Ditech Holding Corporation

UNITED STATES BANKRUPTCY COURT NOT FOR PUBLICATION

SOUTHERN DISTRICT OF NEW YORK

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In re: :

Case No. 19-10412 (JLG)

:

Chapter 11

Ditech Holding Corporation, et al., :

:

Jointly Administered

Debtors.1 :

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MEMORANDUM DECISION AND ORDER SUSTAINING THE CONSUMER CLAIMS

TRUSTEE’S TWENTIETH OMNIBUS OBJECTION TO PROOFS OF CLAIM WITH

RESPECT TO THE PROOF OF CLAIM FILED BY DEBORAH WARNER

A P P E A R A N C E S :

JENNER & BLOCK, LLP

Attorneys for the Consumer Claims Trustee

1155 Avenue of the Americas

New York, New York 10036

By: Richard Levin

DEBORAH WARNER

Appearing Pro Se

24864 State Highway 44

Millville, CA 96062

1 On September 26, 2019, the Court confirmed the Third Amended Joint Chapter 11 Plan of Ditech Holding

Corporation and Its Affiliated Debtors (ECF No. 1404) (the “Third Amended Plan”), which created the Wind Down

Estates. On February 22, 2022, the Court entered the Order Granting Entry of Final Decree (I) Closing Subsidiary

Cases; and (II) Granting Related Relief, ECF No. 3903 (the “Closing Order”). References to “ECF No. __” are to

documents filed on the electronic docket in these jointly administered cases under Case No. 19-10412. Pursuant to the

Closing Order, the chapter 11 cases of the following Wind Down Estates were closed effective as of February 22,

2022: DF Insurance Agency LLC (6918); Ditech Financial LLC (5868); Green Tree Credit LLC (5864); Green Tree

Credit Solutions LLC (1565); Green Tree Insurance Agency of Nevada, Inc. (7331); Green Tree Investment Holdings

III LLC (1008); Green Tree Servicing Corp. (3552); Marix Servicing LLC (6101); Mortgage Asset Systems, LLC

(8148); REO Management Solutions, LLC (7787); Reverse Mortgage Solutions, Inc. (2274); Walter Management

Holding Company LLC (9818); and Walter Reverse Acquisition LLC (8837). Under the Closing Order, the chapter

11 case of Ditech Holding Corporation (the “Remaining Wind Down Estate”), Case No. 19-10412, remains open and,

as of February 22, 2022, all motions, notices and other pleadings relating to any of the Wind Down Estates are to be

filed in the case of the Remaining Wind Down Estate. The last four digits of the Remaining Wind Down Estate’s

federal tax identification number is (0486). The Remaining Wind Down Estate’s principal offices are located at 2600

South Shore Blvd., Suite 300, League City, TX 77573.

HON. JAMES L. GARRITY, JR.

U.S. BANKRUPTCY JUDGE

INTRODUCTION2

Deborah Warner (the “Claimant”) timely filed Proof of Claim No. 22916 (the “Claim”) as

an unsecured claim in an undetermined amount against Ditech Holding Corporation (f/k/a Walter

Investment Management Corp.) (“Ditech”). The Consumer Claims Trustee filed her Twentieth

Omnibus Objection (the “Objection”)3 seeking to disallow unsecured proofs of claim, including

the Claim, that lack sufficient information or documentation to establish their underlying merits.

Claimant, acting pro se,4 filed a response to the Objection (the “Response”).5 The Consumer

Claims Trustee replied to the Response (the “Reply”).6 Claimant filed a Sur-Reply in response to

the Reply (the “Sur-Reply”).7 The Consumer Claims Trustee filed a response to the Sur-Reply (the

“Sur-Response”).8 In sum, the Consumer Claims Trustee argues that the Claim fails to state a claim

for relief against Ditech and accordingly, the Court should disallow and expunge the Claim.

2 Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the

Objection, Claims Procedures Order and Third Amended Plan, as applicable.

3 Consumer Claims Trustee’s Twentieth Omnibus Objection to Proofs of Claim (Insufficient Documentation

Unsecured Consumer Creditor Claims), ECF No. 2318.

4 Counsel for the Claimant filed the Claim, but Claimant has acted pro se in all subsequent proceedings.

5 Response of Deborah Warner, ECF No. 2629.

6 Reply of the Consumer Claims Trustee in Support of the Consumer Claims Trustee’s Twentieth Omnibus

Objection with Respect to the Claim of Deborah Warner (Claim 22916), ECF No. 5222.

7 Sur-Reply of Deborah Warner to the Consumer Claims Trustee’s Twentieth Omnibus Objection to Proofs of

Claim (Claim No. 22916), ECF No. 5244.

8 Response of the Consumer Claims Trustee to the Sur-Reply of Deborah Warner (Claim 22916), ECF No. 5252.

Pursuant to the Claims Procedures Order,9 Claimant’s filed Response adjourned the

Objection to provide time for the Consumer Claims Trustee to schedule a Sufficiency Hearing on

the Claim. At a Sufficiency Hearing, the Court employs the legal standard of review applied to a

motion to dismiss for failure to state a claim upon which relief may be granted under Rule 12(b)(6)

of the Federal Rules of Civil Procedure (“Rule 12(b)(6)”). Claims Procedures Order ¶ 3(iv)(a).

The Court held the Sufficiency Hearing. The Consumer Claims Trustee appeared through

counsel, and Claimant appeared pro se. At the hearing, the Court heard arguments from the

Consumer Claims Trustee’s counsel and the Claimant.

The Court has reviewed the Claim, Objection, Response, Reply, Sur-Reply, and Sur-

Response, including all documents submitted in support thereof, and has considered the arguments

made by the parties in support of their positions. In doing so, and in accordance with the Rule

12(b)(6), the Court has accepted Claimant’s well-pleaded factual allegations as true, and has drawn

all reasonable inferences in Claimant’s favor. In light of Claimant’s pro se status, the Court has

liberally construed the Claim, Response, and Sur-Reply to raise the strongest arguments that they

suggest.

As explained below, the Claim fails to state a claim to relief against Ditech. Accordingly,

the Court sustains the Objection and disallows the Claim.

9 Order Approving (I) Claim Objection Procedures and (II) Claim Hearing Procedures, ECF No. 1632 (the

“Claims Procedures Order”).

JURISDICTION

The Court has jurisdiction to consider this matter pursuant to 28 U.S.C. §§ 157 and 1334

and the Amended Standing Order of Referral of Cases to Bankruptcy Judges of the United States

District Court for the Southern District of New York (M-431), dated January 31, 2012 (Preska,

C.J.). This is a core proceeding pursuant to 28 U.S.C. § 157(b).

BACKGROUND

The Loan

On or around August 23, 2007, Claimant and her former husband, Gary Paul Warner,

executed a promissory note in favor of Homecomings Financial, LLC (f/k/a Homecomings

Financial Network, Inc.) (the “Note”), in the amount of $256,000.00, secured by a mortgage (the

“Mortgage,” together with the Note, the “Loan”)10 on the real property located on two separate

parcels, identified by parcel number 093-280-017,000 (“Parcel A”), and parcel number 093-110-

013-000 (“Parcel B”), respectively, at 24864 State Highway 44, Millville, California 96062 (the

“Property”). The Mortgage was recorded in Shasta County, California.

On February 12, 2014, the Mortgage was assigned to Green Tree Servicing LLC and on

February 5, 2020, the Mortgage was assigned to New Residential Mortgage LLC.11 On January

10 The Note and Mortgage are annexed to the Reply as Exhibits A and B, respectively. The Court takes judicial

notice of the Note, Mortgage, and the other documents annexed to the Reply and considers them in its determination

because they are matters of public record and/or integral to the Claim. CDC Newburgh Inc. v. STM Bags, LLC, 692 F.

Supp. 3d 205, 219 (S.D.N.Y. 2023) (“‘Any written instrument attached to [the complaint] as an exhibit or any

statements or documents incorporated in it by reference,’ as well as any matters of which judicial notice may be taken,

are deemed included in the complaint, so the Court may consider them without converting the motion to dismiss into

a motion for summary judgment.” (quoting Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002))); Press

v. Primavera, 685 F. Supp. 3d 216, 224 (S.D.N.Y. 2023) (“The Second Circuit has made clear that a court may take

judicial notice of publicly filed documents.”); Bloom v. A360 Media LLC, No. 23-CV-11024, 2024 WL 2812905, at

*3 (S.D.N.Y. June 3, 2024) (considering defendant’s exhibits on a motion to dismiss because they “provide the entire

basis for plaintiff’s claims” and are thus integral to the amended complaint).

11 The Corporate Assignment of Deed of Trust to Green Tree Servicing, Inc. and the Corporate Assignment of

Deed of Trust to New Residential Mortgage LLC are annexed to the Reply as Exhibits C and D, respectively.

19, 2021, Claimant and her former husband entered into an agreement with NewRez LLC d/b/a

Shellpoint Mortgage Servicing (“NewRez”) to modify the Loan, adjusting the principal balance

and interest rate.12

The Chapter 11 Cases

On February 11, 2019, Ditech and certain of its affiliates (collectively, the “Debtors”) filed

petitions for relief under chapter 11 of the Bankruptcy Code in this Court (the “Chapter 11 Cases”).

The Debtors remained in possession and control of their business and assets as debtors in

possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. On February 22, 2019,

the Court entered an order fixing April 1, 2019, as the deadline for each person or entity to file a

proof of claim in the Chapter 11 Cases (the “General Bar Date”).13 The Court extended the General

Bar Date for consumer borrowers to June 3, 2019.14

On September 26, 2019, the Debtors confirmed their Third Amended Plan, which went

into effect on September 30, 2019.15 The Consumer Claims Trustee is a fiduciary under the plan.

See Third Amended Plan, art. I, § 1.41. The Consumer Claims Trustee is responsible for the

reconciliation and resolution of Consumer Creditor Claims and the distribution of the Consumer

Creditor Net Proceeds from the Consumer Creditor Recovery Cash Pool to holders of Allowed

12 The Modification Agreement with NewRez is annexed to the Reply as Exhibit E.

13 Order Establishing Deadline for Filing Proofs of Claim and Approving the Form and Manner of Notice

Thereof, ECF No. 90.

14 Order Further Extending General Bar Date for Filing Proofs of Claim for Consumer Borrowers Nunc Pro

Tunc, ECF No. 496.

15 Notice of (I) Entry of Order Confirming Third Amended Joint Chapter 11 Plan of Ditech Holding Corporation

and Its Affiliated Debtors, (II) Occurrence of Effective Date, and (III) Final Deadline for Filing Administrative

Expense Claims, ECF No. 1449.

Consumer Creditor Claims. See id. art. I, §§ 1.36-1.38. As such, she is exclusively authorized to

object to Consumer Creditor Claims. Id. art. VII, § 7.1.

The Claims Procedures Order

Under the Claims Procedures Order, a properly filed and served response to a claim

objection, omnibus or otherwise, gives rise to a “Contested Claim.” See Claims Procedures Order

¶ 3(iv). A Contested Claim is resolved at a hearing, which can be scheduled as either a “Merits

Hearing,” an evidentiary hearing on the merits of the Contested Claim, or a “Sufficiency Hearing,”

a non-evidentiary hearing to address whether the Contested Claim states a claim for relief against

the Debtors. Id. ¶ 3(iv)(a)-(b). At a Sufficiency Hearing, the Court applies the legal standard of

review applied to a motion to dismiss under Rule 12(b)(6). Id. ¶ 3(iv)(a).

The Claim

Claimant asserts an unsecured claim in an “undetermined” amount, based on a

“Contract/Executory Contract.” Claim at 2. She states the Claim is subject to a right of setoff by

property identified as “24864 State Hwy, Millville, CA 96062.” Id. Claimant filed the Proof of

Claim, Official Form 410, but did not provide any information or documentation in support of her

Claim.

The Objection

The Consumer Claims Trustee objects to the Claim and seeks an order disallowing the

Claim in its entirety. Objection ¶ 9. The Trustee states that upon review of the Claim and the

Debtor’s books and records, the Claim lacks sufficient information or documentation to

substantiate the Claim. Id. ¶ 4.

The Response

In response to the Objection, Claimant asserts that the total amount of her Claim is

$28,672.04. Response at 2. She explains:

Ditech did not pay the property taxes for 5 years. Then when they did, they

added on to my mortgage. Then when the new mortgage co. brought us

(Shellpoint) they sent me a notice of foreclosure for nonpayment for 6 months.

When I called them to explain what had happened they didn’t care, they just

want my home!

Id. at 1. She states that “[a]s a result of Ditech[’s] actions[,] these last 4 years have been a real

nightmare and [have] caused a great deal of distress.” Id. at 2.

In support of the Response, she states she is sending papers “from the Calif. tax Board

(payment of late taxes paid) in the amount of $13,163.88,” papers relating to payments made to a

paralegal in the amount of $3,150.24 and “miscellaneous cost[s]” in the amount of $257.57, and a

“letter of default in the amount of [$]12,100.35 for a total of [$]28,672.04.” Id. at 1-2. Claimant

attaches a two-page summary of tax history for Parcel B (“Parcel B Tax History”)16 from the Shasta

County Tax Collector’s Property Tax System, as of “05/18/2020.” The summary shows a default

date of “06/30/2013,” a redemption amount of $13,163.88, and a redemption date of “06/08/2018.”

Parcel B Tax History at 1. The history shows that, during the corresponding fiscal years, no taxes

were paid for the 2012 tax year through 2016 tax year. Id. at 2. Claimant includes a partial copy

of a check from CoreLogic Tax Services, LLC payable to the Shasta County Tax Collector in the

amount of $13,163.88, dated “06-JUN-18,” which appears to be payment to redeem the Property

(the “Redemption Check”).17

16 The Parcel B Tax History is annexed as pages 3-4 of the Response.

17 The Redemption Check is annexed as page 5 of the Response.

The Parcel B Tax History and Redemption Check appear to be the “papers” from the

“Calif[ornia] [T]ax Board” showing “late taxes paid” in the amount of $13,163.88. Response at 1.

The Court understands that the “payments made to a paralegal in the amount of $3,150.24” that

Claimant mentions are evidenced by the copies of two separate wire transfer requests from

Claimant to Rockingham Equity, PMA, dated January 24, 2020, and March 23, 2020, respectively

(“Wire Transfer Requests”).18 Id. at 1. The first request is for a transfer in the amount of $2,400.24,

the second requests a transfer of $750.00, for a total of $3,150.24. Wire Transfer Requests at 1-2.

At the top of the first wire transfer request, Claimant has handwritten: “payments for paralegal 1-

2.” Id. at 1.

Claimant also includes the first page of a letter serving as a notice of default (“Notice of

Default”)19 from the mortgage servicer, NewRez LLC f/k/a/ New Penn Financial, LLC d/b/a

Shellpoint Mortgage Servicing, to Gary Paul Warner and Deborah L. Warner, dated March 30,

2020. The notice states that the Note is in default, beginning with the missed payment on August

1, 2019. Notice of Default at 1. It provides that “[t]he amount due is $25,264.23 good through

04/30/2020” and that failure to cure will result in acceleration of the loan balance and foreclosure

of the Property. Id. At the top of the Notice of Default, Claimant has handwritten: “25,264.23 –

13,163.88 [=] 12,100.35.” Id. This is likely “the letter of default in the amount of [$]12,100.35”

providing “notice of foreclosure for nonpayment for 6 months” that Claimant describes. Response

at 1-2.

18 The Wire Transfer Requests are annexed as pages 6-7 of the Response.

19 The Notice of Default is annexed as page 8 of the Response. The bottom of the Notice of Default states “Page

1 of 3” but only the first page is included in the Response.

The documents described above do not show any “miscellaneous cost[s] to [Claimant] in

the [a]mount of $257.57.” Id. at 1. No other documents are annexed in support of the Response.

The Reply

The Consumer Claims Trustee contends that the Claim, as supplemented by the Response,

does not present sufficient facts to state a plausible claim for relief against Ditech and therefore

fails to meet the pleading requirements under Rule 12(b)(6). Reply ¶¶ 22-23. The Consumer

Claims Trustee notes that Claimant lists the basis of her Claim as “Contract/Executory Contract.”

Id. ¶ 23.

In deference to Claimant’s pro se status, the Consumer Claims Trustee liberally construes

the Claim as a claim for breach of contract. Id. ¶ 24. She interprets the Claim, as supplemented by

the Response, as a claim for monetary damages in the amount of $28,672.04 based on Ditech’s

alleged breach of the Mortgage. Id. ¶¶ 35, 39-40. The Consumer Claims Trustee interprets the

Claim to allege that Ditech breached the Mortgage terms by failing to pay the unpaid Property

taxes for five years, and then advancing the unpaid Property taxes and adding the arrearages to

Claimant’s Mortgage. Id. ¶¶ 28-34.

The Consumer Claims Trustee argues that the facts demonstrate Ditech did not breach the

Mortgage, and contends that in seeking reimbursement of Property tax payments through force-

placed escrow, Ditech did what it was permitted to do under the Mortgage and pursuant to the Real

Estate Settlement Procedures Act (“RESPA”). Id. ¶¶ 32-34. She contends that Claimant has failed

to allege facts demonstrating that Ditech breached the Mortgage or how any such breach caused

damages to Claimant. Id. ¶¶ 34-37.

Specifically, the Consumer Claims Trustee states that “Claimant seems to suggest that

Ditech’s attempts to collect the Property tax arrearages from her is what forced the home into

foreclosure.” Id. ¶ 36. The Consumer Claims Trustee maintains that the arrearages did not cause

foreclosure, which was sought (but never consummated) after Claimant had been in default for

eight months, with an arrearage of $12,944.00. Id. ¶ 36-37. Moreover, the Notice of Default was

sent nearly two years after the advancement of unpaid taxes, and states a cure amount of

$25,264.23, which “exceeds the property tax advances alone by $12,100.35.” Id. ¶ 37. Therefore,

“[e]ven if demand for repayment of the tax advances contributed to the delinquency, Claimant has

failed to show that the $13,163.88 in taxes were not her liability or that Ditech erroneously

advanced them.” Id. ¶ 39. The Consumer Claims Trustee asserts that Claimant was responsible for

paying the Property taxes and, in fact, had paid the taxes for Parcel A, but failed to pay the taxes

for Parcel B. Id. ¶ 30. In support, she attaches the Shasta County Property Tax Bills for the years

2016-2017, 2017-2018, and 2018-2019 for Parcel A (the “Parcel A Tax Bills”) and Parcel B (the

“Parcel B Tax Bills”), respectively.20

The Consumer Claims Trustee concludes that Claimant has failed to state a viable claim

for recovery against Ditech and cannot meet the Rule 12(b)(6) standard. Id. ¶¶ 21-22.

The Sur-Reply

In her Sur-Reply, Claimant provides a letter addressed “To whom this may concern” that

purports to explain errors she has found in the statements she received from Shellpoint. Sur-Reply

at 4. She explains that Shellpoint never sent a notice of foreclosure to her; it was Ditech who sent

Claimant a notice of foreclosure in 2016. Id. This prompted her to take her “[e]x-husband back to

court[] to receive the house back.” Id. She contends the divorce proceedings put her in foreclosure

and states that she is “not suggesting that the taxes put [her] in foreclosure.” Id. In support, she

annexes a copy of a Minute Order issued in the divorce proceedings on May 31, 2016, by the

20 The Parcel A Tax Bills and Parcel B Tax Bills are annexed to the Reply as Exhibit F and Exhibit G, respectively.

Superior Court of California for the County of Shasta (“Minute Order”).21 She also includes copies

of the same Parcel A Tax Bills and Parcel B Tax Bills that the Consumer Claims Trustee annexed

to the Reply.22

As reflected in the Minute Order, Claimant advised the county court that her ex-husband

was “behind $5,000.00 in mortgage payments, behind $5,000.00 in property taxes, and there [was]

no current homeowner’s insurance on the [P]roperty.” Minute Order at 1. As of May 31, 2016,

Claimant believed the Loan balance was $284,000.00 and the court directed her to “contact the

mortgage company to find out the remaining balance.” Id. at 1-2.

Claimant also contends that she paid her escrow every month and did not default on it. Sur-

Reply at 4. In support, she annexes billing statements issued by Ditech for the period of October

of 2017 to December of 2018, as well as a statement from November of 2019 (“Ditech Billing

Statements”).23 The statements include a summary of Claimant’s account information, a

breakdown of Claimant’s past payments, and an explanation of the amount due and past due each

month. Ditech Billing Statements at 1-29. They also indicate Claimant’s escrow balance each

month and disbursements made by Ditech, such as tax advances. See id. at 14. Claimant contends

that based on the statements, “you can see that the amount has been paid.” Sur-Reply at 4.

21 Minute Order, Warner v. Warner, 04 CV FL 0152733, Superior Court of the State of Cal. for the Cnty. of

Shasta (May 31, 2016). The Minute Order is annexed as pages 5-6 to the Sur-Reply.

22 Claimant annexes copies of the Parcel A Tax Bills and Parcel B Tax Bills as pages 47-49 and 45-46, 51 to the

Sur-Reply, respectively.

23 Claimant annexes the Ditech Billing Statements as pages 15-44 of the Sur-Reply but does not include a

complete record of the statements from October 2017 to November 2019. A comprehensive record of the Ditech

Billing Statements she relies on are annexed as Exhibit A of the Sur-Response.

The Sur-Response

The Consumer Claims Trustee contends that, even as supplemented by the Sur-Reply, the

Claim and Response fail to state a claim for relief against Ditech. Sur-Response ¶ 6. She argues

that Claimant does not allege facts or provide information to support that she paid the Property

taxes, and therefore cannot show how she was damaged by Ditech advancing taxes. Id. ¶ 4. The

Consumer Claims Trustee states that the Minute Order shows Claimant knew about the substantial

arrears, but still failed to cure the default. Id. ¶ 10. She maintains that, regardless of whether the

tax arrears or the divorce forced her into foreclosure, Claimant was obligated to perform under the

terms of the Mortgage and failed to do so. Id.

The Consumer Claims Trustee also argues that the Ditech Billing Statements do not show

that Claimant paid her escrow each month and the escrow deficiency was in error. Id. ¶¶ 11-12.

She contends that (i) the Ditech Billing Statements are incomplete, as some of the monthly

statements are not included, and (ii) Claimant’s handwritten notes, which seem to suggest

payments were improperly applied, are inconsistent with the amounts credited to her account. Id.

¶¶ 11-14. In response, the Consumer Claims Trustee annexes a complete billing statement history

(the “Complete Ditech Billing Statements”)24 for the same period, showing that Claimant made

monthly payments and Ditech properly applied Claimant’s monthly payments. Id. ¶¶12-14.

“Claimant is thus correct that she made her monthly payments towards escrow between

October 2017 and November 2019. However, this does not show that she never defaulted in her

escrow . . . . those regular payments [were] insufficient to bring the escrow balance current.” Id. ¶

15. According to the Consumer Claims Trustee, the Complete Ditech Billing Statements show that

24 The Complete Ditech Billing Statements are annexed as Exhibit A to the Sur-Response.

the escrow deficiency was caused by the failure to pay property taxes and the advanced tax arrears

were built into the monthly escrow payments. Id. ¶¶ 16-19.

Motion to Estimate

On September 23, 2022, the Consumer Claims Trustee filed a motion to estimate claims

(“Motion to Estimate”)25 for purposes of setting a reserve and to classify those claims as non-

363(o), Class 6 Consumer Creditor Claims, as defined in the Third Amended Plan. In the motion,

the Consumer Claims Trustee estimated the Claim amount as $0.00 for the purpose of setting a

distribution reserve, but “[b]y agreement,” estimated the Claim “at $28,672.04” as a non-363(o)

claim. Motion to Estimate, Ex. A at 3; Reply ¶ 15. The Court granted the motion, setting the Claim

at $28,672.04 and classifying it as a non-363(o) claim.26

LEGAL PRINCIPLES

A claim properly filed under section 501 of the Bankruptcy Code is “deemed allowed”

absent an objection. 11 U.S.C. § 502(a). Such claim constitutes “prima facie evidence of the

validity and amount of a claim.” Fed. R. Bankr. P. 3001(f). A court may only disallow a claim if

a party in interest has objected, and upon notice and hearing, the court finds the claim falls under

one of the exceptions found in section 502(b) of the Bankruptcy Code. 11 U.S.C. § 502(b); In re

Manhattan Jeep Chrysler Dodge, Inc., 602 B.R. 483, 491 (Bankr. S.D.N.Y. 2019) (“Section 502

of the Bankruptcy Code provides generally that a proof of claim should be allowed except to the

extent it is objectionable on various grounds.”). As relevant to the Objection, section 502(b)(1)

25 Consumer Claims Trustee’s Omnibus Motion to Estimate for Purposes of Distribution Reserves and to Classify

Certain Proofs of Claim, ECF No. 4266.

26 Order Granting Consumer Claims Trustee’s Omnibus Motion to Estimate for Purposes of Distribution Reserves

and to Classify Certain Proofs of Claim, ECF No. 4493. Exhibit A to the order contains a clerical error, stating that

the estimated amount of the Claim is “$28,6702.04” rather than $28,672.04, the amount of the Claim asserted by

Claimant in her Response.

provides that a claim may be disallowed to the extent it is “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 courts look to “applicable

nonbankruptcy law.” In re Residential Cap., LLC, 513 B.R. 446, 458 (Bankr. S.D.N.Y. 2014)

(citing In re W.R. Grace & Co., 346 B.R. 672, 674 (Bankr. D. Del. 2006)).

The merits of the Claim are not at issue herein. A Sufficiency Hearing is a non-evidentiary

hearing to address whether a Contested Claim “has failed to state a claim against the Debtors which

can be allowed and should be dismissed pursuant to Bankruptcy Rule 7012.” Claims Procedures

Order ¶ 3(iv)(a). See Fed. R. Bankr. P. 7012(b) (quoting Fed. R. Civ. P. 12(b)) (applying the federal

standard under Rule 12(b)(6) motion to dismiss standard to adversary proceedings). The function

of a motion to dismiss is ‘not to weigh the evidence that might be presented at a trial but merely

to determine whether the complaint itself is legally sufficient.’” Havens v. James, 76 F.4th 103,

116-17 (2d Cir. 2023) (quoting Festa v. Loc. 3 Int’l Bhd. of Elec. Workers, 905 F.2d 35, 37 (2d

Cir. 1990)).27

The Rule 12(b)(6) standard requires courts to accept all factual allegations as true and to

draw all reasonable inferences in favor of the non-moving party. Chambers v. Time Warner, Inc.,

282 F.3d 147, 152 (2d Cir. 2002)). Further, “a complaint must contain sufficient factual matter,

accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S.

27 “On a motion to dismiss pursuant to Rule 12(b)(6), the Court limits consideration to: (1) the factual allegations

in the complaint, which are accepted as true; (2) documents attached to the complaint as an exhibit or incorporated in

it by reference; (3) matters of which judicial notice may be taken; and (4) documents upon whose terms and effect the

complaint relies heavily, i.e., documents that are ‘integral’ to the complaint.” Calcutti v. SBU, Inc., 273 F. Supp. 2d

488, 498 (S.D.N.Y. 2003) (citing Brass v. American Film Techs., 987 F.2d 142, 150 (2d Cir. 1993); Chambers v. Time

Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002); Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47-48 (2d Cir.

1991)). Because Sufficiency Hearings consider consumer claims, often by unrepresented claimants whose claims lack

detail or do not attach pertinent supportive documentation, it has been the practice of this Court to consider the

Consumer Claims Trustee's documentary submissions together with claims as if they were consolidated. The Court

does so here.

U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). In deciding

what factual matter to accept as true, the Court is not required to “credit conclusory allegations or

legal conclusions couched as factual allegations.” Nielsen v. Rabin, 746 F.3d 58, 62 (2d Cir.

2014) (quoting Rothstein v. UBS AG, 708 F.3d 82, 94 (2d Cir. 2013)). A claim is facially plausible

“when the plaintiff pleads factual content that allows the court to draw the reasonable inference

that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. “The plausibility

standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that

a defendant has acted unlawfully.” Id.

“Where, as here, the [Claim] was filed pro se, it must be construed liberally to raise the

strongest arguments it suggests. Nonetheless, [the] pro se [Claim] must state a plausible claim for

relief.” Walker v. Schult, 717 F.3d 119, 124 (2d Cir. 2013) (internal citations, quotation marks, and

brackets omitted); see also Kimber v. GMAC Mortg., LLC (In re Residential Cap., LLC), 489 B.R.

489, 494 (Bankr. S.D.N.Y. 2013) (“Complaints drafted by pro se plaintiffs are to be construed

liberally, but 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 plaintiff is

complaining about and . . . whether there is a legal basis for recovery.’” (quoting Iwachiw v. New

York City Bd. of Elections, 126 F. App’x 27, 29 (2d Cir. 2005) (summary order))).

ANALYSIS

Claimant states that the Claim is based on “Contract/Executory Contract.” Claim at 2. The

governing contract is the Mortgage.28 Under California law, the elements of a cause of action for

breach of contract are “(1) the contract, (2) plaintiff's performance or excuse for nonperformance,

28 The Mortgage provides that the governing law is the law of the jurisdiction in which the Property is located -

California. Mortgage § 16.

(3) defendant’s breach, and (4) the resulting damages to plaintiff.’” Bushell v. JPMorgan Chase

Bank, N.A., 220 Cal. App. 4th 915, 921 (Cal. Ct. App. 2013) (citation omitted); see also CDF

Firefighters v. Maldonado, 158 Cal. App. 4th 1226, 1239 (Cal. Ct. App. 2008) (“A cause of action

for breach of contract requires proof of the following elements: (1) existence of the contract; (2)

plaintiff's performance or excuse for nonperformance; (3) defendant's breach; and (4) damages to

plaintiff as a result of the breach.”) (citation omitted). The Court considers whether Claimant has

stated a claim for breach of contract against Ditech.

The Mortgage provides that Claimant “shall pay when due the principal of, and interest on,

the debt evidenced by the Note and any prepayment charges and late charges due under the Note.

Borrower shall also pay funds for Escrow Items pursuant to Section 3.” Mortgage § 1. As relevant,

Section 3 directs Claimant to make an escrow payment to Ditech “on the day Periodic Payments

are due under the Note, until the Note is paid in full,” in an amount equal to amounts due for “taxes

and assessments and other items which can attain priority over this Security Instrument as a lien

or encumbrance on the Property,” unless that requirement is waived by Ditech. Id. § 3. In the event

of such waiver, Claimant is responsible for paying the taxes directly to the taxing authorities. Id.

Irrespective of whether Claimant paid the taxes and assessments directly or through escrow

payments, the Mortgage is clear that it is Claimant’s responsibility to “pay all taxes, assessments,

charges, fines, and impositions attributable to the Property which can attain priority over this

Security Instrument . . . .” Id. § 4. In the event that Claimant fails to make those payments, the

Mortgage provides that Ditech “may do and pay for whatever is reasonable or appropriate to

protect [its] interest in the Property,” including “paying any sums secured by a lien which has

priority over this Security Instrument . . . .” Id. § 9. Finally, as relevant, the Mortgage provides that

“[a]ny amounts disbursed by [Ditech] under this Section 9 shall become additional debt of

[Claimant] secured by this Security Instrument. These amounts shall bear interest at the Note rate

from the date of disbursement and shall be payable, with such interest, upon notice from Lender

to Borrower requesting payment.” Id.

The essence of Claimant’s complaint is that she never defaulted on her escrow payments

under the Mortgage, Ditech failed to pay the Property taxes for five years, and after paying those

taxes, erroneously added those costs on to the Mortgage. Response at 1. She seeks to recover the

$13,163.88 Ditech paid in Property taxes, plus additional damages of $15,508.16.29

Claimant has not alleged facts demonstrating that she performed under the Mortgage. She

relies on the Parcel B Tax History and the Parcel B Tax Bills, but these documents show that she

failed to pay the Property taxes from 2012 through 2016. Parcel B Tax History at 1-2; Parcel B

Tax Bills at 1-3. Moreover, the Ditech Billing Statements that Claimant relies on undermine her

contention that she was not in default on her escrow. The statements show that although Claimant

made monthly payments towards the escrow between October 2017 and November 2019, she

nonetheless was in default under the Mortgage. For example, the first billing statement attached to

the Sur-Reply, dated October 16, 2017, shows a negative escrow balance of $1,667.25. Ditech

Billing Statements at 1. Therefore, even assuming she was regularly funding the escrow account

between October 2017 and November 2019, those regular payments would be insufficient to bring

the escrow balance current.

29 Claimant seeks total damages of $28,672.04, itemized as follows:

(1) $13,163.88 advanced by Ditech for her property taxes

(2) $3,150.24 in payments made to a paralegal,

(3) $257.57 in miscellaneous costs, and

(4) $12,100.35 in uncategorized damages.

Response at 2.

The Complete Ditech Billing Statements show that the primary source of the escrow

deficiency was Claimant’s failure to pay the property taxes on Parcel B. Claimant was responsible

for paying property taxes on Parcel A and Parcel B. The Parcel A Tax Bills show that the taxes on

Parcel A, which were substantially less than those due on Parcel B, were current during the tax

period from July 1, 2016, to June 30, 2019. Parcel A Tax Bills at 1-3. The Parcel B Tax Bills show

that the taxes on Parcel B were delinquent during the same time period. Parcel B Tax Bills at 1-3.

The Parcel B Tax History shows that the property taxes were not paid for five years, commencing

in 2012. Parcel B Tax History at 1-2. Claimant regained possession of the Property in June 2016.

She acknowledges that, at that time, her now ex-husband was behind on the Mortgage in the

amount of $5,000.00 and delinquent on property taxes in the amount of $5,000.00. Minute Order

at 1. According to the October 11, 2017 billing statement, the Mortgage was past due in the amount

of $6,018.95. Complete Ditech Billing Statements at 2. Despite making monthly payments

between October 2017 and November 2019, Claimant was too far behind to catch up. The October

11, 2017 billing statement shows that the payment that posted on October 10, 2017 was applied to

her June 1, 2017 payment. Id. She remained three to four months behind for at least the next two

years.

The June 15, 2018 statement shows a tax disbursal advanced on June 4, 2018 in the amount

of $10,808.68, bringing the overall escrow balance to a negative $11,895.48. Complete Ditech

Billing Statements at 30. As of the date of the final statement provided by Claimant in her Sur-

Reply, dated November 18, 2019, the negative escrow balance was $10,398.70. Id. at 69; Ditech

Billing Statements at 14. The Parcel B Tax History and Parcel B Tax Bills indicate that the arrears,

in the amount of $13,163.88 (including penalties) were paid on June 8, 2018. Parcel B Tax History

at 1-2; Parcel B Tax Bills at 2; see also Redemption Check at 1. The Complete Ditech Billing

Statements also support the Consumer Claims Trustee’s assertion that the delinquent property

taxes advanced by Ditech in June 2018 were ultimately built into Claimant’s monthly escrow

payment. The October 4, 2018 billing statement shows a required monthly escrow payment of

$168.20. See Complete Ditech Billing Statements at 40. The November 7, 2018 billing statement

shows a required monthly escrow payment of $1,431.16. Id. at 42.

Claimant has failed to alleged facts demonstrating that in making the property tax

payments, Ditech breached the Mortgage. To the contrary, under the Mortgage, Ditech was

permitted to protect its security interest in the Property by advancing funds to satisfy potential

liens. See Mortgage § 9 (“If [] Borrower fails to perform the covenants and agreements contained

in this [Mortgage] . . . . then Lender may do and pay for whatever is reasonable or appropriate to

protect Lender’s interest in the Property . . . . Lender’s actions can include, but are not limited to:

[] paying any sums secured by a lien which has priority over this [Mortgage] . . . .”). After Ditech

advanced the property tax arrears in June 2018, it was permitted under RESPA to collect the

shortage created by the advance.30 Claimant contends that Ditech added the property tax arrearages

to her Mortgage but provides no documentation to support her contention. Response at 1. The

Consumer Claims Trustee contends, and the Court agrees that the more plausible explanation is

that Ditech sought reimbursement of the property tax payments via force-placed escrow, as

permitted by the Mortgage and RESPA. Without any supporting information to suggest otherwise,

Claimant fails to show that Ditech has breached any of its obligations under the Mortgage contract.

30 RESPA sets the requirements for management of escrow accounts. 12 C.F.R. §1024.17. Mortgage servicers are

permitted to charge the borrower a sum equal to one-twelfth of the total annual escrow payments which the servicer

anticipates advancing on the borrower’s behalf. Id. § 1024.17(c)(1)(ii). The servicer is entitled to maintain a cushion

of funds in the escrow account of no greater than one-sixth of the estimated total annual payments. Id. In establishing

an ongoing escrow payment, the servicer may base that amount on the prior year’s escrow distribution. Id. §

1024.17(c)(7). If, after running an escrow analysis computation, a servicer discovers an escrow shortage that is greater

than one month’s escrow account payment, the servicer may require the borrower to repay the shortage over a twelve-

month period. Id. § 1024.17(f).

Under California law, the measure of damages in a contract breach is the amount which

would compensate the aggrieved party, or the amount likely to flow therefrom. Cal. Civ. Code §

3300 (“For the breach of an obligation arising from contract, the measure of damages, except

where otherwise expressly provided by this Code, is the amount which will compensate the party

aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of

things, would be likely to result therefrom.”). California courts have thus interpreted damages for

breach to be “ordinarily confined to those which would naturally arise from the breach, or which

might have been reasonably contemplated or foreseen by the parties at the time they contracted, as

the probable result of the breach.” Allen v. Jones, 104 Cal. App. 3d 207, 210 (Cal. Ct. App. 1980)

(citations omitted). “The test for causation in a breach of contract . . . action is whether the breach

was a substantial factor in causing the damages.” U.S. Ecology, Inc. v. State of California, 129

Cal. App. 4th 887, 894 (Cal. Ct. App. 2005). “Implicit in the element of damage is that the

defendant’s breach caused the plaintiff’s damage.” Orcilla v. Big Sur, Inc., 244 Cal. App. 4th 982,

1004 (Cal. Ct. App. 2016) (citing Troyk v. Farmers Group, Inc. 171 Cal. App. 4th 1305, 1352

(Cal. Ct. App. 2009)).

Claimant has failed to allege facts demonstrating that she was damaged by Ditech’s

payment of the property taxes and has not demonstrated that Ditech breached the Mortgage by

paying them. She has failed to do so because, as discussed above, Ditech had a contractual right

to pay the taxes after Claimant failed to do so. Moreover, and in any event, Claimant has provided

no basis on which to grant any damages. Claimant seeks damages totaling $28,672.04. Response

at 1. Of this, $13,163.88 represents the taxes paid. Id. Claimant fails to demonstrate why she is

entitled to the refund of taxes duly paid on her behalf. Claimant also seeks $3,150.24 for paralegal

costs and $257.57 in miscellaneous costs. Id. She has not demonstrated grounds under the

Mortgage, or otherwise, to recover those fees. The same holds true for the $12,100.35 amount

sought. Claimant asserts that this amount constitutes the difference between the cure amount of

$25,264.23 listed on a March 30, 2020 default letter, and the $13,163.88 tax bill paid in June 2018.

See Notice of Default at 1. However, the record is clear that the Notice of Default was issued by

the successor-servicer, Shellpoint Mortgage Servicing, nearly two years after the advanced taxes.

Claimant does not provide any evidence to suggest that the Loan was not in default. Even if the

demand for repayment of the tax advances contributed to the delinquency, Claimant has failed to

show that the $13,163.88 in taxes were not her liability or that Ditech erroneously advanced them.

CONCLUSION

Based on the foregoing, the Court sustains the Objection and disallows the Claim.

IT IS SO ORDERED.

Dated: December 30, 2024

New York, New York

James L. Garrity, Jr.

/s/

Honorable James L. Garrity, Jr.

United States Bankruptcy Judge