California Bankruptcy Attorney Blog

Our Claremont personal bankruptcy lawyers were interested to see an appeals court decision that attempted to take advantage of a bank's own mistakes. In In re Emerson, the Bankruptcy Appellate Panel of the Sixth U.S. Circuit Court of Appeals declined to allow the trustee for Kimberly C. Emerson's bankruptcy to avoid her mortgage. Citimortgage Inc., which held Emerson's mortgage, had properly filed a certificate of discharge with her county, then realized it was a mistake and filed a document rescinding the discharge. When Emerson later filed for Chapter 7 bankruptcy, the trustee filed an adversary proceeding seeking to avoid the mortgage on the grounds that it was improperly re-perfected. The bankruptcy court and the BAP both ruled for Citimortgage.

Emerson granted a mortgage to a predecessor in interest in 2007, and Citimortgage acquired it the next month. In late 2007, Citimortgage filed the certificate of discharge even though Emerson had not paid off the mortgage; it realized its mistake in February of 2008 and filed the rescission. Emerson continued to make monthly payments during this time and up to July of 2009, the month before she filed for bankruptcy. Her bankruptcy trustee filed an adversary action to avoid the mortgage. He said the rescission was legally inadequate because Emerson did not sign the document. Thus, as a hypothetical purchaser, he argued, he should have priority. After cross-motions for summary judgment, the Michigan bankruptcy court found for Citimortgage. The trustee appealed.

The BAP upheld the decision, finding no legal problems with the rescission document. Michigan law allows mortgages to be reperfected, it noted, though it gives less deference to mortgagees whose own negligence causes the problem. Nonetheless, it found that in this case, Citimortgage had solved the problem it caused well before the bankruptcy was filed. It concedes that the mortgage may have been avoidable before the rescission was filed, but the bankruptcy came more than a year later The discharge never changed the obligation between Emerson and Citimortgage. Any potential purchaser who cared to look at the record would be able to see this and have fair warning about the chain of ownership. This is enough to satisfy Michigan law, the court said. Thus, it agreed that the trustee could not avoid the mortgage.

We don't frequently see mistaken discharges of mortgages. But as Yorba Linda consumer bankruptcy attorneys, we very frequently see mistakes by mortgage lenders. Most often, these mistakes benefit the lender, so they are not well investigated or quickly corrected. However, the economic downturn and bursting of the housing bubble have raised the stakes for everyone, so these mistakes are more and more often making their way to court. In cases of extreme negligence or outright law-breaking, such as with robo-signing, some courts have been willing to sanction lenders that flagrantly decline to correct or investigate mistakes in their favor. Less often, lenders may be forced to suffer the consequences of their own mistakes, by having a foreclosure cancelled or losing property interest in a home. These circumstances aren't present in every bankruptcy case, however, so it's vital that you talk to an experienced Los Angeles County bankruptcy lawyer about the specifics of your case.

Continue reading "Sixth Circuit Declines to Allow Trustee to Avoid Mortgage That Was Erroneously Discharged - In re Emerson" »

Our Chino foreclosure defense attorneys were pleased by the president's recent announcement of a major expansion to the federal refinance program. As the Los Angeles Times reported Oct. 24, the Obama administration has announced an expansion of the Home Affordable Refinance Program, a sister to the Home Affordable Modification Program. HAMP has grabbed more headlines, in part because eligibility for HARP was limited until now. But the administration seeks to change that by lifting the cap on how "underwater" any homeowner must be to qualify, while streamlining the bureaucratic process and lowering fees. About 2 million of the 15 million underwater borrowers nationwide could be helped, the article said.

HARP addresses the refinancing problem faced by anyone who bought a home during the most recent real estate bubble. Interest rates are currently at historic lows, and lenders are far less likely to use the kinds of subprime and exotic loans they were giving out at the height of the bubble. Thus, homeowners can save significant money and get out of bad loan structures by refinancing their loans -- but in order to refinance, they need equity. And many people's equity disappeared with the housing crash, leaving them owing far more than the homes are worth. To address this, HARP permits people who owe at least 80 percent of their home's value, but with no upper limit, to refinance through Fannie Mae or Freddie Mac. Participants must be current on their loans, have missed no more than one payment in the last 12 months and have loans owned or backed by Fannie Mae or Freddie Mac as of May 31, 2009. Certain fees to borrowers are reduced or eliminated, and the government is waiving certain legal requirements for lenders.

The plan has come under criticism from several quarters as inadequate, in part because it does nothing for people who are behind on their mortgages. Housing rights advocates and some economists are calling for the government to launch a principal reduction program instead, which they believe would help far more borrowers. As Fountain Valley foreclosure defense lawyers, we have read plenty of studies supporting that idea -- but we know that the idea is a political nonstarter. If Congressional Republicans are willing to kill the idea of cramming down loans for people in personal bankruptcy, they're unlikely to support cramdowns for the much broader group of those who don't need bankruptcy but have underwater mortgages. As another Times article noted, this program does not need Congressional approval and can therefore be enacted without serious delay, which may be its greatest value.

Based in Anaheim, Howard Law, P.C., represents people across California who are struggling for loan modifications or to address an unfair foreclosure. In the housing downturn, many loan servicers have become "foreclosure factories" that push borrowers into the foreclosure process regardless of their circumstances or chance to avoid foreclosure. As a result, people who aren't appropriate foreclosure candidates, or believe they could stay current with a loan modification or other help, often get ignored or subjected to broken promises and repeated delays. Our Gardena foreclosure defense attorneys can help. Sometimes, just getting a lawyer involved is enough to show the servicer that your case requires actual attention; other times, a lawsuit is required to allow an impartial judge to sort out violations of your rights.

Continue reading "Obama Administration Announces Expansion of Refinance Plan to Address Housing Market" »

As Moreno Valley foreclosure defense lawyers, we write occasionally about mortgage fraud because fraud at any level is part of what created the depressed real estate market every borrower must deal with today. A recent Ninth U.S. Circuit Court of Appeals decision was a good reminder that mortgage fraud frequently goes far beyond an individual lying on his or her loan application -- the corruption often extends to several loan professionals who cooperate in their lies. This was the case in U.S. v. Rizk, the appeal of a home appraiser convicted of participating in a Los Angeles-area fraud scheme. The Ninth Circuit ultimately decided that the convictions of Lila Rizk were valid and not unfair, but overturned a restitution order awarding more money to victims than they actually lost.

Rizk appraised homes mostly in Orange County and Los Angeles County, sometimes working with mortgage broker Mark Abrams and his business partner, Charles Elliott Fitzgerald. Between 2000 and 2003, the men and some associates carried out a scheme to purchase high-end homes for more than they were worth and simply keep the difference between the marked value they paid and the much higher loans they took out. The total profits from this scheme were $40 million, at the expense of the lenders. To convince lenders to make the inflated loans, they created false contracts and also used inflated appraisal reports, many of which were provided by Rizk. At trial, prosecutors introduced charts that showed the difference between the actual and purported closing dates and prices and other evidence. Rizk and the others objected, arguing that the charts were overbroad because they included ten times as many properties as appeared on the indictment, but they were overruled. Rizk was eventually convicted of conspiracy, bank fraud and 13 counts of loan fraud.

On appeal, Rizk challenged the admission of the charts, saying they were prejudicial because they put evidence before the jury about acts for which she was not charged, and about which prosecutors never presented evidence. The court noted that the kind of charts in question must contain only admissible evidence, but the evidence must not necessarily be admitted. Thus, the Ninth Circuit dismissed Rizk's first argument that it was prejudicial that prosecutors did not admit the evidence. It turned next to her arguments under federal rules permitting the exclusion of irrelevant evidence. Again, the Ninth Circuit found that the charts were admissible, under well-established caselaw allowing evidence of a conspiracy to be admitted even when not all the acts are in the indictment. On Rizk's arguments that the evidence did not support her convictions, the court found this untrue, noting that she ignored certain evidence in her brief. A rational jury, using the evidence at hand, could find her guilty, the court said. However, it accepted her argument that the restitution order was erroneous. Because Rizk had an insurance carrier who has already paid the victims, it said, the court should have ordered Rizk to pay back the insurer and then pay roughly half that amount to the victims.

Our Placentia foreclosure defense attorneys would like to note that the victims in this case are the lending institutions that financed the fraudulent sales. As a general rule, however, mortgage fraud often victimizes the unlucky people who just happen to live near the fraudulently obtained property. Because mortgage fraud often means letting homes go into foreclosure very quickly after purchase, it depresses property values in the neighborhood with a foreclosure sale. The neighbors' homes lose value, and they also often end up with an unsightly home in the area that is not being properly cared for. Observers of the housing bubble have likely seen this played out in a big way in communities hit hard by foreclosure. Many of those foreclosures were "organic," in that the borrowers truly couldn't afford to keep paying, but as Chino foreclosure defense lawyers, we are not fans of fraud that makes the situation worse for honest borrowers.

Continue reading "Ninth Circuit Upholds Conviction for Mortgage Broker Involved in Mortgage Fraud Scheme - U.S. v. Rizk" »

An important part of our work as Claremont consumer bankruptcy attorneys is helping clients determine which pieces of property they want to claim as exempt from the bankruptcy. Though bankruptcy is determined by federal law, each state has its own set of bankruptcy exemptions, which are slightly different rules, and filers can opt for the state or federal set of exemptions. In In re Holzapfel, the Montana Supreme Court clarified an interesting exemption in its outdoorsy state: an exemption for sporting goods. Debors Michael and Lynn Holzapfel had jointly filed for bankruptcy and claimed an ATV under the sporting goods exception. The U.S. Bankruptcy Court asked the Montana Supreme Court whether this was the proper exemption. The court ultimately found that an ATV is better classified as a motor vehicle.

The Holzapfels filed in December of 2010 and listed a Yamaha ATV as an exempt sporting good. The rule allows up to $4,500 worth of sporting goods and firearms to be exempted, with individual items worth no more than $600 each. The trustee for their case objected that the sporting goods exemption does not apply, but the Holzapfels argued that the Montana Constitution requires courts to construe laws liberally. The U.S. Bankruptcy Court for the district of Montana certified the question to the Montana Supreme Court.

The high court made short work of the question by ruling that both parties had been focusing on the wrong part of Montana's list of exemptions. Under Montana law, the court said, an ATV is better classified as a motor vehicle than a sporting good. The Montana code defines a "motor vehicle" as a vehicle propelled by its own power, including a "quadricycle," the legal name for ATVs. It noted that ATVs are subject to registration and title requirements like cars in Montana. Sporting goods and firearms are not subject to these requirements, it said, and thus it's clear that the sporting goods exemption was not designed to apply to motor vehicles. Thus, the high court found that the ATV should be classified as a motor vehicle rather than a sporting good. However, it said, the Holzapels may choose to claim an exemption for up to $2,500 in interest in the ATV.

As Fullerton personal bankruptcy lawyers, we don't believe they're likely to make that choice. Confronted with a choice between keeping a car of greater value -- especially in a spread-out state like Montana -- and an ATV, most bankrupt families would likely choose to keep the car. It's unfortunate for these debtors that the court did not apply the sporting goods exemption, since ATVs can have practical as well as recreational uses. However, we suspect the decision conforms to the intent of the Montana lawmakers who wrote the exemptions list. Bankruptcy, especially Chapter 7 bankruptcy, is a time when filers must make choices about which piece of property are important to them emotionally, or as a means to make a living. These choices aren't always easy, but as Torrance individual bankruptcy attorneys, we believe they offer filers the greater benefit of being able to start their financial lives over without any debt hanging over their heads.

Continue reading "Montana Supreme Court Decides ATVs Should Be Treated Like Cars in Bankruptcy Cases - In re Holzapfel" »

Our Riverside foreclosure defense lawyers wrote earlier this year about an important ruling from the Massachusetts Supreme Judicial Court, that state's highest court. In that case, one of several similar cases from state high courts, the court found that a foreclosure may not continue if the lender cannot prove it owns the mortgage and note. In this case, the high court ruled on a conflict further into the process: What happens when a wrongfully foreclosed home is sold to a new owner? In Bevilacqua v. Rodriguez, the Supreme Judicial Court ruled against the purchaser, finding that he did not own the home despite having paid a bank for it. However, it found that Francis Bevilacqua, the purchaser, may have rights as a mortgagee.

Bevilacqua bought the home in a foreclosure sale from U.S. Bank, which had acquired it by foreclosing on Pablo Rodriguez. At the time of the sale, the mortgage was assigned to MERS by Rodriguez's lender. U.S. Bank sold the mortgage to itself as trustee in June of 2006; MERS assigned the mortgage to U.S. Bank a month later, and the bank granted a quitclaim deed to Bevilacqua in October. In April of 2010, Bevilacqua filed a petition in Massachusetts Land Court to compel Rodriguez to try title to the property, seeking an order that either compels Rodriguez to try the title or yield his claim to the property. Rodriguez never appeared in court or was located, but the Land Court sua sponte raised the issue of whether Bevilacqua had standing to sue, then concluded that he did not, because he holds no title to the property, and dismissed the case with prejudice. Bevilacqua appealed to the Massachusetts Supreme Judicial Court.

The high court noted that it had been more than a century since it considered a try title case, and briefly discussed the history and purpose of the law. The statute in its modern form requires claims to be based on possession of title to the land. Bevilacqua claimed he had title to the land because he had a quitclaim deed. This was not enough in itself to create title, the court said, and Bevilacqua could also not show a chain of title sufficient to support his quitclaim. Under the January case, U.S. Bank v. Ibanez, the court reiterated that Massachusetts requires sellers to have the actual authority to sell, or the sale is void. Thus, because U.S. Bank did not have the right to foreclose at the time that it did, Bevilacqua's quitclaim is invalid. Indeed, it said the very reasoning behind the try-title action invalidated it. It was intrigued by Bevilacqua's alternative theory, that he is an assignee of the mortgage, but said it still gives him no right to a try-title action. Thus, it said the lower court was correct to dismiss the case. However, it noted, it should not have dismissed the case with prejudice, since Bevilacqua may still be able to bring other cases.

As Laguna Beach foreclosure defense attorneys, we sympathize with people like Bevilacqua, who are unlikely to have checked the land records (and are unable to check MERS) for a legitimate chain of title before they purchased a foreclosed home. But in order to fairly enforce the law requiring lenders to own the property, the court must be consistent, and that means invalidated foreclosure sales that the lender was never authorized to make. The court mentioned that Bevilacqua may have rights as a mortgagee, so he may still be able to bring claims in other areas of the law, including possibly to foreclose on Rodriguez. He might also choose to sue U.S. Bank for fraud or negligence, since its sloppiness put him in this position. As Norwalk foreclosure defense lawyers, we suspect Massachusetts lenders may face litigation like this soon.

Continue reading "Massachusetts High Court Finds Buyer of Wrongfully Foreclosed Home Is Not True Owner - Bevilacqua v. Rodriguez" »

Our Redlands foreclosure defense attorneys were interested to see a recent article about a court ruling that's bringing new life to the year-old issue of robo-signing. As the Palm Beach Post reported Oct. 17, mortgage lender LaSalle Bank is asking a Florida appeals court to clarify and reconsider a September ruling that forbade it from relying on affidavits signed by people with no actual knowledge of the truth of their content. This is precisely the issue behind last year's robo-signing scandal, in which it was revealed that the practice of signing affidavits without verifying them was widespread, and frequently led to forging of signatures. The lender is not seeking to overturn the Fourth District Court of Appeals ruling in Glarum v. LaSalle Bank et al., but it wants to court to rule that the person signing the affidavit may rely on computer records without having personally entered them or being their direct custodian.

Gary and Anita Glarum admitted in their foreclosure case that they had missed payments, but disputed the exact amount they missed. Their loan servicer, Home Loan Services, filed an affidavit from employee Ralph Orsini claiming the Glarums owned more than $340,000 on their loan. Orsini testified that he relied on computer records for the number, but did not enter the numbers himself and relied at least partially on a past servicer, Litton Loan Servicing. Notwithstanding the Glarums' challenge, the trial court granted summary judgment to LaSalle on the foreclosure. It also sanctioned the Glarums' attorney for filing what it said were frivolous pleadings. However, the Fourth District Court of Appeal reversed both rulings. It found that Orsini's affidavit was inadmissible hearsay. Under Florida law, evidence is admissible only if the custodian of the records can demonstrate that they were made at or near the event; made from information obtained by a person of knowledge; were kept in the ordinary course of business; and it was a regular practice of the business to keep such a record.

Because Orsini did not know who, how or when the records were made, the appeals court found that the amount of the Glarums' default was still at issue. Thus, summary judgment was inappropriate, it said. It then went on to strike down the sanctions against the Glarums' attorney, which stemmed from the attorney's filing of an affidavit the court called a "form affidavit." The document gives an expert opinion on laypeople's ability to distinguish between original promissory notes and copies, and the lawyer apparently filed it in nearly every mortgage case. Because there was no testimony specific to the case, the trial court sanctioned the lawyer and ordered him to pay attorney fees for LaSalle. Nonetheless, the appeals court found, the trial court never made an express finding of bad faith, as required for sanctions. Thus, it reversed the finding of sanctions in favor of LaSalle.

In its motion for rehearing and clarification, the bank said the ruling was causing "calamitous confusion"; a large law firm said the deision could affect thousands of foreclosure cases in Florida. The Glarums' attorney told the Palm Beach Post he thought the bank was attempting to preserve a strategy of taking shortcuts in foreclosure cases, which it was not legally entitled to because a personal knowledge requirement is well established. As Newport Beach foreclosure defense lawyers, we agree. The ruling does nothing more than require banks to follow the same rules other litigants in Florida are required to follow. This may disrupt existing foreclosure practices in Florida, but we believe that just reflects poorly on the legality of the mortgage industry's practices. As San Diego foreclosure defense attorneys, we hope courts in other judicial foreclosure states take notice and scrutinize their own cases.

Continue reading "Banks Challenge Florida Appeals Court Ruling Against Robo-Signing in Foreclosures - Glarum v. LaSalle Bank" »

Our Moreno Valley consumer bankruptcy attorneys were interested to read a bankruptcy case that considered whether a debtor must be compelled to sell his house and turn over part of the proceeds to a creditor with a legal judgment against him. Smith v. H.S. Smith Wholesale Drug Co. is not exactly a foreclosure case because Michael Ray McCombs of Texas sold his home voluntarily. Rather, the dispute was over whether H.S. Smith, which obtained a lawsuit judgment against McCombs, was entitled to enforce a lien on the home and thus collect a portion of the proceeds. The case was further complicated by an agreement between McCombs and his non-debtor wife, Alicia Atkinson McCombs, providing that Atkinson was entitled to the proceeds of the home sale. Ultimately, the Fifth U.S. Circuit Court of Appeals concluded that H.D. Smith's lien was unenforceable.

McCombs and Atkinson purchased their home and the adjoining vacant lot in 2004. In 2006, H.D. Smith won a lawsuit against McCombs for a judgment of about $538,000, and a few months later filed an abstract of judgment against his property. During that year, McCombs and Atkinson signed an agreement that Atkinson would be entitled to proceeds from sale of their house, and then found a buyer. While that sale was pending, in November of that year, McCombs filed for Chapter 7 bankruptcy. The trustee filed a petition to sell the house free of any encumbrances, and all parties agreed to put the proceeds in escrow until the bankruptcy court determined how they should be divided. A later sale of the adjacent lot was subject to the same agreement; together, the sales netted $514,095. H.D. Smith then filed an adversary proceeding seeking to recover its debt. The bankruptcy court ultimately found for H.D. Smith, holding that its lien was perfected prior to the bankruptcy and rejecting Atkinson's various claims. The trustee and Atkinson both appealed and were granted a direct appeal to the Fifth Circuit.

The Fifth Circuit ultimately found against H.D. Smith, though not because of Atkinson's homestead right. Rather, it found that the lien was per se unenforceable under Texas law. When property is a debtor's homestead, the Texas constitution creates only limited circumstances under which a lien is enforceable, and the appeals court found that this is not such a circumstance. It rejected H.D. Smith's argument that the bankruptcy code's homestead cap converts the lien to an enforceable one, noting that state law controls this analysis. However, the court stressed that while it rejected the lien, it did not rule on whether H.D. Smith had another interest in the estate; it said the company should have the same priority as a creditor that it would have if there was no bankruptcy. The Fifth next ruled that Atkinson's claims on appeal were waived by her failure to bring them up properly in a statement of issues on appeal. Because the case was certified for direct appeal to the Fifth Circuit rather than heading first to district court, the appeals court took the trouble to rule that a statement of issues to a lower court can be applied in direct appeal cases.

As Anaheim personal bankruptcy lawyers, we're pleased that this case got a quick resolution. It appears that the lien ruling in favor of McCombs was not difficult to reach under Texas law, which suggests that the bankruptcy court simply erred. Regardless of how much money ultimately gets distributed to Atkinson, the ruling means McCombs will have more money to meet his obligations to all creditors, including but not limited to H.D. Smith. The company is still likely to receive some of its judgment, but it has to get in line with other creditors. The ruling is also good news for other Texans with liens on their homes, who may be able to address the issue with bankruptcy if that's appropriate in other areas of their financial lives. As Leucadia individual bankruptcy attorneys, we are generally in favor of any rulings that help debtors get back on their feet faster.

Continue reading "Fifth Circuit Reverses Ruling Allowing Lien to Be Enforced on Chapter 7 Debtor's Home - Smith v. H.D. Smith Wholesale Drug Co." »

As Rubidoux fair debt collection lawyers, we were interested to read a court opinion rejecting the idea that the Fair Credit Reporting Act preempts state consumer-protection laws. The FCRA regulates how creditors may report debts to the private credit reporting agencies, with penalties for knowingly reporting false debts or failing to correct known mistakes. By contrast, the dispute in Curtis v. Citibank, a decision of the Montana Supreme Court, alleged libel, credit libel and violations of the Montana Consumer Protection Act. Meril Curtis had a credit card stolen by a houseguest who ran up more than $7,000 in debt, and Citibank acknowledged that Curtis was not personally liable for the debt. Nonetheless, Citibank referred the debt to a collection agency for collection against Curtis. Citibank won summary judgment at the trial court with allegations that the state-law claims were preempted, but the state's highest court disagreed, finding that the collection agency was not regulated by the FCRA.

Curtis discovered the July 2008 false charges in a timely manner, and as instructed by Citibank, filed a police report and created an affidavit. Despite the fact that Curtis had followed procedures, Citibank referred the debt to a debt collector called Professional Recovery Services. Eventually, Curtis filed suit against both PRS and Citibank, alleging violations of the Fair Debt Collection Practices Act, the MCPA, libel and credit libel. Curtis settled with PRS, but Citibank moved for judgment on the pleadings (summary judgment) using the FCRA preemption argument. It also argued that it was not a debt collector subject to the FDCPA. This claim was dismissed without further appeal, but the district court also granted summary judgment to Citibank on the FCRA preemption grounds. Curtis appealed.

The Montana Supreme Court reversed the decision, finding that the FCRA does not preempt the state-law claims at issue. The FCRA does expressly preempt state laws that conflict with its requirement that reporting agencies report consumer information in a fair and equitable manner. One of those express provisions is at issue here, prohibiting states from imposing laws "relating to the responsibilities of persons who furnish information to consumer reporting agencies," when those laws conflict with the FCRA's sec. 1681s-2. That section regulates how credit-granting institutions report information to credit reporting agencies. Citibank argued that by referring the debt to PRS, it was simply reporting credit information pursuant to that section. The Montana high court ruled that this was an incomplete look at the issue. PRS is not a credit reporting agency within the meaning of the FCRA, it said; it is a collection agency that does not ultimately furnish credit information to businesses the way credit reporting agencies do. Thus, it is not regulated by the relevant section of the FDRA -- and that means there can be no federal preemption. Nor is there any federal preemption in the applicable statute, the FDCPA. Thus, it reversed the trial court and sent the lawsuit back down.

Our Lake Forest FDCPA attorneys believe the court could have said a great deal more about the cynical use of FCRA preemption in this case. Citibank never argued that Curtis owed the debt or that it did not incorrectly refer the debt; its entire argument hinged on federal preemption. Thus, it was in essence trying to use a technicality to escape responsibility for actions it implicitly acknowledged were illegal. Under the FCRA, creditors like Citibank have a duty to investigate disputed information and correct errors within 30 days of receiving a dispute. They also have a duty to report correct information in the first place. Curtis apparently never made FCRA claims, but Citibank's failure to correct its acknowledged mistake, and its incorrect referral to PRS, surely led to negative credit information for Curtis as well. Thus, it may well have been breaking the law that its was using to escape responsibility for its actions. As Buena Park unfair debt collection lawyers, we appreciate that the Montana high court gave Curtis his day in court.

Continue reading "Montana Supreme Court Rules Wrongful Collection Actions Not Preempted by FCRA - Curtis v. Citibank" »

As Redlands personal bankruptcy attorneys, we were interested to see an appeals court case about when a debtor may transfer his or her property. In Sullivan v. Welsh et al., the Bankruptcy Appellate Panel of the Eighth U.S. Circuit Court of Appeals ruled that Mary Joan Lumbar did not fraudulently transfer her home to her parents, from whom she'd bought it in the first place. Lumbar's transfer was the result of a lawsuit filed by her parents, Raymond and Joan Welsh, against Lumbar and her former husband for failing to make mortgage payments. Nonetheless, her quitclaim deed had not been filed as of the date of her bankruptcy filing, and the bankruptcy trustee sought to avoid the transfer on the grounds that it was fraudulent. The Minnesota bankruptcy court agreed, but the panel reversed.

Mary and her ex-husband, Daniel Lumbar, bought their home from the Welshes in 1994. The Welshes later set up a living trust that owns the home. The Lumbars made their monthly payments but failed to make two balloon payments, after which they simply continued making monthly payments. Daniel filed for divorce in 2006, after which the Welshes served a notice of cancellation of the contract, giving the Lumbars 30 days to pay in full. There followed much litigation, in which Daniel sought to obtain a loan and buy the home in his own name, and Mary defied a court order to sign the necessary documents. Ultimately, they reached a settlement that, among other things, included a requirement for Mary and Daniel to execute a quitclaim deed on the property in favor of the Welshes. Mary signed that paperwork on November 16, 2007, but the quitclaim deed had not yet been filed in county records when she filed for Chapter 7 bankruptcy on December 24, 2008. She did not list the property in her filing or claim an exemption. Nonetheless, the bankruptcy trustee sought to avoid the transfers to the Welshes, citing fraudulent transfer. The court ultimately granted summary judgment to the Welshes.

This appeal followed. Before the Bankruptcy Appellate Panel, the trustee argued that the bankruptcy court was wrong to find that exempt homestead property cannot be fraudulently transferred under Minnesota law. The panel agreed, but found that this state-law premise does not apply to the federal bankruptcy code on fraudulent transfer. In fact, it said, the bankruptcy code has express rules for situations where trustees recover fraudulently transferred property that can be exempted. Under those rules, Mary may not claim an exemption in the property she voluntarily transferred -- so the bankruptcy court was wrong to rule that the property was exempt and could not be fraudulently transferred. It is still disputed whether Mary received less than adequate value for it, or was insolvent at the time, the BAP said, so it's not clear whether the trustee actually can avoid the transfer. Thus, it reversed the bankruptcy court's decision and remanded the case for more proceedings.

Our Huntington Beach consumer bankruptcy lawyers hope the bankruptcy court does not penalize Mary on remand. Judging by the facts of the case, she was not attempting to defraud the bankruptcy court by making the transfer; she was attempting to follow a court order. Rescinding the transfer would benefit the creditors at the expense of the deal she was trying to honor, which she had attempted to honor over a year before filing for bankruptcy. Without more information, this seems like a misuse of the fraudulent transfer rules. In general, people considering bankruptcy can avoid this kind of negative consequence by consulting a bankruptcy attorney before filing and working up a plan. Murrieta individual bankruptcy attorneys like us understand what kinds of transfers can be challenged in bankruptcy court and how to structure them as safely as possible.

Continue reading "Bankruptcy Panel Rules Transfer of Exempt Property May Be Fraudulent - Sullivan v. Welsh" »

Our Norco foreclosure defense lawyers have written here numerous times about court cases in which the borrower challenges the foreclosure on the grounds that the foreclosing entity cannot prove ownership. Since the housing crisis, it has become clear that sloppy paperwork practices within banks and at MERS have muddied the ownership trails of many mortgages. As a result, some entities attempting to foreclose literally cannot prove they have the right to do so. In some cases, they are not permitted to foreclose until they can straighten out their paperwork; a few courts have dismissed the foreclosure entirely or required lenders to make systematic improvements to avoid fraud. Similar issues arose in Banks v. Kondauer Capital Corporation, a Minnesota couple's appeal to the Eighth U.S. Circuit Court of Appeals Bankruptcy Appellate Panel, which reversed summary judgment for the mortgage holder.

Edward and Diane Banks bought a home in St. Paul in 2006 from New Century Mortgage Corporation. NCMC went bankrupt the next year, and many of its mortgages were purchased by Ellington Management Group LLC, which assigned it to Elizon LA 2007-2 LLC by mistake, and later executed a corrective assignment intending to assign the mortgage on Kondauer. A few months after the corrective assignment, the Bankses filed for Chapter 13 bankruptcy. They later sued Kondauer as part of the bankruptcy, alleging it did not own their note because of the transfer to Elizon. Kondauer moved to dismiss, supporting its motion with the original note and mortgage to NCMC and the purchase agreement by Ellington. The bankruptcy court ultimately granted summary judgment to Kondauer, over the Bankses' objection that the motion was only to dismiss. They timely appealed.

On appeal, the BAP of the Eighth Circuit found the summary judgment ruling inappropriate because there was a genuine issue of material fact as to who owned the note. The panel did not base its ruling on the "corrective assignment," although it did express concern about the legality of that assignment in one footnote. Rather, the ruling is based on the absence of any endorsement to Kondauer on the note itself. It is endorsed in blank, the panel said, which means it can only be enforced by the entity in possession of the original note. Kondauer claims to have the note, it said, but has failed to produce it even though the parties agree that this would give it the right to foreclose. Thus, the panel found that a genuine issue of material fact remains as to whether Kondauer is the appropriate person to foreclose. The BAP reversed the bankruptcy court on those grounds and remanded the case for further proceedings.

Our Dana Point foreclosure defense attorneys have heard this kind of story many times before. Though the apparent mistaken assignment in the case is unusual, it is unfortunately not at all uncommon for mortgage lenders to lose track of the note, or fail to complete the necessary paperwork to transfer documents. Part of this problem likely stems from the mortgage bubble of the late 2000s, when banks were issuing and selling mortgages very quickly. It may also stem from the use of MERS, a private company that lenders formed to keep track of loan sales so they would not have to bother with local land offices and their rules. Without someone enforcing legal requirements at each transfer point, mortgage companies may have gotten sloppy. Now that foreclosures are very high, our Torrance foreclosure defense lawyers are pleased to see that courts are holding lenders to legal standards.

Continue reading "Bankruptcy Panel Sends Back Yet Another Case About Ownership of the Note - Banks v. Kondauer Capital Corp." »

Our Riverside foreclosure defense lawyers were interested to see a bankruptcy case that successfully fought off a bank's attempts to foreclose on a disabled debtor. In In re Richard K. Miller, the Bankruptcy Appeals Panel of the Sixth U.S. Circuit Court of Appeals upheld a Michigan bankruptcy court's decision. Richard Miller owned several parcels of land in Michigan and another just over the Wisconsin border, and took out loans on them after he became disabled and lost his job. He was unable to find another job, and defaulted in 2008. He filed for bankruptcy and received an automatic stay on most of the foreclosures. State Bank of Florence moved for relief from that stay so it could foreclose, and also objected to Miller's Chapter 13 repayment plan. The bankruptcy court denied both, and the Sixth Circuit's Panel affirmed.

Miller owned one property in Wisconsin and three in Michigan, known in the opinion as the Moon Lake Property, the Cabin Property and the 3-40 Acre Parcels. In 2006, he took out a mortgage loan on the Wisconsin Property, using a contract that provides that the mortgage serves as collateral for any debt Miller owed the bank, now or in the future. In the same month, he took out a line of credit on the 3-40 Acre Parcels, with no such contract. Early in 2007, he took out another loan, secured by the previous mortgages as well as a mortgage on the Moon Lake Property. In April of 2008, the bank began foreclosure on the Wisconsin and 3-40 Acre Parcels properties. Miller filed for a Wisconsin bankruptcy, but dismissed it in order to sell the Moon Lake property. That sale helped pay off some of Miller's debt, but the foreclosures proceeded. The bank sold itself the 3-40 Acre Parcels in August of 2008; Miller filed for Chapter 13 bankruptcy just before the Wisconsin foreclosure sale.

In his amended bankruptcy plan, Miller argued that he does not owe the bank any money because it sold itself the 3-40 Acre Parcels in the Michigan foreclosure sale, for the exact amount Miller owed. The plan required the bank to release all mortgages and the court to allow him to recover costs and attorney fees if he is required to petition the court for such release. The bank opposed this and moved for relief from the stay, so it could proceed with the Wisconsin foreclosure sale and undo the Michigan foreclosure, which was prohibited while the Wisconsin foreclosure was pending. After a hearing and complicated analysis, the bankruptcy court found that the loan to Miller was satisfied when the bank paid itself the full amount Miller owed at the foreclosure sale. The bank had argued that the property sold did not redeem one of Miller's mortgages, but the court found that Michigan and Wisconsin law both require it to credit Miller the full amount obtained in the sale to itself. It found that the bank lacked standing to object to Miller's plan and denied its objection, and granted the bank relief from stay only in order to dismiss the Wisconsin foreclosure with prejudice.

The bank appealed. After first dismissing an argument as waived on appeal, the BAP dismissed the bank's argument that Wisconsin law should apply because this was provided in the agreements with Miller. Under both state and federal rules, the BAP said, the state for deciding a choice of law question is the state in which a property is located, which in this case is Michigan. Under Michigan law, the panel said, banks that "overbid" at their own foreclosure sales must credit or pay the mortgagor with the entire amount. Furthermore, the cross-collateralization provision in the 2006 note allows the foreclosure sale of another property to apply to the 2006 note. Thus, the bank is owed no debt by Miller. The panel did find that the bankruptcy court was wrong to say the bank had no standing to object to Miller's plan, since at the time it had a valid Wisconsin foreclosure judgment and an unexpired Michigan redemption period. However, it found the error harmless because Miller has the right to set off his debt with the proceeds of the foreclosure sale. Thus, it affirmed the bankruptcy court.

As Santa Ana foreclosure defense attorneys, we appreciate cases like this because they hold lenders responsible for the consequences of their actions. In this case, the panel concluded that the bank had mistakenly paid itself more at the foreclosure sale than it was owed for that particular loan. When the bank argued that it should not be held responsible for the consequence of its mistake -- releasing Miller from his debt -- the BAP and the bankruptcy court both found those arguments largely invalid. Indeed, this opinion notes that the bankruptcy court called one such argument "the turnip argument." Lenders make plenty of mistakes that make borrowers' lives harder, including major mistakes like attempting to foreclose on a home they do not own as well as mistakes in things like calculating eligibility for HAMP. Our San Diego County foreclosure defense lawyers are pleased to see the tables turned.

Continue reading "BAP Denies Foreclosure and Objections to Bankruptcy Plan in Michigan Bankruptcy - In re Richard K. Miller" »

As Rancho Cucamonga bankruptcy attorneys, we prefer to take cases before the client files a bankruptcy petition so that we can help prepare. Preparing for bankruptcy means a lot of things, including considering which assets are important to you, understanding the process and knowing the rules, so you cannot accidentally break them. That seems to be what happened in In re Ruiz, a case from the Bankruptcy Appellate Panel of the Tenth U.S. Circuit Court of Appeals. Jose and Carrie Ruiz wrote checks for business purchases, a charitable donation and their monthly mortgage payment just before petitioning for Chapter 7 bankruptcy. The checks had not yet cleared on the day of the petition, so their trustee argued that they technically still had the money and should be required to turn it over to the estate. A bankruptcy court in Utah disagreed, but the BAP reversed it, requiring them to turn over about $3,700.

The four checks were written between March 29 and April 23 of 2010; they filed their bankruptcy petition electronically on April 24. On their schedules, the Ruizes listed a checking account with $10.02. This was the number that would be true once the checks cleared; the account actually contained $3,764.99. The last of the four cleared on April 28. During the first meeting of creditors, the Ruizes' trustee discovered the discrepancy and moved to require them to turn over the rest of the money. This was denied by the bankruptcy court, which found that the disputed money was not debtor property. Rather, the court found that the checking account was a debt owed by the bank to the Ruizes, and that debt was the estate's property; the bank had actual control and possession of the money. The court further held that the trustee, not the Ruizes, had the obligation to collect that debt on behalf of the bankruptcy estate. The trustee appealed.

On appeal, the trustee argued that because debtors must turn over property of the bankruptcy estate, and because the money was still technically the Ruizes' property, he may properly seek it. The Ruizes deny that they controlled the money or have any duty to repay it. The BAP sided with the trustee, rejecting the bankruptcy court's reliance on Citizens Bank of Maryland v. Strumpf. Rather, the panel cited Tenth and Eighth Circuit cases, as well as precedent from numerous bankruptcy courts, holding that the money in a checking account as of the petition date is the property of the bankruptcy estate. The Ruizes had control over the funds from the day of the petition until they were debited from the account, the panel said. It analyzed the bankruptcy code's requirement that this control be "during the case," but concluded that this applies to any time during the case, not just when the trustee demands it, because to hold otherwise would enable evasion of the law. The panel took time in the opinion to recognize that this puts the debtors in a tough position, since they now do not have the money and could have been prosecuted for stopping payment. Nor is it usually practical to require the trustee to take quick action, it said. "Although this result does little to advance the Bankruptcy Code's policy of providing Debtors a fresh start through bankruptcy, it does promote an equally valid policy of providing for a fair and equitable distribution of Debtors' assets to their creditors."

The lesson our Costa Mesa personal bankruptcy lawyers take from this is that it's vital to be well informed before petitioning for bankruptcy. The Ruizes clearly did not intend to abuse the system -- they wrote checks for ordinary expenses, not luxury items -- but they happened to make a mistake. As a result, they are likely to be on the hook for most of this money. In fact, the bankruptcy appellate panel pointed out that they will end up paying the money twice, to the estate and to the original payees of the checks. This may be the legally correct conclusion, but we agree that it does nothing to help the Ruizes get a fresh start once their bankruptcy is through. For future bankruptcy filers, we strongly recommend that you talk to our Gardena individual bankruptcy attorneys before filing to avoid this kind of accidental error.

Continue reading "Bankruptcy Trustee Is Entitled to Pursue Funds From Checks Not Cleared on Day of Filing - In re Ruiz" »

Our San Bernardino county foreclosure defense attorneys wrote recently about the decision by Attorney General Kamala Harris to pull out of robo-signing settlement talks. Harris was reportedly unhappy with the direction of the talks because it was too soft on the banks, offering what she reportedly thought was too much immunity for too little compensation for homeowners. Her move followed attorneys general in several other states, who had also thought the settlement must be more severe. The departure was analyzed thoroughly in a piece on RollingStone.com, authored by political commentator Matt Taibbi. Taibbi suggested that a too-soft settlement would be tantamount to a bailout of the banks, pointing out that limiting their liability saves them huge amounts of money in foreclosure and investor lawsuits.

Taibbi starts by dismissing the idea that the size of the settlement is the chief problem. Rather, he says, any settlement at all would be tantamount to another round of bailouts, because it wouldn't be able to cover the huge amount of liability the major mortgage lenders face. Taibbi writes that mortgage lenders conspired to create huge amounts of "junk" subprime loans, then bundle them into securities with overinflated AAA ratings. Those securities were purchased by both private and public investors, all of whom have now lost that money. To make matters worse, Taibbi cites the lenders' use of the MERS system, the private loan exchange company, to avoid registering loans with county offices and paying associated fees. Thus, they have also bypassed local taxes -- something that at least a few counties are suing over. Already, he notes several lawsuits from individuals or groups of investors in mortgage-backed securities, including a settlement for $8.5 billion between Bank of America and private investors. This is nearly half of the total proposed settlement applying to all banks, Taibbi wrote, but a tiny fraction of the liability faced by Bank of America on its Countrywide holdings alone. Thus, he thought Harris could likely get much more money for California by pursuing her own cases.

Taibbi does acknowledge that homeowners are also victims, but spends less energy on this issue than we would. As Irvine foreclosure defense lawyers, we work every week with homeowners who were misled or exploited by banks when their loans were issued, or who now are being given the runaround when they try to address financial problems. As he notes, MERS helps lenders avoid local taxes -- but it has also proven disastrous in the foreclosure crisis by making it difficult to track or prove ownership of any particular mortgage and note. Meanwhile, securitizing loans in the manner he described helped banks inflate the number of mortgages by making risk-free loans to people they knew would not be able to pay the loans back, then selling the loans to unsuspecting investors. Perhaps Taibbi is right that a true repayment for all this would bankrupt the banks, but it's hard to feel sympathy for lenders dealing with the consequences of their mistakes.

Howard Law, P.C., represents California borrowers who need legal help to stop an avoidable foreclosure or cancel a loan made under predatory circumstances. Our Los Angeles County foreclosure defense attorneys have practiced in this area of the law since the beginning of the housing crisis, so we understand very well what kinds of tricks lenders use to avoid giving a loan modification any real consideration Depending on your situation, we may be able to challenge a foreclosure started without any discussion of other options; an incorrect denial of a loan modification; or pursue a bankruptcy to help you catch up on payments. If a foreclosure is looming, we can ask the court to stop it until these legal issues have been considered. Call us today to tell us your situation and learn about how we can help.

Continue reading "Writer Characterizes Harris Pullout From Robo Signing Settlement Talks as Refusing a Bank Bailout" »

As Chino personal bankruptcy lawyers, we caution our clients that not every debt is dischargeable in bankruptcy. Certain debts, most notoriously student loans and child support obligations, can hardly ever be discharged and must simply be repaid. However, when a dispute arises about this, the bankruptcy court has the prerogative of deciding on a case by case basis. In Reshetar Systems v. Thompson, Scott and Kirsten Thompson of Minnesota filed for bankruptcy about six months after Reshetar obtained a legal judgment against Scott. Scott is the president and sole member of Construction 70 Inc., which had failed to pay Reshetar for its subcontracting work on an Applebee's. Reshetar moved to make the debt exempt from discharge, but the bankruptcy court and the Eighth Circuit both disagreed.

Reshetar completed its drywall and carpentry work, but Construction 70 never paid. Construction 70 did end up in litgation with Applebee's, but obtained most or all of the payment owed it. Thus, Reshetar successfully sued Construction 70 in Minnesota state court, obtaining a $78,000 judgment that covered both the unpaid debt and attorney fees. Scott Thompson was personally liable. After the bankruptcy filing, Reshetar filed for determination of the dischargeability of the debt. It cited laws exempting debts from discharge when they arise from fraud in the performance of a fiduciary duty; embezzlement; and willful and malicious behavior. After a trial, the bankruptcy court found in favor of the Thompsons. Reshetar appealed.

On appeal, the Eighth Circuit focused first on whether Thompson had a fiduciary duty to Reshetar. Reshetar looked for one created by Minnesota state law -- but as the bankruptcy court found, the law expressly precludes finding a fiduciary relationship. Nor could Reshetar find a fiduciary duty in a constructive trust created by Construction 70's insolvency, the panel said, because the bankruptcy code does not allow a fiduciary duty created by a constructive trust. The panel next rejected the argument that Construction 70 had embezzled funds owed to Reshetar, noting that nothing in any of the three companies' contracts required Construction 70 to hold funds in trust for Reshetar. Nor did Construction 70 commit larceny, since the funds paid to it were lawfully obtained. Finally, the appeals court looked at the allegation of willful and malicious injury, which refers to debts created by an intentional tort that was directed at the creditor. Reshetar argued that failure to pay was the tort of conversion, but the Eighth agreed with the bankruptcy court that there was no property of Reshetar's in Construction 70's hands to convert. Nor, according to the bankruptcy court, was the conduct maliciously aimed at Reshetar. Thus, the Eighth Circuit upheld the lower court and denied Reshetar exemption from discharge.

This decision is surely upsetting for Reshetar, a small business that never got paid for perfectly good work through no fault of its own. But as Fullerton consumer bankruptcy attorneys, we know one mission of the bankruptcy courts is to help debtors make a fresh start, without heavy debts hanging over them. In this case, in fact, Thompson may very well have ended up in bankruptcy because he knew he couldn't pay the $78,000 judgment within a reasonable amount of time, and could get into even more serious financial trouble by trying. The bankruptcy code allows exceptions to bankruptcy for debts created by criminal or tortuous conduct -- but in this case, none of the circumstances fit the exceptions. As Temecula individual bankruptcy lawyers, we appreciate that the balancing of interests here considers debtors' ability to start over.

Continue reading "Eighth Circuit Upholds Non-Exemption From Discharge for Legal Settlement Owed to Subcontractor - Reshetar Systems v. Thompson" »

Our Riverside County fair debt collection attorneys were interested to see a rare victory at the appeals court level for victims of fair debt collection violations. In Gonzalez v. Arrow Financial Services LLC, a class of people who had received a letter from Arrow Financial Services sued it for misrepresentations in that letter. Johnny Gonzalez and others alleged that the letters misleadingly represented that Arrow could report obsolete debts to credit agencies and implicitly threatened to make such reports. The trial court agreed and granted summary judgment on liability; after a trial, it awarded damages under both the federal Fair Debt Collection Practices Act and the California state-law version, the Rosenthal Act. The Ninth U.S. Circuit Court of Appeals ultimately affirmed both decisions.

Arrow buys written-off debts and attempts to collect them. The debts in this case are debts owed to health clubs, all of which were more than seven years old at the time of Arrow's purchase. This made the debts too old to report to a credit agency; the debt collector may still collect them, but the debtor can safely ignore this, because it may not be reported to debt collectors. However, in a group of 40,000 letters sent to Californians in 2004, Arrow wrote that it was willing to settle the debt for half price, at which time "if we are reporting the account, the appropriate credit bureaus will be notified that this account has been settled." A notice required by California law also said failure to "fulfill the terms of your credit obligations" may be reported to credit agencies. Gonzalez looked into it and realized that Arrow could not legally report any debt to credit bureaus, so he filed a putative class-action lawsuit under both the FDCPA and the Rosenthal Act. He won summary judgment on liability in district court, and a jury trial awarded a total of $500 per plaintiff in statutory damages, under both laws.

On appeal, the Ninth Circuit was unimpressed by Arrow's arguments. Both the FDCPA and the Rosenthal Act prohibit, among other things, threatening action that is not intended or cannot legally be taken. Furthermore, caselaw says the standard in FDCPA cases is that language should not be misleading even for the "least sophisticated debtor." Arrow argued that its use of the word "if" in the offending passages makes the statement literally true, but the Ninth has ruled in the past that literally true statements can still be misleading, particularly under the least sophisticated debtor standard. For such a person, the Ninth said, the statement was clearly misleading, and the promise to report a debt paid off in full was a threat because it implied a negative report if the debtor did not pay. On the Rosenthal Act claim, the Ninth found Arrow was simply wrong in arguing that the Rosenthal Act does not permit class actions; the Legislature authorized them in 1999. Finally, it held that recovery has long been possible under both the Rosenthal Act and the FDCPA, and nothing in the FDCPA suggests preemption of state laws. Thus, it upheld the trial court.

As Irvine predatory lending lawyers, we're pleased to see the Ninth Circuit set these two unambiguous precedents. By ruling that the Rosenthal Act allows class actions, the Ninth can clear up any ambiguity that the California courts have not laid to rest. By allowing parallel recoveries under both the FDCPA and the Rosenthal Act, it gave victims of predatory debt collecting more weapons. Modern consumer protection groups agree that the maximum statutory damages of the laws, both adopted in 1977, are too low at a maximum of $1,000 per debtor. Inflation has made this sum in 1977 dollars worth nearly four times the amount today. Of course, plaintiffs still must prove both laws were violated to collect from both -- but as Corona FDCPA attorneys, we prefer to have that option.

Continue reading "Ninth Circuit Affirms FDCPA Victory on Summary Judgment for Misleading Letters - Gonzalez v. Arrow Financial Services" »

Our Fontana foreclosure defense lawyers were interested to see a case out of Indiana that tested not the validity of a foreclosure, but how it should be tried. In Lucas v. U.S. Bank, Mary Beth and Perry Lucas challenged the validity of their foreclosure by U.S. Bank. The Lucases had disagreed with a previous loan servicer about whether their property tax payment and homeowners' insurance were adequate, and the disagreement was never resolved. This eventually caused U.S. Bank to foreclose their loan in 2009. The Lucases raised many defenses to foreclosure and asked for a jury trial, which the trial court denied but the Indiana Court of Appeals allowed. In this case, the Indiana Supreme Court found that the claims were best heard as part of the foreclosure, which has no jury, because they are "significantly intertwined" with the foreclosure.

The Lucases bought their home in 2005 and created an escrow account from which property tax and insurance was paid. Only a few months later, the Lucases disagreed with their original loan servicer over whether they had paid enough property tax and had sufficient evidence of homeowners' insurance. When Litton Loan Servicing, a third-party appellee in this case, took over the servicing, it started charging the Lucases late fees the couple said were erroneous. In November 2006, they filed for Chapter 7 bankruptcy and reaffirmed their mortgage debt. The bankruptcy was discharged in February of 2007, but they continued to accrue late fees afterward, and in October, Litton sent a notice of default. After several more unsuccessful attempts to resolve the matter, U.S. Bank filed a foreclosure. Unlike most homeowners, the Lucases filed a detailed answer with defenses, counterclaims and a cross-complaint against Litton, as well as a request for a jury trial. This was denied by the trial court, but the Indiana Court of Appeals reversed.

The case was reversed again in the Indiana Supreme Court, which found that the Lucases were not entitled to a jury trial. The case turned on whether and when the foreclosure case, a case tried in equity with no jury, should be changed to a case in law, which requires a jury, by the Lucases' allegations. The Court of Appeals had relied on Songer v. Citivas Bank, a 2002 case that directed courts to allow jury trials on the legal claims in a case that mixes law and equity claims, as long as the legal claims are distinct and severable. Relying on this case was right, the Supreme Court said, but the appeals court had wrongly concluded that the essential features of the case were not equitable. Many of the individual claims they made, which relied on common-law claims as well as consumer protection statutes like the Truth in Lending Act, are questions of law, it said. But the questions underlying those claims overlap with the foreclosure, a case of equity. Thus, the essential features of the case are equitable and there should be no jury trial, the high court said. Dissenting Justice Dickson, with Justice Rucker concurring, preferred to sever the legal claims as Songer requires.

As Chino Hills foreclosure defense attorneys, we generally prefer trial by jury in cases like this. That's partly because it's longstanding American legal tradition; we all have the right to trial by jury on claims in law. However, a jury trial may also be more advantageous for plaintiffs like the Lucases, who are essentially arguing that they were pushed into foreclosure for no reason by big lenders' incompetence. Many of the ordinary people who make up juries understand that large organizations can be bureaucratic. Of those jurors who are homeowners, it would be unsurprising to learn that some had even been pushed around by their lenders or servicers. That's why our Whittier foreclosure defense lawyers like the idea of a trial by jury, even though a trial by a careful judge is likely to be fair.

Continue reading "Defenses to Foreclosure Will Be Tried Without a Jury, Indiana Supreme Court Rules - Lucas v. U.S. Bank" »