Wells Fargo Bank, N.A., et al. v. 804 Congress, L.L.C., No. 12-50382 (5th Cir. 2014)
Annotate this CaseThe principal issue in this case was whether, after an automatic stay in bankruptcy has been lifted and a creditor was permitted to foreclose on real property, federal or state law governed an oversecured creditor's recovery of attorneys' and other fees from the sale proceeds. A corollary issue was whether the bankruptcy court has jurisdiction over the sale proceedings for purposes of determining the creditor's right to recover attorneys' fees and the Deed of Trust trustee's right to recover a contractually specified commission for conducting the non-judicial foreclosure sale. The bankruptcy court held that it had jurisdiction but the district court reversed. The court reversed, concluding that federal law governs what is to be distributed to a secured claimant that is oversecured. The court discerned no intent from 11 U.S.C. 506(b) that oversecured creditors who are permitted to foreclose are to be treated differently from oversecured creditors whose claims are satisfied within the bankruptcy proceeding. In this instance, the bankruptcy court's order lifting the stay allowed Wells Fargo to foreclose on the property in accordance with state law foreclosure procedures. It did not give the Deed of Trust any further authority and did not have the effect of insulating the debtor or any of the creditors from the reach of section 506(b). Lifting the automatic stay to allow Wells Fargo to foreclose was not tantamount to an abandonment of the property. The court concluded that the bankruptcy court was within its discretion in finding that there was no documentation of the time that was spent and no testimony as to what was a reasonable fee. Based on this record, the court could not say that the bankruptcy court erred in finding under section 506(b) that the amount of attorneys' fees Wells Fargo sought was not substantiated and therefore was not shown to be reasonable. Even under Texas law, Wells Fargo would bear the burden of demonstrating that the fees it requested were reasonable. The court remanded for further proceedings.
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