Month: November 2011

4th Circuit: McDow v. Dudley- Denial of Motion to Dismiss Pursuant to 11 U.S.C. § 707(b) is an Appealable Final Order

Summary:

The Debtors filed a Chapter 13 bankruptcy in 2008.  Following a Motion to convert or dismiss the case filed by the Chapter 13 Trustee, the Debtors voluntarily converted to Chapter 7.  The U.S. Trustee sought dismissal of the case pursuant to 11 U.S.C. § 707(b) asserting that the Debtors had over $2,000.00 of disposable monthly income.  The Debtors asserted that § 707(b) was applicable only in a “case filed by an individual debtor under this chapter” and since their bankruptcy was filed under Chapter 13 it did not apply.  The Bankruptcy Court agreed with the Debtors and denied the motion to dismiss under  § 707(b).… Read More

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H.R. 2192: National Guard and Reservist Debt Relief Extension Act of 2011

Summary:

In a striking example of bi-partisan support,  the House of Representative passed the H.R.  2192 by a vote of 407-1.  This bill would renew the National  Guard and Reservist Debt Relief Act   (“NGARDRA”) for an additional 4 years.

First enacted in 2008, NGARDRA relieves National Guard and Reserve service members of many of the onerous provisions of the Bankruptcy Act, by providing that if such a service member found him or herself in the unfortunate position of needing to file bankruptcy in the 18-months after returning from active duty, the means testing requirements of the bankruptcy laws,  which normal look back at a person’s income over the previous six months,  would not apply. … Read More

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Bankr. EDNC: Robinson- Blank Indorsement of Note

Summary:

Debtor executed a promissory note and Deed of Trust in favor of First Citizens in 2004, but since the loans inception made payments to (or through) Cenlar.  After the Debtor filed Chapter 13 in 2007,    Cenlar filed a proof of claim, including a copy of the note, but without any indorsement.  In 2008, the Debtor fell behind on payments and a consent order resolving such delinquency was entered, stating, among other things, that Cellar was the holder or servicer of the note.  In March of 2011, Residential Credit Solutions (“RCS”) filed a transfer of claim for other than security to notify the Debtor, Trustee and Court that Cenlar had transferred its claim to RCS.… Read More

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Bankr. EDNC: New Bern Riverfront v. Weaver Cooke- No Implied Consent to Non-Core Jurisdiction

Summary:

The complaint and anser both failed, in contravention of Rules 7008(a) and 7012(b), to state whether the proceeding was core or  non-core, and if non-core, where the parties consented to the bankruptcy court entering  final orders or judgments.  The Court held that, in light of Stern v. Marshall, 564 U.S. ___, 131 S.Ct. 2594 (2011), it could not  that the parties have impliedly consented to its jurisdiction over non-core matters.  Consequently, it gave the parties thirty days to file a statement concerning whether the matter was core or non-core and whether the parties consented to the bankruptcy court’s conclusive jurisdiction.… Read More

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Bankr. EDNC: BB&T v. Murray- Avoidance of Fraudulent Conveyance; Ultra Vires Acts

Summary:

A few hours prior to a foreclosure sale, 15 parcels of real property were transferred to the Debtors by three corporations owed by the Debtors.  The Debtors shortly thereafter filed Chapter 11.  BB&T commenced an Adversary Proceeding seeking to avoid the transfers as fraudulent conveyances and because some were made ultra vires and brought a Motion for Summary Judgment.

In determining whether a transfer was a fraudulent conveyance the court first turned to the non-exclusive list of factors found in N.C. Gen. Stat. 39-23.4(b):

  1. The transfer or obligation was to an insider;
  2. The debtor retained possession or control of the property transferred after the transfer;
  3. The transfer or obligation was disclosed or concealed;
  4. Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;
  5. The transfer was of substantially all of the debtor’s assets;
  6. The debtor absconded;
  7. The debtor removed or concealed assets;
  8. The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;
  9. The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;
  10. The transfer occurred shortly before or shortly after a substantial debt was incurred;
  11. The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor;
  12. The debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor reasonably should have believed that the debtor would incur debts beyond the debtor’s ability to pay as they became due; and
  13. The debtor transferred the assets in the course of legitimate estate or tax planning.
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Bankr. EDNC: In re Sisler- Burden of Proof in Forgery; Requirements in establishing personal guarantee

Summary:

A commercial guarantee and Deed of Trust in the amount of $250,000.00 was executed by Prudential Investors, L.L.C., of which the Male Debtor was 50% owner.  The commercial guarantee defined the “guarantor” as the Male Debtor, but the Female Debtor also signed under the word “Guarantor.”  At the same time, the Male Debtor also signed two $100,000.00 notes that included the words “personal guaranty” under the signature line on an addenda to the notes.

The Male Debtor alleged that he had, in fact, forged his wife’s name to the commercial guarantee.  The Court found that the creditor had the burden of both producing persuasive evidence that the Female Debtor had signed the guarantee. … Read More

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Bankr. EDNC: In re Brown- In rem Relief from Automatic Stay

Summary:

Following a foreclosure, appeal of the foreclosure to the North Carolin Court of Appeals (which was dismissed for failure by the homeowner to comply with deadlines), an unconsummated foreclosure bid by the homeowner’s daughter, and two civil suits in state court, the Debtor eventually filed Chapter 13 (twice).  Not surprisingly, Wells Fargo had lost patience with the Debtor and sought not only relief from the automatic stay as to the Debtor, but also in rem relief against the real property itself under 11 U.S.C. § 362(d)(4).  Relief from stay was granted as to the Debtor.

Regarding the in rem relief, the Court found that § 362(d)(4) required that the Debtor’s actions in “filing of the petition [were] part of a scheme to delay, hinder, and defraud creditors” (Emphasis added) “that involved … multiple bankruptcy filings affecting such real property.”  (Emphasis again added.)  The Court then recognized that while some courts have used the traditional elements of fraud, others have held that fraud “embraces all the multifarious means which human ingenuity can devise and which are resorted to by one individual to gain advantage over another .… Read More

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Law Review: Towe & Hawley- The Contagion Effect of Neighboring Foreclosures

Abstract:

This paper examines the contagion effect of residential foreclosures and finds strong evidence of a social interactions influence on default decisions where the interaction is based on neighbors’ behavior in a previous period. Using a unique spatially explicit parcel level data set documenting residential foreclosures in Maryland for the years 2006-2009 and a highly localized neighborhood definition, based on 13 nearest neighbors, the authors find that a neighbor in foreclosure increases the hazard of additional defaults by as much as 28%. This feedback effect goes beyond a temporary reduction in local house prices and implies a negative social multiplier effect of foreclosures.… Read More

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NC Court of Appeals: Taylor v. Miller- Validity of Right of First Refusal in a Deed

Summary:

After Mr.  Taylor and Ms.  Miller separated, they executed a deed transferring real property to Mr.  Taylor but providing that if Mr.  Taylor later sought to sell the property, Ms.  Miller would have a right of first refusal, allowing her to either match the sales price or pay $41,500.00, plus subsequent costs of repairs and improvements to the property.  In June of 2009, Mr.  Taylor wrote to Ms.  Miller asking her to forego this right of first refusal.  Ms.  Miller did not respond.  Later that month, Mr.  Taylor again wrote to Ms.  Miller of his intention to convey the property to his son and his contention that the right of first refusal in the deed was invalid. … Read More

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Law Review: Mayer, Morrison, Piskorski & Gupta- Mortgage Modication and Strategic Behavior: Evidence from a Legal Settlement with Countrywide

Abstract:

This paper investigates whether homeowners respond strategically to news of mortgage modification programs.  The authors exploit plausibly exogenous variation in modification policy induced by U.S. state government lawsuits against Countrywide Financial Corporation, which agreed to offer modifications to seriously delinquent borrowers with subprime mortgages throughout the country. Using a difference-in-difference framework, the authors find that Countrywide’s relative delinquency rate increased thirteen percent per month immediately after the program’s announcement. The borrowers whose estimated default rates increased the most in response to the program were those who appear to have been the least likely to default otherwise, including those with substantial liquidity available through credit cards and relatively low combined loan-to-value ratios.… Read More

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