Today the Bankruptcy Appellate Panel for the Eighth Circuit reversed a Minnesota Bankruptcy Court in Fisette v. Keller, No. 11-6012, and that a debtor may strip off wholly underwater junior mortgages when the debtor is not eligible for a discharge in chapter 13. Prior to Fisette, the bankruptcy courts in the District of Minnesota had disallowed the strip of of underwater mortgages even when the debtor was eligible for a discharge. See the decision here.
The End of Mortgage Securitization?
This newly released paper suggests that the use of MERS to electronically transfer mortgages introduces significant vulnerability into the securitization process by threatening the bankruptcy remoteness between loan originator and trust.
Click here for the paper.
EZ Tax Transcripts for Loan Modifications
The IRS has created a new Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript, to order a transcript of a Form 1040 series return. The IRS created this streamlined form to help those taxpayers trying to obtain, modify or refinance a home mortgage. Transcripts may also be mailed to a third party, such as a mortgage institution, if specified on the form. Form 4506T-EZ can be used to to request a tax return transcript for the current and the prior three years that includes most lines of the original tax return.
Fifth Circuit Affirms Denial of Attorney Fees to Wells Fargo
In a per curiam decision, the Fifth Circuit, in In re Collins, No. 10-20658 (5th Cir. August 15, 2011), upheld the lower courts’ findings that Wells Fargo was not entitled to attorney fees for filing a proof of claim where it disputed the amount of the debt as listed in the debtor’s proof of claim. The lower courts found that interpretation of the Deed of Trust did not support Wells Fargo’s position, see In re Collins, No. 07-38246, 2009 Bankr. LEXIS 1554 (Bankr. S.D. Tex. June 8, 2009), aff’d sub nom. Wells Fargo Bank, N.A. v. Collins, No. H:09-2483, 2010U.S. Dist. LEXIS 85195 (S.D.Tex. Aug. 19, 2010). In affirming, the Fifth Circuit explained that it found no reversible error in that conclusion. NACBA assisted with the debtor’s brief.
NCBRC Files Amicus on Absolute Priority Rule in Chapter 11
NCBRC’s Tara Twomey has filed an amicus brief on behalf of NACBA in the case of In re Friedman, No. 11-1149 (9th Cir. BAP) arguing that the absolute priority rule in chapter 11 does not apply to individual debtors. NCBRC’s brief argues that when Congress enacted the 2005 amendments it made significant amendments to chapter 11 in order to steer debtors toward reorganization rather than liquidation. Application of the absolute priority rule would have the contrary effect. This case presents one of the first opportunities for an appellate court to address whether the 2005 amendments to the Code abrogate the absolute priority rule for individuals. Other cases addressing this issue that are currently in the courts include: In re Maharaj, No. 11-217 (4th Cir.); In re Kamell, No. 11-1246 (9th Cir. BAP); In re Stephens, No. 11-29 (10th Cir. BAP); and In re Cobb, No. 09-25620 (Bankr. C.D. Cal.). Click here for the brief.
NCBRC Files Amicus in Vehicle Ownership Expense Case
NCBRC has filed an amicus brief in In re Scott, No. 10-33131 (Bankr. S.D. Ill), involving the calculation of projected disposable income for vehicle ownership expense where the debtor’s actual contractual payments were less than the deduction allowed under the IRS Local Standards. NCBRC’s brief relies on the plain language of section 707(b)(2)(A)(ii)(I) for the position that a chapter 13 plan need not calculate pdi based upon the lesser of the IRS allowed deduction or the debtor’s actual payments. This position is further supported by the statute’s legislative history and is not undermined by the decision in Ransom nor is it contrary to bankruptcy policy. NCBRC’s brief was written by Jim Haller. Click here for the brief.
Goldgar Approves Lien Stripping without Discharge
On June 24, 2011, Judge Goldgar from the Bankruptcy Court for the Northern District of Illinois agreed with a growing number of courts that have concluded a discharge is not necessary to strip off a wholly underwater junior mortgage. There is no written decision, but a copy of the transcript is available here. The case is Anderson v. Harris, No. 10-A-02467 (Bankr. N.D. Ill.)
NJ Appellate Court Sets Aside Sheriff’s Sale
A New Jersey intermediate appellate court set aside a sheriff’s sale and vacated summary judgment originally granted in favor of foreclosing entity because it failed to prove it had standing on the day that the foreclosure complaint was filed. An amended complaint filed after plaintiff received an assignment of mortgage did not cure the defect.
Cal. Appellate Court on Option ARMs
Yesterday in the case of Boschma, et al v. Home Loan Center, Inc., No. G043716, a California Appellate Court held that homeowners sufficiently stated a claim for a state UDAP violation based on the lender’s disclosure that suggested only the possibility of negative amortization and interest rate increases, when both were certain. The interest rate was going to rise from the introductory teaser rate, and if the borrowers paid according to the payment schedule in the TIL disclosure negative amortization was also a certainty.
NACBA Files Amicus in Fourth Circuit on Issue of Class Certification
NACBA and the National Association of Consumer Advocates has requested leave to file an amicus brief in the case of Gentry v. Circuit City, Inc. No. 10-2418 (4th Cir.) to address the issue of the proper standards to be applied by the bankruptcy court in determining whether to certify a class in bankruptcy. The class consisted of employee creditors of Circuit City. The amici argue that the lower courts erred in finding that the bankruptcy court had discretion, without conducting a factual inquiry under Rule 23, to find that the individual bankruptcy process was superior to class actions. The brief further argues that the bankruptcy court erred in finding that the class claim must be filed prior to the “claims bar date” rather than at “an early practicable time” as required by Rule 23.