California Bankruptcy Attorney Blog

Wyoming Supreme Court Rules Borrowers Must Continue Paying Loan After Collateral Sold - Wallace v. Pinnacle Bank

Thu, 17 May 2012 09:09:20 -0500

Vincent Howard and our Claremont consumer bankruptcy attorneys frequently advise people who are going into bankruptcy about their obligations before and after filing. While bankruptcy can provide some much-needed relief from heavy debts, not to mention an immediate stop to calls from creditors, it doesn't stop all obligations in their tracks. Rather, obligations are sorted out according to the bankruptcy code and, if applicable, the debtors' plan. This can lead to seemingly unfair results sometimes, as a Wyoming couple found in Wallace v. Pinnacle Bank - Wyoming. Earl and Nawana Wallace took out a loan in order to buy a car for their son and his wife, who ultimately went into bankruptcy. The car was sold by the bankruptcy trustee, so the elder Wallaces stopped making loan payments, prompting a successful lawsuit from Pinnacle.

The Senior Wallaces, as they were called by the court, took out the loan in their own names and agreed to make the payments over five years. The collateral, however, was the vehicle, which was titled to the Junior Wallaces. They signed a third-party agreement pledging the vehicle, but had no personal obligations on the loan. The day after the loan went through, the Junior Wallaces filed for Chapter 7 bankruptcy and listed the car as personal property. The bankruptcy trustee eventually requested and got a release of the lien so he could sell the car for the benefit of the estate; the Junior Wallaces withdrew an objection. The Senior Wallaces stopped paying the loan 11 months after taking it out, prompting a lawsuit in state court from Pinnacle. The Wyoming trial court ultimately granted summary judgment to Pinnacle, finding that "the failure of the collateral was not the failure of the underlying note."

The Senior Wallaces appealed to the Wyoming Supreme Court, arguing that their obligation to pay was extinguished when the vehicle was lost to the bankruptcy estate. They first argued that Pinnacle failed to mitigate its own damages when it negligently released the lien on a vehicle that the Junior Wallaces did not own or even possess. However, the high court ruled, Pinnacle had no duty to protect the vehicle from seizure. Indeed, it noted that there were no damages to mitigate at the time, since payments were current then. The Senior Wallaces next argued that by releasing the lien, Pinnacle frustrated the purpose of the loan and thus excused them from making payments. However, the Wyoming high court found that the doctrine of commercial frustration did not apply, because the collateral provision in the loan agreement was never meant to protect the Senior Wallaces - it protected Pinnacle. Nor did they lack consideration, since they did receive the car. Finally, the court rejected arguments that Pinnacle is not a real party in interest and that the claim was barred by the Uniform Commercial Code.

Vincent Howard and our Seal Beach personal bankruptcy lawyers would have preferred a different outcome for the Senior Wallaces, who were guilty of nothing more than trusting their son to behave responsibly. But as this case shows, courts are generally willing to enforce contracts even when the contract clearly no longer benefits one side. In mortgages, this is far less common because most people aren't lucky enough to have a house paid for by someone else; when a home borrower loses his or her home, that's often the collateral in lieu of full repayment. One exception is when a bank pursues a deficiency judgment, which is the balance of the loan due after the home is sold at foreclosure or a short sale, and the proceeds applied to the remaining home debt. Here in California, not everyone is subject to deficiency judgments; they are more likely with refinances, HELOCs and second mortgages. The services of our Pico Rivera individual bankruptcy attorneys include advice to clients in this position about their options for avoiding a claim or heading one off early.

Eighth Circuit BAP Affirms Ruling Granting Foreclosed Home Purchaser Relief From Stay - Bushnell v. Bank of the West

Tue, 15 May 2012 09:12:50 -0500

Vincent Howard and our Upland foreclosure defense attorneys frequently counsel clients considering bankruptcy as a way to stave off a foreclosure or related action, at least temporarily. All bankruptcies come with an automatic stay on debt collection, which means they automatically stop attempts to enforce debts, at least for the short term. However, creditors may be able to persuade the court to lift the stay under certain circumstances, particularly if they have a strong claim of legal rights. In Bushnell v. Bank of the West, Bank of the West received relief from the automatic stay in Kent Bushnell's bankruptcy, permitting it to retake possession of property it had purchased in a foreclosure sale. The Bankruptcy Appellate Panel of the Eighth U.S. Circuit Court of Appeals upheld that decision, finding the bank was a party in interest.

The opinion does not detail how the property fell into foreclosure or Bushnell's pre-bankruptcy claims. Bank of the West was a second lienholder on the property when it purchased the property at a February 2011 foreclosure sale. In August of that year, a Nebraska state court issued a writ locking Bushnell out of the property, though he was evicted in September and later reentered the property. In November of 2011, he filed for bankruptcy, prompting the bank to seek relief from the automatic stay in order to evict him. Bushnell filed a response to that motion arguing that he had the right to recover the property through an adversary proceeding. In that separate proceeding, he argued that the foreclosure was fraudulent and thus, he had taken adverse possession of the property. Details of the alleged fraud were not provided. The bankruptcy court accepted the bank's affidavit on the matter as true, and found cause to lift the stay. Bushnell's adversary proceeding was dismissed with prejudice.

On appeal, Bushnell argued that the bank was not a party in interest under bankruptcy law, because it has not established that it's a creditor or has any interest in the property. The BAP rejected that argument. The bankruptcy code defines a "creditor" to include a party with a right to an equitable remedy for a breach in performance, the panel said, and Bushnell's failure to vacate the property is such a breach. The bank had a writ and an order from state court, it observed. Indeed, it said the bank was a party in interest even if it had no creditor status because its interest in the property was adversely affected by the automatic stay. In addition, the panel said, Bushnell was wrong to reargue the foreclosure and foreclosure sale in his adversary proceeding, since those matters were unchallenged and are now finished, and the adversary proceeding was dismissed with prejudice. The panel went on to find Bushnell's other arguments unconvincing, finding, among other things, no abuse of discretion from the bankruptcy court's acceptance of the bank's affidavit as true.

Led by partner Vincent Howard, our Westminster foreclosure defense lawyers frequently counsel clients in positions similar to this -- people who want to invalidate a foreclosure through the bankruptcy courts. We've certainly seen cases where the bankruptcy filer's allegations were taken more seriously, although any case involving an allegation of wrongful foreclosure is fact-specific. In this case, it's not clear whether Bushnell's claims had merit, but it's also not clear whether the bankruptcy court seriously considered those claims in the first place, thanks to his filing after the foreclosure sale was finished. At Howard Law, P.C., our Rialto foreclosure defense attorneys recommend that homeowners fighting foreclosure act as early as possible, so they can get the scrutiny of a judge on their case before a foreclosure sale can create a purchaser with new rights.

Sixth Circuit Finds Loan Servicer and Assignee Can Be Held Liable Under FDCPA - Bridge v. Ocwen Fed. Bank

Mon, 14 May 2012 09:09:56 -0500

Led by Vincent Howard, our Loma Linda foreclosure defense attorneys frequently represent people who are fighting a foreclosure that was thrust upon them without fair consideration for a loan modification or without discussion of alternatives (a violation of California law). But every so often, we come across a case in which the foreclosure is not just railroaded through -- it's actually wrongful and against the law. That appears to be the case in Bridge v. Ocwen Fed. Bank et al, in which an accounting error led to foreclosure efforts against Lisa and William Bridge of Ohio, even after they provided proof of the mistake. The Bridges ultimately sued under the federal Fair Debt Collection Practices Act, but the district court dismissed because the lenders they sued were not debt collectors within the meaning of the Act. The Sixth U.S. Circuit Court of Appeals reversed, saying the lenders "could not have it both ways."

According to the Bridges' complaint, Lisa Bridge's bank erroneously refused to honor her check for April 2002's mortgage payment to Aames Capital Corp. Bridge had the bank issue an "official check" on April 8, but the bank dishonoroed that check as well, leading to default on the mortgage loan and a late fee. After a second official check, Firstar eventually honored two of the three April payments, leading to double payments for April. As a result, Bridge did not make a payment in May. However, in the meantime, Aames sent word that it assigned the loan to Ocwen, which began pestering Bridge and her husband (not a party to the loan) for payment. This continued even after Bridge provided proof of the double payment to Ocwen and Aames. The calls, described as "endless" by the Sixth Circuit, threatened foreclosure, assessed late fees, resulted in incorrect negative information reported to the credit bureaus. Collection was assigned to a law firm that also threatened foreclosure.

The Bridges filed a lawsuit alleging multiple violations of the FDCPA, including false representation, false credit reporting, threatening impermissible actions and harassing non-debtor William Bridge. Ocwen and Deutsche Bank separately moved to dismiss, arguing that neither was a debt collector subject to the FDCPA. Ocwen also argued that the FDCPA does not apply because the loan was not in default when it was assigned, and filed an additional counterclaim for foreclosure. The district court dismissed, finding neither company was a debt collector within the meaning of the FDCPA.

The Sixth U.S. Circuit Court of Appeals eventually reversed, finding the district court erred in that finding. The FDCPA distinguishes between debt collectors and creditors, it said, according to whether the debt was in default when acquired. It's well settled the FDCPA makes debt collectors and creditors mutually exclusive, the Sixth said -- but the court went on to find that an entity cannot be neither when it seeks to collect a debt. To find otherwise would be to remove the protections of the FDCPA, it said, by allowing the business to take contradictory factual positions. The Bridges' factual allegations establish that the defendants are debt collectors under the Act, the court said, in part because neither bank has an official, legally recorded assignment (making the debts in question "due another"). In addition, by hiring a law firm to collect, the defedants may have brought themselves under the FDCPA as well, the court said. The court called Ocwen in particular disingenous for attempting to argue that it cannot be a debt collector because Bridge's debt was not in default when it was acquired, despite Ocwen's years of allegations that the debt was in default at that time. Judge Clay, concurring in part, argued that the reversal should only be as to Ocwen Loan Servicing.

Vincent Howard and our Newport Beach foreclosure defense lawyers are pleased to see such a strong statement made on behalf of borrowers, who we frequently see pushed around by much more powerful mortgage lenders and servicers. As the majority noted, it's impossible for consumers to enforce their rights under the FDCPA if courts permit the defendants to define themselves out of the law entirely. It also noted that the "disingenuous" behavior by Ocwen -- aggressively pursuing a so-called debt, then acknowledging that no debt was owed after it was sued -- is something of a trend. The Eighth Circuit decisively rebuked a defendant in a recent case, Dunham v. Portfolio Recovery Associates, for this behavior, which sought to argue that no plaintiff may recover under the FDCPA when he or she didn't actually owe the debt. This contravenes the clear intentions of Congress in adopting the FDCPA, and the Encinitas foreclosure defense attorneys at Howard Law, P.C., are pleased to see another circuit court rejecting it.

Eighth Circuit BAP Affirms Dismissal of Bankruptcy Case After Allegations of Misconduct - Johnson v. Fink

Fri, 11 May 2012 09:08:37 -0500

Vincent Howard and our Redlands consumer bankruptcy lawyers were interested to see a recent bankruptcy case in which the debtors' good luck, in winning the lottery, turned into bad luck when their bankruptcy case was dismissed. In Johnson v. Fink, Robert Allen Johnson and Leita Anne Johnson won $20,000 in a lottery shortly after they filed their Chapter 13 plan. Their bankruptcy trustee, Richard Fink, claimed most of that money for the estate, and the bankruptcy court eventually agreed. However, the Johnsons never followed up on the court's order to file an amended bankruptcy plan to account for the money, or convert to Chapter 7, which led to the dismissal of the case. In this appeal, the Bankruptcy Appellate Panel of the Eighth U.S. Circuit Court of Appeals affirmed that judgment, finding no error by the bankruptcy court.

The Johnsons confirmed their plan in late January of 2011. In May of that year, Fink learned that the Johnsons had won $20,000, and they filed a motion with the court thereafter revealing that they had already spent some of that money and planned to spend more on expenditures they said were necessary. They paid some money into their attorney's trust account, but the trustee determined that about $1,500 was not accounted for. They later argued that the bankruptcy code permitted them to retain money acquired after plan confirmation. This did not impress the bankruptcy court, which told them it would deem the spent money necessary if they would turn over $2,200. After further motions from the trustee, they eventually filed a plan that would have paid other lottery winnings in a lump sum, but the bankrutpcy court ultimately decided the money must be divided into equal monthly amounts, and told them to file a new plan or convert to Chapter 7. When they did neither, the court eventually disbursed their lottery winnings and dismissed the case.

The Johnsons appealed the dismissal as well as other rulings, but the Eighth Circuit BAP found that they only properly addressed their appeal of the confirmation of their original plan. that plan, they argued, was improper because it required them to report all windfalls during the plan period; they said Congress intended that amounts to be paid to creditors should be determined at confirmation. The trustee argued that this appeal is moot because it took place well over 14 days from when the order was final. The BAP ultimately dismissed every part of the appeal by agreeing that this appeal was improper. To appeal their original plan confirmation, in January of 2011, they would have had to give notice within 14 days, and no such notice was filed. Because their entire argument was based on this, the court said, their entire argument must be dismissed. In addition, it noted that there was no basis to find an abuse of discretion by the bankruptcy court in dismissing their bankruptcy case, an appeal that was timely.

Vincent Howard and our Westminster personal bankruptcy attorneys would have preferred more than a sentence or two about the appeal the court conceded was timely. While this opinion is detailed, it doesn't contain the details necessary to follow the court's logic on why there was no abuse of discretion. This could be because the Johnsons failed to make a good argument, but it's hard to tell from the opinion. In general, however, an experienced Los Angeles County individual bankruptcy lawyer like Vincent Howard can help bankruptcy filers avoid this kind of dismissal on appeal -- and indeed, help them handle windfall payments without getting into trouble with the trustee and the court. Chapter 13 debtors generally could use this kind of extra money, but as this case shows, the price of doing it wrong can be steep.

Eleventh Circuit Finds Law Firm Is Debt Collector Under FDCPA - Reese v. Ellis Painter Ratterree & Adams

Thu, 10 May 2012 23:06:19 -0500

Vincent Howard and our Corona foreclosure defense lawyers were interested to see a foreclosure case that centers around the behavior of a law firm sent to collect the debt, rather than the loan servicer itself. In Reese v. Ellis, Painter, Ratterree & Adams, LLP, Izell and Raven Reese sued the law firm under the Fair Debt Collection Practices Act, for alleged false or misleading statements in a letter it sent to them. The Reeses filed their claim as a putative class-action lawsuit, but the Georgia district court found that they had not stated a claim because Ellis Painter was not a debt collector within the meaning of the FDCPA. The Eleventh U.S. Circuit Court of Appeals reversed on appeal, finding that they alleged enough facts showing that the firm regularly attempted to collect debts.

The Reeses bought a home in Roswell, Georgia, in 2004 by taking out a loan with Provident Funding Associates. They fell behind and defaulted, and in 2009, Ellis Painter sent them a collection notice on behalf of Provident. Under the signature on the letter was a bold, capital-lettered notice that the law firm "may be attempting to collect a debt on behalf of the above-referenced lender." Attached were a notice of foreclosure sale for the Reeses' property; a required FDCPA notice of their right to dispute the debt within 30 days, including a warning that "THIS LAW FIRM IS ATTEMPTING TO COLLECT A DEBT"; and a notice of the rights of military servicemembers. A few months later, the Reeses filed their lawsuit, seeking certification for a class of more than 500 who received letters from the law firm that contain alleged false, deceptive or misleading representations. The district court ultimately granted Ellis Painter's motion to dismiss for failure to state a claim, finding the firm was not a debt collector under the law.

The Eleventh Circuit reversed, finding a plausible claim for relief. It started by establishing that Ellis Painter was attempting to collect a debt within the meaning of the FDCPA. It found the letter's language clearly attempted to collect that debt. In addition to using language like "demands full and immediate payment," the Eleventh said, one attached document expressly said it was attempting to collect a debt and the law firm was acting as a debt collector. This is enough to sufficiently allege that Ellis Painter was attempting to collect a debt with its letter, the court said, even if the letter was also intended to give notice of foreclosure. To rule otherwise would permit "a big loophole" in the FDCPA for secured debts, the court noted. It went on to find that complaint sufficiently alleges that the law firm is a debt collector, noting that it alleges debt collection is the firm's business and that it had sent similar notices to more than 500 people.

Vincent Howard and our Orange foreclosure defense attorneys are pleased to see another bad argument by a debt collector dismissed. As other courts have recently observed, there appears to be a trend among debt collecting businesses to attempt to define themselves out of having to comply with the law. Of course no one likes to be sued, but when these businesses engage in debt collection, they agree to be regulated by the FDCPA. Indeed, the law firm's letter shows that it was well aware of the FDCPA, since it contained disclaimers required by that law. Many consumers aren't aware of this, but the FDCPA gives them a fair amount of rights when they are being harassed, deceived or otherwise mistreated by debt collectors. For example, collection agencies may not call late at night; threaten any action they cannot or will not pursue; lie; or contact a third party. Led by Vincent Howard, our Whittier foreclosure defense lawyers help families subjected to this kind of harassment, which is illegal regardless of whether they actually owe the debt.

Eighth Circuit BAP Rules Third Party Contractually Entitled to Funds From Rent to Debtor - Potts v. Guilford

Wed, 09 May 2012 09:07:58 -0500

Vincent Howard and our Riverside personal bankruptcy attorneys were interested to see an appeals court decision allowing a third party to collect part of a bankruptcy debtor's rental income. In Potts v. Guilford, the Bankruptcy Appellate Panel for the Eighth U.S. Circuit Court of Appeals determined that Gary Guilford is entitled to part of the funds from a check made out to both him and the debtor, Steven Potts of Missouri. After Potts was already in bankruptcy, Guilford and some business entities owned by Guilford purchased some of Potts's secured debts. Their contract had a requirement that if Potts leased his real estate, the rent payments should be issued jointly to Potts and Guilford, and Guilford would be entitled to the proceeds if Potts was not current in his loan payments. Because of that provision, the BAP found that Guilford was entitled to the money.

Potts went into bankruptcy in 2008. In 2010, he was unable to make certain payments to creditors, and Guilford agreed to buy some of Potts's secured debt. Potts agreed to repay nearly $112,000 in four installments, with the last due in 2014. However, Potts never signed a promissory note, security agreement or deed of trust, as the contract required. He did sign the contract itself, which required rent payments to be made jointly to the two men, and provided that if Potts was not current in his payments, Guilford could retain enough money from the rent funds to cure the default. In 2010, Potts leased some real estate to Strcue, Inc., which made out its January 2011 rent check to "Steve Potts and Gary Guilford, Manager." By May of 2011, Potts had defaulted on his debt to Guilford; however, he did sell the real estate and pay off the debt purchased by Guilford and his companies. The next month, Potts asked the bankruptcy court to compel Guilford to endorse the rent check. Instead, the court ordered Guilford to endorse the check and take out the amount owed by Potts, leaving Potts with a bit more than a third of the money.

Potts appealed, but had no better luck with the Eighth Circuit's BAP. That court ruled that the plain language of the two men's agreement permitted Guilford to retain the money. There is no dispute that Guilford is a joint payee on the check, the court said, and therefore clearly has an interest in the funds. Furthermore, the court said, Potts didn't make the payment for 2011 on the debt he owed to Guilford. Therefore, he was in default on that debt -- at least at the time of the hearing -- and under the contract, the BAP said, Guilford had every right to retain the funds. Potts argued that Guilford became an unsecured creditor when his attorney gave the check to the attorney for Potts. As an unsecured creditor, Potts argued, Guilford should only receive a pro-rated share of the money under the bankruptcy plan. The court rejected this argument, saying whether Guilford has a secured interest is irrelevant when he is a payee under their contract.

Vincent Howard and our Irvine consumer bankruptcy lawyers are not surprised to see the court enforcing a contract so strictly. While courts may be sympathetic to arguments that parties have waived their contractual rights through trickery or wrongdoing, they generally give a lot of deference to contracts that parties entered into freely. In this case, despite the lack of paperwork from Potts, the court declined to deviate from an apparently otherwise valid contract. In our work with people fighting foreclosure, our San Diego County bankruptcy attorneys frequently run across this attitude as to mortgage contracts. Those contracts can be challenged, but plaintiffs have the most success when they argue that the lender can't prove ownership ("show me the note" cases) or broke the law when making the contract in the first place (predatory lending).

Ninth Circuit BAP Upholds Dismissal of Wrongful Foreclosure Proceeding by Chapter 13 Debtor - In re Cedano

Mon, 07 May 2012 09:07:02 -0500

Led by partner Vincent Howard, our San Bernardino foreclosure defense lawyers frequently handle bankruptcy cases that involve foreclosures and defenses to foreclosure. In fact, some of our clients file for bankruptcy expressly to fight foreclosure, because filing for bankruptcy automatically stops all debt collection, and can give debtors the time and financial flexibility they need to catch up on mortgage payments. However, lenders can still petition the court for permission to foreclose, which generally means a fight in bankruptcy court for these protections. That was what happened in In re Cedano, a decision by the Bankruptcy Appellate Panel of the Ninth U.S. Circuit Court of Appeals. Humberto Cedano of Los Angeles filed an adversary proceeding alleging wrongful foreclosure due to invalid loan documents, but the bankruptcy court and the BAP both ruled in favor of the banks.

Cedano took out a loan on a Canoga Park home in 2007, with MERS as beneficiary and nominee for the original lender. The loan was securitized and the note assigned to a trust for the security, with Deutsche Bank as trustee and Aurora Loan Services as loan servicer. On Aug. 13, 2009, MERS substituted Cal-Western Reconveyance Corp. as trustee under the deed of trust. This was recorded on Sept. 28, but long before, on Aug. 18, Cal-Western filed a notice of default and intention to sell. Cedano and Aurora worked out a trial loan modification, but after the trial was over, Aurora declined to make it permanent. Aurora sold the property to itself at a foreclosure sale in July of 2010, and Cedano filed for Chapter 13 bankruptcy two days later. Cedano later filed an adversary proceeding, arguing that none of the companies involved in his foreclosure had the right to foreclose and that Aurora had breached its contract by failing to make the loan workout permanent. The bankruptcy court rejected most of Cedano's claims, but did find that the companies may have failed to contact him before foreclosure as required by California law. Cedano declined to amend his complaint, so the court dismissed it.

The BAP reviewed the dismissal for failure to state a claim, but ultimately upheld the bankruptcy court's decisions. On the wrongful foreclosure claim, Cedano argued that MERS had no more interest in the note or deed of trust after the loan was securitized and the note transferred. Under California law, the panel determined, MERS had authority to foreclose regardless of who had the note. Similarly, Cal-Western had authority to foreclose because state law requires only that the substitution of trustee be executed, not that it also be recorded. The BAP also rejected Cedano's claim that Cal-Western failed to contact him to discuss options as state law requires. It noted that this was difficult to reconcile with the loan modification agreement with Aurora, but also said that even if true, a violation of this state law does not automatically void a trustee's sale. The remedy the law provides is postponement of foreclosure, the court said, and no remedy is available after the foreclosure has already taken place. Because it rejected those claims, the panel also rejected Cedano's other claims, and thus upheld the bankruptcy court.

Vincent Howard and our Costa Mesa foreclosure defense attorneys would be interested to see a further appeal of this case. By ruling that there is no remedy for violations of the state foreclosure-notification law that are caught only after a foreclosure goes through, the court essentially voided this consumer protection law. After all, if borrowers have a right but can't enforce it, what use is that right? We're also disappointed that Cedano apparently abandoned his breach of contract claim as to the loan servicer declining to make his loan modification permanent. As a recent Seventh Circuit case has demonstrated, these claims may be viable under state law even if there's no private right of action under HAMP. (One might also ask why there's no way for consumers to enforce HAMP rules in the first place.) At Howard Law, P.C., our Los Angeles County foreclosure defense lawyers routinely handle these types of claims.

Unpaid Unemployment Taxes Are Not Nondischargeable Debt, Ninth Circuit BAP Rules - In re Hansen

Fri, 04 May 2012 09:06:18 -0500

One piece of advice our Rancho Cucamonga consumer bankruptcy attorneys commonly give clients at Howard Law, P.C., is that tax debts are often not dischargeable in bankruptcy. The public policy goal of this rule is clear: bankruptcy must not allow debtors to escape debts to the government, sometimes including honest debtors. However, as the Bankruptcy Appellate Panel of the Ninth U.S. Circuit Court of Appeals recently ruled, not every tax debt falls under this rule. In In re Hansen, the panel upheld a ruling by the bankruptcy court for Eastern California that unpaid taxes to California's Employment Development Department may not be exempted from discharge. Michael Hansen and some business associates agreed to pay the debt to the EDD in installments, but Hansen defaulted and then filed for bankruptcy along with his wife, Amy Hansen. The bankruptcy court rejected the EDD's adversary proceeding to find the debt nondischargeable, and the BAP affirmed.

Michael Hansen was president of Onvoi Business Solutions, part of the Onvoi Entities. When Onvoi bought Birdcage Travel in 2002, executives noticed that Birdcage had an unemployment tax rate of 0.09%, as opposed to Onvoi's 4.7%, so they transferred all employees to Birdcage's account, creating a savings of $2.8 million. The EDD noticed in 2004 and issued a notice of assessment to Hansen individually, for a total of $4.82 million in taxes, interest and penalties. Hansen and three other principals of the Onvoi Entities agreed to settle this debt with eleven regular payments, with Hansen responsible for any default. Hansen made six payments before defaulting in October of 2009; he and his wife filed for Chapter 7 bankruptcy in January of 2010. In its adversary proceeding, the EDD sought a determination that the balance of the owed assessment was a nondischargeable tax under the bankruptcy code. After a hearing, the bankruptcy court determined that the debt was dischargeable because the original taxpaying entity was Onvoi, not Michael Hansen.

The EDD appealed, but the BAP upheld this finding. Under the bankruptcy code, a nondischargeable tax debt comes from "a tax required to be collected"; the BAP found this ambiguous. Using legislative history, it ultimately decided that it meant the tax must be collected from others or withheld, as with income taxes from employees' paychecks. In this case, the panel said, the tax was always intended to be paid directly by the employer, Onvoi, without deductions from employers. And because this was not "a tax required to be collected," the court said, it was not excepted from discharge. While it was still a tax debt, it was not a priority tax within the meaning of the bankruptcy code. Because the panel found dischargeabilty as to Michael Hansen, it did not need to decide whether Amy Hansen's assets would be at issue, nor did it address any issues related to penalties or interest, before it upheld the bankruptcy court.

Vincent Howard and our Santa Ana personal bankruptcy lawyers are always pleased to see a victory for debtors as well as a clarification of the law. We agree with the panel that the phrase "a tax required to be collected" is less than helpful, so we appreciate its effort to clarify by looking at the code's legislative history. That history suggests that income taxes were first and foremost on the minds of the legislators who drafted the code, and that third-party obligations like Onvoi's were not contemplated. However, because income taxes are far more common in our experience as Oceanside individual bankruptcy attorneys, we expect to continue counseling clients on this important issue, so they can make good decisions about and in bankruptcy.

Debtor Not Entitled to Homestead Exemption for Proceeds of Home Split in Divorce - In re Jefferies

Wed, 02 May 2012 21:04:23 -0500

Vincent Howard and our Rubidoux consumer bankruptcy lawyers were interested to see a case with an unusual homestead exemption at issue. In In re Jefferies, the Bankruptcy Appellate Panel of the Ninth U.S. Circuit Court of Appeals ruled that Jack Jefferies may not exempt money received from his former homestead under Washington's homestead exemption. Jefferies received a final divorce decree in December of 2010, and the court order awarded him an "equalizing judgment" of $40,800 in exchange for his interest in the marital home, which was retained by his former wife. His Chapter 7 trustee objected to his attempt to exempt this money under the homestead exemption, and the bankruptcy court for Western Washington sided with the trustee. On appeal, the BAP of the Ninth Circuit affirmed.

Jefferies moved out of the marital home in 2009 and was granted a divorce in December of 2010. In his March 2011 bankruptcy petition, he claimed $47,000 as "proceeds of sale of homestead" under Washington state bankruptcy exemptions, saying the equalizing judgment constituted sale proceeds. The trustee objected, saying Jefferies couldn't meet the qualifications of the homestead exemption because he was divested of interest in it by the divorce decree; the monetary award was not proceeds from a sale, the trustee argued. The bankruptcy court held a hearing and decided that while the money may have been proceeds, the transfer was not a voluntary sale. The bankruptcy court later turned down a motion to reconsider in which Jefferies pointed out that the divorce court had simply formalized a voluntary agreement he had made with his ex-wife. Jefferies appealed.

The BAP ultimately agreed, finding Jefferies had no standing to claim the homestead exemption. Washington's homestead exemption, like California's, covers the proceeds of a voluntary sale of a homestead in good faith for the purpose of acquiring a new homestead, for up to a year. Thus, there was no doubt that Jefferies would have been entitled to the exemption after a conventional sale. However, the panel found that the transfer of his interest to his ex-wife was not a voluntary sale under state law. Washington caselaw is scant, it said, but notes that a forced sale can include a decree forcing action. The panel dismissed the debtor's argument that the transfer was not forced because he'd had a voluntary pre-decree agreement with his ex-wife to transfer the property, saying an element of legal compulsion remained. It pointed out that Jefferies said the agreement did not come quickly; the state court ultimately determined the equalizing judgment's amount; and that Jefferies was disappointed by the order and considered an appeal. Thus, it upheld the district court.

Vincent Howard and our Anaheim personal bankruptcy attorneys frequently handle bankruptcy cases that happen during or after a divorce, so we have firsthand experience with how divorce can affect a client's financial judgment. For that reason, we're disappointed by the BAP's ruling. Divorce agreements rarely come quickly; they are difficult emotional decisions as well as important financial decisions that take time and research to fully understand. Thus, it seems unfair to weigh the speed of the agreement this heavily. For the same reason, we also wouldn't give substantial weight to the satisfaction Jefferies had with the order or the fact that he chose to have the court answer it; sometimes, having an impartial court decide financial issues is the fairest solution. As Norwalk individual bankruptcy lawyers, we hope to see this case, or this issue, again in the future.

Ninth Circuit Rejects Chapter 7 Trustee Claims for Home Sale But Not Rental Income - In re Jacobson

Mon, 30 Apr 2012 09:04:08 -0500

Vincent Howard and our Moreno Valley individual bankruptcy lawyers were interested to see a partial victory for a Chapter 7 bankruptcy filer whose trustee challenged exemptions for certain real estate assets. In In re Jacobson, the Ninth U.S. Circuit Court of Appeals found Myrna Jacobson was not required to relinquish rental income from property, and the property itself, owned by her husband, non-debtor Donald Jacobson. However, the court did find that Jacobson should turn over proceeds from the sale of her homestead even though it was jointly owned with Donald. In so ruling, the Ninth Circuit reversed in part and upheld in part its Bankruptcy Appellate Panel and the bankruptcy court, both of which rejected all claims in the trustee's adversary proceedings.

Jacobson's bankruptcy stems from lengthy litigation between the Jacobsons and a man named Larry Cunningham, who sued them over the construction and sale of a beach home in Orange County. Cunningham ultimately won his case in 2000; he won enforcement of the judgment in 2006, by which time the debt had grown to $1.3 million. To stay a judicial sale of her home in Los Alamitos, Myrna filed the instant Chapter 7 bankruptcy, but the home was ultimately sold anyway. The Jacobsons received a portion of the proceeds as their homestead exemption. However, they did not reinvest the proceeds in a new homestead within six months, as required to maintain the exemption under California law. In 2007, the bankruptcy trustee filed an adversary proceeding seeking that money, as well as a rental home in Los Alamitos, which was only in Donald's name, and the rental income from that property. The bankruptcy court denied all claims, finding the rental property was Donald's alone and that the homestead exemption was fixed at the time of filing. The BAP affirmed.

The Ninth Circuit agreed as to the rental property, but found no homestead exemption could be applied to the proceeds of the home's sale. When that sale went through, the Jacobsons received $150,000 per the California homestead exemption. As the opinion noted, however, they failed to reinvest that money in a new home within six months of receiving it. Under California law, the court said, this meant they had lost the money's exempt status. While bankruptcy exemptions are fixed at the time of the filing, the court said, this includes all applicable state laws, including the law putting an expiration date on the exemption. Thus, the trustee was free to include that $150,000 in the estate. In so ruling, the court noted that it contradicted a 1990 BAP ruling and a 2007 ruling from the Oregon bankruptcy court, but found them unpersuasive. However, it agreed with the lower courts that the rental property and its income were not available to the court because it is Donald's separate property. Myrna is not estopped from claiming this despite Donald's reliance on her to run his affairs, the court said; Donald is free to continue owning property.

At Howard Law, P.C., our Dana Point personal bankruptcy attorneys would be interested in seeing more about the issue of expiration of the homestead proceeds. Particularly while the housing market remains less than robust, there are a lot of reasons to delay reinvesting homestead proceeds in a new home. (And in any case, the $150,000 was likely to be a fraction of the price of the home the Jacobsons lost.) It's possible that the law allows reinvestment in something other than a home, but the Ninth didn't discuss what investments are acceptable. It's also worth asking whether the purpose of a homestead exemption is served by putting a deadline on it, a question asked by the earlier cases the Ninth disregarded. The BAP found that enforcing the deadline denied debtors the fresh start that is the point of bankruptcy; the Oregon bankruptcy court said it throws debtors' rights into limbo. Vincent Howard and our West Covina consumer bankruptcy lawyers would welcome more discussion of the issue.

Eleventh Circuit Rejects Another HAMP Lawsuit Seeking Private Right of Action - Miller v. Chase Home Finance

Fri, 27 Apr 2012 08:56:30 -0500

Vincent Howard and our San Bernardino foreclosure defense attorneys have written here several times before about the prospects of lawsuits based on an unfair rejection from the federal Home Affordable Modification Program. Federal courts have fairly consistently ruled that there's no private right of action created by federal law or HAMP rules, but a Seventh Circuit ruling from early March found a state right of action in Illinois. So we were interested to see another ruling in this still-evolving area of the law from the Eleventh U.S. Circuit Court of Appeals, in Miller v. Chase Home Finance. Jason Miller of Georgia sued Chase Home Finance for failing to offer him a loan modification despite his meeting all the qualifications. The district court found no private right of action under HAMP and that any independent claims failed; the Eleventh Circuit affirmed.

Miller owned property in Hiawassee, Georgia, and contacted Chase in 2009 seeking a loan modification because of financial problems. Chase offered Miller a temporary loan modification under HAMP. However, once Miller's three-month trial period was finished, with Miller meeting all of his obligations under the HAMP agreement, Chase declined to make the loan modification permanent. The opinion did not go into whether Miller's claims included a claim that he had no change of income or another typical factor lenders cite for failing to make modifications permanent. His subsequent lawsuit alleged breach of contract; breach of implied covenant of good faith and fair dealing; and promissory estoppel. The Georgia district court ultimately dismissed the case for failure to state a claim, finding no private right of action under HAMP, and that even if the claims were independent of HAMP, that they failed as a matter of law. It denied Miller leave to amend, finding HAMP owed him no duty that would support a negligence claim.

On appeal, the Eleventh Circuit agreed on all counts. It started by stating that neither HAMP nor the law that helped create it, the Emergency Economic Stabilization Act of 2008, creates an express private right of action. The Eleventh looked at whether it could find an implied private right of action, and concluded it could not. Applying a four part test, it first found that the laws were not passed for the "especial benefit" of homeowners like Miller; they were created to stabilize the country's financial system. Second, it found no legislative intent to create a private right of action; the only express enforcement provision flows through the Secretary of the Treasury. Third, the court found that a remedy for borrowers like Miller wouldn't be consistent with the laws' underlying purposes; in fact, it found that such a right would frustrate HAMP's purpose by "chilling" participation due to lawsuit fears. Finally, the court found that the causes of action involved are typically state-law issues not appropriate for federal law. Thus, it found no private right of action. The court went on to find that Miller's HAMP-independent claims fail under Georgia law. For example, it said, his promissory estoppel claim failed because Chase never made Miller a promise he reasonably relied on, and Chase never promised to grant a permanent loan modification. Thus, it upheld the district court.

Vincent Howard and our Orange County foreclosure defense lawyers disagree with several of these conclusions, and so did the Seventh Circuit in the recent HAMP case, Wigod v. Wells Fargo Bank. In that case, the appeals court agreed that there's no express private right of action, but found actionable claims for breaches of an agreement Wigod signed with the bank. This agreement specified both parties' obligations under HAMP, so presumably, the HAMP rules at issue would be the same across all lenders. Under Illinois law, the appeals court said, this was sufficient to find breach of contract and promissory estoppel (among other claims). Thus, there appears to be at least a potential split between those two circuits. We look forward to hearing more on this issue, because it's very important to the everyday work of Vincent Howard and our team of Norwalk foreclosure defense attorneys.

First Circuit Rules Debtor May Not Continue Lawsuit He Failed to Disclose in Chapter 7 Filings - Guay v. Burack

Thu, 26 Apr 2012 18:13:56 -0500

Very recently, Vincent Howard and our Corona consumer bankruptcy attorneys wrote here about a debtor who was barred by the Eleventh U.S. Circuit Court of Appeals from pursuing a legal claim he failed to disclose during bankruptcy. Interestingly, that case was followed very shortly by a similar ruling from the First Circuit, in Guay v. Burack et al.. As with the Eleventh Circuit case, Love v. Tyson Foods, plaintiff Kevin Guay brought his case while his bankruptcy was already pending, but failed to amend his filings to disclose the case as a potential asset. This caused the defendants, a group of New Hampshire government officials who allegedly searched Guay illegally, to move for summary judgment on the grounds that Guay was judicially estopped from pursuing a claim he didn't acknowledge before. The First Circuit affirmed.

Guay and his wife, Lorraine Guay, filed for Chapter 11 bankruptcy in late 2008 and converted to Chapter 7 in 2009. The events giving rise to Guay's legal claims had not yet arisen when they filed, but in early 2009, the state of New Hampshire began investigating him for alleged illegal disposal of various toxic substances. The search was legal as to two properties, but included a search of their home, which was not named in the warrants, and officers kept the Guays and their tenants from accessing other properties not named. The searches also caused "extensive damage" to the subject properties and local media coverage. The Guays filed separate pro se lawsuits, which were later consolidated, just three days after Chapter 7 conversion. They failed to amend their filings to disclose these lawsuits, despite discussing them and other pending litigation at a later creditors' meeting, and despite a court order requiring filings that would have included the claims. They were granted a discharge in October of 2009.

In December of that year, the magistrate in their consolidated civil rights lawsuit noted that the bankruptcy case wasn't closed and ordered related briefing; the defendants raised the judicial estoppel issue, and the Guays filed an amended bankruptcy report that included this lawsuit. The Chapter 7 trustee then filed a notice of abandonment, saying she believed the claims were burdensome and of insignificant value. No creditors objected. Several of the claims were subsequently dismissed on other grounds, and after more discovery, the district court granted summary judgment on the remaining claims, saying they were judicially estopped by the earlier nondisclosure. Guay appealed.

The First Circuit started by noting that judicial estoppel applies when a party has succeeded asserting one position and now wishes to assume an inconsistent position. Disallowing this prevents litigants from unfairly manipulating the system. It's well established that failing to identify a claim in bankruptcy is grounds for judicial estoppel, the First said. Guay argued that his positions were not inconsistent, but the appeals court disagreed, noting that he maintained there was no further claim even when the state had moved for contempt for nondisclosure. It also dismissed Guay's argument that the bankruptcy court had never accepted his "position" of not disclosing the claim. Discharge of the bankruptcy case happened before the issue came to a head, the First said, but long after the obligation to disclose accrued. Finally, Guay argued that it would be inequitable to stop the claims because the trustee was aware of them before discharge and he amended to include them after discharge. However, the First rejected this, noting that Guay didn't bring them up himself and that oral disclosure is insufficient in any case.

Vincent Howard and our Tustin personal bankruptcy lawyers are particularly interested in this case coming so closely on the heels of Love. The cases have some important similarities, including claims that the plaintiff/bankruptcy filer gained no unfair advantage from failure to disclose. Because both circuit courts rejected that argument, we'd like to take the opportunity to remind bankruptcy filers that there's no substitute for full disclosure. Many bankruptcy filers, in our experience as San Diego County individual bankruptcy attorneys, don't even realize that a potential legal claim can be considered a financial asset. That's why, at Howard Law, P.C., we make sure to discuss the issue very thoroughly with bankruptcy clients before they file their petitions.

Debtor May Not Sue Former Employer Because He Failed to Disclose Claims in Bankruptcy - Love v. Tyson Foods

Wed, 25 Apr 2012 09:36:14 -0500

Vincent Howard and our Rancho Cucamonga consumer bankruptcy attorneys were interested to see a recent ruling reminding debtors that potential legal claims must be disclosed. Under the bankruptcy code, a potential legal claim has financial value just like a car or jewelry, and failing to disclose it may be punished as deceptive behavior in the same way that hiding another asset would be. However, debtors don't always realize this, which is why it's vital to fully disclose these issues to an experienced bankruptcy lawyer before filing. In Love v. Tyson Foods, Willie Love of Mississippi was attempting to sue his ex-employer for racial discrimination, after taking the matter to the EEOC. However, the Fifth U.S. Circuit Court of Appeals held that he was judicially estopped -- legally barred -- from bringing the claim because he had not disclosed it in a Chapter 13 bankruptcy that was pending at the same time as the EEOC action.

Love was hired as a truck driver for Tyson Foods in July of 2007, but fired three days later when Tyson discovered he had tested positive for drugs in 2001. Tyson's application asked only for positive drug tests within the last three years, so Love asserted that the company's safety concerns were a pretext for racial discrimination. He was rehired but required to take monthly drug tests, and eventually fired in April of 2008 when he tested positive. Tyson declined to consider the results of any subsequent tests. Love contends that the result was triggered by his use of antibiotics and that he was dismissed as retaliation for his previous complaints. He filed for bankruptcy in early May of 2008 and filed a charge of discrimination with the EEOC in late May of 2008. The EEOC issued a notice of right to sue in December of 2008, resulting in a lawsuit Love filed in 2009. However, Love did not disclose his discrimination claims when he filed for bankruptcy, or when the plan was confirmed, at which time the EEOC decision was pending.

In July of 2009, Tyson moved for summary judgment on Love's discrimination lawsuit, arguing that his failure to disclose them judicially estopped them. Love amended his claims to include the discrimination claims, but the district court ultimately dismissed his case. Love appealed pro se, despite having counsel in the lower court and in bankruptcy court.

On review, the Fifth U.S. Circuit Court of Appeals noted that judicial estoppel is appropriate when a party takes a position opposed to its own previous position, and this was not inadvertent. Love's argument on appeal was that he inadvertently failed to disclose his claims in the bankruptcy filing, but neither the district court nor the Fifth Circuit found enough evidence for that claim. It was not disputed that Love knew about the claims, but he argued that he had no motivation for keeping them a secret. However, Tyson countered that Love's motivation for keeping them a secret was to keep any recovery for himself. Indeed, the Fifth noted, Love's brief in opposition to summary judgment failed to even discuss the issue of inadvertence, relying instead on the fact that he had amended his claims. Moreover, the court said, his arguments failed to explain why he never disclosed his claims in the first place, or refuse Tyson's allegations that he had planned to keep any recovery. And arguments that Love would gain nothing going forward are irrelevant to the analysis, the Fifth said. Thus, it upheld the district court. Judge Haynes dissented, arguing that the summary judgment burden was on Tyson because judicial estoppel is an affirmative defense; that the law favored Love in any case; and that the judgment belongs to the bankruptcy estate, which should have been given ownership of the claim.

Vincent Howard and our Seal Beach personal bankruptcy lawyers would be interested to see the results of an en banc rehearing of this case. As the dissent notes, the theory that Love was trying to keep any recovery only works if Love is not in bankruptcy. Because he is, any money he might be able to recover in a lawsuit would automatically become part of the bankruptcy estate, and any competent counsel would have told him so. Unfortunately, the fact that Love appealed without a lawyer suggests that he didn't have the money for one, which would mean he likely doesn't have money for an appeal either. When large corporate creditors or potential creditors like Tyson stand to lose money, they often throw more legal firepower at the case than an individual can match. At Howard Law, P.C., our Murrieta individual bankruptcy attorneys help even the playing field.

Alabama Supreme Court Declines to Hold Loan Guarantors Responsible for Another's Default - Eagerton v. Vision Bank

Tue, 24 Apr 2012 08:35:09 -0500

Vincent Howard and our Loma Linda personal bankruptcy lawyers were interested to see a decision about what happens to those who guarantee a loan that goes into bankruptcy. In Eagerton v. Vision Bank, Fred and Nancy Eagerton made limited guarantees on a loan taken out by a company operated by their daughter and son-in-law, Elizabeth Dotson and John Dotson Jr. The Dotsons made unlimited guarantees on the same loan, but eventually defaulted on the loan, put the company into bankruptcy and defaulted on their bankruptcy plan. After the company's properties were foreclosed and sold, Vision Bank, the lender, sued the Eagertons for the remaining balance on the loans. The Alabama trial court found that the Eagertons were released from their obligations because the loan had been consolidated without their knowledge or input, and the Alabama Supreme Court agreed.

The company, Dotson 10s LLC, was formed to operate a tennis club, with the Dotsons the sole members of the company. The Dotsons took out their original loan, a mortgage secured by real estate belonging to Dotson 10s, in December of 2007, giving unlimited personal guarantees to the bank; the Eagertons gave limited guarantees. In December of 2008, Dotson 10s took out a second mortgage and the Dotsons guaranteed it personally, without involving the Eagertons. Unfortunately, both loans went into default, prompting Dotson 10s to file for Chapter 11 bankruptcy. The reorganization plan consolidated both loans with input from the bank but not from the Eagertons. Dotson 10s later defaulted on its bankruptcy plan and the mortgages were ultimately foreclosed and sold for about 75 percent of the loan balance. The bank then sought to hold the Eagertons responsible in Alabama trial court for the proportion of the balance on the consolidated loans that came from the first mortgage. The trial court ultimately granted this and the Eagertons appealed.

The Alabama Supreme Court reversed, finding the Eagertons were not responsible for the loan because the consolidation discharged their obligations under the guaranty contracts. Those contracts, one for each spouse, say the Eagertons guarantee the specific original mortgage loan up to a certain amount. By contrast, the high court noted, the Dotsons' guaranty contracts guarantee each and every debt they may incur to the bank. The Eagertons argued that the creation of the consolidated loans in bankruptcy materially altered their contracts with the bank and their obligations, without their knowledge or consent. The high court agreed. The Eagertons did not guarantee the loan with modifications, and the bankruptcy consolidation undisputedly made modifications. It rejected the bank's argument that the consolidation was nothing more than a "replacement note" as defined by the contracts, saying any replacement would have required the Eagertons' consent and knowledge. Thus, it reversed the trial court and remanded the case to lower court. A dissent argued that the trial court's original decision was correct because the guaranty contracts agreed to changes in advance.

Vincent Howard and our Anaheim individual bankruptcy attorneys were interested to see this case, because it spells out a basic fact of bankruptcy in a non-bankruptcy context. When a bankruptcy case is filed and debts are moved into a payment plan or otherwise altered, this creates a new debt. This case is a bit unlike those we typically handle because the Eagertons themselves did not go into bankruptcy; they were merely drawn into the one filed by Dotson 10s. (A footnote to this case notes that the Dotsons themselves later went into bankruptcy.) However, creditors to a consumer bankruptcy will be the first to tell you that bankruptcy alters debts substantially, which is why creditors are often eager to avoid it. At Howard Law, P.C., our Carson consumer bankruptcy lawyers harness this power to help clients get the best possible chance at a new financial start.

Oklahoma Supreme Court Reverses Foreclosure Judgment in 'Show Me The Note' Case - U.S. Bank v. Moore

Mon, 23 Apr 2012 08:34:04 -0500

Led by Vincent Howard, our Perris foreclosure defense attorneys frequently hear from clients and the media about attempts to foreclose without any proof of the right to foreclose. More and more borrowers have been challenging these attempts in what some have called "show me the note" cases, because the foreclosing bank typically can't produce the note showing the right to foreclose. (That requirement is common but varies according to state law.) The trouble for the banks is that numerous loans were bundled into investments during the housing bubble, and ownership was transferred numerous times -- but lenders stopped exchanging the actual note and doing the accompanying paperwork to make the transfers legally binding. The result is cases like U.S. Bank v. Moore, an Oklahoma Supreme Court case that ultimately overturned a default judgment of foreclosure because the bank couldn't show it had the right to foreclose.

David and Barbara Moore took out their Oklahoma County mortgage in 2005, executing a note and mortgage in favor of Colonial Bank. Their paperwork gave MERS a security interest in the property, allowing it, among other things, to foreclose. The Moores defaulted in 2008, and U.S. Bank began foreclosure proceedings four months later, as trustee for a home equity trust. In its initial filing, it said it held the note and mortgage, but didn't attach copies. The Moores' answer challenged this and demanded to see the paperwork, but the bank's subsequent filings did not include the paperwork. Eleven months later, in support of a summary judgment motion, the bank did submit a note, mortgage and assignment, but the note was endorsed in blank with no date. The assignment was dated about two months after the bank started the foreclosure case, but made retroactive. The Moores never responded, so the court granted default judgment to the bank. Later, after filing for Chapter 7 bankruptcy and having the automatic stay lifted, the Moores petitioned unsuccessfully to vacate the default judgment.

This appeal followed, with the Moores arguing that the bank never proved it had standing to foreclose. Under Oklahoma law, the Supreme Court said, the bank has the burden of showing it had standing to foreclose at the time it started the foreclosure lawsuit. To show that, it must show it was the holder of the note; a non-holder in possession of the note; or someone else with the right to enforce the note. In this case, the note was indorsed in blank with no date and was not submitted until the summary judgment stage, making it unclear whether the bank had the note in its possession at the time of the foreclosure lawsuit. In order to foreclose legally, therefore, the court said the bank must show it had the right to enforce the note prior to filing its foreclosure case. Because the bank had never conclusively done this, the Oklahoma Supreme Court reversed the summary judgment ruling and remanded the case to determine whether the bank had standing. A dissent by Justices Gurich and Winchester said the blank indorsement submitted with the summary judgment motion should be sufficient.

Vincent Howard and our Irvine foreclosure defense lawyers were interested to see that the dissent cited no fewer than six previous cases on the same subject, all within the last four months. Most of them appear to have held the same way as this one -- that foreclosing entities need to be held to strict standards before they are permitted to foreclose. We agree. A foreclosure is not a small thing in the lives of the people affected; they lose their home, their investment and their plans and hopes for the future. Before a lender is permitted to foreclose, we believe that lender should be able to demonstrate that it has the right to do so -- even if that means enforcing technicalities. As the Oklahoma high court said in its decision, this is a fundamental principle of the law. The San Diego foreclosure defense attorneys at Howard Law, P.C., hold lenders to that standard when necessary, through predatory lending litigation because California doesn't use judicial foreclosures.