UNITED STATES DISTRICT COURT

DISTRICT OF NEW HAMPSHIRE

Joanne C. Evarts, Appellant

v. Case No. 18-cv-1224-SM Opinion No.

U.S. Bank Trust Nat’l Ass’n, as Trustee of Cabana Series III Trust, Defendant

O R D E R

In July of 2016, Joanne Evarts filed a petition under

chapter 13 of the bankruptcy code. Subsequently, U.S. Bank

National Trust Association, as Trustee of Cabana Series III

Trust (“U.S. Bank”), filed a proof of claim, representing that

it had a claim, secured by a mortgage deed to Evarts’ home, in

the total amount of $237,948.91. Evarts objected. Following an

evidentiary hearing, the bankruptcy court issued a written

decision, in which it concluded that Evarts failed to establish

grounds for disallowing U.S. Bank’s claim. According, it

overruled her objection. Evarts appeals that decision.

For the reasons discussed, the decision of the bankruptcy

court dated December 12, 2018, is affirmed. Background

Evarts’ challenges to U.S. Bank’s proof of claim turn

largely on the enforceability of a loan modification agreement

that governs the terms of her relationship with U.S. Bank. The

relevant background is fully set forth in the bankruptcy court’s

thorough and thoughtful opinion. See In re Evarts, No. BR 16-

11056-BAH,

, at *1-3 (Bankr. D.N.H. Dec. 12,

2018). It need not be recounted in detail. But, because that

factual background is somewhat confusing, a brief restatement of

those facts necessary to explain the basis for Evarts’ claims is

in order.

In June of 2002, Evarts and her (now deceased) husband

obtained a loan in the original principal amount of $215,000.

That loan was secured by a mortgage deed to the couple’s home in

Cornish, New Hampshire. Through a series of assignments, U.S.

Bank currently holds both the promissory note and the mortgage

deed. So, to minimize confusion, the court will refer to U.S.

Bank, as well as all of its various predecessors in interest,

collectively, as simply “U.S. Bank.”

In early 2010, (while in the midst of an earlier chapter 13

bankruptcy proceeding) Evarts and her husband owed U.S. Bank

approximately $200,000 on the loan. They were, however, having

2 difficulty making their monthly payments. In fact, Evarts and

her husband purposefully stopped making payments on the loan to

build an arrearage sufficient to qualify for assistance under

the Home Affordable Modification Program (“HAMP”).

After failing to make payments on the loan for more than

six months, the Evarts began working with U.S. Bank to obtain a

HAMP loan modification agreement that would lower their monthly

loan repayment obligations. Unfortunately, two distinctly

different versions of that loan modification agreement emerged

from the parties’ negotiations. The first was signed only by

Evarts and her husband (the “Draft Agreement”). It is

undisputed that U.S. Bank never signed the Draft Agreement.

According to U.S. Bank’s unrebutted evidence, it discovered an

error in the Draft Agreement and notified Evarts. It then

corrected the error and submitted a revised agreement to Evarts

and her husband, which both of them executed. U.S. Bank then

signed the revised agreement (the “Executed Agreement”). Evarts

says the Executed Agreement is unenforceable and must be

replaced with the original, Draft Agreement.

The most significant difference between the two versions of

the loan modification agreement is this: although both versions

call for Evarts to make the same monthly payments on her loan

3 ($1,484.31), the Executed Agreement calls for Evarts to pay

approximately $54,000 more than required by the Draft Agreement.

Specifically, while all agree that the outstanding principal

amount on Evarts’ loan was approximately $200,000 when the

parties began negotiating the loan modification, 1 the Draft

Agreement erroneously represents that Evarts and her husband

owed U.S. Bank only $181,655.60 - a sum referenced in the Draft

Agreement as the “New Principal Balance,” and upon which her

monthly payments would be calculated going forward. See Draft

Agreement (document no. 4) at 8 of 26. The remaining principal

of more than $18,000 that Evarts acknowledges she owed was not

mentioned in the Draft Agreement (and, critically, it was not

expressly forgiven). That, one may logically infer, is the

error U.S. Bank identified in the Draft Agreement.

The Executed Agreement, on the other hand, employed that

same $181,665.60 to calculate Evarts’ monthly payments, but

referenced that sum as the “Interest Bearing Principal Balance.”

The Executed Agreement goes on to represent that Evarts’ total

outstanding loan amount - the “New Principal Balance” - was

$235,932.74. That total indebtedness was comprised of two

1 As discussed more fully below, Evarts also owed roughly $19,000 in unpaid interest, fees, and escrow payments - all of which accrued during the period that Evarts had stopped making payments on the loan.

4 components: first, the “Interest Bearing Principal Balance” of

$181,665.60; and, second, a “Deferred Principal Balance” of

$54,267.14, on which no interest would be paid.

at 17 of

26. The Deferred Principal Balance would become due and payable

upon Evarts’ sale or transfer of her home, or the date on which

she made her final payment on the Interest Bearing Principal

Balance (or, of course, in the event of a “default,” as defined

in the underlying promissory note). In other words, the roughly

$54,000 Deferred Principal Balance became a “balloon” payment,

due when the loan matured in 40 years.

The precise terms at issue are set forth in Section 3 of

the Executed Agreement:

The modified principal balance of my Note will include all amounts and arrearages that will be past due as of the Modification Effective Date (including unpaid and deferred interest, fees, escrow advances and other costs, but excluding unpaid late charges, collectively, “Unpaid Amounts”) less any amounts paid to the Lender but not previously credited to my Loan. The new principal balance of my Note will be $235,932.74 (the “New Principal Balance”). I understand that by agreeing to add the Unpaid Amounts to the outstanding principal balance, the added Unpaid Amounts accrue interest based on the interest rate in effect under this Agreement. I also understand that this means interest will now accrue on the unpaid interest that is added to the outstanding principal balance, which would not happen without this Agreement.

$54,267.14 of the New Principal Balance shall be deferred (the “Deferred Principal Balance”) and I will

5 not pay interest or make monthly payments on this amount. The New Principal Balance less the Deferred Principal Balance shall be referred to as the “Interest Bearing Principal Balance” and this amount is $181,665.60.

Executed Loan Agreement at 3 (document no. 4 at 17 of 26)

(emphasis supplied).

Evarts questions the origin of the roughly $54,000 in

“Deferred Principal.” But, the evidence is clear that it arose

from Evarts’ total arrearage of $37,585.70 when the Executed

Agreement was negotiated. 2 That $37,585.70 appears to have been

capitalized over the loan’s 40-year term to arrive at the

roughly $54,000 deferred balloon payment. See HAMP Modification

Approval Form - Loan Data (document no. 15), Exhibit I, at 14 of

49 (showing “Amount to be Capitalized: $37,585.70”). See also

Testimony of Lacey Sokolowski, Hearing Transcript (document no.

9) at 100-03.

2 When Evarts’ “Interest Bearing Principal Balance” was reduced from roughly $200,000 to approximately $182,000, that left about $18,000 in principal unaccounted for. Moreover, because Evarts had stopped making monthly payments on the loan, she had accrued additional obligations to U.S. Bank totaling roughly $19,000 (interest from the many missed monthly payments, unpaid escrow payments, late fees, etc.). Together, those sums (i.e., the balance of principal owed plus accrued interest and fees) totaled $37,585.70.

6 Evarts acknowledges that the portion of her debt on which

interest (and monthly payments) would be calculated was reduced

from approximately $200,000 to $181,665.60. See Appellant’s

Brief (document no. 11) at 14. She appears, however, to

mistakenly think that the difference between those sums -

roughly $18,000 - was forgiven. It was not. Instead, it (along

with unpaid interest and fees) was capitalized over the loan’s

40-year term and became the “Deferred Principal Balance.”

Beyond questioning the origin of the deferred payment of

roughly $54,000, Evarts seems to assert that the Executed

Agreement is not (or should not be) enforceable against her. In

support of that argument, she claims she never received or

reviewed the amended terms of the Executed Agreement and was,

therefore, completely unaware of the roughly $54,000 in

additional payments called for under the Executed Agreement.

Indeed, she testified before the bankruptcy court that U.S. Bank

assured her that all the material terms of the Draft Agreement

remained unchanged in the Executed Agreement. Moreover, she

claims U.S. Bank never sent her the full version of the Executed

Agreement; instead, says Evarts, it sent her only the signature

page of that document for execution.

7 The bankruptcy court concluded otherwise and found that

Evarts and her husband received, and had the opportunity to

review, the entire Executed Agreement (including the provisions

regarding the $54,000 deferred payment) prior to signing it.

Consequently, it concluded that the Executed Agreement was

enforceable and governed the terms of the parties’ relationship.

It then held that, “the Deferred Principal Balance remains

collectible in accordance with the terms of the [Executed

Agreement] and is a proper component of U.S. Bank’s total claim

in POC 2-1 [its proof of claim].” In re Evarts,

, at *6.

In her appeal, Evarts challenges that finding and persists

in claiming that U.S. Bank improperly included the approximately

$54,000 balloon payment of the “Deferred Principal Balance” in

its proof of claim. She also claims that U.S. Bank overcharged

her for home insurance premiums totaling approximately $8,400,

which she says had already been paid from her escrow account.

Finally, she asserts that U.S. Bank mishandled her escrow

account and wrongfully charged her more than the bank actually

incurred for legitimate expenses.

As noted above, the bankruptcy court considered, and

rejected, Evarts’ claim that she was not bound by the terms of

8 the Executed Agreement. In re Evarts,

, at *3.

The bankruptcy court went on to reject Evarts’ claim that U.S.

Bank’s proof of claim erroneously included amounts for

“duplicate or forced placed insurance,” id. at *7, as well as

her assertion that U.S. Bank had overcharged her escrow account,

id. at *8. Accordingly, the bankruptcy court concluded that

“the Debtor has not established grounds for disallowing U.S.

Bank’s claim pursuant to § 502(b).” Id. The court overruled

Evarts’ objection to U.S. Bank’s proof of claim and allowed that

claim “in the total amount of $237,948.91, with a prepetition

mortgage arrearage claim of $24,449.62.” Id. This appeal

ensued.

Standard of Review

This is a “core” proceeding under

(b)(2).

See In re Evarts,

, at *1. Accordingly, this

court has jurisdiction to hear Evarts’ appeal of the bankruptcy

court’s decision.

(a). The bankruptcy court’s

conclusions of law are reviewed de novo, but its factual

findings are entitled to deference and are reviewed for clear

error. See Sheridan v. Michels (In re Sheridan),

(1st Cir. 2004); White v. Gordon,

(D.N.H.

2016); Bates v. CitiMortgage, Inc.,

(D.N.H.).

9 With regard to U.S. Bank’s underlying proof of claim, a

“claim filed in accordance with [the Bankruptcy Rules] shall

constitute prima facie evidence of the validity and amount of

the claim.” Fed. R. Bank. P. 3001(f). To rebut the prima facie

evidence of a proper proof of claim, an objecting party - here,

Evarts - must produce “substantial evidence” in opposition. See

Juniper Dev. Group v. Kahn (In re Hemmingway Transp., Inc.),

(1st Cir. 1993). If the evidence submitted by the

objecting party is substantial, the claimant is required to

present “evidence to support its claims and bears the burden of

proving [those] claims by a preponderance of the evidence.”

Tracey v. United States (In re Tracey),

(1st

Cir. BAP 2008) (citation and internal punctuation omitted).

Discussion

I. The Loan Modification and “Deferred Principal”

After considering the relevant evidence, the bankruptcy

court concluded that U.S. Bank had provided Evarts and her

husband with a complete copy of the Executed Agreement and that

they had the opportunity to read and understand the changes

embodied in that agreement prior to signing it. Accordingly, it

held that the Executed Agreement was valid and binding upon the

parties. Those conclusions are well-supported by the record

evidence. Two notable pieces of evidence stand out.

10 First, well before the events at issue here, in July of

2005, Evarts and her husband filed a Chapter 7 bankruptcy

petition which was later converted to Chapter 13. As part of

that earlier bankruptcy proceeding, in August of 2011, U.S. Bank

filed a proof of claim to which it attached a copy the Executed

Agreement, showing a “Deferred Principal Balance” of $54,267.14

and a “New Principal Balance” of $235,932.74. Evarts did not

challenge that proof of claim as part of her 2005 bankruptcy

case. Nor did she challenge the enforceability of the

underlying Executed Agreement.

Additionally, on page 3 of the Executed Agreement there is

a handwritten note bearing Evarts’ initials: “JCE.” See

Executed Agreement (document no. 4) at 17 of 26. Evarts’

handwritten note strongly suggests that she possessed the entire

agreement prior to signing it. At a minimum, that handwritten

note demonstrates that Evarts read the contents of page 3. And,

on that very page of the agreement, in bold typeface, are

statements that the “new principal balance of my Note will be

$235,932.74” and that “$54,267.14 of the New Principal Balance

shall be deferred (the “Deferred Principal Balance”).” Plainly,

then, Evarts was (or certainly should have been) aware of the

existence of the Deferred Principal Balance of roughly $54,000.

Moreover, as the bankruptcy court noted, only two days before

11 Evarts and her husband signed the Executed Agreement, Evarts

wrote a letter to U.S. Bank discussing certain aspects of her

loan repayment schedule as set forth on page 3 of the Executed

Agreement. See In re Evarts,

, at *3

(reproducing a copy of Evarts’ letter).

Based upon that evidence, the bankruptcy court sustainably

concluded that:

the new provisions [of the Executed Agreement] concerning the “Deferred Principal Balance” of $54,267.14 and the “New Principal Balance” of $235,932.74 appear on page 3, just below the Debtor’s handwritten notes, making it unlikely that she was unaware until years later that the [Executed Agreement] was capitalizing all of the then-existing contractual mortgage arrearages and deferring their payment until a later date, rather than (as she contends) forgiving the entire amount of the Deferred Principal Balance. Thus, it would appear that the Debtor did in fact have a copy of the full [Executed Agreement] at the time she and her husband signed it in May 2010. There is no other explanation in the record for the Debtor’s handwritten notes appearing on the very same page of the agreement that contains the Deferred Principal Balance, which Nationstar [U.S. Bank’s predecessor] attached as an exhibit to POC 5-2 filed in the Debtor’s prior bankruptcy case on August 28, 2011.

In re Evarts,

, at *3. The bankruptcy court

further concluded that:

the letter that the Debtor sent to [U.S. Bank] in May 2010, along with the signed, annotated and initialed copy of the May Loan Modification Agreement filed with

12 the Court in 2011 convinces the Court that the Debtor did have the full agreement when she executed the May Loan Modification Agreement - or, at the very latest, before August 2011, when [U.S. Bank] attached it to [its proof of claim in the earlier bankruptcy proceeding] — refuting her contention that she was unaware of its deferred principal provision until 2015 or that the mortgagee somehow tricked her into signing it.

Id. at *5 (footnotes omitted).

In light of those findings, the bankruptcy court held that,

“the Debtor has not met her burden of coming forward with

‘substantial evidence’ that would rebut U.S. Bank’s prima facie

case regarding the validity and amount of the Deferred Principal

Balance contained in [its proof of claim].” Id. at *6.

Evarts has failed to demonstrate that the bankruptcy

court’s conclusions were based upon an error of law or that its

factual findings are not supported by the record.

Parenthetically, the court notes that Evarts is incorrect in

asserting that U.S. Bank’s spreadsheet showing her payment

history incorrectly reflects that she mysteriously incurred the

$54,000 in additional debt “in the 14 months [between] January

1, 2009, to March, 2010.” Appellant’s Brief (document no. 11)

at 11. Rather, as explained above, the record shows that when

the loan modification was executed, Evarts’ arrearage of

13 $37,585.70 was capitalized over the term of the loan and became

the Deferred Principal Balance. And, on July 19, 2016 - the

date on which Evarts filed her bankruptcy petition - U.S. Bank

made an entry in her account to reflect the total amount due on

her loan (recall that, under the loan modification agreement,

Evart’s monthly payments were calculated on a reduced amount -

that is, the “Interest Bearing Principal Balance” of only

$181,665.60; the balance of her debt was deferred). So, upon

Evart’s filing of the bankruptcy petition, U.S. Bank brought

forward the “Deferred Principal Amount” of roughly $54,000, so

it could calculate (and report to the bankruptcy court) the

total amount Evarts owed on the loan. See Spreadsheet Attached

to Proof of Claim (document no. 6-3) at 10 of 37 (July 19, 2016

entry).

Finally, Evarts’ appellate brief might plausibly be read to

object to U.S. Bank’s inclusion of the entire $54,000 balloon

payment in its proof of claim. That issue warrants brief

discussion. The Executed Agreement requires Evarts to repay

“the full Deferred Principal Balance and any other amounts still

owed under the Loan Documents by the earliest of: (i) the date

[she] sells or transfers an interest in the Property; (ii) the

date [she] pays the entire Interest Bearing Principal; or (iii)

the new Maturity Date [in 2050].” Executed Agreement (document

14 no. 4) at 17 of 26. That provision may (or may not) raise legal

or equitable concerns unrelated to the issues presented in this

appeal. Specifically, if Evarts were to sell her home next

week, the Executed Agreement, by its terms, would obligate her

to pay the entire Deferred Principal Balance of more than

$54,000. In that context, such a provision might arguably be

unenforceable as either unconscionable or usurious, or both.

Plainly, it would seem, the drafters of the Executed Agreement

did not fully contemplate the consequences of an early payoff of

Evarts’ loan obligations. The agreement is silent as to any

obligation on the part of U.S. Bank to reduce that $54,000

obligation (which is not otherwise payable until 2050) to its

present value. But, the bankruptcy court is, no doubt, aware of

the issue. And, presumably, it can be taken into account in

formulating Evarts’ chapter 13 plan.

II. Improper Insurance Charges.

Evarts also asserts that U.S. Bank made various accounting

errors with respect to her escrow account and improperly charged

her for duplicate, “forced-place insurance” when U.S. Bank had

already secured homeowner’s insurance covering her home (as it

had been doing for several years). See Hearing Transcript

(document no. 9) at 69. U.S. Bank’s accounting methods, and the

various spreadsheets it generated to show how much Evarts owed

15 on the loan are, to the layperson’s eye, a convoluted mess.

Indeed, U.S. Bank’s own witness conceded that many

(approximately 90) “corrections” were made to Evarts’ escrow

account either to address erroneous entries or to reconcile

different accounting methods used by two different entities

(after the loan had been transferred to a new servicer). Id. at

95-97. But, as the bankruptcy court concluded, each of those

errors appears to have been corrected prior to Evarts having

filed her petition in bankruptcy. See In re Evarts,

, at *7. Even Evarts herself was uncertain whether those

allegedly erroneous charges were part of U.S. Bank’s proof of

claim. See

(noting that Evarts was “unsure that this

purported overcharging is even reflected in U.S. Bank’s” proof

of claim) (citing Evart’s Objection to Proof of Claim).

After reviewing U.S. Bank’s spreadsheets showing all the

entries to Evarts’ account, and comparing them to documents on

which Evarts was relying, the bankruptcy court correctly

concluded that Evarts failed to support her claim with

substantial evidence.

All of the “duplicate” or “forced placed” insurance charges predate the itemization attached to POC 2-1 [U.S. Bank’s proof of claim]. U.S. Bank further explains that as of October 1, 2013, the itemization reflects that the Debtor had a positive $3,350.76 in her escrow account; in other words, the Debtor’s

16 escrow account had $3,350.76 to disburse toward hazard insurance premiums and real estate taxes. Thus, if there were overcharging to the extent alleged by the Debtor, one would expect the escrow account to have a negative balance as of October 1, 2013.

In re Evarts,

, at *7.

Again, Evarts has failed to demonstrate that the bankruptcy

court’s decision rests on either unsupportable factual

conclusions or a mis-application of governing law.

III. Overcharging Escrow Account.

Finally, Evarts asserts that the bankruptcy court erred in

failing to recognize that U.S. Bank had overcharged her escrow

account by more than $15,000. This court need not restate the

bankruptcy court’s analysis. It is sufficient to note that it

reviewed Evart’s calculations concerning her escrow account

(document 4-5) and compared them to U.S. Bank’s calculations, as

set forth in its proof of claim (document no. 6-3). Those

documents diverge only as to a single entry, in the amount of

$50. And, based upon Evarts’ own calculations, there was a

substantial shortfall in her escrow account - indeed, Evarts’

own calculations reveal an escrow account deficiency roughly

$2,000 more than U.S. Bank claimed on its proof of claim. In

light of that evidence, the bankruptcy court concluded that it

17 could not find that Evarts “presented ‘substantial evidence’

that would rebut the prima facie evidence presented in U.S.

Bank’s claim regarding the outstanding escrow amount due as of

the petition date.” In re Evarts,

, at *8.

In her appeal, Evarts relies upon the same arguments and

supporting documents that she presented to the bankruptcy court.

They are not persuasive and she has failed to demonstrate that

any material findings of fact made by the bankruptcy court were

clearly erroneous.

Conclusion

For the foregoing reasons, as well as those set forth in

U.S. Bank’s legal memorandum, the decision of the bankruptcy

court overruling Evarts’ objection to U.S. Bank’s proof of claim

is affirmed.

The Clerk of Court shall enter judgment in accordance with

this order and close the case.

SO ORDERED.

____________________________ Steven J. McAuliffe United States District Judge

May 6, 2019

18 cc: Joanne C. Evart, pro se Marcus E. Pratt, Esq. Geraldine L. Karonis, Esq.

19