Effective May 8, 2008, the Eastern District of Michigan (EDM) implemented new local rules for all cases filed in this district. The EDM is comprised of bankruptcy courts located in Detroit, Flint, and Bay City. While the changes are numerous, there are a specific handful of rules that have a significant impact on mortgage servicers, investors, and their creditor counsel.
As is standard, the court has begun to issue administrative orders that provide direction on how the new rules are to be interpreted and put into practice. However, it is expected that those orders and directives will likely take six months or more to fully evolve. For now, the courts have made it abundantly clear that the rules are to be strictly enforced and practicing parties must show a good faith attempt to comply. Below is a summary of the new and modified rules that affect mortgage creditors.
Procedure Leading to Entry of Debtor’s Discharge:
As a chapter 13 case nears completion, the court has now implemented the following procedure which allows creditors an opportunity to advise the debtor and the court that the debtor’s loan is not current.
Once the debtor completes payments into the plan, the trustee will serve creditors with a notice that the debtor has completed all payments under the plan and as such, mortgage obligations should be current, i.e., that “any pre-petition or post-petition defaults have been cured and the claim is in all respects current with no escrow balance, late charges, costs or attorney fees owing.”
The loan should be current regardless of whether your post petition mortgage payments were paid via the chapter 13 trustee or directly from the debtor. However, if payments are remitted via the trustee, the notice and future discharge will only cover those payments that were to be remitted under the plan by the trustee (thus, “gap” payments due between the trustee’s last disbursement and the actual discharge order are not covered.)
If the debtor’s loan is not current when this notice is received, it is recommended that you conduct a bankruptcy audit of the loan immediately and contact our office should you need to object to this notice. Creditors have 30 days to object to the notice of plan completion. If no objection is filed, the court may enter a discharge order at that time.
This 30 day period will be the only opportunity to object to payment, escrow and advance delinquencies. However, it should be noted that delinquencies that accrued due to failure to comply with other local rules (i.e. 3001-2 Adjustment to Period Payments) will not necessarily result in a denial of the discharge and may be deemed by the court to have been waived.
%{=FONT-STYLE: italic; TEXT-DECORATION: underline}Payment %%{=FONT-STYLE: italic; TEXT-DECORATION: underline}Adjustment on a Secured Claim in Chapter 13:%
In order to effectuate a payment change during an active chapter 13, creditors must file with the court via ECF and serve on the debtor directly (not via debtor’s counsel) a statement of the proposed payment change 45 days prior to its effective date. A certificate of service for this notice must be filed with the court. The payment change statement must include a full disclosure of the calculation upon which the adjustment is based, i.e., an escrow analysis or disclosure of ARM adjustment changes.

Once the creditor files and serves the payment change notice, the debtor will have 21 days from the date the statement was filed to object to this adjustment. If there is no objection, the trustee will adjust the payment accordingly. If an objection is filed, a hearing will be scheduled and the court will provide notice of the hearing to the debtor, the creditor, and the trustee. If a hearing is scheduled you should notify your law office immediately so representatives may attend the hearing on your behalf. This is especially true if you file the payment change notices in-house or though a third-party vendor.
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General Motion Procedure:%
Subsection (g) is a new section that requires that the moving party in a motion must affirmatively state that concurrence of opposing counsel in the relief sought has been requested on a specified date and that the concurrence was denied.
The judges in this district have clarified that for chapter 7 cases, concurrence must be sought from both the chapter 7 trustee and from the debtor’s counsel or the debtor directly. In chapter 13 cases, the concurrence must be at least sought from the debtor or debtor’s counsel. While an exception to the rule states that the rule may be waived where seeking concurrence is unduly burdensome, the court has made it clear that this exception would be rarely applicable as to these parties. Further, the court indicated that a reasonable response time must be granted. Two to four days was suggested as an appropriate time frame for the debtor’s counsel to consult with his/her client and respond to the moving party. Additionally, it is our recommendation that concurrence not be sought until after the motion is deemed feasible by local counsel. (In many instances, motions cannot be filed and concurrence should not be sought in these cases.) If consent to the relief requested is granted by all parties, it is presumed that a stipulation as opposed to a motion will be filed.
Compliance with these new local rules will be monitored and strictly enforced. It should be recognized by all parties that compliance with the rules will result in delays in the filing of motions. Timelines should be adjusted accordingly. However, it is also possible that the requirement will open up the opportunity for additional home retention initiatives.
Statement of Corporate Ownership:
Unless it has already done so, any corporation that is a party to a contested matter shall file a statement that identifies any corporation (or person) that directly or indirectly owns 10 percent or more of any class of the corporation’s equity interests. This statement shall be attached to the corporation’s first paper filed in the contested matter. A party shall file a supplemental statement promptly upon any change in circumstances that this rule requires the party to identify or disclose. This requirement applies to both publicly and privately held corporations.
This new rule requires a statement executed by the servicer that identifies all parties that own 10 percent or more of the moving party. Judges have indicated that this statement will need to be filed in all contested actions – motions, objections to confirmation, and defense of objections to claim. The rule also asserts that the statement must be filed with the first legal pleading. Failure to file the statement of corporate ownership will result in the pleading being stricken from the court record.
%{=FONT-STYLE: italic}This legislative update was provided courtesy of Marcy Ford, a partner at Trott & Trott, P.C.%