Summary:
The Debtors were delinquent on their Chapter 13 plan payments, which included disbursements to Green Tree for a mobile home and land. Accordingly, on February 5, 2014, Green Treee filed a Motion for Relief from Stay.
On February 1, 2014, however, Green Tree sent to the Debtors directly a letter offering to provide assistance with delinquent payments. (Green Tree also sent an identical 2nd letter on the same day.) A 3rd letter was sent by Green Tree on February 20, 2014, stating that the Debtors' loan modification application was incomplete and the Debtors had 30 days to provide complete information. The Debtors, however, had at that point not sent in any application. On March 3, 2014, Green Tree sent a 4th letter, declining the loan modification request because it asserted, incorrectly, that the property was a vacation or rental property. Then Debtors then sent in a completed application on March 17, 2014.
The bankruptcy court held that by sending these contradictory and false letters and the Motion for Relief, Green Tree either never intended to consider the application or was acting wrongfully by sending letters without familiarity of the facts of the case. As the bankruptcy court is a court of equity, "t]he equitable powers of bankruptcy courts are ‘available only to . . . creditors with ‘clean hands.'" In re Uwimana, 274 F.3d 806, 810 (4th Cir. 2001) (quoting Carolin Corp. v. Miller, 886 F.2d 693, 698 (4th Cir.1989) There was a sufficiently close nexus between letters and the Motion for Relief that the "reasonable expectations of the Debtors upon receiving the letters from Green Tree are relevant to the extent Green Tree acted wrongfully or inequitably." Accordingly, the Motion for Relief was Denied.
Commentary:
This opinion nicely sets the Debtors up for bringing an Unfair and Deceptive Trade Practices Act law suit against Green Tree. At the least, Green Tree should now have the incentive to sit down and mediate a loan modification.
It is also a good basis for seeking to require creditors to engage in good faith loss mitigation, whether in the context of HAMP loan modification or even the IRS conducting good faith reviews of agreeing to plans, as its own manual requires, that provide for less than full payment of priority claims.
For a copy of the opinion, please see:
Davis - Unclean Hands with Loan Modification and Motion for Relief from Stay
Blog comments