Over the course of the foreclosure crisis, Vincent Howard and our Rancho Cucamonga foreclosure defense attorneys have seen a lot of mistakes made by large banks attempting to foreclose or protect their interests in a lawsuit or bankruptcy proceeding. Banks may or may not be penalized for their legal mistakes, although after the 2010 revelations about "robo-signing," judges seem to be scrutinizing incomplete or late filings more carefully. In Shelton v. CitiMortgage, however, the Bankruptcy Appellate Panel of the Eighth U.S. Circuit Court of Appeals decided that late filing of a proof of claim did not permit bankruptcy filers to avoid the lien on their home.
Gary and Elizabeth Shelton filed for Chapter 13 bankruptcy in September of 2010, making the deadline for proofs of claim January of 2011. It is not disputed that CitiMortgage, which held the mortgage on their home, did not file its proof of claim until August of that year. The Sheltons objected to the claim based on timeliness (though not on its validity), and the bankruptcy court agreed to disallow the claim. Not long after, the Sheltons filed an adversary proceeding seeking to avoid the lien CitiMortgage held on their home, citing only the fact that the claim had been disallowed. After a hearing, the court granted CitiMortgage's motion to dismiss, and the Sheltons appealed.
On appeal, the Sheltons argued that the law permits the lien to be avoided because it says any claim not allowed is void unless it falls under one of two exceptions in 11 USC 506(d). Neither exemption applies here, the Eighth Circuit BAP noted. However, while it agreed that the language of 506(d) lent their claim "superficial support," the panel noted that almost every court to consider the issue has rejected such a claim. Indeed, it said, to enforce the plain language here would give an "absurd" result, because it would give a creditor with a late claim fewer rights than a creditor who filed no claim at all. Quoting from several sister circuits, the panel found that claims may not be entirely extinguished merely because they are late; liens must be avoided on their merits. And the Sheltons did not attempt to show any other reason the lien was avoidable, the panel said. Thus, it upheld the bankruptcy court.
Vincent Howard and our Riverside foreclosure defense lawyers talk to clients about avoiding a lien whenever it seems like a strong possibility. When you ask the bankruptcy court to allow you to avoid a lien, you are asking it to forbid the creditor from collecting on the debt entirely, even though a lien is secured debt and thus in a privileged class of debts. In the past few years, our Santa Ana foreclosure defense attorneys have seen this used most often on home loans, often because of alleged defects in the debt itself or the proof that the debt is owed to this particular company. Howard Law, P.C., often represents homeowners seeking to escape overwhelming debt through Chapter 13 bankruptcy, and we are happy to discuss the possibility of lien avoidance with potential clients
If you're feeling overwhelmed by your debt, including mortgage debt, and you'd like to talk to an experienced attorney about your rights and your options, call Vincent Howard and the team at Howard Law for a consultation. You can reach us toll-free at 1-800-872-5925 or send us a message online.