California Bankruptcy Attorney Blog

Vincent Howard and our team of Irvine foreclosure defense attorneys have been calling on this blog for years for more effective help for mortgage borrowers. So we were pleased to hear that California's Democratic delegation to the House of Representatives made the same demand to President Obama the morning after his State of the Union Speech. According to McClatchy Newspapers, 16 representatives met on Jan. 25 to make their case to the media, calling for the president to use executive power to create more aggressive, more specific relief. They want a meeting with Obama as well as principal reductions and a more sympathetic replacement for the current acting director of the Federal Housing Finance Agency. They also suggested cutting interest payments to zero for homeowners in bankruptcy, so that all of their payments would pay down principal.

Obama called for a new refinance program in his speech, which would be available to more homeowners than the previous refinance programs, but the legislators criticized it as well-meaning but inadequate. The Democrats took turns sharing stories of foreclosures in their districts and the resulting hardships to Californians. Judy Chu of El Monte noted that her district has had a foreclosure rate of 738 percent over a little more than two years; lenders own 12,000 foreclosed homes in the city of Covina. Loretta Sanchez of Anaheim said her brother needed a loan modification after his business line of credit disappeared in a bank failure and he had other business difficulties. She said he was convinced the loan modification would come through for him right up until he received a foreclosure notice.

Republican California House members dismissed the ideas, with Darrell Issa of Vista calling principal reduction "in every way wrong." Dan Lundgren of Sacramento suggested that writing down principal for those in trouble would be unfair to those who stayed out of trouble. The White House was neutral on the subject, saying the president would continue to pursue existing and proposed foreclosure prevention programs, and noting that California has received $2 billion in federal foreclosure aid. The acting FHFA director, Edward DeMarco, has said principal reduction for Fannie Mae and Freddie Mac mortgages could cost the government $100 billion to pay down the mortgages. The Democratic delegation disputed the number, but also warned that failing to intervene could prolong the crisis and the resulting political problems for Obama.

Led by Vincent Howard, our team of Santa Ana foreclosure defense lawyers agrees that principal reductions are an important part of any potential solution. However, we also agree that it will be tricky to get through Congress, given that body's historic lack of enthusiasm for principal reductions and mortgage cramdowns. A few years ago, banking industry interests shot down the idea of allowing cramdowns only for people in bankruptcy. This would of course be a limited group of people, since not everyone wants to take on the severe credit hit and emotional toll of bankruptcy -- but it failed even in a Democratic-controlled Congress. Nonetheless, the idea remains popular because economic studies (including a Fed study) show that it's key to any immediate housing recovery. That's why Vincent Howard and our Cerritos foreclosure defense attorneys continue to favor it.

Continue reading "California Democratic House Members Call on President to Do More for Struggling Homeowners" »

Led by partner Vincent Howard, our Claremont foreclosure defense lawyers have written here extensively about the Home Affordable Modification Program, HAMP, and its many problems. Less has been written about its sister program, HARP, which offers refinancing help -- possibly because eligibility is limited to people who are only slightly underwater at worst. But this may change in the coming days, since the president announced a new refinancing initiative in this week's State of the Union speech. Acknowledging that housing continues to be a thorn in the side of the economy, President Obama called for a refinancing program that expands eligibility to people who are further underwater. Details are not yet available, but the speech indicated that the program would be paid for with a tax on large financial institutions, a likely tough sell in the House.

HARP, the existing program, is available to borrowers who are current on their mortgages and owe no more than 125 percent of their homes' value. However, not everyone who is underwater met the original criteria, since there can be no recent delinquent payments and the loan must be owned by Fannie Mae or Freddie Mac. In October, the federal government announced that it would expand eligibility under the Fannie/Freddie loans. The current proposal, according to the Wall Street Journal, would build on this, in part by including people with loans owned by other institutions. Borrowers who are current on their mortgages would most likely take out FHA loans, but the article notes that Congress would have to change the current requirement for a 3.5% down payment. Like anyone taking out a new loan to refinance, they would need to apply and go through the usual closing process.

Analysts are pessimistic about the chances of the program in the House of Representatives, where Republicans control voting and generally oppose new taxes on banks. The tax in question was first proposed two years ago in January of 2010, with Obama calling for a "financial crisis responsibility fee" of 0.15% on the liabilities, other than domestic deposits, of financial institutions with at least $50 billion in assets. Analysts said it would raise $9 billion a year, but it faced strong opposition from banking interests and ultimately did not pass even when the House was controlled by Democrats. A real estate economist told the Los Angeles Times that the refinance proposal would not be as helpful as other potential interventions in the housing market, because it would likely just put more money in the pockets of people with current mortgages.

Vincent Howard and our team of Mission Viejo foreclosure defense attorneys would be pleased to see eligibility for refinancing expanded to more borrowers, even if this is not the ideal solution. Owing more than the home is worth traps borrowers in their homes, which is a serious hardship for people who are seeking to refinance loans they took out at the height of the bubble, under much higher interest rates. Indeed, many people who took out loans in that era were glibly promised that they would be able to refinance in a year or so, only to see their homes lose value or their subprime loans add to the loans faster than they could pay down principal. Ideally, however, the Temecula foreclosure defense lawyers at Howard Law, P.C., would prefer to see this initiative followed up by something that would allow principal reductions for people who are stuck in highly overvalued loans, something experts agree is the best solution to the housing downturn.

Continue reading "President Announces New Refinance Program for Underwater Homeowners Based on HARP" »

At Howard Law, P.C., Vincent Howard and our Loma Linda foreclosure defense lawyers handle a lot of cases involving mortgage borrowers who are suffering because of mistakes by their lenders and loan servicers. So we were interested to read a case in which an apparent mistake by a loan servicer hurt its standing as a creditor in a bankruptcy. In Perrino v. BAC Home Loans Servicing, the Bankruptcy Appellate Panel for the First U.S. Circuit Court of Appeals upheld a Maine bankruptcy court's determination that trustee Pasquale Perrino had an interest in a bankrupt couple's property superior to that of BAC, the servicing arm of Bank of America. When Sara and Douglas Trask refinanced their home, the lender accidentally described a different but adjacent property of theirs, a mistake revealed only when they filed for bankruptcy.

The Trasks refinanced their loan on the 1.74 acres their home is on in 2007. They also owned an unimproved 16-acre lot (Lot #6) directly next door. At trial, both sides agreed that while it is undisputed that the Trasks and the lender both intended to mortgage the house, the intended collateral on the mortgage securing their promissory note was actually described as Lot #6. After filing for Chapter 7 bankruptcy in late 2009, the Trasks filed an adversary proceeding to resolve the mortgage issue; Perrino later joined this. BAC, the successor in interest to the mortgage lender, argued that it had an equitable mortgage, among other arguments. After two hearings, however, the bankruptcy court found for Perrino, saying that as a trustee with the status of a lien creditor, his interest in the property was superior to BAC's. BAC appealed to the First Circuit's Bankruptcy Appellate Panel.

On appeal, BAC argued that the bankruptcy court should have allowed the mortgage to be reformed under Maine law allowing equitable reforms for mutual mistakes in fact. While this is allowable, the BAP wrote, Maine courts (and bankruptcy courts following Maine law) may not reform documents when a third party has intervened or has rights that would be affected. The trustee, as a hypothetical lien holder, is such a third party under well established bankruptcy law, the BAP said. However, BAC argued that any such lien holder would have had constructive notice of BAC's interest in the property, because anyone who inquired would have gone to the correct address listed on the mortgage and realized there was an error. The BAP disagreed. Using the street address of the adjoining house would not have raised an inquiry by a prudent creditor, the court wrote. Nor is it clear whether the properties do have different street addresses. Thus, it upheld the bankruptcy court.

Vincent Howard and our team of Costa Mesa foreclosure defense attorneys are always pleased to see homeowners left in a better position by lenders' errors. The fallout from the housing bubble has made it clear that many of them made serious mistakes in their haste to cash in when the real estate market was good. These range from failure to complete basic paperwork to entering wrong information on paperwork that was later adopted into state law. In some cases, it even veered into outright, knowing wrongdoing by lenders who lied about borrowers' incomes on forms or lied to borrowers about loan conditions, both serious legal matters. At Howard Law, P.C., our Long Beach foreclosure defense lawyers have been able to help clients whose loans have major flaws like these, either fighting off foreclosure or in some cases canceling loans through the Truth in Lending Act.

Continue reading "Bankruptcy Pane Allows Trustee to Avoid Mortgage With Incorrect Property Description - Perrino v. BAC Home Loans Servicing" »

Vincent Howard and our team of Rubidoux personal bankruptcy lawyers frequently counsel clients about the fact that child support payments are not dischargeable in bankruptcy. This is built into bankruptcy law and is very difficult to overcome, but we're often able to make enough room in the client's budget to make payments workable -- and bankruptcy allows some debtors a much-needed chance to catch up on arrearages. In State of New Hampshire v. McGrahan, debtor Robert McGrahan planned to pay off his past-due child support through his bankruptcy, but had to modify his plan because the state Department of Health and Human Services seized his income tax refund to reduce the arrearage. The bankruptcy court ultimately decided to disallow any further seizure, but the Bankruptcy Appellate Panel of the First U.S. Circuit Court of Appeals reversed.

McGrahan filed for Chapter 13 bankruptcy in September of 2009, listing the New Hampshire DHHS as a creditor for $13,000 in child support. His first amended plan noted that the DHHS would seize his income tax refunds annually and the proof of claim amount would be lowered. After the plan was confirmed, the DHHS seized $4,257 in tax refunds, but did not amend its proof of claim; McGrahan's trustee continued paying off the full amount. More than a year into the bankruptcy, McGrahan filed an amended proof of claim for the full amount owed to DHHS minus the seizure, and asked to remove the income tax seizure language as overly burdensome. DHHS moved in response for a ruling allowing it to continue seizing tax refunds. The bankruptcy court denied this, finding no interception is allowed if the bankruptcy plan will pay off the full amount owed. DHHS appealed.

In its analysis, the First Circuit BAP said the issue was whether the effect of the plan's modification was to prevent further tax refund seizures. Though confirmed plans are generally considered final, the panel said, this is only true when the issues were actually litigated by the parties; it found that the tax refund seizures were not. It said the silence in McGrahan's second modified plan on the issue of refund seizures cannot be taken as prohibiting the interceptions. Furthermore, the bankruptcy court itself had ruled earlier in the case that nothing in the first amended plan prohibited DHHS from exercising its right to collect, the panel said -- and that ruling is now the law of the case. Thus, the First found that the bankruptcy court erred in ruling that the tax refund interception is not permitted, and reversed that decision.

At Howard Law, P.C., our Newport Beach consumer bankruptcy attorneys often help clients wrestle with the issue of how to handle child support payments. Clients sometimes come to us after they've fallen far behind in their payments due to financial difficulties, and the state in which they owe support has taken a drastic measure like seizing their tax refunds or garnishing their wages. Vincent Howard and our team of Carson individual bankruptcy lawyers can help clients undo this damage and work out a way to repay what they owe through bankruptcy, often by limiting what they owe on debts that are dischargeable. However, we agree with McGrahan that filing an amended plan each year is burdensome, particularly if the state is not going to amend its proof of claim to reflect the lowered amount the debtor owes.

Continue reading "Bankrupt Man Must Allow Seizure of Tax Refunds to Pay Child Support Arrears - New Hampshire v. McGrahan" »

At Howard Law, P.C., Vincent Howard and our team of Highland foreclosure defense attorneys were interested to see a case in which a mortgage lender was penalized for failing to foreclose after the borrowers gave up the property. In Canning v. Beneficial Maine, Ralph and Megan Canning of Sanford, Maine, filed for Chapter 7 bankruptcy after falling behind on their mortgage payments, and ultimately agreed to surrender the property. However, after the surrender and after their discharge, Beneficial Maine wrote the Cannings to demand that they repay the considerable balance on their underwater loan. They reopened their bankruptcy case and filed an adversary proceeding to require Beneficial to either repossess or give up lien to the home. The bankruptcy court found that the collection letters violated the Cannings' discharge, but that failure to foreclose did not.

The Cannings bought their home in 2007 and found themselves unable to refinance a year later because of a price drop. This led to a default and their Chapter 7 bankruptcy petition in 2009. With their petition and a separate letter to Beneficial, the couple indicated that they would surrender the home. Their trustee filed a notice of abandonment and Beneficial dismissed its foreclosure voluntarily two months after the bankruptcy filing. The Cannings received their discharge in June of 2009, and in August of that year, they received a letter from Beneficial demanding payment of the outstanding loan balance. Their bankruptcy attorney responded by reminding Beneficial of the bankruptcy discharge and demanding that Beneficial either foreclose or release the home's title, or he would seek sanctions in court. Two more rounds of letters in this vein followed, and the bankruptcy lawyer finally filed an adversary proceeding over the failure to foreclose as well as the demand letters violating the discharge order.

In a hearing, a Beneficial employee testified that it hadn't foreclosed because that would cost more than the property was worth. The bankruptcy court found that Beneficial's letters and stance were plain violations of the bankruptcy discharge. However, it found that the failure to foreclose did not violate the discharge, because it did not coerce the Cannings to pay or violate their surrender rights. The Cannings appealed.

In its analysis, the Bankruptcy Appellate Panel for the First U.S. Circuit Court of Appeal affirmed the trial court's decision. The law of the First Circuit does not require creditors to take possession of surrendered property, it said. Debtors like the Cannings are no longer personally liable for a debt discharged in bankruptcy, but the lien survives. However, under In re Pratt, Beneficial may be liable for impermissibly failing to discharge the mortgage. In Pratt, an auto dealer declined to repossess a car that was so old as to be worthless, leaving the debtors who had surrendered it the financial liability of maintaining it but no way to sell it to a junkyard. The Pratt court found that this violated their discharge by coercing them to reaffirm the debt. The Cannings relied heavily on Pratt, but the BAP found differences; the value of the home could go up, and there does not appear to be significant cost associated with maintaining it. Thus, the BAP upheld the bankruptcy court.

Vincent Howard and our team of Garden Grove foreclosure defense lawyers have seen this situation before. When a home is deep underwater -- the Cannings apparently owed about $110,000 more than the most recent appraisal said the home was worth -- the lender may decide it's not financially worthwhile to pursue a foreclosure. This is its legal right, but it sticks the borrowers with the costs and headaches of maintaining a home they no longer actually own. In some cases, this includes the cost of homeowners association fees, which banks are legally responsible for paying after a foreclosure, thanks to the 2005 changes in bankruptcy law. Though the Cannings do not appear to have that obligation, it's not hard to think of other potential liabilities raised by homeownership -- taxes, maintenance, insurance and more. Part of the job of our San Diego County foreclosure defense attorneys is to help borrowers eliminate or minimize this kind of liability.

Continue reading "First Circuit BAP Finds Lender Did Not Violate Discharge by Failing to Foreclose - Canning v. Beneficial Maine" »

Led by Vincent Howard, our Norco foreclosure defense attorneys have avidly watched the litigation by our neighboring states against Countrywide Financial. That company (through Bank of America, its successor in interest) settled in 2009 with states charges that it had engaged in consumer fraud in its mortgage lending. In particular, it faced accusations that it steered borrowers into loans it knew they couldn't afford, and sometimes engaged in race-based "reverse redlining." Perhaps not surprisingly, two of the states participating in that settlement were hard-sit southwestern neighbors of California's, Nevada and Arizona. Arizona made a splash in late 2010 when it sued Countrywide again, alleging failure to keep to the terms of its settlement. Now, the Ninth U.S. Circuit Court of Appeals has declined to hear an appeal in that case.

Arizona's lawsuit was originally filed in December of 2010, alleging violations of Arizona law in loan servicing by Countrywide, Bank of America and related companies. It accused the companies of continuing widespread consumer fraud, in large part because of the way they handle loan modification requests. According to the complaint, the defendants misrepresented to customers whether the customers were eligible for loan modifications in the first place; when and whether they would be approved for a modification; why the lender declined to make a loan modification; and whether and when a foreclosure would take place. This violates the part of the 2009 settlement requiring an $8.4 billion commitment by Bank of America to provide loan modifications, the lawsuit said.

Bank of America sought to remove that case to federal court under the Class Action Fairness Act, arguing that the state of Arizona was seeking relief for a large group of consumers. In an opinion from March of 2011, the Arizona federal court disagreed and remanded the case to Arizona state court. The federal district judge said CAFA does not apply because the state had filed a parens patriae action, which means it was acting in the interest it has in the well-being of its people. Thus, the district court said, the state was the real party in interest, rather than a discrete group of Arizona homeowners, and CAFA does not apply. The case was not filed as a class action, it said; nor does it raise a federal question or involve bankruptcy jurisdiction. Bank of America appealed the issue to the Ninth Circuit, which declined to hear an appeal in an order dated Jan. 3. Judge Gould, dissenting from that order, argued that hearing the case, consolidated with a related appeal from Nevada, would help resolve opposing decisions in Arizona and Nevada district courts.

The Fullerton foreclosure defense lawyers at Howard Law, P.C., will look forward to reading about the Ninth Circuit's decision in the Nevada case. Though we believe there was no basis to claim CAFA is involved in this case, the Ninth Circuit's dissent suggests that at least one Nevada judge disagrees. If that's upheld, it could mean major changes for the way all states file parens patriae actions. Those actions include the original Countrywide lawsuit, which led to the 2009 settlement, as well as any other consumer protection action pursued by a state attorney general rather than an individual. (Indeed, California is one of the few states that allows "public attorney general" suits.) Vincent Howard and our team of Murrieta foreclosure defense attorneys would prefer to see attorneys general allowed to do the necessary work of protecting their states without undue roadblocks.

Continue reading "Ninth Circuit Rejects Appeal by Bank of America in Arizona Lawsuit Over Countrywide - Arizona v. Countrywide et al." »

Vincent Howard and our team of Corona foreclosure defense attorneys were interested to see a recent ruling that penalized a loan servicer for sleeping on its rights. As a rule, this is more likely to happen with borrowers, who don't have the legal know-how or financial resources of a large bank. However, legal requirements involving deadlines and paperwork apply to both sides -- and thanks to the robo-signing scandal, courts are more likely to pay attention to paperwork mistakes at large lenders instead of dismissing them as routine. A paperwork mistake was behind the ruling in BAC Home Loans Servicing v. Grassi et al., in which a Maine couple was permitted to sell their condominium after their servicer, BAC, failed to object to the request. BAC did notice after the fact and raised a variety of arguments for reopening the issue, but the First U.S. Circuit Court of Appeals Bankruptcy Appellate Panel rejected the appeal.

Anthony Grassi and Kelley Lovejoy-Grassi of Maine filed for Chapter 7 bankruptcy in September of 2008 and converted the bankruptcy to Chapter 13 in January of 2009. More than a year after filing their amended plan, the Grassis filed a motion to sell their condo free and clear of its liens. The purchase price offered was $137,300; the condo had a total of $550,000 in two mortgage liens plus a $10,000 lien from its condo association. Like all such notices, it permitted the sale to go forward if no lienholder objected; the documents were served on all relevant lienholders. However, no party objected and the sale went through. After the sale order was granted, BAC filed a motion to reconsider and file a late objection, explaining that it missed the deadline because of bureaucratic errors. It also argued that the proposed sale price was not necessarily a good-faith offer, since it fell below the lien amount as well as a BAC broker's estimate. The bankruptcy court disagreed and chided BAC for sleeping on its rights.

BAC appealed both the denial of the motion to reconsider and the price issue. The First Circuit's BAP started by noting that numerous federal courts have agreed that a lienholder's silence can be taken as implied consent or a waiver of objection to this type of sale. BAC admits that it received notice and simply failed to respond in time, the court,said, so it must bear the consequences. A motion to reconsider a previous order is an extraordinary remedy that should be applied only in narrow circumstances, the court noted, including when the court made a serious legal error or the motion presents newly discovered evidence. This case presents no such problem, the court said. Though BAC attempted to present the sale as an error of law, the BAP did not believe the record supported this. It was silent on the issue of whether the purchase price was fair, deferring to the bankruptcy court. Thus, it upheld the sale.

Our Huntington Beach foreclosure defense lawyers are always pleased to see cases requiring loan servicers and lenders to bear the consequences of their own mistakes. That's because it's far more common to see cases in which financial companies' mistakes cause hardship for clients like ours. In particular, borrowers seeking loan modifications have found that no step of the process is free from red tape and serious mistakes. Some of these mistakes incorrectly keep borrowers from qualifying for loan modifications when they meet all requirements; others allow the foreclosure arm of the lender to start a foreclosure even though the borrowers were told they were safe. Vincent Howard and all of our Santa Fe Springs foreclosure defense attorneys aggressively represent such people when they get tired of this poor treatment and assert their rights in court.

Continue reading "First Circuit Upholds Order Allowing Debtors to Sell Condo After Bank Failed to Object - BAC Home Loans Servicing v. Grassi" »

Vincent Howard and our team of Riverside County foreclosure defense lawyers were interested to see another ruling allowing a bankruptcy debtor to successfully avoid a lien on a manufactured home. In In re Barbee, the Bankruptcy Appellate Panel for the Sixth U.S. Circuit Court of Appeals found that Gary D. Barbee of Kentucky may avoid a lien on his manufactured home because the lender, U.S. Bank, never perfected its lien on the home. Barbee mortgaged the land and all improvements, including a double-wide trailer built onto the land. When he later filed for bankruptcy, he argued that the bank never perfected its lien because it never acquired title to the manufactured home. The bankruptcy court agreed, and after review, the Sixth Circuit BAP allowed that ruling to stand.

Barbee and Rebecca Gaunce borrowed about $75,500 from Countrywide to buy the land in 1999, encumbering "all improvements and fixtures" on it. They never acquired title to the home, but the record shows it was gutted and rebuilt as a non-mobile home in 1997. In 2009, Barbee filed for Chapter 13 bankruptcy; Gaunce filed a separate case in which there was no controversy with the lender. Six months later, the bankruptcy court allowed Barbee to pursue an adversary complaint alleging that the bank's interest is avoidable because it was not perfected by acquiring title. Both sides filed for summary judgment, with the bank arguing that Barbee lacked standing to bring the adversary proceeding in the first place because he also has no title and no interest in the home other than as an improvement or fixture on real estate. The bankruptcy court disagreed, ruling the lien avoidable because ownership was never noted on the title and the home had not been converted to real property.

In a ruling that relied heavily on the Sixth Circuit's 2011 manufactured home case, Countrywide Home Loans v. Dickson, the Sixth Circuit BAP upheld the bankruptcy court. The BAP in Dickson ruled that the debtor did have standing to avoid a lien even though she was not the trustee, and while the Sixth Circuit itself never reached the issue, the BAP adhered to that precedent. The BAP also ruled that the home is a part of Barbee's bankruptcy estate, because he has an equitable interest regardless of whether he has the title. However, under Kentucky law, a manufactured home is personal property, which means perfecting a lien requires noting it on the title or converting it n court. Bankruptcy law says a property interest must be created by state law or federal interest, the court said, rending the bank's mortgage argument incorrect. Other bank arguments were waived because they were used for the first time on appeal. Thus, the BAP agreed that the lien is avoidable.

Our San Juan Capistrano foreclosure defense attorneys are pleased to see another opinion requiring lenders to answer for the consequences of their inaction when it comes to legal technicalities. Very often, borrowers are the ones who suffer when lenders aren't prompt or make mistakes with paperwork, and it takes an experienced attorney like Vincent Howard to keep these mistakes from doing lasting harm. This case and Dickson rely to some extent on the fact that a manufactured home is treated as a different kind of property in Kentucky -- more akin to a car than a home. It's unclear whether this is true everywhere, but because Dickson reportedly created a split in the circuits, the issue is likely to be revisited. At Howard Law, P.C., our Oceanside foreclosure defense lawyers help clients find quirks like these that can help them fight a rushed or unfair foreclosure.

Continue reading "Sixth Circuit BAP Allows Debtor to Avoid Unperfected Mortgage on Manufactured Home - In re Barbee" »

Vincent Howard and our team of Moreno Valley predatory lending lawyers were interested to see a recent ruling out of Missouri permitting an unjust enrichment claim against a mortgage broker. In Hargis v. JLB Corp., Bonnie Hargis also originally alleged unauthorized practice of law by JLB, saying it prepared legal documents. The trial court ultimately rejected this claim, finding that third parties not under JLB's control prepared the documents, and the Missouri Supreme Court upheld that ruling. However, it reversed summary judgment as to Hargis's unjust enrichment claim, saying this claim was not related to unauthorized practice of law and JLB did nothing to rebut it in its motion.

JLB is a mortgage broker that helps borrowers prepare financial documents. Loans also require a note and mortgage or deed of trust, but the Missouri Supreme Court noted that the record appears to show JLB relied on third parties like title companies to prepare those legal documents. In 2009, Hargis used JLB to refinance her home in Barnhart, Missouri, for which she was charged a $1,890.50 loan origination fee; a $1,923.58 loan discount; a $900 broker fee; a $550 underwriting fee; a $208 administrative fee; and an $899 processing fee. JLB said it did not charge for the preparation of the legal documents, but charged the processing and administrative fees for gathering information, transferring documents and helping to prepare loan application documents. Hargis, however, was dissatisfied with the fees and filed suit, alleging JLB practiced law without a license when it charged her for preparation of the legal documents; and was unjustly enriched by charging for services not provided. After discovery, the trial court granted summary judgment on all counts, finding JLB did not draft the legal documents.

The Missouri Supreme Court noted that Missouri caselaw has allowed mortgage brokers to fill out legal forms in the past, as long as -- among other things -- they did not charge a higher or separate fee for helping to fill them out. In this case, Hargis claims that JLB charged her for procuring or assisting with the preparation of legal documents. This raises the issue of what it means to "procure" a document, the court said. After considering past cases, it ultimately decided procuring requires active involvement in obtaining something; it's more than the mechanical act of gathering information. And the record on summary judgment shows that JLB outsourced the legal document preparation, and did not charge for this or roll the cost into another fee. Other documents for which Hargis was charged are not legal documents, it said. Thus, it upheld the trial court on the law practice counts. However, it reversed on the unjust enrichment claim. JLB's summary judgment motion did not address the unjust enrichment claim, the high court said -- and her claim does not rely on the unauthorized practice of law. Thus, it sent that issue back to the trial court.

Led by partner Vincent Howard, our Lake Forest predatory lending attorneys handle many cases of borrowers alleging underhanded behavior by lenders and mortgage brokers. However, claims for unauthorized practice of law were not common even in the worst days of the mortgage crisis. It's not unreasonable to suggest that the kind of practices described here as illegal -- the active procurement of legal documents by nonlawyers -- went on during the mortgage bubble, particularly among lenders and brokers that used high-pressure sales tactics and filled out forms on behalf of their clients. This issue may surface as more and more borrowers turn to the courts and Escondido predatory lending lawyers like us.

Continue reading "Missouri Supreme Court Resurrects Lawsuit Alleging Unjust Enrichment by Mortgage Broker- Hargis v. JLB Corp." »

Our Upland predatory lending attorneys, led by partner Vincent Howard, were interested to see a recent Ninth Circuit decision about a Truth in Lending Act case taking place right here in southern California. In Balderas v. Countrywide et al., Victor and Belen Balderas accuse Countrywide Home Loans, the now-defunct home loan company made famous and bankrupt by its specialty in subprime lending, of pressuring them into taking out a loan that Countrywide employees knew they couldn't afford, misrepresented their income to get and failed to adequately document. Among their allegations is that they never received the legally required written notice of their right to cancel the loan under TILA, which would extend their right of rescission from three days to three years. The district court ruled that the Balderases had indeed gotten the notice and dismissed the case, but the Ninth Circuit reversed and sent it back for more proceedings.

The Balderases' complaint says they were cold-called by a Countrywide mortgage broker offering to refinance their home into a fixed-rate mortgage and allow them to cash out $50,000. A different Countrywide employee filled out a loan application form on the couple's behalf, overstating their income by $40,000 a year, and showed up at their home asking them to sign it. The Balderases do not read English, so they acceded when the loan officer told them it was "an informal document the bank needed." Three days later, the mortgage broker came to the home with a notary public and a slew of English-language loan documents, claiming Countrywide needed their signatures that night and refusing to leave without them. They tried to delay the closing until their daughter could translate for them, but after six hours with the broker pressuring them, they signed. Two days later, they called the broker and asked to cancel the loan, which he would not. They also called Countrywide, which incorrectly said it was too late to cancel.

The Balderases filed a TILA lawsuit, alleging their Notice of Right to Cancel was defective because it was missing the closing date and last date to cancel. The federal district court dismissed their lawsuit, finding that they did get an adequate notice. That finding was based on a letter from Countrywide that the Balderases submitted to the court. Countrywide attached to its letter a Notice of Right to Cancel that was filled out properly, and the judge used this as a basis to rule that the Balderases had gotten proper notice.

The Ninth Circuit reversed, noting that this "ersatz document production" creates hazards for the courts. In fact, the majority wrote, the Notice attached to the letter proves only that the Balderases signed a proper notice that was in Countrywide's possession; it does not prove that the couple themselves had a proper notice. This created a rebuttable presumption that the Balderases received proper notice, the court said -- but it's improper to use evidentiary presumptions during early pleadings. Thus, it said, Countrywide's argument that the Balderases didn't submit enough facts to rebut that presumption fails because pleadings are not the time for submitting facts. The Balderases should have a chance to make the case before a jury that they had a different notice, the court said. It also rejected Countrywide's argument that it must have "delivered" the TILA notice because the Balderases had it long enough to sign it, but the Ninth observed that delivery generally means being allowed to keep the thing delivered. Thus, it resurrected the lawsuit and returned it to district court.

This ruling is welcomed by Vincent Howard and all of our Anaheim predatory lending lawyers here at Howard Law, P.C. Countrywide became notorious a few years ago for its alleged high-pressure or outright illegal sales tactics, including reports of presenting English-language documents to people who speak another language. Bank of America, which purchased Countrywide after it failed, has agreed to several legal settlements of claims based on this kind of illegal behavior. Even if there's no TILA violation in this case, California state law expressly forbids bait-and-switch loans that are negotiated in one language and legally formalized in another -- which means this couple may have a state-law case as well. As Cerritos predatory lending attorneys, we wish them luck.

Continue reading "Ninth Circuit Allows Lawsuit Alleging Bank Withheld Correct TILA Notice to Go Forward - Balderas v. Countrywide at al." »

Our Moreno Valley debt collection lawyers, led by name partner Vincent Howard, frequently represent the interests of people being pursued by debt collectors. Unfortunately, many of our bankruptcy clients turn to us after a long history of harassment by debt collectors. However, debt collectors also overstep their bounds with people who are not in a position to file for bankruptcy -- sometimes including people who genuinely don't owe the debt and may be victims of mistaken identity. That was the contention of James Dunham, the lead plaintiff in Dunham v. Portfolio Recovery Associates, a Fair Debt Collection Practices Act lawsuit. Dunham was contacted by PRA about a debt listed under the wrong Social Security number, and eventually filed a putative class-action lawsuit under the FDCPA.

PRA buys bad debt from other debt collectors, so it's an extra step removed from the original creditor. It is now undisputed that Dunham does not owe the debt. At the time when he received the notice, he never contacted PRA; he simply sued in Arkansas federal court, alleging PRA did not include required information validating the debt with the original creditor. PRA claims it learned about the mistake for the first time at a deposition. It moved for summary judgment, arguing that Dunham lacked standing because he was not a "consumer" under the Fair Debt Collection Practices Act. Because PRA alleged that a different James Dunham owed the debt, the district court found, this James Dunham is not "any natural person obligated or allegedly obligated to pay any debt." For the same reason, the federal court denied a sanction request filed by Dunham as moot, and denied class certification because Dunham would be ineligible as a class representative. Dunham appealed.

On appeal, the Eighth Circuit rejected the district court's idea that the FDCPA provides no remedy for cases of mistaken identity. The plain meaning of "allegedly" under "allegedly obligated to pay any debt" includes mistaken allegations, the court said., and the FTC has in fact interpreted the FDCPA that way. However, the Eighth exercised its right to uphold the lower court for any reason in the record, and ultimately rejected Dunham's appeal. It agreed with PRA that the debt collector had sufficiently verified Dunham's debt. After Dunham submitted a written dispute under the FDCPA, PRA sent him all of the required information, which allowed him to realize at a glance that they had the wrong James Dunham. The FDCPA does not, as Dunham suggested, require creditors to obtain further background information from the original creditor and share it with debtors, the Eighth said. Several sister circuit decisions support this, it said, and a contradictory conclusion might require debt collectors to send the confidential information of the true debtor to another person.

As Santa Ana fair debt collection attorneys, we always prefer more information and more rights for debtors or people wrongly accused of being debtors. But at Howard Law, P.C., we do appreciate that this decision squelches the rather novel idea that victims of mistaken identity cannot hold the debt collector legally liable for failing to check. By ignoring the word "allegedly" in the FDCPA, the district court in essence shut out people who are victims of bad collection agencies that don't bother doing their homework or complying with the law. In our own practice, we've seen cases in which failure to know or care which person a debt collector is contacting is followed up by phone calls at illegal hours, lies, threats and other blatantly illegal debt collection tactics. Such a victim would be exactly who the FDCPA and its California analogue, the Rosenthal Act, were designed to protect. Our Los Angeles County debt collection harassment lawyers are proud to defend consumers from this type of harassment, regardless of whether they owed the debt.

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At Howard Law, P.C., our San Bernardino consumer bankruptcy attorneys take any risk of bankruptcy fraud very seriously. When bankruptcy filers are dishonest about their assets, they can lose their discharges, have the bankruptcy canceled or even go to prison, and a bankruptcy lawyer seen as an accomplice might also get in trouble. That’s why we urge clients to be completely honest and help them avoid honest mistakes that could be interpreted as fraud. A federal jury found that the mistakes of James Moser in United States v. Moser were not honest; Moser failed to disclose several important financial assets on his bankruptcy schedules, which he signed under penalty of perjury, and also lied about them under oath in court. A jury ultimately sentenced him to 121 months in prison, or more than 10 years, and the Tenth U.S. Circuit Court of Appeals upheld the conviction and sentence.

Moser was a manager at a business that offered horse boarding and riding lessons in Kansas. The business leased land and a barn from Jeff Miller Enterprises, but fell behind on payments and was evicted about a month before Moser and his wife filed for Chapter 7 bankruptcy. His debt was discharged in 2006, but his bankruptcy attorney noted that there was still confusion about Moser’s assets at the time of the discharge, in part because Moser was not forthcoming about his assets. After Moser’s initial hearings at which he answered creditor questions, he failed to disclose multiple business dealings, some valuable to the estate; misrepresented a pledge of collateral to be returned as a transfer of assets. About a year after his Chapter 7 discharge, he filed for Chapter 13 bankruptcy and caught the attention of a trustee who questioned him under oath about his collateral pledge and his option to buy the Miller land. He amended his disclosures after the hearing, but federal prosecutors eventually prosecuted and convicted him for conspiracy to commit bankruptcy fraud; and eight counts of bankruptcy fraud.

On appeal, Moser argues that the eight counts of bankruptcy fraud are multiplicitious and should have been reduced to one count (substantially reducing his sentence). The Tenth Circuit disagreed. Charges can be multiplicitous if they describe the same act in different ways, it said, but Moser’s charges each pertain to different acts of disclosure. It noted that other circuits have already ruled that each separate act of concealment in a bankruptcy fraud case counts as its own act of fraud. To do otherwise, as the Second Circuit noted in a previous case, is to allow defendants to break the law as many times as they like without further penalty. Moser’s choice not to disclose business dealings involving the same plot of land gave rise to multiple counts because each was a separate act of deception with a separate decision about whether to tell the trustee, the Tenth said. And there was ample evidence for several of the acts of deception, it noted. Thus, it upheld the conviction and sentence.

Our Costa Mesa personal bankruptcy lawyers would like to use this case as an opportunity to remind clients and potential clients that lying to the court has consequences. It’s unclear whether Moser was actively trying to conceal his assets or just extremely naïve, but in either case, he had an opportunity to know better when his duties in bankruptcy were explained to him. In fact, he had a bankruptcy attorney, which means he could have gone to an expert if unsure or confused about his duty to report business dealings. Bankruptcy provides certain valuable legal protections to filers, including protection from debt collection (and related harassment) and the potential to have some debts outright forgiven. In exchange, debtors are required to give up the freedom to make certain financial decisions. Vincent Howard and our team of Torrance individual bankruptcy attorneys work closely with clients to ensure they understand and take that obligation seriously, because the consequences of deception are severe.

Continue reading "Tenth Circuit Upholds Long Prison Sentence for Failure to Disclose Assets in Bankruptcy - U.S. v. Moser" »

At Howard Law, P.C., our Riverside County foreclosure defense attorneys have written here many times about the paperwork problems that have flooded the courts since the mortgage crisis. This includes some instances of shady or semilegal behavior by lenders, such as robo-signing, post-dating documents and failure to check into evidence. However, we have never read a case in which the lender was accused of outright forgery, until Sutter v. U.S. National Bank, a Sixth U.S. Circuit Court of Appeals decision. Daniel and Sheryl Sutter refinanced their Michigan mortgage in 2004, but never signed a mortgage at the closing. The refinance proceeded normally otherwise, but the Sutters began missing payments and filed for Chapter 13 bankruptcy. U.S. National Bank, the assignee of the mortgage, filed a proof of claim with an attached mortgage bearing false signatures. The bankruptcy court ultimately decided to impose an equitable mortgage, but the district court voided the mortgage outright and the Sixth Circuit agreed.

The Sutters caught the forgery because they had arranged to close the loan in Sacramento, California, where they happened to be vacationing at the time their refinance closed. The forged mortgage expressly said it had been signed and notarized in Michigan. The Sutters used the forgery to object to the proof of claim, then filed an adversary proceeding seeking to disallow the claim or avoid the transfer of the debt. The bankruptcy court granted both requests and expressly reserved the right to decide on an equitable mortgage. The court then allowed the trustee to sell the mortgage back to the bank for $30,000, then abandon the home to allow foreclosure to finish, in exchange for a waiver of any additional claims on the estate. The Sutters appealed to the district court, which sent the case back for an equitable mortgage ruling. The bankruptcy court imposed an equitable mortgage, holding that the Sutters had gotten the benefit of the mortgage and the assignee did not have unclean hands. The district court voided this on appeal, however, saying the mortgage was void because no transfer ever occurred.

U.S. National appealed the ruling that there was no mortgage on the property and that the original mortgage was void under Michigan law. After dismissing some threshold issues, the Sixth Circuit considered the question of whether the mortgage is void in Michigan. It is undisputed that the Sutters could not have signed the mortgage; U.S. National admitted that forgery by its predecessor was the most likely explanation, and steps have been taken to penalize the notary. Furthermore, the Sixth said, caselaw says a forged mortgage is void ab initio in Michigan, even when innocent successors in interest are affected. An equitable mortgage is possible, the court noted, but Michigan does not allow an equitable mortgage when one party has unclean hands, and assignees stand in the shoes of their predecessors. Thus, U.S. National cannot benefit from an equitable mortgage. Finally, the court dismissed claims that the Sutters would inequitably get a "free house" from this decision, since they intended to grant a mortgage in the first place. Filing for bankruptcy is not inherently inequitable, the court said, and the Sutters will remain obligated on the unsecured note they actually did sign.

As Irvine foreclosure defense lawyers, we're pleased to see the courts take such a firm stance on the rights of mortgage borrowers to be free of illegal and deceptive conduct. The case ultimately did not leave the Sutters in a great position, since they were ultimately unable to receive a bankruptcy discharge. (They converted to Chapter 7 but were unable to obtain a discharge because they had filed a previous Chapter 7 case.) However, nor did it allow the forgers or their successors in interest to benefit from patently illegal behavior -- and that's as it should be. It's becoming clear that during the mortgage bubble, when the Sutters refinanced their home, many untrustworthy companies sought to make a quick dollar from refinances like this one, without regard to the risk of the loans. In this case, apparently it was also done sloppily and fixed in a blatantly illegal manner. Led by experienced attorney Vincent Howard, our San Diego County foreclosure defense attorneys aggressively defend cases with these kinds of improprieties.

Continue reading "Sixth Circuit Affirms Voiding of Mortgage Due to Banks Alleged Forgery of Signatures - Sutter v. U.S. National Bank" »

At Howard Law, P.C., our Moreno Valley personal bankruptcy lawyers have written here before about exemptions from discharge. This is a bad thing for bankruptcy filers, because it means the debt will have to be paid off in full despite the protections bankruptcy offers. Thus, it's generally used in cases where the debtor has done something wrong. In Van Daele Bros. Inc. v. Thoms, the Bankruptcy Appellate Panel for the Eighth U.S. Circuit Court of Appeals agreed that the behavior of debtor Jeffrey Thoms did not rise to that level. Thoms, of Iowa, owed money to Van Daele because of a sale-leaseback of cattle he had brokered, but then failed to pay his lease. Van Daele argued that this was "willful and malicious," a reason for exception from discharge, but the bankruptcy court and the BAP disagreed.

Thoms was employed as a loan officer at Kerndt Bros. Savings Bank when he approached Jerry Van Daele about the sale-leaseback idea. Van Daele agreed to buy the cattle and lease them back to Thoms. To finance the purchase, he took out a $75,000 loan from Kerndt Bros. Savings Bank. Five months after the deal was finalized, however, Thoms lost his job at Kerndt Bros., causing his income to drop substantially. He was unable to make the first lease payment when it came due, and Van Daele eventually repossessed the cattle. (This triggered separate state-court cases by Thoms's father, who claims some of the repossessed cattle belonged to him.) A few days after the repossession, Thoms attempted to make the installment payment with money borrowed from his daughter, who had in turn borrowed it from a friend under the pretense of a student loan. Van Daele refused to accept less than the full $75,000.

After Thoms filed for bankruptcy, Van Daele moved to except the debt to him from discharge. He alleged the following actions by Thoms were willful and malicious: failing to adequately explain a decrease in the number of cattle; having his father as an undisclosed partner in the cattle business; failing to adequately disclose the debt and repossession in his bankruptcy papers; and trying to pay the installment with a loan gotten under false pretenses. The bankruptcy court found none of this persuasive, and Van Daele appealed.

He had no better luck with the Eighth Circuit BAP. The bankruptcy court had found little evidence that Thoms and his father were partners, the BAP noted -- and in any case, the existence of such a partnership would not be evidence of intent to defraud Van Daele. Similarly, the bankruptcy court found Thoms's explanation for the decrease in herd size credible; he said some had succumbed to disease. The record also does not show any evidence that Thoms disposed of the missing cattle with the intent to harm Van Daele, the panel noted. The BAP said the omissions Van Daele alleges in Thoms's filing papers would, if true, actually undermine the version of events Van Daele had presented. And finally, the fact that Van Daele was willing to get a deceptive loan to pay off the debt actually suggests there was no conspiracy to defraud Van Daele, the panel said. Thus, it said, the bankruptcy court's interpretation of the evidence was actually more plausible than Van Daele's, and it was correct not to except the debt from discharge.

As Los Angeles County individual bankruptcy attorneys, we don't handle a lot of cases involving cattle -- but we know plenty about the standards for excepting debts from discharge. To meet that standard, Van Daele or anyone else would have to demonstrate an intentional attempt to defraud. This is a high standard for good reason. The protections of bankruptcy come at a price, which the filer voluntarily pays in order to wipe the slate clean and start over. Courts generally decline to take away those protections unless the debtor can be shown to have intentionally abused or defrauded someone. Vincent Howard and our team of Anaheim consumer bankruptcy lawyers work hard to protect our clients from this kind of claim for non-dischargeability, because when a debt is not dischargeable, they are stuck paying it off over many years.

Continue reading "Eighth Circuit Bankruptcy Panel Affirms Denial of Exemption From Discharge - Van Daele Bros. Inc. v. Thoms" »

One job of our Riverside County personal bankruptcy attorneys, led by experienced lawyer Vincent Howard, is to help our clients get the maximum benefit from bankruptcy. Of course, this means minimizing the amount of debt clients are required to pay back, within the confines of the law. And that means ensuring that better-funded creditors will not use the legal process to squeeze unwarranted extra payment out of them. In In re Bakay, a debtor won a minor victory in this area when the Tenth U.S. Circuit Court of Appeals denied prejudgment interest to creditors who had already gotten the debt in question declared non-dischargeable. Debtor Scott Bakay of Colorado borrowed money from neighbors George and Georgia Diamond under false pretenses, giving rise to a determination of nondischargeability after Bakay filed for Chapter 7 bankruptcy. But the Tenth Circuit agreed with the bankruptcy court that the Diamonds had waited too long.

Bakay operated a Denver mortgage company and had helped the Diamonds refinance their home. He also, fraudulently, told them in 2004 that he was developing condominiums in Cancún and offered to give them $200,000 in repayment on a $100,000 loan within six months, personally guaranteed by Bakay. In reality, the money was put toward the mortgage company and the Diamonds never saw a cent of it again. In 2009, Bakay filed for Chapter 7 bankruptcy, and the Diamonds filed an adversary proceeding seeking to have their $100,000 loan declared nondischargeable. They were successful, and the court ordered Bakay to pay interest from the date of the nondischargeability judgment. The Diamonds then moved to amend, seeking prejudgment interest at Colorado's 8 percent rate. The court found Colorado's statutory rate inapplicable, so they re-filed for the federal interest rate, starting at the time they made the loan. That motion was also denied. The court found that because the Diamonds had failed to pursue their money for more than four years, they could not pursue interest now. It also found the proposed interest rate of 200% "criminally usurious."

The Tenth Circuit's Bankruptcy Appellate Panel upheld the decision on appeal, and the Diamonds appealed to the Tenth Circuit itself. That court also affirmed. Under federal law, prejudgment interest may be awarded if the interest is equitable, a legal concept "governed by fundamental considerations of fairness." The bankruptcy court found that the Diamonds had unreasonably delayed a lawsuit to recover the money Bakay owed them. They argued at trial that this was in part due to Bakay's repeated promises and occasionally leaving the country, but the Tenth agreed with the BAP that this does not necessarily justify continuing to delay. The Tenth Circuit agreed with the BAP that the phrase "criminally usurious" was troubling, but agreed that the agreed-upon rate of return for the loan was far too high, more than 4.5 times the highest interest rate allowed by Colorado law. Thus, it agreed with the BAP that the bankruptcy court had not abused its discretion when it denied the prejudgment interest.

The Newport Beach individual bankruptcy lawyers at Howard Law, P.C., rarely face this kind of challenge. If Bakay had told the Diamonds the truth about where their money was going, or even genuinely believed someone else's lie, the debt would probably remain dischargeable. In this respect, the Diamonds are already victorious in their case; they will get their original $100,000, though perhaps not quickly. For a debtor like Bakay, who did intend to defraud (and apparently did not oppose their adversary proceeding) an outcome that denies the creditor any further payment may be the best possible outcome. When a debt is declared nondischargeable, it yokes the debtor to that debt for the foreseeable future, which is why the bar is and should be high for such a declaration. Our Whittier consumer bankruptcy attorneys work hard to minimize or eliminate nondischargeable debts for debtor clients.

Continue reading "Creditors Not Entitled to Prejudgment Interest on Nondischargeable Debt, Court Rules - In re Bakay" »