Our Riverside foreclosure defense lawyers were interested to see a bankruptcy case that successfully fought off a bank's attempts to foreclose on a disabled debtor. In In re Richard K. Miller, the Bankruptcy Appeals Panel of the Sixth U.S. Circuit Court of Appeals upheld a Michigan bankruptcy court's decision. Richard Miller owned several parcels of land in Michigan and another just over the Wisconsin border, and took out loans on them after he became disabled and lost his job. He was unable to find another job, and defaulted in 2008. He filed for bankruptcy and received an automatic stay on most of the foreclosures. State Bank of Florence moved for relief from that stay so it could foreclose, and also objected to Miller's Chapter 13 repayment plan. The bankruptcy court denied both, and the Sixth Circuit's Panel affirmed.
Miller owned one property in Wisconsin and three in Michigan, known in the opinion as the Moon Lake Property, the Cabin Property and the 3-40 Acre Parcels. In 2006, he took out a mortgage loan on the Wisconsin Property, using a contract that provides that the mortgage serves as collateral for any debt Miller owed the bank, now or in the future. In the same month, he took out a line of credit on the 3-40 Acre Parcels, with no such contract. Early in 2007, he took out another loan, secured by the previous mortgages as well as a mortgage on the Moon Lake Property. In April of 2008, the bank began foreclosure on the Wisconsin and 3-40 Acre Parcels properties. Miller filed for a Wisconsin bankruptcy, but dismissed it in order to sell the Moon Lake property. That sale helped pay off some of Miller's debt, but the foreclosures proceeded. The bank sold itself the 3-40 Acre Parcels in August of 2008; Miller filed for Chapter 13 bankruptcy just before the Wisconsin foreclosure sale.
In his amended bankruptcy plan, Miller argued that he does not owe the bank any money because it sold itself the 3-40 Acre Parcels in the Michigan foreclosure sale, for the exact amount Miller owed. The plan required the bank to release all mortgages and the court to allow him to recover costs and attorney fees if he is required to petition the court for such release. The bank opposed this and moved for relief from the stay, so it could proceed with the Wisconsin foreclosure sale and undo the Michigan foreclosure, which was prohibited while the Wisconsin foreclosure was pending. After a hearing and complicated analysis, the bankruptcy court found that the loan to Miller was satisfied when the bank paid itself the full amount Miller owed at the foreclosure sale. The bank had argued that the property sold did not redeem one of Miller's mortgages, but the court found that Michigan and Wisconsin law both require it to credit Miller the full amount obtained in the sale to itself. It found that the bank lacked standing to object to Miller's plan and denied its objection, and granted the bank relief from stay only in order to dismiss the Wisconsin foreclosure with prejudice.
The bank appealed. After first dismissing an argument as waived on appeal, the BAP dismissed the bank's argument that Wisconsin law should apply because this was provided in the agreements with Miller. Under both state and federal rules, the BAP said, the state for deciding a choice of law question is the state in which a property is located, which in this case is Michigan. Under Michigan law, the panel said, banks that "overbid" at their own foreclosure sales must credit or pay the mortgagor with the entire amount. Furthermore, the cross-collateralization provision in the 2006 note allows the foreclosure sale of another property to apply to the 2006 note. Thus, the bank is owed no debt by Miller. The panel did find that the bankruptcy court was wrong to say the bank had no standing to object to Miller's plan, since at the time it had a valid Wisconsin foreclosure judgment and an unexpired Michigan redemption period. However, it found the error harmless because Miller has the right to set off his debt with the proceeds of the foreclosure sale. Thus, it affirmed the bankruptcy court.
As Santa Ana foreclosure defense attorneys, we appreciate cases like this because they hold lenders responsible for the consequences of their actions. In this case, the panel concluded that the bank had mistakenly paid itself more at the foreclosure sale than it was owed for that particular loan. When the bank argued that it should not be held responsible for the consequence of its mistake -- releasing Miller from his debt -- the BAP and the bankruptcy court both found those arguments largely invalid. Indeed, this opinion notes that the bankruptcy court called one such argument "the turnip argument." Lenders make plenty of mistakes that make borrowers' lives harder, including major mistakes like attempting to foreclose on a home they do not own as well as mistakes in things like calculating eligibility for HAMP. Our San Diego County foreclosure defense lawyers are pleased to see the tables turned.
If you're in foreclosure or know you will be soon and you don't believe your lender is interested in helping stop it, call Howard Law, P.C., to see how we can help. You can reach us online or call toll-free at 1-800-872-5925.