First Circuit Bankruptcy Appellate Panel Opinions May 2013

Dismissal for debtor's failure to provide financial information affirmed, with no notice or hearing required under Section 521(i)(1):

Soto and Rivera v. Doral Bank, 

BAP NO. PR 12-075 (1st Cir. BAP May 8, 2013)(Before Judges Haines, Feeney, and Hoffman, Opinion by Hoffman).

Dismissal of Chapter 13 case upheld for debtor's failure to provide pay advice and tax returns. An 11 U.S.C. Section 521(i)(1) dismissal may not require notice and hearing.

click here for full opinion:

http://www.bap1.uscourts.gov/cgi-bin/bpgetopn.pl?OPINION=12-075P

Appeal dismissed as moot due to underlying bankruptcy case being dismissed:

Soto and Rivera v. Doral Bank, 

BAP NO. PR 12-053 (1st Cir. BAP May 8, 2013)(Before Judges Haines, Feeney, and Hoffman, Per curiam). Debtors appealed the bankruptcy court's order granting stay relief to Doral Bank, which appeal is dismissed as moot in light of the above dismissal being affirmed, as no effective relief could be granted.

click here for full opinion:

http://www.bap1.uscourts.gov/cgi-bin/bpgetopn.pl?OPINION=12-053U

Appeal dismissed due to lack of standing: Debtor was not a person aggrieved to appeal the Ch. 7 trustee's sale of estate property and potential for surplus to the Debtor was speculative:

Gentile v. Digiacomo, Ch. 7 Trustee,

BAP NO. MB 12-071 (1st Cir. BAP May 20, 2013)(Before Judges Lamoutte, Kornreich, and Cabán, Opinion by Kornreich, Dissent by Lamoutte).

Standing to appeal a bankruptcy court's sale order requires a party to be a person aggrieved, per Spenlinhauer v. O'Donnell, 261 F. 3d 113, 117 (1st Cir. 2001). Since title to property of the estate no longer rest with the debtor, he normally lacks the pecuniary interest in the trustee' disposition of that property unless nullification of the sale will likely to result in an overall surplus in the chapter 7 estate to which the debtor would be entitled once the case is closed The debtors unsuccessfully asserting standing to appeal based up  a contingent, speculative pecuniary interest in an estate surplus which the application of Spenlinhauer would not allow. Debtor voluntarily filed Chapter 7 and did not seek to compel abandonment of the property at issue, nor seek a dismissal nor wait for the state court action to conclude before filing.

click here for full opinion:

http://www.bap1.uscourts.gov/cgi-bin/bpgetopn.pl?OPINION=12-071P

Denial of confirmation affirmed regarding "hybrid" or bifurcated treatment of secured creditor's claim on residence:

Bullard v. Hyde Park Savings Bank,

BAP NO. MB 12-054 (1st Cir. BAP May 20, 2013)(Before Judges Haines, Tester and Godoy).

[NACBA submitted an amicus brief].

Debtor proposed a "hybrid" plan treatment of the bank's mortgage on his home.  Bullard asserted that since his residence included another unit in which he did not reside, the mortgage was not secured solely by the debtor's residence and subject to modification. Bullard planned to reduce the principal to the value of the home and paid over a term longer than the five-year plan; and, treat the balance as unsecured claim with pennies on the dollar.  The debtor sought to use both the "modification" provision of Section1322(b)(2) and the "cure and maintain" provision of 1322(b)(5).
The bank objected.

The BAP opined that Section 1328(a)(1) establishes that as long as a plan employs Section 1322(b)(5), it can only be confirmed over the creditor's objection via section 1325(a)(5)(B)(i)(I)(aa).  And since that section states the debt, as determined by nonbankrutpcy law, must be paid, a debtor man not use and bifurcate the applicable claim via Section 506(a).   To do so would render Section 1325(a)(5)(B)(i)(I) ineffective.

Click here for full opinion:

http://www.bap1.uscourts.gov/cgi-bin/bpgetopn.pl?OPINION=12-054P

Foreclosure: First Circuit would not force mortgagee to foreclose.

Canning v. Beneficial Maine, Inc. (In re Canning), ___ F.3d ___(1st Cir. Feb. 1, 2013).

The refusal by the Chapter 7 debtors’ mortgage creditor to accede to the debtors’ demand that the creditor either foreclose the mortgage on their residence, which the debtors had surrendered and vacated, or release its lien on the property did not violate the discharge injunction. Distinguishing In re Pratt, 462 F.3d 14 (1st Cir. 2006), in which the court held that a secured creditor's refusal to foreclose or release its lien on an inoperable, worthless car was intended to objectively coerce the debtor into paying a discharged debt, the court observed that the creditor offered to release its lien through either a settlement offer or a short sale, which indicated the intent to collect no more than the value secured by the underlying lien, as well as a willingness to negotiate a palatable solution for all involved.

Click here for the full opinion from the court's web site:  Click here: USCA1 Opinion

First Circuit BAP: Feb. 2013: (a) mortgage avoidance and thus home sale by Ch. 7 Trustee, and (b) plan dismissal/limitation on re-filing.

BAP affirms order dismissing debtor's ch. 13 case and denying him ability to refile for 18 months;
discussion of "waiver" of issues on appeal and the standard for "excusable neglect":

Rivera v. Asume, Rivera, Chapter 13 Trustee (In re Rivera), (1st Cir. BAP 2/19/13)(Before Judges Hillman, Boroff, and Kornreich: Opinion by Kornreich).

This was the third Chapter 13 plan, the prior two dismissed for the debtor's failure to meet domestic support obligations; and this time for similar reasons along with failure to produce current tax returns and other relevant information to the trustee.

Rivera:

Click here: USBAP1 Opinion 12-036P

 What happens after the trustee avoids the mortgage? He gets to sell your house:

DiGiacomo, Chapter 7 Trustee v. Traverse (In re Traverse), (1st Cir. BAP 2/4/13)(Before Judges Haines, Deasy, Tester: Opinion by Haines).

BAP affirmed summary judgment in the Chapter 7 trustee's favor in denying the debtor's request to limit the scope of the sale of her home.  Debtor owed a first mortgage, which the mortgagee failed to record, and Debtor owed a second mortgage which was recorded, and Debtor recorded a $500,000 Massachusetts homestead. Trustee moved to avoid the first, unrecorded, mortgage for the benefit of creditors, which was granted. Debtor objected to any sale of her home, claiming her mortgages were paid current and could not be foreclosed even if the first mortgage was not recorded and thus avoided for the benefit of creditors.  Trustee successfully argued that the avoided mortgage was for the benefit of creditors (the unrecorded first mortgage) creating equity in the home which the trustee could sell, the trustee now standing in the shoes of the homeowner's right to possession and redemption.  Her homestead would be satisfied in the order of priorities after the first mortgage (avoided for the benefit of creditors) and second mortgage were paid, and then the homestead.

Traverse:

Click here: USBAP1 Opinion 12-025P

Recent Decisions from the First Circuit regarding: (a) Ethics, (b) Foreclosure, (c) Taxes & (d) Discovery.

Be careful what you say about opposing counsel:

Gilberti v. Coppola, No. 12-1302 (1st Cir. 2/27/13).

District court's decision admonishing interested party-attorney for unprofessional conduct in his representation of a junior mortgagor related to the sale of the foreclosed property, is affirmed, where: 1) attorney's claim that opposing attorney converted funds was never supported by any evidence; 2) attorney's allegation that opposing attorney violated the criminal usury statute was frivolous; and 3) attorney turned what seemed to be innocent misunderstandings into claims of perjury in his allegations of false statements.

GILBERTI:  Click here: USCA1 Opinion

Timing for challenge to lender's good faith and fair dealing: 

Latson v. Plaza Home Mortgage, Inc., No. 12-1462 (1st Cir. 2/27/13).

Dismissal of plaintiffs' suit against defendant-mortgage lender alleging state common law and statutory violations in making two house loans is affirmed, where: 1) the good faith and fair dealing claim was properly dismissed because the allegedly wrongful conduct all occurred before the contracts existed, not in violation of their terms after formation, and the covenant only governs conduct of parties after they have entered into a contract; and 2) the statutory claim is time-barred - the statute of limitations for a 93A action is four years, which had  elapsed prior to suit.The specific allegations were that prior to closing Plaza failed to provide Latson with a proper commitment letter, good-faith estimate, or other documents required by the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. §§ 2601–2617, and gave them insufficient opportunity to review the terms of the loans. They also claimed that Plaza either "knew or should have known" that an appraisal of the property that the Latsons obtained at Plaza's request was "too high." The Latsons asserted that all these acts and omissions were actionable under both their common-law and statutory claims.

LATSON:  Click here: USCA1 Opinion

Challenge to IRS' "failure to pay" penalty fails:

Shafmaster v. US, No. 12-1726 (1st Cir. 2/11/13).

Summary judgment was properly granted to defendant on plaintiffs' claim for refund of a failure-to-pay penalty imposed on them by the Internal Revenue Service, where: 1) equitable estoppel does not apply because plaintiffs fail to allege affirmative misconduct on the part of defendant, and none of the documents promised to waive the penalty, and some explicitly warned of the penalty, so there was no definite misrepresentation of fact contained therein as to whether the penalty would be assessed; 2) since plaintiffs did not show inability to pay or undue hardship, they cannot seek refuge in the "reasonable cause" exception; and 3) plaintiff's arguments regarding notice and demand all fail.

Shafmaster:   Click here: USCA1 Opinion

Alleged mortgagee needed to posses the "power of sale" at the time they foreclosed; thus mortgagor's questioning the the assignment did not take place prior to the foreclosure was proper; one who exercises power of sale must strictly follow its terms:

Juarez v. Select Portfolio Servicing, No. 11-2431 (1st Cir. 2/12/13):

Judgment dismissing complaint alleging defendants illegally foreclosed on her home is reversed and remanded, where the complaint states plausible claims for relief and that the district court abused its discretion in deciding that it would be futile to allow an amendment to the complaint. Juarez properly alluded to a challenge that the assignment did not take place prior to the foreclosure thus, the foreclosing entity did not have the "power of sale" at the time they exercised it - which is a different challenge than a mortgagor's challenge to the validity of a third-party assignment.  The issue of whether a "confirmatory assignment" cured the alleged defect was properly the subject of discovery and the complaint should have proceeded on that point.  One who exercises the power of sale must strictly follow its terms. In this Massachusetts case, an assignment of the mortgage must take place before the foreclosure begins. Further, in light of this, the plaintiff should be allowed to amend and re-plead her fraud and Section 93A claims (Mass. Consumer Protection Statute).  Massachusetts covenant of good faith and fair dealing is taken to be implied in every contract, and provides "that neither party shall do anything that will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract" - the covenant only "governs conduct of parties after they have entered into a contract.

Juarez:  Click here: USCA1 Opinion

In a case of first impression, mortgagor has standing to challenge assignment of mortgage if to do so renders the assignment void, rather than voidable:

Culhane v. Aurora Loan Services of Nebraska, No. 12-1285 (1st Cir. 2/15/13).

In a case of first impression, the court held that the mortgagor possesses standing to challenge the assignment of its mortgage to another entity.  "Withal, a mortgagor does not have standing to challenge shortcomings in an assignment that render it merely voidable at the election of one party but otherwise effective to pass legal title." - thus, making the distinction that the challenge must be that the assignment is "void", rather than "voidable". Thus, here, the mortgagor (namely the borrower or home owner at issue) has standing to contest the validity of the mortgage assignment made by Mortgage Electronic Registration Systems, Inc. (MERS), to defendant, the foreclosing entity; however, the MERS framework and defendant's foreclosure of plaintiff's property complied with the requirements of Massachusetts mortgage law, and thus the foreclosure was lawful. Applying Massachusetts law, the court noted that in Massachusetts, the note and mortgage may be held by separate entities. Further, the terms of the mortgage (contract) authorized the transfer at issue. 

"[I]n Massachusetts, a mortgagor has a legally cognizable right to challenge a foreclosing entity's status qua mortgagee. This may, in certain instances, require challenging the validity of an assignment that purports to transfer the mortgage to a successor mortgagee.  Standing doctrine is meant to be a shield to protect the court from any role in the adjudication of disputes that do not measure up to a minimum set of adversarial requirements.  There is no principled basis for employing standing doctrine as a sword to deprive mortgagors of legal protection conferred up them under state law.  We hold, therefore, that a mortgagor has standing to challenge the assignment of a mortgage on her home to the extent tat such a challenge is necessary to context a foreclosing entity's status qua mortgagee.  We caution that our hold, narrow to begin with, is further circumscribed.  We hold only that a mortgagor has standing to challenge a mortgage assignment as invalid, ineffective, or void (if, say, the assignor had nothing to assign or had not authority to make an assignment to a particular assignee).  If successful, a challenge of this sort would be sufficient to refute an assignee's status qua mortgagee . . . Withal, a mortgagor doe not have standing to challenge shortcomings in an assignment that render it merely voidable at the election of one party but otherwise effective to pass legal title."

Click here: USCA1 Opinion

Discovery, Work-product & Waiver:

Walker v. NH AOC, 2013 DNH 025 (D.N.H. 2013)(Magistrate McCafferty)(court reviewed discovery materials in camera, and determined many must be produced, articulating the parameters of work-product, privilege and waiver).

Click here: ISYS:web 8