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Debtors Entitled to Damages for Willful Violation of Stay - Laboy v. Doral Mortgage Corp.

June 23, 2011

Our Rancho Cucamonga foreclosure defense attorneys were interested to see a recent decision reminding mortgage companies that they cannot violate the automatic stay on debt collection provided by bankruptcy. In Laboy v. Doral Mortgage Corp., the First Circuit Court of Appeals enforced sanctions against Doral, the mortgage lender, for willful violation of the stay provided to Luis Vazquez Laboy and Carmen Garcia Calderon. The Puerto Rican couple had purchased a home in 1996 and taken out a loan from Doral, then a second loan a few months later, also secured against the home. But when they tried to register the deed, the local registry found it was defective. They therefore withdrew the deed, and Doral never moved to correct the problem. This caused paperwork problems that escalated when Laboy and Calderon filed for Chapter 13 bankruptcy in 2000.

The lack of a completed deed was a problem because Doral had never completed the steps it needed to show it had an interest in the debtors' property. However, under bankruptcy law, the debtors had an automatic stay of any debt-collection activities by creditors, and that included attempts to register the deed. Doral still had a claim against the debtors, but it was not secured by the property. So its law firm registered the deed 11 months after the bankruptcy was filed. The debtors responded by filing an adversary action against Doral, claiming damages for its violation of the automatic stay. Eventually, the bankruptcy court dismissed that action, saying Doral's actions fell within exceptions to the automatic stay. The debtors moved for reconsideration, which was granted in a reversal three years later. The court ordered Doral to withdraw the deed, but denied debtors' request for damages. After an unsuccessful appeal to the bankruptcy review panel, this appeal followed.

The First Circuit started by dismissing various jurisdictional arguments by Doral and its counsel. It was also not impressed by Doral's arguments on the merits. The bankruptcy court had clearly found Doral's violation of the stay willful, it wrote; the company and its counsel had both known of the stay months before they registered the new deed. Nor was the bankruptcy court correct to deny any hearing on damages, the First said: "The opportunity for a plaintiff to present evidence on damages after winning partial summary judgment on liability is a right so fundamental in civil proceedings that it normally goes without saying." The relevant statute requires actual damages, and the court cannot award such damages without a hearing, so it should have held a hearing. Furthermore, the First said, the record doesn't clearly show why the bankruptcy court thought damages were not appropriate. Thus, the court vacated the lower court's ruling, sent it back for a hearing on damages and assigned attorney fees to Doral and its counsel.

As Fullerton foreclosure defense lawyers, we don't work in Puerto Rico. But we do work with homeowners throughout California who have suffered the sort of after-the-fact paperwork tricks described in this case. The robo-signing scandal was in large part about sloppy paperwork; in their rush to push through foreclosures, the mortgage companies frequently didn't bother complying with state laws intended to make ownership of the properties clear. Now that courts have caught on, many lenders are trying to fix the problem by falsifying dates and names on paperwork. This has led a few courts to dismiss foreclosures altogether and delayed many others. Our Oceanside foreclosure defense attorneys help homeowners take underhanded tricks like these into court, where their rights can be preserved better than in a private, scrutiny-free loan modification process.

If you're fighting for a loan modification and your loan servicer seems determined to push you into foreclosure without a fair chance, don't hesitate to call Howard Law PC for help. For a free, confidential evaluation of your case, call us toll-free at 1-800-872-5925 or send us a message through our website.

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