In June, a Bankruptcy Judge for the Northern District of Ohio calculated $250,000 in punitive damages against a mortgage lender for violating the automatic stay by incorrectly filing a proof of claim on a car loan that had not been transferred to that lender. In re Mocella, 552 B.R. 706 (Bankr. N.D. Ohio 2016).
We’ve previously covered the interplay between the Bankruptcy Code and Fair Debt Collection Practices Act (“FDCPA”). Recent litigation has focused on debtor challenges to time-barred proofs of claim. This has resulted in conflicting statutory interpretation. In a recent decision, the United States Court of Appeals for the Eleventh Circuit held that debt collectors, defined as a type of creditor under the FDCPA, may face FDCPA liability for knowingly filing a time-barred proof of claim in a bankruptcy case. Johnson v. Midland Funding, LLC, 2016 WL 2996372 (May 24, 2016).
In a recent decision out of the United States Bankruptcy Court for the Northern District of Illinois, Judge Benjamin Goldgar dismissed Debtor’s adversary proceeding complaint in which the debtor alleged the debt collector violated the Fair Debt Collection Practices Act (“FDCPA”) by merely filing a proof of claim. In re Murff, 2015 WL 3690994 (Bankr. N.D. Ill. June 15, 2015).
The United States Supreme Court (SCOTUS) has agreed to resolve another bankruptcy issue which has split the circuit courts. This time, the high court will address a chapter 11 reorganization issue. The most recent SCOTUS decisions have focused primarily on consumer bankruptcy issues.
On June 23, 2016, New York Governor Andrew Cuomo signed into law legislation which amends section 1307 of the New York Real Property Actions and Proceedings Law (RPAPL). The new law becomes effective 90 days from June 23, 2016. Section 1307 addresses the duty of a mortgagee, or its loan servicing agent, to maintain real property secured by a delinquent mortgage. Lenders will be subject to civil penalties of up to $500 per day for failure to maintain abandoned property once they become aware the property has become vacant. The old law required lenders to take responsibility following a foreclosure judgment which left hundreds of “zombie properties” across the state.
By Richard E. Weltman and Melissa A. Guseynov We previously reported on the split among the federal circuit courts of appeal concerning circumstances under which a debtor’s discharge with regard to a particular debt may be denied based on actual fraud if, prior to filing, the debtor transferred assets away from creditors without directly misleading them. In Husky International Electronics, Inc. v. Ritz, the United States Supreme Court settled the split of opinion among the lower courts, holding that debtor’s actual misrepresentation is not a necessary prerequisite to demonstrate “actual fraud” under section 523(a)(2)(A). Husky Inter. Elect., Inc. v. Ritz, 136 S.Ct. 1581 (2016).
By Michael L. Moskowitz and Melissa A. Guseynov In 2013 the Supreme Court held that funds held in an inherited non-spousal IRA were not exempt under Section 522 of the Bankruptcy Code. You can read our blog article on Clark v. Rameker here. However, in a New Jersey bankruptcy court decision handed down last month, Bankruptcy Judge Christine M. Gravelle held that an inherited IRA is not property of the debtor’s bankruptcy estate, regardless of whether it would be characterized as an exempt asset under the Bankruptcy Code. In re Norris, 2016 WL 2989234 (Bankr. D.N.J. May 20, 2016).
By Michael L. Moskowitz and Melissa A. Guseynov On March 11, 2016, the Court of Appeals for the Seventh Circuit held that a tenant debtor’s pre-petition lease termination may be voidable as a fraudulent conveyance or a preferential transfer in the tenant’s subsequent bankruptcy case. In re Great Lakes Quick Lube LP, 816 F.3d 482 (7th Cir. 2016).
We have previously reported on Bernard Madoff’s massive Ponzi scheme and the resultant “clawback” lawsuits pending in the bankruptcy and district courts for the Southern District of New York. In a decision dated March 14, 2016, Bankruptcy Judge Stuart Bernstein granted partial relief to an investment fund seeking to dismiss a “clawback” lawsuit filed by Irving Picard, the trustee for Bernard L. Madoff Investment Securities, LLC (“BLMIS”).
By Michael L. Moskowitz and Melissa A. Guseynov We previously reported on In re Sherwood, a Southern District of New York bankruptcy decision, wherein the court held a debtor could not confirm a chapter 13 plan over a lender’s objection where the plan would vest title to surrendered property in the mortgagee without its consent. See In re Sherwood, 2016 WL 355520, at * 7 (Bankr. S.D.N.Y. Jan. 28, 2016).
By Michael L. Moskowitz Post-petition claims of condominium associations for common charges have always held a protected status when a consumer debtor files for bankruptcy relief. Under 11 U.S.C. §523 (a)(16), as amended in 2005, chapter 7 debtors who retain legal, equitable and/or possessory ownership interest in their condominium unit remain liable for post-petition condominium charges.
A 3% cost of living adjustment became effective for new bankruptcy cases filed on and after April 1, 2016, according to the Judicial Conference of the United States. This means certain dollar amounts relating to small business chapter 11 cases, preference claims, means testing, and property exemptions went up. These adjustments to the federal Bankruptcy Code are automatically issued every three years to keep up with inflation.
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 Richard E. Weltman and Melissa A. Guseynov We have previously reported on judicial treatment of student loan debt dischargeability in bankruptcy—more specifically, how federal courts construe section 523(a)(8) of the Bankruptcy Code, which prohibits bankruptcy courts from discharging most student loan debt “unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents.” 11 U.S.C. § 523(a)(8).
By Richard E. Weltman and Melissa A. Guseynov We have previously reported on the nuances of the federal Fair Debt Collection Practices Act (“FDCPA”) and the pitfalls to lenders who fail to strictly adhere to its requirements. However, in two recent unrelated federal court decisions, Judge Colleen McMahon of the District Court for the Southern District of New York and Judge John Curtin of the District Court for the Western District of New York, both concluded that the mere appearance of an account number on a collection envelope, without more, does not violate FDCPA.
By Richard E. Weltman and Melissa A. Guseynov In a recent decision important to lenders, Torres v. Asset Acceptance, LLC, the Hon. Eduardo C. Robreno, U.S.D.J., held that filing a stale proof of claim in bankruptcy court cannot form the basis of a claim under the Fair Debt Collection Practices Act (“FDCPA”). The facts are as follows: Margaret Torres filed for relief under Chapter 13 in the United States Bankruptcy Court for the Eastern District of Pennsylvania. Creditor, Asset Acceptance, thereafter filed a proof of claim for “money loaned.” Importantly, the proof of claim stated that the last transaction and payment date was outside of Pennsylvania’s four-year statute of limitations period for contract claims. Torres then commenced an adversary proceeding, claiming that lender’s filing of the proof of claim on the time-barred debt constituted a FDCPA violation. Asset Acceptance moved to dismiss.
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.
Most debtors see bankruptcy as a way to wipe out debt at the expense of creditors. This is sometimes true, but only part of the story. The bankruptcy code also protects creditors in many important ways. One way is by preserving the equal distribution of a debtor’s assets. One of the bankruptcy code provisions that seeks to level the playing field respecting equal asset distribution among unsecured creditors is section 547.
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.