California Bankruptcy Attorney Blog

Our Claremont consumer bankruptcy attorneys strongly advise our clients to disclose everything in their financial situations -- both good and bad -- when they file for bankruptcy. Failing to do this can get you in trouble and possibly even cancel your bankruptcy. A debtor in Texas was in trouble for this reason in Reed v. City of Arlington, a Fifth U.S. Circuit Court of Appeals case involving a couple who did not disclose a pending lawsuit the husband had against the City of Arlington, Texas. The husband, Kim Lubke, won his case, but when the bankruptcy court and the City found out, the City argued that Lubke should be judicially estopped from pursuing the judgment because of his failure to disclose it. The Fifth Circuit eventually decided that while Lubke is judicially estopped, the bankruptcy trustee, Diane Reed, is not.

Lubke's lawsuit against the City was for Family and Medical Leave Act violations while he was employed as a firefighter. While the City appealed a judgment against it, the Lubkes filed for Chapter 7 bankruptcy and failed to disclose the FMLA case to the bankruptcy court, or the bankruptcy to their FMLA attorney. They eventually won the FMLA appeal and also received a no-assets discharge, which means the court believed they had no assets to pay to creditors. However, when their FMLA attorney called to discuss a settlement offer, he discovered the bankruptcy case and notified Reed. She reopened the bankruptcy case, revoked their discharge and accepted the settlement. The City petitioned for a rehearing of its appeal, and the Fifth Circuit directed the district court to determine whether Lubke should be judicially estopped from pursuing the judgment. The district court determined that Lubke was judicially estopped, but the Bankruptcy Code permitted Reed to collect. It ordered that any money left over from payments to creditors be returned to the city. The City appealed to a Fifth Circuit panel and got the decision reversed, and Reed appealed for an en banc rehearing.

The Fifth Circuit's decision agreed largely with the district court's opinion, which it described as "very good." Judicial estoppel is a legal doctrine allowing judges to prevent parties from taking positions inconsistent with positions they previously took, and to avoid unfair results. In a bankruptcy context, the court said, the goal of judicial estoppel should be to protect the creditors' rights and avoid rewarding a dishonest debtor. It also noted that in bankruptcy law, the debtors themselves -- in this case the Lubkes -- are separate and distinct from the bankruptcy estate being overseen by Reed. Thus, Kim Lubke's failure to disclose the judgment in the bankruptcy does not adhere to Reed. Judicial estoppel would have applied only if the events leading to it had taken place before the bankruptcy was filed, the Fifth said, but after, the trustee acts on her own. The court also found that equity favors no estoppel because bankruptcy law favors the innocent creditors' rights to collect, and that precedent in the Fifth and three other circuits supports its decision. A dissent signed by three judges of the panel excoriated Lubke for wasting the judicial system's time and money.

As Costa Mesa personal bankruptcy lawyers, we would like to take this opportunity to remind all of our clients and potential clients that hiding assets can get them into serious trouble. That includes assets that are only merely potential payouts, such as pending litigation or potential litigation claims. This opinion suggests that the Lubkes made an intentional choice to not disclose the pending FMLA case. This got them hauled back into bankruptcy court and will end with their legal judgment being distributed to creditors, rather than to themselves. In other circumstances, dishonest bankruptcy filers may have their bankruptcies dismissed with prejudice or even be criminally prosecuted for the fraud. A common consequence of dishonesty or mistakes is being unable to re-file the bankruptcy, while also having no protection from creditors. To avoid this, it's best to be as honest as possible with San Diego County individual bankruptcy attorneys like us.

Continue reading "Bankruptcy Trustee May Pursue Judgment Even When Debtor May Not, Fifth Circuit Rules - Reed v. City of Arlington" »

As Rancho Cucamonga foreclosure defense attorneys, we write here nearly every week about sloppy paperwork by mortgage lenders and their attorneys, and the consequences for all parties involved. One consequence we haven't seen much, however, is the imposition of sanctions against a mortgage lender's legal team for misconduct in court. Sanctions are at the center of In re: Taylor et al., a Third U.S. Circuit Court of Appeals ruling upholding penalties for mortgage lender HSBC, its outside law firm and one of the attorneys for that firm. In the case, the court criticized counsel for failing to ascertain whether the documents it took from its database were true before submitting them to a bankruptcy court and swearing to their truth.

The underlying case is the Chapter 13 bankruptcy of Niles and Angela Taylor. They listed HSBC as the holder of their mortgage, and HSBC filed for relief from the automatic stay in order to foreclose. That filing is one of the objectionable filings; the other is HSBC's answer to the Taylor's objection to their proof of claim. The proof of claim requires supporting documentation showing ownership and the amount owed. However, in this case, it was incorrect as to the Taylors' monthly payment, the value of the home and had the wrong note attached. This was filed by a law firm not involved in the appeal. The motion for relief from stay used the Udren Law Firm, one of the sanctioned parties. Like all HSBC law firms, it received its assignment through a computerized system. The Udren Firm and its attorney, Lorraine Doyle, were not able to check the veracity of the documents except by calling HSBC, which was actively discouraged. The papers were also prepared by non-attorneys.

As a result, the motion for relief from stay failed to mention the existence of a dispute as to whether the Taylors were making the correct payments. The firm requested that the Taylors admit that they had made no mortgage payments since filing for bankruptcy, which the Taylors proved was untrue. In HSBC's response to the Taylors' objection, Doyle reiterated that everything contained in the motion for relief was accurate, which it was incorrect. In later hearings, an attorney for the Udren Firm appeared to ask for known falsehoods to be admitted as evidence. The bankruptcy court denied this and ordered the firm to get the correct information from HSBC. The firm failed to do so, and the bankruptcy court ultimately sanctioned Doyle, the Udren Firm, founder Mark Udren and HSBC for making false representations to the court. They appealed it to the district court, which overturned the sanctions, finding that Taylor's counsel bore some responsibility, the court was improperly trying to "send a message" and Udren himself was not guilty of the sanctioned conduct. The trustee appealed.

The Third Circuit reinstated the sanctions against everyone but Udren as an individual. Statements made by Doyle and an Udren Firm associate who escaped the sanctions contained falsehoods, the court said. And even if "literally true," the Third said they were misleading, which is enough to violate Rule 9011. Furthermore, Doyle's behavior was not reasonable under Rule 9011, it said. Although attorneys are not required to investigate the veracity of all information their clients provide, they must make a reasonable effort to seek out the facts independently. In this case, Doyle should have known she had inadequate information through the automated system she relied on; she pleaded the truth of facts not even available to her through that system. Furthermore, her own filings were self-contradictory and she failed to investigate the Taylors' claims. The court agreed with the district court that Mark Udren was not personally culpable, but ruled that the Udren Firm was appropriately sanctioned because its high-volume, high-pressure system led to the false representations. It also upheld sanctions against HSBC, noting that the bank had not appealed the original sanctions and the district court need not overturn HSBC's sanctions just because it overturned those of the attorneys.

Our Orange County foreclosure defense lawyers are very pleased to a court recognize the negative effects of sloppy litigation. In this case, HSBC and its attorneys were attempting to foreclose on borrowers using information that was outright false in one case and disputed in another. That is, they could have taken away the Taylors' property and denied them the protections of bankruptcy based on a lie. Allowing this kind of behavior would subvert the fact-finding purpose of the courts and could encourage more judicially approved theft. We also noticed that the bankruptcy court in this case believes the problem to be widespread, noting that the vendor running the automated data system and the non-sanctioned law firm have both been widely criticized for breaking court rules. As Whittier foreclosure defense attorneys, we hope this case causes other courts and attorneys to take notice of the problem and fix it before more penalties are necessary.

Continue reading "Third Circuit Upholds Sanctions on Mortgage Lender and Law Firm for 'Rubber-Stamping' Documents - In re: Taylor et al." »

Our Redlands individual bankruptcy lawyers were interested to read about a rare case in which a student loan was discharged in bankruptcy. Since 2005, discharge of private student loans has been possible only when the court finds "undue hardship" to the bankruptcy debtor from paying the loans back, and undue hardship is a notoriously difficult standard to meet. Nonetheless, the Eighth U.S. Circuit Court of Appeals found undue hardship in Walker v. Educational Credit Management Corp., an appeal brought by a private student loan lender as a creditor to debtor Michele Walker. Walker, of Wisconsin, received an undue hardship discharge because of the difficulties she and her husband would have in supporting their five children. The Eighth Circuit upheld the bankruptcy court's decision and its own Bankruptcy Appellate Panel.

Walker's student loan debt came from an undergraduate education at the University of Illinois, a premed licensing program at Creighton University, two years of medical school at Illinois and a master's degree at Governor State University. Her master's is in school psychology. She has worked most recently in that field with the Minneapolis Public Schools, but the position was cut in 2003 or 2004. Her husband is a police officer who moonlights as a private security officer, and they have five children, including two sets of twins. The elder set of twins has been diagnosed with autism. Walker has not worked outside the home since 2004, and spends much of her time caring for her autistic sons, who require a parent present for much of their therapy. She enrolled in a nursing program in 2007, but left due to problems caring for the children while attending school. The Walkers also incurred debts for a home equity line of credit and a new vehicle after she stopped working. Walker filed for Chapter 7 bankruptcy in 2004 and received a discharge, but filed an adversary proceeding in 2007 seeking to have $300,000 in student loans discharged as an undue hardship. The bankruptcy court and the Eighth Circuit's Bankruptcy Appellate panel granted the discharge, and Educational Credit Management (ECM) appealed.

ECM argued that undue hardship should be calculated as of the 2004 bankruptcy filing, not the 2007 adversary proceeding; and that the Walkers' household expenses are not sufficiently modest to allow an undue hardship determination. The Eighth Circuit disagreed. The undue hardship test requires courts to look at the totality of the circumstances, it said, and precedent requires judges to decide "in light of the debtor's actual circumstances at the relevant time." Furthermore, the court did not, as ECM argued, ignore Walker's husband's security guard income; this was accounted for in the family's adjusted gross income. It agreed that the lower courts may have counted some of his payroll deductions twice, but calculated that even when the disputed payments were added, the family's expenses still exceed its income. Finally, the court dismissed arguments that the family's expenses are not modest, based on the home loan and vehicle debts. A separate concurring opinion objected that the expenses may be unreasonable, but added that even without them, Walker could not make a projected student loan payment.

As Irvine personal bankruptcy attorneys, we are pleased to see that undue hardship discharges do occur, even when the lender challenges them all the way through to a federal appeals court. The 2005 adjustments to the bankruptcy laws that made private loans not dischargeable have attracted a lot of criticism, in part because of the perceived giveaway to private businesses. Prior to 2005, the undue hardship rule applied only to the federal government, which enjoys elevated status as a creditor in other ways as well. Extending that rule to private lenders is excellent for those lenders, but it arguably puts them at an unfair competitive advantage compared to other lenders. It also puts them in a position to exploit the financial naivete of students, many of whom are under 21 when they take out their loans. Our La Jolla consumer bankruptcy lawyers argue for an undue hardship exception for student loans whenever we believe our clients are eligible.

Continue reading "Eighth Circuit Upholds Undue Hardship Discharge of Student Loans in Bankruptcy - Walker v. Educational Credit Management" »

Our Moreno Valley foreclosure defense lawyers write frequently in this space about the confusion caused by banks' sloppy paperwork practices during the housing bubble. In many foreclosures and bankruptcies, this has caused lenders to be unable to prove their ownership, slowing down the court case and in a few cases even leading courts to cancel the debt entirely. That was the remedy the homeowners wanted in Guttman v. Wells Fargo Bank et al., a consolidated appeal to the Maryland Court of Appeals with four certified questions about how Maryland law applies to four bankruptcies. The court decided that the plain language of the law, Real Property Section 4-109(b), allows defects in the paperwork to be cured and the deeds to be enforceable in all four cases.

The Bankruptcy Court for the District of Maryland approached the appeals court after hearing many adversary proceedings involving deeds of trust with affidavits that were defective under Maryland law. The state requires each deed of trust to contain an affidavit of consideration, and numerous deeds before the court apparently had missing or defective affidavits. In three of the cases before the court, the affidavit was defective in that it was missing names and other information, or had names filled into the wrong places. The trustees for the debtors argued that the deeds were invalid and the trustees should own them free of the lenders' liens. The lenders involved argued that Section 4-109 cures the defects because it says "any failure to comply with the formal requisites listed in this section has no effect unless it is challenged in a judicial proceeding commenced within six months after it is recorded." The adversary proceedings were started more than six months after recording in every case. The bankruptcy court's questions asked Maryland's highest court whether that law could cure the flaws in each of these cases.

The Court of Appeals answered yes in all four cases, holding that the language of the law unambiguously cures the kinds of defects at issue. It rejected the trustees' arguments that the defects at issue are substantive and not merely formal, since the defects in question are expressly addressed, and named as formal defects, by Sec. 4-109. Its opinion also made heavy use of the law's legislative history. Maryland's affidavit of consideration requirement was intended to prevent fraud where property is transferred for no real consideration, the court said. The court's own decision in 1968 found that any defect in form rendered the affidavit invalid, but the legislature passed curative laws in 1971 and 1972 that expressly allowed affidavits with formal deficiencies. Finally, the court dismissed the trustees' argument that its finding that 4-109 cured the defects would effectively nullify the affidavit requirement, saying it was not free to question the legislature's balancing of public policy goals. Thus, it found for the mortgage lenders and sent the cases back to bankruptcy court.

This decision is very specific to Maryland law, and as Placentia foreclosure defense attorneys, we are pleased that our clients here in California do not have such a high burden to meet. Most states don't even have the affidavit requirement, in fact, and most cases of shoddy or missing paperwork center around paperwork granting ownership of the debt and mortgage. Controversies over the legality of paperwork have taken center stage in the last year because of the robo-signing controversy, but robo-signing is only one of the paperwork problems our Vista foreclosure defense lawyers have seen in recent appeals court decisions. Others, some more serious, include outright failure to notify a second lienholder of a foreclosure auction, improperly assigned notes and paperwork dated after legal action started, throwing the new lender's rights into doubt. These and other paperwork problems can slow or sometimes even stop a foreclosure, so homeowners should not hesitate to call us if they believe their lender is using dirty documents.

Continue reading "Maryland Law Allows Defects in Mortgage Paperwork to Be Cured - Guttman v. Wells Fargo Bank et al." »

Increasingly, our posts on this blog about mortgage appellate decisions center around the very basic question of who owns the mortgage. As Riverside foreclosure defense attorneys, we're pleased to see the courts giving this issue the scrutiny it deserves, since allowing a non-owner to foreclose on a home unjustly allows the property to be taken from the true owner and may imply other major problems. In In re: Collins, the Bankruptcy Appellate Panel of the Sixth U.S. Circuit Court of Appeals reversed a lower court that declined to address issues of who owned the loan. The trustee in the bankruptcy of Elizabeth Collins of Kentucky had filed for a declaratory judgment seeking to determine the validity, extent and priority of loans claimed by Litton Loan Servicing, Bank of New York, GMAC Mortgage and Wilmington Finance.

Collins and her ex-husband took out two mortgage loans in 2005 from Wilmington. Collins alone filed for bankruptcy in 2010. How the mortgages were assigned in between is the matter of controversy. The first mortgage was assigned to MERS, the corporation that banks have created to control mortgage assignments, as is standard. On the day after Collins filed for bankruptcy, MERS assigned the mortgage to Bank of New York, as trustee for a security owned by Litton. Despite the late assignment, Collins listed Bank of New York as the secured creditor. Wilmington indorsed the note to Popular Financial Serivces and Popular ABS indorsed it to Chase, but there was no indorsement between the two Popular companies, and Chase transferred the note with an allonge to Bank of New York three months after the bankruptcy. There is no record of assignment at all for the second mortgage, though Collins listed GMAC as the creditor, and GMAC failed to file any proof of claim. The trustee filed an adversary complaint arguing that he had a right to sell the property free of the second mortgage and he had priority over the first mortgage because Bank of New York had not been able to prove its ownership. The bankruptcy court found for the banks in both cases and dismissed the case. It also dismissed the complaint as to Wilmington, finding it was not a party because other lenders were its successors in interest. The trustee appealed.

The Panel upheld the bankruptcy court as to Wilmington, agreeing that it was no longer a party to the bankruptcy. However, it reversed as to the other lenders. A trustee has status as a hypothetical loan creditor that is superior to the status of creditors with an unperfected interest. The trustee for Collins had argued that the lenders' interests were not perfected because the underlying debt was not enforceable. The Panel first tackled the issue of GMAC, which had never produced any paperwork proving its claim and indeed declined in oral arguments to assert that it owned the note. The court found that the bankruptcy court was wrong to dismiss the claim just because someone, somewhere owns the mortgage lien. The relevant issue is whether GMAC has it, the court said, and this is enough to survive a motion for dismissal for failure to state a claim. Similarly, the Panel found that the bankruptcy court should not have dismissed the claims against Bank of New York and Litton because the record was genuinely unclear as to who owned the note as of the date of filing. It vacated the court's orders and remanded with orders to determine this, and then consider whether there was a proper chain of title.

Our Anaheim foreclosure defense lawyers are pleased to see yet another ruling that acknowledges the paperwork problems lenders created for themselves during the housing bubble. Those problems gained the most public attention during the robo-signing scandal, but bankruptcy cases like this frequently also expose a lot of incomplete paperwork moving the loan from lender to lender. During the housing bubble, and especially for loans that were securitized, mortgages were moved around without proper supporting paperwork or in incomplete ways. When those loans go into foreclosure or become part of a bankruptcy, this creates a lot of confusion and unnecessary fuss. This creates an opportunity for Santa Fe Springs foreclosure defense attorneys like us to slow down or stop the foreclosure for lack of proof of ownership, but there's no guarantee, which is why it's vital to talk to an experienced lawyer.

Continue reading "Sixth Circuit Orders Bankruptcy Court to Determine Which Mortgage Lender Owned Loan - In re: Collins" »

Our Lake Elsinore foreclosure defense attorneys handle many bankruptcies involving mortgages as well as many foreclosure defense lawsuits and negotiations. This has given us a great deal of experience with mortgage lenders who are willing to play underhanded legal and accounting tricks or even submit false paperwork to the court in order to get paid. So we were interested but not surprised to see the decision in Matrix Financial Services Corp. v. Frazer, a South Carolina Supreme Court decision denying a mortgage lender a chance to "cut in line" ahead of another creditor in the homeowners' bankruptcy. Matrix held the mortgage for Louis and Linda Frazer, who defaulted on a legal judgment here in California in 2000, then moved to South Carolina and bought a house in 2001. The opinion says the creditor in the California lawsuit, Matthew Kundinger, should have first priority.

The Supreme Court did not explain what the underlying lawsuit was about, although it noted that another defendant along with Kundinger is the Parks Grove Homeowners Association. The Frazers defaulted on that lawsuit in 2000, before their January 2001 purchase of a home in South Carolina. The home was later assigned to Matrix, and they started a refinancing process in September of 2001. The new mortgage was closed in November of 2001 and recorded in April of 2002. Meanwhile, default judgment against the Frazers was entered in California in September of 2001. The Frazers later (the court didn't specify when) filed for consumer bankruptcy, and Matrix sought to foreclose the refinance mortgage. Kundinger opposed this, arguing that his default judgment had higher priority. Matrix then asked the court to allow it to subrogate its refinance mortgage to its original mortgage issued in January of 2001, giving it priority, and the court granted this. Kundinger appealed.

The South Carolina Supreme Court agreed that the master-in-equity should not have granted equitable subrogation to Matrix. A 1992 case, Dedes v. Strickland, had very similar facts, the court noted, and eventually found against the bank seeking to subrogate to itself. Under the law, the court went on, equitable subrogation is about a third party satisfying the mortgage, not the lender satisfying the debt against itself. Thus, it found that the lender could not use equitable subrogation to jump ahead in line, although it expressly left open the possibility that a lender in Matrix's position could use an alternative theory of replacement and modification. The court then went on to find that Matrix has unclean hands because it refinanced the loan unlawfully. Specifically, Matrix apparently closed the loan without an attorney present, as required by South Carolina law, and thus engaged in the unauthorized practice of law. The high court took a dim view of unauthorized law practice, and issued a blanket warning to all mortgage lenders: "Lenders cannot ignore established laws of this state and yet expect this Court to overlook their unlawful disregard. We take this opportunity to definitively state that a lender may not enjoy the benefit of equitable remedies when that lender failed to have attorney supervision during the loan process as required by our law."

This last statement made the strongest impression on our Dana Point foreclosure defense lawyers. The court expressly put South Carolina lenders on notice that in any case filed after this opinion, it will not tolerate failure to follow the law by having an attorney supervise the loan's closing. This is yet another example of courts cracking down on the sloppy practices endemic to the mortgage industry during the housing boom. Now that the robo-signing scandal has exposed widespread shoddy or missing paperwork, forged names and failure to follow legal requirements, judges are catching on and starting to scrutinize lenders' filings and behavior much more carefully. This can form the basis of a legal challenge to the foreclosure, if the circumstances are right, and possibly even save the home. As Norwalk foreclosure defense attorneys, we look for opportunities like this with each foreclosure case, to give our clients the best possible chance of staying in their homes.

Continue reading "Mortgage Lender Not Entitled to Subrogate Refinance Mortgage to Gain Priority as Creditor - Matrix Financial Services Corp. v. Frazer" »

Our Claremont predatory lending lawyers were interested to see a recent court decision out of Florida concerning two people convicted of mortgage fraud. In United States v. Robert D. Singletary and Patrick M. Singletary, the Singletarys were convicted of a north Florida mortgage fraud conspiracy. They were accused of inducing others to make false statements in order to get mortgages. This defrauded not only the mortgage lenders, but the Federal Housing Administration, which insures mortgages. In addition to prison, they were ordered to pay $1 million in restitution to the federal Department of Housing and Urban Development. The Singletarys challenged how the $1 million sum was calculated, and the Eleventh Circuit agreed that the district court failed to properly examine the issue.

The Singletarys owned and operated a company called CAL Investments of North Florida, whose business was buying "fixer-upper" homes. Each home CAL bought was sold to Eagle Investments, owned by Robert Singletary, which would do the repair work using a bank loan. Repaired homes were offered for sale, and potential buyers would be referred to one of three mortgage broker companies owned by Patrick Singletary, which would help them obtain FHA-insured loans in fraudulent ways. Eagle paid many of these buyers' down payments, which the brokers disguised with a "gift letter"; the brokers also created false "credit explanation" letters or verifications of employment when required. The loans would be paid to Eagle and the buyers would stop paying, causing a total of 89 foreclosures in the case. The government calculated it lost $1,732,585 in insurance payments to defrauded lenders, after adding revenue from foreclosure sales. The Singletarys challenged this number, which was used at sentencing, arguing that the mortgage brokers' testimony was unreliable, and were finally sentenced according to losses of $1 million. The same number, after some debate, was used for restitution.

The Singletarys appealed the forfeiture and restitution orders. Robert Singletary also appealed his prison sentence, but the Eleventh Circuit dismissed this as "meritless" without comment. On forfeiture, the prosecutors conceded that the district court erred, so the Eleventh vacated it without discussion and ordered the district court to delete it from the judgment. This left the restitution orders. Under federal law, restitution for property crimes is based on the losses the victim actually suffered; thus, the Eleventh found, the restitution in this case should be calculated according to losses actually suffered by the federal government. However, the record shows that the district court did not attempt to calculate this with any precision. The prosecutors attempted to prove fraud in only 56 of the 89 mortgages. In court, the prosecutors asked the mortgage brokers for the Singletarys whether each file in turn had fraud in it, but the judge found this testimony too general to be credible. Prosecutors apparently offered no other evidence, so the judge found that they failed to prove their original claim of more than $3 million in losses. The court decided instead to arbitrarily set restitution of at least $1 million. To remedy this failure of basic fact-finding, the appeals court vacated the restitution order and remanded it for findings of fact on the 56 mortgages.

As Orange County predatory lending attorneys, we hope the true amount of restitution ends up higher, since the amount of fraud claimed by the government is much higher. This type of mortgage fraud ultimately hurts everyone in the housing market, because it drives up foreclosures and thus drives down housing prices, hurting innocent homeowners who lose equity. This is especially bad for people who want to refinance their way out of a bad home loan, who are likely as numerous in Florida as they are here in California. Mortgage fraud and predatory lending unfortunately existed throughout the system during the boom: straw buyers like these; corrupt mortgage brokers and lenders who steered clients into bad loans; and lenders who gave out loans without consideration of whether the borrower could realistically pay them back. As Murrieta predatory lending lawyers, we aggressively pursue remedies for clients who were entrapped into bad loans, using state and federal predatory lending laws to pursue damages and loan modifications.

Continue reading "Eleventh Circuit Vacates Restitution Order for Mortgage Fraud Defendants - U.S. v. Singletary" »

As Riverside County foreclosure defense lawyers, we were interested to read a case involving a man who attempted to rescind his mortgage under the Truth in Lending Act on the grounds that his then-wife, not he himself, received the required TILA notice. In Vincent Ofor v. Ocwen Loan Servicing et al., the federal district court dismissed Ofor's TILA claims as well as a claim that the mortgage was defective under Minnesota law. Both claims revolve around Ofor's absence during the closing of the loan; he was in New York for work and gave his then-wife power of attorney to handle the closing on his behalf. He has since divorced. The Eighth U.S. Circuit Court of Appeals affirmed, finding that neither the mortgage nor the TILA notice was fatally defective.

Ofor was refinancing a Minnesota home with a loan balance of $218,000 on two mortgages. In part because of poor credit, he went through a loan broker and obtained two subprime mortgages. The closing was scheduled for October 25, 2005, but Ofor had to be in New York for a temporary job throughout October. He granted power of attorney to his then-life, Lisa Ofor. During the closing, the broker could not find the power of attorney, so he faxed another to Ofor, who signed it and faxed it back. In late November, the lender sent a package to the Ofors including a TILA notice with a right to rescind by December 7. Ofor made payments until September of 2006. In June of 2008, his attorney sent a rescission letter to Ocwen, lender Aames and assignee U.S. Bank. Ocwen denied the rescission claim, and U.S. Bank foreclosed in October of 2008. Ofor sued, arguing that the mortgage was defective because the power of attorney on file with the county was defective; it contained signatures on the same page from Ofor and the notary even though they were in different states and could not have signed in this way. He also argued that he did not receive the required TILA notice because it was only given to Lisa. The trial court dismissed both claims with prejudice, and Ofor appealed.

The Eighth Circuit started with the mortgage defect claim. Under Minnesota law, documents affecting real estate must have parties' original signatures, which Ofor claims is impossible for the document on file, because it shows his signature on the same page as the notary's. In the event, he argued, his signature would have been faxed on a separate piece of paper. The form also required the notary to acknowledge that Ofor signed in the notary's presence, which he said was another impossibility. The Eighth disposed of this argument quickly, however, when it noted that Ofor had never made his argument at trial under the section of Minnesota law he now cites. Thus, the appeal was waived on that issue. Ofor had no better luck on his TILA claim. He argued that he did not receive the first Notice of Right to Cancel because it was given to Lisa at closing, and the second, addressed to him, arrived at his home before he was back from New York. However, Ofor conceded that the first Notice would be valid if Lisa had a valid power of attorney, and the Eighth concluded that the power of attorney was valid. The second Notice was not legally required at all, the court said. Thus, it upheld both rulings from the trial court.

As Chino Hills foreclosure defense attorneys, we would like to emphasize a part of this case that is not dispositive: Ofor's failure to read the closing papers for months after the loan closed. He told the court that he didn't look at them as soon as he arrived in Minnesota because he had had a mortgage before and, by implication, he didn't think he'd see anything new. Loan closing papers are not light reading, but we believe it's vital for borrowers to read them at least well enough to ensure the loan terms are what they expect them to be. This may also have helped Ofor if he had been able to read the papers within the three-day rescission period, since he alleges he was sold two loans when he thought he was buying one. Our Los Angeles foreclosure defense lawyers scrutinize loan documents after the fact for fraud or "bait and switch" tactics, but you can sometimes save heartache by keeping an eye open early.

Continue reading "Wife of Borrower Authorized to Receive Truth in Lending Act Notices, Eighth Circuit Rules - Ofor v. Ocwen Loan Servicing" »

Our Chino foreclosure defense attorneys have seen a rise in federal predatory lending lawsuits since the foreclosure crisis began, thanks in part to sloppy or outright illegal lending practices during the bubble. So we were interested to see a Third U.S. Circuit Court of Appeals ruling on the Truth in Lending Act, the federal law that protects borrowers from some fraudulent practices and gives them a short window of time in which to cancel a loan. In Cappuccio v. Prime Capital Funding et al., borrower Karen Cappuccio sued under TILA, arguing that lenders First Magnus Financial and Countrywide Financial (now owned by Bank of America) and broker Prime Capital Funding deceived her about the type of loan she was taking out and did not provide adequate notice of her TILA right to rescind the loan. The Third Circuit found that Cappuccio's signature on a TILA form was not enough to prove she received notice, and vacated and remanded the case.

Cappuccio sought to refinance her two mortgages in 2006, hoping to reduce them to one fixed-interest mortgage with a lower interest rate. She filled out an online form with Prime Capital and connected with a Prime Capital loan agent who submitted applications on her behalf for three fixed-interest loans to two lenders, even though Cappuccio specifically sought one loan. Countrywide and First Magnus offered her loans with high interest rates, one of which had negative amortizing and the other of which had a balloon payment. Neither lender explained to Cappuccio that it was offering her a different and more expensive loan than she had applied for. Cappuccio went to the home of a local notary hired by title company MAK Abstract to close the loan, a process she said felt rushed. Cappuccio admits that she signed a Notice of Right to Cancel under TILA. However, she testified that she left without any documents.

Cappuccio testified that she received documents from Countrywide six days later, which tipped her off that the loans were not what she expected. A TILA notice was included, with a bolded date in the past that Cappuccio incorrectly thought was the last date to cancel the loan. A similar package from First Magnus came five days later, she said. MAK Abstract disputes that loan documents came in these packages. Cappuccio retained an attorney and sought to rescind the loans after the rescission period had passed, but the lenders refused, so she filed suit, alleging TILA violations, fraud and other causes. She won as to her fraud claims against the lenders, but on the TILA claims, the judge instructed the jury that Cappuccio's signature on the TILA notice created a rebuttable presumption that she had received the notice. To overcome this, the judge said the jury needed to support Cappuccio's claims with something other than her testimony. The jury found for the lenders on the TILA claim, and the claims against Countrywide were later settled. Cappuccio appealed.

The Third Circuit found that the trial judge's instructions were in error. Under long-standing federal interpretation of TILA, it noted, signing the TILA form does nothing more than create a rebuttable presumption that the notices were actually given. In this case, Cappuccio alleged that they were not given to her at the time, and their later delivery was both late, because the forms came after loan funds were disbursed, and confusing. The evidence required to rebut the presumption that she had received them is minimal, the Third noted, and can even be self-serving testimony. Thus, the court said, her testimony should have been enough to rebut it, and the jury would be left to determine whether she or ETrade was more credible. ETrade could have argued that Congress created a stronger rule for TILA, the court noted, but made no such argument; nor could the court find any evidence of a stronger rule. This was an error by the trial judge, and it was not harmless, the court said, because other evidence Cappuccio presented does not make it less prejudicial. Thus, it vacated the jury's decision and remanded the case to the district court.

This decision was long, but it's a worthwhile one for Santa Ana foreclosure defense lawyers, because it directly relates to the right of recovery for people alleging predatory lending. The Third Circuit did not instruct juries to take plaintiffs like Cappuccio at their word; it instructed them to weigh those words for credibility along with the word of the lenders. This is good news for borrowers because in many cases, there is no witness present at a closing who is not interested in the claim in some way; the only people present are usually borrowers or lenders. Testimony is therefore one of the major weapons at the disposal of borrowers and Lawndale foreclosure defense attorneys like us.

Continue reading "Third Circuit Rules Jury Instructions Were Improper on TILA Notice - Cappuccio v. Prime Capital Funding LLC" »

Our Riverside County personal bankruptcy attorneys were interested to read a ruling reminding bankruptcy filers that there's no substitute for following the correct procedures. In Barrientos v. Wells Fargo Bank, the Ninth U.S. Circuit Court of Appeals ruled that Adolfo Barrientos must make his motion against Wells Fargo as a motion for contempt, no matter how strongly the facts back him up. Barrientos had filed for Chapter 7 bankruptcy and already received a discharge, but he says Wells Fargo continued to report his discharged debt of $80,831 to credit agencies. Barrientos brought an adversary proceeding in U.S. Bankruptcy Court for the Southern District of California, but that court dismissed the proceeding, saying there is no private right of action to sue for a violation of the discharge. The district court upheld the bankruptcy court's action, and so did the Ninth Circuit.

Barrientos contacted one or more credit rating agencies to dispute the debt owed to Wells Fargo, which should have been discharged with his bankruptcy. Nonetheless, he alleges, Wells Fargo continued to report it as a debt, harming his credit. His 2007 adversary complaint included requests for an injunction stopping Wells Fargo from reporting the debt; fines; declaratory relief; and attorney fees. Wells Fargo moved to dismiss, relying on a 2002 case in which it was involved, Walls v. Wells Fargo Bank, which found no private right to action for violations of a bankruptcy discharge. This motion was granted, and Barrientos appealed it up to the Ninth Circuit.

On appeal, the Ninth noted that while bankruptcy judges expressly have the power to hold litigants in contempt of court, this does not create a private right of action. It ruled in Walls that finding a private right of action for violations of the discharge could take power to enforce court orders away from the court that issued those orders, which would undermine the goal of having a separate bankruptcy court. Barrientos argued that this did not necessarily make adversary proceedings unavailable, but the Ninth disagree. It also said that regardless of Wall, Bankruptcy Rule 7001 expressly defines what an "adversary proceeding" is -- and contempt orders are not among the definitions. The court rejected arguments from Barrientos that it could read into the law an authorization for contempt proceedings that specifically seek to enforce injunctions. In fact, it said, Bankruptcy Rule 9020 expressly says the opposite. Thus, the Ninth Circuit upheld the lower courts' decisions.

As Redlands individual bankruptcy lawyers, we would like to point out that this decision does not deny Barrientos a chance to stop Wells Fargo from violating his bankruptcy discharge. Rather, it requires him to make a motion within the bankruptcy case. This may be less preferable than pursuing a separate adversary motion, but at least relief is available. This is vital, because clearing debt off your record is, of course, the primary purpose of bankruptcy. The failure by Wells Fargo to do this is certainly grounds for contempt of court and a court order to fix the problem. However, as this case shows, debtors must pursue these penalties through the right channels, or face a lot of unnecessary extra expense and time. One goal for our Los Angeles consumer bankruptcy attorneys is to help our clients get through the bankruptcy without problems but quickly, so they can start the hard but rewarding work of rebuilding their finances.

Continue reading "Debtor Must Move for Contempt of Bankruptcy Court, Not Bring Adversary Proceeding - Barrientos v. Wells Fargo Bank" »

Our Ontario foreclosure defense lawyers have written here many times about the practice among banks of submitting false paperwork in foreclosures. This is generally done when the mortgage has been transferred several times, but without the follow-up paperwork necessary to reflect a change in ownership under the law. Often, lenders realize this is a problem only after foreclosure, and the paperwork may even be dated after the date of the foreclosure filing itself. After the "robo-signing" scandal broke, many judges caught on to the practice and began requiring banks to follow basic court rules, even if that meant slowing the foreclosure process. A version of this happened in Veal v. American Home Mortgage Servicing and Wells Fargo Bank, a bankruptcy decision from the Bankruptcy Appellate Panel of the Ninth U.S. Circuit Court of Appeals.

Howard and Shelli Veal bought property in Illinois in 2006, but ran into financial trouble and filed for bankruptcy in Arizona in 2009. The original loan was endorsed to Option One, which was then purchased by American Home Mortgage Servicing Inc. (AHMSI). AHMSI was a servicer collecting for Wells Fargo. In their initial filing and two proposed bankruptcy plans, the Veals listed as a secured creditor. However, when AHMSI filed its proof of secured claim, it did not present admissible evidence that it was the successor to Option One, and the Veals responded by objecting to AHMSI's proof of claim. AHMSI responded with another filing full of inadmissible evidence. Meanwhile, Wells Fargo moved for relief from the bankruptcy stay so it could foreclose on the Veals, saying it was a secured creditor. However, the evidence it originally presented did not show it had any interest in the property. A supplementary filing did show an assignment from Option One to Wells Fargo, but it was dated after Wells Fargo moved for relief from the stay, was not authenticated and assigned only the mortgage, not the note. Nonetheless, the bankruptcy court granted relief from the stay and denied the Veals' objection to AHMSI's proof of claim.

The Veals appealed both decisions to the Ninth Circuit's bankruptcy appellate panel, arguing that neither institution had shown any interest in the note or right to be paid. The bankruptcy court had originally found that the chain of two assignments leading to Wells Fargo was enough to give it a "colorable claim" to the property; ownership of the note was irrelevant. The Veals argued that this was incorrect as a matter of law, because mortgages cannot successfully be assigned without the debt underlying them also being assigned. The appellate panel agreed. In order to have a colorable claim, Wells Fargo had to show some interest in the note, it said. The documents it submitted in court failed to do this, the panel said, despite caselaw it submitted. Thus, the bankruptcy court was wrong to grant Wells Fargo relief from the stay in order to foreclose, the court said, and overruled this ruling. It next ruled on the similar issue of AHMSI's standing to file a proof of claim, with no better results for AHMSI. AHMSI did not adequately show that it was representing Wells Fargo's interests in bankruptcy court or that either organization had standing to enforce the note, the Ninth said, and the bankruptcy court was wrong to follow ownership of the mortgage instead of the note. However, the bankruptcy court left open the question of who is entitled to enforce the note, it said. Thus, the Ninth remanded the case so the bankruptcy court could find those facts and make a ruling.

This ruling is long, but as Corona foreclosure defense attorneys, we think it's a strong ruling in the favor of clients like ours. The Bankruptcy Appellate Panel says in this ruling that financial institutions must prove their claims before they are permitted to take property or enforce huge debts. This should not be controversial, but in the past few years, it has become increasingly common for lenders to try end-running around the law when it becomes clear that they cannot prove their rights to the property or debt. Challenging this does not necessarily end the foreclosure, of course, but it does ensure that the borrower is legally protected. As Encinitas foreclosure defense lawyers, we appreciate that the courts understand how important this is, given the huge power imbalance between lenders and ordinary homeowners.

Continue reading "Creditor May Not Request Relief From Automatic Stay Unless It Has Interest in Underlying Debt - Veal v. American Home Mortgage Servicing" »

Our Perris consumer bankruptcy attorneys have made multiple warnings in this space about the potential penalties for misbehavior in the bankruptcy courts. The Eighth U.S. Circuit Court of Appeals decision in Jonathan D. Hidy v. Marty K. Bullard deals with the results of willful and malicious behavior before the bankruptcy is fired. Hidy and Bullard, of Arkansas, were once friends, but Bullard injured Hidy so badly in a physical fight that Hidy lost an eye. Among other consequences was a legal judgment against Bullard for $204,204 for Hidy's personal injury. Bullard later filed for Chapter 7 bankruptcy and discharged the debt. Hidy appealed, arguing that the debt was not dischargeable because the bankruptcy code does not allow discharge of debts stemming from "willful and malicious" behavior.

Sometime before Bullard's 2010 bankruptcy filing, he and Hidy and several other co-workers and friends went out for dinner and drinks, and then to a new restaurant for more drinks. Depending on who tells the story, Bullard got into a discussion with Hidy and a third party, or into an argument with just the third party, when Hidy told him to "watch yourself." Bullard then threw a glass at either the table or Hidy. The glass broke and a piece went into Hidy's eye, and after a short physical fight, they realized this and Hidy went to the hospital. He eventually lost the vision in his right eye. Bullard testified that he lost his job and some friends over the incident and even attempted suicide. He was also convicted of battery and was successfully sued by Hidy. When Bullard later filed for bankruptcy, Hidy filed an adversary action seeking to except the $204,204 debt to him from discharge. Hidy lost that action and filed the instant appeal.

The bankruptcy code excepts debts from discharge when they resulted from "willful and malicious injury by the debtor to another entity or the property of another entity." On appeal, Hidy argued that the bankruptcy court should have decided the willfulness issue based on the criminal or civil cases against Bullard. The Eighth Circuit disagreed, finding that the bankruptcy court was correct to find that the issues in the bankruptcy case were not essential to judgment in the criminal case. Battery can be reckless as well as intentional, the court noted, and under the Supreme Court's 1998 decision in Kawaaihua v. Geiger, this must be a deliberate or intentional injury, not just an unintentional injury that arises from a deliberate or intentional act. It declined to even take up the issue of whether the civil case decided the issue, because the record was too sparse. Finally, the Eighth addressed the underlying issue of whether Hidy had proven that Bullard engaged in "malicious" behavior. Both men's testimony at trial was judged credible, the court noted, and supporting evidence was again too scant to decide. For that reason, it declined to overturn the bankruptcy court and upheld its decisions on appeal.

We rarely see this kind of appeal in our work as Mission Viejo personal bankruptcy lawyers. Most people in bankruptcy don't have a personal injury judgment to discharge, and among those, a dispute over willful and malicious injury doesn't always arise. It's disappointing that the Eighth Circuit did not have the opportunity to make a stronger judgment reaffirming the Kawaaihua ruling that distinguished between injuries arising from negligence and those arising from intentional behavior. This may not seem like much of a difference to people in Hidy's position, but the bankruptcy code makes the debtor's state of mind vital so it can avoid rewarding people who intentionally injured others. As Buena Park individual bankruptcy attorneys, we do our best to help clients put a sad past like this behind them and work toward a better financial future.

Continue reading "Bankruptcy Debtor's Debt Not Excluded From Discharge Despite Willful Actions -Hidy v. Bullard" »

Our Rancho Cucamonga individual bankruptcy lawyers generally do not handle bankruptcies involving farms, because we're based in Anaheim and usually represent urban and suburban southern California residents. But we were interested to read a bankruptcy decision from the Eighth U.S. Circuit Court of Appeals on whether the heirs to a South Dakota farm estate owe rent to their father, who was maintaining the estate. In Lovald v. Falzerano, trustee John Lovald sued Alvin James Falzerano, the debtor, and most of his heirs for unjust enrichment, because the heirs were the owners of cattle that Falzerano was maintaining for them after they inherited the cattle from his wife. The Eighth Circuit agreed with the bankruptcy court that the heirs were not unjustly enriched entitled because Falzerano was entitled only to net profits from the cattle.

Falzerano was married to Theresa Falzerano before her death in 2001. She left 320 acres of the couple's ranch to her husband, and her remaining property, which included all of her cattle as well as personal property and some of the land, to her granddaughter and all of her children but one daughter. This was intentional, but to avoid having the will contested, the family made a settlement that, among other things, authorized Falzerano to care for the cattle on behalf of the heirs, and use profits from the cattle and land for his living expenses. This situation continued without incident for several years, until Falzerano filed for bankruptcy just after a legal judgment of $10,000 was entered against him. When Lovald was appointed trustee, he sued the heirs to recover the costs of rent for the pasture and the hay fed to the cattle by Falzerano, arguing that this money should be available to the bankruptcy estate. The bankruptcy court found no unjust enrichment because Falzerano was adequately compensated, the district court agreed and Lovald appealed.

On appeal, the Eighth found no clear error in the bankruptcy court's ruling that Falzerano was adequately compensated by the net profits from caring for the cattle. Nonetheless, it upheld the bankruptcy court's judgment on different grounds. Under the language of the bankruptcy code, the court said, the rent for Falzerano's care of the cattle was not property of the bankruptcy estate; it was a debt owed to the bankruptcy estate, which is governed by different language. That language says the debt should be payable to the trustee only if it is "matured, payable on demand, or payable on order." Under South Dakota law, the court said, an action to collect a disputed debt based on unjust enrichment cannot be any of those. Thus, the district and bankruptcy courts were correct to deny the trustee's claim on any rent for the care of the cattle.

As Fullerton personal bankruptcy attorneys, we're pleased with this decision because it allows families affected by bankruptcy to retain a bit more control over how they structure their affairs. The trustee's suit implicitly suggested that Falzerano was being exploited by his children and granddaughter for the cost of rent and hay, which they may have found upsetting. The situation may very well have been arranged so Falzerano could continue farming and the heirs could pursue different work. Most southern California families don't have cattle to worry about, but it's not difficult to imagine that a family might have an orchard, commercial property or something else that one member might hold in trust while making a small profit. As Seal Beach individual bankruptcy lawyers, we believe families in this situation should be able to decide these matters for themselves as long as they truly aren't cheating the bankruptcy estate.

Continue reading "Bankruptcy Trustee Not Entitled to Claim Rent for Cattle Maintenance for Debtors Heirs - Lovald v. Falzerano" »

As Rubidoux personal bankruptcy attorneys, we often have clients who are fighting repossession of their vehicles or have already had vehicles repossessed. Here in California, we are fortunate to have laws that protect consumers during this kind of transaction (though they do not generally stop repossession). One such law is the Rees-Levering Act, which gives auto companies certain responsibilities when they repossess a debtor's vehicle. That Act was the basis for the lawsuit in Aguayo v. U.S. Bank et al., a Ninth U.S. Circuit Court of Appeals decision that reinstated a lawsuit by Jose Aguayo of southern California. The Ninth ruled that Aguayo may sue U.S. Bank under the Act for illegally attempting to collect the balance of his car loan after repossession.

Aguayo bought a car in Glendale in 2003, but fell behind a few years later. The loan was assigned by the dealership to U.S. Bank, which repossessed the car in August 2007. It then sent Aguayo a letter containing various legally required legal notices. This letter contained some, but not all, of the notice requirements set down by the Act. U.S. Bank later sold the car, but did not receive enough to pay off the loan, so it sought to recover the rest from Aguayo. Aguayo then filed a class-action lawsuit against the bank to stop its debt-collection efforts, arguing that under the Act, it cannot seek to recover the loan deficiency when it failed to provide all of the legally required notice. U.S. Bank moved the case to federal court, then sought to dismiss it under the federal National Bank Act, arguing that the NBA and federal regulations put forth by the Office of the Comptroller of the Currency preempt the Act because they interfere with federal authority to regulate banking business. The district court agreed and dismissed the case, and Aguayo appealed.

The Ninth Circuit started by observing that there are two cornerstones of preemption: Congressional intent is paramount, and courts must assume the States retain their traditional policing powers unless Congress clearly intended otherwise. U.S. Bank's claims failed this test. Consumer protection, the purpose of the Act, is a traditional state concern, it said. The district court overcame this by finding express preemption written into the NBA, because it found that notices required by the Act were "disclosures" within the meaning of the NBA. The Ninth Circuit disagreed. The notices required under the Act were not "disclosures" as the word is generally understood, the court said, because they were not general disclosures of previously hidden information, but rather, communications of a specific claim or demand. Furthermore, the NBA contains a "savings" clause that expressly says the NBA does not preempt state laws regarding rights to collect debts. And finally, the Ninth also found that OCC regulations do not preempt the Act because of a similar savings clause reserving debt collection regulations for the states. Thus, the Ninth reserved the district court and remanded Aguayo's lawsuit.

This decision is good news for Californians facing deficiency collection proceedings and for clients of our Fullerton individual bankruptcy lawyers. Because a deficiency collection or deficiency lawsuit only happens after the property has already been repossessed, the person being sued is generally already struggling financially. This decision gives debtors another avenue to defend against deficiency collection efforts, although of course it only applies when the lender fails to follow the Rees-Levering Act. For that reason, it may indirectly benefit far more consumers, by giving lenders another incentive to follow the law. As Los Angeles County consumer bankruptcy attorneys, we always prefer that lenders follow consumer protection laws now over having to file a lawsuit later to stop unfair collection efforts.

Continue reading "Ninth Circuit Rules Federal Law Does Not Preempt California Debtor Protection Law - Aguayo v. U.S. Bank" »

Our Chino foreclosure defense lawyers have written here before about the numerous accusations of wrongdoing against Countrywide Home Loans, Inc. The now-defunct lender, which was purchased by Bank of America several years ago, has been accused of fraud when originating loans, foreclosing and even charging fees and interest to borrowers. That last issue was behind the allegations against Countrywide in Washington et al. v. Countrywide Home Loans, Inc., an Eighth U.S. Circuit Court of Appeals decision. The decision allowed a proposed class-action suit to go forward against Countrywide under Missouri's Second Mortgage Loan Act. The suit alleges that Countrywide charged unauthorized fees and interest to a class of Missourians who took out second mortgages.

Lead plaintiffs Jerry and Golda Washington took out a second mortgage from Countrywide in 2005. Before that loan closed, Countrywide sent them a closing statement on a federal form, notifying them of increased fees to be included in the loan's principal: a loan discount, a settlement/closing fee, a processing fee and prepaid interest. They signed the form, but five days later, the federal government notified Countrywide that the loan discount and settlement/closing fee should not have been charged. Countrywide added the amount of those charges to the disbursement it paid the Washingtons, but never notified them of the change or sent them a new form. It also did not reduce the principal on the loan. They later sued, arguing that all four charges violated the Missouri Second Loan Act. The trial court granted summary judgment on the two repaid fees, arguing that they suffered no loss because of the repayments. It also granted summary judgment on the other two fees, ruling they were not barred by the MSMLA. The Washingtons appealed.

The Eighth Circuit reversed on all counts. It first considered the repaid fees for the loan discount and the settlement/closing fee. It conceded that the fees themselves were repaid to the Washingtons, but found that the Washingtons still were not made completely whole because they paid interest on the amount repaid in the two days before the repayment happened. That was enough to meet the burden under the MSMLA that claimants must suffer "any loss of money," the appeals court said. Furthermore, Countrywide's argument that the Washingtons voluntarily paid it by signing the HUD form was unavailable as a matter of Missouri caselaw. However, it declined to grant summary judgment on appeal because neither party moved for summary judgment on appeal.

The Eighth next looked at the fees that had not been repaid. Countrywide argued that the processing fee was permitted under Missouri laws that regulate how much lenders may charge in closing fees. However, the Eighth said, the Missouri Court of Appeals had recently rejected similar arguments in another mortgage fees case, Mitchell v. Residential Funding Corp. In that case, the appeals court decided that fees should be identified by how they were described on the HUD form, not how the lender wished to re-characterize them after being sued. Finally, the Eighth found that the prepaid interest charge was also illegal because, if the processing fee was illegal, there was nothing on which to charge interest. Thus, it reversed the district court and remanded the case for more proceedings.

As Orange foreclosure defense attorneys, we're pleased to see the federal courts applying state consumer protection laws so strongly. Consumer protections are most often found in the states, but thanks to the international nature of major mortgage lenders, more and more mortgage cases are ending up in federal court (even when they're not class actions). Of course, Missouri law applies only in Missouri, but this decision could be a guide for the Eighth Circuit or other federal appeals courts that are aasked to apply state consumer protection laws to unfair mortgage fees cases, which are a small but growing trend. In states with strong consumer protection laws, our Temecula foreclosure defense lawyers hope Countrywide borrowers and other victims of questionable loan practices are able to use those laws to recover unfair fees or even reverse unfair loans.

Continue reading "Eighth Circuit Finds Lender's Conduct Violated Missouri Mortgage Law - Washington et al. v. Countrywide Home Loans Inc." »

Our Ontario foreclosure defense attorneys frequently represent clients here in California whose homes were foreclosed on without a chance to discuss alternatives to foreclosure with the lender. This violates a California state law that requires at least a discussion of alternatives before a foreclosure, and we have had success suing lenders under that law. So we were very interested to see a recent decision from the Eighth U.S. Circuit Court of Appeals on a similar law in Minnesota. In Mayer v. Countrywide Home Loans, the law at issue was the Minnesota Farmer-Lender Mediation Act, which requires foreclosing lenders to try mediation before foreclosing. Kathleen Barbara Mayer alleged that Countrywide broke that law when foreclosing on her home, but the federal district court found that the FLMA didn't apply because Mayer's property was not principally used for farming.

Mayer had three parcels of land totaling about 62 acres near Glenwood, Minn, including a 6.21-acre homestead parcel on which she lived. All three were held in a living trust for which she was both owner and trustee. She took out a second mortgage on the homestead parcel in 2006, and the local bank assigned the mortgage to Countrywide. She defaulted on the loan in 2007, and Countrywide later sold the parcel to itself at foreclosure auction. Mayer sued six months later, alleging violation of the FLMA and requesting an injunction against Countrywide's repossession of the property. She later argued in a response that Countrywide procured the mortgage through fraud. The district court granted summary judgment to Countrywide on the grounds that the FLMA did not apply to Mayer and her property. She appealed to the Eighth Circuit.

On appeal, the issue was whether Mayer's mortgage debt was a "mortgage on agricultural property," defined in the law as real property used for producing livestock, milk and milk products, produce or agricultural products. Even in the light most favorable to Mayer, the Eighth said, it could not decide her property was agricultural. Mayer contended that the homestead parcel is a farm homestead necessary for storing tools, equipment and materials for farming. Even if so, said the court, this is just a small part of the overall parcel, most of which is used as a residence. Mayer showed that she farms grains and raises cattle on the other two parcels, the court said, but this does not affect the analysis of the homestead parcel, which is the only one encumbered by the mortgage. The court also rejected Mayer's contention that the Countrywide mortgage was fraudulent, because she failed to plead it with particularity in her original complaint. She was put on notice, the court noted, and still did not amend it before the deadline had passed. Thus, the Eighth upheld summary judgment for Countrywide.

Judge Bye dissented from this opinion, arguing that the majority was wrong to rely on Countrywide's status as a creditor to grant summary judgment. Countrywide never made this argument, nor did Mayer raise it, the judge noted; thus, Mayer never had a chance to address it. Furthermore, the dissent said, the district court made a clear error in interpreting the FLMA because it saw the homestead parcel as standing alone instead of part of the trust. This raises the possibility that Mayer may have been a debtor under the FLMA, and entitled to its protection. Because the judge felt the majority's opinion was inconsistent with the purpose of the FLMA, he dissented.

As Costa Mesa foreclosure defense lawyers, we are also disappointed in this decision. The dissent suggests that important issues were left unaddressed, and those issues could make the difference in this woman's attempt to keep her home. We don't handle a lot of farm foreclosures here in southern California, but that doesn't mean we don't see small businesses or older people using a living trust as an alternative to a will. Those are issues that can complicate a foreclosure (or a bankruptcy) if they affect the property, but ideally, those complications come from courts giving those legal structures the extra attention they need. Our Whittier foreclosure defense attorneys work hard to ensure that when our clients go to court, judges consider the full picture before deciding on important foreclosure issues.

Continue reading "Court Rules Homeowner Was Not Farmer Under Meaning of Minnesota Law - Mayer v. Countrywide Home Loans" »

Our Norco foreclosure defense lawyers frequently talk to clients who are considering bankruptcy as well as a lawsuit to stave off a foreclosure. Both legal actions can stop a foreclosure at least temporarily, but they are not always right for the borrower, so it's best to talk to an experienced attorney about your own situation. In Hamilton et al. v. Greenwich Investors XXVI, LLC, the mortgage borrowers filed for bankruptcy without mentioning legal claims they later decided to pursue, and California's Second District Court of Appeal ruled they could not pursue the lawsuit. Henry and Sharon Hamilton might have been able to go forth with the lawsuit if they had disclosed the claims in their bankruptcy case, the court said, but because they did not, they are barred from litigating those claims.

Henry and Sharon Hamilton bought their home in January of 2007 and defaulted in September of that year. In December, they made a forbearance agreement with Select Portfolio Servicing, the authorized agent of Greenwich, which held the loan, agreeing to pay more than $42,000 in arrears over the next ten months. They made the next two or three payments, the court said, but SPS transferred the loan servicing to Greenwich in early March of 2008. Greenwich contacted them about their insurance. They asked for monthly bills and explained the forbearance agreement. Greenwich refused to accept less than the full amount of the arrearages. It then stopped sending any monthly mortgage bills, and the Hamiltons paid none. They wrote to Greenwich once more with a copy of the forbearance agreement before Henry Hamilton filed for Chapter 13 bankruptcy in August.

In his bankruptcy, Hamilton listed the debt to Greenwich but did not list a potential lawsuit against Greenwich. Greenwich opposed his first two repayment plans, but a third plan was confirmed in February of 2009, calling for repayment of all arrearages during the plan and payments directly to Greenwich after it ended. Unfortunately, they defaulted again. They filed the instant lawsuit in September of 2009, alleging breach of contract, negligent and fraudulent misrepresentation and abuse of foreclosure laws. They claimed Greenwich ignored the forbearance agreement and foreclosed without following a California law requiring it to discuss alternatives to foreclosure first. In response, the bankruptcy court ended their automatic stay, finding that the bankruptcy was a "scheme to hinder, delay and defraud creditors." Greenwich then demurred to the lawsuit, arguing that the plaintiffs' claims were barred because they were not disclosed in the bankruptcy. Taking note of the bankruptcy ruling, the trial court sustained the demurrer and ended the case. This appeal followed.

Before the Second District Court of Appeal, the Hamiltons argued that the trial court was wrong because there was no evidence that Henry Hamilton had acted in bad faith. The court ruled that this didn't matter. Oneida Motor Freight Inc. v. United Jersey Bank, a 1988 decision from the Third U.S. Circuit Court of Appeals, established that preserving the integrity of the bankruptcy system requires debtors to disclose all potential income and debts, including likely litigation. The Second District distinguished this case from post-Onedia cases requiring a finding of bad faith because they did not involve liability to a lender. It also found that several of the Hamiltons' causes of action would have failed anyway. Thus, it upheld the trial court's judgment.

One important lesson our Orange foreclosure defense attorneys took away from this case is the importance of fully disclosing claims in bankruptcy. It's possible that Henry Hamilton never mentioned a lawsuit when he filed for bankruptcy because a lawsuit wasn't on his mind. However, debtors filing for bankruptcy must list not only their actual assets and debts, but potential ones as well. This can be difficult for debtors, not only because it's hard to predict the future but also because they may not want to anticipate things like death of a relative that could lead to an inheritance. That's why an experienced Gardena foreclosure defense lawyer should work closely with the bankruptcy filers to make this list, keeping in mind their interest in any future litigation.

Continue reading "Borrower May Not Sue Mortgage Lender Over Claims Not Disclosed in Bankruptcy - Hamilton v. Greenwich Investors" »

Because our Corona consumer bankruptcy attorneys work with clients who are in bad financial situations, we sometimes represent people who are trying to hold on to basics of life, including a car. A case in the Maryland Court of Appeals took a look at the issue of whether cars can be repossessed during bankruptcies in that state, and concluded that they can. In Ford Motor Credit Company v. Roberson, Maureen Roberson sought to sue Ford's credit arm for repossessing her car shortly after her Chapter 7 bankruptcy was discharged. Roberson had made her payments before, during and after the bankruptcy, but had never actually reaffirmed the debt during her bankruptcy, which violated a clause of the credit agreement. The appeals court ruled that this was enough to support Ford's repossession.

Roberson filed a Chapter 7 bankruptcy in late 2007 and received a discharge on January 30, 2008. As part of that case, she listed her car as an asset and Ford as a creditor. No one disputed that Roberson was current on her car payments. However, she failed to enter into a reaffirmation agreement with Ford over the auto loan debt -- that is, she did not strike an agreement with Ford that kept her personally liable for the debt after discharge. Her contract with Ford said she would be considered in default on her loan if she filed for bankruptcy, and repossession would be one remedy open to Ford. However, she could cure the default by reaffirming the debt.

Because she intentionally turned down reaffirmation, Ford repossessed the car and Roberson opened a new Chapter 13 bankruptcy on February 21, 2008, solely to recover the car and seek damages against Ford for violations of her discharge injunction and various state and federal laws. Ford later returned the vehicle, but disputed damages. Roberson moved to certify the question of "Whether the repossession of a vehicle based solely on the violation of an ipso facto clause of a vehicle retail installment contract, in the absence of any other breach, is permissible under Maryland law."

The certified question went to the Maryland Court of Appeals, which said yes. Roberson argued that the language of the contract allowing repossession was prohibited by a Maryland law outlawing contract clauses that accelerate a debt's maturity or allow repossession because the creditor deems itself insecure. However, the court said, both parties agreed that the Credit Grantor Closed End Credit Provisions (CLEC) of the Maryland code controlled the contract. Under that code, as Roberson noted, a creditor may not accelerate the maturity of a debt just because it believes itself insecure. Under a different section of the state code (OPEC), creditors are also prohibited from repossessing properties because they find themselves insecure. However, the Court of Appeals found that the legislature had intended the two sections of the law to operate separately. Because CLEC was the controlling part of the law and OPEC could not be drawn in, the court found that Ford's contract provision allowing repossession was not illegal. Thus, Ford's actions were legal under Maryland law and Roberson could not collect damages under that law.

Our Fullerton individual bankruptcy lawyers represent people in California, not Maryland. However, this case is a good reminder that you should make decisions during bankruptcy with the best legal advice. This decision says Roberson turned down the reaffirmation that Ford offered her during her bankruptcy, saying she preferred to stick to the original contract. It's not clear whether she misunderstood the situation or had another reason to say no, but she could have kept her car without all of the extra legal proceedings (and legal bills) by reaffirming the debt. As Los Angeles County personal bankruptcy attorneys, we help our clients understand the consequences of their decisions during bankruptcy as thoroughly as possible, because we know those decisions can have a large effect on their later lives and usually can't be taken back.

Continue reading "Creditors May Repossess Cars Even During Bankruptcy Under Maryland Law - Ford Motor Credit Co. v. Roberson" »