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Love v. Midfirst Bank

United States District Court, N.D. Alabama, Northeastern Division

August 22, 2018

JAMES LOVE and BEVERLY LOVE, Plaintiffs,
v.
MIDFIRST BANK, Defendants.

          MEMORANDUM OPINION

          ANNEMARIE CARNEY AXON UNITED STATES DISTRICT JUDGE

         This case is before the court on Defendant MidFirst Bank's motion to withdraw the general order of reference. (Doc. 1). The parties have fully briefed the motion. (Doc. 2; Doc. 3; Doc. 4; Doc. 6).[1] For the reasons discussed below, the court finds that the motion is due to be denied.

         I. BACKGROUND

         On March 23, 2017, Plaintiffs James and Beverly Love filed a Chapter 13 bankruptcy petition in the Northern District of Alabama. (Doc. 1 in Case 17- 80917-CRJ13).[2] In connection with their bankruptcy petition, the Loves filed Schedule D which identified MidFirst Bank as a secured creditor. (Doc. 12, p. 11 in Case 17-80917-CRJ13; Doc. 3, p. 15). MidFirst Bank filed a proof of claim in the Loves' Chapter 13 case in the amount of $77, 308.90 which indicated a mortgage in the Loves' principal residence. (Claim 7-1 in Claims Register in Case 17-80917-CRJ13).

         After the Loves filed their bankruptcy petition, MidFirst Bank sent the Loves a notice of continuing default. (Doc. 3, p. 2, ¶ 3). On February 26, 2018, the Loves filed an adversary complaint in the Bankruptcy Court alleging that by sending the notice of continuing default, MidFirst Bank violated the Bankruptcy Court's automatic stay. (Doc. 1 in Case 18-80024-CRJ).[3]

         In April and May 2018, MidFirst Bank sent Ms. Love monthly mortgage statements. (Doc. 1, p. 3, ¶ 4; Doc. 1, pp. 13-15; Doc. 3, p. 3, ¶ 5; Doc. 3, pp. 21-22). In May 2018, MidFirst Bank sent the Loves a document titled “Notice of Mortgage Payment Change.” (Doc. 3, p. 3, ¶ 6; Doc. 3, pp. 23-24). MidFirst claims that it sent the April 2018 statement to Ms. Love in order to comply with new Consumer Financial Protection Bureau (“CFPB”) regulations. (Doc. 1, p. 2, ¶¶ 3-4).

         Effective April 19, 2018, the Consumer Financial Protection Bureau (“CFPB”) amended Regulation Z implementing the Truth in Lending Act. (Doc. 1, p. 2, ¶ 3). According to MidFirst Bank, the amended regulation requires that mortgage servicers “provide modified periodic mortgage statements to debtors in bankruptcy and discharged debtors.” (Doc. 1, p. 2, ¶ 3) (citing 12 C.F.R. § 1026.41(e) and (f)).

         On May 23, 2018, the Bankruptcy Court held a status conference and hearing in the adversary proceeding to discuss various discovery matters. (Doc. 38 in Case 18-80024-CRJ). In an order that the Bankruptcy Court issued on May 24, 2018, the court explained:

During the [May 23, 2018] hearing, counsel for the Plaintiffs alleged that MidFirst Bank sent additional correspondence to the Plaintiffs after they filed the above-captioned Adversary Proceeding attempting to collect a debt in violation of the automatic stay. Counsel for MidFirst Bank argued that the bank issued the letter pursuant to a recent banking regulation enacted in April of 2018 which mandates that the notice contained therein be issued to debtors in bankruptcy proceedings.

(Doc. 38 in Case 18-80024-CRJ). The Bankruptcy Court ordered the parties to file briefs “addressing how compliance with the banking regulation upon which the bank relies does not violate the automatic stay and discharge injunction under the Bankruptcy Code.” (Doc. 38 in Case 18-80024-CRJ). On June 15, 2018, MidFirst Bank filed its brief in compliance with the Bankruptcy Court's May 24, 2018 order. (Doc. 1, p. 3, ¶ 5; Doc. 57 in Case 18-80024-CRJ). Also on June 15, 2018, MidFirst Bank filed the instant motion to withdraw the reference which was docketed in this court on June 19, 2018. (Doc. 1; Doc. 58 in Case 18-80024-CRJ). On June 20, 2018, the Bankruptcy Court held a prescheduled status conference with the parties to discuss various matters pending in the adversary proceeding. (Doc. 2, pp. 5-12). The Bankruptcy Court recessed the hearing pending resolution of MidFirst Bank's motion to withdraw the reference. (Doc. 2, p. 11).

         II. DISCUSSION

         MidFirst Bank requests that the court withdraw the reference with respect to the Loves' adversary proceeding for two reasons: (1) resolution of this matter will require substantial and material consideration of the CFPB's recently enacted mortgage servicing regulations, and (2) a decision regarding the relationship between the CFPB's recently enacted mortgage servicing regulations and the Bankruptcy Court's automatic stay will have district-wide implications and should be resolved by the district court.

         District courts possess “original and exclusive jurisdiction of all cases under title 11” of the Bankruptcy Code. 28 U.S.C. § 1334(a). District courts are permitted, however, to refer all cases to the bankruptcy court to the extent that they arise under, arise in, or relate to a case under title 11. Id. at § 157(a). This court has entered such a general order of reference. See General Order of Reference to Bankruptcy Court (entered July 16, 1984 and amended on July 17, 1984). The reference that applies to this Chapter 13 case, however, is not absolute. Title 28 U.S.C. § 157(d) provides for the withdrawal of the reference under limited circumstances, either as a mandatory matter or as a permissive matter. The court addresses each theory in turn.

         A. ...


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