Following closely on the heels of the Eleventh Circuit decision in In re Scantling, the BAP for the Sixth Circuit held that chapter 20 debtors may strip liens despite the unavailability of discharge. In re Cain, No. 13-8045 (July 14, 2014). [Read more…] about Debtors Enjoying Growing Consensus on Chapter 20 Lien Strip Cases
Eviction Is Violation of Stay even after Pre-Petition Foreclosure Sale
A debtor’s possessory interest in property sold through foreclosure is sufficient to support a cause of action for violation of the automatic stay even though that interest may have been insufficient to withstand a motion for relief from stay. Eden Place v. Perl (In re Perl), No. 13-1328 (B.A.P. 9th Cir. May 30, 2014). [Read more…] about Eviction Is Violation of Stay even after Pre-Petition Foreclosure Sale
Filing of Stale Claims in Bankruptcy Violates FDCPA
Addressing what it termed a “deluge that has swept through U.S. bankruptcy courts,” the Eleventh Circuit took on the question of “whether a proof of claim to collect a stale debt in Chapter 13 bankruptcy violates the Fair Debt Collection Practices Act (“FDCPA” or “Act”). 15 U.S.C. §§ 1692−1692p (2006). Based on the broad language of the FDCPA, Eleventh Circuit precedent, and the record before it, the court found that it does. Crawford v. LVNV Funding, No. 13-12389 (11th Cir. July 10, 2014). [Read more…] about Filing of Stale Claims in Bankruptcy Violates FDCPA
Claim Forms Available in Ocwen Settlement
In December, 2014, Ocwen Financial Corporation and Ocwen Loan Servicing entered into a consent order with 49 States and the District of Columbia to provide $2 billion in principal reduction to underwater borrowers and provide $125 million to foreclosure victims as a result of Ocwen’s systemic misconduct at every stage of the mortgage servicing process. Notice packages have now been mailed to affected borrowers and The National Ocwen Settlement Administrator, responsible for handling settlement claims, has created a website with information for consumers who were harmed by Ocwen’s actions. In addition, the CFPB has posted instructions for filing claims under the settlement agreement in its blog.
Circuit Split on Undistributed Funds at Time of Conversion
Relying on policy and equity considerations, the Fifth Circuit found that funds paid into a plan but not yet distributed at the time of conversion should be distributed to creditors. Viegelahn v. Harris (In re Harris), No. 13-50374 (5th Cir. July 7, 2014) (disagreeing with In re Michael, 699 F.3d 305 (3d Cir. 2012)). [Read more…] about Circuit Split on Undistributed Funds at Time of Conversion
New York AG Settles with Usurious Lenders
In January, 2014, New York Attorney General Erik T. Schneiderman announced that his office had reached a settlement with Western Sky Financial, CashCall, WS Funding, and their owners for violations of New York’s usury and licensed lender laws in connection with personal loans made over the internet. The usurious loans were made at interest rates ranging from 89% to 355%. The settlement involves repayment to borrowers who paid back the principal plus the legal interest rate of 16% and modification of all outstanding loans. The companies will also be required to pay $1.5 million in penalties. The settlement was approved on April 29, 2014. Consumers who are eligible for a refund should be contacted by the fund administrator within 90 days of the court’s approval of the settlement and asked to submit a claim. Questions may be directed to the Attorney General’s Consumer Helpline at: (800) 771-7755.
Parties’ Agreement to Extend Time Not Binding
An agreement between the debtor and a creditor to extend the deadline for filing an adversary complaint seeking denial of discharge under section 727 will not stand against later challenge on the basis of untimeliness where the extension was never ordered by the bankruptcy court. Shahrestani v. Alazzeh (In re Alazzeh), No. 13-1350 (B.A.P. 9th Cir. Apr. 24, 2014). [Read more…] about Parties’ Agreement to Extend Time Not Binding
Creditor’s AP Amendment Denied Due to Delay
The creditor waited too long to amend his adversary complaint and, therefore, the bankruptcy court’s denial of the motion to amend was not an abuse of discretion. Zullo v. Lombardo (In re Lombardo), No. 13-9004 (1st Cir. June 13, 2014). The case involved an apprentice plumber (Debtor) who passed himself off as a master, did a poor job and cost the creditor (Zullo) additional money to fix his work. Zullo sued and won in state court. After the debtor filed a chapter 7 bankruptcy petition, Zullo sought an order of nondischargeability of the state court judgment under section 523(a)(6) which excepts from discharge debts caused by willful injury. After losing a motion for summary judgment and being informed by the court that a claim under section 523(a)(2)(A), which excepts debts based on fraud, might have fared better, Zullo moved to amend to add a claim under that section. The timing of the motion was seventeen months after filing the complaint and one week before trial.
The court found that “undue delay in moving to amend, even standing alone, may be . . . an adequate reason” for denial of the motion. Citing Acosta-Mestre v. Hilton Int’l of P.R., Inc., 156 F.3d 49, 51-52 (1st Cir. 1998). The court recognized the tension between efficient resolution of cases and liberally permitting appeals to ensure that all relevant claims are addressed, and found that the unwarranted delay in this case resolved that tension in favor of the non-movant/debtor. No extenuating circumstances justified the delay: there had been no change in law or recent discovery of facts since the state court judgment. Any foot-dragging by the debtor in discovery was irrelevant as the facts and law were plain from the outset.
The court concluded that, while the bankruptcy court might have been justified in granting the motion to amend, it was not an abuse of discretion to have denied it.
Judge Thompson filed a dissenting opinion. He opined that Fed. R. Civ. P. 15(a)(2) requires granting permission to amend in the absence of justification to deny. Because all the facts of the case were established, the claim Zullo sought to add was not so different from the original claim or from the claim litigated in state court, it would not have unduly burdened the debtor or the court to address the new claim. Mere delay was insufficient reason to deny the motion
Failure to Follow Condition Precedent to Foreclosure Precludes Recovery for Costs
It pays to read mortgage documents carefully to determine whether the bank or Servicer complied with contractual conditions precedent prior to bringing adverse action against the debtor upon default. In In re Demers, No. 13-11539 (Bankr. R.I. June 5, 2014), American Servicing Co. (ASC) failed to comply with such conditions and was denied recovery of nearly $2,000.00 in claimed fees and costs associated with initiation of foreclosure proceedings. [Read more…] about Failure to Follow Condition Precedent to Foreclosure Precludes Recovery for Costs
Eleventh Circuit Joins Fourth in Allowing Chapter 20 Lien Strip
Yesterday, the Eleventh Circuit joined the Fourth Circuit in affirming the debtor’s ability to strip a wholly unsecured lien in chapter 13 where no discharge is available. In re Scantling, No. 13-10558 (June 18, 2014).
After reviewing the historical development of lien stripping under the Bankruptcy Code, the court, relying on its previous decision in Tanner v. Firstplus Financial, Inc., 217 F.3d 1357 (11th Cir. 2000), stated that in order for a claim to be “secured” and trigger the antimodification provisions of § 1322(b)(2), the collateral must have at least some value. In this case, it was undisputed that the amount owed on the first mortgage exceeded the property value, leaving no collateral value to support the junior mortgages. The court stated that though BAPCPA amended the discharge provision of 1328(f), it did not amend the two operative sections for lien stripping in chapter 13: §§ 506 or 1322(b)(2). Therefore, the court concluded the analysis for lien stripping in chapter 13 cases is the same irrespective of whether the debtor is eligible for a discharge.
The court rejected creditor’s argument based on In re Gerardin, 447 B.R. 342 (Bankr. S.D. Fla. 2011), that its claim was an “allowed secured claim” for purposes of section 1325(a)(5)(B)(i). Section 1325(a)(5)(B)(i) provides that creditors holding allowed secured claims retain their liens until (1) payment in full under applicable non-bankruptcy law, or (2) discharge. As the Eleventh Circuit correctly noted in this case the creditor did not hold an allowed secured claim, and therefore section 1325(a)(5)(B)(i) was inapplicable.