California Bankruptcy Attorney Blog

As Riverside personal bankruptcy lawyers, we frequently have to tell our clients that child support and spousal support (alimony) debts are not dischargeable in bankruptcy. This doesn't mean that debtors may not restructure the debts in order to catch up on missed payments, but they must pay the full amount of the debt. The logical extreme of this was tested in Burnett v. Burnett, an Eighth U.S. Circuit Court of Appeals case centering around interest on unpaid spousal and child support owed by a Chapter 13 bankruptcy debtor. Clarence Burnett's appeal asked the court to deny his former wife, Nancy Jo Burnett, the right to pursue him for payment of unpaid child and spousal support and interest. This demand was made shortly after Clarence Burnett and his current spouse finished their Chapter 13 bankruptcy, which discharged other debts and paid some but not all of his support arrears.

The Burnetts had a child in 1971 and divorced in 1983. In their divorce, Clarence Burnett agreed to pay $750 a month in child support and alimony, without specifying how much of each type of support. However, he didn't pay, and by 2001, when the child was 30, a West Virginia court determined that he owed more than $57,000. Before that court could calculate the interest he owed, he and his current spouse filed for bankruptcy. There followed "protracted bankruptcy litigation" on the support payments, which finally resulted in a bankruptcy plan in which Clarence Burnett agreed to pay $300 a month for the term of the bankruptcy and as long after as it took to pay off his debt. The plan also gave Nancy Jo Burnett the right to go back to court for interest on the child support arrears.

Clarence Burnett finished his bankruptcy plan in 2007. One month after his discharge, the West Virginia Bureau of Child Support Enforcement went to court to ask for a determination of the interest owed on the child support arrears. The court eventually awarded Nancy Jo Burnett child support arrears for the full $750 a month, plus interest, plus spousal support of $375 a month continuing from the child's eighteenth birthday to the present, plus interest. It ordered withholding of a bit more than $700 a month from Clarence Burnett's military pension. He then asked the bankruptcy court to reopen the case and reduce the withholding to the $300 monthly payment in his bankruptcy plan. The bankruptcy court reduced the withholding, but on appeal, the Bankruptcy Appeals Panel reversed, finding that the bankruptcy plan specifically left open the issue of interest and any post-petition debts to Nancy Jo Burnett. Clarence Burnett appealed.

On appeal, Clarence Burnett argued that his confirmed bankruptcy plan gave his ex-wife the right only to child support interest. The Eighth Circuit decided in his favor for a different reason. Under the bankruptcy code, it said, a confirmed bankruptcy plan is binding even if a creditor has no relief under it. This gives the plan res judicata effect -- courts must respect it as a binding decision. This means that Nancy Jo Burnett may not return to court to litigate her spousal support claim, even though spousal support is non-dischargeable in bankruptcy -- even a plan that violates the law is fixed. However, she is entitled to litigate interest on both types of support because they are post-petition debts And because she is entitled to collect that debt, the West Virginia court may withhold more than $300 from Clarence Burnett's income. Thus, it reversed the order on spousal support, upheld the other awards and asked the West Virginia court to determine withholding again.

Our Santa Ana individual bankruptcy attorneys are pleased to get some clarity on the complicated issue of family support debts. As a rule, clients with family support debts who end up filing for bankruptcy do so for other reasons, since any reputable bankruptcy attorney will tell them they cannot discharge their family support obligations. This ruling helps us give more precise advice to clients in situations like Clarence Burnett's, especially if it is extended to the Ninth Circuit. It should be noted that the child who is the focus of these child support efforts is now 40, which shows that the courts do not care whether the child actually needs the financial support at issue -- a debt is a debt. That's why it's so important to face your debt obligations head-on, with help from an experienced Torrance consumer bankruptcy lawyer if necessary.

Continue reading "Former Spouse of Bankruptcy Debtor May Not Collect Support Payments Not Included in Plan - Burnett v. Burnett" »

Our San Bernardino County foreclosure defense attorneys were interested to see a court decision coming out of the increasingly common practice of bringing judicial foreclosures in federal courts. This practice has been driven by the increased number of foreclosures; those with parties in more than one state, but the property in a judicial foreclosure state, may end up in federal court. That was how National City Mortgage Company v. Stephen wound up before the Third U.S. Circuit Court of Appeals. National City foreclosed on Brian and Elaine K. Stephen of Pennsylvania, but did not give the notice required by law to a junior lien holder on the property, Chase Manhattan Bank. Ultimately, the Third Circuit ruled that federal courts may rule on issues arising from such errors.

The Stephens had a first mortgage with NCM and a second mortgage with Chase. They defaulted in 2007, and in November of that year, NCM brought a foreclosure action in federal court for diversity reasons. NCM failed to notify Chase of the foreclosure, and to complicate matters further, Chase's loan servicer reassigned the loan to another servicer during this time. In the end, NCM sold the home to itself at auction in May of 2008, without Chase or either of its servicers getting notice from NCM. After the sale, Chase still had the lien on the property.

In a move the Third Circuit described as full of chutzpah, NCM asked the court to divest Chase's lien so NCM would own the property outright. The court declined, saying the case was closed and Chase's rights were an independent question of state law. NCM next moved to set aside the foreclosure sale, which was granted without comment. Chase then moved to vacate the set-aside order (possibly so it could enforce its lien against NCM), which was also granted. In that ruling, the federal court repeated that the case was closed and the issues it was being asked to decide belonged in state court. NCM appealed.

The Third did not agree that the set-aside motion or divestiture motions belonged only in state court. It ruled that a district court is free to decide issues that arise from errors made during the pendency of a foreclosure sale it ordered. Federal courts may abstain from deciding on such issues when they involve complex interpretations of state law bearing on important public issues, the court wrote, or when a ruling would disrupt state courts' efforts. That was not the case here, however. Furthermore, the federal district court had ancillary jurisdiction over all parts of the foreclosure sale, including this post-sale controversy. Its authority did not end when the sale order was made because the new proceedings arise out of a problem with the old ones. In fact, Pennsylvania law explicitly gives courts the right to set aside a sale. The Third declined to make the ruling on whether there should be another sale; it simply remanded the case to the district court for a decision on this.

As Costa Mesa foreclosure defense lawyers, we see a lot of cases in the media arising from mistakes like this by mortgage companies. These cases generally end up in the media because they involve serious, substantial mistakes that create an unfair foreclosure or inadvertently compromise the lender's own rights. In fact, mistakes by lenders are the fundamental reason for the robo-signing scandal, whose fallout is still not completely cleared. In this case, the party most affected by NCM's mistake is NCM itself, as it now owns a property subject to a lien that Chase knows it can collect (whereas Chase would likely have had no luck with the Stephens). Given that numerous courts have declined to protect homeowners from their own mistakes or mistakes by banks, it's pleasing that the Third Circuit declined to protect NCM from its own mistakes. As San Diego County foreclosure defense attorneys, we hope it puts the bank on notice to pay more attention to other people's property rights.

Continue reading "Federal Courts May Decide Motion Intended to Fix Mistake by Foreclosing Bank - National City Mortgage Co. v. Stephen" »

Our Claremont personal bankruptcy attorneys have written here before about the dangers of deceiving a bankruptcy court. Some of the consequences of deceit include having your bankruptcy discharge revoked, which means you are no longer protected from the debts that were discharged; creditors may still go after you, even though you've done the hard work for a Chapter 13 repayment plan or Chapter 7 liquidation. That was the case for the debtor in Thunberg v. Wallick, a First U.S. Circuit Court of Appeals decision. Bruce Thunberg filed for Chapter 7 bankruptcy in 2000 and received a discharge later that year. In 2002, trustee Marc Wallick petitioned successfully to have the discharge revoked for fraud.

Like many bankruptcy filers, Thunberg had recently gotten divorced at the time of his bankruptcy. When the divorce was settled, his ex-wife agreed to pay him $30,000 a year for 15 years. Two-thirds of that amount was alimony (often called spousal support) and one-third was to settle ownership of joint property. Thunberg's bankruptcy petition did list these payments, noting the alimony as income and the property settlement as subject to two property liens. However, in discussions with the trustee, Thunberg and his attorney said the liens applied to the entire payment, not just the property interest. The liens were later discovered to not be perfected. Thunberg also sped up the payments by agreement with his ex-wife, without telling the trustee, and used part of his payments for private purposes. Given all of this evidence, the bankruptcy court agreed to revoke Thunberg's discharge. Thunberg appealed to the federal district court, which agreed. He then appealed to the First Circuit.

Before the appeals court, Thunberg argued that his misrepresentations were honest mistakes, not intentional fraud. He noted that he mostly avoided explicitly false statements, and the First agreed, but noted that this was not enough to show clear error by the bankruptcy court. The factual inferences the bankruptcy court drew from Thunberg's unwillingness to correct the trustee were enough to support a finding of fraud, the court said. It also dismissed Thunberg's argument that the bankruptcy judge confused the legal standards for revoking a discharge with denying discharge, saying there was no evidence for this. Thus, it upheld Thunberg's revocation of discharge.

As Huntington Beach individual bankruptcy lawyers, we work hard to help our clients understand the serious consequences of deceiving a bankruptcy court. Thunberg's choice not to correct the trustee about what money was available will have serious financial consequences. He is not protected from debts that were previously discharged, which means the harassment by creditors can start up again (and likely already has). A Chapter 7 case like his involves liquidating most of the debtor's possessions, which means Thunberg likely made some sacrifices in order to get his bankruptcy discharge. Now, those sacrifices have no reward. However, the bankruptcy will stay on his credit report, hurting his credit for 10 years. Our Moreno Valley consumer bankruptcy attorneys advise our clients very strongly to disclose everything, even things they would rather keep or believe aren't important, to avoid this outcome.

Continue reading "First Circuit Upholds Revocation of Discharge for Bankruptcy Debtor Who Lied About Assets - Thunberg v. Wallick" »

Our San Bernardino bankruptcy attorneys know that divorce and bankruptcy often go hand in hand, since money problems can be hard on a marriage. So we were interested to see a bankruptcy appeal on a subject that confronts many couples going through divorce and bankruptcy: What to do with the couple's jointly owned home. In Lovald v. Tennyson, a trustee for debtor Theodore Wolk sought to sell the home Wolk co-owns with the wife he was divorcing, Kathryn Tennyson, free and clear of Tennyson's interest. Tennyson was not a party to the bankruptcy. The bankruptcy court held a hearing and concluded that Tennyson contributed more to the equity in the home than Wolk, and thus selling it would not benefit the bankruptcy estate. It denied the motion.

The trustee made an earlier appeal to the Eighth U.S. Circuit Court of Appeals, which sent the case back down to trial court for consideration of arguments not raised at trial. Specifically, the bankruptcy court was asked to determine whether the trustee's ability to sit in the place a bona fide purchaser or judicial lienholder under bankruptcy law can stop the court from examining exactly how much interest each spouse has in a co-owned home. The bankruptcy court examined the issue and again denied the trustee's request to sell the home clear of Tennyson's interest. This appeal followed.

The Eighth agreed with the bankruptcy court that at best, the trustee's hypothetical lien attached to only half of the home's equity, which came to about $31,500 (minus closing costs). The bankruptcy court found that this was insufficient benefit to overcome the harm to Tennyson. Again, the Eighth agreed. The trustee had not proven that any funds from the sale would be made available to creditors, it said. Furthermore, substantial evidence was presented about the harm to Tennyson from such a sale: She had contributed all of the home's equity, and her therapist testified that a sale would likely lead to depression. The Eighth found no flaws in the bankruptcy court's reasoning, and thus upheld its ruling.

As Westminster bankruptcy lawyers, we frequently hear from clients who are trying to resolve similar co-ownership situations. Even if divorcing spouses can agree -- which is not always easy -- the trustee for a bankruptcy estate is not obligated to do what they prefer, since he or she stands in the shoes of a creditor. One way to avoid this situation is to finish a divorce before bankruptcy, if possible, so there is no dispute about who owns what. Of course, in a case like this, filing before divorce may be more advantageous because it allows claims on property that might get taken away later. To make sure you have the best possible timing, you should speak to an experienced Oceanside bankruptcy attorney as early as possible in your case.

Continue reading "Trustee May Not Sell Jointly Owned Home Over Objections of Co-Owner - Lovald v. Tennyson " »

Our Rancho Cucamonga consumer bankruptcy lawyers were interested to see a recent Ninth U.S. Circuit Court of Appeals decision on how a second bankruptcy affects tax debts. Normally, tax debts, including debts to states as well as the IRS, are dischargeable if they were due more than three years ago. However, that three-year rule can be suspended if the debts not collectable, for example, because of an automatic stay in a previous bankruptcy. That was the allegation in In re Brenda Marie Jones, concerning a California woman seeking a Chapter 7 bankruptcy. Jones owed a debt to the California Franchise Tax Board that was more than three years old. The FTB argued that it should not be dischargeable because Jones had previously been through another bankruptcy that included an automatic stay on collections. The Ninth Circuit ultimately disagreed.

Jones filed a joint Chapter 13 bankruptcy with her husband in 2002. Like all bankruptcies, this created an automatic stay against attempts by any creditor to collect debts, including tax debts. The Joneses filed a tax return with an extension in October of 2003 but did not pay what they owed. Their bankruptcy was ended in September of 2006. In October of 2007, Jones alone filed a Chapter 7 bankruptcy. At that point, the tax debt for the 2003 tax filing was more than three years old, so it could be and was discharged when the bankruptcy ended in January of 2008. In 2009, the FTB moved to reopen the bankruptcy and collect the debt from Jones, arguing that the three-year deadline should have been extended because of the prior bankruptcy. The bankruptcy court reopened the case but decided against the FTB, saying it could have collected the debt during or after the Chapter 13 bankruptcy. The Ninth Circuit's Bankruptcy Appeals Panel agreed and the FTB appealed to a three-judge panel of the Ninth.

The Ninth started by noting that the three-year rule specifically refers to the newer Chapter 7 petition, not any bankruptcy. It then looked at whether the three-year rule should have been suspended by the previous bankruptcy, and concluded that it should not. In relevant part, the law says the rule can be suspended when a stay is in effect in a prior bankruptcy case. After looking at legislative history, the Ninth said the stay must apply specifically to tax agencies. It then looked at whether the FTB in this case was stayed from collecting the tax debt owed by Jones, and concluded that it was not. The Ninth held that at least some property re-vests in the debtor when a bankruptcy plan is confirmed. Because the tax debt of the Joneses arose after the plan was confirmed, the FTB would have been able to collect from that property anytime before the second bankruptcy was filed. Indeed, it said the FTB had a year between the bankruptcies when there was no question that it could have collected. For that reason, the Ninth ruled that the three-year rule could not be suspended and the tax debt was properly discharged.

As Santa Ana personal bankruptcy attorneys, we think this ruling is a victory for our clients and potential clients with tax debts. In this case, the Ninth Circuit clarified when the three-year rule can and cannot be suspended. By ruling that it may only be suspended for stays specific to tax debts, it narrowed the number of situations where stays are appropriate -- thus increasing the chances that tax debts will be discharged. Tax debts are harder to discharge than most other debts, so our Corona individual bankruptcy lawyers still advise clients to tackle these first.

Continue reading "Tax Debt to California Can Be Discharged in Second Bankruptcy, Ninth Circuit Rules - In re Brenda Marie Jones" »

As Rubidoux foreclosure defense attorneys, we know serious debt can sometimes go on so long that there's a risk of a court judgment against the debtor. This is bad news, in part because creditors in this situation can end up with a judicial lien -- a court order giving them an interest in a property, often a home. In Botkin v. DuPont Community Credit Union, a bankruptcy debtor and the holder of a judicial lien disputed whether the debtor could avoid the lien for bankruptcy purposes. Anne Botkin of Virginia owed more on residential property than the property was worth when she filed for Chapter 7 bankruptcy. DuPont had a judicial lien on the property for $9,800, for reasons not specified in the opinion. The Fourth Circuit ultimately concluded that Botkin could avoid the lien even though she hadn't claimed an exemption for equity in the property.

When Botkin filed for bankruptcy, she claimed the homestead exemption allowable in her situation, which was $5,500. About half of that amount covered balances in her bank accounts and her anticipated tax refunds, but the other half remained unused. Because she had no equity in her home, she did not claim the remainder of the homestead exemption that way. The trustee later moved to avoid the lien because it impairs an exemption the debtor would otherwise have been entitled to. DuPont did not respond before the deadline, but the bankruptcy court ruled in its favor anyway, saying Botkin had not claimed an exemption in the property subject to the lien. The trustee appealed to the federal district court and won a reversal. That court ruled that the bankruptcy code does not require debtors to claim an exemption in the property subject to the lien they are trying to avoid. DuPont appealed to the Fourth Circuit.

Examining the issue de novo, the Fourth agreed with the district court. Under bankruptcy law, debtors may avoid liens when the lien impairs an exemption the debtor would have otherwise been entitled to. A lien impairs an exemption to the extent that the sum of the lien, all other liens on the property and the amount of the debtor's exemption exceed the value of the debtor's interest in the property if there were no liens. It was not disputed that Botkin meets this test (her interest in the property was zero), but DuPont argued that debtors must claim an interest in the encumbered property in order to avoid the lien. Citing Supreme Court precedent in Owen v. Owen, the Fourth disagreed. The code does not ask whether the debtor currently has an interest; it asks whether the debtor would have an interest in the absence of any liens. Debtors are free to amend their exemption claims after the lien is avoided, and lien holders are free to object to this, the court noted. It upheld the district court and allowed Botkin to avoid the lien.

Our Costa Mesa foreclosure defense lawyers often see bankruptcy cases with multiple debts secured against the home. Homes are one of the most common types of large property that can be encumbered with a judicial lean, and their high value also makes them attractive. A judicial lien might be a factor in a case where the homeowner has been successfully sued over a debt or owes long-overdue taxes. Of course, homes are typically also encumbered by the mortgage -- and as with Botkin, it's common these days for bankruptcy filers to be underwater on that mortgage, leaving little for the lienholder to collect. As Vista foreclosure defense attorneys, we wouldn't be surprised to learn that lien avoidance cases like this are becoming common across.

Continue reading "Fourth Circuit Rules Debtors Not Required to List Properties as Exempt to Avoid Liens - Botkin v. DuPont Community Credit Union" »

As Ontario foreclosure defense attorneys, we frequently represent clients who are challenging foreclosures against them, for substantial reasons as well as technical ones. Technical challenges to foreclosures can work, especially when the lender has a history of submitting false paperwork to the court, but they require plaintiffs to make sure their arguments are solid. That may have been the problem for the homeowner in Ware v. Deutsche Bank National Trust Co. The Alabama Supreme Court ruled in this case that borrower Monica Ware may not reopen her lawsuit against Deutsche Bank, which alleged that it did not have the right to foreclose her family's home.

Ware and her husband, Gerald Ware, bought a home in 2005 and later fell into default. The debt was originally owed to Option One Mortgage Corp., but later assigned and transferred to HSI Asset Securitization Corp., with Deutsche Bank serving as trustee. In mid-May of 2008, a notice of foreclosure sale for the home was published in an Alabama newspaper by Deutsche Bank "as trustee for HSI Asset Securitization Corporation." A later notice said the home was sold by Option One to Deutsche Bank, acting as trustee for HSI. In August, Deutsche Bank sued the Wares to remove them from the home. The following June, Monica Ware filed an answer denying the bank's allegations but raising no defenses, and Deutsche Bank moved for summary judgment in September.

Ware's answer to that motion alleged that the foreclosure was invalid because Option One, not HSI or Deutsche Bank, was the owner of record when Deutsche Bank published the foreclosure sale notice. The court granted summary judgment anyway. Ware then filed a motion to vacate the judgment and asked for a hearing. The court declined to rule on this motion or hold a hearing, and Alabama court rules eventually deemed the motion denied. Ware also filed a counterclaim that was stricken because it was filed after the statute of limitations. She appealed both the summary judgment and the court's refusal to rule on her motion to vacate.

On appeal, Ware argued that summary judgment was inappropriate because there was a genuine issue to decide: whether the foreclosure notice was published by the correct entity. If Deutsche Bank was the correct entity to publish the notice, she argued, Option One could not foreclose; and if not, they had violated Alabama law on notices. However, the Supreme Court said, Ware had never raised those issues in trial court, and thus they were waived on appeal. Furthermore, the court said, the issue Ware did raise in court, that the foreclosure was null and void because of the publication mistake, was absent from her appeal and therefore also waived. Because both sides conceded that the summary judgment issue was the heart of the case, the Supreme Court declined to discuss the counterclaim. And while the trial court may have erred in refusing to rule on Ware's request for a hearing, the Supreme Court found that this was harmless because Ware's arguments were likely without merit. Thus, the high court upheld all of the trial court's rulings.

This case is a good reminder that without an experienced Orange County foreclosure defense lawyer, even a strong claim may fail. The Alabama Supreme Court, and the trial court before it, never had to rule on whether the Wares' foreclosure notice was issued correctly. Because their case was late and did not plead its issues well enough, it was dismissed and the bank almost certainly took possession. This may have been fine if the Wares just wanted to stay in their home longer, but it ultimately did not save their home, and likely cost a lot of money in legal fees. For the best possible chance of saving your home in a court case, it pays to get the help of an experienced Gardena foreclosure defense attorney early in the process.

Continue reading "Alabama Supreme Court Finds Homeowner's Arguments Against Foreclosure Null - Ware v. Deutsche Bank National Trust Co." »

Last week, we wrote about a Kentucky debtor's failed attempt to avoid a mortgage that she signed only in part. This week, our Corona foreclosure defense lawyers found another Kentucky case involving a debtor who seeks to avoid a mortgage. In In re Brockman, a trustee for the bankruptcy of Stephen and Donna Brockman was seeking to avoid a mortgage securing a debt Donna Brockman owned on a property from her previous marriage. The trustee argued that the mortgage did not adequately describe the property under Kentucky law because in the space allotted for a description of the property, the mortgage said "SEE EXHIBIT A"; Exhibit A then described the property. A bankruptcy panel for the Sixth U.S. Circuit Court of Appeals found that this was adequate to satisfy Kentucky law.

Donna was married to David Hogston in 1988, when they purchased property in Fayette County. In 2006, the divorced couple granted a new mortgage on the property. In 2010, the Brockmans filed for Chapter 7 bankruptcy, giving rise to the trustee's action. The trustee argued that Donna could avoid the mortgage because the property was not described prior to the signature page. The mortgage company, American General Home Equity, moved for summary judgment in its favor and the bankruptcy court eventually granted it. The trustee appealed.

In a relatively short decision, the Sixth Circuit declared that "The Trustee's argument has no merit." The trustee had argued that "SEE EXHIBIT A" did not meet legal standards to be incorporated by reference, because it was unclear about where the description of the property was located. The appeals court disagreed. Incorporation by reference is allowed in Kentucky law, the court said, even when the information incorporated is in a separate document. Furthermore, the direction to "SEE EXHIBIT A" was not unclear enough to need further directions, the court said. And the practice of attaching descriptions and incorporating them by reference is common in Kentucky. For these reasons, the Sixth Circuit upheld the summary judgment ruling against the trustee.

Our Garden Grove foreclosure defense attorneys have seen numerous cases recently involving challenges to paperwork that is incomplete, falsified and more. However, it's far less common to see a challenge suggesting paperwork is unclear. This is not to say that there are never grounds to challenge unclear paperwork. For example, California law does not allow businesses to present a contract in a different language from the one used to negotiate its terms. And under common law, ambiguous contracts are generally interpreted in a way that is better for the signer, in order to avoid rewarding the drafter for being unclear. Nonetheless, clients who want to challenge mortgage paperwork are best off when they can point to a specific law that was unambiguously broken or bent. An experienced San Diego County foreclosure defense lawyer can help clients identify any such issues in their own cases.

Continue reading "Direction to See Included Document Satisfies Mortgage Description Requirement - In re Brockman" »

As Redlands foreclosure defense attorneys, we advise clients with tax debts to tread very carefully when they file for bankruptcy. Unlike most other debts, tax debts cannot usually be discharged in bankruptcy, and the IRS has the power to interfere with a proposed bankruptcy plan. That was the case in Pierrotti v. United States, a bankruptcy appeal decided by the Fifth U.S. Circuit Court of Appeals. Carl Mitchell Pierrotti filed for Chapter 13 bankruptcy in order to prevent foreclosure after defaulting on his mortgage payments. But the situation was complicated by an IRS lien on his home for tax deficiencies from 1994 and 2000. As part of his bankruptcy plan, Pierrotti proposed repaying the debt in monthly installments over 15 years, but the IRS objected that this was much longer than the five-year Chapter 13 repayment plan, and the bankruptcy court declined to confirm the plan. Eventually, the court stayed the case and appealed it directly to the Fifth Circuit.

On appeal, Pierrotti argued that his payment plan was legal under two areas of Chapter 13. One allows modification of secured debts other than primary-home mortgages, and the other allows debtors to cure and maintain payments on debts that are not fully due until after the bankruptcy is over. Thus, he argues, he can modify his debt to the IRS and convert it into a longer-term debt, even though Chapter 13 also says plans may not provide for repayment periods longer than five years. The Fifth disagreed. While no Fifth Circuit caselaw directly addresses the question, it noted that a previous decision had found that the long-term debt provision applied only to debts that were originally due after the end of the five-year payment plan. The tax deficiencies are not this kind of long-term debt, the court said. In fact, tax debts generally do not have terms beyond payment by April 15. The Fifth rejected an argument that public policy supports Pierrotti's claim because he would be able to keep his home during such a repayment plan, saying Congress intentionally chose to limit the length of bankruptcy plans.

Our Seal Beach foreclosure defense lawyers are sorry to say that on this last point, the court said nothing unusual. It may be better for society for homeowners to stay in their homes and keep making mortgage payments, but this is not enough to overcome the intention and letter of the law limiting Chapter 13 repayment plans to five years. As the court notes, allowing them to drag on even longer can become close to indentured servitude. We believe most bankruptcy clients would agree that they would prefer to make a fresh start sooner rather than later. In some cases, that means forgiving debts, but IRS debts cannot be forgiven. As Torrance foreclosure defense attorneys, we suspect this means Pierrotti will end up with larger payments on his tax debts that strain the rest of his budget.

Continue reading "Debtor Cannot Pay Off Tax Liens on Home Over Longer Period Than Chapter 13 Bankruptcy -Pierrotti v. United States" »

Our Rubidoux foreclosure defense lawyers know technical flaws in foreclosure paperwork have gotten a lot of media attention lately. The robo-signing scandal was at its heart about fraudulent paperwork, and as a result, more state court judges have been willing to seriously consider allegations of wrongdoing by lenders, or even dismiss improperly supported cases. So we were interested to see a Massachusetts case in which technical flaws were not enough to cancel a mortgage. In Fuller v. Deutsche Bank National Trust, David and Betsy Fuller of Massachusetts built a home in 1991 and lived there for 12 years before they refinanced and later fell behind on payments. After Deutsche Bank started foreclosure proceedings and rejected their attempt to rescind the mortgage, the Fullers filed for Chapter 13 bankruptcy.

The Fullers also filed a complaint against the bank in bankruptcy court, seeking to rescind the mortgage under Massachusetts law. They argued that the lender had failed to put the correct closing date and rescission date on the loan paperwork, and also that the lender did not provide them with required disclosures on high-cost loans. The bankruptcy court granted Deutsche Bank summary judgment. After various motions and appeals were denied, the Fullers appealed to the First Circuit.

They had no better luck in the appeals court. They argued that they were not given adequate notice of their right to rescind, which by law must be given "clearly and conspicuously" and include the date when the right to rescind ends. The forms they submitted to the court had a blank space where that date should be, and also listed the closing date incorrectly as the day before the actual closing. Deutsche Bank submitted paperwork with these problems fixed, in handwriting. After noting that one party is almost certainly lying, the First declined to reach that issue. Under a previous decision in Melfi v. WMC Mortgage Corp., notice may be adequate when the borrower is given effective notice, even though there may be technical deficiencies. In this case, the court said, the Fullers dated their signatures with the correct date, and thus knew when the three-day rescission period started. It also noted that the four-year statute of limitations on that law expired before the Fullers filed their claim.

The Fullers also argued that they were not given "high cost home loan" disclosures required by Massachusetts law right away; they were provided these only at the closing. Again, the First was not impressed. While Deutsche Bank admitted that the paperwork was not provided right away, the First said, the paperwork was provided, and it allowed rescission only within three days. Instead, the court notes, the Fullers waited five years to pursue their claim. Thus, the bankruptcy court's rulings were upheld.

As Laguna Beach foreclosure defense attorneys, we think this underscores the importance of knowing your situation and your rights before you sign a mortgage (or any other important contract). The Fullers may feel that they were misled by their mortgage lender, but there isn't much legal remedy for over-promising that falls short of actual deception. And as this case shows, the Truth in Lending Act (and the Massachusetts law based on it) provides only a three-day window for changing your mind. The Fullers may still be able to get some relief from their mortgage debt through their bankruptcy, depending on their situation. As Pomona foreclosure defense lawyers, we know Chapter 13 bankruptcy can be helpful to homeowners who just need a little time to catch up and can keep making payments in the future.

Continue reading "Technical Flaws Do Not Allow Rescission of Mortgage in Chapter 13 Bankruptcy - Fuller v. Deutsche Bank National Trust" »

As San Bernardino County foreclosure defense lawyers, we handle a lot of bankruptcies that are explicit attempts to stop a foreclosure. As a result, we know that the IRS almost always gets its money in bankruptcy court -- debts to the agency are rarely dischargeable. So we were very interested in a recent Seventh U.S. Circuit Court of Appeals decision turning that principle on its head by assigning rental income from a debtor's property to the mortgage lender with the primary lien, even though the IRS also claimed it. In Bloomfield State Bank v. United States, the Seventh Circuit ruled that under federal law, the mortgage holder has priority because its interest in the property existed before the IRS filed its lien.

The underlying mortgage was issued to an Indiana resident in 2004; the default happened in 2007. The mortgage contract secured the mortgage with the real estate and other interests, including an interest in rent derived from the property. The bank successfully asked the court to appoint a receiver to administer the property; that receiver collected rents totaling $82,675. The IRS filed its tax lien sometime around or after default, and argued to the bank that it should have priority over any rents collected after its lien was in place. The bank sued for a declaratory judgment saying the opposite, and a federal court granted summary judgment to the IRS. This appeal followed.

The case turns on 26 USC 6323, the Seventh said, which says property interests like the bank's can take priority if "the property is in existence and the interest has been protected under local law against a subsequent judgment lien arising out of an unsecured obligation." For the Seventh, the issue was whether the property was "in existence," which in turns gave rise to a dispute between the parties over whether the property at issue was the home or the rental proceeds, which did not exist when the IRS filed its lien. The district court found that the rental proceeds were in dispute, but the Seventh reversed. The property referred to by the statute is the property that is "a source of value for repaying the loan in the event of default"; not the money received by exploiting that source of value. This, the court reversed and directed the trial court to enter judgment in favor of the bank.

Our Long Beach foreclosure defense attorneys are pleased to see the court giving clarity to a small but important matter involving the IRS, because the IRS is a muscular creditor in many personal bankruptcies. The vast majority of bankruptcies involve different interests competing for the same limited money. Competition between two powerful creditors, as here, can create delays to ending the bankruptcy -- ultimately hurting the debtor's efforts to complete a bankruptcy and start rebuilding. When it leaves either creditor unsatisfied, it can also create further problems for the debtor because he or she may have to pay the balance owed. To get the best possible chance of a smooth and effective bankruptcy, you should always talk to a Santa Ana foreclosure defense lawyer as early as possible in your case.

Continue reading "Mortgage Lender Has Priority Over IRS When Interest Was Acquired First - Bloomfield State Bank v. U.S." »

Our Riverside County foreclosure defense attorneys were interested to see a recent decision about when exactly debtors in bankruptcy may claim a homestead exemption. In In re Jody May Walters, the debtor and her husband routinely owned several houses at a time, building or remodeling them and selling them for a profit. Between 1999 and the June decision, they owned five homes in Iowa and six in Florida. However, like others involved in the real estate market, they fell into trouble in 2008 and ended up returning one home to the mortgage lender. They moved from that home into their current home in Pleasant Hill, Iowa in 2008. Bank of the West also won judgments against the Walterses and others in that year.

In early 2010, Walters filed for Chapter 7 bankruptcy and claimed an interest in the Pleasant Hill house as a homestead exemption. Bank of the West successfully challenged this, and Walters appealed to the bankruptcy panel of the Eighth U.S. Circuit Court of Appeals. The appeal focused on Iowa's rules for homestead exemptions. These say, in relevant part, that a homestead may be sold to satisfy debts incurred before it was acquired, but only when debts remain after other property has been sold. Another section says that when a new homestead is purchased with the proceeds of an older homestead, the new one is exempt to exactly the same degree as the old one would have been

It is not disputed that the Walterses received their interest in the Pleasant Hill property in June of 2009, which was after Bank of the West received its February 2008 judgment against them. However, Walters argued that she was entitled to an exemption because the Pleasant Hill home was acquired with the proceeds of a former homestead, a Florida property sold in 2006. The Eighth disagreed. It noted that the bankruptcy court found that Walters never intended to claim Florida as her residence, lived there only sporadically and never had a Florida driver's license. Thus, under Florida law, she was never entitled to claim a homestead exemption in that home. Furthermore, the court found, the Florida home did not fund the Pleasant Hill home; the Walterses had mixed funds from several sources and also transferred the home into and out of another couple's name. Thus, it affirmed the lower court's decision that the home was not entitled to a homestead exemption.

Of course, Iowa's homestead exemptions rarely apply in the kinds of bankruptcy cases handled by our Newport Beach foreclosure defense lawyers. But because so many people are in financial trouble after investing heavily in real estate, we think this issue could easily arise in California or any other state. Homestead exemptions frequently allow for the possibility of more than one home -- and bankruptcy is kinder to second homes than to first homes in many cases -- but they get murkier when property has been transferred repeatedly or at sensitive times like during a bankruptcy filing. That's why it's very important for people with this kind of complicated real estate situation to get the help of an experienced Cerritos foreclosure defense attorney as early as possible -- so we can help you make strategically and legally sound decisions before you file.

Continue reading "Debtor Cannot Claim Homestead Exemption for Home Acquired After Debt Incurred - In re Jody May Walters" »

Our Rancho Cucamonga foreclosure defense attorneys were interested to see a federal appeals court decision about what is necessary to create an enforceable and valid mortgage. In In re Rowe, the Sixth U.S. Circuit Court of Appeals took up that question in a case involving a debtor who attempted to avoid her mortgage because she was not personally liable, but had made her interest available in the bankruptcy. Linda Lou Rowe and Boyd Wayne Rowe filed for Chapter 7 bankruptcy in 2009, and listed their home in the petition. The promissory note was signed only by Boyd and the mortgage contract names Boyd as the sole mortgagor, but the mortgage contract was signed by both spouses. The couple's bankruptcy trustee sought to avoid the mortgage as to Linda, and the bankruptcy court agreed. Their lender, Fifth Third Bank, appealed.

The trustee argued that he should be able to avoid the mortgage with respect to Linda's interest in the property because she was not identified in the documents as a borrower or mortgagor. Fifth Third argued that Linda is a borrower because she signed a rider to the mortgage that was incorporated into, supplement and amend the mortgage. On both the rider and the mortgage itself, she hand-printed her name, while Boyd's name was already printed on the documents. In addition, Linda was never named in the mortgage itself as a mortgagor. Under Kentucky caselaw, the Sixth noted, mortgages are enforceable only against people whose identities are readily discernable from a review of the entire document.

After some analysis, the court found that Linda Lou Rowe was such a person. Because she signed the rider, and because of a section of the mortgage that details duties of co-signers, her identity was incorporated into the mortgage. The Sixth found that the bankruptcy court erred when it concluded that a mortgagor's identity can't be incorporated from a rider to a mortgage, and thus failed to consider the rider at all. The court conceded that Linda was not named as a borrower in the mortgage itself, but she signed both the mortgage and the rider that was incorporated by reference. Thus, she is sufficiently identified as a mortgagor under Kentucky law and the bankruptcy court should have granted summary judgment on the issue to Fifth Third.

This decision disappoints us, as Costa Mesa foreclosure defense lawyers. By avoiding the mortgage as to Linda, the trustee could have allowed the Rowes to void her part of the mortgage's debt, making more assets available for other parts of their bankruptcy or to help them start over. Lenders have put forth a lot of sloppy paperwork in the past several years, and banks are only now catching on that much of it is unreliable or unacceptable as a basis to foreclose on lenders. It would be interesting to know whether the paperwork in this case was indeed sloppy, or whether Linda Lou Rowe was intentionally left out of the mortgage documents that Fifth Third now finds it convenient to include her in. As San Diego County foreclosure defense attorneys, we don't believe sloppiness and false statements to the court should be rewarded by judges.

Continue reading "Sixth Circuit Rules Wife's Interest in Property Makes Her Responsible for Mortgage - In re Rowe" »

Our Moreno Valley foreclosure defense lawyers have written here before about the troubling practice among mortgage lenders of hitting borrowers with inflated fees when they come out of bankruptcy. This can cancel a lot of the financial progress made by borrowers seeking to get back on their feet and violate the spirit of bankruptcy law. In In re Terry Jacks et al., a proposed class of bankruptcy debtors sought to prove that it also violates the letter of bankruptcy law, by violating the automatic stay against creditors provided in any personal bankruptcy filing. In this case, the Eleventh U.S. Circuit Court of Appeals found that Wells Fargo Bank did not violate the law by failing to disclose certain fees, and dismissed claims that had not yet accrued.

Terry and Sandra Jacks of Alabama filed for Chapter 13 bankruptcy in 2007, including their three-year-old mortgage in the petition. Wells Fargo, their lender, filed a proof of claim that did not list any attorney fees or costs, but advised readers that Wells Fargo reserved the right to seek reimbursement for attorney fees and other costs related to the case. The couple later filed a Chapter 13 plan that included payments to be made to the bank, but noted that they may have a claim against the bank for violation of the automatic stay and of Bankruptcy Rule 2016, for undisclosed post-petition fees and costs. The judge confirmed this. The couple later filed a proposed class action against Wells Fargo for the same reasons listed in their plan. The bankruptcy court dismissed the claim on the merits and the federal district court affirmed, leading to the current appeal.

The Eleventh Circuit also affirmed. Importantly, while Wells Fargo had charged the couple $310 for the attorney fees for filing its proof of claim, the bank had not taken any action to enforce that claim. Sandra Jacks found out about the charges only because she specifically requested her account history and noticed a new charge. Thus, the court said, Wells Fargo cannot be said to have collected or attempted to collect -- and that's what violates the automatic stay provisions of the bankruptcy code. It distinguished the case from similar bankruptcy cases by saying the $310 was never added to the couple's account balance. Similarly, the Eleventh found no violation of bankruptcy rules requiring disclosure of fees, because Wells Fargo made no attempt to collect the fee. Finally, it declined the couple's request for an injunction against attempts by Wells Fargo to collect those fees in the future, because the claims are not ripe -- the bankruptcy is not yet over and the bank claims it will not enforce its fees if they complete it successfully.

As Los Angeles County foreclosure defense attorneys, we're disappointed by the Eleventh Circuit's decision in this case. This problem is not limited to Alabama or the purported class in this case; across the nation, lenders are surprising debtors with extra fees after the bankruptcy ends. Here in the Central District of California, the bankruptcy court has responded by adopting an optional document requiring fuller disclosure and closer communication. The Eleventh Circuit may be right that Wells Fargo didn't violate the law in the case of Terry and Sandra Jacks, but our Mission Viejo foreclosure defense lawyers hope bankruptcy courts in its jurisdiction have taken preemptive measures that don't require filers to pursue lawsuits in the first place.

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