California Bankruptcy Attorney Blog

Our Claremont foreclosure defense attorneys have written here many times about the ongoing "robo-signing" settlement talks. About a year ago, it came to public attention that banks were signing off on hundreds or even thousands of foreclosure documents without knowing whether those documents were true; the signatures often were written by someone other than the named person. The practice became known as "robo-signing" and it caused a scandal because it invited the very real possibility that the home would be wrongly foreclosed. Eventually, a group of state attorneys general emerged to negotiate a settlement with mortgage lenders, which housing rights advocates saw as a chance to correct wrongful foreclosure practices. The Los Angeles Times reported Sept. 23, California Attorney General Kamala Harris had emerged as a leader in these talks -- but on Sept. 30, it broke news that Harris had broken away from the talks due to dissatisfaction with mortgage lenders' offers.

California is the most populous state in the nation and among the hardest hit by the foreclosure crisis, which the Times said gives Harris a lot of leverage. It also said her involvement in any settlement would be important, and her dropping out of the group could be a major blow to the coalition's efforts. An anonymous source told the Times Harris stopped talks with the five largest mortgage lenders because she thought they were not offering sufficient relief for the suffering Californians have experienced in the foreclosure crisis, and because they wanted too much immunity from further prosecution. She may have been responding to political pressure from liberal groups that feel the proposed settlement is toothless. However, she followed the lead of several attorneys general who have already dropped out of the negotiations, including those of New York, Minnesota, Delaware, Nevada, Massachusetts and Kentucky. Several of these, including New York Attorney General Eric Schneiderman, have launched their own investigations.

As Santa Ana foreclosure defense lawyers, we're pleased to see that Harris is willing to create a disruption in order to serve Californians' needs. We share the concerns the article notes about whether the 50-state settlement will concede too much to mortgage lenders. As we've written here in the past, mortgage lenders essentially refuse to take responsibility for any wrongdoing. They claim that robo-signing practices are a technical problem that doesn't affect whether the underlying foreclosure is valid. This may or may not be true, but it's difficult to say because, in robo-signing, the lender abdicates its legal responsibility to ensure that the things it tells the court are true. And as observers of the foreclosure crisis know by now, it's extremely common for major lenders to have major paperwork errors. Thus, the only thing preventing a wrongful foreclosure is a judge's scrutiny -- and until robo-signing broke, judges saw these cases as routine.

At Howard Law, P.C., we represent Californians who are considering legal action to stop a preventable or unfair foreclosure. Many, many clients come to us after exhausting their administrative remedies and their patience with a loan servicer. That loan servicer often has given the client contradictory or untrue information, delayed responding to requests for months and months, or even denied a loan modification despite the homeowner's qualifications. Our San Diego County foreclosure defense attorneys believe servicers can and should do better, and we are prepared to hold them legally liable for violations of your rights or their obligations. It may be more profitable to shepherd borrowers into foreclosure, but when it's a violation of the law, we can take it to court.

Continue reading "California Becomes Major Player in Foreclosure in Robo-Signing Settlement" »

Our Redlands foreclosure defense attorneys work routinely with bankruptcy filers who are trying to hold on to their homes. Real estate has an unusual status under bankruptcy law. Almost all loans can be "crammed down" -- that is, modified -- under bankruptcy, including car loans and loans for luxury items like second homes and boats, But thanks to some changes to the law made in the 1970s, mortgage loans for the debtor's primary residence may not be crammed down; in fact, the financial industry beat back a proposal to change this early in the housing crisis. This means that when there's some question about whether a home is a primary or second home, it's much more advantageous for debtors to decide it's a second home. This was the controversy in In re Abdelgadir, a decision from the Bankruptcy Appellate Panel of the Ninth Circuit.

Salaheldin Abdelgadir and his wife, Afaf Wahbi, filed for Chapter 13 bankruptcy in July of 2009. They listed an address on Las Palomas Drive in Las Vegas, and listed it as the only real estate they owned. The primary mortgage holder is BAC Home Loans Servicing; Countrywide owns a junior mortgage. Having bought the home in 2006, they owe more than twice the home's 2009 appraised value. Their mortgage paperwork included a contract requiring them to make the home their primary residence, but they had their son live there instead for a year and a half, until they moved to Las Vegas from Wisconsin. Five months after filing for bankruptcy, they changed their address to another home within Las Vegas. Afterward, they moved to change the rights of the mortgage creditors, claiming the property was investment property that could be modified. Thus, they wished to bifurcate BAC's claim into a secured claim (for the assessed value of the home) and an unsecured claim for the balance of the loan, then avoid Countrywide's mortgage entirely. A subsequent bankruptcy plan proposed to cram down the loan They filed lease agreements for both Las Vegas properties. BAC opposed, arguing that the home was the debtors' primary residence as of the petition date or the time they took a security interest in the home. After hearing testimony on the debtors' residency and purchase, the bankruptcy court confirmed their plan with the cramdown, finding the relevant date for residency was the day of the plan's confirmation.

BAC appealed to the Ninth Circuit's BAP. On appeal, it had more luck; the panel found that the relevant date for determining primary residency was the date of the petition. The amount of any creditor's claim is fixed as of the date of the petition, the BAP noted, but modifications to claims take place at the confirmation of the plan. Thus, the panel said valuing a claim at confirmation, as the bankruptcy court did, is appropriate. However, it drew a distinction between valuing the claim and determining whether the claim can be modified at all -- that is, whether the creditor holds the claim. Because the amount of the claim, and the right to payment, is fixed as of the petition date, the panel said, that date also determines whether a residence is the debtors' primary residence for bankruptcy purposes. It rejected precedents from other courts and the Third Circuit that parsed the wording of "security interest in real property that is the debtor's principal residence" differently, ruling that the statute's plain language is not ambiguous. Thus, the panel reversed the order granting a modification and sent the case back to bankruptcy court.

As Buena Park foreclosure defense lawyers, we appreciate clarity on this subject from the bankruptcy court, even if the ruling ultimately did not allow this couple to cram down their loan. Unfortunately, not every bankruptcy filer with a home is lucky enough to have any ambiguity about where their primary residence is; most folks don't have more than one home. When this ambiguity does exist, however, this case could be a good guide to whether the debt can be modified. As we noted, primary home loans are the only kind of secured debt that cannot be crammed down to market value in bankruptcy. The BAP noted that the Supreme Court has said this is to encourage investment in homes -- but we note that this rule has also made a whole lot of money for mortgage lenders during the current financial crisis. If you're considering bankruptcy and you're not sure whether your home should be counted as your primary residence, you should contact our San Diego foreclosure defense attorneys right away to discuss planning and options.

Continue reading "Debtors Principal Residence Should Be Calculated As of Petition Date, BAP Rules - In re Abdelgadir" »

As Norco personal bankruptcy attorneys, we know that in most bankruptcy cases, homeowners can exempt a certain amount of money from the bankruptcy as part of their "homestead" -- usually the equity in a primary home. Clearly, fixtures in the home such as a stove and oven are part of the home -- but what about more easily moved property like a television? That was the issue in Danduran Jr. v. Kaler, which pitted Chapter 7 filer Lawrence Danduran Jr. against his trustee, Kip M. Kaler. Danduran sold his homestead with some extra personal property inside, and put the proceeds in a specially created savings account. In this case, the Eighth U.S. Circuit Court of Appeals finds that the part of the proceeds that came from the extra property are not proceeds of the homestead, and can therefore be part of the bankruptcy estate.

Danduran, of North Dakota, sold the home and property for $225,000. The non-fixtures included relatively high-priced items like a pool table, hot tub, audiovisual equipment and a washer/dryer set. Roughly $87,500 was left over after Danduran paid off the mortgage, and he later claimed this for a homestead exemption when he filed for Chapter 7 bankruptcy. The trustee objected to this amount, claiming part of it was proceeds of non-exempt personal property. After a hearing, the bankruptcy court agreed and allowed $7,700 to become part of the bankruptcy estate. Danduran appealed to the Eighth Circuit's Bankruptcy Appellate Panel, which reversed, applying the Eighth Circuit's "permissive" approach to non-fraudulent planning. The trustee appealed to the Eighth Circuit.

The appeals court reversed the case again. It started by noting that while personal property is not exempted from bankruptcy under North Dakota state law, proceeds of personal property might be. Furthermore, it said, precedent allows debtors to convert non-exempt property into exempt property for the express purpose of exempting it, unless it is done to defraud creditors. Nonetheless, the Eighth Circuit found that the BAP erred when it required only "significant indicia" of Danduran's intent to convert this property. In order to apply the exemption, the court said, there had to be an actual conversion, such as paying down the mortgage to create more equity. Simply letting it sit in a bank account does not complete the conversion. Furthermore, the Eighth said, the panel was mistaken to find anything about Danduran's intent; the finding of facts is the province of the bankruptcy court. It then went on to reject two of Danduran's arguments before taking up a third: that the trustee failed to demonstrate that the $7,700 of personal property proceeds was not used to pay off the mortgage. Because the funds from the property and the home were intermingled, the court said, the trustee has the burden of proving which funds went to which ends. Because he failed to do this, the bankruptcy court erred in ruling otherwise. Nonetheless, the Eighth reversed the case and sent it back to bankruptcy court.

Our Placentia consumer bankruptcy lawyers believe bankruptcy debtors and potential filers could take a lesson from this ruling. The Eighth Circuit did not object that Danduran attempted to convert non-exempt property into exempt property. Indeed, it expressly said this is permissible unless it's an attempt to defraud creditors. This shows how important it can be to plan your bankruptcy ahead of time. Depending on your circumstances, you may be able to sell property that would otherwise become part of the estate, like Danduran's pool table, and use it to hold on to property that has an exemption. An experienced Los Angeles County individual bankruptcy attorney can help you figure out how to do this without even the appearance of defrauding creditors.

Continue reading "Eighth Circuit Rules Debtor May Not Exempt Proceeds of Property Sold With Homestead - Danduran Jr. v. Kaler" »

As Rubidoux foreclosure defense lawyers, we know all about the terrible effect a rash of foreclosures can have on a community. Particularly in Riverside and the Inland Empire, large numbers of foreclosures have left neighborhoods empty and rundown; recent reports said a vacant Glendale home was even colonized by coyotes. This in turn brings down the values of the properties in the area that have not been foreclosed, because their neighborhood is perceived as less desirable. That was the theory of liability in the proposed class action lawsuit Maya et al. v. Centex Corp., in which homeowners sued eight large homebuilders for allegedly marketing and selling loans to high-risk borrowers, and making false representations. The district court dismissed the case, but the Ninth U.S. Circuit Court of Appeals resurrected it, finding the decreased value of the homes was enough to give them standing to sue.

The plaintiffs put 20 percent or more down on new homes between 2004 and 2006. In their lawsuits, they claim the builders falsely represented that the neighborhoods would be stable and owner-occupied, implicitly guaranteeing that they would sell the homes to people who could afford them. Instead, they claimed, the defendants marketed homes to unqualified buyers and investors, and financed many of the purchases in order to make more money. The plaintiffs claim all of this was material information that was not disclosed, and thus they were defrauded. When their neighborhoods began seeing property values slide as a result of the "inevitable" flood of foreclosures, they said, they lost money and desirability. Their lawsuit alleges violations of California's Business and Professional Code, plus fraud, negligent misrepresentation and breach of implied covenant of good faith and fair dealing. The defendants filed motions to dismiss, successfully arguing that the plaintiffs lacked standing because the injuries they claimed were theoretical until their homes are sold, and not necessarily traceable to the plaintiffs' actions. The district court denied plaintiffs leave to introduce more testimony and dismissed the cases with prejudice.

But on appeal, the Ninth Circuit reversed, finding that the plaintiffs did indeed have standing. It said the district court incorrectly applied narrow rules because it erroneously used the rules for lack of statutory standing to a motion based on lack of Article III standing. When the Ninth considered whether the plaintiffs did have Article III standing, it concluded that they did. It was not disputed that a favorable court decision would redress their injuries, the court said. Furthermore, it found that the plaintiffs had demonstrated injury in fact and causation with respect to two of their claims: that they overpaid for the homes and that they would not have paid as much if they had known the truth (rescission claim). These are actual injuries stemming from the alleged deception of the defendants at the time of sale, the Ninth said; thus, any future improvement in home prices does not redress their injuries. Furthermore, it said the district court was wrong to hold them to a proximate cause standard; they need only plead a plausible chain of causation. Under the same analysis, the plaintiffs' claims for decreased value and desirability did not establish a strong enough causal connection -- but the Ninth ruled the plaintiffs should be allowed to add expert testimony to establish it. Thus, it reversed and remanded the case.

This is a victory for homeowners who believe they were defrauded by homebuilders looking to make a quick dollar during the housing bubble. And as Tustin foreclosure defense attorneys, we've seen plenty of evidence that this is possible. For example, the plaintiffs in this case allege that the homebuilders sought to inflate demand and prices by acting as the lenders for the homes they also built, which takes away the lender's incentive to determine whether the home price is fair. We've also read much about the lowering of lending standards during the housing bubble, which was made possible by increased securitization of home loans. Rather than worry about the risk of lending to someone without the means to pay the loan, the lenders were able to lend to nearly anyone and pass the risk on to investors. Both foreclosed borrowers and those who avoided foreclosure have been left in bad positions by these excesses. As Downey foreclosure defense lawyers, we look forward to hearing more about these lawsuits.

Continue reading "Ninth Circuit Finds Homeowners Have Standing to Sue Lenders for Bringing Down Property Values - Maya et al. v. Centex Corp." »

As Fontana individual bankruptcy lawyers, we were interested to see a case involving a debt made under apparently informal circumstances -- and apparently without a contract. In Heide et al. v. Juve et al., debtors David and Mona Juve do not dispute that they owe $400,000 to the Heide family. The controversy is over whether the loans were obtained through misrepresentation, as the Heides claim, and therefore should not be dischargeable. The bankruptcy court in Minnesota agreed that the debt should not be dischargeable and granted summary judgment exempting it. However, the Bankruptcy Appellate Panel of the Eighth U.S. Circuit Court of Appeals reversed and remanded that ruling, saying there were genuine issues of material fact as to whether all of the debt was obtained by misrepresentation.

Heide worked on-site at Juve's used car dealership. Juve asked Heide for a loan to increase his inventory of cars, and by the end of December of 2004, Heide had lent $300,000. The checks were made out to the dealership, Imports Plus, but Heide claims the transactions were directly with Juve, the majority shareholder of the dealership. On two separate occasions in 2007 and 2008, the Heide family again lent $50,000 to Juve. Juve made interest payments monthly until 2008, but eventually was unable to continue paying. When he and his wife filed for Chapter 7 bankruptcy, Heide brought an action seeking to exempt the $400,000 they owed him from discharge, for multiple reasons including false representations or fraud. The court eventually granted summary judgment to Heide only on the fraud claim against David Juve. The Juves appealed to the Bankruptcy Appellate Panel.

Debts are non-dischargeable under the relevant section when the debtor knowingly made a false representation, deliberately for the purpose of deceiving a creditor who relied on it, and that reliance caused damage to the creditor. In this case, parties disputed whether the loans were made to David Juve or to Imports Plus. After examining the record, the panel concluded there was no evidence that the loans were made directly to Juve. There are no loan documents, it said, but the checks were made out to Imports Plus. The bankruptcy court sided with Heide but failed to give any reasoning for doing so, the panel said, aside from Heide's disputed statements. Thus, it said summary judgment was not appropriate on this issue. It next turned to Heide's allegations that Juve misrepresented that the dealership's cars were unencumbered and easily liquidated when seeking the first $300,000 in loans. Juve denies this -- but even if the bankruptcy panel sided with Heide, it said, that's not enough to support the claim that the loans were obtained by fraud. Indeed, the panel said, evidence suggested that there were enough vehicles on the lot to liquidate as of the $300,000 loan; any misrepresentations came later. Thus, this issue was also unsuitable for summary judgment. The panel reversed on both counts and remanded to the bankruptcy court.

Our Yorba Linda personal bankruptcy attorneys are pleased to see that this debtor is going to have a chance to make his case. For a debt to be non-dischargeable in bankruptcy, an important issue must be at stake, such as fraud when the debt was issued or the health of the federal student loan program. In this case, the BAP found that Heide simply didn't have strong enough evidence to win his claim without any hearing. The decision means only that the bankruptcy court will be obliged to look into the issue further. Of course, a great deal of the arguing could have been avoided if the parties had made a written contract governing their loans. When this kind of written record doesn't exist, it's important to tell your Laguna Niguel consumer bankruptcy lawyer right away.

Continue reading "Eighth Circuit BAP Rules Bankruptcy Court Should Examine Whether Personal Loan Is Dischargeable - Heide et al. v. Juve et al." »

Our Claremont foreclosure defense attorneys have read several times about the plight of renters who are current on their rent, yet end up evicted because their landlords go into foreclosure. Often, they have no idea there's a problem until a sheriff or bank representative arrives at the home. A federal law addresses this by giving some tenants the right to at least 90 days' notice, but it doesn't apply in all situations. Massachusetts passed a law that went even further in August of 2010, and it's the basis of the Massachusetts Supreme Judicial Court's ruling this month in Federal National Mortgage Association v. Nunez. Jose Nunez was renting from a landlord who was foreclosed, and was served with an eviction notice but not actually evicted before Massachusetts passed its law. The high court found that the state law applied to Nunez and anyone else who remained in a home at the time the law was passed.

The Massachusetts Act, passed in August of 2010, prohibits owners of foreclosed homes from evicting residential tenants without either just cause or having sold the property. This goes further than the federal law, which simply requires a 90-day notice to the tenant. Fannie Mae, the new owner of the home where Nunez lived, bought the home at a foreclosure sale in November 2009 and served Nunez with a 90-day notice in January of 2010. After Nunez did not leave, Fannie Mae filed a summary process complaint seeking to have him removed. That case stretched until after the Massachusetts law was passed in August, and in September, Nunez moved to dismiss under the new law. The trial judge agreed and Fannie Mae appealed to the Appeals Court. The Massachusetts Supreme Judicial Court removed it on its own initiative.

On appeal, Fannie Mae argued that the law should not apply retroactively, since it had already purchased the property, served notice and filed its summary process complaint before the law was passed. The Massachusetts high court started by looking at whether the legislature intended to apply the law retroactively. This question turns in part on whether the definition of "eviction," as used in the law, applies only to the legal action Fannie Mae took to remove Nunez. The court found that it does not. Under Massachusetts law, "eviction" is defined as any action "intended to actually or constructively evict a tenant or otherwise compel a tenant to vacate." Constructive eviction, the court noted, could include cutting off utilities; "action" can just as easily apply to behaviors and acts as legal actions. Thus, Nunez had not yet been evicted, because eviction includes any action to remove him and the removal had not yet finished. And for that reason, the court ruled that the new law applies to anyone whose foreclosure was started but not yet finished at the time it passed. It also rejected Fannie Mae's argument that the effect on property rights of purchasers is too severe, noting that a purchaser who intends to live in the property may still evict the tenant without just cause.

As Placentia foreclosure defense lawyers, we're pleased to see the rights of renters upheld with this decision. Massachusetts, the federal government and many other governments pass these laws because foreclosure evictions hurt both renters and their neighborhoods. In addition, it's unclear whether they do much for the resale value of the property; after all, property that is vacant can get run down and attract vandals and wild animals. Finally, while Nunez may have been legally asked to leave well before the law, he was still living in the property as of the law's passage, making it difficult to argue that he had been evicted. Our Whittier foreclosure defense attorneys work with tenants and borrowers on these issues whenever we handle foreclosure or loan modifications on a rented home.

Continue reading "Massachusetts High Court Rules Anti Eviction Law for Tenant in Foreclosed Properties Is Retroactive - Federal Natl. Mortgage Assn. v. Nunez" »

Our Moreno Valley foreclosure defense lawyers have written multiple times in past weeks about court decisions in which lenders' mistakes catch up with them. Lenders have been penalized in multiple ways for sloppiness with basics like submitting false paperwork, inflating charges and failing to prove actual ownership of the homes they try to foreclose. Sloppiness caused a major court fight in one Louisiana bankruptcy, in Wells Fargo Bank NA v. Stewart. The bankruptcy court in the bankruptcy of Dorothy Stewart believed errors in Wells Fargo's billing system were systematic, and ordered the bank to audit every proof of claim it had filed in the district after a certain date. The Fifth U.S. Circuit Court of Appeals found that this exceeded the bankruptcy court's authority and vacated it.

Stewart, a widow, hired an attorney to request a full, itemized accounting of the charges in Wells Fargo's proof of claim on her mortgage. The bank did not really cooperate, and it took three hearings and four months to discover that the proof of claim was inflated by more than $10,000 with erroneous charges. The errors included calculations that violated the mortgage contract; a charge for work dated during a Hurricane Katrina evacuation; and inspection reports that contradicted one another. Using experience from an earlier bankruptcy case, the court found that Wells Fargo's mistakes stem from its automated and computerized system. Because it felt this could threaten the bankruptcy system, it ordered Wells Fargo to audit and amend proofs of claim after a certain date, and include a complete loan history. Wells Fargo appealed the injunction as well as the new, lower claim amount in Stewart's case. The district court upheld it and Wells appealed to the Fifth Circuit.

On appeal, the bank argued that the court had no authority to issue the injunction and also issued it without due process. The Fifth Circuit found for Wells Fargo, but only reached the authority issue. The injunction came in Stewart's individual bankruptcy case, the Fifth said, but reached issues far beyond her case and having little to do with her case. In fact, it noted that she did not request it. Thus, it said the bankruptcy court may not hang its injunction on her objection to the proof of claim from Wells Fargo. The Fifth went on to rule that the court also cannot rely on its authority "to protect its jurisdiction and judgments and to control its docket," because individual judges in other cases are free to address problems in their individual cases. If this fails, the appeals court suggested, there is also the rulemaking authority. The Fifth declined to draw a boundary limiting the bankruptcy court's ability to curb abuses of the process, but found that in this case, the court overstepped its authority; an injunction was not shown sufficiently necessary. Thus, it vacated the injunction and dismissed other appeals in the case as settled.

Our Huntington Beach foreclosure defense attorneys would have preferred a stronger condemnation of Wells Fargo's apparent systematic problems. While the false charges were apparently corrected in Stewart's case, there are many other Dorothy Stewarts whose bankruptcies could easily have the same kinds of egregious mistakes in the proofs of claims. The bankruptcy court may have overstepped its authority by using Stewart's case as a launchpad for its injunction, but it's clear that some type of correction was necessary. Otherwise, as the Fifth Circuit's own opinion noted, it's highly likely that debtors will simply fail to challenge the statement of claim and end up yoked to considerably more debt than they actually owe. This is an abuse of the bankruptcy process -- even if it turns out to be accidental -- that threatens the integrity of the system. As Fallbrook foreclosure defense lawyers, we believe our clients and everyone else's deserve better.

Continue reading "Fifth Circuit Vacates Injunction Requiring Wells Fargo to Amend Years of Proofs of Claims - Wells Fargo Bank NA v. Stewart" »

Our Rubidoux foreclosure defense attorneys were very interested to read about a ruling in a case involving arbitration as an alternative to litigation. Companies of all types will sometimes require consumers to sign arbitration agreements making it mandatory or optional to take disputes to private arbitration instead of public court. This is thought to be faster and cheaper, but critics say arbitration companies not-so-mysteriously tend to rule in favor of the companies that send them all that business. In Krinsk v. Suntrust Bank, a case involving home equity lines of credit, the Eleventh U.S. Circuit Court of Appeals ruled that even a valid arbitration agreement may not be enforced if one party sits on its rights for too long.

Sara Krinsk took out a $500,000 HELOC on her Florida home in 2006. The loan contract included a provision requiring binding arbitration of disputes if either party requests it and provides written notice, including within lawsuit papers. In October of 2008, Suntrust revoked her right to access $400,000 of the HELOC. It cited recently reported changes in her financial situation, but Krinsk alleges that Suntrust cut off lines of credit to Florida homeowners to shore up depleted capital and reduce the high risk of HELOCs. Krinsk, who is now 92, argues that this disproportionately victimized elderly customers. She filed a proposed class-action complaint with claims under TILA, Florida's elder abuse law and several common-law causes of action. Suntrust moved to dismiss, but did not mention arbitration. Litigation proceeded and the motion was even granted in part before Suntrust moved to compel arbitration, nine months into the case. The district court ultimately agreed with Krinsk that the bank had waived its right to arbitration by waiting so long. Suntrust appealed.

SunTrust argued to the Eleventh Circuit that an amended complaint Krinsk filed rejuvenated its right to compel arbitration, an issue of first impression. After considering other circuits' rulings, the Eleventh agreed. An amended complaint does not necessarily revive all defenses waived after the first complaint. But when the new complaint changes the scope or theory behind the case, it would be unfair to give the defendant no opportunity to respond to those changes. The same is true when the waiver is for compelling arbitration. In this case, the court said, the amended complaint changes the size of the proposed class significantly. Not only did it expand the age range of the potential class members -- from over 65 only to people of all ages -- but it increased the date range of the alleged injury and the basis for their HELOC suspensions. Though the allegations in the case did not change, the expanded class changed the "shape" of the litigation so much that SunTrust should be permitted to reconsider its waiver of arbitration rights. Thus, the Eleventh vacated the district court's order and remanded the case.

As Fountain Valley foreclosure defense lawyers, we wish Krinsk luck in arbitration of her claim. If her claims are valid -- and mortgage lenders certainly started tightening their belts in 2008 -- this is an issue of genuine consumer protection. Home equity lines of credit were handed out throughout the housing bubble, when home equity seemed like a safe bet. Borrowers used the money for anything from renovating the home to supporting a small business or paying off credit cards. Now that the housing market has crashed, many of those borrowers find themselves underwater, and some headed for foreclosure. Thanks to our position in boom-and-bust southern California, our Long Beach foreclosure defense attorneys have handled many HELOC foreclosure cases.

Continue reading "Mortgage Company Has Right to Reconsider Waiving Arbitration After New Complaint - Krinsk v. Suntrust Bank, Inc." »

As Chino foreclosure defense lawyers, we've blogged before about the use of MERS, or the Mortgage Electronic Registration System, in the mortgage industry. MERS is a private company that mortgage lenders use to track ownership of loans; it allows lenders to bypass local land office registration. Critics allege that it contributes to the disorganization that has characterized much of the bursting of the housing bubble. A proposed class of homeowners challenged MERS in Cervantes et al. v. Countrywide Home Loans et al., a Ninth U.S. Circuit Court of Appeals ruling that ultimately did not go their way. Olga Cervantes and other Arizona homeowners alleged a conspiracy by MERS and participating lenders to commit fraud, but the district court dismissed this for failure to state a claim and the Ninth Circuit upheld that ruling.

When a borrower takes out a mortgage, both the promissory note to repay the loan and the mortgage/deed of trust securing the loan must be registered with the county office; sales should also be registered. This became annoying for the mortgage industry as it began trading debt obligations, so it invented MERS to serve as the nominal holder of the note and deed. Thus, actual changes in loan ownership are not recorded with counties, but in a proprietary MERS database; county records show MERS as owner unless the new owner is not a MERS member. When a loan is foreclosed, the foreclosing lender or its agent must own both the deed and the note. The plaintiffs in this case allege that MERS-involved foreclosures are illegal because MERS splits the deed away from the note. Because MERS does not have any financial interest in the loans, the plaintiffs say, it cannot be the beneficiary of the lender. Their lawsuit against a variety of lenders alleged conspiracy to commit fraud, and the defendants moved to dismiss for failure to state a claim. The plaintiffs moved for leave to amend and filed a proposed second amended complaint, but the district court denied this and granted the defendants' motion to dismiss. This appeal followed.

Before the Ninth Circuit, plaintiffs argue that they sufficiently alleged a conspiracy based on fraud. However, the court said, their claims do not meet several elements necessary under Arizona fraud law. They did not identify any material facts about MERS that were misrepresented to them, the court said, nor did they rely on misrepresentations when they took out their home loans. Their allegations that having MERS as a beneficiary rendered them unable to modify their loans are also insufficient, the Ninth Circuit said, because they were unable to explain those assertions. Furthermore, the description of MERS in at least one deed of trust explains the role of MERS as a beneficiary, the court asserted. The Ninth said the proposed Second Amended Complaint would not solve the problem, because none of the proposed allegations cure these deficiencies. Thus, it ruled that the district court was correct to dismiss the case. It also upheld the district court's denial of leave to add a wrongful foreclosure claim. However, this request was made only orally, making it "procedurally improper" and unsupported by required filings. Finally, the Ninth said, the wrongful foreclosure argument cannot stand because MERS was not the foreclosing entity, and thus allegations that MERS is a sham beneficiary are irrelevant.

This case joins a long line of MERS cases dating back to the 1990s, although the most relevant ones are more recent. Our Anaheim foreclosure defense attorneys have written about one or two cases in which the borrower succeeded in ending the foreclosure based on the involvement of MERS or shoddy paperwork from that system. Many other borrowers have not been so lucky, however. As this case shows, the mere involvement of MERS -- however shady the borrower may find it -- is not an adequate basis for a complaint of fraud. These defendants had other seemingly valid complaints, however, including that two named plaintiffs negotiated contracts in Spanish and then were presented with papers in English. This is illegal under state and federal law, and indeed, the plaintiffs might have prevailed if they had filed suit sooner. That's why it's vital to get in touch with an experienced Murietta foreclosure defense lawyer as soon as you believe your rights were violated.

Continue reading "Ninth Circuit Throws Out Challenge to MERS for Failure to State Injury or Misinformation - Cervantes v. Countrywide" »

Our Ontario foreclosure defense lawyers read a lot of appellate opinions stemming from allegedly sloppy paperwork by mortgage lenders. Missing or incorrect paperwork can lead to delays in the foreclosure, ending the foreclosure case altogether, penalties for the lender and its attorneys and other problems. But the Ninth U.S. Circuit Court of Appeals decision in Chapman v. Deutsche Bank National Trust Co. et al. may be the first case we've read in which the alleged mistakes could lead to new law. George P. Chapman Jr. and Brenda J. Gully Chapman are a married couple from Nevada who argue that Deutsche Bank and two other mortgage companies illegally foreclosed and attempted to take control of their home despite not owning the title. The defendants filed an unlawful detainer action -- to remove the Chapmans from the home -- three months before the Chapmans filed a quiet title action asking a judge to declare that they owned the home. The ensuing controversies led the Ninth Circuit to certify questions of Nevada law to that state's Supreme Court.

The disputed home was purchased by Deutsche Bank at a foreclosure auction in October 2008. Some time later, the bank filed an unlawful detainer action in Reno Justice Court. No action was taken on that claim until after the Chapmans struck back by filing their quiet title action three months later. The quiet title action was originally filed in Nevada state court, but later removed to the federal district court for Nevada. In the quiet title action, the Chapmans alleged that the defendants did not own the Chapmans' promissory note or deed of trust. They also alleged defendants violated Nevada law by failing to notify them of their default and of the trustee's sale. The Chapmans successfully moved to transfer the unlawful detainer case to the same state court where the quiet title action was pending, but this was defeated after the quiet title case was moved to federal court. They unsuccessfully moved to remand it back to state court, and the defendants moved for summary judgment for failure to state a claim. The federal court found that defendants followed Nevada law and granted the motion to dismiss. The Chapmans appealed to the Ninth Circuit.

On appeal, the Ninth focused its attention on whether the federal court had jurisdiction to decide the quiet title case while the unlawful detainer action was pending. In arguing that it did not, the Chapmans cited the prior exclusive jurisdiction doctrine, which says a second court should not assume jurisdiction over the same property and issue that a first court is already deciding. The Ninth first decided that Nevada state court started hearing the case first because the filing date for the unlawful detainer action was before the quiet title action entered either state or federal court. It then looked at whether the actions should be considered in rem, a legal action directed toward property, in personam, about people and their rights, or quasi in rem, determining parties' interests in the property. Only if both actions are in rem can the prior exclusive jurisdiction doctrine apply, the Ninth said, and this depends entirely on Nevada law. Nevada precedent (from 1897) suggests a similar dispute was in rem, but the case was not similar enough, the Ninth said. Because it believes the Nevada Supreme Court should decide the issue, it certified two questions to that court: whether quiet title and unlawful detainer cases are best viewed under Nevada Law as in rem, quasi in rem or in personam. If the high court characterizes both types of actions as in rem or quasi in rem, the Ninth declared that it would resurrect the quiet title case.

As Irvine foreclosure defense attorneys, we know the Chapmans and people in their position could be feeling a bit frustrated by this result. When your home is at stake, it's difficult to care whether your legal case is best described by one obscure Latin term or another. For this reason, we strongly recommend that borrowers with a strong case against the lender bring legal action as early as possible, particularly before the foreclosure. If the foreclosure has not yet taken place, the lender does not have legal documents showing any kind of ownership -- and it cannot file an unlawful detainer case to evict anyone. Lenders have been known to wrongfully foreclose; indeed, we know of cases involving people who owned their homes outright and still got foreclosure notices, or had the wrong owner attempt to foreclose. Much more often, they have also been known to blatantly violate state law for notification of foreclosure and proper recording of documents. Our Torrance foreclosure defense lawyers have represented people in these positions, but for the most success, we prefer to start early.

Continue reading "Ninth Circuit Asks Nevada Supreme Court to Decide Wrongful Foreclosure Lawsuit - Chapman v. Deutsche Bank et al." »

As Rancho Cucamonga foreclosure defense attorneys, we frequently write here about the possibility of filing for bankruptcy to stave off a foreclosure. Because all bankruptcies include an automatic stay -- a court order telling creditors collecting a debt to back off -- this can at least give the borrower some breathing room. It might also help in the long run if the mortgage lender has an imperfect claim on the property or has broken predatory lending laws. However, as the Ninth Circuit's Bankruptcy Appellate Panel ruled in Edwards v. Wells Fargo Bank, N.A., filing for bankruptcy is not the right path for debtors whose foreclosures have already finished. In this case, the panel upheld the bankruptcy court's choice to grant relief from stay to Wells Fargo, the purchaser of a home once owned by Lupi Paulo Edwards despite her Chapter 7 bankruptcy filing.

Edwards, of Long Beach, filed for bankruptcy in August of 2010. Wells Fargo quickly moved for relief from the automatic stay. In its filing, it included a copy of a Trustee's Deed Upon Sale dated May 17, 2010. That deed showed that Wells Fargo was the high bidder for the property. The bank filed its deed three days later and filed paperwork and a lawsuit to evict Edwards in May and June. In her response, Edwards -- representing herself -- said the property belonged to her and was unencumbered. She wrote that Wells Fargo's foreclosure and eviction were unlawful and it had no standing to move for relief form the stay; and that an adversary proceeding was pending in the bankruptcy court. In fact, she filed no adversary proceeding until the day of the hearing on Wells Fargo's motion. Nothing was attached that proved her allegations. At the hearing, Edwards argued that Gold Country Escrow was the trustee for the property and only that company had the right to foreclose. The relief from stay motion was granted, and Edwards appealed.

The panel started by discarding documents from both parties that they apparently brought up for the first time on appeal. Edwards argued that Wells Fargo had no standing because it had no interest in the property; she contended that Gold Coast is the trustee on her Deed of Trust and thus, the companies conducting the foreclosure were not lawfully allowed to do so. The panel described this contention as "baseless." Wells Fargo's paperwork shows that it had title free and clear pursuant to the foreclosure sale, and had it before Edwards filed her bankruptcy case. Under California law, the debtor who was foreclosed upon is the one who no longer has an interest in the property, and that is enough to establish cause for granting the purchaser relief from the bankruptcy stay. Thus, the bankruptcy court did not abuse its discretion in granting relief. The panel also dismissed Edwards's argument that relief was inappropriate because she had an adversary proceeding pending, arguing that the foreclosure sale and attempts to evict her were unlawful. The panel noted that it wasn't clear whether that proceeding had been filed by the time of the hearing -- but in any case, the bankruptcy court has the discretion to grant relief regardless of any adversary proceeding. Finally, the court noted that California law does not allow litigants to argue that a foreclosure was unlawful after they have already lost an unlawful detainer case, as Edwards had before the bankruptcy. Thus, it confirmed the bankruptcy court.

Our Newport Beach foreclosure defense lawyers appreciate what Edwards was trying to do -- but we advise potential bankruptcy filers to talk to us before trying the same thing. Her argument that the foreclosure was unlawful was best made before the foreclosure sale took place, before Wells Fargo had the title and the legal rights that go with it. As Temecula foreclosure defense attorneys, we frequently file lawsuits during this phase of foreclosure, arguing that a foreclosure violates California or federal law, or rules under the Home Affordable Modification Program. For the same reasons, it's also best to file for bankruptcy before a foreclosure sale, so the bankruptcy court will still have the authority and motivation to sort through any genuine issues of predatory lending or ownership disputes. Filing for bankruptcy may have helped Edwards avoid moving out of the home for slightly longer, but if it cost any money -- which she could use to move to another home and start over -- it may not be worthwhile.

Continue reading "Bankruptcy Appellate Panel Grants Lender That Has Already Foreclosed Relief From Stay - Edwards v. Wells Fargo Bank" »

Our Riverside County foreclosure defense attorneys were interested to see an appeals court decision affirming a victory for a mortgage borrower who sought to strip off a lien on her manufactured home. In Dickson v. Countrywide Home Loans, Countrywide unsuccessfully appealed a bankruptcy court's determination that Nancy Dickson of Kentucky could avoid (or strip off) Countrywide's lien. Dickson's case is unusual in that she did not borrow money to buy the home; she borrowed from Countrywide against a piece of land, and purchased a manufactured home to put on that land. Countrywide later obtained a lien on the home itself through a lawsuit in state court. The Sixth U.S. Circuit Court of Appeals upheld its own Bankruptcy Appellate Panel and the bankruptcy court when it ruled that Dickson could avoid the lien.

Dickson bought real property in 1997 and borrowed $79,000 against it, from Countrywide, in 1998. Countrywide's lien was against the real property and all improvements, easements, fixtures or appurtenances that could be made on it. She then bought a manufactured home with the proceeds of the loan. In 1999, she filed for Chapter 7 bankruptcy and the trustee filed notice of attempt to abandon both the home and the land. Dickson received a discharge later that year and never reaffirmed the debt to Countrywide. She later defaulted on the debt, and Countrywide began foreclosure proceedings in 2006. In state court, Countrywide alleged that the parties had always intended the mortgage to secure a lien on the home, and moved to convert the home to real property, then sell the real property to satisfy the debt. Dickson did not oppose this and the motion was granted. Two months later, Dickson filed for Chapter 13 bankruptcy. Countrywide moved for relief from the stay in order to sell the property, and Dickson and the trustee opposed this on the grounds that Countrywide never perfected its lien on the manufactured home. There followed cross-motions for summary judgment on several issues, resolved by briefing. The bankruptcy court ultimately found that Countrywide had never perfected its lien by noting it on the title; and that even if perfected, the lien was still avoidable as a preference. The Bankruptcy Appellate Panel upheld the decision, and Countrywide appealed again.

The Sixth Circuit upheld the ruling in part. Kentucky law requires a lien against any personal property, including a manufactured home, to be noted on the title, it said -- but it can be converted to an improvement on real estate to allow perfection by first recording without noting the lien on the title. In this case, the plain language of the mortgage contract did not give Countrywide a lien on the home directly. The state court's judgment in the foreclosure case did convert the home to an improvement and thus subject it to a lien. Thus, the Sixth held that Dickson's home is subjected to a perfected lien. However, it ruled in Dickson's favor that she had standing to avoid the lien. Under the bankruptcy code, debtors may avoid liens that trustees may avoid under certain conditions, including when the transfer was not voluntary for the debtor. Because this case meets that standard, Dickson was free to try to avoid the lien. Finally, the Sixth ruled that the lien was properly avoided because it was a preference -- meaning a transfer of property made within 90 days of filing for bankruptcy and enables the creditor to receive more payment than it would otherwise. Because the state-court judgment was well within the 90 days, the lien was a preference and could legitimately be avoided. Thus, it upheld both lower courts.

Our Anaheim foreclosure defense lawyers believe the important parts of this ruling apply to conventional home mortgages as well as those for manufactured homes. The bankruptcy code provisions about standing and preferences apply regardless of what property is involved; indeed, the transfer was ruled a preference after the manufactured home was converted to an improvement on real property. Thus, this case may have useful lessons for Californians seeking to avoid liens on conventional homes. As Oceanside foreclosure defense attorneys, we also noted that this is yet another case of a major mortgage lender failing to meet basic paperwork requirements to show ownership of a loan; the issue is not central in this case, but it became a major issue in the lower court. By failing to perfect a lien, lenders like Countrywide -- which is especially notorious as a predatory lender -- run the risk that courts will rule they have no ownership at all and decline to allow them to foreclose.

Continue reading "Chapter 13 Debtor May Avoid Lien Created by State Court Judgment on Manufactured Home - Dickson v. Countrywide Home Loans" »

Our San Bernardino County predatory lending lawyers were interested to see a recent case here in the Ninth Circuit about to what extent consumers may recover damages when credit card companies break the law. In Lyon et al. v. Chase Bank USA, N.A., Chase bank gave plaintiff Barbee Lyon incorrect information about the basis for a $645 charge on his credit card bill. The company then failed to respond to his requests for information, and ultimately incorrectly reported the debt as delinquent in violation of multiple parts of the Fair Credit Billing Act. Lyon and his wife, Joan Kruse, sued in Oregon federal court under the FCBA and Oregon's Unlawful Debt Collection Practices Act. The Oregon court dismissed the UDCPA claims and limited Lyon's damages under the FCBA to just $1000. The Ninth U.S. Circuit Court of Appeals reversed both of those decisions.

Lyon had a Chase credit card in his wallet when it was stolen in 2006; Kruse was an authorized user on that card. In discussions with Chase, Lyon said a $645 charge was legitimate, but Chase reversed it anyway and Lyon paid it with another card. However, in the confusion, Chase incorrectly credited Lyon with $645. Later, it added a $645 charge to Lyon's bill that it identified as for payment to the same original creditor (who had actually been paid with another card). Not realizing that Chase was only trying to correct its own mistake, Lyon disputed this charge under the FCBA. That law requires credit grantors to acknowledge the dispute within 30 days and respond in writing within 90 days and before collecting the disputed debt. Grantors may not report disputed debts as past due. Nonetheless, Chase failed to respond to multiple letters from Lyon within the 90 days, including a letter Lyon sent after he figured out what happened and was trying to confirm it. During this time, Chase continued to try to collect the debt, charged Lyon interest and reported it as delinquent to the credit agencies.

The couple sued under the FCBA and Oregon's UDCPA, the state version of the federal Fair Debt Collection Practices Act. The trial court found that while the facts supported the UDCPA claim, the language of the complaint did not state a claim. It dismissed the FCBA complaint as to Kruse but moved toward trial as to Lyon. However, in pre-trial motions, the court permitted Chase to limit evidence of multiple FCBA violations, after it argued that Lyon could only collect statutory damages once; and held that Lyon had to prove actual reliance on Chase's statements to collect actual damages. As Chase had never made any statements, this killed Lyon's case for actual damages. It awarded $1000 in statutory damages and attorney fees, but quashed the attorney fees award when the bills did not separate work specifically enough. Lyon and Kruse appealed the UDCPA claim and the FCBA rulings.

On the UDCPA claim, the Ninth Circuit drilled to the heart of the matter by noting that the UDCPA prohibits debt collectors from attempting to collect a debt with no right to do so. This claim was predicated on Chase's acknowledged violations of the FCBA -- failing to respond in writing to Lyon's dispute and still attempting to collect the debt. Relying on Oregon caselaw, the Ninth found that this was enough to state a claim under the UDCPA. The trial court was wrong to find that Lyon was disputing that he owed money; indeed, one of his later letters said he believed he did. The appeals court then moved on to the FBCA claims. Chase acknowledges that it violated the law, but the trial court found that Lyon had to prove actual reliance on Chase's statements in order to collect actual damages. The Ninth Circuit disagreed, saying the court was incorrectly applying Truth in Lending Act precedent to a FCBA case. If this interpretation were to stand, the court noted, FCBA cases would never exist because banks could simply refuse to respond to disputes -- exactly what the FCBA was designed to prevent. For similar reasons, the Ninth declined to apply TILA's limitation on one statutory damages award for multiple violations of the law to the multiple FCBA violations here. Finally, the Ninth found that because it reversed the trial court's findings on the merits, Lyon was entitled to additional attorney fees. Thus, it reversed and remanded all of the claims raised on appeal.

As Fullerton predatory lending attorneys, we're pleased to see that the Ninth Circuit appreciates the importance of the FCBA. If the court had ruled the way Chase suggested, it would have allowed credit card companies to simply ignore the law without consequences. Or, as the court put it, they would "find that silence is truly golden." There is already such a large imbalance between the power and information available to consumers and that available to large credit card companies that the deck is stacked against consumers. That's part of why laws like the FCBA, TILA, FDCPA and other consumer protection laws exist. Our Gardena predatory lending lawyers represent people across California who are alleging violations of these laws by lenders, including mortgage lenders as well as credit card companies.

Continue reading "Ninth Circuit Resurrects Unfair Credit Card Billing Case Under Fair Credit Billing Act - Lyon v. Chase Bank" »

As Riverside personal bankruptcy lawyers, we were interested to see a rare reversal of a Chapter 13 bankruptcy plan appealed by the debtor. In Fisette v. Keller, debtor Michael Fisette of Minnesota objected to the bankruptcy plan drawn up by trustee Jasmine Keller against his will. Fisette owned a home that, like many American homes, was "underwater"; he owed more than the home was worth. This was bad news for the holders of the second and third mortgages, whose liens against the property he proposed to strip. When the bankruptcy court declined to approve such a bankruptcy plan, Keller wrote up a new plan that proposed to treat the lienholders like secured creditors. The Bankruptcy Appellate Panel of the Eighth Circuit reversed, finding the law did not prohibit lien-stripping.

Fisette owed $176,312 on the first mortgage, but the home was appraised at just $145,000. He had recently been through a Chapter 7 bankruptcy and was ineligible for discharge until more time had passed, but filed for Chapter 13 bankruptcy anyway. In his proposed Chapter 13 plan, he treated that mortgage -- the senior lien -- as secured, but the junior two liens as unsecured debt, because there was no equity for them to attach to. He proposed no payments to the junior lienholders under the plan, with discharge after he completed all payments in the plan. He also did not propose to pay them as unsecured creditors. The lienholders filed no written objections, but the bankruptcy judge said the law does not allow lien-stripping and denied the plan. Over Fisette's objection, Keller submitted a new plan that allowed junior lienholders to keep their liens and treated them as secured. This plan was approved. Fisette appealed to the Bankruptcy Appellate Panel, arguing that bankruptcy debtors should be allowed to strip unsecured junior liens.

Supreme Court precedent holds that bankruptcy plans may not modify unsecured portions of mortgage debts, but the Eighth's panel said the court did not rule on whether they may strip wholly unsecured debts. And a variety of Minnesota bankruptcy court cases have held that debtors may never strip claims secured by interest in a primary home -- that is, that any home lien is unstrippable. The panel disagreed, saying every circuit court to address the issue has held that bankruptcy plans may strip wholly unsecured junior home liens because they are modifiable under bankruptcy law. However, it said, courts are split on whether a bankruptcy debtor may do this when he is ineligible for a discharge. Noting that nothing in the bankruptcy code requires discharge eligibility for lien-stripping, the court ruled that lien-stripping is contingent only on successfully completing the bankruptcy plan payments. However, the junior lienholders should be treated like any other unsecured creditor, the court said, so they should get a share of any payments to those creditors. The panel remanded the case for modification of the Chapter 13 plan.

Our Fullerton individual bankruptcy attorneys are pleased with this ruling, which joins a similar ruling here in the Ninth Circuit. "Stripping" a junior lien has become a common practice -- which may be why Fisette's creditors did not object -- since the housing crisis began. Because so many homeowners are underwater, any second or third lien is likely to be unsecured under bankruptcy law and thus subject to stripping. This can be very advantageous to homeowners who decide to pursue bankruptcy as a strategy for fighting foreclosure. However, bankruptcy is a major financial decision that might not be appropriate for all underwater homeowners, so it's best to talk to an experienced San Diego County foreclosure defense lawyer about your options. Our firm can also help borrowers negotiate with lenders or pursue their rights through litigation.

Continue reading "Eighth Circuit Rejects Chapter 13 Bankruptcy Plan That Avoids Junior Home Liens - Fisette v. Keller" »

We've written many times as Claremont debt settlement attorneys about the dangers of private debt settlement companies. Some debt management organizations can help people with serious debt, but others take advantage of their clients' stress and bad financial situations to exploit them further, taking money without providing any help. The state of Pennsylvania responded with the Pennsylvania Debt Management Services Act (Act 117), which licenses and regulates debt management services. One such company filed a lawsuit, giving rise to the Pennsylvania Supreme Court's decision in United States Organization for Bankruptcy Alternatives v. Pennsylvania Department of Banking. USOBA alleged that the law was unconstitutional, and the trial court agreed in part and disagreed in part. Following an appeal by both USOBA and the state, the Pennsylvania Supreme Court found the lower court's order was not appealable.

Act 117, adopted in 2008, required all debt settlement services to apply for licenses with the state and comply with regulations including restrictions on fees. USOBA is an industry group representing debt settlement services, and it sued for a declaratory judgment invalidating the law in 2009. USOBA claimed Act 117 violates state and federal constitutional rights to due process, equal protection and non-delegation, and requested an injunction as well as attorney fees and the declaratory judgment. The Department moved for summary judgment for failure to state a claim, which was denied. Ultimately, the trial court found that Act 117 violates the Pennsylvania constitution's non-delegation clause by granting authority to the Department to make regulations for debt settlement services, and to regulate fees charged to consumers. The court declined to find other areas of the law unconstitutional or find the entire law inseverable.

Both parties appealed, and the Pennsylvania Supreme Court requested briefs on whether the trial court's order was a final, appealable order, in light of its recent decision in Pennsylvania Bankers Association v. Department of Banking. Before the high court, the Department argued that the order was final and appealable because it is a final declaration of the parties' rights on the particular issues it addresses. The Department noted that the parties cannot pursue their rights on those issues in the lower courts. It agreed that this order is normally appealable, but under the Declaratory Judgment Act,the state legislature had authorized this type of appeal to keep government working. By contrast, USOBA argued that the trial court's order was interlocutory and not appealable. It said it had filed the case to strike down all of Act 117, not just the two provisions struck down, and that the DJA did not intend to alter rules of appealability. The high court ultimately sided with USOBA. Under Pennsylvania Bankers, it held that an order in a declaratory judgment case is not appealable when it merely dismisses one or more of several theories of relief. Similarly, in this case, the lower court never ruled on USOBA's full request -- thus, it had no authority to decide either the appeal or the cross-appeal, and remanded both to trial court.

Our Costa Mesa debt settlement lawyers would be disappointed if the Pennsylvania court ultimately decided not to enforce regulations of the debt settlement industry. As we said, not every debt settlement company is honest; debtors are best off with a non-profit organization. Unfortunately, the field is full of dishonest companies, some of which have misleading names designed to fool a casual reader into thinking they are connected to the federal government. And no matter what kind of debt settlement you use, debt settlement is an alternative to bankruptcy that only works if you have the finances to climb back out of debt. If you aren't sure, or you know you cannot pay your debts back within a few years of responsible money management, you should consider calling our Gardena consumer bankruptcy attorneys for a free consultation.

Continue reading "Pennsylvania Court Upholds Law Regulating Private Debt Settlement Companies - US Org. for Bankruptcy Alternatives v. Dept. of Banking" »