January 20, 2020

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. [Read more…]

Bank Won’t Talk to You Now that You have Filed Bankruptcy – Here’s a Solution

no customer service after bankruptcyMortgage companies and banks often put you on a “no communication” list after you file bankruptcy.  Your on-line access log-in may stop working, you will no longer receive loan statements, and when you call customer service you may be told that because you are in bankruptcy, the lender cannot talk to you anymore.

Lenders are not giving you the silent treatment because they are angry at you for filing bankruptcy, nor are they trying to be rude.  They are not talking to you because the automatic stay protection of the Bankruptcy Code says that once you file, it is a violation of the stay to make any effort to collect a debt.

Arguably, a loan statement could be construed as attempting to collect a debt and customer service reps not knowledgeable about bankruptcy may say something inproper.  Basically your bank or mortgage company does not want to find itself facing a claim for damages arising from violating the stay so many of these companies simply cut off all communication.

The problem for you, of course, is that you may have a need to speak with a representative.  Perhaps you need to confirm receipt of a mortgage payment that was paid directly after filing.  You may need to make an electronic payment directly from your checking account.  You may need a copy of your payment history.

How do you get past the wall of silence? [Read more…]

Another Debtor Ripped Off by a Foreclosure Scam (Part 2)

Last month, I wrote a post describing a case that was recently heard by one of the judges in the Northern District of Georgia.  In this case, a debtor had filed a Chapter 13 the day of a foreclosure.  The lender was not aware of the bankruptcy so it went ahead with the foreclosure sale.  Like many foreclosure sales in Georgia, the amount of the mortgage was equal to the likely value of the house so there were no bidders at the foreclosure sale.  Instead, the lender bid the amount of the mortgage and was, in effect, the winning bidder.

By the end of foreclosure Tuesday, the lender’s law firm had learned of the Chapter 13 filing so the law firm did not “record” the foreclosure deed.  Instead, the lender filed a motion to “validate foreclosure” asking the judge to permit the foreclosure to go through thereby divesting the debtor of title.

The debtor painted a very sad picture – he and his wife had four children of their own and a sister and her three children were also living in the home – and they faced  homelessness if the foreclosure was allowed to go through.  Further, the debtor claimed that he and his wife had been victimized by a “paralegal service” that had prepared emergency “two page” petitions then did nothing more.

The lender’s attorney took a very hard line – between the husband and wife, these debtors had filed 5 previous cases only one of which actually worked for more than a few months.  The debtor was trying to scam the system and the court ought not permit such an action.  Further, the debtor had used the same paralegal service twice – if they were a ripoff why did he use them a second time?

The judge, who is a compassionate and decent man,  was clearly struggling with what to do.  I felt that the lender’s attorney took the wrong approach.  In my view the debtor and his wife came across more confused than pathologically dishonest.  They clearly did not have entirely clean hands when it came to using the bankruptcy process to stop a foreclosure, but I could see that the judge was bothered by the idea that 7 children and two families might end up on the street.

In my previous post I asked what you thought would happen.  Here’s what the judge did: [Read more…]

Another Debtor Ripped Off by a Foreclosure Relief Scam (Part One)

This afternoon (September 9), I had a chance to observe a very interesting case heard by one of the judges in the Northern District of Georgia.  The issue at hand was a motion filed by a mortgage creditor to “validate” a foreclosure that had been cried out on the courthouse steps back in July.

The mortgage creditor went first and presented her client’s case:  the debtor had filed a bankruptcy on the morning of July 7, 2009 minutes before the lender sold the debtor’s house on the courthouse steps.  The lender was not aware of the filing and proceeded to foreclose.  When the lender’s attorney returned from the courthouse, he discovered that a bankruptcy had been filed, so he did not record the deed.

Instead, the lender retained bankruptcy counsel who filed a motion have the bankruptcy annulled and the foreclosure validated.   If validated title would pass and the lender would now be the title owner of the property.  In such a situation the debtor’s bankruptcy would offer no protection and the debtor would be subject to eviction.

The mortgage company’s attorney noted that this was the fifth bankruptcy filed by the debtor and his wife, and the third case filed this year to stop a foreclosure.   In none of the cases filed this year did the debtor or his wife make any payments to the trustee or pay anything to the mortgage company.  In none of these cases did the debtor or his wife file any of the required bankruptcy paperwork.

Clearly the debtor and his wife were acting in bad faith, argued the mortgage company’s lawyer, and they should not be allowed to misuse the bankruptcy process.

What would the debtors have to say?  [Read more…]

Missed Mortgage Payments in Your Chapter 13 – An Expensive Problem

In the Northern District of Georgia, the “standard” Chapter 13 plan that is used provides that on-going mortgage payments are to be made directly to the mortgage company during the pendency of your Chapter 13 plan.  In other words, if you file Chapter 13 because you are three payments delinquent, your missed payments (the mortgage “arrearage”) will be paid in your plan.  However your ongoing mortgage payments are sent directly to the mortgage company.

I know that in some bankruptcy filing districts, on-going payments are collected by the trustee and paid through the trustee’s office.   The trustees in the Northern District of Georgia do not do this as a matter of course.

This means, therefore that Chapter 13 debtors have the significant responsibility for paying their mortgage payments on time each month after their cases are filed.  If you miss one or two payments, the mortgage lender can and will file a Motion for Relief from Stay.  They will argue that your missed payments reflect your inability to afford your mortgage and that bankruptcy protection ought to be lifted so that the mortgage lender can foreclose. [Read more…]

Chase Home Finance Accused of Adding Improper Charges to Bankruptcy Claims

As a member of the Bankruptcy Law Network, I am part of a small group of knowledgeable and prolific bankruptcy lawyers from all over the country.  If you have not yet checked out the Bankruptcy Law Network blog, and its sister blogs

I encourage you to do so.

In addition to writing for the BLN family of blogs, most of my colleagues in this endeavor publish their own websites and blogs that address more local concerns.  Just as this blog focuses on bankruptcy issues relevant to the Northern District of Georgia, frequently the BLN member blogs will have a local focus as well.  However, there are some bankruptcy and consumer protection issues that have a national focus.  I subscribe (using RSS and my iGoogle page) to a variety of bankruptcy and consumer bankruptcy blogs from around the country for the purpose of picking up trends and learning about case strategies that may very well work for me in my local practice.  If you are a bankruptcy lawyer or individual interested in keeping track of what is going on in the bankruptcy world, I invite you to subscribe not just to this blog, but to several of the bankruptcy related blogs listed on my blogroll.

BLN member (and founder) Jay Fleischman recently posted a blog article that has relevance in any bankruptcy jurisdisction.  His post entitled “Chase Home Finance, Caught Manufacturing Defaults in Bankruptcy Court, Nears Deal with U.S. Trustee” discusses a problem that I believe has existed for years with many mortgage lenders who file claims in bankruptcy court. [Read more…]

Honest Renters Get Caught in Foreclosure Disasters

This past Sunday, the AJC published a fascinating article entitled “Foreclosures Reach Renters.”  The article reports on several very sad cases in which a hardworking rental home tenant finds himself literally out on the street following the foreclosure of his rental home and an eviction filed by the new owner (usually a mortgage lender eager to put the foreclosure property back on the market).

Georgia, as you may know is a “non-judicial foreclosure” state, meaning that in the event of a default in payments, a lender does not have to go to court to retake his property.  Instead, the lender need only give notice of the pending foreclosure to the homeowner, then advertise for four consecutive weeks the foreclosure sale in the official newspaper of the county where the property is located.  Then the lender’s attorney can sell the property at open auction on the first Tuesday of the following month.  In a worst case scenario, a foreclosure in Georgia can be completed in as little as 45 days.

Eviction, too, is not forgiving.  Georgia law offers no safe haven or notice period for a tenant who discovers too late that his rental payments were ending up in the pocket of his landlord, rather than as payments to a mortgage company.

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An Automatic Stay Violation Case that is Hard to Believe

Search the term “stay violation” on any consumer bankruptcy blog and you will find stories of situations where creditors get hit with well deserved sanctions for their failure to stop harassing a debtor despite knowledge of a bankruptcy filing.  Despite the trend in the law to give creditors more protections, bankruptcy judges are generally extremely protective of debtors when it comes to automatic stay violations.   The automatic stay functions as the core protection of bankruptcy and creditors violate the stay at their peril.

Unfortunately, however, bad facts truly do make bad law.  Now we have a case where a sincere, well-intentioned creditor is being hit with sanctions for what appear to be innocent actions against a debtor with less than clean hands.   The case involves a Connecticut homeowner named Mark Poveromo who got slammed for sanctions after he pursued criminal sanctions against a dishonest contractor who used a bad address for Mr. Poveromo in this Missouri bankruptcy filing.  You can read the details of this story in an AP news release called Bankruptcy Judge Orders Victim to Pay Back Thief.

I suspect that most objective observers would conclude that creditor Poveromo was the wronged party here, after being ripped off by his contractor, spending money for two plane tickets and dealing with a judge who refused to let him appear telephonically.  Nevertheless, this case shows how seriously bankruptcy judges treat stay violations even in situations where the debtors are very unsympathetic.

A bigger concern, however, is the likelihood that creditor advocates will use cases like this one to push Congress to erode automatic stay protections.  My experience has been that most stay violation cases involve bullying creditors and fact patterns like the one in this case are rare.  I will not be surprised to see efforts by lawmakers to reduce automatic stay protections.

Debt Collector’s Unlawful Message on Answering Machine May Give Rise to Stay or Discharge Violation Action

Over the past few months, I have received a number of calls from former clients regarding possible discharge stay violation actions.  As you may know, if you successfully complete your Chapter 7 or Chapter 13 case, the judge will issue a discharge order.  One effect of that discharge order is to make the automatic stay that protected you from creditor collection activities into a a permanent injunction against attempts to collect discharged debt.

More and more, it seems, creditors and collection agencies are pursuing discharged debt despite the absolute illegality of such activity.

My Bankruptcy Law Network colleague Kent Anderson offers an informative overview of this “zombie debt” in a recent BLN blog post.

I have not previously included Fair Debt Collection or Fair Credit Reporting work as part of my practice, but I am thinking about doing so.  Amazingly, there are some large, highly respectable companies involved in the zombie debt business.  Business Week published an interesting article about this phenomenon in 2007 called “Prisoners of Debt,” an article that is worth a read.

Apparently the zombie debt collectors are trained to walk a very fine line in terms what they say in collection phone calls.  These bill collectors are given scripts that often imply legal liability without specifically asserting that the debt is legally collectible.  Attorneys who pursue discharge violation actions, Fair Debt Practices action or Fair Credit Reporting actions often do not have a paper trail.  Zombie debt collectors rarely put anything incriminating in writing and they rely on the fact that most people do not have the equipment to record calls.

Texas attorney Brian Allen has an interesting post on his blog in July, 2008 in which he reproduces a recording from a zombie debt collector.  As Brian notes, the bill collector is attempting to get as close to the line of illegal activity as possible – and perhaps this collector crosses the line – what do you think:

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In any case, if you get calls from debts that were discharged or that are extremely old, you may have a claim for damages based on violation of federal law.  I plan to explore these issues in future posts where I can hopefully give readers of my blog more guidance as to what to do.

My Chapter 13 Was Dismissed Two Weeks Ago – Can I Refile a Chapter 13?

A visitor to one of my web sites wrote me to ask about refiling his Chapter 13.  After being in a Chapter 13 for almost 2 years, this gentlemen lost his job and fell behind with his Chapter 13 payments.  His mortgage company filed a Motion for Relief because he had falled behind on his mortgage payments (this motion was granted) and the trustee filed a motion to dismiss based on the delinquency in trustee payments.  This motion to dismiss was also granted and the case was dismissed.

Now, some 6 weeks later, the mortgage company has started foreclosure proceedings and my visitor wants to know if he can refile the Chapter 13 to stop the foreclosure.

Here are my thoughts:  under the BAPCPA changes to the bankruptcy law, a debtor can refile his Chapter 13 case.  However, if case #2 is filed within 12 months that case #1 was pending, then the automatic stay is not absolute.  Instead, the automatic stay does go into effect, but it terminates in 30 days unless the debtor files a motion with the court and convinces the judge to extend the stay.

Thus, my site visitor can refile his case, but he and his lawyer need to immediately file a Motion to Extend the Stay.  Some judges will extend the stay for pretty much any reason, while others will want to see a significant change in the debtor’s circumstances.

If the judge does not extend the stay, then it would come to an end in 30 days and the mortgage company would be free to re-start foreclosure proceedings.

Note that there are different rules for a 3rd case filed within any 12 months when prior cases were pending, or if the debtor had voluntarily dismissed his prior case – subjects for a different blog post.  In the meantime, my colleague Rachel Lynn Foley does tackle some of these issues in a helpful post published on the Bankruptcy Law Network blog.

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