Lender Denied Attorneys Fees in Bankruptcy Claim

21 Dec Lender Denied Attorneys Fees in Bankruptcy Claim

Mortgage documents must expressly give the lender attorneys fees in bankruptcy proceedings, a Kansas bankruptcy court judge ruled this week disallowing U.S. Bank Home Mortgage its attorneys fees. General provisions for fees to protect the lender’s rights in the property are not sufficient for bankruptcy fees.

To get fees added to the bankruptcy proof of claim, the creditor must prove 1) there is equity in the property, 2) the attorneys fees are reasonable and 3) the loan documents allow the fees, Judge Janice Miller Karlin ruled in In Re Tabares, 08-40324-13, (Bankr. D. Kan. December 15, 2008).

U.S. Bank relied on the “do and pay whatever is necessary to protect the value of the Property and Lender’s rights in the Property,” language in the promissory note and mortgage to include $350 in attorneys fees in its proof of claim in the debtor’s chapter 13 bankruptcy proceeding, which fees Judge Karlin denied.

“Although the mortgage does state that U.S. Bank can “do and pay whatever” is necessary to protect its interest in the property, when that phrase is read together with other provisions of the contract, and with other documents executed during the transaction, it is clear to the Court that the most reasonable interpretation of paragraph 7 is that attorney fees are not included in the items to which U.S. Bank is entitled on a debt that has not yet been accelerated,” Judge Karlin ruled.

Jan Hamilton, Standing Chapter 13 Trustee for Topeka, Kansas, objected to the fees in the proof of claim. Cynthia Woolverton of Milsap & Singer, LLC, of St. Louis, MO, represented U.S. Bank.

Read more about bogus fees in chapter 13 claims in Bankruptfcy Law Network.

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Jill Michaux has helped Kansas consumers with debt problems for three decades. She and her partner, Mark Neis, are Topeka's only bankruptcy specialists, board certified in consumer bankruptcy law by the American Board of Certification. She help start the National Association of Consumer Bankruptcy Attorneys.
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