Vincent Howard and our Moreno Valley foreclosure defense attorneys have written many times here about the legal consequences of banks failing to adequately follow the legal process. This includes the robo-signing scandal, in which banks signed off on documents without checking into their truth, as well as a variety of smaller cases where lenders failed to meet deadlines, follow rules or document that they had the right to foreclose. Depending on the judge, this can lead to anything from a short delay in the case to an outright dismissal. In Wells Fargo Bank v. Oparaji, a Texas bankruptcy court denied Wells Fargo a chance to file new claims in debtor Titus Chinedu Oparaji's second bankruptcy case, saying they were judicially estopped if not filed in the first case. The Fifth U.S. Circuit Court of Appeals, however, reversed.
Oparaji bought a home in suburban Houston in 2002, taking out a balloon mortgage with a high interest rate. In 2004, he filed for Chapter 13 bankruptcy after he couldn't make the payments. Oparaji fell behind on his Chapter 13 payment plan as well, so Wells Fargo moved for relief from the stay to allow a foreclosure. The bankruptcy court instead modified the plan to allow Oparaji to make up the missed payments. This happened twice more, and ultimately, the bankruptcy was dismissed without discharge because Oparaji was still in default and the case had gone on past time limits. In all, he missed 20 mortgage payments during bankruptcy and four more afterward, with tax, escrow and insurance debts added to the missed payments. In February of 2010, Oparaji filed for Chapter 13 bankruptcy again, and Wells Fargo filed a proof of claim for all the arrearages totaling $86,000. Oparaji sued and the bankruptcy court granted summary judgment for him, finding Wells Fargo was judicially estopped from pursuing amounts it could have claimed in the first bankruptcy. The district court affirmed
On appeal, the Fifth Circuit disagreed with the lower courts, finding no inconsistency in Wells Fargo's behavior. The lower courts found that Wells Fargo was legally required to include all accrued post-petition arrearages in its claims during the first bankruptcy, but the Fifth ruled that this was overly broad. Rather, it said, the law says that a creditor merely "may" file a proof of claim. While it's clear that debtors must disclose all debts, the appeals court said this is not required of debtors; it found the one case cited by the district court distinguishable. Furthermore, the Fifth said, one condition for judicial estoppel is that the court has accepted the estopped party's arguments, and the bankruptcy court revoked its acceptance of Wells Fargo's arguments when it dismissed the bankruptcy case. This was so because dismissing a bankruptcy case must return all parties as much as possible to their pre-petition condition, it said. Thus, it reversed and remanded the case, finding no judicial estoppel.
Vincent Howard and our Newport Beach foreclosure defense lawyers are disappointed with this decision. Allowing creditors to sleep on their rights with no penalty sets a dangerous precedent. Already, lenders are notorious for hitting mortgage borrowers with undisclosed fees after they emerge from Chapter 13 bankruptcy, thus denying them bankruptcy protections and potentially sending them back into arrears. Indeed, this practice is so pervasive that the Central District of California has created an extra form in an attempt to stop it. Despite the Fifth Circuit's reasoning to the contrary, the Loma Linda foreclosure defense attorneys at Howard Law, P.C., believe this achieves an inequitable result by permitting lenders to pile on more and more fees without permitting scrutiny by the bankruptcy court, and sometimes permitting them to avoid bankruptcy protections altogether.
If you're looking into bankruptcy as a way to save a home that's gone into foreclosure or will be there soon, Vincent Howard and the experienced team of attorneys at Howard Law can help. For a consultation or to learn more, send us a message through our website or call 1-800-872-5925.