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The Bankruptcy Court in Miami addressed in the case of In re Dominique, 368 B.R. 913 (Bankr.S.D.Fla. 2007)(Isicoff, J.) the consequences of the failure of a mortgage servicer to give the required notice of an escrow account deficiency per RESPA, Florida statutes, and the provisions of the mortgage during the pendency of a chapter 13 plan. The court held that the consequence of such failure was the waiver of the escrow account deficiency.
The debtors' confirmed chapter 13 plan provided to cure the mortgagee's pre-petition arrearage and to maintain regular payments. Towards the end of the chapter 13 plan, the mortgagee demanded payment of an approximate $6,000 escrow account shortage. The mortgage required the debtors to maintain an escrow account with the mortgage loan servicer for the payment of an allocable portion of property taxes and insurance premiums. The debtors filed a motion seeking a ruling that the $6,000 escrow shortage would be discharged upon completion of the chapter 13 plan.
The court found that RESPA and its regulation require a mortgage loan servicer to do an annual escrow analysis and to provide the borrower with annual notice of any deficiency if the mortgage requires the borrower to make escrow payments. 12 U.S.C. section 2609(b), 24 C.F.R. 3500.17(c), 3500.17(f). The servicer may require the borrower to pay additional deposits into the escrow account to make up the deficiency but is not required to do so. 24 C.F.R. section 3500.17(c)(1)(ii), 24 C.F.R. section 3500.17(f)(3) and (f)(4).
The court also found that Florida law imposes a time deadline for notice of a deficient escrow account to be within 15 days after the lender receives notice of taxes due of notification of an insurance premium due. Fla. Stat. section 501.137(2). The court noted that RESPA does not generally preempt state law and does not preempt state law for purpose of the notice requirements for escrow account deficiencies. 12 U.S.C. section 2616 and 24 C.F.R. section 3500.13.
The court rejected the mortgagee's argument that it was excused from giving notice of the escrow account deficiency during the years of the plan on the claim that it would be a violation of the automatic stay as the court noted that merely providing notice of an escrow deficiency is not a stay violation. Chase Manhattan Mortgage Corp. v. Padgett, 268 B.R. 309 (S.D.Fla.2001).
The court concluded that the mortgage servicer failed to comply with Federal and Florida law in not providing annual notice of the escrow account deficiencies. The debtors requested that the court order the escrow shortage discharged. The court stated that the resolution of this issue lies in non-bankruptcy law as the escrow shortage arose post-petition. The court found the cases of In re Guevara, 258 B.R. 59 (Bankr.S.D. Fla. 2001), Telfair v. First Union Mortgage Corp., 216 F.3d 1333 (11th Cir. 2000) and Universal American Mtg. Co. v. Bateman (In re Bateman), 331 F.3d 821 (11th Cir.2003) as inapplicable to the resolution of this issue, but adopted the reasoning of the court in Padgett.
In Padgett, the court upheld the bankruptcy court's holding that the lender had waived its rights to recover post-confirmation advances for taxes and insurances as the lender failed to meet its obligations as a mortgage servicer under RESPA and the Florida notice requirement to notify the debtors of the need to increase monthly payments. In applying the Padgett decision to this case, the court held that since the mortgage servicer did not provide the annual notice as required by RESPA and Florida law as well as by the mortgage, that the right to payment was waived. The court stated that the mortgagee thereby failed to meet the conditions precedent to seeking payment and that the failure could not be cured as the involved time periods (annual or 15 day periods) had passed. The mortgage servicer was only entitled to seek the payment of the escrow shortage for the current escrow account computation year.
