2010 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

12-23-2010

In re: Francisco Rodriguez

Precedential or Non-Precedential: Precedential

Docket No. 09-2724

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1

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

____________

 

No. 09-2724

____________ 

In re: FRANCISCO RODRIGUEZ; 

ANNA RODRIGUEZ, 

 Appellants

 

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY

(D.C. Civil No. 08-cv-05207)

District Judge: Honorable Anne E. Thompson

____________ 

Argued: September 14, 2010

____________ 

Before: SLOVITER, BARRY and SMITH, Circuit Judges

(Opinion Filed: December 23, 2010)

____________ 

Steven J. Abelson, Esq. (Argued)

63 West Main Street 

P.O. Box 7005 

Freehold, NJ 07728 

Counsel for Appellants

W. Scott Hastings, Esq. (Argued)

Thomas A. Connop, Esq. 
2

Locke Lord Bissell & Liddell 

2200 Ross Avenue 

Suite 2200 

Dallas, TX 75201-6776 

-andSarah M. Chen, Esq. 

Joseph N. Froehlich, Esq. 

Locke Lord Bissell & Liddell 

3 World Financial Center 

New York, NY 10281 

Counsel for Appellee

____________

OPINION OF THE COURT

____________

 

BARRY, Circuit Judge

In this appeal, we are called upon to determine whether 

the automatic stay provisions of the Bankruptcy Code prohibit a 

lender from seeking to recoup unpaid pre-petition escrow 

payments from a bankrupt debtor outside the confines of the 

bankruptcy proceeding. The Bankruptcy Court and the District 

Court found that Countrywide Home Loans, Inc. 

(“Countrywide”) did not have a pre-petition claim against 

Francisco and Anna Rodriguez and thus did not violate the 

automatic stay when it recalculated the Rodriguezes‟ postpetition escrow payments on their mortgage account to include 

certain pre-petition escrow arrears. For the following reasons, 

we will vacate the order of the District Court and remand for 

further proceedings consistent with this Opinion. 
3

I. Factual and Procedural Background

The Rodriguezes financed the purchase of their home in 

Monmouth County, New Jersey, with a purchase-money 

mortgage from First Mutual Corp., with Countrywide acquiring 

the mortgage thereafter. Under the terms of the mortgage, the 

Rodriguezes‟ monthly payments consisted of (1) an amount to 

cover principal, interest, and any late fees, and (2) an amount to 

cover taxes, insurance, and “other charges.” App. at 119-20. 

The second part of the monthly payment—for taxes, insurance, 

and other charges—was to be paid into an escrow account and 

used, as needed, by Countrywide to pay for those expenses as 

they became due. 

As permitted by the Real Estate Settlement Procedures 

Act of 1974 (“RESPA”), 12 U.S.C. § 2601 et seq., Countrywide 

required the Rodriguezes to pay an amount into the escrow 

account that was higher than required to cover the actual cost of 

taxes, insurance, and other charges. RESPA permits a 

mortgagee to determine the amount of a debtor‟s monthly 

payment by estimating the property taxes and insurance that will 

be due over the ensuing twelve months and to add a reserve 

requirement equal to one-sixth of that total estimate. See 12 

U.S.C. § 2609(a)(1). 

The Rodriguezes fell behind on their mortgage payments 

and filed a voluntary petition for relief under Chapter 13 of the 

Bankruptcy Code on October 10, 2007. At the time of filing, 

they were $20,844.40 in arrears on eight months of mortgage 

payments, plus foreclosure fees and costs. While the bulk of the 

arrearage was for principal and interest payments, $5,657.601

 

1

The Bankruptcy Court calculated the total escrow 

arrearage at $6,364.80, apparently by multiplying the monthly 

escrow amount ($707.20) by eight months and then adding a 

ninth month for the first post-petition deposit, which is how 

Countrywide represented the arrearage. The discrepancy is 

immaterial to our decision. 
4

was an escrow arrearage for taxes, insurance, and other charges. 

Of the $5,657.60 amount, $3,869.91 was attributable to 

payments which Countrywide had already made for taxes, 

insurance, and other charges. The remaining $1,787.69 was the 

amount for which Countrywide had not made corresponding 

payments for taxes, insurance, and other charges. In other 

words, the $1,787.69 amount was Countrywide‟s cushion. 

Despite this arrearage, at the time of the bankruptcy filing, the 

Rodriguezes‟ escrow account showed a projected surplus of 

$2,494.89, although the actual balance was a negative amount 

due to the missing escrow payments.

After the bankruptcy filing, Countrywide issued to the 

Rodriguezes a revised escrow analysis and demand for payment 

which indicated that Countrywide had boosted the monthly 

escrow payment amount to $947.77 from $707.20. The new 

$947.77 figure was comprised of $650.10 for the base escrow 

payment, $210.65 for the “[s]hortage payment,” and $87.02 for 

the “[r]eserve requirement.” App. at 64. The basis for the 

increased escrow amount was a post-petition escrow shortage. 

Countrywide calculated the revised escrow payments by 

presuming that the escrow balance at the time of the bankruptcy 

filing was $0.00 because the Rodriguezes had not contributed 

any funds to the account. In other words, Countrywide did not 

treat the $1,787.69 cushion as funds that existed at the time of 

the bankruptcy filing. Instead, by starting with a balance of 

$0.00 in the escrow account, Countrywide calculated the postpetition escrow shortage as including the $1,787.69 cushion that 

the Rodriguezes had never, in fact, paid.

On December 2, 2007, the Rodriguezes filed a motion in 

the Bankruptcy Court to enforce the automatic stay pursuant to 

11 U.S.C. § 362(a), compel Countrywide to “cease post[-

]petition collection of pre-petition escrow claims,” and award 

the Rodriguezes attorneys fees and costs. Id. at 1-10; id. at 4. 

The denial of that motion, affirmed by the District Court, is the 

subject of this appeal.
5

On January 15, 2007, Countrywide filed its proof of 

claim with the Bankruptcy Court. Countrywide sought a total of 

$21,283.71 in pre-petition arrears, including $3,869.91 for the 

pre-petition escrow deficiency, which was the amount that 

Countrywide actually had paid out for taxes, insurance, and 

other charges. In other words, Countrywide did not seek to 

recoup the $1,787.69 cushion via the bankruptcy process, but 

rather by assessing the Rodriguezes higher post-petition monthly 

escrow payments to make up for the shortfall.

The Rodriguezes argued to the Bankruptcy Court and 

then to the District Court that Countrywide was required to 

submit the entire escrow shortage as part of its proof of claim in 

the bankruptcy proceeding, and that the Bankruptcy Code‟s 

automatic stay forbids collecting any of the pre-petition shortfall 

by increasing the amount of the post-petition escrow payments. 

The Bankruptcy Court and District Court disagreed, holding that 

the amount by which a bankrupt homeowner is delinquent in 

monthly payments that would be maintained in escrow by the 

lender until the amount was due is not subject to the automatic 

stay. This appeal followed. 

II. Jurisdiction and Standard of Review

The District Court had jurisdiction under 28 U.S.C. § 

158(a). We have jurisdiction under 28 U.S.C. §§ 158(d) and 

1291 and “exercise the same standard of review as the District 

Court when it reviewed the original appeal from the Bankruptcy 

Court.” In re Handel, 570 F.3d 140, 141 (3d Cir. 2009). Thus, 

we review the Bankruptcy Court‟s findings of fact for clear error 

and exercise plenary review over that Court‟s legal 

determinations. Id.
6

III. Discussion

A. Countrywide’s Post-Petition Escrow Recalculation

The issue before us is whether the automatic stay 

prevents Countrywide from accounting for the pre-petition 

escrow shortage in its post-petition calculation of the 

Rodriguezes‟ future monthly escrow payments. The automatic 

stay, under section 362(a) of the Bankruptcy Code, is triggered 

upon the filing of a bankruptcy petition. That section provides 

that “any act to collect, assess, or recover a claim against the 

debtor that arose before the commencement of the case,” outside 

the course of the bankruptcy proceeding, is stayed during the 

bankruptcy case. 11 U.S.C. § 362(a)(6). The automatic stay is 

applicable only to claims that arise pre-petition, and not to 

claims that arise post-petition. See In re Grossman’s Inc., 607 

F.3d 114, 122 (3d Cir. 2010) (en banc). 

Crucial to our determination of whether Countrywide 

violated the automatic stay is whether it had a “claim” against 

the Rodriguezes for the unpaid $1,787.69 prior to the 

Rodriguezes‟ bankruptcy filing. If Countrywide had no claim 

for the unpaid escrow amount until that amount was, in fact, 

needed to cover taxes, insurance, and other charges that were 

due, then Countrywide had no right to collect those monies prepetition and it could not have violated the automatic stay. 

The Bankruptcy Code defines “claim” very broadly to 

mean:

(A) right to payment, whether or not 

such right is reduced to judgment, 

liquidated, unliquidated, fixed, 

contingent, matured, unmatured, 

disputed, undisputed, legal, 

equitable, secured, or unsecured; or 
7

(B) right to an equitable remedy for 

breach of performance if such breach 

gives rise to a right to payment, 

whether or not such right to an 

equitable remedy is reduced to 

judgment, fixed, contingent, 

matured, unmatured, disputed, 

undisputed, secured, or unsecured. 

11 U.S.C. § 101(5). 

In reviewing § 101(5), the Supreme Court observed that 

the language “right to payment” in the definition of “claim” 

meant “nothing more nor less than an enforceable obligation[.]” 

Johnson v. Home State Bank, 501 U.S. 78, 83 (1991). It 

reiterated that “Congress intended by this language to adopt the 

broadest available definition of „claim.‟” Id.; see also FCC v. 

NextWave Pers. Commc’ns Inc., 537 U.S. 293, 302 (2003). 

In Grossman‟s, this Court, sitting en banc, endorsed this 

broad interpretation of the term “claim,” overruling the narrow 

“accrual test” established in Avellino & Bienes v. M. Frenville 

Co., which focused on the phrase “right to payment” in § 101(5) 

and when the right arose. Grossman‟s, 607 F.3d at 121, 

overruling Frenville, 744 F.2d 332 (3d Cir. 1984). We 

explained that this focus on the “right to payment” failed “to 

give sufficient weight” to the other words in the statutory 

definition that modified the term “claim,” i.e., “contingent,” 

“unmatured,” and “unliquidated.” 607 F.3d at 121. These 

modifiers, we concluded, mean that a “„claim‟ can exist under 

the [Bankruptcy] Code [by virtue of the terms „contingent,‟ 

„unmatured,‟ and „disputed,‟] before a right to payment exists 

under state law.” Id. 

With this definition in mind, we turn to the terms of the 

mortgage. The mortgage held by Countrywide specified the 

Rodriguezes‟ required payments and Countrywide‟s right to 
8

accelerate the payment date and seek foreclosure in case of 

default:

2. Monthly Payment of Taxes, 

Insurance, and Other Charges. 

Borrower shall include in each 

monthly payment, together with the

principal and interest as set forth in 

the Note and any late charges, a sum 

for (a) taxes and special assessments 

levied or to be levied against the 

Property . . . . [T]hese items are 

called “Escrow Items” and the sums 

paid to Lender are called “Escrow 

Funds.” 

. . .

The Escrow Funds are pledged as 

additional security for all sums 

secured by this Security Instrument.

. . .

7. Charges to Borrower and 

Protection of Lender‟s Rights in the 

Property. Borrower shall pay all 

governmental or municipal charges, 

fines and impositions that are not 

included in paragraph 2. 

. . .

If Borrower fails to make these 

payments or the payments or the 

payments required by paragraph 2, 

or fails to perform any other 

covenants and agreements contained 
9

in this Security Instrument . . . then 

Lender may do and pay whatever is 

necessary to protect the value of the 

Property and Lender‟s rights in the 

Property, including payment of 

taxes, hazard insurance and other 

items mentioned in paragraph 2. 

. . .

9. Grounds for Acceleration of 

Debt. 

(a) Default. Lender may, 

except as limited by regulations 

issued by the Secretary in the case of 

payment defaults, require immediate 

payment in full of all sums secured 

by this Security Instrument if:

(i) Borrower defaults 

by failing to pay in full any 

monthly payment required by 

this Security Instrument prior 

to or on the due date of the 

next monthly payment, or

(ii) Borrower defaults 

by failing, for a period of 

thirty days, to perform any 

other obligations contained in 

this Security Instrument. 

. . .

18. Foreclosure Procedure. If 

Lender requires immediate payment 

in full under paragraph 9, Lender 
10

may foreclose this Security 

Instrument by judicial proceeding, 

and any other remedies permitted by 

applicable law.

App. 118-123.

The Bankruptcy Court concluded that Countrywide‟s 

recalculation of the Rodriguezes‟ post-petition monthly escrow 

payments did not violate any provision of the Bankruptcy Code. 

The Court explained that the pre-petition “claim” was limited to 

amounts that Countrywide had a right to retain and not merely a 

right to collect. Under that reasoning, no debt to Countrywide 

arose until Countrywide had, in fact, made a corresponding 

payment for taxes or insurance. The Court was concerned that 

requiring Countrywide to recover the full past-due escrow 

amount through the bankruptcy process would have the effect of 

requiring Countrywide to give the Rodriguezes an interest-free 

loan for the entire course of the Chapter 13 plan. It explained 

that RESPA permitted Countrywide to recalculate escrow 

payments to avoid a shortage and that the Rodriguezes had 

failed “to explain satisfactorily why such rights afforded lenders 

under RESPA should be abrogated in the context of a Chapter 

13 bankruptcy proceeding.” App. at 143. It further explained 

that Countrywide “serves merely as a conduit” for tax and 

insurance payments “and should only recover in bankruptcy for 

such items actually disbursed on behalf of mortgagors.” Id. at 

145. The District Court agreed with the Bankruptcy Court‟s 

conclusion that Countrywide was free to include the pre-petition 

escrow shortage in its post-petition calculation of the 

Rodriguezes‟ future monthly escrow payments.

On appeal, the Rodriguezes argue that under the broad 

definition of “claim,” when they fell behind on their mortgage 

payments Countrywide had a claim for the pre-petition escrow 

deficiency, including the $1,787.69 cushion. Accordingly, the 

argument goes, Countrywide violated the automatic stay by 

taking into account part of the pre-petition escrow deficiency in 
11

calculating their post-petition escrow payments. Countrywide 

responds that the word “claim,” as used in Section 101(5), is 

limited to debt, and that “[a]n escrow account is not a debt . . . 

[but rather] is an asset held by the servicer for the borrower that 

is used to pay the borrower‟s tax and insurance obligations and 

to protect the lender‟s collateral.” Appellee‟s Br. at 16. In 

support of this narrow definition of “claim,” Countrywide cites 

Johnson, in which the Supreme Court stated, in a footnote 

addressing a different issue (determining which liabilities are 

extinguished in a bankruptcy case), that “debt” “has a meaning 

coextensive with that of „claim.‟” 504 U.S. at 84 n.5. Under 

Countrywide‟s view, if it foreclosed and sold the property, the 

Rodriguezes would certainly not be liable for the escrow 

shortfall related to the cushion because at that point there would 

be no future payments and thus no need for a cushion. Instead, 

according to Countrywide, the Rodriguezes would be liable for 

the escrow shortfall corresponding to payments Countrywide 

actually made for taxes and insurance. Thus, Countrywide 

contends, the shortage with respect to the escrow cushion is not 

a debt, and instead is merely a security interest.2 

 

2 Relying on In re Villarie, 648 F.2d 810 (2d Cir. 

1981), Countrywide also argues that despite how broadly 

“claim” has been defined by Congress and the courts, it cannot 

bring a claim for the missed pre-petition escrow payments 

because the mortgage does not provide it with an enforceable 

right to do so. Separate and apart from the fact that Villarie has 

little or no relevance here as it involved the interpretation of a 

particular provision of New York City administrative law, we 

see nothing in the mortgage that would prevent Countrywide 

from suing for the payments or that would limit its options to 

acceleration of a debt and foreclosure. We note in passing that 

in Campbell v. Countrywide Home Loans, Inc., 545 F.3d 348 

(5th Cir. 2008), the relevant terms of the loan documents were 

almost exactly the same as the relevant terms of the mortgage 

here, yet Countrywide took the position that it had the right to 

proceed against the Campbells for the unpaid escrow. It is 

unclear why it has changed its position. 
12

The Court of Appeals for the Fifth Circuit addressed a 

substantially similar question in Campbell v. Countrywide Home 

Loans, Inc., 545 F.3d 348 (5th Cir. 2008). In Campbell, the 

security instrument to which the lender and the debtors were 

parties had terms similar to those here, including a term 

authorizing the lender (coincidentally, Countrywide) the right to 

collect regular payments to cover insurance and tax expenses 

and to retain those funds in an escrow account for payment as 

the expenses became due. 545 F.3d at 350-51. After the debtors 

filed for bankruptcy, Countrywide filed a proof of claim that did 

not include unpaid escrow amounts, but indicated in its proof of 

claim that it intended to increase the debtors‟ monthly mortgage 

payments post-petition to recoup the unpaid pre-petition escrow 

amounts. Id. at 351. The debtors filed suit, alleging that 

Countrywide violated the automatic stay, and the bankruptcy 

court granted partial summary judgment in favor of the debtors, 

holding that Countrywide had impermissibly attempted to 

collect a pre-petition debt and that its actions violated the 

automatic stay. Id. 

Countrywide argued to the Fifth Circuit that it had no 

“claim” to the unpaid escrow amounts because a claim only 

accrued when Countrywide paid an escrow expense. Id. at 353. 

The Fifth Circuit rejected Countrywide‟s “imaginative 

argument,” and, relying on the terms of the loan documents, 

found that Countrywide had a claim against the debtors each 

time the debtors failed to make an escrow payment. Id. at 353-

54. The Fifth Circuit stated that “[t]he touchstone of any „claim‟ 

is . . . an enforceable „right to payment‟ from the debtor.” Id.

(citation and quotation marks omitted). Because the loan 

documents provided Countrywide with recourse, Countrywide 

had a claim against the debtors prior to the bankruptcy filing 

when the debtors failed to pay required escrow amounts. Id.

The Fifth Circuit rejected Countrywide‟s arguments that 

(a) RESPA allowed it to recalculate the post-petition mortgage 

payments in the manner it used; and (b) under 11 U.S.C. § 
13

1322(b)(2),3the bankruptcy court did not have the power to 

modify Countrywide‟s right to recalculate the mortgage 

payments. The Fifth Circuit stated that its holding did not limit 

Countrywide‟s rights under RESPA or the Bankruptcy Code, 

and that “[t]he automatic stay operates to halt collection of prepetition claims, even those claims held by a creditor protected by 

the anti-modification provision of Section 1322(b)(2).” Id. at 

354 (citing 8 Collier on Bankruptcy ¶ 1322.06[1][a] (15th ed. 

Rev. 2007)). It reached this conclusion because “[t]he stay does 

not determine a creditor‟s claim but merely suspends an action 

to collect the claim outside the procedural mechanisms of the 

Bankruptcy Code. Therefore, staying Countrywide‟s attempt to 

collect pre-petition escrow amounts does not bar Countrywide 

from asserting its contractual rights in the bankruptcy court.” Id. 

Finally, although the Fifth Circuit held that Countrywide 

had a pre-petition claim to the unpaid escrow amounts, it 

reversed the bankruptcy court‟s determination that Countrywide 

had violated the automatic stay because Countrywide did not 

collect the increased post-petition escrow amount “or take any 

action outside the bankruptcy proceeding to collect it.” Id. at 

355. Simply asserting in a proof of claim that the debtors owed 

a higher escrow payment did not violate the automatic stay. Id.

The Bankruptcy Court ruled on the Rodriguezes‟ motion 

approximately three months before the Fifth Circuit decided 

Campbell. The District Court noted that decision, but discussed, 

albeit briefly, only the Fifth Circuit‟s conclusion that 

Countrywide had not violated the automatic stay, and concluded 

that the Fifth Circuit “did not actually reach the issue at hand in 

the instant appeal.” App. at 166. That, of course, was incorrect. 

 

3

Section 1322(b)(2) states that a bankruptcy plan 

may “modify the rights of holders of secured claims, other than 

a claim secured only by a security interest in real property that is 

the debtor‟s principal residence, or of holders of unsecured 

claims, or leave unaffected the rights of holders of any class of 

claims.” 11 U.S.C. § 1322(b)(2). 
14

We find Campbell persuasive. It instructs that the loan 

documentation is relevant in determining whether there is an 

obligation to make an escrow payment and whether that 

obligation is enforceable. 545 F.3d at 354. As in Campbell, the 

terms of the Rodriguezes‟ mortgage establish that the obligation 

to pay into the escrow account was enforceable. Thus, 

Countrywide had a claim for the unpaid escrow. 

We recognize that the unpaid escrow amounts may not 

have constituted “debt” under the terms of the mortgage until 

Countrywide actually disbursed its own funds to cover an 

escrow expense for which there was a shortage. This fact, 

however, does not undermine our conclusion that the unpaid 

escrow constitutes a claim. Grossman‟s instructs that our focus 

should not be on when the claim accrues (with disbursement of 

Countrywide‟s own funds), but whether a claim exists. 607 F.3d 

at 121. Here, Countrywide‟s right to successfully collect may be 

contingent on a disbursement by Countrywide of its own funds 

to satisfy an escrow item for which there is a deficiency. But the 

contingent nature of the right to payment does not change the 

fact that the right to payment exists, even if it is remote, and 

thereby constitutes a “claim” for purposes of § 101(5).4 

 

4

 Following the Fifth Circuit‟s lead in Campbell, we also 

reject Countrywide‟s argument that forcing it to recoup the 

missed escrow cushion payments through the Chapter 13 plan 

improperly modifies Countrywide‟s rights under RESPA and 

“Regulation X,” 24 C.F.R. § 3500.17. As the Campbell court 

held, at least implicitly, the principle of protecting the debtor 

from all efforts to collect pre-petition claims outside of the 

Chapter 13 structure takes precedence over Countrywide‟s other 

rights under RESPA to recalculate the escrow payments. See

Campbell, 545 F.3d at 353-54; id. at 353 (noting that “the issue” 

was whether Countrywide‟s recalculation rights under RESPA 

“overrides bankruptcy principles” and finding that it does not). 
15

B. Violation of the Automatic Stay

Having determined that the $1,787.69 escrow cushion 

should have been part of Countrywide‟s proof of claim, the 

question arises as to whether Countrywide violated the 

automatic stay when it sought the cushion outside of the 

bankruptcy proceeding. Section 362(k)—formerly section 

362(h)—of the Bankruptcy Code provides for recovery of actual 

damages for willful violations of the automatic stay. 11 U.S.C. 

§ 362(k); see also In re Lansdale Family Rest., Inc., 977 F.2d 

826, 829 (3d Cir. 1992) (considering former § 362(h)). Because 

both the Bankruptcy Court and the District Court determined 

that Countrywide was permitted to calculate the missed escrow 

payments outside of the bankruptcy proceeding, they never 

reached the issue of whether Countrywide willfully violated the 

automatic stay when it sent the Rodriguezes a demand for higher 

monthly escrow payments. Whether Countrywide willfully 

violated the automatic stay and, if so, the extent, if any, of the 

Rodriguezes‟ damages, are matters that should be resolved in the 

first instance on remand. 

IV. Conclusion

For the foregoing reasons, we will vacate the decision of 

the District Court and remand this matter to the District Court 

for further proceedings consistent with this Opinion. 
In Re: Francisco Rodriguez, No. 09-2724

SLOVITER, Circuit Judge, Dissenting.

In 1974, Congress enacted the Real Estate Settlement 

Procedures Act (ARESPA@), 12 U.S.C. '' 2601-2617, to govern 

the procedures to be followed in connection with escrow 

accounts established to ensure the payment of real estate taxes 

and insurance. When there has been a default, RESPA authorizes 

a loan servicer to estimate the property taxes and insurance that 

will be due over the ensuing twelve months and to adjust the 

borrower=s monthly escrow payments under the mortgage to 

cover the estimated expenses, subject to certain limitations. See 

id. ' 2609(a)(1)-(2).1 Regulation X, RESPA=s implementing 

regulation, also allows a loan servicer to conduct the analysis at 

the inception of the loan, at the end of each computation year, or 

Aat other times during the escrow computation year.@ 24 C.F.R. 

' 3500.17(f)(1)(ii). As part of this procedure, RESPA and 

Regulation X authorize a servicer to Arequire the borrower to pay 

additional deposits to make up the shortage or eliminate the 

deficiency@ in an escrow account. Id., see also 12 U.S.C. '

2609(a)(2). A Adeficiency@ is Athe amount of a negative balance 

in an escrow account.@ 24 C.F.R. ' 3500.17(b). A Ashortage@

is Aan amount by which a current escrow account balance falls 

short of the target balance at the time of escrow analysis.@ Id.

 

1 Regulation X of RESPA provides for a twelve-month 

forward-looking analysis to determine how much money must be 

deposited monthly into the escrow account. See 24 C.F.R. '

3500.17(b).

In its opinion on the Debtors= appeal, the District Court 

noted: A[T]he parties agree [that as of the petition date,] the 

Debtors= [the Rodriguezes=] escrow account was actually 

deficient by $3,869 B the total amount Countrywide paid for 

property taxes and insurance on behalf of Debtors in excess of 

the funds Debtors actually deposited into their escrow account.@ 

In re Rodriguez, No. 08-5207, slip op. at 2 (D.N.J. May 11, 

2009). Consistent with the requirements of the Bankruptcy Act, 

Countrywide included that amount in its proof of claim, and then
2

recalculated the remainder of the escrow precisely as provided 

under RESPA.

For purposes of the forward-looking calculation, 

Countrywide treated the Rodriguezes= escrow account as having 

a zero balance on the Petition Date. Because of the 

Rodriguezes= failure to keep the required escrow payments 

current, Countrywide set the Rodriguezes= post-petition escrow 

payment at $947.77, which reflected a monthly increase $240.57 

over their pre-petition escrow payment of $707.20.2 The higher 

payment as authorized by Regulation X was intended to avoid 

the escrow shortage that would have occurred as taxes and 

insurance became due over the ensuing twelve months.3

In discussing RESPA, the Bankruptcy Court stated:

 

2

The Bankruptcy Court held that Countrywide had 

mistakenly included a pre-petition October 2007 tax bill in its 

post-petition escrow analysis and therefore recalculated the 

post-petition monthly shortage payment as $94.53, not $210.65, 

thereby reducing the total-post petition monthly payments to 

$831.65, not $947.77 as Countrywide originally calculated. 

Countrywide does not challenge this revision. In re Rodriguez, 

391 B.R. 723, 731-32 (Bankr. D.N.J. 2008).

3 Whereas the Rodriguezes= pre-petition escrow payment 

was based on a projected escrow surplus that assumed they were 

making their payments, the higher post-petition escrow payment 

was based on the shortage that would develop were the 

Rodriguezes to continue to pay the same monthly escrow that 

resulted in the escrow arrearage.

[A] lender must estimate future property taxes and 

assessments, as well as insurance premiums, and allocate 

the estimated sum over a period sufficient to provide 

adequate funds to pay the escrow charges when due. This 

right is limited by RESPA which proscribes lenders from 

requiring a borrower to deposit in any escrow account an 

aggregate sum which exceeds the amount sufficient to 

pay taxes, insurance premiums and other charges with 
3

respect to the property during the ensuing twelve-month 

period, plus one-sixth of the estimated total of such 

amounts. 12 U.S.C. ' 2609(a). This limitation, however, 

is subject to exception. If the lender determines that a 

deficiency exists, the lender may require the borrower to 

make additional monthly deposits into the escrow account 

to remedy such deficiency, but must notify the borrower 

of any shortage of funds. 12 U.S.C. ' 2609(a)(2), (b). 

Upon the borrower's payment of the escrow amounts, the 

mortgage requires the lender to hold the funds in 

accordance with RESPA and to apply the funds to pay the 

escrow charges when due, but no later than the time 

specified under RESPA.

RESPA also authorizes lenders, like Countrywide, 

to calculate and collect certain Aadvance deposits in 

escrow accounts,@ or shortage contributions, in order to 

minimize any negative balance that may occur in a 

borrower=s escrow account over the twelve months when 

Countrywide must disburse funds to protect the property 

(e.g. insurance, PMI payments, and taxes)[.]

In re Rodriguez, 391 B.R. 723, 727-28 (Bankr. D.N.J. 2008) 

(footnote omitted).

The majority fails to acknowledge that Countrywide acted 

in accordance with RESPA. On the other hand, the Bankruptcy 

Court correctly noted that:

Debtors . . . fail to explain satisfactorily why such rights 

afforded lenders under RESPA should be abrogated in the 

context of a Chapter 13 bankruptcy proceeding. Debtors=

required shortage contribution is a charge authorized by 

and calculated in accordance with RESPA, as well as the 

underlying loan agreement . . . .

Id. at 729.

The majority never even tries to explain why RESPA is 

inapplicable. The Bankruptcy Court recognized the practical 
4

effect of the Debtors= argument, which it rejected:

In effect, Debtors seek to have Countrywide include in its

pre-petition arrearage, to be paid over the life of the 

Chapter 13 plan, not only sums actually disbursed by 

Countrywide for items such as taxes and insurance, but 

also such additional sums the Debtors should have paid 

into the escrow account prior to filing. Moreover, Debtors 

contend that in projecting the twelve month summary 

balance of the Debtors= escrow account, Countrywide 

should not have started at zero, but rather should have 

calculated the lowest projected escrow balance as if the 

Debtors had made the requisite pre-petition monthly 

payments.

Id. Of course, the Debtors never made those payments, and it 

made little sense to credit them for payments never made. 

Instead, Countrywide included in its claim the escrow amounts 

which it paid.

The majority posits that Countrywide should have 

included in its claim filed in the bankruptcy the escrow amounts 

not yet due (an amount the majority calculates as $1,787.69), an 

argument rejected by the Bankruptcy Court. That Court agreed 

with Countrywide=s contention that its pre-petition claim should 

be limited to the amounts actually disbursed.

The Bankruptcy Court cogently explained why 

Countrywide=s analysis was correct and why the definition of 

Aclaim,@ though broad, is not without limit:

A Aright to payment@, as incorporated in the statutory 

definition of Aclaim@ under 11 U.S.C. ' 101(5) implicitly 

encompasses a right of retention, which is not subsumed 

in Countrywide=s Aright to collect@ escrow items. Absent 

sums actually expended, as permitted under the loan 

documents to protect its own collateral interest, 

Countrywide need not include pre-petition escrow arrears 

in its proof of claim inasmuch as the mortgage instrument 

only permits Countrywide to retain such funds as 
5

reimbursement to the extent of actual advances. 

Otherwise, Countrywide merely collects and holds such 

funds for payment to third parties.

Id. at 730.4

This conclusion is consistent with the Second Circuit=s 

interpretation of Aclaim@ in In re Villarie, 648 F.2d 810, 812 (2d 

Cir. 1981), which, contrary to the majority=s assertion, is 

germane. There, the court held that even though a state pension 

fund had the ability to deduct payments from a state employee=s 

paycheck in order to pay back a loan, the fund had no right to 

sue for the amount of the loan because the employee was, in 

effect, borrowing from his own retirement. Accordingly, there 

was no enforceable claim against the debtor. Id. Such a 

conclusion is even more appropriate here because the mortgage 

provides no means of recovering the non-paid escrow funds. 

The only remedy is acceleration of payment of other sums B the 

sums actually secured by the mortgage. This interpretation of 

the meaning of a Aclaim@ is consistent with the provisions of 

RESPA which authorize a lender to recalculate future escrow 

fund payments at a variety of junctures to ensure that shortages 

are covered.

 

4

The additional $1,787.69 the majority believes 

Countrywide should have included in its proof of claim bears no 

relationship to the monthly shortage payments Countrywide 

sought post-petition. Indeed, as calculated by the Bankruptcy 

Court, the Rodriguezes= monthly post-petition shortage payments 

should be $94.53 a month. Over the course of a year, this 

amounts to approximately $1,134.30. 391 B.R. at 732. 

Perversely, under the majority=s opinion, Countrywide is 

required, and indeed allowed, to claim $1,787.69 in Bankruptcy 

for the missed escrow payments, when it would have been 

entitled to increase the shortage payments by only $1,134.30 

over the course of a year.

Outside of bankruptcy, mortgagors with a negative 

escrow account can and should expect to have their 
6

escrow account re-examined, in accordance with RESPA 

regulations, and be assessed an additional monthly charge 

for the escrow shortage. No one would suggest that 

non-debtors could seek to have a lender calculate an 

escrow shortage contribution, by giving credit for missed 

monthly payments. Certainly, there is no reason to 

afford Chapter 13 debtors with such rights, and this Court 

finds nothing in either RESPA or the Bankruptcy Code 

which mandates such a result. Accordingly, this Court 

regards Countrywide's approach in treating the Debtors=

escrow account as having a zero balance as logical, 

reasonable and supported by applicable non-bankruptcy 

law.

391 B.R. at 731.

The majority relies on language in the Fifth Circuit 

opinion in Campbell v. Countrywide Home Loans, 545 F.3d 348 

(5th Cir. 2008), which is arguably dicta. In any event, that 

decision is not binding on us.

More important is that the majority opinion sets up an 

irreconcilable conflict between two federal statutes, RESPA, 12 

U.S.C. ' 2609(a), and the Bankruptcy Code=s automatic stay, 11 

U.S.C. ' 362(a). Under the majority=s approach, it is difficult to 

foresee that any mortgage lender that seeks to recalculate escrow 

due in accordance with RESPA and Regulation X would not be 

in violation of the automatic stay. In effect the majority is 

abrogating RESPA. That is a serious step - one that a federal 

court should hesitate to do. As the Supreme Court has stated:

The courts are not at liberty to pick and choose among 

congressional enactments, and when two statutes are 

capable of co-existence, it is the duty of the courts, absent 

a clearly expressed congressional intention to the 

contrary, to regard each as effective.

Morton v. Manchuria, 417 U.S. 535, 551 (1974). The 

majority=s opinion fails to follow the admonition of the Supreme 

Court in Morton as it has made no effort to accommodate its 
7

interpretation of RESPA with that of the Bankruptcy and District 

Courts in this case.

For the reasons set forth, I respectfully dissent.