How Much Notice Is Enough?
T
he Eleventh Circuit found that
even though Nationstar did not
receive notice of the debtor’s
objection to its claim, it was enough
that Nationstar had actual notice of a
court-ordered change in the status of its
claim from secured to unsecured and
failed to take timely action to protect its
interest. Nationstar Mortgage v. Iliceto,
No. 16-16815 (11th Cir. Dec. 11, 2017)
(unpublished).
Robert Iliceto filed for chapter 13
bankruptcy listing U.S. Bank as his
mortgage creditor. Nationstar filed a
transfer of claim establishing itself as
the assignee of the mortgage from U.S.
Bank. Nationstar listed both its street
address and a P.O. Box as “preferred”
addresses. Mr. Iliceto filed a claim on
Nationstar’s behalf in his chapter 13
bankruptcy and, at the same time,
objected to the claim on the basis that
Nationstar was not a proper assignee.
Mr. Iliceto failed to serve the objection
on Nationstar as required by Rule
3007(a) and section 502 of the Code.
In April, 2014, the court sustained Mr.
Iliceto’s objection in the absence of
objection by Nationstar and issued
an order that the lien would be void
upon Mr. Iliceto’s discharge. Nationstar
received this order. The court then
granted Mr. Iliceto early discharge and
he filed a motion to declare Nationstar’s
lien extinguished. The court granted
the motion and Nationstar appealed,
arguing that it had been deprived of
due process for its undisputed failure
to receive notice of several of the
bankruptcy court motions and orders.
It also argued that it could not be
deprived of its lien without an adversary
proceeding. The district court affirmed.
On appeal to the Eleventh Circuit, the
court relied on the reasoning in United
Student Aid Funds, Inc. v. Espinosa,
559 U.S. 260, 272 (2010), where the
Supreme Court acknowledged that
the bankruptcy court erred when it
confirmed the debtor’s chapter 13
plan in which he would pay only the
principal on his student loan debt and
the interest would be discharged even
though the debtor had failed to initiate
an adversary proceeding concerning
treatment of the debt as required by the
Code. The Court held, however, that
the Code violation did not amount to a
violation of United’s due process rights
where United had actual notice of the
court’s treatment of its claim.
While it was undisputed that Nationstar
did not receive notice of several of the
filings, including Mr. Iliceto’s objection
to its claim, the circuit court agreed
with the lower courts that Nationstar
received sufficient actual notice of the
underlying proceedings to
alert it to the need to protect its
interest, and that Nationstar
had ample time within which
to do so. Specifically, the court
found that Nationstar received
notice of: “(1) Iliceto’s proof of
claim in Nationstar’s name;
(2) the April 28, 2014 Order
sustaining Iliceto’s objection
to the proof of claim; (3)
Iliceto’s June 19, 2014 motion
to modify the Chapter 13 plan
to remove all future payments
to Nationstar because it only
had an unsecured claim; (4)
Iliceto’s September 10, 2014
motion to strike notices filed by
Nationstar and the bankruptcy
court order February 3, 2015
granting the motion and
striking the notices because
it only had an unsecured
claim; and (5) the September
23, 2015 discharge order.”
National Association of Consumer Bankruptcy Attorneys
Winter 2018
Key to the decision was the fact that
Nationstar received the April, 2014,
order in which the treatment of its claim
was clearly set forth, and it did not seek
reconsideration or appeal the court’s
order until over one year later after it
had become bound by Mr. Iliceto’s
confirmed plan and when Mr. Iliceto
sought to have the lien extinguished.
The court likewise rejected Nationstar’s
argument that the bankruptcy court
erred in not requiring Mr. Iliceto to
initiate an adversary proceeding to
extinguish Nationstar’s lien. The court
held that the time to raise the need
for an adversary proceeding was after
the court issued its April, 2014, order
and that once the plan was confirmed,
Nationstar’s status as an unsecured
creditor was binding.
Iliceto 11th Cir. opinion Dec 2017
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