Rooker-Feldman

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Rooker-Feldman No Bar to Exercise of Trustee’s Strong-Arm Power

The Sixth Circuit agreed with the position advanced in NACBA / NCBRC’s amicus brief that the Rooker-Feldman doctrine does not preclude application of the trustee’s strong-arm power to avoid a lien notwithstanding a state court judgment of foreclosure. Isaacs v. DBI-ASG Coinvestor Fund III, LLC (In re Isaacs), No. 17-5815 (6th Cir. July 18, 2018).

Linda Isaacs and her husband entered into a mortgage agreement with GMAC Mortgage Corporation. The contract provided in the “description of security,” that “By signing this Mortgage, we hereby mortgage, grant and convey [the collateral],” and, in the “priority of advances” section, that “The lien of this Mortgage will attach on the date this mortgage is recorded.” Shortly after signing the agreement, Ms. Isaacs filed for chapter 7 bankruptcy. She scheduled GMAC as a secured creditor not realizing that it had not yet recorded the mortgage. GMAC recorded the mortgage while the automatic stay was in effect. Ten years after Ms. Isaacs obtained her chapter 7 discharge, the successor to GMAC, sought an order of foreclosure against the Isaacs. The state court issued a default order of foreclosure and, one day before the scheduled sale, Ms. Isaacs filed for chapter 13 bankruptcy. [Read more…] about Rooker-Feldman No Bar to Exercise of Trustee’s Strong-Arm Power

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State Court Application of Automatic Stay Is Res Judicata

A state court’s final ruling as to application of the automatic stay to a case before it was res judicata and could not be overruled by the bankruptcy court. Bank of North Georgia v. Vanbrocklin, 2016 Bankr. LEXIS 2176, No. 15-11761 (Bankr. N.D. Ga. May 15, 2016).

Bank of North Georgia (BNG) filed a state court lawsuit against a number of parties including several entities as principles on four notes and against James P. Vanbrocklin as guarantor on the notes. When Mr. Vanbrocklin filed chapter 7 bankruptcy he listed BNG as holding a contingent, unliquidated claim for approximately $1.2 million. BNG responded with an adversary complaint asserting that its claim was nondischargeable because Mr. Vanbrocklin, as a member and manager of Axiom Labs, a principle on the loans, had sold Axiom property, misappropriated proceeds, and wrongfully transferred property to a company called USA Labs. In the state case, BNG issued subpoenas and sought discovery as to transfers of property from either Mr. Vanbrocklin or USA Labs.

Mr. Vanbrocklin filed an emergency motion in the state court arguing that the discovery sought by BNG was in furtherance of its adversary proceeding in the bankruptcy court and requesting that the state court enforce the automatic stay by precluding such discovery. The state court granted the motion and stayed all proceedings in the state court as to Mr. Vanbrocklin. [Read more…] about State Court Application of Automatic Stay Is Res Judicata