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Bates v. CitiMortgage, Inc.

United States District Court, D. New Hampshire

February 10, 2016

Timothy Bates and Cathy Bates, Plaintiffs/Appellants
CitiMortgage, Inc., s/b/m to ABN AMRO Mortgage Group, Inc. and Federal Home Loan Mortgage Corporation, Defendants/Appellees

Page 13

          For Timothy J. Bates, Debtor, Cathy N. Bates, Debtor, also known as Cathy Lynn Bates, also known as Cathy Lynn Nichols, Appellants: Terrie L. Harman, LEAD ATTORNEY, Harman Law Offices, Portsmouth, NH.

         For CitiMortgage, Inc., s/b/m to ABN AMRO Mortgage Group, Inc. other ABN AMRO Mortgage Group, Inc., Federal Home Loan Mortgage Corporation, Appellee: Andrea Lasker, LEAD ATTORNEY, Harmon Law Offices PC, Newton, MA; David D. Christensen, LEAD ATTORNEY, PRO HAC VICE, K& L Gates LLP (MA), Boston, MA; Gregory N. Blase, LEAD ATTORNEY, K& L Gates LLP (MA), Boston, MA.

         For Victor W. Dahar, Trustee: Victor W. Dahar, LEAD ATTORNEY, Victor W. Dahar, PA, Manchester, NH.

         For U.S. Trustee, U.S. Trustee: Geraldine L. Karonis, LEAD ATTORNEY, U.S. Trustee (NH), Manchester, NH.

Page 14


         Steven J. McAuliffe, United States District Judge.

         Plaintiffs, Timothy and Cathy Bates, filed an adversary proceeding in bankruptcy court, alleging that CitiMortgage, Inc. (" Citi" ) and Federal Home Loan Mortgage Corp. (" Freddie Mac" ) committed several violations of the discharge injunction provisions of 11 U.S.C. § 524(a), by improperly harassing them and/or coercing them to pay a discharged debt. The bankruptcy court ruled in favor of defendants on all of plaintiffs' claims, except one. As to that one claim, the bankruptcy court held that Citi violated the discharge injunction by telephoning plaintiffs with an inquiry related to homeowners' insurance on property plaintiffs had lost to foreclosure two years earlier. See Bankruptcy Court Order dated Sept. 23, 2014 (document no. 1) at 33-44 (the " Liability Order" ). Following a damages hearing, the court held that plaintiffs failed to demonstrate an entitlement to compensatory damages. But, the court did order defendants to pay plaintiffs $2,500 in punitive damages and roughly $6,300 in attorney's fees and expenses. See Bankruptcy Court Order dated April 16, 2015 (document no. 1) at 15-32 (the " Damages Order" ).

         In this appeal, plaintiffs assert that the bankruptcy court erred in ruling against them on one of their claims that Freddie Mac also violated the discharge injunction of 11 U.S.C. § 524(a). Plaintiff's also challenge the bankruptcy court's conclusion that they failed to prove they were entitled to an award of compensatory damages for emotional distress stemming from Citi's violation of the discharge injunction. Finally, plaintiff's challenge - as insufficient - the bankruptcy court's award of punitive damages, attorney's fees, and expenses.

         For their part, defendants do not challenge any of the bankruptcy court's holdings and move this court to affirm all aspects of that court's decisions - including the relatively modest award of punitive damages and attorney's fees.

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          For the reasons discussed, the challenged orders of the bankruptcy court are affirmed in all respects.


         Prior to seeking bankruptcy protection, plaintiffs obtained a loan from Citi, which was secured by a mortgage deed to their home in Newport, New Hampshire. In November of 2008, plaintiffs filed chapter 7 bankruptcy and listed Citi as a secured creditor. They did not, however, reaffirm their mortgage debt with Citi while in bankruptcy. In February of 2009, Citi was granted relief from the automatic stay (and, therefore, was no longer precluded from foreclosing on plaintiffs' residence). On April 2, 2009, plaintiffs received a discharge, notice of which was sent to Citi. So, while plaintiffs were no longer personally obligated on the debt to Citi (since that personal obligation had been discharged in bankruptcy), Citi retained the right to foreclose upon the collateral that had been pledged to secure repayment of that loan: plaintiffs' residence.

         After their bankruptcy case was closed, plaintiffs received a notice of foreclosure. In an effort to keep their home, plaintiffs negotiated a " loan modification" agreement with Citi in November of 2009. That agreement specifically provided that it did not affect the bankruptcy discharge of plaintiffs' personal liability on the original debt to Citi. Plaintiffs made payments under that agreement until some point in 2010. After payments stopped, Citi began foreclosure proceedings and, on April 25, 2011, it foreclosed on plaintiffs' home. Plaintiffs moved out of their home in October of 2011.

         Approximately three months later, in January of 2012, Freddie Mac sent to each plaintiff an IRS Form 1099-A. That form provided that, " certain lenders who acquire an interest in property that was security for a loan . . . . must provide you with this statement." (emphasis supplied). Here, that obligation was triggered by the foreclosure on plaintiffs' home. The Form 1099-A informed plaintiffs that they may (or may not) have either " reportable income or loss because of such acquisition." It also reported the unpaid balance on the loan for which plaintiffs were initially personally liable, and the fair market value of the collateral that was sold to pay down that debt (i.e., plaintiffs' home). The Form 1099-A informed plaintiffs that the difference - representing the amount of the debt that was discharged, forgiven, cancelled, or deemed uncollectible - could, under certain circumstances, be treated as taxable income. Accordingly, the Form 1099-A advised plaintiffs to " [p]lease consult with your tax advisor or the Internal Revenue Service for any tax-related questions."

         In short, that IRS form constituted a notice that Freddie Mac was required to provide to plaintiffs following the foreclosure upon their home, and it merely notified them that there could be tax consequences arising from that event. It was plainly not an effort by Freddie Mac to " collect" any debt from plaintiffs. And, merely providing notice to plaintiffs hardly seemed to impose any tax liability upon them. Nevertheless, plaintiffs said they believed Freddie Mac's issuance of that form violated the discharge injunction because Box 5 on the form was checked. That box provides, " If checked, the borrower was personally liable for repayment of the debt." According to plaintiffs, that was inaccurate, since their personal obligation to repay that debt had been discharged in bankruptcy.

         In May of 2013, plaintiffs moved to reopen their bankruptcy case so they could file a complaint seeking damages arising out of violations of the discharge injunction allegedly committed by ...

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