The Supreme Court of California recently held that a business violates the California Song-Beverly Credit Card Act of 1971 (the "Credit Card Act"), which prohibits businesses from requesting that cardholders provide "personal identification information" during credit card transactions and then recording that information, when the business requests and records a customer's ZIP code during a credit card transaction.
A copy of the opinion is available online at:
http://www.courtinfo.ca.gov/opinions/documents/S178241.PDF
The language of Section 1747.08 of the Credit Card Act provides that no business "that accepts credit cards.shall.request, or require as a condition to accepting [a] credit card as payment., the cardholder to provide personal identification information, which the [business] accepting the credit card [records] upon the credit card transaction form or otherwise." Section 1747.08 further defines personal identification information as "information concerning the cardholder, other than information set forth on the credit card, and including, but not limited to, the cardholder's address and telephone number."
Plaintiff credit card holder was asked for her ZIP code during a purchase at one of defendant retailer's stores. Plaintiff provided the requested information, which defendant recorded and then later cross-referenced with available databases to determine plaintiff's home address.
Plaintiff sued, asserting a violation of the Credit Card Act. The trial court ruled against the plaintiff, concluding that a ZIP code does not constitute "personal identification information" as that term is defined in Section 1747.08 of the Credit Card Act. The Court of Appeal affirmed, and the plaintiff appealed to the Supreme Court of California.
The Court considered the lower Court's conclusion that ZIP code information is not subject to Section 1747.08 because, although an address and telephone number are "specific in nature regarding an individual., a ZIP code pertains to the group of individuals who live within the ZIP code." Overruling and reversing the lower courts' decisions, the California Supreme Court noted that "a ZIP code is readily understood to be part of an address; when one addresses a letter to another person, a ZIP code is always included," and thus "the statute should be construed as encompassing not only a complete address, but also its components."
Further, even a complete address is unlikely to be specific to an individual, because multiple individuals often reside in the same household.
The Court also noted that all of the elements of Section 1747.08 "constitute information unnecessary to the sales transaction that, alone or together with other data such as a cardholder's name or credit card number, can be used for the retailer's business purposes." A broader interpretation of Section 1747.08 is preferred, ruled the Court, both because "courts should liberally construe remedial statutes in favor of their protective purpose" and because "[t]he Court of Appeal's interpretation.would permit retailers to obtain indirectly what they are clearly prohibited from obtaining directly, 'end-running' the statute's clear purpose." The Court also concluded that the terms chosen by the legislature "suggest. the Legislature did not want the category of information protected under the statute to be narrowly construed."
The Court then ruled that a broad interpretation is also consistent with subdivision D of Section 1747.08, which allows businesses to require a cardholder to provide reasonable forms of identification, such as a California state identification card, but specifically disallows the recording of that information. Because such identification would include information such as a ZIP code, the Court ruled, it would be inconsistent to otherwise allow the recording of information in a manner explicitly prohibited by subdivision D of the Section 1747.08.
The Court then examined the legislative history of Section 1747.08 and concluded that the legislature enacted its precursor "to address the misuse of personal identification information for, inter alia, marketing purposes" and concluded that the statute's "overriding purpose [is] to 'protect the personal privacy of consumers who pay for transactions with credit cards.'" The Court also observed that the Senate Committee on Judiciary analysis expressed the same motivating concerns.
The Court then examined subsequent amendments to Section 1747.08, which "permit.businesses to require cardholders provide identification so long as none of the information [is] recorded." Disregarding defendant's reliance on commentary by the State & Consumer Services Agency, which characterized these subsequent amendments as "a clarifying, nonsubstantive change," the Court ruled "that former subdivision (d) was considered merely clarifying and nonsubstantive suggests the Legislature understood former section 1747.08 to already prohibit the requesting and recording of any of the information, including ZIP codes, contained on driver's licenses and state identification cards."
Further, the Court noted, even "the 1990 version of former section 1747.08 forbade businesses from "requir[ing] the cardholder.to provide personal identification information." Given that the provision was later "broadened, forbidding businesses from "request[ing], or requir[ing] as a condition to accepting the credit card., the cardholder to provide personal identification information." the Court ruled, "[t]he obvious purpose of the 1991 amendment was to prevent retailers from requesting 'personal identification information and then matching it with the consumer's credit card number.'" Further, "[t]hat the Legislature so expanded the scope of former section 1747.08 is further evidence it intended a broad consumer protection statute."
Therefore, the Court concluded, "in light of the statutory language, as well as the legislative history and evident purpose of the statute, we hold that personal identification information, as that term is used in Section 1747.08, includes a cardholder's ZIP code."
The Court also rejected the business's contention that a broad interpretation of Section 1747.08 would "be unconstitutionally oppressive because it would result in penalties 'approach[ing] confiscation of [defendant's] entire business.'" The "statute does not mandate fixed penalties; rather it sets the maximum. at $250 for the first violation and $1,000 for subsequent violation[s]," the Court ruled, and thus "the amount of the penalties awarded rests within the sound discretion of the trial court."
Finally, the Court rejected the business's argument that the Court's ruling "should be prospectively applied only." Instead, the Court ruled, "[i]n our view, the statute provides constitutionally adequate notice of proscribed conduct." Further, because the filing of the plaintiff's complaint predated contrary precedent, "it therefore cannot be convincingly argued that the practice of asking customers for their ZIP codes was adopted in reliance on [contrary precedent]."
Showing posts with label CA. Show all posts
Showing posts with label CA. Show all posts
Wednesday, February 16, 2011
Thursday, February 3, 2011
CA App Allows Borroer's Allegations of Loan Modification Misrepresentation to Proceed
The California Court of Appeal, Second District, recently held that a borrower stated claims for promissory estoppel and fraud, in connection with alleged loan modification representations. However, the Court rejected the borrower's efforts to void the related foreclosure sale.
A copy of the opinion is available at:
http://www.courtinfo.ca.gov/opinions/documents/B220922.PDF
The plaintiff borrower filed for bankruptcy, first as a Chapter 7 but then sought to convert to a Chapter 13. She contacted the defendant bank, which allegedly promised to work with her on a loan reinstatement and modification if she would forgo further bankruptcy proceedings. In reliance on that alleged promise, the borrower claimed she did not convert her bankruptcy case to a chapter 13 proceeding or oppose the bank's motion to lift the bankruptcy stay. While the bank was promising to work with borrower, the bank allegedly was simultaneously complying with the notice requirements to conduct a sale under the power of sale in the deed of trust.
The bankruptcy court lifted the stay. But the bank allegedly did not work with borrower in an attempt to reinstate and modify the loan. Rather, it completed the foreclosure.
The borrower filed this action against the bank, asserting a cause of action for promissory estoppel and fraud, among others. She argued the bank's promise to work with her in reinstating and modifying the loan was enforceable, she had relied on the promise by forgoing bankruptcy protection under Chapter 13, and the bank subsequently breached its promise by foreclosing. The trial court dismissed the case on demurrer.
The California appellate court reversed in part, holding: (1) the borrower could have reasonably relied on the bank's promise to work on a loan reinstatement and modification if she did not seek relief under chapter 13; (2) the promise was sufficiently concrete to be enforceable; and (3) the borrower's decision to forgo Chapter 13 relief was detrimental because it allowed the bank to foreclose on the property. The Court therefore allowed the promissory estoppel and fraud claims to survive.
However, the appellate court also held that the borrower's complaint did not allege any irregularities in the foreclosure process that would permit the trial court to void the deed of sale or otherwise invalidate the foreclosure.
The bank argued that an oral promise to postpone either a loan payment or a foreclosure is unenforceable. However, the Court noted that "the doctrine of promissory estoppel is used to provide a substitute for the consideration which ordinarily is required to create an enforceable promise." The Court further noted that a promissory estoppel claim generally entitles a borrower to the damages available on a breach of contract claim.
However, the Court also held that, "[b]ecause this is not a case where the homeowner paid the funds needed to reinstate the loan before the foreclosure, promissory estoppel does not provide a basis for voiding the deed of sale or otherwise invalidating the foreclosure."
The Court also rejected the borrower's allegations that: (1) the trustee under the deed of trust was defective because the "Substitution of Trustee" was signed by the bank's attorney-in-fact; and (2) the foreclosure sale was void because the notice of default mistakenly the wrong beneficiary.
A copy of the opinion is available at:
http://www.courtinfo.ca.gov/opinions/documents/B220922.PDF
The plaintiff borrower filed for bankruptcy, first as a Chapter 7 but then sought to convert to a Chapter 13. She contacted the defendant bank, which allegedly promised to work with her on a loan reinstatement and modification if she would forgo further bankruptcy proceedings. In reliance on that alleged promise, the borrower claimed she did not convert her bankruptcy case to a chapter 13 proceeding or oppose the bank's motion to lift the bankruptcy stay. While the bank was promising to work with borrower, the bank allegedly was simultaneously complying with the notice requirements to conduct a sale under the power of sale in the deed of trust.
The bankruptcy court lifted the stay. But the bank allegedly did not work with borrower in an attempt to reinstate and modify the loan. Rather, it completed the foreclosure.
The borrower filed this action against the bank, asserting a cause of action for promissory estoppel and fraud, among others. She argued the bank's promise to work with her in reinstating and modifying the loan was enforceable, she had relied on the promise by forgoing bankruptcy protection under Chapter 13, and the bank subsequently breached its promise by foreclosing. The trial court dismissed the case on demurrer.
The California appellate court reversed in part, holding: (1) the borrower could have reasonably relied on the bank's promise to work on a loan reinstatement and modification if she did not seek relief under chapter 13; (2) the promise was sufficiently concrete to be enforceable; and (3) the borrower's decision to forgo Chapter 13 relief was detrimental because it allowed the bank to foreclose on the property. The Court therefore allowed the promissory estoppel and fraud claims to survive.
However, the appellate court also held that the borrower's complaint did not allege any irregularities in the foreclosure process that would permit the trial court to void the deed of sale or otherwise invalidate the foreclosure.
The bank argued that an oral promise to postpone either a loan payment or a foreclosure is unenforceable. However, the Court noted that "the doctrine of promissory estoppel is used to provide a substitute for the consideration which ordinarily is required to create an enforceable promise." The Court further noted that a promissory estoppel claim generally entitles a borrower to the damages available on a breach of contract claim.
However, the Court also held that, "[b]ecause this is not a case where the homeowner paid the funds needed to reinstate the loan before the foreclosure, promissory estoppel does not provide a basis for voiding the deed of sale or otherwise invalidating the foreclosure."
The Court also rejected the borrower's allegations that: (1) the trustee under the deed of trust was defective because the "Substitution of Trustee" was signed by the bank's attorney-in-fact; and (2) the foreclosure sale was void because the notice of default mistakenly the wrong beneficiary.
2011 Bankruptcy Reference Book- CA
Includes:
- Directory of Bankruptcy Judges (Central District of California)
- Bankruptcy Code (edited)
- Federal Rules of Civil Procedure
- Federal Rules of Bankruptcy Procedure
- Local Bankruptcy Rules (Central District of California)
- California Exemptions
Edited and published by M. Jonathan Hayes
$40.00 (818) 882-5600 or roksana@hayesbklaw.com or rosario@hayesbklaw.com
- Directory of Bankruptcy Judges (Central District of California)
- Bankruptcy Code (edited)
- Federal Rules of Civil Procedure
- Federal Rules of Bankruptcy Procedure
- Local Bankruptcy Rules (Central District of California)
- California Exemptions
Edited and published by M. Jonathan Hayes
$40.00 (818) 882-5600 or roksana@hayesbklaw.com or rosario@hayesbklaw.com
Wednesday, December 22, 2010
CALIFORNIA HOMEOWNERS FINDING IT TOUGHER TO OBTAIN ATTORNEY FORECLOSURE ASSISTANCE
In California, where foreclosures are more abundant than in any other state, homeowners trying to win a loan modification have always had a tough time. Now they face yet another obstacle: hiring a lawyer, according to a New York Times report yesterday. Lawyers throughout California say they have no choice but to reject clients because of a new state law that sharply restricts how they can be paid. Under the measure, passed overwhelmingly by the state legislature and backed by the state bar association, lawyers who work on loan modifications cannot receive any money until the work is complete. The bar association says that under the law, clients cannot put retainers in trust accounts. The law, which has few parallels in other states, was devised to eliminate swindles in which modification firms made promises about what their lawyers could do, charged hefty fees and then disappeared. But foreclosure specialists say there has been an unintended consequence: Honest lawyers can no longer afford to assist homeowners who feel helpless before lenders that they see as elusive, unyielding and skilled at losing paperwork. Homeowners whose cases were handled improperly have little way of knowing it, and even if they found out, they would be hard-pressed to challenge a lender without a lawyer. The problem for lawyers is that even a simple modification, in which the loan is restructured so the borrower can afford the monthly payments, is a marathon, putting off their payday for months if not years. If the bank refuses to come to terms, the client may file for bankruptcy, in which case the lawyer will never be paid.
http://www.nytimes.com/2010/12/21/business/21foreclosure.html?_r=1&emc=eta1
http://www.nytimes.com/2010/12/21/business/21foreclosure.html?_r=1&emc=eta1
Thursday, December 9, 2010
Loan Modification Guidelines in the Northern District of California
Loan Modification Guidelines in the Northern District of California
December 7, 2010
NORTHERN DISTRICT OF CALIFORNIA INSTITUTES GUIDELINES REGARDING RESIDENTIAL LOAN MODIFICATIONS ON RELIEF FROM STAY MOTIONS AND IN CHAPTER 11 AND CHAPTER 13 PLANS
Dear Insolvency Law Committee constituency list members:
Please be advised that on December 1, 2010, Guidelines governing
(a) first lien mortgage holders who are seeking relief from stay in Chapter 7 cases in which the debtor has sought a loan modification, and (b) Chapter 11 and Chapter 13 debtors who seek consensual modification of the first mortgage loans on their principal residences went into effect in the San Francisco and San Jose divisions of the U.S. Bankruptcy Court for the Northern District of California. You can read the new Guidelines by clicking [HERE]
Disclosure Obligations Of Secured Creditors
Mortgage holders moving for relief must state on the cover sheet accompanying their motion (a) whether or not debtor has requested a loan modification prior to bankruptcy and/or the date any motion is filed, and (b) the status of the request.
Adequate Protection Options After Stay Relief Motion
As adequate protection, the court may set a deadline for the debtor to file a declaration describing (1) the date of such a modification request and to whom it was sent (attaching a copy of any transmittal letter, (2) the status of the request; and (3) the amount that is 31% of the debtor(s)' monthly gross income as shown on Schedule I.
The court may then set “an appropriate monthly payment amount, and in doing so may consider as adequate a monthly amount that is 31% of the debtor(s)' monthly gross income.” Such an adequate protection order will normally provide that, if the modification request is denied, the adequate protection payments will revert to the amount provided in the loan documents in the next calendar month and that the hearing may be restored to the calendar on ten days notice.
Modification In Connection With A Plan
A Chapter 11 or 13 plan premised upon a modification of a first mortgage loan secured by the debtor’s principal residence requires disclosure (by declaration in a Chapter 13 case or in the disclosure statement in a Chapter 11 case) of (1) the date of any modification request, (2) the status of such request, and (3) the present (unmodified) balances and total monthly payments on all claims secured by the debtor’s principal residence. Chapter 11 and 13 plans that propose to modify a first lien mortgage creditor's claim will not be confirmed until the modification has been approved by the first mortgage lender unless the plan provides that the secured creditor’s treatment reverts to the original contract terms if the modification request is denied. If a loan modification request remains pending when all other plan payments have been made, the case may be closed without a discharge.
Author’s Comment:
Guideline 10 makes it possible to confirm a plan while a modification request remains under consideration by a lender, but a potential trap for the unwary debtor exists in confirming a plan premised on approval of a modification. If the modification is denied, cash flow is not sufficient to make payments on the loan’s original terms, and the plan cannot be modified, then the debtor’s residence is likely to be lost after confirmation. Continuing to perform the plan may no longer make sense after such a loss. While a Chapter 13 debtor has an absolute right to dismiss under Bankruptcy Code section 1307(a), Chapter 11 debtors have no such right under Bankruptcy Code section 1112(b); a court must decide whether to convert even if dismissal is the debtor’s preference. In re Camden Ordnance Mfg. Co. of Arkansas, Inc., 245 B.R. 794, 803 (E.D. Pa. 2000). “. . . [T]he standard for evaluating a debtor’s motion to dismiss its own voluntary Chapter 11 is the ‘best interest of creditors and the estate,’ rather than ‘plain legal prejudice’ to the creditors.” Id. at 804. Absent a demonstrated ability to pay or otherwise accommodate creditor claims as a condition of dismissal, practitioners should endeavor to complete any loan modification before confirmation and ensure that the debtor is fully-advised of the risks of not doing so.
These materials were prepared by Robert G. Harris of Binder & Malter, LLP in Santa Clara
Thank you for your continued support of the Committee.
Best regards,
Insolvency Law Committee
The Insolvency Law Committee of the Business Law Section of the California State Bar provides a forum for interested bankruptcy practitioners to act for the benefit of all lawyers in the areas of legislation, education and promoting efficiency of practice.For more information about the Business Law Standing Committees, please see the standing committee's web page: http://businesslaw.calbar.ca.gov/StandingCommittees.aspx
December 7, 2010
NORTHERN DISTRICT OF CALIFORNIA INSTITUTES GUIDELINES REGARDING RESIDENTIAL LOAN MODIFICATIONS ON RELIEF FROM STAY MOTIONS AND IN CHAPTER 11 AND CHAPTER 13 PLANS
Dear Insolvency Law Committee constituency list members:
Please be advised that on December 1, 2010, Guidelines governing
(a) first lien mortgage holders who are seeking relief from stay in Chapter 7 cases in which the debtor has sought a loan modification, and (b) Chapter 11 and Chapter 13 debtors who seek consensual modification of the first mortgage loans on their principal residences went into effect in the San Francisco and San Jose divisions of the U.S. Bankruptcy Court for the Northern District of California. You can read the new Guidelines by clicking [HERE]
Disclosure Obligations Of Secured Creditors
Mortgage holders moving for relief must state on the cover sheet accompanying their motion (a) whether or not debtor has requested a loan modification prior to bankruptcy and/or the date any motion is filed, and (b) the status of the request.
Adequate Protection Options After Stay Relief Motion
As adequate protection, the court may set a deadline for the debtor to file a declaration describing (1) the date of such a modification request and to whom it was sent (attaching a copy of any transmittal letter, (2) the status of the request; and (3) the amount that is 31% of the debtor(s)' monthly gross income as shown on Schedule I.
The court may then set “an appropriate monthly payment amount, and in doing so may consider as adequate a monthly amount that is 31% of the debtor(s)' monthly gross income.” Such an adequate protection order will normally provide that, if the modification request is denied, the adequate protection payments will revert to the amount provided in the loan documents in the next calendar month and that the hearing may be restored to the calendar on ten days notice.
Modification In Connection With A Plan
A Chapter 11 or 13 plan premised upon a modification of a first mortgage loan secured by the debtor’s principal residence requires disclosure (by declaration in a Chapter 13 case or in the disclosure statement in a Chapter 11 case) of (1) the date of any modification request, (2) the status of such request, and (3) the present (unmodified) balances and total monthly payments on all claims secured by the debtor’s principal residence. Chapter 11 and 13 plans that propose to modify a first lien mortgage creditor's claim will not be confirmed until the modification has been approved by the first mortgage lender unless the plan provides that the secured creditor’s treatment reverts to the original contract terms if the modification request is denied. If a loan modification request remains pending when all other plan payments have been made, the case may be closed without a discharge.
Author’s Comment:
Guideline 10 makes it possible to confirm a plan while a modification request remains under consideration by a lender, but a potential trap for the unwary debtor exists in confirming a plan premised on approval of a modification. If the modification is denied, cash flow is not sufficient to make payments on the loan’s original terms, and the plan cannot be modified, then the debtor’s residence is likely to be lost after confirmation. Continuing to perform the plan may no longer make sense after such a loss. While a Chapter 13 debtor has an absolute right to dismiss under Bankruptcy Code section 1307(a), Chapter 11 debtors have no such right under Bankruptcy Code section 1112(b); a court must decide whether to convert even if dismissal is the debtor’s preference. In re Camden Ordnance Mfg. Co. of Arkansas, Inc., 245 B.R. 794, 803 (E.D. Pa. 2000). “. . . [T]he standard for evaluating a debtor’s motion to dismiss its own voluntary Chapter 11 is the ‘best interest of creditors and the estate,’ rather than ‘plain legal prejudice’ to the creditors.” Id. at 804. Absent a demonstrated ability to pay or otherwise accommodate creditor claims as a condition of dismissal, practitioners should endeavor to complete any loan modification before confirmation and ensure that the debtor is fully-advised of the risks of not doing so.
These materials were prepared by Robert G. Harris of Binder & Malter, LLP in Santa Clara
Thank you for your continued support of the Committee.
Best regards,
Insolvency Law Committee
The Insolvency Law Committee of the Business Law Section of the California State Bar provides a forum for interested bankruptcy practitioners to act for the benefit of all lawyers in the areas of legislation, education and promoting efficiency of practice.For more information about the Business Law Standing Committees, please see the standing committee's web page: http://businesslaw.calbar.ca.gov/StandingCommittees.aspx
Loan Modification Guidelines in the Northern District of California
NORTHERN DISTRICT OF CALIFORNIA INSTITUTES GUIDELINES REGARDING RESIDENTIAL LOAN MODIFICATIONS ON RELIEF FROM STAY MOTIONS AND IN CHAPTER 11 AND CHAPTER 13 PLANS
Dear Insolvency Law Committee constituency list members:
Please be advised that on December 1, 2010, Guidelines governing
(a) first lien mortgage holders who are seeking relief from stay in Chapter 7 cases in which the debtor has sought a loan modification, and (b) Chapter 11 and Chapter 13 debtors who seek consensual modification of the first mortgage loans on their principal residences went into effect in the San Francisco and San Jose divisions of the U.S. Bankruptcy Court for the Northern District of California.
Disclosure Obligations Of Secured Creditors
Mortgage holders moving for relief must state on the cover sheet accompanying their motion (a) whether or not debtor has requested a loan modification prior to bankruptcy and/or the date any motion is filed, and (b) the status of the request.
Adequate Protection Options After Stay Relief Motion
As adequate protection, the court may set a deadline for the debtor to file a declaration describing (1) the date of such a modification request and to whom it was sent (attaching a copy of any transmittal letter, (2) the status of the request; and (3) the amount that is 31% of the debtor(s)' monthly gross income as shown on Schedule I.
The court may then set “an appropriate monthly payment amount, and in doing so may consider as adequate a monthly amount that is 31% of the debtor(s)' monthly gross income.” Such an adequate protection order will normally provide that, if the modification request is denied, the adequate protection payments will revert to the amount provided in the loan documents in the next calendar month and that the hearing may be restored to the calendar on ten days notice.
Modification In Connection With A Plan
A Chapter 11 or 13 plan premised upon a modification of a first mortgage loan secured by the debtor’s principal residence requires disclosure (by declaration in a Chapter 13 case or in the disclosure statement in a Chapter 11 case) of (1) the date of any modification request, (2) the status of such request, and (3) the present (unmodified) balances and total monthly payments on all claims secured by the debtor’s principal residence. Chapter 11 and 13 plans that propose to modify a first lien mortgage creditor's claim will not be confirmed until the modification has been approved by the first mortgage lender unless the plan provides that the secured creditor’s treatment reverts to the original contract terms if the modification request is denied. If a loan modification request remains pending when all other plan payments have been made, the case may be closed without a discharge.
Author’s Comment:
Guideline 10 makes it possible to confirm a plan while a modification request remains under consideration by a lender, but a potential trap for the unwary debtor exists in confirming a plan premised on approval of a modification. If the modification is denied, cash flow is not sufficient to make payments on the loan’s original terms, and the plan cannot be modified, then the debtor’s residence is likely to be lost after confirmation. Continuing to perform the plan may no longer make sense after such a loss. While a Chapter 13 debtor has an absolute right to dismiss under Bankruptcy Code section 1307(a), Chapter 11 debtors have no such right under Bankruptcy Code section 1112(b); a court must decide whether to convert even if dismissal is the debtor’s preference. In re Camden Ordnance Mfg. Co. of Arkansas, Inc., 245 B.R. 794, 803 (E.D. Pa. 2000). “. . . [T]he standard for evaluating a debtor’s motion to dismiss its own voluntary Chapter 11 is the ‘best interest of creditors and the estate,’ rather than ‘plain legal prejudice’ to the creditors.” Id. at 804. Absent a demonstrated ability to pay or otherwise accommodate creditor claims as a condition of dismissal, practitioners should endeavor to complete any loan modification before confirmation and ensure that the debtor is fully-advised of the risks of not doing so.
These materials were prepared by Robert G. Harris of Binder & Malter, LLP in Santa Clara
The Insolvency Law Committee of the Business Law Section of the California State Bar provides a forum for interested bankruptcy practitioners to act for the benefit of all lawyers in the areas of legislation, education and promoting efficiency of practice.For more information about the Business Law Standing Committees, please see the standing committee's web page: http://businesslaw.calbar.ca.gov/StandingCommittees.aspx
Dear Insolvency Law Committee constituency list members:
Please be advised that on December 1, 2010, Guidelines governing
(a) first lien mortgage holders who are seeking relief from stay in Chapter 7 cases in which the debtor has sought a loan modification, and (b) Chapter 11 and Chapter 13 debtors who seek consensual modification of the first mortgage loans on their principal residences went into effect in the San Francisco and San Jose divisions of the U.S. Bankruptcy Court for the Northern District of California.
Disclosure Obligations Of Secured Creditors
Mortgage holders moving for relief must state on the cover sheet accompanying their motion (a) whether or not debtor has requested a loan modification prior to bankruptcy and/or the date any motion is filed, and (b) the status of the request.
Adequate Protection Options After Stay Relief Motion
As adequate protection, the court may set a deadline for the debtor to file a declaration describing (1) the date of such a modification request and to whom it was sent (attaching a copy of any transmittal letter, (2) the status of the request; and (3) the amount that is 31% of the debtor(s)' monthly gross income as shown on Schedule I.
The court may then set “an appropriate monthly payment amount, and in doing so may consider as adequate a monthly amount that is 31% of the debtor(s)' monthly gross income.” Such an adequate protection order will normally provide that, if the modification request is denied, the adequate protection payments will revert to the amount provided in the loan documents in the next calendar month and that the hearing may be restored to the calendar on ten days notice.
Modification In Connection With A Plan
A Chapter 11 or 13 plan premised upon a modification of a first mortgage loan secured by the debtor’s principal residence requires disclosure (by declaration in a Chapter 13 case or in the disclosure statement in a Chapter 11 case) of (1) the date of any modification request, (2) the status of such request, and (3) the present (unmodified) balances and total monthly payments on all claims secured by the debtor’s principal residence. Chapter 11 and 13 plans that propose to modify a first lien mortgage creditor's claim will not be confirmed until the modification has been approved by the first mortgage lender unless the plan provides that the secured creditor’s treatment reverts to the original contract terms if the modification request is denied. If a loan modification request remains pending when all other plan payments have been made, the case may be closed without a discharge.
Author’s Comment:
Guideline 10 makes it possible to confirm a plan while a modification request remains under consideration by a lender, but a potential trap for the unwary debtor exists in confirming a plan premised on approval of a modification. If the modification is denied, cash flow is not sufficient to make payments on the loan’s original terms, and the plan cannot be modified, then the debtor’s residence is likely to be lost after confirmation. Continuing to perform the plan may no longer make sense after such a loss. While a Chapter 13 debtor has an absolute right to dismiss under Bankruptcy Code section 1307(a), Chapter 11 debtors have no such right under Bankruptcy Code section 1112(b); a court must decide whether to convert even if dismissal is the debtor’s preference. In re Camden Ordnance Mfg. Co. of Arkansas, Inc., 245 B.R. 794, 803 (E.D. Pa. 2000). “. . . [T]he standard for evaluating a debtor’s motion to dismiss its own voluntary Chapter 11 is the ‘best interest of creditors and the estate,’ rather than ‘plain legal prejudice’ to the creditors.” Id. at 804. Absent a demonstrated ability to pay or otherwise accommodate creditor claims as a condition of dismissal, practitioners should endeavor to complete any loan modification before confirmation and ensure that the debtor is fully-advised of the risks of not doing so.
These materials were prepared by Robert G. Harris of Binder & Malter, LLP in Santa Clara
The Insolvency Law Committee of the Business Law Section of the California State Bar provides a forum for interested bankruptcy practitioners to act for the benefit of all lawyers in the areas of legislation, education and promoting efficiency of practice.For more information about the Business Law Standing Committees, please see the standing committee's web page: http://businesslaw.calbar.ca.gov/StandingCommittees.aspx
Monday, November 22, 2010
9th Cir Reverses Remand in CAFA Removal Case, Reiterates "Preponderance of the Evidence" Standard
The U.S. Court of Appeals for the Ninth Circuit, using its "preponderance of the evidence" standard, recently reversed a district court's order remanding a class action lawsuit to state court on the ground that the district court improperly found the $5 million amount in controversy requirement of the Class Action Fairness Act ("CAFA"), 28 U.S.C. § 1332(d)(2), to have not been satisfied.
A copy of the opinion is available at: http://www.ca9.uscourts.gov/datastore/opinions/2010/11/18/1056512.pdf
A landline telephone customer of Verizon Communications, Inc. ("Verizon") filed a class action lawsuit in California state court, alleging that Verizon billed her on behalf of a third party vendor, Enhanced Services Billing, Inc. "ESBI"), for services she claimed were unauthorized. She sought to represent a class of landline Verizon customers in California who had been billed for similar servicers they never agreed to. Her complaint failed to specify the amount of damages she sought.
Verizon filed a notice to remove the case to the District Court for the Central District of California on the grounds that CAFA provides for removal of class action lawsuits to federal court where the amount in controversy exceeds $5 million. In support of the notice of removal, Verizon provided the affidavit of a senior Verizon employee confirming that the amount billed on behalf of ESBI to landline telephone subscribers in California exceeded $5 million.
The plaintiff moved to remand the case to state court, arguing that Verizon failed to meet its burden of establishing the amount in controversy exceeded $5 million because Verizon's affidavit only spoke to total amount billed on behalf of ESBI without distinguishing between authorized and unauthorized billings. Despite the fact that the plaintiff offered no evidence to challenge the amounts averred to in Verizon's affidavit and did not concede that the amount in question was less than $5 million, the district court accepted the plaintiff's position and remanded the case to state court.
The Ninth Circuit overturned the district court's ruling, holding that where a defendant supports its notice of removal with unchallenged evidence and the plaintiff refuses to limit the damages sought to less than $5 million, the defendant meets its burden of proof under CAFA's amount in controversy requirement. The opinion specifically noted that the district court's decision would have effectively required Verizon to concede liability by forcing it to admit that at least $5 million of the billings in question were unauthorized.
The Ninth Circuit also reiterated that it employs a preponderance of the evidence standard for the burden of proof required to establish the amount in controversy under CAFA, which it found Verizon met in this case. The Ninth Circuit distinguished its preponderance of the evidence standard from the First, Second, and Seventh Circuits, which it said utilized a lower "reasonable probability" standard.
A copy of the opinion is available at: http://www.ca9.uscourts.gov/datastore/opinions/2010/11/18/1056512.pdf
A landline telephone customer of Verizon Communications, Inc. ("Verizon") filed a class action lawsuit in California state court, alleging that Verizon billed her on behalf of a third party vendor, Enhanced Services Billing, Inc. "ESBI"), for services she claimed were unauthorized. She sought to represent a class of landline Verizon customers in California who had been billed for similar servicers they never agreed to. Her complaint failed to specify the amount of damages she sought.
Verizon filed a notice to remove the case to the District Court for the Central District of California on the grounds that CAFA provides for removal of class action lawsuits to federal court where the amount in controversy exceeds $5 million. In support of the notice of removal, Verizon provided the affidavit of a senior Verizon employee confirming that the amount billed on behalf of ESBI to landline telephone subscribers in California exceeded $5 million.
The plaintiff moved to remand the case to state court, arguing that Verizon failed to meet its burden of establishing the amount in controversy exceeded $5 million because Verizon's affidavit only spoke to total amount billed on behalf of ESBI without distinguishing between authorized and unauthorized billings. Despite the fact that the plaintiff offered no evidence to challenge the amounts averred to in Verizon's affidavit and did not concede that the amount in question was less than $5 million, the district court accepted the plaintiff's position and remanded the case to state court.
The Ninth Circuit overturned the district court's ruling, holding that where a defendant supports its notice of removal with unchallenged evidence and the plaintiff refuses to limit the damages sought to less than $5 million, the defendant meets its burden of proof under CAFA's amount in controversy requirement. The opinion specifically noted that the district court's decision would have effectively required Verizon to concede liability by forcing it to admit that at least $5 million of the billings in question were unauthorized.
The Ninth Circuit also reiterated that it employs a preponderance of the evidence standard for the burden of proof required to establish the amount in controversy under CAFA, which it found Verizon met in this case. The Ninth Circuit distinguished its preponderance of the evidence standard from the First, Second, and Seventh Circuits, which it said utilized a lower "reasonable probability" standard.
Friday, October 1, 2010
CONNECTICUT AND CALIFORNIA JOIN PROBE OF ALLY, ORDER FORECLOSURE FREEZE
Attorneys general in Connecticut and California ordered Ally Financial's GMAC mortgage unit to freeze all foreclosures within their borders, joining a growing list of states investigating whether the firm and other lenders improperly kicked people out of their homes, the Washington Post reported today. Connecticut Attorney General Richard Blumenthal yesterday accused Ally of using "defective foreclosure documents" in its filings and said he ordered the moratorium "to forestall horrendous, illegal harm against homeowners." California Attorney General Edmund G. Brown Jr. on Friday called Ally's document review process a "sham." In Illinois, Attorney General Lisa Madigan said that she "wants to see Ally stop the filing of foreclosures in Illinois as well until this situation can be remedied," a spokeswoman said. Iowa, North Carolina and Texas have also opened investigations into Ally's lending practices as well as those at other large mortgage companies, officials said. The announcement by California is especially significant because it had previously been thought to be unaffected. Last week, Ally announced it would halt evictions in 23 states where a court order is needed to evict a homeowner.
Thursday, August 26, 2010
California Home Sales
The median price paid for a home last month in California was $268,000, a 7.2 percent increase from July 2009. Following 27 months of year-over-year decline, this year-over-year increase was the ninth in a row. Bay Area home prices are up 1.8 percent, and Southern California prices are up 10.1 percent from a year ago.
However, July home sales in the state of California were down 19.9 percent from June and 21.9 percent from a year ago, MDA DataQuick reports.
In the Bay Area, home sales for that month dropped sharply to their lowest level in 15 years, down 22.8 percent from July 2009. Southern California was also pummeled with its biggest year-over-year drop in more than two years, down 21.4 percent from last year.
http://www.dataquick.com/
However, July home sales in the state of California were down 19.9 percent from June and 21.9 percent from a year ago, MDA DataQuick reports.
In the Bay Area, home sales for that month dropped sharply to their lowest level in 15 years, down 22.8 percent from July 2009. Southern California was also pummeled with its biggest year-over-year drop in more than two years, down 21.4 percent from last year.
http://www.dataquick.com/
Friday, August 6, 2010
MERS- Walker Case CA
The United States Bankruptcy Court for the Eastern District of California has issued a ruling dated May 20, 2010 in the matter of In Re: Walker, Case No. 10-21656-E-11 which found that MERS could not, as a matter of law, have transferred the note to Citibank from the original lender, Bayrock Mortgage Corp. The Court’s opinion is headlined stating that MERS and Citibank are not the real parties in interest.
The court found that MERS acted “only as a nominee” for Bayrock under the Deed of Trust and there was no evidence that the note was transferred. The opinion also provides that “several courts have acknowledged that MERS is not the owner of the underlying note and therefore could not transfer the note, the beneficial interest in the deed of trust, or foreclose on the property secured by the deed”, citing the well-known cases of In Re Vargas (California Bankruptcy Court), Landmark v. Kesler (Kansas decision as to lack of authority of MERS), LaSalle Bank v. Lamy (New York), and In Re Foreclosure Cases (the “Boyko” decision from Ohio Federal Court).
http://stopforeclosurefraud.com/2010/08/04/mers-california-case-rickie-walker-case-california-mers-bk-ed-2010-full-series-of-filings-for-convenience/
The court found that MERS acted “only as a nominee” for Bayrock under the Deed of Trust and there was no evidence that the note was transferred. The opinion also provides that “several courts have acknowledged that MERS is not the owner of the underlying note and therefore could not transfer the note, the beneficial interest in the deed of trust, or foreclose on the property secured by the deed”, citing the well-known cases of In Re Vargas (California Bankruptcy Court), Landmark v. Kesler (Kansas decision as to lack of authority of MERS), LaSalle Bank v. Lamy (New York), and In Re Foreclosure Cases (the “Boyko” decision from Ohio Federal Court).
http://stopforeclosurefraud.com/2010/08/04/mers-california-case-rickie-walker-case-california-mers-bk-ed-2010-full-series-of-filings-for-convenience/
Monday, July 19, 2010
California Bankruptcy Rates Soar Despite 2005 Overhaul
Five years ago, bankruptcies in California and across the nation soared to record levels as debt-strapped consumers raced to seek court protection before Congress changed the law to curb what had been considered an epidemic of filings, the San Francisco Chronicle reported on Sunday. For a while, filings dropped, but the recession has forced so many people into dire straits that bankruptcies in California are setting new records. "The states with the most acute housing crises have had the most elevated filing rates," said ABI Executive Director Sam Gerdano. The volume of filings nationwide also is approaching 2005 levels, as the Bush-era reform bill that raised fees and eligibility standards is rendered moot by rising joblessness and sinking home values. The upward trend in filings rekindles the debates that occurred five years ago over whether irresponsible consumers or predatory lenders are primarily to blame for bankruptcies, and whether the current law is the right fix or an unfair burden for debtors seeking a fresh start. The Government Accountability Office, the nonpartisan watchdog agency of Congress, told lawmakers in June 2008 that the 2005 law boosted chapter 7 expenses from about $914 to $1,477, including legal, filing and counseling fees. That office did not put a figure on the more complex chapter 13 filings, but said that in most cases the attorneys fees charged to debtors had risen 55 percent or more. Prof.Lois Lupica of the University of Maine, is in the middle of a multiyear study funded by the ABI Endowment Fund to get a better fix on costs and if BAPCPA's changes keep some debtors who may qualify for bankruptcy from seeking the protection of the courts.
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/07/04/BUJP1E7JK5.DTL&type=printable
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/07/04/BUJP1E7JK5.DTL&type=printable
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