## Facts

- Michael Jones filed Chapter 13 in August 2003; Wells Fargo Bank, N.A. serviced and held the mortgage on his residence.
- Wells Fargo filed a proof of claim asserting a $22,259.69 prepetition arrearage for missed payments and assorted charges.
- The confirmed plan provided that the Chapter 13 trustee would cure the prepetition arrearage as stated in the proof of claim, while Jones would make ongoing postpetition mortgage payments directly to Wells Fargo.
- During the case, Wells Fargo posted Jones’s postpetition payments to prepetition amounts rather than to ongoing installments, generating additional interest and fees and creating an appearance of continuing delinquency.
- Wells Fargo also assessed or attempted to assess additional fees and charges (including attorneys’ fees, “statutory expenses,” and repeated property-inspection fees) without adequate documentation and without properly amending its proof of claim or giving meaningful notice in the bankruptcy case.
- In January 2006, Jones refinanced; Wells Fargo demanded a payoff of $231,463.97, later refunding $7,598.64 after closing.
- Jones filed an adversary proceeding seeking an accounting and relief for improper charges and misapplied payments; the court held an evidentiary hearing on Wells Fargo’s servicing and accounting.

## Issues

1. Whether Wells Fargo’s posting of postpetition payments to prepetition arrears violated the confirmed Chapter 13 plan and the Bankruptcy Code’s payment structure for mortgage arrears and maintenance payments.
2. Whether Wells Fargo could collect prepetition and postpetition fees and charges that were not adequately disclosed, supported, or presented through an amended proof of claim or other proper notice.
3. What remedies were appropriate for misapplied payments and improper or undocumented charges, including recalculation of the account and credits/refunds.

## Decision

- The court found Wells Fargo’s application of Jones’s postpetition direct payments to prepetition arrears inconsistent with the confirmed plan and responsible for unnecessary interest and inflated balances.
- The court disallowed many fees and charges as unrecoverable where Wells Fargo failed to document them or failed to disclose them through proper procedures (including failure to amend the proof of claim for added prepetition amounts).
- The court ordered a corrected accounting and corresponding adjustments/credits to remove improperly imposed or collected amounts and to restore the account to a plan-compliant status.
- The court articulated standards requiring mortgage creditors in Chapter 13 to file accurate proofs of claim, timely amend for additional prepetition charges, clearly disclose postpetition fees, and apply payments consistent with the plan’s division between arrearage cure and ongoing payments.

## Legal Principles

- A confirmed Chapter 13 plan binds the debtor and creditors as to the treatment and payment of claims, including the allocation between trustee cure of prepetition arrears and debtor maintenance of postpetition installments.
- A mortgage creditor may not unilaterally increase or collect additional prepetition amounts beyond those asserted in the proof of claim without amending the claim or otherwise providing proper notice allowing review and objection.
- Postpetition fees and expenses may be disallowed where not adequately disclosed and documented in a manner that permits the debtor, trustee, and court to assess legitimacy and reasonableness during the bankruptcy case.
- Misapplication of postpetition payments to prepetition obligations, contrary to the confirmed plan, can improperly inflate interest and fees and warrants judicial correction through recalculation and credits.

## Conclusion

The bankruptcy court held that Wells Fargo’s plan-inconsistent posting of payments and its accumulation of undocumented or undisclosed charges overstated Jones’s mortgage obligation; it disallowed improper items, required a corrected accounting, and directed adjustments to conform the account to the confirmed Chapter 13 plan and bankruptcy notice requirements.


Jones v. Wells Fargo Home Mortg. (In re Jones), 366 B.R. 584 (Bankr. E.D. La. 2007)