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In my August post, I discussed two cases.  In the Failla case, the Eleventh Circuit affirmed the District Court’s opinion that “once the debtor decides to ‘surrender’ secured property… [w]hile the debtor need not physically deliver the property to the secured party, the debtor is precluded from taking any action which would interfere with the secured creditor’s ability to obtain legal title to, and possession of, the property through legal means.”  Thereafter, the S.D. Bankruptcy Court held, in the Kurzban case, that “the Eleventh Circuit did not rule that a debtor’s decision to surrender lasted in perpetuity“.

As of October 1, 2018, a new statute which expands on the spirit of both the Failla and Kurzban cases will apply to all foreclosure cases filed on or after October 1, 2018.  Specifically, Senate Bill No. 220 was signed into law by Florida Governor Rick Scott this month and will become effective as Section 702.12, Florida Statutes.

Section 702.12 will streamline the foreclosure process for mortgage lenders where bankrupt borrowers have filed an intention to surrender the lender’s property, not withdrawn that intention, and the Bankruptcy Court has entered a final order either granting the bankruptcy debtor(s) a discharge, or confirming a repayment plan that provides for surrender of the property.  If these circumstances are present, the statute provides mortgage lenders with a rebuttable presumption that the borrower has waived any defenses to foreclosure.  The statute further provides that the court shall take judicial notice of Bankruptcy Court orders upon the request of lender.

While Section 702.12 is a positive new law for mortgage lenders, the advice in my August post, still applies – Do NOT sit on your rights!   Section 702.12(3), similar to the ruling in Kurzban, provides that the borrower is not precluded from raising a defense based on the mortgage lender’s action or inaction subsequent to the filing of the bankruptcy document which evidenced the borrower’s intention to surrender the mortgaged property to the mortgage lender.

  Heather L. Ries is an attorney with the Financial Restructuring and Bankruptcy Department of the law firm of Fox Rothschild LLP. Heather focuses her practice in matters related to bankruptcy, creditors’ rights, commercial workout and foreclosure disputes, and commercial litigation. You can contact Heather at 561-804-4419 or hries@foxrothschild.com.

In my November and December posts, I discussed the basics regarding protection of your Florida Homestead from forced sale by creditors and some of the exceptions.

A recent decision from the Second District Court of Appeal of Florida provides a good reminder of another Florida Homestead pitfall.

The Florida Constitution, Article X, Section 4 provides as follows: “There shall be exempt from forced sale under process of any court, and no judgment, decree[,] or execution shall be a lien thereon, … property owned by a natural person.”  As such, the plain language of the Florida Constitution requires that the owner of the property be a natural person to claim the homestead exemption.

While there is case authority which provides that property held in a revocable living trust may qualify for homestead protection, property titled in the name of a corporation, a limited liability company, or a partnership doesn’t qualify.  This is because an individual must have an ownership interest in a residence that gives the individual the right to use and occupy it as his or her place of abode, to qualify for Florida’s homestead exemption.  Be careful how you title your home!

  Heather L. Ries is an attorney with the Financial Restructuring and Bankruptcy Department of the law firm of Fox Rothschild LLP. Heather focuses her practice in matters related to bankruptcy, creditors’ rights, commercial workout and foreclosure disputes, and commercial litigation. You can contact Heather at 561-804-4419 or hries@foxrothschild.com.

In the case of Mantiply v. Horne (In re Horne), 876 F.3d 1076 (11th Cir. 2017) the Eleventh Circuit decided an issue of first impression in the Circuit: Whether the Bankruptcy Code authorizes payment of attorneys’ fees and costs incurred by debtors in successfully pursuing an action for damages resulting from the violation of the automatic stay and in defending the damages award on appeal.

The stay violator argued on appeal that the debtors were not entitled to appellate fees as a matter of law under Section 362(k)(1) of the Bankruptcy Code because the statute only provides for mandatory fees for damages and attorneys’ fees incurred in ending a stay violation, not incurred in pursuing a damages award nor fees incurred in defending a damages award on appeal.

The Eleventh Circuit disagreed with the stay violator and held that Section 362(k)(1) of the Bankruptcy Code specifically departs from the American Rule and authorizes costs and attorneys’ fees incurred by the debtor in ending a willful violation of an automatic stay, prosecuting a damages violation, and defending those judgements on appeal.

Specifically, the Court reasoned that, unlike Section 330, Section 362(k) specifically and explicitly provides for the recovery of “costs and attorneys’ fees” in the measure of damages arising from a willful violation of the automatic stay, allowing for a departure from the American Rule.  Moreover, nothing in the text of Section 362(k)(1) limits the scope of attorneys’ fees to solely ending a stay violation.  Instead, Section 362(k)(1) speaks to full recovery of damages including fees and cost incurred from violating the stay.  The Court noted that this result makes sense in the context of bankruptcy litigation where the lion’s share of damages from violations of the automatic stay are attorneys’ fees and the debtors are least able to afford them.

The Takeaway?  While there are always exceptions to the rule, it is generally best to attempt to settle “willful” stay violations early on.  The damages in what may seem like a simple matter, escalate quickly.  If you choose to litigate and lose, you could be responsible for paying “actual damages, including costs and attorneys’ fees” to the debtor(s) for all the proceedings related to the stay violation dispute and, to add insult to injury, your own attorneys’ fees and costs.

 

  Heather L. Ries is an attorney with the Financial Restructuring and Bankruptcy Department of the law firm of Fox Rothschild LLP. Heather focuses her practice in matters related to bankruptcy, creditors’ rights, commercial workout and foreclosure disputes, and commercial litigation. You can contact Heather at 561-804-4419 or hries@foxrothschild.com.

In my November post, I discussed the basics regarding protection of your Florida Homestead from forced sale by creditors and alluded to exceptions to the rule.  Let’s discuss some of those exceptions as it relates to a bankruptcy filing.

If you have acquired an ownership interest in your Florida Homestead within 1,215 of the date you file for bankruptcy, your exemption is subject to a homestead exemption cap under section 522(p) of Title 11 (the “Bankruptcy Code”).  If you bought a house for the first time within the 1,215 day period, your Florida Homestead exemption is limited the amount of $160,375.00 for single debtors and $320,750.00 for married Debtors.  If you bought a new residence within the 1,215 day period, you may add any equity transferred to the previous residence to the exemption limit.  For instance, if you are a single Debtor, sold your home, and used $100,000.00 of equity from your old home to buy your new one, your allowed exemption would be $260,375.00.  As you can see, if you have more than the exemption limit in your Florida Homestead, it is important to consider and calculate the length of time you have owned your home before contemplating a bankruptcy filing.  In addition, if you have been chased by one or more creditora for several years prior to contemplating bankruptcy, you should consider what, if any, funds you have used to purchase the property, prepay your mortgage or improve the property.  Creditors may look to 522(o) of the Bankruptcy Code to attempt to recover those funds based on your intent to hinder, delay or defraud them.

Another risk to your Florida Homestead exemption is the dreaded “Ponzi Scheme”.  In a June, 2017 decision from the Middle District of Florida Bankruptcy Court, the Court awarded an equitable lien and constructive trust on the homestead of a Ponzi scheme investor’s Florida Homestead.  The Ponzi scheme investor, who had filed for bankruptcy and was not involved in or aware of the fraud, “passively received the fraudulent transfers” which he used to purchased the Florida Homestead.  The Court held that the Ponzi scheme investor’s lack of participation in the fraud was not determinative; the focus must be on the fraudulent nature of the funds and unjust enrichment.  The Ponzi scheme investor had been unjustly enriched by the receipt of the fraudulent transfers that he and his wife invested in their home.  Accordingly, the Court determined that an equitable lien and constructive trust should be imposed on the Florida Homestead to the extent the Ponzi scheme distributions were traceable into the Florida Homestead.   The take away – be wary of investment schemes (if it is too good to be true, it probably is) and be thoughtful about the source of funds you invest in your homestead.

  Heather L. Ries is an attorney with the Financial Restructuring and Bankruptcy Department of the law firm of Fox Rothschild LLP. Heather focuses her practice in matters related to bankruptcy, creditors’ rights, commercial workout and foreclosure disputes, and commercial litigation. You can contact Heather at 561-804-4419 or hries@foxrothschild.com.

Your primary residence in Florida (“Homestead”) can be a very useful tool for protection of assets from creditors during your life, and after your death for the benefit or your spouse and heirs.

The Florida Constitution, Article X, Section 4 sets forth the applicable restrictions on forced sale and the devise of your Homestead.  If your Homestead is one-half acre or less within a municipality or 160 acres or less outside a municipality, the entire Homestead is generally protected from forced sale by someone that sues you and obtains a judgment.  This same protection from judgment creditors will also benefit your spouse and/or heirs who inherit your Homestead after you’re gone.

However, there are exceptions to every rule and your actions could unwittingly subject your Homestead to the claims of creditors.  Have I peaked your interest?  If so, you won’t want to miss my series of blog posts discussing Homestead issues in Florida.  Stay tuned!

  Heather L. Ries is an attorney with the Financial Restructuring and Bankruptcy Department of the law firm of Fox Rothschild LLP. Heather focuses her practice in matters related to bankruptcy, creditors’ rights, commercial workout and foreclosure disputes, and commercial litigation. You can contact Heather at 561-804-4419 or hries@foxrothschild.com.

 

Americans generally cherish their right to a jury trial under the Sixth and Seventh Amendments to the United States Constitution and the media certainly perpetuate the idea that jury trials are the norm.  However, there are instances where a party may prefer that a judge, rather than a jury, decide the dispute(s) between the parties.

In a recent bankruptcy adversary proceeding out of the S.D. of Florida, the defendant moved to strike the Chapter 7 bankruptcy trustee‘s jury trial demand related to the trustee’s fraudulent transfer claims.  Defendant raised three arguments: (1) the trustee is bound by a contractual waiver of jury trial rights entered into by the debtor prior to the filing of its bankruptcy petition; (2) a trustee in bankruptcy is never entitled to a jury trial in connection with a fraudulent transfer or other avoidance action under the Bankruptcy Code; and (3) the present adversary proceeding is “integral to the claims resolution process,” thus equitable in nature, and so there is no right to jury trial.

The Court determined that none of the arguments had merit and the Trustee was in fact entitled to a jury trial, in a nutshell, as follows:

(1) Even if the debtor was bound by a jury trial waiver, that agreement is binding on the bankruptcy estate only with regard to those claims owned by the estate that were previously held by the debtor.  The bankruptcy estate’s claims derived from the Bankruptcy Code itself, such as fraudulent transfer claims, are not covered by the debtor’s pre-petition jury trial waiver.

(2) Fraudulent transfer claims seeking monetary recovery are actions at law and are subject to jury trial on the timely request of a party pursuant to Granfinanciera v. Nordberg, 493 U.S. 33 (1989).

(3) The defendant did not file a proof of claim and therefore, the trustee’s fraudulent transfer action was not part of the claims allowance process.

The Court noted that when a defendant files a proof of claim, an avoidance action becomes part of the claims process as a result and neither the creditor or the bankruptcy estate has a right to a trial by jury citing to Langenkamp v. Culp, 498 U.S. 42 (1990) and Katchen v. Landy, 382 U.S. 323 (1966).  However, the defendant had not filed a claim because it apparently did not have a claim against the estate.

The Takeaway:  If you have a claim against the bankruptcy estate and do not wish to have a jury trial on any avoidance claims you suspect will be filed against you, you may want to file a proof of claim.

  Heather L. Ries is an attorney with the Financial Restructuring and Bankruptcy Department of the law firm of Fox Rothschild LLP. Heather focuses her practice in matters related to bankruptcy, creditors’ rights, commercial workout and foreclosure disputes, and commercial litigation. You can contact Heather at 561-804-4419 or hries@foxrothschild.com.

 

When an individual files for bankruptcy protection, he/she is entitled to certain wonderful benefits.  For example, a Chapter 13 bankruptcy filing will stop (at least temporarily) a home foreclosure or car repossession and provide the individual with an opportunity to resolve financial difficulties, including time to cure arrearages.

However, with these wonderful benefits, also come duties that the individual must fulfill to the Bankruptcy Court and its creditors.  Bankruptcy cases are frequently dismissed because these same individuals that sought the protection and benefits of bankruptcy, fail to live up to their end of the bargain!

One of the requirements to stay in bankruptcy under Section 521 of the Bankruptcy Code requires bankruptcy filers (“Debtors”) to file a schedule of his/her assets and liabilities, current income and current expenditures, and statement of the debtor’s financial affairs – all under penalties of perjury.  Bankruptcy cases are frequently dismissed because the Debtor fails to properly complete and timely file these schedules and statement of financial affairs.

By example, former Miami Marlin and World Series Pitcher, Livan Hernandez recently had his Chapter 13 bankruptcy case dismissed after he failed to file his required schedules and statement of financial affairs after his initial deadline (Strike One!), his first request for extension (Strike Two!) and his second request for extension (Strike 3) and the Bankruptcy Court said – You’re Outta Here! – by entering it Order dismissing Hernandez’s Chapter 13 case, with prejudice for 180 days!

What happens when a bankruptcy case is dismissed under these circumstances?  The Debtor loses all those wonderful benefits of bankruptcy and is barred from filing bankruptcy again for 180 days (with a few exceptions).  The automatic stay is terminated and the Debtor returns to his pre-bankruptcy status with all of his creditors.  This means that creditors may legally pursue all collection efforts against him, including foreclosure, repossession, and lawsuits.

  Heather L. Ries is an attorney with the Financial Restructuring and Bankruptcy Department of the law firm of Fox Rothschild LLP. Heather focuses her practice in matters related to bankruptcy, creditors’ rights, commercial workout and foreclosure disputes, and commercial litigation. You can contact Heather at 561-804-4419 or hries@foxrothschild.com.

The Eleventh Circuit’s ruling in the Failla case was triumph for mortgage lenders when it affirmed the District Court’s opinion that “once the debtor decides to ‘surrender’ secured property… [w]hile the debtor need not physically deliver the property to the secured party, the debtor is precluded from taking any action which would interfere with the secured creditor’s ability to obtain legal title to, and possession of, the property through legal means.”

However, as set forth in the recent case of In re Kurzban, 2017 WL 3141915 (Bankr. S.D. Fla. July 24, 2017), “the Eleventh Circuit did not rule that a debtor’s decision to surrender lasted in perpetuity“.

In the Kurzban case, the mortgage lender sought to reopen the debtors’ 2009 chapter 7 bankruptcy case, over 7 years after the debtors received their discharge, to compel the debtors to surrender their real property, consistent with their bankruptcy Schedules.  The bankruptcy court noted that the bank had abandoned its foreclosure efforts, entered into modification negotiations with the debtors, seven years had passed since the debtors received their discharge and five years had passed since the bank’s first foreclosure action was voluntarily dismissed.  It was only after years of modification efforts proved unsuccessful, and the bank filed its second foreclosure action, that it sought to enforce the debtors’ surrender election years later.

Accordingly, the Kurzban court held that there was absolutely no basis under Failla decision to support the relief sought by the bank years later.  The Kurzban court reasoned that “a debtor’s decision to surrender may be binding in a foreclosure action pending, or ripe for filing, at the time of the bankruptcy case in which the intent to surrender is made, but it certainly is not binding in a subsequent foreclosure action…”

The take away for mortgage lenders where a debtor elects surrender?  Do NOT sit on your rights!  Be diligent in your efforts to foreclose and enforce your leverage under the Fialla case.

  Heather L. Ries is an attorney with the Financial Restructuring and Bankruptcy Department of the law firm of Fox Rothschild LLP. Heather focuses her practice in matters related to bankruptcy, creditors’ rights, commercial workout and foreclosure disputes, and commercial litigation. You can contact Heather at 561-804-4419 or hries@foxrothschild.com.

Section 363 of Title 11 of the United States Code (“Bankruptcy Code”) authorizes trustees (and Chapter 11 debtors-in-possession) to use, sell, or lease property of a debtor’s bankruptcy estate outside of the ordinary course of business upon bankruptcy court approval.  Some of the key benefits for purchasers are the ability to purchase assets free and clear of liens under Section 363(f) and obtain protections from adverse consequences of any appeal under Section 363(m).

Under 363(f), the trustee or debtor-in-possession may sell property of the debtor’s bankruptcy estate free and clear of all liens, claim and encumbrances as long as: (1) applicable non-bankruptcy law permits it; (2) the interested party consents; (3) such interest is a lien and the sale price of the property is greater than the value of all liens; (4) the interest of the interested party is in bona fide dispute; or (5) the interested party could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of its interest.

Once the Court finds that property of the Debtor’s estate can be sold to you pursuant to Section 363(f), you should ensure that the Order includes findings under Section 363(m) of the Bankruptcy Code that you purchased the property in “good faith”.  The practical implication of securing a 363(m) finding is that once you, as a the good faith purchaser, close on the sale (assuming the court does not grant a stay pending any appeal), the sale cannot be undone by reversal or modification of the sale order.  No one can “un-ring bell” (except in very rare situations…for instance, a bad faith involuntary case).

However, you cannot just assume that a 363(m) finding will occur.  Ensuring that you such a valuable finding requires some planning and work on your part.  If possible, you should take an active role in the trustee’s/debtor’s motion to approve the sale.  Remember, although the debtor or trustee generally makes a good faith presentation to the court, it is the purchaser’s burden to make sure the evidentiary burden has been met to establish good faith.

Some questions to consider:

Does the motion seek a good faith finding under Section 363(m) and at least an initial analysis of the factual basis for a good faith finding?

What are the relationships between the debtor and the proposed purchasers?

Is this an arms length transaction?

Is there any risk that potential bidders and/or the debtor could be accused of price controlling, anti-bid rigging, fraud or collusion during the auction process?

AND

Does the motion seek waiver of the 14 day stay of the sale order under Bankruptcy Rule 6004(h) – so that you can close immediately?  The ability to close sooner prevents delay and relieves that debtor/trustee from overhead and burden of securing the assets for 2 more weeks.

The bankruptcy sale process has its challenges, obstacles and traps for the unwary. However, with proper planning, it can yield optimal results for the seller, purchaser and creditors.

  Heather L. Ries is an attorney with the Financial Restructuring and Bankruptcy Department of the law firm of Fox Rothschild LLP. Heather focuses her practice in matters related to bankruptcy, creditors’ rights, commercial workout and foreclosure disputes, and commercial litigation. You can contact Heather at 561-804-4419 or hries@foxrothschild.com.

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“You have been served” – the famous phrase uttered by process servers everywhere, may never be heard by a bankruptcy defendant.

Why?

Well, Bankruptcy Rule 7004 bestows the rare privilege of nationwide service of process by FIRST CLASS U.S. MAIL of a Summons and Complaint on defendants (with a few exceptions).   In bankruptcy cases, a Summons and Complaint that comes in the mail is just as valid as if a process server knocked on your front door, handed you the lawsuit, looked you in the face and said, “you have been served.”

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Bankruptcy adversary proceedings move quickly, and generally an adversary defendant only has 30 days after the date of the issuance (not mailing, not receipt) of the Summons to respond to the Complaint.  A Scheduling Order often accompanies the Summons and Complaint and outlines all the substantive deadlines for discovery and trial leading up to the pretrial conference, which is generally within 90 days.

Accordingly, if you are served with a Summons in a bankruptcy case, notifying you that an adversary proceeding has been filed against you, best take it seriously and seek out legal advice from a qualified bankruptcy attorney as soon as possible!

  Heather L. Ries is an attorney with the Financial Restructuring and Bankruptcy Department of the law firm of Fox Rothschild LLP. Heather focuses her practice in matters related to bankruptcy, creditors’ rights, commercial workout and foreclosure disputes, and commercial litigation. You can contact Heather at 561-804-4419 or hries@foxrothschild.com.