Summary:
After filing Ch. 11, during which case Bank of America filed a Proof of Claim asserting that it was secured by a Deed of Trust owned by Mr. McGowan and occupied by his then minor daughter, McGowan converted to Ch. 7, received a discharge and the real property was abandoned.
Subsequently at the foreclosure, McGowan determined that Bank of America had previously filed a Certificate of Satisfaction regarding its Deed of Trust. McGowan moved to re-open the Chapter 7 so the Trustee could administer the asset. The bankruptcy court granted the motion to re-open and revoked the abandonment. Bank of America appealed.
The district court first found that the order revoking abandonment was a final appealable order. In then turned to the question of revocation of the abandonment order, noting that there are two types of abandonment- “intentional abandonment”, which occurs after notice and hearing pursuant to 11 U.S.C. § 554(a) and (b), and “technical abandonment”, in which property not administered by the trustee is abandoned upon closure of the bankruptcy case.
The district court then held that revocation of abandonment is generally irrevocable, except under “extraordinary circumstances” and pursuant to Rule 60(b) (6) for “a reason that justifies relief.” These circumstances must be something more than the previous five bases in Rule 60(b), but here only bases for relief were the misrepresentations by Bank of America and the debtor. As these would fall within Rule 60(b) (3) and its one-year statute of limitations, it was insufficient.
Nor did the bankruptcy court have either inherent authority to revoke its orders or power under § 105, as either would imbalance the more specific Rule 60(b) provisions.
Commentary:
A remaining question from this case is what consequences Bank of America, which has been found in multiple court order to have filed a false Proof of Claim misrepresenting its secured status, will face.
Trustees which are justifiably incensed when debtors hide assets and can be very creative in pursuing other causes of action to recover for the honest but unfortunate creditors, so perhaps here to the Trustee will find ways to punish Bank of America. (I have some suggestions- It would also appear that Bank of America commenced an improper foreclosure, in violation of the discharge and state law.)
Bear in mind that losing the lien was the fault of Bank of America, occurred before the case was filed and not a consequence of its lies. Had McGowan simply kept quiet about this lien defect and been caught by the Trustee, I wonder about the repercussions he might have faced. I will also wait patiently for there to be a criminal referral to the US Attorney for the Eastern District of North Carolina on this matter, since filing a false Proof of Claim does carry rather serious penalties for perjury.
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