Bankruptcy Case History

Grocers of Maine’s Bankruptcy Case Dismissed

James Ebbert, the Court-Appointed Receiver for Associated Grocers of Maine, filed a voluntary petition under Chapter 11 of the Bankruptcy Code on August 26, 2011. Goodman Law Firm, who represents 53 independent grocers in their dispute with the now-defunct Associated Grocers of Maine, objected to the filing and, at a hearing held on September 12, 2011, Goodman Law Firm was successful in persuading the Bankruptcy Court to dismiss the matter for the Receiver’s lack of authority to file a bankruptcy case on behalf of AGME. The matter will remain in State Court where the independent grocers will continue to press their demands for return of their capital contributions and a set off against the balances of their capital accounts.

Employer’s Appeal of Award of Unemployment Benefits

Successful in defending an employer’s appeal of a Maine Department of Labor’s award of unemployment benefits to my client.

Bankruptcy Adversary Proceeding

The United States Bankruptcy Court for the District of Maine issued a judgment in favor of our client for a creditor’s violation of the discharge injunction the client received in his bankruptcy case and awarded the client his attorney fees, actual and punitive damages.

Chapter 13 to return repo’d vehicle

Successfully facilitated the return of a repossessed vehicle to clients by filing a voluntary petition under Chapter 13.

Maine’s Foreclosure Mediation Law

Leigh M. Bertrand, Esq.

6/30/2010

I recently had a chance to attend a seminar on Maine’s new mediation requirement in foreclosure proceedings.  Here’s what I learned:

On January 1, 2010, the new law (which can be found at 14 M.R.S. §6321-A and Civil Rule 93 of the Maine Rules of Civil Procedure) went into effect.  Basically, it requires that all mortgage holders filing complaints for foreclosure against owner-occupied residences, include a one-page notice to the homeowner(s) that states, at a minimum, that failure to answer the complaint will result in a foreclosure of their property, give a sample answer and envelope in which to mail that answer back to the Court, and give a description of the new mediation program.

Once an answer to a foreclosure complaint is filed with the Court, all foreclosure proceedings, including motions deadlines, are stayed.  This means all activity stops while the mediation process takes place.  In Maine, there will be one or two Courts in each county which will take over the mediation process in the case.  This means even if your case was filed in your District Court, the mediation may take place elsewhere in the county.

The first step of the process is an informational session which the homeowner will be required to attend.  At this session, a judge assigned to the case will be present, as will a housing counselor and a representative from legal services.  In addition, the mortgage holder may also be present.  This session is designed to educate the homeowner on the mediation process and the new laws as well as to identify the information that the mediator will require to be produced by the homeowner and the mortgage holder.  After this session, the Court will produce a Scheduling Order outlining deadlines for producing information, providing additional information, as well as setting the mediation date.  In addition, the homeowner will be given a financial package to fill out and return to the mortgage holder.  York County Community Action is ready willing and able to assist homeowners in filling out the financial package completely and accurately.  Their website is: www.yccac.org.

Parties will have three weeks following the information session to exchange information and the mediation date is usually set for six to seven weeks after the exchange of information.  It is important that all information that is requested is filled out accurately and completely and exchanged by the deadline.

The mediation session will include a mediator (often a former judge, attorney or bank professional), the homeowners and a representative from the mortgage company with authority to restructure the loan.  The mediator will ask for evidence that the mortgage holder is indeed the holder of the note.  The mediator will have already prepared a FDIC spreadsheet in order to determine the Net Present Value (NPV) of the property and whether a loan modification is feasible given the income, hardship of the homeowner, and characteristics of the existing loan.  Basically, the goal is to show the mortgage holder that they stand to loose less by modifying the loan than by foreclosing.  Even if it appears that there is no feasible way to modify the loan, there may be some options available to homeowners that would allow them to remain in the property while attempting a short sale or other remedial measure.

Finally, there are some important points that homeowners should remember in this new process:

  1. It is very important that homeowners accurately, completely, and timely fill out and return all requested financial information;
  2. This process forces mortgage holders, with authority to deal, to engage in a meaningful conversation about options with a mediator present, rather than homeowners speaking with a multitude of customer service representatives at a call center;
  3. If the homeowner’s hardship is not likely to change in the future, a loan modification may not be an affordable or sustainable option;
  4. FHA and USDA loans are often the hardest loans to modify.  In fact, FHA loans which are in arrears in excess of 12 months cannot be modified;
  5. Remember that there are many creative alternatives which may allow homeowners to remain at the property for little or no payments while they attempt a short sale.

Some important websites:

www.makinghomeaffordable.gov

www.yccac.org

www.hmpadmin.com

www.financialstability.gov

www.hud.gov

www.rurdev.usda.gov

www.fdic.gov/consumers/loans/loanmod/loanmodguide.html

Loan Modifications and Bankruptcy

It sounds like a good idea.  You just send in some basic paperwork to the Loss Mitigation Department and in 60 – 90 days, you will have your mortgage loan modified. Oh, and by the way, the mortgage company will stay the foreclosure sale on your property while they review the modification package.  Great! Maybe you won’t have to file for bankruptcy to protect you and your family from losing your home after all!  You gather all of the requested documents, sign where required, and spend a small fortune faxing it to your mortgage company’s Loss Mitigation Department, and you wait.  And wait.  And wait.  You call the number for the Loss Mitigation Department and spend at least 15 minutes being rerouted to the correct department.  Finally, a representative named “Greg” tells you that your file is “under review” or “in underwriting” and you should have a decision in about two weeks.  You let out a sigh of relief.  It is almost over.  Two weeks pass.  You receive a notice in the mail that the sale date on your home is set for a date three weeks away.  You panic.  You call Loss Mitigation.  When you are finally routed to the correct department and explain your situation in a desperate tone, stating that “Greg” told you your file was under review, “Darrell” tells answers, “Well, I don’t know why he told you that.  I have no information that the file is under review.  Let me put you on hold while I get my supervisor, George.”  “George” comes on the line and matter-of-factly tells you that your loan modification request was denied because you didn’t list all of your expenses.  “Some of the items were left blank, such as the loan amount on your 1995 Honda Civic.”  A little annoyed you answer, “I don’t have a loan on that vehicle.”  “Well,” George replies, “how are we supposed to know that.  You will have to resubmit the package.”  Your heart sinks, but you surrender yourself to the grim task of resubmitting your request.  “The sale date for the house is set for three weeks from now.  That will be put on hold once I resubmit my paperwork right?”  George can’t answer this question.  He gives you the number for the local attorney handling the foreclosure.  You call the attorney’s office and are told that the sale will go forward as planned.

What can you do now?

Hiring an Attorney to Handle a Loan Modification

Call an attorney who is versed in bankruptcy and loan modification.  Many Americans have heard of President Obama’s Loan Modification Plan, but few know what the plan entails.  Even though the mortgage companies and banks have set up loan modification measures, they are not under an obligation to modify your loan and each lenders modification process is different.  If servicers choose to participate in the Plan, they are required reduce interest rates and/or extend the term of the loan to up to 40 years in an effort to lower a homeowner’s monthly mortgage payment so that it equals no more than 38% of the homeowner’s gross income.  The government would then kick in some more money towards the monthly payment so that the total monthly mortgage payment would not exceed 31% of the homeowner’s gross monthly income.  While this Plan seems to be workable on paper, there are some major hurdles facing homeowners who attempt loan modifications.

First, there are so many people in the loan modification process, getting an approval often takes more than a year.  In addition, with the arduous paperwork, many times homeowners forget to fill something out, don’t send all of the paperwork in one package, or fill out the paperwork incorrectly (the instructions are often very cryptic).  If the paperwork is not filled out exactly as requested and the file is not 100% complete when faxed to the servicer, the file is often marked as incomplete and the request for a loan modification is cancelled, leaving the homeowner to start all over again.

Another roadblock that many homeowners find is that the loan modification departments are often so large with so many requests that one hand never seems to know what the other is doing.  One representative tells the homeowner one thing and two weeks later, another representative say something completely different.  This phenomenon occurs much less frequently when homeowners have their mortgage through a local bank or credit union whose standards of customer service seem to be much higher.

You are not required to hire an attorney request a modification of your mortgage and an honest attorney will tell you that having an attorney handle the process for you usually does nothing to speed things up.  However, having an attorney navigate the waters of loan modification does take a significant amount of stress and frustration away from the homeowner because someone else it dealing with the paper pushing and phone calls.

Filing for Bankruptcy

The only sure fire way to stop your home from being sold at a foreclosure sale (even if the sale is tomorrow) is to file for bankruptcy today.  Filing for chapter 13 bankruptcy will allow you to set up a plan to pay off any arrears on your mortgage and may even allow you to strip off a second mortgage and make it unsecured, saving you potentially tens of thousands of dollars.  Even filing for chapter 7 bankruptcy will allow you to stay any foreclosure process for a time so that you can figure out what steps to take next.

You should know that chapter 13 bankruptcy is not cheap and it requires that you stay current with your regular mortgage payment plus make a monthly plan payment to a trustee so that money can be used to cure arrears and satisfy some small percentage of the unsecured debt you may have.  This is a difficult situation for many homeowners who are having a tough time just paying their mortgage.  A qualified attorney will be able to help you decide whether filing for bankruptcy is a good option for you.  The Goodman Law Firm offers a free consultation so that you can meet with an attorney and get all of the information needed to make an informed decision.

Bankruptcy and Loan Modification – The Best of Both Worlds

It is possible to modify a mortgage loan while you are in chapter 13 bankruptcy.  If a homeowner can modify their loan and bring the payments to a comfortable level while stripping a second mortgage and paying only a fraction of what they owe in unsecured debts.  This seems to be the most ideal situation, making it easier for homeowners to afford to stay in their homes and offering the most protection against foreclosure actions.  That being said, receiving a loan modification within the context of an existing chapter 13 case is no less arduous and takes just as long (if not longer) to process.  It is, nevertheless, worthwhile to discuss the option of a loan modification while in chapter 13 bankruptcy.  Again, a qualified bankruptcy attorney will be able to discuss how the process works identify the potential benefits and pitfalls of such a situation.

Lumb v. Cimenian – Violations of the Discharge Injunction

Under 11 U.S.C. § 524, the Bankruptcy Court provides debtors with protection from creditors whose debts have been discharged.  Once a debtor is granted a discharge from his debts, the discharge injunction precludes any creditors from doing any act to collect, recover or offset the discharged debt.  There are stiff penalties for violations of the discharge injunction because such actions hinder a debtors opportunity for a “fresh start;” a tenet of bankruptcy law.

In some cases, creditors’ acts are not overtly harassing or coercive, but, rather, the “totality of circumstances” makes the acts objectively and improperly coercive and, therefore, those acts constitute a violation of the discharge injunction.  This “totality of circumstances” has come to be known as the Objective-Coercion Principal.  The creditor is not absolved of liability simply because their actions are in good faith or legitimate state court actions.  Any act which is objectively and improperly coercive violates the injunction.

In a 2006 landmark case, In re Pratt, the First Circuit Court of Appeals tackled to Objective-Coercion Principal.  In their chapter 7 case, the Pratts had surrendered a vehicle secured by a $2,600 loan held by GMAC and the Bankruptcy Court granted GMAC’s motion for relief from stay, allowing them to repossess the vehicle.  Because the value of the vehicle would not be offset by the cost of repossession, GMAC wrote off the remaining loan balance and allowed the Pratts to retain the vehicle, however, the GMAC lien remained.  The Pratts subsequently received a discharge.

Shortly after their discharge, the Pratts’ vehicle became inoperable and they wished dispose of it through a salvage dealer.  However, in order to “junk” the vehicle, Maine State Law requires that all liens be released.  When the Pratts contacted GMAC to obtain a release of their lien or, in the alternative, have GMAC repossess the vehicle, they were told that the lien would not be released until the loan balance was paid in full, leaving the Pratts “between a rock and a hard place.”

Although the Bankruptcy Court entered judgment for GMAC, finding that GMAC’s rights to enforce the lien on the vehicle in State Court remained, that GMAC had a statutory right to refuse to release the lien until the loan balance was paid in full, and that their refusal to release their lien did not coerce the Pratts to pay the discharged debt, but simply invoked legitimate State Court rights, the First Circuit Court of Appeals found that the circumstances particular to the Pratts case, was objectively coercive and, thus, a willful violation of the discharge injunction.  In their opinion, the First Circuit indicated that this situation was “likely to arise infrequently (if ever) in future cases.”

In 2008, Attorney Joseph Goodman filed a landmark case on behalf of his client, which endeavors to expand on the First Circuit’s findings in Pratt.  In In re Lumb, the debtor, Mr. Lumb, filed for bankruptcy under chapter 7 of the Code.  Mr. Lumb’s wife did not file with him.  His petition listed a creditor to whom he owed an unsecured debt.  The creditor received notice of the case filing, and never filed an adversary proceeding, although the creditor’s lawyer did send a letter to Attorney Goodman threatening legal action against Mr. Lumb’s wife if he did not pay the debt.  Mr. Lumb received a discharge of his debts.  The creditor then filed a nine-count lawsuit against Mrs. Lumb in York County Superior Court.  After a three-day trial, the Court found that none of the counts had “even the slightest merit” and awarded Mrs. Lumb her attorney fees due to the meritless and frivolous case, which they believed was filed in an effort to harass her.  The creditor did not appeal the underlying findings of the Court, only the award of attorney fees.  The Law Court affirmed the award of fees, stating that the creditor brought the claims against Mrs. Lumb even though she never had personal liability for the debt because the creditor was foreclosed from suing Mr. Lumb directly.

Mr. Lumb has filed a complaint for violations of the discharge injunction in his chapter 7 bankruptcy case based on the coercive nature of the creditor’s State Court action against his wife.  The Bankruptcy Court dismissed the action against the creditor and Mr. Lumb appealed that decision.  On appeal, the Bankruptcy Appellate Panel for the First Circuit overturned the Bankruptcy Court, stating that the allegation that the creditor’s State Court case against Mrs. Lumb was improperly coercive and harassed him was plausible given the fact that Mrs. Lumb incurred over $50,000 in legal fees defending against it and that the creditor would have dropped the suit had Mr. Lumb paid the discharged debt.  The BAP remanded the case to the Bankruptcy Court and trial is set for May 27, 2010.  If Mr. Lumb is successful, the case will set the precedent that certain actions taken against third parties can violate the discharge injunction in a debtor’s case.

To view the BAP’s Opinion, click here.

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