United States District Court, D. New Hampshire
Joanne C. Evarts, Appellant
U.S. Bank Trust Nat'l Ass'n, as Trustee of Cabana Series III Trust, Defendant
J. MCAULIFFE UNITED STATES DISTRICT JUDGE.
of 2016, Joanne Evarts filed a petition under chapter 13 of
the bankruptcy code. Subsequently, U.S. Bank National Trust
Association, as Trustee of Cabana Series III Trust
(“U.S. Bank”), filed a proof of claim,
representing that it had a claim, secured by a mortgage deed
to Evarts' home, in the total amount of $237, 948.91.
Evarts objected. Following an evidentiary hearing, the
bankruptcy court issued a written decision, in which it
concluded that Evarts failed to establish grounds for
disallowing U.S. Bank's claim. According, it overruled
her objection. Evarts appeals that decision.
reasons discussed, the decision of the bankruptcy court dated
December 12, 2018, is affirmed.
challenges to U.S. Bank's proof of claim turn largely on
the enforceability of a loan modification agreement that
governs the terms of her relationship with U.S. Bank. The
relevant background is fully set forth in the bankruptcy
court's thorough and thoughtful opinion. See In re
Evarts, No. BR 16-11056-BAH, 2018 WL 6584242, at *1-3 (Bankr.
D.N.H. Dec. 12, 2018). It need not be recounted in detail.
But, because that factual background is somewhat confusing, a
brief restatement of those facts necessary to explain the
basis for Evarts' claims is in order.
of 2002, Evarts and her (now deceased) husband obtained a
loan in the original principal amount of $215, 000. That loan
was secured by a mortgage deed to the couple's home in
Cornish, New Hampshire. Through a series of assignments, U.S.
Bank currently holds both the promissory note and the
mortgage deed. So, to minimize confusion, the court will
refer to U.S. Bank, as well as all of its various
predecessors in interest, collectively, as simply “U.S.
early 2010, (while in the midst of an earlier chapter 13
bankruptcy proceeding) Evarts and her husband owed U.S. Bank
approximately $200, 000 on the loan. They were, however,
having difficulty making their monthly payments. In fact,
Evarts and her husband purposefully stopped making payments
on the loan to build an arrearage sufficient to qualify for
assistance under the Home Affordable Modification Program
failing to make payments on the loan for more than six
months, the Evarts began working with U.S. Bank to obtain a
HAMP loan modification agreement that would lower their
monthly loan repayment obligations. Unfortunately, two
distinctly different versions of that loan modification
agreement emerged from the parties' negotiations. The
first was signed only by Evarts and her husband (the
“Draft Agreement”). It is undisputed that U.S.
Bank never signed the Draft Agreement. According to U.S.
Bank's unrebutted evidence, it discovered an error in the
Draft Agreement and notified Evarts. It then corrected the
error and submitted a revised agreement to Evarts and her
husband, which both of them executed. U.S. Bank then signed
the revised agreement (the “Executed Agreement”).
Evarts says the Executed Agreement is unenforceable and must
be replaced with the original, Draft Agreement.
most significant difference between the two versions of the
loan modification agreement is this: although both versions
call for Evarts to make the same monthly payments on her loan
($1, 484.31), the Executed Agreement calls for Evarts to pay
approximately $54, 000 more than required by the Draft
Agreement. Specifically, while all agree that the outstanding
principal amount on Evarts' loan was approximately $200,
000 when the parties began negotiating the loan modification,
Draft Agreement erroneously represents that Evarts and her
husband owed U.S. Bank only $181, 655.60 - a sum referenced
in the Draft Agreement as the “New Principal Balance,
” and upon which her monthly payments would be
calculated going forward. See Draft Agreement (document no.
4) at 8 of 26. The remaining principal of more than $18, 000
that Evarts acknowledges she owed was not mentioned in the
Draft Agreement (and, critically, it was not expressly
forgiven). That, one may logically infer, is the error U.S.
Bank identified in the Draft Agreement.
Executed Agreement, on the other hand, employed that same
$181, 665.60 to calculate Evarts' monthly payments, but
referenced that sum as the “Interest Bearing Principal
Balance.” The Executed Agreement goes on to represent
that Evarts' total outstanding loan amount - the
“New Principal Balance” - was $235, 932.74. That
total indebtedness was comprised of two components: first,
the “Interest Bearing Principal Balance” of $181,
665.60; and, second, a “Deferred Principal
Balance” of $54, 267.14, on which no interest would be
paid. Id. at 17 of 26. The Deferred Principal
Balance would become due and payable upon Evarts' sale or
transfer of her home, or the date on which she made her final
payment on the Interest Bearing Principal Balance (or, of
course, in the event of a “default, ” as defined
in the underlying promissory note). In other words, the
roughly $54, 000 Deferred Principal Balance became a
“balloon” payment, due when the loan matured in
precise terms at issue are set forth in Section 3 of the
The modified principal balance of my Note will include all
amounts and arrearages that will be past due as of the
Modification Effective Date (including unpaid and deferred
interest, fees, escrow advances and other costs, but
excluding unpaid late charges, collectively, “Unpaid
Amounts”) less any amounts paid to the Lender but not
previously credited to my Loan. The new principal balance of
my Note will be $235, 932.74 (the “New Principal
Balance”). I understand that by agreeing to add the
Unpaid Amounts to the outstanding principal balance, the
added Unpaid Amounts accrue interest based on the interest
rate in effect under this Agreement. I also understand that
this means interest will now accrue on the unpaid interest
that is added to the outstanding principal balance, which
would not happen without this Agreement.
$54, 267.14 of the New Principal Balance shall be deferred
(the “Deferred Principal Balance”) and I will not
pay interest or make monthly payments on this amount. The New
Principal Balance less the Deferred Principal Balance shall
be referred to as the “Interest Bearing Principal
Balance” and this amount is $181, 665.60.
Loan Agreement at 3 (document no. 4 at 17 of 26) (emphasis
questions the origin of the roughly $54, 000 in
“Deferred Principal.” But, the evidence is clear
that it arose from Evarts' total arrearage of $37, 585.70
when the Executed Agreement was negotiated. That $37, 585.70
appears to have been capitalized over the loan's 40-year
term to arrive at the roughly $54, 000 deferred balloon
payment. See HAMP Modification Approval Form - Loan
Data (document no. 15), Exhibit I, at 14 of 49 (showing
“Amount to be Capitalized: $37, 585.70”).
See also Testimony of Lacey Sokolowski, Hearing
Transcript (document no. 9) at 100-03.
acknowledges that the portion of her debt on which interest
(and monthly payments) would be calculated was reduced from
approximately $200, 000 to $181, 665.60. See
Appellant's Brief (document no. 11) at 14. She appears,
however, to mistakenly think that the difference between
those sums -roughly $18, 000 - was forgiven. It was not.
Instead, it (along with unpaid interest and ...