In Re: Ditech Holding Corporation

Background

Kevin Etter appealed an order of the Bankruptcy Court for the Southern District of New York disallowing claims he filed in the bankruptcy of Ditech Holding Corporation and its affiliates. The district court referred the appeal to United States Magistrate Judge Katharine H. Parker, who recommended affirming the Bankruptcy Court’s decision. Etter filed objections to that recommendation.

Etter paid off the mortgage on August 12, 2019, as part of a sale of the property. He said the payment was made under pressure to clear title and exceeded the amount he actually owed. He filed two identical claims in Ditech’s bankruptcy on October 5, 2019: Claim 24280, seeking administrative-expense priority, and Claim 24281, seeking treatment as a general unsecured claim. Both claims sought $273,505.50 and alleged, in substance, that Ditech’s conduct caused him to overpay.

Bankruptcy Court decision

The Bankruptcy Court disallowed the claims. It held that the claims sounded in fraud but did not satisfy the heightened pleading requirements for fraud. It also held that the claims failed to state claims under Florida’s Deceptive and Unfair Trade Practices Act, for wrongful foreclosure, or for breach of contract. The court further held that Florida’s voluntary-payment doctrine would bar the claims even if they were adequately stated, that it lacked subject-matter jurisdiction over claims against LoanCare, and that Claim 24280 did not qualify for administrative priority.

Because Claim 24280 was not entitled to administrative priority, both claims were treated as general consumer claims subject to a June 3, 2019 filing deadline. Etter filed them on October 5, 2019. The Bankruptcy Court also concluded that the claims were untimely.

District Court review

The district court reviewed legal conclusions without deference and reviewed factual findings for clear error. Because Etter represented himself, the court read his filings liberally and considered the strongest arguments they suggested.

Etter argued that the Report incorrectly addressed Ditech’s alleged bad faith, fraud, accounting practices, and the disputed loan modification. He also argued that the four factors used to assess “excusable neglect”—the danger of prejudice, the length and effect of the delay, the reason for the delay, and good faith—supported accepting his late claims.

The court rejected those arguments. It explained that a bankruptcy filing deadline, known as a bar date, is an important part of administering a bankruptcy case. The court found that the excusable-neglect factors did not support Etter, particularly because the reason for the delay did not favor him.

The court held that, when Ditech filed for bankruptcy, Etter was an unknown creditor because he was a mortgage debtor and had not yet alleged fraud. The court found that publication notice was therefore sufficient. It also found no clear error in the Bankruptcy Court’s finding that Ditech mailed and emailed notice of the extended consumer-claims deadline to Etter, or at least attempted to do so. The court stated that Etter’s allegations of bad faith and fraud concerned the underlying claims rather than their timeliness and did not justify an exception to the deadline.

Etter did not object to the findings that Claim 24280 lacked administrative priority and that the statutory exception for debts obtained by fraud did not apply. After reviewing those findings for clear error, the district court found no error.

Disposition

The court adopted the Report and Recommendation in full and directed the Clerk of Court to terminate the case. The opinion therefore upheld the disallowance of Etter’s claims, primarily because they were untimely and because he did not establish excusable neglect. The court did not resolve the truth of Etter’s underlying allegations that Ditech committed fraud or improperly calculated the mortgage payoff.