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March 8, 2008

UST Complaint Against Countrywide

The US Trustee filed a complaint against Countrywide on February 28, 2008 alleging various abusive and improper conduct in a particular chapter 13 case in Atlanta.  A copy of the complaint can be accessed here.   The complaint alleges that Countrywide filed two motions for relief that it ultimately withdrew because the debtor was not in fact late, it added unsubstantiated charges to its claim, and continued to accept payments from the chapter 13 trustee after it had been paid in full. 

The prayer for relief asks for:

a. imposing appropriate monetary sanctions against Countrywide;
b. enjoining and restraining Countrywide from engaging in bad faith and abusive practices in connection with: (i) its preparation, verification, filing and prosecution of pleadings and proofs of claims in bankruptcy cases; (ii) its identification and return of payments received from bankruptcy estates after the satisfaction of its claim; and (iii) its assessment and disclosure of contractual fees and escrow charges.

I tease my students all the time about "bad faith."  I tell them they cannot utter those words in my classroom and will get an F if the words show up on a test.  So Countrywide is going to be ordered not to do bad faith or "abusive" stuff?  It seems like this is straight from a Remedies I course.  How is the court going to enforce that?  Aren't you going to give every debtor a free shot at Countrywide any time they do anything the debtor doesn't like?

I will probably lose my membership in the consumer bankruptcy bar for this post.  I think Countrywide and the like should be beat up big time for their conduct but I'm uncomfortable with an injunction ordering them not to do bad faith stuff in the future.  The injunction language should be considerably more specific than this or simply sanction them until they change their tune. 

Judge Jeff Bohm in Houston has conducted lengthy evidentiary hearings over several months on the same issues with Countrywide in a case called In re Parsley.  His March 5, 2008 Memorandum, all 73 pages, can be accessed here (first part) and here.  It takes no talent to see that Judge Bohm was more than miffed at the practice of bringing Motions for Relief, completed by paralegals, and then withdrawing them when confronted with the truth about the status of the particular loan.  The end result however is no sanctions because Judge Bohm said that he could not find "clear and convincing" evidence against Countrywide and no sanctions against the attorneys although he "hoped" they would do a better job in the future.  I can't say I disagree with the result.  Putting Countrywide through this has to help the plight of debtors and debtors' counsel in the future.         

March 8, 2008 in Current Affairs | Permalink | Comments (2) | TrackBack

1st Circuit BAP Affirms Lien Avoidance on Postpetition Home Refi

Miranda v. Doral Financial Corp.  (In re Marrero)  ---- B.R.  ----, 2008 WL 612790  (1st Cir BAP Jan. 2008)

Issue:   When a secured creditor obtains relief from stay to foreclose but no order abandoning the property and then agrees to a refinance of the debtor’s residence, is the new mortgage an unauthorized postpetition transfer?         

Holding:      Yes, and since the bank gave up its prepetition lien, it is now unsecured.    

The debtor filed chapter 13 and shortly thereafter converted it to chapter 7.  After the bank received relief from stay in the chapter 7, the debtor and the bank agreed to a refi of the two mortgages on the debtor’s residence.  The trustee was not served with the Motion for Relief.  There apparently was never any equity in the property beyond the homestead exemption.  Neither the trustee nor other creditors were given notice of the refi.   The facts do not say if a new trust deed was recorded, only that a new mortgage was “delivered” and that that was a postpetition transfer of property of the estate.  The trustee filed a complaint seeking declaratory relief that the residence was free and clear of liens and that the bank was now unsecured.  The bank defended on the basis that the residence was no longer property of the estate at the time of the refi and that if the new mortgage is to be avoided the prior mortgages should be reinstated.  The court granted the trustee’s motion for summary judgment declaring the debt to be unsecured and permitting the sale of the residence.

The BAP affirmed.  On appeal, the bank conceded that the new mortgage was a postpetition transfer but argued that the court abused its discretion in avoiding the lien.  The bank argued “the phrase ‘the trustee may avoid a transfer of property of the estate’ in the first sentence § 549(a) requires the bankruptcy court to review a trustee’s exercise of the power under a benefit to the estate test as a condition of avoidance.”  But the BAP said it is the trustee who “may” avoid the transfer.  “[A] bankruptcy court may not apply its general equitable powers to disregard or  contravene the Code’s unambiguous provisions; or, as [the bank] would have it in this case, to save a defendant creditor from its own improvident actions.”  Furthermore, the avoidance was clearly a benefit to the estate.  The bank also argued that the effect of the ruling was to give the trustee a double satisfaction which is improper under Section 550(d) and therefore the old lien should reattach if the new lien is avoided.  The BAP rejected that since Section 550(d) clearly doesn’t apply.      

March 8, 2008 in Other Circuit Briefs | Permalink | Comments (0) | TrackBack

March 6, 2008

Sharper Image Gift Coupons and Store Closings

There have been news reports, including an article in the LA Times yesterday, that Sharper Image will no longer honor its prepetition gift and merchandise certificates.  The company actually asked the court, as one of its first day motions, to allow it to continue to honor those certificates and the UST objected.  The objection was actually well taken since there was no showing of how much was out there, i.e., the effect of the order on the other creditors.  Sharper Image has modified the request to provide that customers can use the certificates as long as they buy something worth twice as much as the certificate.  If the customer buys something for $100, he can use his $50 or less certificate.  This still has to be approved by the Bankruptcy Court.   

Sharper Image has also asked the court for "procedures orders" permitting it to close 96 of its stores and auction the inventory to the extent the inventory is not sold at the closing sales.  The motion lists the stores to be closed on "Exhibit 'A.'"  Exhibit A in turn states, "to be completed later." 

March 6, 2008 in Current Affairs | Permalink | Comments (2) | TrackBack

March 4, 2008

New IRS Standards Effective March 17, 2008

The IRS’s National Standards for Allowable Living Expenses and Local Standards for Transportation and Housing and Utilities Expenses have been updated.  You can find them at the IRS website here.  The revised standards will apply to cases filed on or after March 17, 2008.

The UST website has a complete list of all the standards and charts.  You can access them here. 

March 4, 2008 in Current Affairs | Permalink | Comments (0) | TrackBack

March 3, 2008

Two Upcoming Conferences

From Professor Bob Lawless:

On May 2-3, the University of Illinois College of Law and the American Bankruptcy Institute are hosting "A Debtor's World: An Interdisciplinary Academic Symposium on Debt." Speakers and commentators represent some of the leading minds in a wide variety of disciplines including history, law, economics, finance, neuroscience, strategic management, organizational theory, and other fields. The keynote speaker will be James Scurlock, producer of the documentary Maxed Out. We are hoping that this event will lead to a flourishing of interdisciplinary conversations on how our society should optimize our use of debt. The conference will be held at the University of Illinois College of Law in Champaign, Illinois. More information about the event can be found at http://www.abiworld.org/Debt08/index.htm.

On the day before our conference, you can enjoy "Lawyers, Law Firms & the Legal Profession: An Ethical View of the Business of Law," a symposium jointly sponsored by the DePaul University College of Law and the Commercial Law League of America. That event will take place in Chicago, Illinois, and more information can be at http://www.clla.org/events/default.cfm#201. This symposium is part of the Commercial Law League's spring meeting. Topics include a discussion of the future of the billable hour and how lawyer mobility is changing the practice of business law. I have attached flyer with more information for this particular event.

Robert Lawless
Professor of Law and Galowich-Huizenga Faculty Scholar
University of Illinois College of Law
[email protected]

March 3, 2008 in Programs | Permalink | Comments (0) | TrackBack

March 2, 2008

Earle Hagen 1925 - 2008

With profound grief and sadness the families of David Hagen and Jeffrey Hagen announce the passing of their father, Earle Hagen, in the early afternoon of Saturday 030108.

Earle was at dinner on Saturday February 23 at one of his favorite restaurants, Ruth's Chris Steakhouse in Woodland Hills, enjoying the company of his sons and some other members of his family, as well as a beautiful steak and a delicious glass of wine when, it appears, a blood clot caused a massive stroke at the base of his brain. Although we at first believed he had choked, doctors at Kaiser Permanente have determined that he did indeed have a stroke and that there was therefore nothing that anyone could have done. Searching for silver linings, although we will all of course miss our father terribly and would have been grateful for any additional time he could have been with us, we take comfort in the fact that his last conscious experience was among family in a pleasant environment.  Had our dad been given choices about how he would pass away, he would probably have chosen that very one. He didn't pass alone, he didn't pass while driving where he might have endangered others, and he didn't pass among strangers. He also spared himself and his family the indignities and loss of independence that often come toward the end of one's life.  Those of you who knew Earle well realize that Earle would not have accepted such developments lightly.  And while having a life-ending stroke deprived of us the opportunity to communicate our love and best wishes to him, you also realize that Earle knew already how much we all cared about him and loved him, and wouldn't have felt terribly comfortable with tearful emotional displays.

A memorial service celebrating Earle's life will be conducted by Temple Aliyah's Rabbi Stewart Vogel and Hazzan Mike Stein at the TaNaCH Chapel at Mount Sinai Mortuary in Hollywood Hills/Los Angeles on Wednesday 030508 at 0200pm followed by a graveside service. Mount Sinai Mortuary is located off the 134 Ventura Freeway at the Forest Lawn Drive exit.

Well prior to his passing, Earle requested that in lieu of flowers, those wishing to do so may make donations to his favorite charitable organizations: Temple Aliyah [24400 Aliyah Way, Woodland Hills, California 91367], Women's League For Conservative Judaism [48 East 74th Street, New York, New York 10021], and the American Cancer Society.

After the service, the Hagen families will welcome those wishing to do so to return to Earle's home, 5925 Moorcroft Avenue, Woodland Hills 91367.  A shiva service will follow at Earle's home at 0700pm.

David Hagen Jeffrey Hagen

Earle was a giant in the Central District of California bankruptcy community for the past 50 years.  JH

March 2, 2008 in Current Affairs | Permalink | Comments (0) | TrackBack