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Koola v. Ditech Financial LLC

United States District Court, D. South Carolina, Charleston Division

December 26, 2019

Johnson D. Koola, Plaintiff-Appellant,
v.
Ditech Financial LLC; U.S. Bank Trust N.A., Defendants-Appellees.

          ORDER AND OPINION

          Richard Mark Gergel United States District Court Judge.

         This matter is before the Court on Appellant Johnson D. Koola's appeal from the Final Orders of the United States Bankruptcy Court for the District of South Carolina (Dkt. Nos. 1, 3) denying confirmation of Appellant's plans, denying Appellant a new trial, and dismissing Appellant's case. For the reasons set forth below, the Court affirms the orders of the bankruptcy court and dismisses the appeal.

         I. Background[1]

         On February 20, 2004 Johnson D. Koola ("Appellant" or "Debtor") executed a fixed rate note (the "Note") for $136, 192.00 with Countrywide Home Loans, Inc. On the same day, Koola executed a mortgage (the "Mortgage") as security, which encumbered his principal residence in Mount Pleasant, South Carolina ("Principal Residence"). The "mortgagee" was Mortgage Electronic Registration Systems, Inc. ("MERS") and the lender was Countrywide Home Loans, Inc. Federal National Mortgage Association ("Fannie Mae") became the owner of the debt in March 2004.

         On March 20, 2009, Koola filed a bankruptcy petition under Chapter 7 of the Bankruptcy Code, listing his Principal Residence on his schedules and indicating that Countrywide Home Loans, Inc. had a mortgage loan on that property. An order discharging debt was issued in the Chapter 7 case, and the case was closed on July 13, 2009.[2]

         After the discharge order was entered, Koola defaulted on his monthly mortgage payment in November 2009. (Dkt. Nos. 16 at 8; 17 at 12.) On July 27, 2010, BAC Home Loans Servicing, LP, formerly known as Countrywide Home Loans Servicing, LP, ("BAC Home Loans") filed a foreclosure action on the Mortgage against Koola in state court with the Case Number 2010-CP-10-6060 (the "Foreclosure Case"). The Foreclosure Case remains pending.[3]

         The Mortgage ultimately was reassigned and sold multiple times: on August 27, 2010, MERs assigned the mortgage to BAC Home Loans.[4] (Dkt. No. 1 at 11.) Later, BAC Home Loans merged with Bank of America, and the caption of the Foreclosure action was amended in October 2011 to reflect the change.[5] The right to service the mortgage was transferred again to Green Tree Servicing, LLC, which was reflected in a letter sent to Koola. (Dkt. Nos. 1 at 12 - 13; 22-1 at 24, 26; 22-2 at 14 - 16; 22-4 at 40 - 42.) On August 31, 2015, Green Tree merged with DT Holdings and Ditech Mortgage Corp., and the surviving entity was Ditech, an Appellee here. (Id.) Finally, on July 25, 2018, Fannie Mae sold the mortgage loan to U.S. Bank, an Appellee here. (Dkt. No. 4-2 at 178.)

         This case was initiated pro se on March 20, 2018 under Chapter 13 of the Bankruptcy Code, which stayed the Foreclosure Case. In his bankruptcy case, Koola disclosed that the monthly payments for his mortgage was $842.71 and that he owed $87, 180.63 in mortgage payments. On May 7, 2018, Koola objected to the mortgage claim Ditech filed in this case, alleging Ditech lacked standing. Ditech filed an amended claim, stating that it intended to proceed as enforcing a lost instrument and that Koola's plan could not be confirmed as it attempted to modify the terms of the Note and Mortgage. (Dkt. No. 4-1 at 126 - 127.) The bankruptcy court denied Koola's objection. After the bankruptcy court denied Koola's objection, Koola moved for a new trial. Prior to ruling on the motion, U.S. Bank filed an amended proof of claim. The bankruptcy court denied the motion for a new trial and found that U.S. Bank had standing to pursue enforcement of the mortgage. After the motion was denied, Koola filed a second amended claim, attempting to modify the repayment terms of the mortgage under 11 U.S.C. § 1322(c)(2). The bankruptcy court denied confirmation of this second plan as well, finding that § 1322(c)(2) did not apply, and dismissed Koola's Chapter 13 case. This appeal followed. (Dkt. No. 4-3 at 260.)

         II. Legal Standard

         This Court has jurisdiction to hear appeals from final orders of the bankruptcy court. 28 U.S.C. § 158; see, e.g., In re Kirkland, 600 F.3d 310, 314 (4th Cir. 2010) (noting district court's "capacity as a bankruptcy appellate court"). The standard of review of a bankruptcy appeal by a district court is the same as when a court of appeals reviews a district court proceeding. See 28 U.S.C. § 158(c)(2). Accordingly, the bankruptcy court's findings of fact are reviewed under a "clearly erroneous" standard. Fed.R.Bankr.P. 8013.[6] A finding of fact is clearly erroneous when the entire record demonstrates convincingly to the reviewing court that "a mistake has been committed." United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948); United States v. Hall, 664 F.3d 456, 462 (4th Cir. 2012). A bankruptcy court's conclusions of law are subject to de novo review. In re Biondo, 180 F.3d 126, 130 (4th Cir. 1999); In re K & L Lakeland, Inc., 128 F.3d 203, 206 (4th Cir. 1997).

         III. Discussion

         Koola raises the following issues on appeal: (1) whether the bankruptcy court improperly failed to apply 11 U.S.C. § 1322(c)(2) when assessing Koola's plan; (2) whether the bankruptcy court incorrectly determined that the creditors had standing to object to the plan; (3) whether the bankruptcy court improperly dismissed Koola's Chapter 13 case without assessing whether the interest of both the debtors and creditors were served and whether there was bad faith and, finally; (4) whether the bankruptcy court inaccurate determined that no 11 U.S.C. § 588 defenses were applicable when dismissing Koola's case. (Dkt. No. 16 at 5.) Appellee U.S. Bank filed a brief arguing that the Court should affirm the bankruptcy court's decision, and Koola filed a reply. (Dkt. Nos. 17, 20.) The Court also granted U.S. Bank leave to file a surreply. (Dkt. No. 26.) In addition to reviewing the bankruptcy court's orders and the record on appeal, the Court also reviewed the supplemental record submitted by the Parties. (Dkt. Nos. 1, 3, 4, 10, 21, 22.) Having reviewed all materials, the Court finds no errors of law or clearly erroneous findings of fact, [7] and the Court therefore affirms the orders of the bankruptcy court.

         A. Application of § 1322(c)(2)

         Koola first argues that the bankruptcy court failed to apply 11 U.S.C. § 1322(c)(2), a provision which would have permitted Koola to modify the repayment terms for his Mortgage, and instead applied 11 U.S.C. § 1322(b)(2), which prohibits modifying the terms of a claim secured only by the debtor's principal residence. (Dkt. No. 16 at 7.) However, § 1322(c)(2) provides an exception to the no-modification provisions of U.S.C. § 1322(b)(2), and states that:

[I]n a case in which the last payment on the original payment schedule for a claim secured only by a security interest in real property that is the debtor's principal residence is due before the date on which the final payment under the plan is due, the plan may provide for the payment of the claim as modified pursuant to section 1325(a)(5) of this title.

11 U.S.C. § 1322(c)(2).

         At issue here is the phrase "last payment on the original payment schedule" in § 1322(c)(2). Specifically, Koola argues that while the loan originally had a last payment date of March 1, 2034 under Paragraph 3 of the Note (Dkt. No. 4-1 at 59), when he went into default on November 1, 2009, the loan was accelerated under the terms of the Note such that the new contractual due date for loan was November 1, 2009. (Dkt.Nos.4-1 at59-60; 16at7-8.) On March 20, 2018, Koola filed a Chapter 13 Bankruptcy Petition, which included a plan with a last payment due on March 21, 2020. (Dkt. 4-2 at 227, 234.) Koola therefore argues that his proposed plan complies with the terms of § 1322(c)(2) as his last "last payment on the original payment ...


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