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Fighting The Foreclosure Machine

Written before the collapse of our credit markets, I was reminded of the New York Times article Foreclosure Machines Thrives on Woes by Billy Price and his blog Dallas Bankruptcy Lawyer.  It was an amazing article when written, and it likely speaks volumes now that foreclosures have only increased.

The essence of the article is really that bankruptcy attorneys seem to be the only real line of defense against some bad foreclosure practices, but the conduct does not stop even once a debtor enters bankruptcy.

One point of the article is that the methods employed by mortgage servicing companies has corrupted the system in a way that benefits nobody but the large law firms that pursue these matters in large numbers based on unit costs.

As stated in the article, "Nobody wins when a home enters foreclosure - neither the borrower, who is evicted, nor the lender, who takes a loss when the home is resold ... The reality is very different.  Behind the scenes in these dramas, a small army of law firms and default servicing companies, who represent mortgage lenders, have been raking in mounting profits."

These law firms are commonly called "foreclosure mills".  Most bankruptcy firms that have had to work with these mills will tell you that they are generally strident, ill informed, and have generally contributed to a worsening of the real estate market.  They certainly make a debtors honest efforts to reorganize and save their home in bankruptcy exceedingly difficult many times.  Yet, there is little change now as to how mortgage servicing companies have employed their services since the crash of the real estate market in this country.

The problem from a bankruptcy standpoint?

These foreclosure mills are paid by the number of motions, objections and documents filed in a bankruptcy. The result is that these mills are encouraged to file as many claims as possible.  As stated in the article, “Court documents say that some of the largest firms in the industry have repeatedly submitted erroneous affidavits when moving to seize homes and levied improper fees that make it harder for homeowners to get back on track with payments.”

What seems to empower mortgage servicing companies and foreclosure mills is the notion that it can add any fee its wishes, without bankruptcy court authority or effective disclosure to the debtor's mortgage account.  In a recent study, Katherine M. Porter, an associate professor of law at the University of Iowa, found that of 1,733 mortgage accounts in bankruptcy across the country she reviewed almost half contained questionable fees, which were automatically added tot he debtor's account.

The problem with any machine is that once it gets going it is just hard to turn off, especially when the machine is fueled not by its analysis of the situation, or how exactly it has effectively assisted its client, but by the shear number of motions and objections its files.  The only real line of defense has been the debtors' bankruptcy attorneys, and even they get overwhelmed by the magnitude of this problem.

Previously I posted about series of problem in the State of Texas concerning the law firm of Barrett Burke Wilson Castle Daffin & Frappier (then commonly known as BBWCDF).  The law firm went through a period of embarrassing revelations in the bankruptcy courts in Houston, Texas resulting in a number of high dollar sanctions and sever tongue lashings by the judges.  (You can read these decisions by clicking HERE, and HERE, and HERE and HERE).  The law firm has since undergone a reorganization and is now known as Barrett Daffin Frappier Turner & Engel, L.L.P (or BDFTE).

The problem ultimately is that BBWCDF or BDFTE might be one of the largest of this type of firm or foreclosure mill, but they are not the only one by any means.

The only recourse a debtor has is to be vigilant in reviewing the statements or records obtained from mortgage servicing companies, calling questionable fees and conduct to the attention of a bankruptcy attorney, and comparing with the bankruptcy attorney this information to that filed in the underlying bankruptcy case.  Bankruptcy rights are not self-enforcing.  If the courts do not know the activity is taking place, the courts cannot correct it.  Bankruptcy attorneys only know to enforce what they can reasonably discover from the bankruptcy documents filed.  It is ultimately the comparison of these bankruptcy documents, and what is really happening on the ground that uncovers much of the bad conduct.  Mortgage servicing companies and these bankruptcy mills survive because nobody but the debtor has all of the information to review and compare, and the consumer is not versed in doing so.

So, be vigilant.

Bail Bond Guarantees Are Dischargeable

This practice includes the prosecution of contempt as to those that violate the discharge injunction.  However, when considering whether you can or should proceed with a discharge injunction violation you have to look carefully at the exceptions to discharge as stated in 11 U.S.C. § 523.  If there is an exception is it one that requires an actual adversary by the opposing party while the bankruptcy is pending, or is the debt simply immune from any discharge entered due to the type of debt it represents.  It is always a question.

In this regard, the 10th Circuit Court of Appeals has now stated that 11 U.S.C. § 523(a)(7) does     not render nondischargeable a debt incurred by a debtor who has     guaranteed a bail bondsman to make the bondsman whole in the event a     criminal defendant jumps bail.

In a case of first impression for the Court, it ruled in  Affordable Bail Bonds, Inc. v. Sandoval (In re Sandoval) that a judgment obtained before the filing of a case for the guarantee of payment to a bail bond company on an appearance bond was dischargeable because § 523(a)(7) did not apply.

In this case the Debtor, Sandoval, entered into a "plain talk" contract with the Bondsman, Affordable, as an indemnitor in the even the person being bailed did not appear as required.  The Debtor paid the Bondsman $1,600.00 for the bond and agreed to reimburse the Bondsman for actual expenses in case of forfeiture, including the "full amount of the bail forfeited".

The 10th Circuit stated a few caveats:  "It is important at the outset to understand what this case is not. It is not a case where the debtor was the defendant in the underlying criminal action who had previously jumped bail and is now attempting to get his debt to a governmental unit discharged in bankruptcy. Nor is it a case involving a bail-bondsman debtor or other type of surety debtor who is attempting to discharge a debt owing directly to a governmental unit incurred as a result of the
nonappearance of a defendant. We are not concerned here with the nature, scope, or operation of the bond agreement between the Bondsman and the State of Oklahoma".

In light of these caveats, the Bankruptcy Court had gone into some discussion that the Debtor was not a party to the bonds that were forfeited, and the debt was therefore not a fine or a penalty.  The 10th Circuit cut through this by stating it does not matter because this type of "debt is not payable to and for the benefit of a governmental unit, and thus the statute does not bar discharge".  All that mattered was that the "Bondsman is a nongovernmental corporate entity ... and the fact that [the Bondsman] ultimately paid money to the State of Oklahoma after [the one bonded out] failed to appear does not change [the Bondsman's] status from that of a private corporate entity".  The Bondsman had attempted to bootstrap the government entity prong of The Bondsman attempts to satisfy the government-entity prong of § 523(a)(7) by arguing that [the Bondsman] should be subrogated to the rights of the State of Oklahoma.  The 10th Circuit, as the Bankruptcy Court before it, was unpersuaded, stating:  "the State had no rights on the bail bond or otherwise against the [the Debtor]. Thus, 'stepping into the shoes' of the State as a subrogee avails the Bondsman nothing in regard to the dischargeability of the debt and fails to afford the Bondsman status as a governmental unit.

The Bondsman relied on a public policy argument, which would seem to contravene the Bankruptcy Code.  The 10th Circuit concluded that “'[E]xceptions to discharge are to be narrowly construed, and because of the fresh start objectives of bankruptcy, doubt is to be resolved in the debtor’s favor.”' (Internal cite omitted).

Barrett Burke Wilson Castle Daffin & Frappier (BBWCDF)

At what point does the law firm of Barrett Burke Wilson Castle Daffin & Frappier become toxic?

Let me say that I have known Mary Daffin for years.  She is one of the most gracious and upstanding people that I know.  She has achieved wonders helping this firm grow into the powerhouse that it is.  She has always been open, honest and above board with me.  The problem is, due to the size of the law firm, and the enormous duties undertaken, we do not get to deal with Mary Daffin.  So we have to say, despite Mary Daffin, that with every hit the firm takes and with sanction it receives, BBWCDF seems to redesign itself into some organization that is more discordant, more shrill, more mischievous, more authoritarian, and more impervious in its approach.

This now is nowhere more evident than in how it has decided to handle its adversary proceedings.

Non-Lawyer Found To Have Violated Bankruptcy Code For Providing Web Based Bankruptcy Software To The Public

In what is a very interesting, and one of first impression, the 9th Circuit Court of Appeals upheld a ruling finding that a provider of web based bankruptcy preparation software to consumers violated the Bankruptcy Code provisions regulating bankruptcy preparers.

You Must Distinquish Between What Is A Fine And What Is Compensation For A Pecuniary Loss

In what is yet an unpublished decision, Bankruptcy Judge Letitia Clark of the Southern District of Texas has issued a decision, which indicates that when suing the state agency for failing to issue a driver's license you have to distinguish between the failure to do so in an effort to collect a pecuniary loss and the State exercising it's police powers.