By Michael L. Moskowitz and Melissa A. Guseynov In a recent decision of relevance to lenders, Garfield v. Ocwen Loan Servicing, LLC (“Ocwen”), 2016 WL 26631 (2d Cir. Jan. 4, 2016), the Court of Appeals for the Second Circuit held that a debtor may commence a lawsuit to dispute a lender’s collection practices under the Fair Debt Collection Practices Act (“FDCPA”) after receiving a discharge in bankruptcy.
By Michael L. Moskowitz and Melissa A. Guseynov In a recent opinion, Bankruptcy Judge James L. Garrity, Jr., sitting in the Southern District of New York, held that a debtor cannot confirm a chapter 13 plan over a lender’s objection where the plan would compel the transfer of title to the secured creditor, explaining that forcing title onto the creditor would transform the creditor’s right to recover its collateral into an obligation, thereby rewriting the Bankruptcy Code and the underlying loan documents. In re Sherwood, 2016 WL 355520, at * 7 (Bankr. S.D.N.Y. Jan. 28, 2016).
By Michael L. Moskowitz and Michele Jaspan We previously reported on cases where lenders are forced to forfeit accrued mortgage interest as a result of a court’s finding of “bad faith,” regarding borrower requests for mortgage modifications. The foreclosure courts are continuing to find new ways to sanction lenders as evidenced below.
We previously reported on the importance of strict compliance with the mailing of the 90-day pre-foreclosure notice pursuant to RPAPL §1304 (“Notice”). Such strict compliance has become fodder for defendants’ lawyers as failure to give such notice to all persons signing either the note or mortgage, as a borrower, is a fatal defect. Lender’s failure to comply with this important condition precedent will result in case dismissal.
By: Michael L. Moskowitz and Melissa A. Guseynov A chapter 7 debtor in Louisiana recently succeeded in avoiding a $180,000 judgment lien on her home after a bankruptcy judge concluded that the United States Supreme Court's holding in Dewsnup v. Timm, 502 U.S. 410 (1992) is not applicable to non-consensual judicial liens. In re Mayer, 2015 WL 7424327 (Nov. 20, 2015).
By Michael L. Moskowitz and Melissa A. Guseynov In the recent case of Federal National Mortgage Assoc. v. Singer (Case No. 850039/2011, Sup Ct, NY County, July 21, 2015), Manhattan Supreme Court Justice Peter Moulton determined that two mortgage banks, Federal National Mortgage Association and Bank of America, N.A. (“Lenders”), must forfeit more than $100,000.00 in accrued mortgage interest for acting in bad faith regarding borrower requests for mortgage modifications.
Wellness International Network Ltd. v. Sharif Bankruptcy Judges May Render Final Decisions on Legal Disputes Arising in Bankruptcy if All Parties Consent By Michael L. Moskowitz and Melissa A. Guseynov On May 26, 2015, in Wellness International Network Ltd. v. Sharif, the Supreme Court held that Article III of the United States Constitution permits bankruptcy judges to adjudicate so-called “Stern” claims, with the parties’ knowing and voluntary consent. Wellness International Network Ltd. v. Sharif, 135 S.Ct. 1932 (2015).
Bullard v. Blue Hills Bank
Orders denying plan confirmation are not final orders from which an appeal may be taken as a matter of right
By Michael L. Moskowitz and Melissa A. Guseynov
2015 Mid-Year Review of Supreme Court Bankruptcy Decisions: Part 2 Baker Botts LLP v. Asarco LLC
Litigation Fees Incurred By Counsel in Defense of Bankruptcy Fee Application are not CompensableThe Supreme Court recently ruled that bankruptcy courts may not award legal fees to professionals for the costs incurred in defending their fees. The decision in Baker Botts, LLP v. ASARCO, LLC, written by Justice Clarence Thomas for the majority, held that section 330(a) of the United States Code does not give bankruptcy courts the discretion to award fee-defense fees under any circumstances.
Bank of America, N.A. v. Caulkett
Junior Mortgages Remain Viable Liens Even if Residential Property is Completely Underwater in a Chapter 7 Case
By Michael L. Moskowitz and Michele K. Jaspan
The United States Supreme Court recently reversed a ruling from the Eleventh Circuit in the case of Bank of America, N.A. v. Caulkett, which had permitted individual chapter 7 debtors to “strip” junior liens off their homes when the first mortgage lien was underwater. The Supreme Court held that a debtor in a chapter 7 proceeding may not void a junior mortgage lien under section 506(d) of the Bankruptcy Code when the debt owed on a senior mortgage lien exceeds the current value of the collateral, if the creditor’s claim is both secured by a lien and allowed under section 502 of the Bankruptcy Code.
We have previously reported on Thomas Petters’ $3.5 billion Ponzi scheme and the resultant “claw back” lawsuits currently pending in the Minnesota bankruptcy court. Read that report here. In Ponzi scheme clawback litigation, a trustee, receiver or creditor will often utilize the Ponzi scheme “presumption” to prove the fraudulent intent of a transferor in connection with fraudulent transfer claims by establishing that the debtor operated a Ponzi scheme, and that the transfers at issue were made in furtherance of that scheme. In particular, the Ponzi scheme presumption proves that, among other things, the person or entity running the scheme had actual intent to defraud investors.
In the case of In re Washington, No. 14-14573-TBA, 2014 WL 5714586 (Bankr. D.N.J. Nov. 5, 2014), the United States Bankruptcy Court for the District of New Jersey held that the mortgagee and mortgage servicer (“the Mortgagees” or “Plaintiff”) were time-barred under New Jersey state law from enforcing borrower’s default under both the note and mortgage. As a result, the borrower hit the jackpot and was entitled to own his home, free and clear of the mortgage debt, even though he only made three mortgage payments before the loan went into default.
New York’s Real Property Actions and Proceedings Law (“RPAPL”) § 1304 requires a mortgage lender to notify a residential home borrower of an impending foreclosure action at least 90 days before the foreclosure action is commenced, using specific statutory language, printed in 14 point type, sent by registered or certified mail, as well as by first class mail, to the borrower. The emphasis of this article is the peril which will befall a lender if it fails to timely register the statutorily mandated notice.
In December 2014, the Chief U.S. Bankruptcy Judge for the Southern District of New York, Cecelia Morris, handed a setback to lenders (In re Weidenbenner, Bankr. S.D.N.Y., No. 14-35443, 12/12/14), when she concluded a financial institution violates the automatic stay imposed upon the filing of a chapter 7 petition pursuant to 11 U.S.C. §362, simply by freezing a debtor’s bank account where it turns out no right of setoff exists. The per se rule imposed by Judge Morris is contrary to a prior Ninth Circuit Court of Appeals decision which found no stay violation resulting from a similar bank freeze. Although both cases challenged Wells Fargo, the results were vastly different.
A New Jersey Appeals Court recently held that homeowners who enter into trial agreements to modify their mortgages under the Federal Home Affordable Modification Program (“HAMP”), and comply with the terms thereof, may commence suit for breach of contract, and possibly consumer fraud, if lenders deny them permanent modifications. In this particular case, Arias and Padilla v. Elite Mortgage Group, Inc., et al, the Superior Court of New Jersey’s Appellate Division upheld a summary judgment ruling allowing the lender to deny a mortgage modification, noting that the homeowners’ repeated lapses in payment constituted a breach of the trial modification agreement.
In our previous article, we shared the story of a personal injury attorney that was recently sued in an adversary proceeding filed in the United States bankruptcy court. Weltman & Moskowitz successfully established that the complaint was without merit and Plaintiff agreed to withdraw the complaint before answers were required to be filed or discovery ensued. In doing so, we saved our client the time and expense associated with protracted litigation. Today, we bring you the story of another client of ours, a large regional banking institution, in the same position with the same successful results.
Two of our clients, one, a large regional bank, and the other, a personal injury attorney, were both recently sued in adversary proceedings filed in the United States bankruptcy courts. Weltman & Moskowitz successfully established that both complaints were without merit and each plaintiff agreed to withdraw the complaint before answers were required to be filed. In doing so, we saved these clients significant legal fees and expenses and the distractions associated with protracted litigation.
Case Study #1
Founding partners Richard E. Weltman & Michael L. Moskowitz are pleased to announce that effective January 1, 2015, the attorneys at Weltman & Moskowitz have become Counsel to the New Jersey-based Saiber law firm. This alliance will allow both firms to develop new relationships and opportunities. Saiber is a full-service business-to-business law firm with more than 60 attorneys focusing on commercial litigation, insurance defense, labor and employment, tax, trusts and estates, corporate and M&A, among others
Lenders Must Strictly Comply with Chapter 13 Noticing Procedures to Avoid Possible Motion Seeking Sanctions for Inadvertent Stay Violation
The Federal Rules of Bankruptcy Procedure were amended late in 2011 to include Rule 3002.1, entitled Notice Relating to Claims Secured by Security Interest in the Debtor’s Principal Residence. Simply put, a mortgage lender must provide to the debtor, debtor’s counsel, and the chapter 13 bankruptcy trustee, notice of any fees, expenses or charges incurred by lender in connection with its claim, following commencement of the chapter 13 case. The lender must use Official Form B10, Supplement 2, found here.
Partner Michael L. Moskowitz and Associate Melissa A. Guseynov co-authored an article published in the December 2014 issue of Nassau Lawyer. They discussed the Supreme Court decision that inherited IRAs are not protected in bankruptcy, a timely topic Weltman and Moskowitz has been following and reporting on regularly. Read an excerpt of the article below. Supreme Court Rules Inherited IRAs are Not Protected in Bankruptcy
New York State’s highest court recently agreed to consider whether New York City's effort to limit law firms’ ability to collect debts violates the state's exclusive power to regulate attorney conduct. The Court of Appeals will take up two certified questions from the United States Court of Appeals for the Second Circuit, which ruled that the case — in which Eric Berman PC and Lacy Katzen LLP contest the legality of Local Law 15 — raises unresolved and significant issues about the scope of New York State’s exclusive authority to regulate attorney activities.
A long journey has finally come to an end for Mary Veronica Santiago-Monteverde (“Debtor”), an elderly widow, who has resided in a Manhattan rent-stabilized apartment for more than 40 years. We have reported previously on Debtor’s opposition to her chapter 7 trustee’s efforts to sell her rent-stabilized lease to her landlord as a so-called asset of the bankruptcy estate.
We have previously reported on an Eleventh Circuit case entitled Bank of America, N.A. v. David Lamar Sinkfield (No. 13-700), in which the Supreme Court denied Bank of America’s petition for certiorari regarding whether section 506(d) of the Bankruptcy Code allows a debtor to remove or strip-off a wholly unsecured—or “underwater”—mortgage lien in chapter 7 bankruptcy. See the original article here.
However, on November 17, 2014, the Supreme Court agreed to review two appeals filed by Bank of America against homeowners who filed Chapter 7 bankruptcies and then sought to “strip off” lender’s underwater mortgage liens. In Bank of America v. Caulkett (No. 13-1421) and Bank of America v. Toledo-Cardona (No. 14-163), the Court of Appeals for the Eleventh Circuit ruled in favor of the homeowners, leading to Bank of America’s appeals to the Supreme Court.
We have reported several times in connection with the chapter 7 case of Mary Veronica Santiago-Monteverde (“Debtor”), an elderly widow, who has resided in a rent-stabilized apartment in New York City since the 1970s. To see the prior articles click here. In opposition to the efforts of the chapter 7 trustee to sell her rent-stabilized lease to her landlord as an asset of the bankruptcy estate, Debtor claimed the value of the lease constituted a “local public assistance benefit” pursuant to New York Debtor and Creditor Law § 282(2), and as such, was shielded from her creditors.
The New York Supreme Court Appellate Division for the Second Department recently clarified that New York’s CPLR§ 3408, which requires parties in a residential foreclosure action to participate in a settlement conference, was not applicable where the mortgage collateralized a personal guaranty of a commercial loan to a corporation. Independence Bank v. Valentine, 113 A.D. 3d 62 (2d. Dept 2013).
On September 17, 2014, the New York state court administrators announced stricter rules for creditors seeking judgments against consumers in debt collection lawsuits. Applicable only to debt incurred in connection with consumer credit transactions, the new rules are specifically intended to prohibit creditors from collecting a debt: (i) that a consumer has already paid off, (ii) that was not incurred by that particular consumer; and (iii) where the six-year statute of limitations has expired.
A logistics and warehousing company came to Weltman & Moskowitz, LLP, a New York and New Jersey business litigation law firm, because it believed it was wrongfully named as a defendant in a multi-party federal lawsuit commenced in the Southern District of New York by the insurer subrogee of the consignor. Insurer alleged that our client had acted as a freight forwarder and bailee with respect to certain cargo damaged by Superstorm Sandy in October 2012.
New York’s Office of Court Administration recently announced relief for lenders and homeowners frustrated by high case volume delays affecting mandatory foreclosure settlement conferences in certain courts. Litigants will soon enjoy immediate and direct access to judges at these conferences in Kings, Queens, Nassau and Suffolk counties, the four counties with the highest foreclosure case volumes in the state.