Last month, I wrote a post describing a case that was recently heard by one of the judges in the Northern District of Georgia. In this case, a debtor had filed a Chapter 13 the day of a foreclosure. The lender was not aware of the bankruptcy so it went ahead with the foreclosure sale. Like many foreclosure sales in Georgia, the amount of the mortgage was equal to the likely value of the house so there were no bidders at the foreclosure sale. Instead, the lender bid the amount of the mortgage and was, in effect, the winning bidder.
By the end of foreclosure Tuesday, the lender’s law firm had learned of the Chapter 13 filing so the law firm did not “record” the foreclosure deed. Instead, the lender filed a motion to “validate foreclosure” asking the judge to permit the foreclosure to go through thereby divesting the debtor of title.
The debtor painted a very sad picture – he and his wife had four children of their own and a sister and her three children were also living in the home – and they faced homelessness if the foreclosure was allowed to go through. Further, the debtor claimed that he and his wife had been victimized by a “paralegal service” that had prepared emergency “two page” petitions then did nothing more.
The lender’s attorney took a very hard line – between the husband and wife, these debtors had filed 5 previous cases only one of which actually worked for more than a few months. The debtor was trying to scam the system and the court ought not permit such an action. Further, the debtor had used the same paralegal service twice – if they were a ripoff why did he use them a second time?
The judge, who is a compassionate and decent man, was clearly struggling with what to do. I felt that the lender’s attorney took the wrong approach. In my view the debtor and his wife came across more confused than pathologically dishonest. They clearly did not have entirely clean hands when it came to using the bankruptcy process to stop a foreclosure, but I could see that the judge was bothered by the idea that 7 children and two families might end up on the street.
In my previous post I asked what you thought would happen. Here’s what the judge did:
The judge decided to validate the foreclosure and lift the stay. He was very concerned about the multiple filings and by the fact that there was no equity and an almost impossible likelihood that the debtor could actually fund a Chapter 13 that included over 2 years of mortgage arrearage. He did note that Georgia law now provides that foreclosure notices must include the name and contact information of a human being at the mortgage company who has the authority to enter into loan modifications. He directed the lender’s lawyer to include this information in the order that would be issued granting the lender’s motion (in most cases, the moving party in a motion hearing has the obligation to draft a proposed order for the judge to sign).
In case you are wondering, I would not have a lot of hope that the lender will be very cooperative in working out a deal with the debtor.
He also directed the debtor to cooperate with the U.S. Attorney in investigating the paralegal service.
What can you take from this case? First and foremost, any Chapter 13 case that you file must be viable on its face. In other words if you have only $200 disposable each month, and you have to pay $20,000 over five years, your case is not viable. You have to present a workable plan.
Second, multiple filings make judges very concerned. I am not a big fan of petition preparation services or paralegal services. Bankruptcy has become a lot more complicated over the past 10 years or so. I think that you take a very big chance when you use a non-attorney for your bankruptcy filing. If you are going back a second or third time you should never do so without a lawyer as the Bankruptcy Code has been amended specifically to make repeat filings more difficult.