Mr. Dunlap wants this money back, plus interest, after deducting the amount due for arrearage of principal and interest (which Dunlap calculates at about $4,400⁽¹⁾).

6 ABR 54      NBA claims there is $5,013.19 in arrearage which must be paid to bring the loan current, and about $750 in late fees. NBA also wants $2,010 in attorney fees. It does not want to pay interest because the proper allocation of these funds was under appeal for a number of years - at least until the United States Supreme Court denied certiorari in the last half of 1998.

The order that was being appealed was entered by the bankruptcy court on January 23, 1995.⁽²⁾ The order provided for unwinding the Hougland⁽³⁾ strip down because of the reversal by the Nobelman case which held that stripping down a claim secured only by a debtor's residence is improper.⁽⁴⁾ In that order, I indicated that if the parties could not agree on a reamortization of the plan payments in light of Nobelman, I would hold a hearing on it. In essence, that hearing is being held now, four years later and after an appeal by Mr. Dunlap which went up to the U.S. Supreme Court, which denied cert.⁽⁵⁾

In the course of Dunlap's appeal, the 9^th Circuit issued an unpublished opinion (See 5 ABR 359) which upheld the part of the bankruptcy court's January 23, 1995, order that said the strip down was not res judicata, but indicated that no attorney fees should have been awarded. In fact, none have been awarded to that date, although the January 23, 1995, order provided, per Nobelman, that the mortgage would cover the full amount of principal, interest, costs and attorney fees.

6 ABR 55      To resolve the proper allocation of the funds, a hearing was held on December 30, 1998, at which I determined that the fund should be split as follows (the figures are still tentative to the extent the court is to be advised about what interest would have accrued on an NBA passbook savings account from the date payments were made to the trustee, to the present):

The reasons for my rulings on the various items are in the following parts of this Memorandum, as well as those made on the record. This written Memorandum is intended to supplement and not supplant the oral ruling on December 30, 1998.

     2. LATE FEES- At the hearing on December 30, 1998, NBA waived $440.40 in late fees.

The court will allow late fees of $201.85 for the period of May 1995, through March 1996. The $201.85 in late fees arose because Dunlap made only a partial payment in May 1995, and stopped for seven or eight months on the theory that he was entitled to a discharge of his secured obligation to NBA after paying off the stripped down amount ($21,390). The 9^th Circuit subsequently held that the strip down was incorrect, so late fees in the approximate amount of $18.35 per month are appropriate - it apparently took him 11 months to get current again.

During a second period in which NBA is claiming late fees, from August 1997 through November 1997, Mr. Dunlap was late with his payments due to a personal 6 ABR 56      family crisis. Up to that time, he had been fulfilling his obligation under an order for stay pending appeal.⁽⁶⁾ The amount for this four-month period was $73.40.

The total late charges that will be allowed is $275.25.

     3. ATTORNEY FEES- Although I must follow its ruling, I believe that the unpublished 9^th Circuit opinion in In re Dunlap⁽⁷⁾ was incorrect in its treatment of attorney fees.

I believe the correct treatment would have been to honor the ruling in Nobelman that attorney fees are allowable as part of the secured claim, without regard to the value of the property, if provided for under contract and where the only security is the residence of Dunlap. 11 USC § 1322(b) provides that a deed of trust secured only by a debtor's residence in a chapter 13 case cannot be stripped down under 11 USC § 506(a). If a deed of trust provides for costs and attorney fees, which NBA's did, then Dunlap should not be able to avoid those either.

Apparently, the 9^th Circuit panel in Dunlap did not agree with this argument. It followed In re Fobian,⁽⁸⁾ but I do not believe it correctly analyzed that case. Fobian held that a partially secured creditor was not entitled to attorney fees in a chapter 12 case where the creditor was undersecured and the principal issue giving rise to the attorney fees involved dealt with federal bankruptcy law principles.

6 ABR 57      Fobian was clarified by In re Kord Enterprises II,⁽⁹⁾ which held in the case of an oversecured creditor, if the contract provided and the creditor had a security interest in the collateral and the fees were reasonable, the creditor could collect attorney fees under 11 USC § 506(b), even if the attorney fees were incurred for issues that did not involve federal bankruptcy law.

In the present case, it is not certain whether NBA is currently undersecured or oversecured. I based my ruling in this case on the fact that NBA did not establish that it was an oversecured creditor. The valuation issue has always been in limbo and, barring proof, I cannot assume that NBA is oversecured. As the party requesting the fees, I believe it was NBA's burden to establish its right to them, including the fact that there was collateral to cover those fees. NBA did not carry this burden.

While NBA argues that the Dunlap opinion did not specifically bar attorney fees for "contract" or general lien enforcement type claims, the panel in Dunlap did indicate that Fobian primed Nobelman with respect to attorney fees for an undersecured creditor when they involved a federal bankruptcy issue. It did not precisely say whether a "contract" claim would be allowable when there was no collateral value to cover it.

Even if the $2,010 in attorney fees which NBA seeks was for matters which were not principally involving federal bankruptcy law, if there is no collateral value left to secure NBA's claim, it cannot be part of the secured claim under 11 USC § 506(b). Since NBA has not established that it is an oversecured creditor, I will deny the claim for $2,010.

6 ABR 58           4. MORTGAGE BALANCE DUE- NBA provided a declaration of Amber Hutchens,⁽¹⁰⁾ indicating that the amount of principal and interest in arrears on the date of the hearing was $5,013.19. Mr. Dunlap testified that the amount of payments shown on Ms. Hutchens' declaration from the time the arrearage appeared in May of 1995, appeared to be correct.

The payments on Dunlap's note are fixed at $458.68 per month. The note bears interest at 9% per annum on the declining balance payable in monthly installments. In the final judgment, the court will allow from the proceeds being held by NBA an amount in the neighborhood of $5,013.19, subject to adjustment on the date of the final order if more payments are due by then.

The court heard the testimony of Mr. Dunlap, that he thought the amount due was closer to $4,400, but this was not supported.

The $5,013.19 includes a reserve for taxes and insurance. By allowing this amount, it is not intended to bar Mr. Dunlap from questioning the proper allocation of the escrow for taxes and insurance.

     5. INTEREST ON ESCROW- Zee Brannen of NBA testified, since Amber Hutchens, NBA's declarant on the balance due, was ill. Ms. Brannen is a subordinate of Ms. Hutchens and familiar with the Dunlap loan and mortgage collection procedures. She said the $9,940.35 in plan payments were put into a restricted account which bore no interest. She did not know the reason that interest could not have been earned.

I determined that interest should be allowed on the payments which were $276.12 per month for 36 months from about July 1990, through the first part of 6 ABR 59      1993. I gave the parties an example of how interest might be calculated assuming a 4% rate. Attached as Appendix A is that example.

Initially, in its January 23, 1995, order,⁽¹¹⁾ the court suggested that the monthly plan payments be amortized as if made when received by NBA during the 36-month plan in 1990-1993. This would have probably been more beneficial to Mr. Dunlap given that the mortgage bears 9% interest and the passbook savings rate I intend to use will probably be substantially lower. However, because of the numerous appeals pending in this case, it is unreasonable to reamortize the note balance on the 9% basis at this late date.

While NBA might not be considered under state law as a traditional "losing party," subject to a judgment for interest for funds it has held⁽¹²⁾ it is an entity particularly attuned to the appropriate investment of funds. There was no explanation why it did not keep these funds in an interest bearing account. It should have.

The court might, as it had originally suggested in its January 23, 1995, order, require reamortization of the funds as of the time they had been received from the trustee as plan payments - i.e., during 1990-1993. This would have reduced the principal of the mortgage loan which was earning interest at 9% per annum. The alternative ruling that a passbook rate be used is less painful to NBA (or the lender whose loan is being serviced) in that the passbook rate is undoubtedly less than 9%, but it also acknowledges Dunlap's expectation that the payments would not sit fallow for an average of 6 years pending the resolution of this long legal dispute.

6 ABR 60      When I held on January 23, 1995, that res judicata did not bar unwinding the strip down, it was on the basis that an appropriate remedy could be devised - one that is fair and equitable to both Dunlap and NBA.⁽¹³⁾ Rather than tag NBA with a charge equivalent to a 9% interest rate, it is more appropriate to charge it with a rate of interest it would have had to pay a customer that deposited funds with NBA in a savings account.

I used an arbitrary 4% as a example in Appendix A. This produced interest of approximately $2,799.86. Instead of using this arbitrary rate of interest for the final judgment, however, I directed NBA to identify the rate that would have been applicable to a passbook savings account with deposits of $276.12 per month beginning in July 1990, and continuing for 36 months and then held, accruing interest, until the beginning of 1999, when the court anticipates distribution of these funds. This should provide a fair return to Mr. Dunlap on the money held.

     6. CONCLUSION- NBA is to provide the court and Mr. Dunlap's counsel with the figures for the hypothetical passbook savings account at NBA with hypothetical deposits akin to the plan payments, held by NBA until the present time. Some of the payments will have drawn interest for over 8 years.

Upon receipt of the information, the court will give the parties the opportunity for a short hearing to determine if NBA's calculations are accurate. If the court determines that they are, it will revise the interest shown in Appendix A and prepare a final order.

DATED:     January 4, 1999

HERBERT A. ROSS

 

U.S. Bankruptcy Judge

6 ABR 61          

1. 6 ABR 53      See, Affidavit of Donald Dunlap, attached to Debtor's Memorandum, Docket Entry 235, filed December 9, 1998.

2. 6 ABR 54      Order on Remand Regarding Discharge and Effect of Nobelman, Docket Entry 111, filed January 23, 1995.

3. 6 ABR 54      In re Hougland, 886 F2d 1182 (9th Cir 1989).

4. 6 ABR 54      Nobelman v American Savings (In re Nobelman), 113 SCt 2106 (1993).

5. 6 ABR 54      See, footnote 6.

6. 6 ABR 56      Order Modifying Stay on Appeal, Docket Entry 215, filed July 22, 1997. Order Amending "Order Setting Conditions of Stay Pending Appeal," Docket Entry 196, filed April 1, 1996. Order Setting Conditions of Stay Pending Appeal, Docket Entry 179, filed February 20, 1996.

7. 6 ABR 56      107 F3d 15 (9^th Cir 1997), cert den ____ US ____ (1998).

8. 6 ABR 56      951 F2d 1149 (9^th Cir 1991), cert den 550 US 1220 (1992) and cert den 550 US 1221 (1992).

9. 6 ABR 57      139 F3d 684 (9^th Cir 1998).

10. 6 ABR 58      Docket Entry 237, filed December 11, 1998.

11. 6 ABR 59      See, footnote 2.

12. 6 ABR 59      See, e.g., Lundgren v Gaudiane, 782 P2d 285, 289 (Alaska 1989).

13. 6 ABR 60      In re Spirtos, 992 F2d 1004 (9th Cir 1993).