Case Summary: Bankruptcy Court Rules Cure and Maintain Plans Can Require Mortgagees to Provide Monthly Statements

In a recent decision in the case  In re Sperry (15-14583), Judge Hoffman overruled a mortgage servicer’s objection to confirmation of a Chapter 13 plan due to a provision that required the servicer to provide monthly mortgage statements to the Debtors.  The Debtors had proposed a so-called “cure and maintain” plan, in which they would cure a pre-petition default over 60 months and maintain regular monthly payments to the lender.  At issue was a provision in the plan that required the mortgage servicer to “send the Debtors monthly mortgage statements consistent with its pre-petition practice.”

The mortgage servicer argued that regulations promulgated under the Truth and Lending Act and (“Regulation Z”) and the Real Estate Settlement Procedures Act (“Regulation X”) exempted it from sending monthly statements to Chapter 13 debtors, and therefore the mortgage servicer could not be required to do so.   The mortgage holder also argued that the requirement was an impermissible modification of its rights and was therefore prohibited under section 1322(b)(2) and, finally, that logistical limitations prevented it from producing accurate post-petition statements.

The Debtors in turn argued that the mortgage statement provision was permissible under section 1322(b)(11) which allows a plan  to “include any other appropriate provision not inconsistent with [the Bankruptcy Code].”  The Debtors also argued that the mortgage statement provision was consistent with the overall objectives of Regulations X and Z, which are to promote the informed use of consumer credit by requiring disclosures about its terms and cost and to promote the flow of greater and timely information between mortgage creditors and debtors, respectively.

The Court agreed with the Debtors, finding that Regulations X and Z merely exempted mortgagees from the providing periodic statements but did not in any way prohibit them from doing so.  The Court also rejected the mortgagee’s argument that the mortgage statement provision violated section 1322(b)(2), concluding that it imposed an obligation rather than modifying a right.  That burden of that obligation, the Court found, was outweighed by the harm to the Debtors if they were not provided the monthly statements.

The full opinion is available here.

This post was contributed by Marques C. Lipton of Parker & Associates. For information regarding contributing case summaries or other posts, contact the editors of The Disclosure Statement, Kathleen Ryan ([email protected]) and Timothy Carter (TCarter @goulstonstorrs.com).

 

Young Bar Meets the Bankruptcy Bench – February 16, 2017

The 10th annual Young Bar Meets the Bankruptcy Bench program is coming up on February 16, 2017.  The event will be held at the BBA from 4:30 to 6:30 PM with a networking reception to follow.  The program introduces new(er) bar members to the judges for the United States Bankruptcy Court for the District of Massachusetts and the Clerk of Court, James Lynch.  The first portion of the program will focus on practical problems involving the introduction of evidence and the intersection of bankruptcy proceedings and criminal law.  It will feature a mock hearing, in which the judges will be given an opportunity to rule on these issues and provide insight into their reasoning.   During the second portion, the judges and Mr. Lynch, will discuss recent developments in bankruptcy law and general advice for developing a bankruptcy practice in today’s market.

Please click the link below for more details and to register.  We look forward to seeing you there!

https://www.bostonbar.org/membership/events/event-details?ID=22524

 

Program Materials – Consumer Bankruptcy Case Review

On November 14, 2016, the Consumer Bankruptcy Committee of the Bankruptcy Section held a lunch program that featured a consumer case law update.  Kate Nicholson and Benjamin Higgins gave a wonderful presentation and facilitated a lively discussion. Thank you to Kate and Ben and to everyone who attended!

For those who were unable to attend, the program materials are available here:

consumer-case-review-2016

Lunch Program with Chief Judge Hoffman – Dec. 1 at 12:00 p.m.

Please join the Consumer Bankruptcy Committee on December 1 for an interactive discussion with the Honorable Melvin S. Hoffman. This will be an excellent opportunity to hear about Chief Judge Hoffman’s current concerns and to discuss hot topics of the day with your fellow bankruptcy practitioners.

This event will be held from 12:00 p.m. to 1:00 p.m. at the Library, 12th Floor, John W. McCormack Post Office and Court House, 5 Post Office Square, Boston, MA

Lunch will be provided to those who pre-register. Please RSVP using the link below.

https://www.bostonbar.org/membership/events/event-details?ID=23015

 

Consumer Bankruptcy Case Law Update: What’s Developing in Massachusetts

Make sure you’re up-to-date on the current state of the law!  Join the Bankruptcy Section on Monday, November 14th at 12:00 PM at the BBA to discuss recent decisions in Massachusetts and the First Circuit dealing with perennially thorny consumer bankruptcy issues—homestead exemptions, non-dischargeable debt, violations of the automatic stay and more!

There have been many important cases decided in our district this year—cases dealing with the limits of the Massachusetts homestead exemption, the meaning of “actual fraud” under 11 U.S.C. § 523(a)(2)(A), and the ability of a trustee to “clawback” college tuition payments, to name just a few.  Come learn more and discuss how to avoid new (and old) pitfalls!

 Kate Nicholson, Nicholson Herrick LLC, and Benjamin Higgins, Law Clerk, United States Bankruptcy Court for the District of Massachusetts will be guest speakers.

Please click here to register for this event.

 

Brown Bag Lunch – Bankruptcy Rules! (September 20, 2016 at 12pm)

Bankruptcy Rules!

Please join us on September 20, 2016 at 12:00 for our welcome back Brown Bag. To celebrate the publication of the new and amended Local Bankruptcy Rules (effective August 1, 2016), we are dedicating the program to the Local Bankruptcy Rules.  Clerks of the bankruptcy court will highlight significant changes to the local rules, common procedural issues, and best practices.  We will be handing out copies of the new Local Rules book to everyone who RSVPs.

https://www.bostonbar.org/membership/events/event-details?ID=22495

Nominations Needed: Pro Bono Recognition Awards

The United States Bankruptcy Court for the District of Massachusetts is pleased to call for nominations for its fourth annual Pro Bono Recognition Awards. These awards recognize the pro bono contributions by individual lawyers, law firms, government attorneys, corporate law departments, law students, law schools, legal service agencies and other institutions in the legal profession that have improved the availability of or delivered volunteer legal services in the District of Massachusetts. Five awards may be given: Western Division, Central Division, Eastern Division, the Cape, Islands/South Coast Division and the District of Massachusetts Award. Nomination guidelines and forms may be found on the court’s website at www.mab.uscourts.gov, or may be requested by email at [email protected]. The deadline to submit nominations is August 15, 2016.

The Court is also pleased to again acknowledge the commitment of individual attorneys to pro bono legal work. Attorneys who certify that they have met the specific criteria established by the Court’s Pro Bono Legal Services Advisory Committee will receive mention on the Court’s Honor Roll. Participation is entirely voluntary. Those attorneys who submit certifications by September 30, 2016 will receive a certificate of acknowledgement and appreciation for their commitment to pro bono legal work, will be listed on the Pro Bono Honor Roll on the Bankruptcy Court’s website, and will be invited to attend a recognition event at the John W. McCormack Post Office and Court House in Boston on October 6, 2016.

Case Summaries — the March 2016 Bankruptcy Court Opinions

The following are summaries of the March 2016 opinions posted on the Massachusetts Bankruptcy Court’s website.

 

In re Willie D. Brown, Ch. 13 Case No. 14-12357-JNF and In re James W. Tosi, Ch. 13 Case No. 13-14017-FJB 

Four bankruptcy judges in the District of Massachusetts have split (2-2) over whether a Chapter 13 plan can vest the Debtor’s real property in a mortgagee over that mortgagee’s objection. At issue is the relationship between § 1322(b)(9), which provides that a plan may vest property of the estate in another entity and § 1325(a)(5), which requires that a plan either be accepted by the secured creditor, “cram down” the secured creditor, or surrender the property to the secured creditor.  In Brown, Judge Feeney joined Judge Hoffman (In re Sagendorph, 2015 WL 3867955) in finding that a plan vesting property in a mortgagee can be confirmed over that mortgagee’s objection.  In Tosi, Judge Bailey joined Judge Boroff (In re Weller, 2016 WL 164645) in finding that vesting property in the mortgagee does not constitute a surrender of that property under 1325(a)(5) and therefore a vesting plan cannot be confirmed over that secured creditor’s objection.  These issues are currently on appeal, and one argument worth watching may be whether vesting property in a mortgagee under 1322(b)(9) can satisfy the “cram-down” provision of 1325(a)(5).

 

In re Greco, Case No 15-12232-JNF (March 3, 2016)

The court sustained the Chapter 7 trustee’s objection to the debtor’s claimed exemption in a stream of payments stemming from a marital property settlement. The debtor was entitled to $300 per month under a judgment entered by the probate and family court that stated that the amount to be paid was on account of and in lieu of any rights the debtor would have had in the former spouse’s Massachusetts municipal retirement plan.  The debtor attempted to exempt the payments as a “right or interest…in an annuity, pension, profit sharing or other retirement plan” under Mass. Gen. Laws ch. 235, § 34A.  The court held that the payments were not exempt because the family court- ordered note and mortgage given by the former spouse, though payable from a portion of his municipal retirement benefits, “does not fall within the ambit of the plain language of [ch. 235, § 34A].”

 

Hutton v. Vasa (In re Vasa), A.P. No. 14-1173-JNF (March 8, 2016)

The Debtor’s former law partner sought a determination that certain obligations allegedly owed to him by the Debtor were nondischargeable under 11 U.S.C. § 523(a)(2)(A), (a)(4), and (a)(6). The Bankruptcy Court found a portion of the obligations in question to be non-dischargeable under 11 U.S.C. § 523(a)(4) on the basis that the Debtor’s actions constituted defalcation while acting in a fiduciary capacity.  Specifically, the Bankruptcy Court found that, while acting in a fiduciary capacity, the Debtor had transferred funds from the law firm’s IOLTA account in a grossly reckless fashion and had taken funds from the firm at the expense of the firm’s clients and creditors.  However, the Bankruptcy Court found that the fiduciary relationship between the parties had ended after 2012, and that the plaintiff had failed to establish the elements of § 523(a)(4) with respect to any debt arising after that time.  Additionally, the Bankruptcy Court found that the plaintiff had failed to carry his burden of establishing non-dischargeability under either § 523(a)(2)(A) or (a)(6).

 

Acevedo v. Bayron, AP No. 16-01011-JNF (March 15, 2016)

Approximately six weeks after the confirmation of his Chapter 13 plan, Debtor and two co-plaintiffs filed a verified complaint against thirty three named defendants. Averring that the Bankruptcy Court has jurisdiction pursuant to 28 U.S.C. § 1334 to hear matters related to the interested parties pursuant to Fed.R.Bankr.P. 7019, plaintiffs made allegations stemming from events that occurred in Puerto Rico between August 1946 and Debtor’s Chapter 13 petition date.  The claims include, amongst others, turnover of a gas station located in Puerto Rico, declaration that dividends and profits of said gas station are property of the bankruptcy estate, and several others, all related.  Defendants filed a motion seeking a transfer of venue.  Citing prevalent case law and the language of § 1334(c)(1), the Bankruptcy Court identified three criteria to determine whether sua sponte abstention is appropriate: the interests of justice, comity, and respect for state law.  In a lengthy discussion applying the complicated facts of this case to the relevant criteria, the Bankruptcy Court entered an order abstaining from ruling on this adversary proceeding.

 

Grossman v. Bonefant (In re Bonefant), A.P. No. 14-1143-JNF (March 29, 2016)

The Chapter 7 Trustee for Robert Patrick Bonefant, Jr. (“Debtor”) and Margaret Louise McClory-Bonefant filed an adversary proceeding against the Debtor’s father, Robert Patrick Bonefant, Sr. (“Defendant”) to avoid fraudulent transfers in the form of nearly $775,000 in payments made by the Debtor to his father’s bank accounts in the two years before filing for bankruptcy. At trial, the Trustee did not press his quantum meruit/unjust enrichment or resulting trust claims and the Defendant did not contest liability for fraudulent transfers pursuant to 11 U.S.C. § 548.  The issues analyzed by the Court in this Memorandum were whether the Trustee sustained his burden of proof on his claims pursuant to 11 U.S.C. §§ 548 and 550(a)(1) and calculation of damages.  Although the Trustee asked to recover all amounts voided under 11 U.S.C. § 548 as fraudulently transferred (nearly $775,000), the Court held that recovery pursuant to 11 U.S.C. § 550(a)(1) is limited to the amount that restores the estate to the same position it would have been in notwithstanding the fraudulent transfers.  The Court found that the Debtor withdrew $761,623 from his father’s accounts for his personal use, and so the estate was only entitled to recover the remaining $12,322 plus credit card charged incurred by the Defendant but paid for by the Debtor.

 

DeGiacomo v. First Call Mortg. Co. (In re Reznikov), AP No. 15-1003, 2016 WL 1238916 (Bankr. D. Mass. Mar. 29, 2016)

On cross-motions for summary judgment, the Bankruptcy Court for the District of Massachusetts recently held that there was no genuine dispute as to any material fact in finding that a certificate of acknowledgment that indicated only that the debtor “duly acknowledged” execution of a mortgage was insufficient under Massachusetts law to legally record the mortgage. Such language reflects that the debtor executed the mortgage, but does not indicate, as required under Massachusetts law, that she did so as her free act and deed.  Evidence of the parties’ intent or actual acts would not alter this conclusion, as the court is not interpreting a contract or the validity of the language, but only considering whether the language, on its face, gives notice that the requirements for a legally recorded mortgage have been met.  The phrase “duly acknowledged” does not provide such notice.  Accordingly, the chapter 7 trustee, as a hypothetical bona fide purchaser, is entitled to summary judgment and can avoid the mortgage under § 544(a)(3).  Further, as a matter of law, the mortgage is automatically preserved for the benefit of the estate under § 551, maintaining priority over the debtor’s homestead  exemption.

 

Contributions by:

Benjamin Higgins, Law Clerk to the Hon. Frank J. Bailey (Contributions are on personal behalf and should not be construed as statements by the U.S. Bankruptcy Court)

Devon MacWilliam, Partridge Snow & Hahn

Alex McGee, Ropes & Gray

Michael K. O’Neil, Murphy & King

Nathan Soucy, Soucy Law Office

Aaron Todrin, Sassoon & Cymrot, LLP

Bankruptcy Internship Position – Fall 2016

The Civil Division of the U.S. Attorney’s Office, District of Massachusetts, seeks one or two diligent and enthusiastic law students with excellent research and writing skills to serve as a bankruptcy intern for Fall 2016.  The intern will work in Boston.  Prior bankruptcy experience or completion of a bankruptcy course is required.  The intern will be assigned to work with the bankruptcy Assistant United States Attorney within the Civil Division, which represents the United States, its agencies, and its employees in all types of bankruptcy cases filed in Massachusetts.  The internship is an unpaid position.  Prior to beginning an internship, all interns must successfully complete a security process/background investigation.  Applicants must be U.S. citizens.  To apply, please send your resume, writing sample, transcript (unofficial accepted) and a cover letter describing your interest to [email protected].  Applications must be submitted by May 10, 2016.

Save the Date: Brown Bag Lunch with Chapter 13 Trustee – May 10th

Please join us on May 10, 2016 from 12:00-1:00 p.m. for our annual brown bag lunch with Carolyn A. Bankowski, the Chapter 13 Trustee. This is a great opportunity to meet the Trustee, hear the latest filing stats, learn about new and notable cases, and discuss hot topics in Chapter 13. The Trustee encourages practitioners to come and discuss current questions, concerns and issues, so feel free to bring questions!  For more information or to sign up, please click here.