At Howard Law, P.C., Vincent Howard and our Loma Linda foreclosure defense lawyers handle a lot of cases involving mortgage borrowers who are suffering because of mistakes by their lenders and loan servicers. So we were interested to read a case in which an apparent mistake by a loan servicer hurt its standing as a creditor in a bankruptcy. In Perrino v. BAC Home Loans Servicing, the Bankruptcy Appellate Panel for the First U.S. Circuit Court of Appeals upheld a Maine bankruptcy court's determination that trustee Pasquale Perrino had an interest in a bankrupt couple's property superior to that of BAC, the servicing arm of Bank of America. When Sara and Douglas Trask refinanced their home, the lender accidentally described a different but adjacent property of theirs, a mistake revealed only when they filed for bankruptcy.
The Trasks refinanced their loan on the 1.74 acres their home is on in 2007. They also owned an unimproved 16-acre lot (Lot #6) directly next door. At trial, both sides agreed that while it is undisputed that the Trasks and the lender both intended to mortgage the house, the intended collateral on the mortgage securing their promissory note was actually described as Lot #6. After filing for Chapter 7 bankruptcy in late 2009, the Trasks filed an adversary proceeding to resolve the mortgage issue; Perrino later joined this. BAC, the successor in interest to the mortgage lender, argued that it had an equitable mortgage, among other arguments. After two hearings, however, the bankruptcy court found for Perrino, saying that as a trustee with the status of a lien creditor, his interest in the property was superior to BAC's. BAC appealed to the First Circuit's Bankruptcy Appellate Panel.
On appeal, BAC argued that the bankruptcy court should have allowed the mortgage to be reformed under Maine law allowing equitable reforms for mutual mistakes in fact. While this is allowable, the BAP wrote, Maine courts (and bankruptcy courts following Maine law) may not reform documents when a third party has intervened or has rights that would be affected. The trustee, as a hypothetical lien holder, is such a third party under well established bankruptcy law, the BAP said. However, BAC argued that any such lien holder would have had constructive notice of BAC's interest in the property, because anyone who inquired would have gone to the correct address listed on the mortgage and realized there was an error. The BAP disagreed. Using the street address of the adjoining house would not have raised an inquiry by a prudent creditor, the court wrote. Nor is it clear whether the properties do have different street addresses. Thus, it upheld the bankruptcy court.
Vincent Howard and our team of Costa Mesa foreclosure defense attorneys are always pleased to see homeowners left in a better position by lenders' errors. The fallout from the housing bubble has made it clear that many of them made serious mistakes in their haste to cash in when the real estate market was good. These range from failure to complete basic paperwork to entering wrong information on paperwork that was later adopted into state law. In some cases, it even veered into outright, knowing wrongdoing by lenders who lied about borrowers' incomes on forms or lied to borrowers about loan conditions, both serious legal matters. At Howard Law, P.C., our Long Beach foreclosure defense lawyers have been able to help clients whose loans have major flaws like these, either fighting off foreclosure or in some cases canceling loans through the Truth in Lending Act.
If you're fighting to hold on to your home and your loan servicer is providing no help at all, quit calling the servicer and call Vincent Howard at Howard Law for help. You can reach us at 1-800-872-5925 or send us a message online.