November 25, 2017

Appeals Court Denies Damage Claim for Clear Violation of the Automatic Stay

stay violation distress claimOn May 8, 2014 the 11th Circuit Court of Appeals released an interesting ruling denying a claim for damages filed by Chapter 13 debtors against their mortgage company. The Lodge v. Kondaur Capital Corporation and McCalla Raymer arose when a mortgage company started foreclosure proceedings against Mr. & Mrs. Lodge who were then debtors in an active Chapter 13 case.

Under the automatic stay provision of the Bankruptcy Code, of course, lenders cannot initiate or continue collection activity against a debtor who has filed Chapter 13 unless and until the lender first convinces the bankruptcy judge to lift the automatic stay.

In Georgia, most foreclosures are non-judicial meaning that to start foreclosure a lender needs to notify the debtor and run a written notice of the pending foreclosure in the legal newspaper of the county where the property is located. In the Lodge case, the mortgage company started the foreclosure process and bought the ad.

The day after purchasing the ad, the lawyer for the mortgage company, McCalla, Raymer, recognized the mistake and immediately canceled the foreclosure process. Unfortunately for them, however, it was too late to stop the ad from running.

When the ad ran, it was picked up by several of the foreclosure notification companies that operate in the Atlanta area and the Lodges began receiving solicitations from home buyers and bankruptcy attorneys offering to help them avoid foreclosure.

The Lodges thereafter sued the mortgage company and McCalla, Raymer in federal district court alleging that they suffered from emotional distress due to the violation of the automatic stay and for violation of the Fair Debt Collection Practices Act.

The district court denied the Lodges’ claim and the case was thereafter appealed to the 11th Circuit Court of Appeals. Circuit Courts of Appeal are the highest appellate court in the country except for the Supreme Court, so Circuit Court opinions are binding on all district and bankruptcy courts in the 11th Circuit (which includes Georgia).

Lodge v. Kondaur and McCalla Raymer

Click here to read the decision

A copy of the 11th Circuit’s opinion is here – just click on the picture on the left.  As you can see, they denied the Lodge’s claim for emotional distress because the Lodges failed to introduce specific evidence of damages. There were no doctor’s notes, proof of reduced income or any other evidence save their testimony that they were damaged.

Thus, even though there was a clear violation of the automatic stay, no damages were awarded because no proof of injury was submitted.

What do you think? Is this a case where the mortgage company got off too easy for ignoring the automatic stay – the core protection of the Bankruptcy Code? Were the debtors being punished for having “unclean hands” – arising from their failure to make on-going mortgage payments as required by their Chapter 13 plan. Is it reasonable to put the burden on cash strapped debtors to pay for medical care to produce evidence of damages? Will this decision give license to mortgage companies to be less concerned about the significance of the automatic stay? Or did the 11th Circuit get it right by insisting on evidence of damages and not just a showing of a stay violation.

About Jonathan

Jonathan Ginsberg represents honest, hardworking men and women in the Atlanta area who need personal bankruptcy protection. In practice for over 25 years, Jonathan teaches bankruptcy law and practice at legal continuing education seminars and he is a founding member of the Bankruptcy Law Network. Jonathan lives with his wife and children in Atlanta.

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