Discharge Injunction

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Disallowed Claim Renders Lien Void Under 506(d)

The Fourth Circuit found that a lender’s lien was extinguished upon the debtor’s discharge where the lender’s proof of claim had been disallowed due to the lender’s failure to provide the necessary documents to prove that it had a perfected security interest. National Capital Management v. Gammage-Lewis, No. 12-2286 (June 6, 2013). [Read more…] about Disallowed Claim Renders Lien Void Under 506(d)

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Heritage Pacific’s Debt Collection Practices Garner More Attention

Heritage Pacific Financial, a debt buyer of foreclosed second mortgages, first popped up on my radar screen nearly two years ago.  At that time, Heritage was filing multi-defendent complaints in state and federal courts against California home loan borrowers–mostly Latino–claiming that the borrowers fraudulently misstated their monthly income on their loan applications.  I suspect that they were trying to get people to settle with them and save filing fees, but at least most federal district court judges recognized that suing multiple defendants on multiple contracts in the same complaint is not proper under Rule 20 of the Federal Rules of Civil Procedure. (See Order here).  As a result, those cases didn’t go very far in court.  With the multi-defendant model out the door, Heritage turned its attention to bringing non-dischargeability actions against bankruptcy debtors.  Court documents show debtors, many chapter 7 pro se debtors, entering into settlement agreements to pay Heritage thousands of dollars over several years.  Sadly, in many of these cases, the underlying debt is uncollectable based on state anti-deficiency laws. Heritage cannot show that it has been assigned the original lender’s fraud claim, or Heritage is unable to demonstrate that the borrower made any false statements or that the original lender relied on any false statement.

Several cases are now pending against Heritage in state courts alleging violations of California’s anti-deficiency laws, the Fair Debt Collection Practices Act, the Rosenthal Act (the state’s version of FDCPA) and the state’s unlawful business practices law.

Earlier this week, Rick Jurgens of the Center for Investigative Reporting, wrote a story that focuses on some of the borrowers that have been targeted by Heritage.  ABC affiliate, KGO-TV, in conjunction with CIR, also put together a video news story on Heritage.

NCBRC is looking into Heritage’s practice of bringing frivolous non-dischargeability actions in bankruptcy courts throughout California.  The United States Trustee should also consider a thorough investigation of Heritage and its bankruptcy practices.

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BAP’s Consider Appeals of Sanctions Orders

Creditor’s counsel is appealing an order by the Bankruptcy Court of the Western District of Missouri awarding Chapter 7 debtor sanctions for $1,500.00 as a result of the creditor’s violation of the discharge injunction under Section 524(a)(2) and (3). In re King, No. 12-6014 (B.A.P. 8th Cir.). The appeal, filed on February 21, 2012, is before the 8th Circuit BAP. The debtor had filed a motion to reopen his bankruptcy case to add the creditor, and the underlying debt was thereafter discharged with no objection. The creditor then filed suit in State Court seeking recovery on that debt. After notifying creditor’s counsel of the bankruptcy discharge to no avail, debtor sought sanctions and attorney fees against creditor’s counsel. The creditor’s counsel appeals the bankruptcy court’s denial of the creditor’s motion for reconsideration of the court’s order granting sanctions.

The BAP for the 9th Circuit is also considering an appeal of an order granting sanctions against creditors and their counsel in the amount of $11,217 for violation of the automatic stay under Section 362(a). In re Knapp, No. 12-1092 (B.A.P. 9th Cir.). Like King, that case involves the pursuit of a state court lawsuit against a Chapter 7 bankruptcy debtor even after the debtor’s counsel sought to educate the creditor’s counsel about the automatic stay.