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First Circuit Upholds Order Allowing Debtors to Sell Condo After Bank Failed to Object - BAC Home Loans Servicing v. Grassi

January 19, 2012

Vincent Howard and our team of Corona foreclosure defense attorneys were interested to see a recent ruling that penalized a loan servicer for sleeping on its rights. As a rule, this is more likely to happen with borrowers, who don't have the legal know-how or financial resources of a large bank. However, legal requirements involving deadlines and paperwork apply to both sides -- and thanks to the robo-signing scandal, courts are more likely to pay attention to paperwork mistakes at large lenders instead of dismissing them as routine. A paperwork mistake was behind the ruling in BAC Home Loans Servicing v. Grassi et al., in which a Maine couple was permitted to sell their condominium after their servicer, BAC, failed to object to the request. BAC did notice after the fact and raised a variety of arguments for reopening the issue, but the First U.S. Circuit Court of Appeals Bankruptcy Appellate Panel rejected the appeal.

Anthony Grassi and Kelley Lovejoy-Grassi of Maine filed for Chapter 7 bankruptcy in September of 2008 and converted the bankruptcy to Chapter 13 in January of 2009. More than a year after filing their amended plan, the Grassis filed a motion to sell their condo free and clear of its liens. The purchase price offered was $137,300; the condo had a total of $550,000 in two mortgage liens plus a $10,000 lien from its condo association. Like all such notices, it permitted the sale to go forward if no lienholder objected; the documents were served on all relevant lienholders. However, no party objected and the sale went through. After the sale order was granted, BAC filed a motion to reconsider and file a late objection, explaining that it missed the deadline because of bureaucratic errors. It also argued that the proposed sale price was not necessarily a good-faith offer, since it fell below the lien amount as well as a BAC broker's estimate. The bankruptcy court disagreed and chided BAC for sleeping on its rights.

BAC appealed both the denial of the motion to reconsider and the price issue. The First Circuit's BAP started by noting that numerous federal courts have agreed that a lienholder's silence can be taken as implied consent or a waiver of objection to this type of sale. BAC admits that it received notice and simply failed to respond in time, the court,said, so it must bear the consequences. A motion to reconsider a previous order is an extraordinary remedy that should be applied only in narrow circumstances, the court noted, including when the court made a serious legal error or the motion presents newly discovered evidence. This case presents no such problem, the court said. Though BAC attempted to present the sale as an error of law, the BAP did not believe the record supported this. It was silent on the issue of whether the purchase price was fair, deferring to the bankruptcy court. Thus, it upheld the sale.

Our Huntington Beach foreclosure defense lawyers are always pleased to see cases requiring loan servicers and lenders to bear the consequences of their own mistakes. That's because it's far more common to see cases in which financial companies' mistakes cause hardship for clients like ours. In particular, borrowers seeking loan modifications have found that no step of the process is free from red tape and serious mistakes. Some of these mistakes incorrectly keep borrowers from qualifying for loan modifications when they meet all requirements; others allow the foreclosure arm of the lender to start a foreclosure even though the borrowers were told they were safe. Vincent Howard and all of our Santa Fe Springs foreclosure defense attorneys aggressively represent such people when they get tired of this poor treatment and assert their rights in court.

If you're facing a foreclosure or know you will be soon and your lender has been nothing but unhelpful, don't hesitate to call Vincent Howard and the entire team at Howard Law, P.C. For a consultation, you can reach us through our website or call 1-800-872-5925.

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