California Bankruptcy Attorney Blog

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

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

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

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

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

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

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

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

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

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

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

At Howard Law, P.C., we've written frequently in this space about the changes in bankruptcy law created by the 2005 bankruptcy law. Among these is a requirement that bankruptcy filers complete credit counseling before they are permitted to file for bankruptcy. This requirement has been criticized as patronizing and burdensome, but it has rarely been called ambiguous. So our Claremont consumer bankruptcy attorneys were interested to see a decision from the Bankruptcy Appellate Panel of the Sixth U.S. Circuit Court of Appeals about a debtor who completed only part of the counseling before filing. In In re Ingram, the BAP affirmed the bankruptcy court's decision to dismiss the case for lack of meeting this basic requirement.

William Warren Ingram of Ohio filed for Chapter 13 bankruptcy on Nov. 17, 2010. The next day, he filed a certificate of credit counseling saying he had completed the counseling as of Nov. 18, 2010. At a December hearing, Ingram told the bankruptcy court this was a mistake and he'd actually finished the counseling as of Nov. 17. The court invited his trustee to look into the matter, and the trustee discovered that Ingram had completed online counseling on Nov. 17 but the phone portion of the counseling on Nov. 18. The bankruptcy court ultimately found that Ingram had not completed the counseling session by the date of the petition, making him ineligible for bankruptcy. In its order, the court noted that the counseling requirement was "a trap for the unwary," particularly people without attorneys. It also denied a motion to reconsider in which Ingram argued that the credit counseling company was misleading. Ingram appealed.

The BAP of the Sixth Circuit agreed with the court that Ingram's bankruptcy case could not stand. The bankruptcy code requires that debtors complete credit counseling within 180 days before filing; this requirement is waived only when "exigent circumstances" merit a waiver; when counseling is not available in the seven days before filing; or the certification is otherwise satisfactory to the court. Some appeals courts have held that bankruptcy courts have the discretion to waive the counseling requirement; others have found that courts may not waive it because the lack of credit counseling robs them of jurisdiction. An earlier Sixth Circuit BAP case permitted a waiver because the debtor had waited until after several advantageous decisions had been made. Nonetheless, it declined to create a waiver for Ingram. The law's requirements are clear and the bankruptcy court was correct in applying them to require dismissal of Ingram's bankruptcy, the BAP said.

We believe this case is a good example of why it's so important to hire an experienced Orange County personal bankruptcy lawyer like Vincent Howard, when so much is at stake. If Ingram was self-represented, as the bankruptcy court's comments imply, he lacked access to the advice of an attorney who has been doing this job for years. Experienced bankruptcy attorneys don't just fill out forms -- they understand how to balance legal requirements like credit counseling with the practicalities facing bankruptcy filers, like avoiding eviction. Most importantly, our San Diego individual bankruptcy attorneys can advise clients on how to avoid small mistakes like these that have vitally important consequences for their cases.

Continue reading "Sixth Circuit BAP Upholds Dismissal of Bankruptcy Where Debtor Did Not Finish Counseling - In re Ingram" »

In legal terms, a lien -- a legal encumbrance on property that secures a debt, like a house or a car -- cannot be enforced unless it is "perfected" by meeting standards set out by state law. Since the housing downturn began, some bankruptcy filers have sought to avoid debts by claiming they are based on liens that were not perfected, but this is a tough claim to prove. That's why the Claremont foreclosure defense lawyers at Howard Law, P.C., were interested to see a case where the Sixth U.S. Circuit Court of Appeals agreed that a lien had not been perfected, canceling a large debt owed by a couple from Kentucky. In Salyersville National Bank v. Bailey, Jackie and Peggy Bailey took out two secured loans from the bank, but were unable to pay even in bankruptcy and ultimately had their home repossessed and sold. They had reaffirmed the debts, thinking the loans were secured, but this was later proven false. In this action, the Sixth voided their reaffirmation based on mutual mistake.

The Baileys filed for bankruptcy four months after filing for divorce (actions that often go together, in our experience as Anaheim foreclosure defense attorneys). They had taken out a loan secured by their home and another secured by their truck, and reaffirmed both debts in the bankruptcy. However, they stopped paying after reaffirmation, in part because the truck had been stolen and partially destroyed. For the truck-secured loan, the bank then filed an unsecured claim. The bankruptcy trustee sued to avoid the mortgage because it had never been perfected, an action that was settled by an agreement to sell the property at auction, with the proceeds going to the estate. If the bank bought the property, the agreement said the avoidance action would be dismissed and the mortgage still in effect. The bank bought the property from the trustee at auction and immediately sold it to a third party for a $33,400 profit, then filed an unsecured claim in the bankruptcy for the full balance owed on the mortgage.

The Baileys paid $37,000 toward the unsecured debts in bankruptcy. After the bankruptcy ended, however, the bank immediately sued them for balances owed on both loans. They moved to reopen their bankruptcy case and have their reaffirmation declared void. The bankruptcy court agreed to void the reaffirmation on the grounds of mutual mistake -- both parties had incorrectly believed the bank had security interests in the debts when the debt was reaffirmed. The district court in Kentucky affirmed, and the bank appealed.

In a reaffirmation, the Sixth Circuit observed, bankruptcy filers agree to exclude some debt from discharge at the end of their bankruptcy, a sacrifice they make in order to keep the property. On appeal, the bank argues that it was in fact a secured creditor, so there was no mutual mistake. This argument contradicts the past history of the case, the Sixth said. The bank had elected to treat the truck loan as an unsecured claim, in part because the vehicle's bad condition made it bad collateral. It cannot legally change its mind later, the court said. On the real estate, the trustee had disputed whether there was a perfected lien, resolved by the sale and the bank's unsecured claim. Again, the bank had waived its right to pursue a secured claim by acting as an unsecured creditor, the Sixth said, and being treated like one. The court also rejected the bank's argument that Kentucky law allowed it to enforce the reaffirmation even if it's a unsecured creditor. Reaffirmations of debt must be enforceable under state law, and Kentucky law allows cancellation of contracts made when both parties were mistaken about a material fact. In this case, they were mistaken as to whether the debts were secured, an extremely material fact for the Baileys. Thus, it affirmed the district and bankruptcy courts.

Our Escondido foreclosure defense lawyers are pleased that the Sixth chose to protect this couple from the legal maneuverings of their mortgage lender. As the Sixth noted dryly, "people do not generally agree to pay more than $150,000 in exchange for nothing." It's also worth noting that the bank was attempting to collect the full unpaid balance of the loan despite having collected $33,400 in the foreclosure sale -- essentially squeezing a profit from recently bankrupt (and divorced) people. Reaffirming a debt may make sense in bankruptcy cases where the filer wants to keep the home, but doesn't have a big enough exemption to do it. However, this puts the filer on the hook for large payments, and as this case shows, those payments will continue to be enforceable after bankruptcy.

Continue reading "Sixth Circuit Upholds Cancellation of Mortgage Debt Because Lien Was Never Perfected - Salyersville National Bank v. Bailey" »

The Upland personal bankruptcy attorneys at Howard Law, P.C., routinely help clients think about how best to disclose their assets and debts in a bankruptcy. Presenting your situation strategically is part of smart bankruptcy planning, but we never hide our clients' assets or allow them to do so, because this is illegal and can cancel the bankruptcy entirely. That kind of penalty was assessed against the debtor in Lincoln Savings Bank v. Freese, a decision of the Eighth U.S. Circuit Court of Appeals Bankruptcy Appellate Panel. The bankruptcy court denied a discharge to Jay Freese of Iowa, saying he omitted material information when he listed his assets, and made a false oath. Freese appealed, arguing that he did not understand the questions and intended no deceit, but the BAP upheld the denial of his discharge.

When Freese filed for Chapter 7 bankruptcy, he signed his schedules and statement under oath just like any other debtor. However, one of his creditors, the Bank, brought an action alleging that he made numerous false statements under that oath. Among them was the omission of a livestock business he was running in addition to his full-time job, and its profits; co-ownership of his wife's car; $25,000 in income from 2007; and sales of two ATVs, a Bobcat utility vehicle and a tractor. At trial, Freese testified that he misunderstood the meaning of "gross profits" in the form and thus excluded his livestock business because he ran it at a loss, as a "hobby farm." He also testified that he didn't report his ownership of his wife's car because it was his wife's, and he didn't report the utility vehicles because he did not believe they were part of the Bank's collateral. He noted that he freely disclosed information about his livestock business to the Bank and the bankruptcy trustee and answered all the trustee's questions, but the trial court was unimpressed. It denied him a discharge of his debts.

To make a false oath, bankruptcy law requires that the debtor make a statement under oath with fraudulent intent, knowing that statement to be false and materially related to the bankruptcy case. On appeal, Freese argued that his oath was not false because he mistakenly interpreted the questions differently, and thus he lacked the required knowledge and intent. He also argued that his omissions were immaterial. However, the BAP found, the record supports the finding that Freese made a false oath. The bankruptcy court noted that Freese is experienced in the business world and "selectively understood" certain concepts. For example, while he claimed he failed to list the livestock business because it ran at a loss, he had correctly listed gross profits from his employee job. This is not the law, the BAP said -- and furthermore, failure to understand the question is not grounds to withhold information. These are material omissions, the BAP said. By finding for Freese, it said it would have to allow each bankruptcy filer to adopt his or her own subjective standards for interpreting forms. Thus, it upheld the denial of discharge.

As Huntington Beach individual bankruptcy lawyers, we wonder whether Freese had an attorney when he originally filed for bankruptcy. It's possible that he genuinely didn't understand the forms he was asked to submit to the court, and that all of this stems from a genuine misunderstanding rather than intent to deceive. This is why experts recommend that bankruptcy filers, particularly people with complicated bankruptcies, get help from an experienced bankruptcy attorney like our own Vincent Howard. Here at Howard Law, P.C., we work with our clients to make sure they fully understand what is being asked of them, as well as the penalties for not being completely honest. Our San Diego County consumer bankruptcy attorneys can help debtors structure their filings to ensure that they stay within the law, while still putting their best foot forward.

Continue reading "Eighth Circuit BAP Upholds Denial of Discharge for Omitting Information on Assets - Lincoln Savings Bank v. Freese" »

Our Ontario foreclosure defense lawyers were pleased to see a recent announcement that California and Nevada will jointly investigate banks' fraud and wrongdoing during the foreclosure crisis. At Howard Law, P.C., we recently noted that our own state Attorney General, Kamala Harris, has broken away from the multistate negotiations with the banking industry to settle the "robo-signing" controversy of late 2010. Those talks had been focused on the revelation that banks had a widespread practice of signing legal affidavits without knowing whether they were accurate, which was at best a violation of legal procedures. At worst, the "robo-signed" documents could have allowed wrongful foreclosures to take place. Many courts responded by temporarily stopping foreclosures altogether, or putting stricter rules in place for foreclosure litigants.

Harris said in late September that she was leaving the robo-signing talks because she felt they were not offering sufficient remedies for the scope of the foreclosure crisis. The multistate group has taken several blows, including the departure of attorneys general from both liberal and conservative states and a federal settlement that critics said could undermine the AGs' talks. Harris and other more liberal AGs felt that the talks were an opportunity to discuss remedies that might curb foreclosures and the suffering they cause for both foreclosed borrowers and government agencies. Observers said the alliance between Harris and Nevada AG Catherine Cortez Mastro could further undermine those talks. However, they join AGs in several other states that have taken individual action, including New York and Massachusetts, which sued several lenders in early December for alleged irregularities in foreclosures.

The partnership between California and Nevada combines two neighboring states that were both hit hard in the foreclosure crisis. They are also both non-judicial foreclosure states, which means evidence of fraud will be less obvious than the fraudulent affidavits submitted in judicial foreclosure states. Their announcement said they will share litigation strategies, evidence and perhaps personnel between offices. Each has been busy on her own foreclosure investigations. In Nevada, Masto has widened an investigation of Lender Processing Services, a Florida foreclosure firm accused of robo-signing; Harris is also investigating the firm. Masto is suing Bank of America and its Countrywide division, accusing them of reneging on a settlement of an earlier predatory lending case, and Harris is investigating Bank of America, along with Citibank, Fannie Mae and Freddie Mac, for other reasons.

The Anaheim foreclosure defense attorneys at Howard Law, P.C., are pleased to see this partnership. California has major weight, as partner Vincent Howard has noted in earlier blog posts, because we have the most people of any state and a lot of economic importance. Adding Nevada to our independent investigations only adds more weight to any litigation that might eventually come out of the work, and Nevada is hard-hit in its own right. Unfortunately, we agree with Harris that the 50-state settlement talks were toothless; they dragged on for more than a year and were undermined from within and without. Given the actual criminal conduct at issue here -- and the grave effects on the lives and finances of ordinary borrowers -- our Pomona foreclosure defense lawyers do not feel it is unreasonable of the AGs to push for real penalties.

Continue reading "California and Nevada AGs Join Forces For Independent Investigation of Foreclosure Fraud" »

The Rancho Cucamonga foreclosure defense attorneys at Howard Law, P.C., have written many, many times about the use of shoddy paperwork during the foreclosure crisis. This includes the admitted use of "robo-signed" documents in foreclosures; foreclosing without proof of ownership; and failing to offer genuine assistance to homeowners who come to the lenders for help, even if that means violating the rules of the Home Affordable Modification Program. So we were pleased to see the Dec. 1 announcement that the state of Massachusetts has sued five major lenders and the Mortgage Electronic Registration System, the private company they use to buy and sell loans, for foreclosure fraud. Massachusetts Attorney General Martha Coakley said she took action after waiting for more than a year for a settlement with the major lenders in the "robo-signing" investigation, who she said demand too much immunity for their actions.

The complaint (PDF) accuses the lenders of foreclosing on some homes without any right to do so; using false documents in foreclosures; deceiving borrowers about their loan modification programs and practices, including foreclosures while in modification; and failing to comply with the Massachusetts law requiring property to be registered with government offices. That last allegation is a reference to MERS, which was created in the 1990s expressly to allow lenders to avoid using local land offices when they bought and sold mortgages. The foreclosure crisis has exposed many cases in which the chain of title between the original lender and the foreclosing lender is broken. In some cases, lenders have been accused of falsifying the required documents, such as assignments, in order to meet legal requirements for foreclosure. Some of the foreclosures that went through with these shoddy documents were illegal, the lawsuit alleged, citing many pages of examples.

The fourth allegation was that the banks were deceptive, though their servicing arms, in offering and implementing loan modifications. It noted that each bank defendant has claimed since the beginning of HAMP to be actively helping customers qualify for loan modifications. In reality, it said, the lenders have modified only a fraction of the eligible loans; and approved for a permanent modification less than half of those that did win a trial modification. In rejecting so many borrowers, the suit said, lenders frequently miscalculated borrowers' income by more than 5 percent, an error the commonwealth said was unacceptable "when the homeowner's ability to stay in their home hangs in the balance." They also lied to customers about the need to be delinquent before they would be considered, or the need to have a steady income, the complaint said. And some modifications were rejected after months of steady payments, it said, with foreclosure begun immediately. The commonwealth sought an injunction against the practices, a declaratory judgment forbidding the use of MERS and $5,000 for each foreclosure that violated the law.

As Garden Grove foreclosure defense lawyers, we applaud this lawsuit, which reflects many of the problems we've seen firsthand here at Howard Law, P.C. For example, at the height of media coverage of the foreclosure crisis, it was well known that lenders were incorrectly telling borrowers they had to go into default to be eligible for a HAMP loan modification. This is not just a delaying tactic; it hurts the borrower's credit and credibility in later loan modification or foreclosure defense proceedings. So do many of the other illegal practices around HAMP alleged in the lawsuit. Our lead Gardena foreclosure defense attorney, Vincent Howard, has handled numerous HAMP lawsuits accusing the banks of breaking HAMP rules in their eagerness to deny loan modifications to people who meet eligibility requirements. If Massachusetts prevails in this lawsuit, it could change national foreclosure practices for the better.

Continue reading "State of Massachusetts Sues Five Major Lenders With Allegations of Fraudulent Foreclosures" »

The Fontana foreclosure defense lawyers at Howard Law, P.C., represent a lot of clients who believe they were pushed around and mistreated by their lenders. While mortgage servicers and lenders have the same rights to legal remedies that everyone else has, some of the practices that have become widespread during the mortgage crisis cross the line into illegal or negligent behavior. Our lead attorney, Vincent Howard, has won many victories for clients who were foreclosed without a discussion of alternatives, for example, or issued a predatory loan to begin with. So we were interested to see a decision from the South Dakota Supreme Court about a bank's attorney who allegedly abused his position as a prosecutor to pressure an older woman into giving up title to her home. In Fix v. First State Bank of Roscoe, the court ultimately sent the case back for a new examination of a claim for intentional infliction of emotional distress.

Rita Fix sold her home to her son and daughter-in-law in 1997, but retained a life estate on the property. Two years later, the couple took out a farm loan from the Bank and borrowed against the home, which required Fix to sign a warranty deed to the couple. The Bank assured her in writing that she would retain possession even if the couple defaulted. In 2004, Fix filed for bankruptcy. In 2005, her son and daughter-in-law defaulted on their loan and conveyed the home to the Bank in lieu of foreclosure. The Bank sold the house and sought to remove Fix, despite its written promise. Fix sued the Bank in federal bankruptcy court, and the case eventually made its way to the Eighth Circuit, which ruled that Fix's trustee must bring each of her claims except the one for intentional infliction of emotional distress. She brought this in state court.

Meanwhile, the family was indicted in state court for a fraudulent scheme in which Fix's son sold grain in her name and had her send him the profits, in order to avoid having the income taken by the Bank to satisfy his debt. The son pleaded guilty, but the charges against Fix remained dormant despite her attorney's requests to proceed or dismiss. The county prosecutor on that case also represented the Bank civilly. He eventually approached Fix and offered to drop the charges if she would deed her house to the Bank. She modified her state-court lawsuit to include a claim for abuse of process against the prosecutor as well as the Bank, alleging they conspired to use the criminal case to resolve the dispute over the home's ownership. The prosecutor settled; the court dismissed the count for intentional infliction of emotional distress. The abuse of process count against the bank went to a jury, which found for Fix but awarded no damages.

On appeal, Fix argued that the trial court was incorrect to tell jurors she needed to suffer "extreme and disabling" emotional distress to recover for emotional distress from the abuse of process. The South Dakota Supreme Court agreed. The trial court incorrectly relied on a previous decision that was not a tort action like this one, it said. Indeed, that case said emotional damages were unavailable except in cases accompanied by an independent tort. For an intentional tort like abuse of process, the court said, South Dakotans may claim emotional distress damages without proving the heightened standard of "extreme and disabling" emotional distress. Because the jury received bad instructions, the high court reversed and remanded for a new trial. Fix had less luck with her other arguments, but the court also noted that any damages awarded on retrial, not just compensatory damages, should be reduced by the amount of the prosecutor's settlement.

As Aliso Viejo foreclosure defense attorneys, we're pleased to see penalties are again possible for what appears to have been an abuse by the bank and its attorney. Southern California's larger legal community makes this kind of case less likely in Orange County, but businesses and lawyers across the United States should be barred from abusing their power. At Howard Law, P.C., we very often work with mortgage borrowers who believe their lenders and loan servicers abused their power by railroading them into foreclosure. Often, these clients are facing a foreclosure after months of fruitless attempts to work with the lender on a loan modification, and sometimes after intentionally hurting their finances in order to qualify for help that never appeared. Our Perris foreclosure defense lawyers help clients hold these lenders responsible whenever they broke the law.

Continue reading "South Dakota Supreme Court Returns Case of Alleged Abuse by Bank Attorney to Trial - Fix v. First State Bank of Roscoe" »

At Howard Law, P.C., our San Bernardino consumer bankruptcy attorneys frequently represent clients who are fighting to hold on to their cars. Here in southern California, a car is an important tool for making a living and meeting other basic obligations. Bankruptcy law recognizes this somewhat and often makes allowances for filers who want to hold on to their cars, but those allowances have limits. The limits were on display in the decision in In re Rice, by the Bankruptcy Appellate Panel of the Sixth U.S. Circuit Court of Appeals. Megan Lynn Rice of Ohio filed for Chapter 7 bankruptcy shortly after Wells Fargo Bank repossessed her car. WFB moved for relief from the automatic stay, but the bankruptcy court found that it was not entitled to so move because the title of the car had not been properly assigned. The BAP disagreed, finding Ohio law does not require assignments to be noted on titles.

Rice bought the 2003 Chevy Trailblazer in 2008 and financed it. The security interest was assigned by the dealer to Wells Fargo Auto Finance, and from there to WFB. About two years later, Rice defaulted on the payments. The car was repossessed on Jan. 4, 2011, and Rice filed for bankruptcy on Jan. 28, 2011. On Feb. 9, WFB moved for relief from the automatic stay, including a copy of the assignment from WFAF to WFB and a copy of the title. After a disagreement arose between WFB and the court as to whether the assignment was valid, it gave the parties 30 days to brief the issue. It ultimately decided WFB had no right to ask for relief from the stay because the assignment was not valid, saying the assignment must be noted on the title under Ohio law. It rejected arguments that the security interest was perfected, saying the issue was that WFAF appeared to hold the lien while WFB had the note. WFB appealed.

The BAP started its analysis by saying the question here is who is the "party in interest" entitled to file for relief from stay under bankruptcy law. Construing caselaw from around the United States, the BAP found that a party may seek relief from the automatic stay if it can show that it has an interest in the relevant note, and has been injured by the debtor's default or other injurious conduct. An assignee may seek relief if the assignment is valid. State law governs these determinations, the BAP said. In this case, the dispute is only over whether Ohio law requires the assignment must have been noted on the vehicle's title to make WFB a party in interest. The BAP with approval an earlier case, In re Fields, which had strikingly similar facts but a different underlying dispute. Notwithstanding that difference, the panel said, Fields is controlling. If an assignee is not required by Ohio law to note the assignment on the title of the vehicle, the panel said, "surely its perfected status" gives it standing to seek relief from stay. Thus, it reversed the bankruptcy court's decision.

As Yorba Linda personal bankruptcy lawyers, we wonder whether this case will be appealed to the Sixth Circuit. After all, the lower court expressly held that perfection of the interest was irrelevant. Our lead partner, Vincent Howard, sees problems with the chain of title much more often in Howard Law, P.C.'s work with mortgage holders. However, with the rise of buying and selling loans as investments, it's likely that few borrowers are immune to this problem. While this can create headaches like the kind experienced by Rice, it can also create opportunities for experienced Los Angeles individual bankruptcy attorneys to fight a repossession or foreclosure attempt by an entity that cannot prove ownership. We do not believe courts should drop their standards for proof of ownership, especially when a large investment like a home or a vehicle is at stake.

Continue reading "Sixth Circuit Rules Creditor Has Perfected Security Interest in Bankruptcy Debtors Vehicle - In re Rice" »

The Moreno Valley foreclosure defense lawyers at Howard Law, P.C., wrote earlier this year about a case alleging fraudulent foreclosure documents, which seemed headed for the Florida Supreme Court. In Pino v. Bank of New York Mellon, Roman Pino alleged that the foreclosure documents used by BNY were fraudulent, then asked the court to sanction BNY for attempting to repeat a foreclosure it had already dismissed. The case made it to Florida's Fourth District Court of Appeal, which upheld the lower court's dismissal of Pino's motion. However, in an unusual move, the appeals court asked the Florida Supreme Court to review its ruling. The parties later settled and asked to dismiss the case, but the Florida Supreme Court declined, agreeing that the topic needs judicial resolution.

When BNY originally filed the foreclosure case, Pino objected because there was no document showing that the mortgage had been assigned to BNY. The bank amended its complaint to include an assignment, but this assignment had not been filed with the county and was dated just before the foreclosure was filed. Pino moved for sanctions for fraudulent documentation, and BNY voluntarily dismissed the case. Five months later, however, it re-filed the foreclosure. Pino responded by filing a new motion in the original foreclosure to vacate the dismissal for fraud on the court, then sanction BNY by dismissing its new foreclosure case. The trial court dismissed this, holding that it had no jurisdiction to decide because the case was voluntarily dismissed. The Fourth District agreed, but ruled that the underlying issue of potentially tainted foreclosure documents could affect numerous Florida foreclosures, and certified the case to the high court.

While that appeal was pending, Pino and BNY settled their case and filed a joint stipulated dismissal with the Florida Supreme Court. In the instant ruling, the court explained why it declined to dismiss the case. It started by noting that the Florida Rules of Appellate Procedure do not require courts to dismiss cases on request, but merely make it possible. Indeed, the court has recognized that when a case is of great public importance and likely to recur, it has discretion to keep the case alive. This case may be moot, the high court said, but the issue of whether BNY can face sanctions for a fraudulent assignment of mortgage after voluntary dismissal could affect many other foreclosures. In fact, the court said, it has implications outside mortgages and foreclosures as well. Thus, it disapproved the stipulation of dismissal and took the case. A dissent said parties should not be "dragooned" into spending resources briefing a case they have already settled, and that precedent cited by the majority is wrong.

At Howard Law, P.C., we are pleased to see the high court take up this case. Like California, Florida is one of the hardest hit states in the foreclosure crisis, and any decision on the merits of this issue could affect many people who are fighting pending foreclosure cases. Our lead Placentia foreclosure defense attorney, Vincent Howard, wrote earlier in 2011 about this case and its potential to give more foreclosures the close scrutiny they deserve. Here in southern California, the foreclosure process is not judicial, which means there's no court or judge to examine the validity of the paperwork unless the borrower takes the initiative to file a lawsuit. Often, it's only when a Murrieta foreclosure defense lawyer steps in that the lender realizes the borrower is serious about protecting the home.

Continue reading "Florida Supreme Court Denies Parties' Request to Dismiss Case of 'Great Public Importance' - Pino v. Bank of New York Mellon" »

The Rubidoux predatory lending attorneys at Howard Law, P.C., were interested to see a recent appeals court ruling allowing a relatively rare Truth in Lending Act lawsuit to go forward. In Marr v. Bank of America, Richard Marr of Wisconsin sued Bank of America for failing to give him the required number of notices of his right to rescind his 2007 refinance. Rather than send him both notices required under TILA, Marr alleges, the bank sent only one. After he sued in federal district court, the bank successfully moved for summary judgment to dismiss the case. But on appeal, the Seventh U.S. Circuit Court of Appeals ruled that there were enough genuine issues of material fact to survive summary judgment.

TILA requires the lender to provide clear and conspicuous notice of the borrower's right to cancel the transaction within three business days, and the federal Regulation Z requires two such notices. If the lender fails to comply, the right to rescind expands from three days to three years. Marr refinanced his home in 2007 in response to a cold call pitching the idea, thinking it would help pay off credit card bills. At the closing, he alleges that the title insurer gave him a series of documents to sign without giving him time to read them; one such document was an acknowledgement that he had received the two required TILA notices. Marr was given a folder full of the closing documents, which he promptly stored and did not touch for two years, when his attorney examined it for unrelated reasons. At that time, they discovered only one copy of the TILA notice. He sued for rescission. The district court granted summary judgment to Countrywide (BofA's predecessor) and the title company, finding that Marr's signature on the acknowledgement allowed the court to presume he had received both copies.

On appeal, the Seventh Circuit reversed this, finding that Marr's testimony that he received only one copy of the TILA notice was sufficient to rebut the presumption that he'd received both. To survive summary judgment, the court noted, parties must not prove their cases, but merely show admissible evidence that could support their cases. Thus, the question is whether Marr's testimony was enough to allow a reasonable jury to find he never received a TILA notice. The Seventh thought it was. The district court considered only Marr's attorney's testimony that he found only one copy, and Marr's own testimony that no one else could have disturbed the folder; it did not consider Marr's testimony that the closing practices were other than the title company claimed. Citing with approval the Third Circuit's recent ruling in Cappuccio v. Prime Capital Funding LLC, the Seventh ruled that Marr's testimony alone is enough to rebut the presumption for summary judgment purposes. Thus, it reversed and remanded the case.

As Westminster predatory lending lawyers, we're pleased to see that Marr will have the chance to prove his case. Though a jury may ultimately find his testimony is not credible, the ruling allows a jury of his peers to make that decision. As the Seventh noted, this case can be boiled down to whether Marr remembers correctly that the title agent did not review all of the documents Marr signed. Long Beach predatory lending attorney Vincent Howard believes that human beings tend to cut corners, especially when they have done the same job over and over again for many years and don't need to think about which steps to take. That's why we carefully review all of our TILA cases to ensure that Regulation Z was followed.

Continue reading "Seventh Circuit Allows Survival of Homeowners TILA Lawsuit Alleging Faulty Notice - Marr v. Bank of America" »

In bankruptcy, a trustee stands in for the people who filed for bankruptcy, assuming financial responsibilities that most people handle for themselves. Depending on the situation, the trustee may not serve the best interests of the debtors; he or she has obligations to creditors as well. So our Riverside consumer bankruptcy lawyers were interested to see a recent bankruptcy appeals ruling that pitted debtors against their trustee. In McDow v. Dudley, David and Anne Dudley of Virginia filed for Chapter 13 bankruptcy in 2008, but converted to a Chapter 7 case. Their bankruptcy trustee, W. Clarkson McDow, Jr., then moved to dismiss the case as abusive, but the bankruptcy court denied it. On appeal, the district court ruled that the order was not appealable and dismissed it. The Fourth Circuit reversed, finding that a motion to dismiss for abuse is appealable.

McDow originally moved in bankruptcy court to convert to a Chapter 7 case or dismiss, so the Dudleys moved themselves to convert to a Chapter 7 case. After this was granted, McDow moved to dismiss for abuse. He argued that the Dudleys should not hve a Chapter 7 case because they failed the means test devised in the 2005 bankruptcy law changes, and that their entire case was abusive because they had the means to pay back their creditors. The Dudleys countered that the means test does not apply to conversion cases. The bankruptcy court agreed, breaking with legal authorities to find that the means test applies only to cases filed under Chapter 7 originally. It entered summary judgment for the Dudleys, and McDow appealed to the district court. That court found that it lacked jurisdiction because the bankruptcy judge's order was not final. While McDow's appeal to the Fourth Circuit was pending, the Dudleys finished their case and discharged their debts.

The Fourth reversed, finding that the district court should have been willing to consider the order final and appealable. Generally speaking, it said, finality is handled by the courts in a more practical and less legalistic way in bankruptcy. Thus, previous Fourth Circuit caselaw says bankruptcy orders may be immediately appealed if they dispose of "discrete disputes in the larger case." McDow argued that this is such a discrete dispute, and that the nature of a motion to dismiss as abusive requires expedited review. After all, he said, distributing assets to creditors in a case that is later dismissed can create inefficiency and potentially cheat creditors. Overruling the bankruptcy court, the Fourth Circuit found that the 2005 bankruptcy law changes showed Congressional intent to police all Chapter 7 cases for abuse, including converted cases. This shows the importance of resolving abuse claims quickly, the court said. Thus, it agreed with McDow that such an order should be appealable. Several appeals courts have ruled in the same way, it noted -- one after 2005. Thus, it vacated and reversed the dismissal order.

As Irvine personal bankruptcy attorneys, we agree with the Fourth Circuit that it is most efficient to appeal a motion to dismiss for abuse earlier in the case. However, we'd like to note that the courts are using the word "abuse" in a way that we find misleading. The means test in the 2005 bankruptcy law did not just establish a threshold for Chapter 7 cases; it redefined any Chapter 7 filing that doesn't meet that threshold as "abusive." Thus, starting out with a certain amount of income is now enough to make a Chapter 7 case "abusive," regardless of other circumstances. Our San Diego County individual bankruptcy lawyers believe bankruptcy judges should be given more flexibility than this, given the wide variety of circumstances faced by bankruptcy debtors in this economy.

Continue reading "Fourth Circuit Rules Trustee May Appeal Order Denying Attempt to Dismiss Bankruptcy - McDow v. Dudley" »

Our Rubidoux foreclosure defense attorneys were interested to see yet another challenge to a bank's right to foreclose reach the federal appeals courts. In Stein v. Chase Home Finance, Minnesotan Kenath Stein challenged the right of Chase to foreclose, arguing that it did not have both the note and the mortgage for the home in its possession when it started the foreclosure. Stein also challenged the validity of a redemption of the home by a junior lienholder, National City Bank. After removal to federal court, the two lenders successfully moved to dismiss, finding both actions valid. Stein appealed to the Eighth U.S. Circuit Court of Appeals, but it upheld the district court.

Stein refinanced in October 2006 with a $484,000 loan from Chase, and took out a second loan from National City in January of 2007. Unfortunately, he started missing payments in March of 2008 and could never cure the default entirely. Chase notified him in September of that year that it would start foreclosure proceedings; a few weeks later, Chase Bank assigned the mortgage to its Chase Home Finance arm. Chase later sold the home to itself at the foreclosure sale, and National City exercised its right to redeem the property by buying it within six months. Stein then filed a pro se lawsuit in state court, arguing that Chase did not have the right to foreclose because it needed to possess both the note and the mortgage when initiating foreclosure. The banks removed the case to federal court, which granted summary judgment, finding Chase Bank had validly assigned its home finance arm both the note and the mortgage. Stein appealed, with an attorney.

On appeal, Stein argued that there were genuine issues of material fact as to whether it did have the note when it started the foreclosure, making summary judgment inappropriate. The Eighth Circuit disagreed. The Minnesota Supreme Court made a relevant decision with 2009's Jackson v. Mortgage Electronic Registration Systems, where it ultimately found that an assignment of a promissory note need not be recorded before a foreclosure by advertisement may take place. In its analysis, the Minnesota Supreme Court found that a party may hold the mortgage without any interest in the note; the right to foreclose lies with the legal holder of the mortgage, not a note-holder with an equitable interest. Thus, because the mortgage was assigned to Chase 11 days after the foreclosure notice, the foreclosure was valid. In any case, the Eighth noted, the assignment expressly included the note, so Stein's argument fails. It affirmed the district court.

As Placentia foreclosure defense lawyers, we would be interested to know how Stein's case may have come out if he had had an attorney. In particular, we suspect the banks moved the case to federal court because Stein was representing himself, and federal court is generally considered a more difficult forum for doing this. It may be true that Stein was mistaken about the need for both a note and a mortgage, but we also notice that the court didn't address the issue of when exactly those documents must be in the foreclosing institution's possession. Our Carson foreclosure defense attorneys have seen cases in which this mattered a great deal, because the lender made the necessary assignments to comply with state law only after the foreclosure was started. This issue is worth looking into for any homeowner who suspects the foreclosure did not respect state law.

Continue reading "Minnesota Law Does Not Require Foreclosing Bank to Hold Note and Mortgage - Stein v. Chase Home Finance" »

A major goal for people who file for bankruptcy is protection from payment obligations that have become severely burdensome. Bankruptcy may not eliminate a debt entirely, but it suspends debt collection in the short run and monitors it carefully as the bankruptcy progresses, so the debtor can pay back some or all of the debt without a form of debtor's prison. That's why our Chino consumer bankruptcy lawyers were interested to see a case drawing a sharp distinction between interest owed on a loan before the bankruptcy plan was confirmed and afterward. In First United Security Bank v. Garner, Daniel Garner of Alabama took out a loan from FUSB with an interest rate of 10.5 percent a year, but his confirmed Chapter 13 bankruptcy plan called for a rate of 4.25 percent. FUSB objected, but the Eleventh Circuit ruled that the bankruptcy court was right to award the higher rate only until plan confirmation.

Garner borrowed $33,84 in December of 2008 and promised to repay it at 10.5 percent within 30 months. The loan is secured with multiple vehicles Garner owns, which are worth more than the $26,849 he still owes, making FUSB an oversecured creditor. This gives it priority over other creditors in bankruptcy cases. Garner's confirmed plan calls for full repayment of the loan, with a "prime plus" interest rate of 4.25 percent after the plan was confirmed. FUSB objected, arguing that its oversecured status entitled it to the full 10.5 percent at al points in the bankruptcy. The bankruptcy court reversed in part, allowing FUSB to collect the 10.5 rate for the time between Garner's petition and his plan confirmation, but keeping the 4.25 percent post-confirmation. The district court affirmed this after FUSB's appeal, and the bank appealed once again.

The Eleventh Circuit once again affirmed the bankruptcy court's order. It started by noting that oversecured creditors are special among bankruptcy creditors in that they may claim interest during bankruptcy at all. Furthermore, the Eleventh said, it is not disputed that the post-petition, pre-plan interest is calculated at the contracted rate -- just whether that rate applies after confirmation. Drawing on caselaw, the court said it did not. Its support included a 1993 decision from the U.S. Supreme Court that expressly said an oversecured creditor's interest accrues "from the petition date until the effective or confirmation date of the plan." Though that case had an agreement between the parties, the Eleventh noted that its own later decision saying the party agreement did not undermine the rule. This is supported by Second and Ninth Circuit decisions allowing it as a form of cramdown, the court noted. Thus, it affirmed the lower courts.

As Costa Mesa personal bankruptcy attorneys, we're pleased to see the bankruptcy court upholding the spirit of bankruptcy law, as well as its letter. Garner may have had other reasons to file for bankruptcy, but a loan with 10.5 percent interest surely can't have been helping him financially. Bankruptcy is designed to ease financial burdens on debtors, and it cannot do that if none of the terms of the loan are changed as a result of filing. Because the rule in question applies to oversecured creditors, allowing such creditors to keep their loan terms as they appear could even unfairly penalize people who are close to paying off their loans, or give banks a bad incentive to demand more security than they need. Part of our job as Temecula individual bankruptcy lawyers is preventing or minimizing damage to our clients' financial lives from such bad policies.

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As San Bernardino foreclosure defense attorneys, we read a lot in the early days of the mortgage crisis about contributions to the bubble from mortgage professionals. In the days when mortgage lending was easy, some observers say, banks made credit far too easy to obtain and pressured prices upward, knowing they would quickly securitize the loans and face no risk. Sometimes, the appraiser responsible for ensuring the home's price was fair would be corrupt or pressured by other players to appraise the home at a higher value than it actually possessed. This kind of appraisal fraud allegation is behind the New York Court of Appeals decision in People v. First American Corp., a lawsuit brought in 2007 by then-Attorney General Andrew Cuomo of New York, now the state's governor. In this ruling, the court allowed the suit to proceed.

Cuomo alleged that First American's appraisal subsidiary, eAppraiseIt, engaged in repeated fraudulent and deceptive acts in the course of its business. Washington Mutual, a bank now owned by Chase, hired eAppraiseIt in 2006 and quickly became the appraisal firm's biggest client, providing about 30 percent of its business in the state of New York. While eAppraiseIt was supposed to remove a conflict of interests for WaMu by doing independent appraisals, the lawsuit charges that WaMu began to pressure eAppraiseIt to make the appraised values of homes higher, without apparent justification. This was "to allow the loans to proceed to closing," but of course also inflated the value of the loans the home buyers took out from WaMu. eAppraiseIt's management was aware of the pressure and at first resisted, but eventually bowed and allowed WaMu to completely control eAppraiseIt's appraisal panel, in violation of professional ethics laws. After Cuomo sued in 2007, First American tried unsuccessfully to move the case to federal court and then to have it dismissed, arguing that it was preempted by several federal laws. The Appellate Division affirmed the ruling denying a dismissal.

First American appealed to the New York Appeals Court, the highest court in the state. It had no better luck there. It argued that the federal Home Owners' Loan Act and Financial Institutions Reform, Recovery and Enforcement Act occupied the entire regulatory field for real estate appraisals, and also that the state of New York's lawsuit impermissibly attempted regulation that impeded WaMu's ability to finance real estate transactions. In its analysis, the high court said this case is about implied or field preemption, in which federal law is so pervasive that it leaves no room for state laws. The court disagreed with First American that this was the case for HOLA and FIRREA. HOLA created a board that was the precursor to the Office of Thrift Supervision; FIRREA created the OTS. The laws regulate federal savings & loan institutions, and FIRREA established uniform national real estate appraisal standards. FIRREA expressly permits state regulation, the court said, through state appraisal licensing. Furthermore, the lawsuit only indirectly affects the activities of any federal savings association. The high court upheld the previous rulings and allowed the case to go forward.

Our Santa Ana foreclosure defense lawyers are pleased to see this case stay alive. Though the defendants have apparently succeeded in fighting them for four years without reaching the merits, the allegations involved are quite damning for WaMu and possibly its new parent, Chase. Inflating appraisals takes advantage of home buyers who cannot have the same skills and knowledge as the appraiser (except in rare cases) and thus have no idea whether the appraisal is accurate. This is why appraiser independence is so important. After an inflated appraisal, home buyers are essentially cheated out of the difference between the true value and the inflated amount they borrow, locked into extra interest. As Los Angeles County foreclosure defense attorneys, we suspect this kind of wrongdoing, a form of predatory lending, was more pervasive during the real estate bubble than lenders would like us to believe.

Continue reading "New York High Court Allows Lawsuit Alleging Appraisal Company Inflated Home Prices - People v. First American Corp." »