also note that Harris has attached a March 2012 Mortgage Account Statement to his proof
of claim. (Id.)
5 	Harris asserts “Mortgage/Note” as a basis for claim in box 2 of the proof of claim form, and has attached a
March 2012 mortgage account statement to the proof of claim. (Id.)
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been destroyed, causing his credit score to fall from 610 to 498. (Id.) Harris contends that as a
last ditch effort to have his claims expunged, Ocwen asked him to itemize the cost of Ocwen’s
attorney, Mr. Dean Morris, who was retained by GMACM to initiate foreclosure proceedings
against Harris. (Id. at 2.) Finally, Harris claims that Ocwen illegally damaged his credit rating,
resulting in the loss of credit availability, and argues that Ocwen should be found to be at fault
for wrongful foreclosure and be forced to pay restitution of $240,000. (Id.)
In his Opposition with respect to Claim 1687, Harris appears to have filed the same
response. (ECF Doc. # 9285.)
E. 	The Reply
In the Reply, the Trust contends that the new allegations contained in the Harris
Opposition are related to actions by Ocwen, not any Debtor, and, therefore, cannot form any
basis for liability of the Debtors’ estates. (Reply ¶ 28.) At the time that the Harris Loans were
transferred to Ocwen, the monthly payments made by Harris were $688.95 and $1,083.90. (Id.)
Harris alleges that his monthly payments increased to $1,410.94 and $2,422.13. (Id.) The Trust
contends, however, that the statements showing the increased payments that Harris describes are
all dated after the servicing of the Harris Loans were transferred to Ocwen and, therefore, no
Debtor is liable for those increased payments. (Id.) Additionally, the Trust contends that the
lowering of Harris’ credit score from 610 to 498 occurred “well after” servicing was transferred
to Ocwen and, therefore, cannot be the basis for a claim against the Debtors. (Id.)
The Trust contends that the reduced amount that the Trust seeks to allow Harris’ claims
correlates to the damages that Harris asserted that he incurred as a result of the Debtors’ alleged
improper servicing of his loans from 2010 and 2011 that led to foreclosure proceedings being
initiated against him. (Id. ¶ 29.) The Trust asserts that Harris seeks to recover more than the
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amounts provided in the 1687 and 1689 Diligence Requests, but does not provide any reason as
to why those amounts were inaccurate. (Id.) Rather, the Trust contends that Harris is attempting
to hold the Debtors liable for the actions of non-Debtor entities that are not connected to the
purported improper servicing of the Debtors that was the basis for the alleged damages in the
1687 and 1689 Diligence Responses. (Id.) Accordingly, the Trust argues that the Harris Claims
should be reduced and allowed to the amounts asserted by Harris in the 1687 and 1689 Diligence
Responses, as provided for in the Objection. (Id.)
II. 	DISCUSSION
Correctly filed proofs of claim “constitute[] prima facie evidence of the validity [and
amount] of the claim. To overcome this prima facie evidence, the objecting party must come
forth with evidence which, if believed, would refute at least one of the allegations essential to the
claim.” Sherman v. Novak (In re Reilly), 245 B.R. 768, 773 (2d Cir. B.A.P. 2000) (internal
citations omitted). By producing “evidence equal in force to the prima facie case,” an objector
can negate a claim’s presumptive legal validity, thereby shifting the burden back to the claimant
to “prove by a preponderance of the evidence that under applicable law the claim should be
allowed.” Creamer v. Motors Liquidation Co. GUC Tr. (In re Motors Liquidation Co.), No. 12
Civ. 6074, 2013 WL 5549643, at *3 (S.D.N.Y. Sept. 26, 2013) (internal quotation marks
omitted). If the objector does not “introduce[] evidence as to the invalidity of the claim or the
excessiveness of its amount, the claimant need offer no further proof of the merits of the claim.”
4 COLLIER ON BANKRUPTCY ¶ 502.02 (Alan N. Resnick & Henry J. Sommer eds., 16th ed. 2014).
Bankruptcy Code section 502(b)(1) provides that claims may be disallowed if
“unenforceable against the debtor and property of the debtor, under any agreement or applicable
law.” 11 U.S.C. § 502(b)(1). To determine whether a claim is allowable by law, bankruptcy
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courts look to “applicable nonbankruptcy law.” In re W.R. Grace & Co., 346 B.R. 672, 674
(Bankr. D. Del. 2006).
Federal pleading standards apply when assessing the validity of a proof of claim. See,
e.g., In re Residential Capital, LLC, 518 B.R. 720, 731 (Bankr. S.D.N.Y. 2014); In re DJK
Residential LLC, 416 B.R. 100, 106 (Bankr. S.D.N.Y. 2009) (“In determining whether a party
has met their burden in connection with a proof of claim, bankruptcy courts have looked to the
pleading requirements set forth in the Federal Rules of Civil Procedure.” (citations omitted)).
Accordingly, a claimant must allege “enough facts to state a claim for relief that is plausible on
its face.” Vaughn v. Air Line Pilots Ass’n, Int’l, 604 F.3d 703, 709 (2d Cir. 2010) (emphasis in
original) (citing Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). “Where a complaint pleads facts
that are merely consistent with a defendant’s liability, it stops short of the line between
possibility and plausibility of entitlement to relief.” Iqbal, 556 U.S. at 678 (internal citation and
quotation marks omitted). Plausibility “is not akin to a probability requirement,” but rather
requires “more than a sheer possibility that a defendant has acted unlawfully.” Id. (internal
citation and quotation marks omitted). The court must accept all factual allegations as true,
discounting legal conclusions clothed in factual garb. See, e.g., id. at 677–78; Kiobel v. Royal
Dutch Petroleum Co., 621 F.3d 111, 124 (2d Cir. 2010) (stating that a court must “assum[e] all
well-pleaded, nonconclusory factual allegations in the complaint to be true” (citing Iqbal, 556
U.S. at 678)). The court must then determine if these well-pleaded factual allegations state a
“plausible claim for relief.” Iqbal, 556 U.S. at 679 (citation omitted).
Courts do not make plausibility determinations in a vacuum; it is a “context-specific task
that requires the reviewing court to draw on its judicial experience and common sense.” Id.
(citation omitted). A claim is plausible when the factual allegations permit “the court to draw the
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reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citation
omitted). A claim that pleads only facts that are “merely consistent with a defendant’s liability”
does not meet the plausibility requirement. Id. at 678 (internal quotation marks omitted)
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007)). “A pleading that offers labels
and conclusions or a formulaic recitation of the elements of a cause of action will not do.” Id.
(internal quotation marks omitted) (quoting Twombly, 550 U.S. at 555). “Threadbare recitals of
the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id.
(citation omitted). “The pleadings must create the possibility of a right to relief that is more than
speculative.” Spool v. World Child Int’l Adoption Agency, 520 F.3d 178, 183 (2d Cir. 2008)
(citation omitted).
Although “[claims] drafted by pro se [claimants] are to be construed liberally, [] they
must nonetheless be supported by specific and detailed factual allegations sufficient to provide
the court and the defendant with ‘a fair understanding of what the [claimant] is complaining
about and . . . whether there is a legal basis for recovery.’” Kimber v. GMAC Mortg., LLC (In re
Residential Capital, LLC), 489 B.R. 489, 494 (Bankr. S.D.N.Y. 2013) (ellipsis in original)
(quoting Iwachiw v. New York City Bd. of Elections, 126 F. App’x 27, 29 (2d Cir. 2005)).
The Court concludes that the Trust adequately shifted the burden of proof to Harris
through its Objection and that Harris thereafter failed to satisfy his burden in establishing the
viability of his Claims.
First, the Objection sufficiently rebuts the prima facie validity of the amounts originally
asserted in the Harris Claims. The Objection also notes that Harris has not submitted any
evidence to indicate that he is entitled to secured claims.
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With respect to the clarified amounts asserted in the 1687 and 1689 Diligence Responses,
the Trust does not dispute the amounts provided by Harris. The reduced amounts correlate to the
damages that Harris asserted that he incurred as a result of the Debtors’ alleged improper
servicing of his loans from 2010–2011 that led to foreclosure proceedings being initiated against
him. Thus, the Objection seeks that the Harris Claims be allowed as general unsecured claims
against GMACM in the amounts of $2,216.21 and $6,183.62.
However, through his Opposition, Harris now seeks to recover more than the amounts
provided in the Diligence Responses and argues that Ocwen should be found to be at fault for
wrongful foreclosure and be forced to pay restitution of $240,000. (Harris Opp. at 2.)
It is clear that the alleged wrongdoing asserted in the Harris Opposition is connected to
actions by Ocwen, a non-Debtor entity. First, the increased payments that Harris describes in his
Opposition are all dated after the servicing of the Harris Loans were transferred to Ocwen.
Furthermore, the lowering of Harris’ credit score from 610 to 498 also occurred after servicing
was transferred to Ocwen. Thus, the alleged damages caused by Ocwen do not create a viable
claim against the Debtors.
Therefore, the Harris Claims shall be reduced to the amounts asserted in the 1687 and
1689 Diligence Responses, and be classified as general unsecured claims.
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III. 	CONCLUSION
Therefore, the Objection is SUSTAINED and the Harris Claims are ALLOWED in the
Modified Claim Amounts of $2,216.21 and $6,183.62, respectively, as general unsecured claims.
IT IS SO ORDERED.
Dated: 	December 16, 2015
New York, New York
_____Martin Glenn____________
MARTIN GLENN
United States Bankruptcy Judge
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