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Ninth Circuit Upholds Repayment Plans Over Mortgage Companies' Objections - In re Monroy

June 29, 2011

Our Ontario foreclosure defense attorneys were interested to see a decision by the Ninth Circuit upholding the repayment plans of people who fell behind on their mortgages. In In re Monroy, the Ninth Circuit affirmed a 2010 decision by its Bankruptcy Panel upholding repayment plans of four debtors (who had four different lender-creditors). All had filed for Chapter 13 bankruptcy and proposed to pay back payments and fees through their repayment plans, and all four used an Addendum, an optional legal document used in the Central District of California to promote communications by secured creditors and prevent them from assessing extra fees at the end of the bankruptcy. All four mortgage companies objected to the Addendum because of the extra duties it imposed on them.

The lenders alleged that the Addendum improperly imposed extra administrative burdens on them; violated federal law; and violated their contracts with the borrowers. In three of the cases, the judges issued a joint opinion overruling all objections except for one having to do with motions for relief from stay; they struck that provision. The Monroys' judge came to the same conclusion separately. All four mortgage companies appealed and were consolidated in the Ninth Circuit.

However, they did no better on appeal. After waving off technical problems with the banks' appeals, the Ninth started by pointing out that it had no authority to do two of the things the banks wanted: ban the Addendum and direct the Central District to make a new one. It then turned to the meat of the issues. First, the court ruled that the Addendum does not conflict with the federal Real Estate Settlement Procedures Act. Though that Act requires certain disclosures from lenders, it wrote, the language of the law and Congressional intent does not indicate that courts are barred from making additional requirements. Nor did the court believe the Central District bankruptcy judges usurped the power of Congress, it said, since the Addendum is optional. Finally, the Ninth ruled that the Addendum did not violate 13 USC sec. 1322, which forbids plans that modify mortgage creditors' rights. The right at issue is the banks' security interest, the court wrote, and nothing in the Addendum violates this. Thus, the bankruptcy courts' rulings upholding the Addendum's use were confirmed.

This was great news for clients of Irvine foreclosure defense lawyers like us. The Central District of California covers almost all of the areas our clients come from, including Orange, Riverside, San Bernardino and Los Angeles Counties. Because we are active in bankruptcy and foreclosure law in those areas, we know the Central District did this explicitly to prevent mortgage lenders from surprising debtors with extra, undisclosed debt at the end of their repayment plans. Prior to the Addendum, it was much easier for mortgage companies to pile on dubious fees without disclosing them, then essentially put the debtors in redefault as soon as they emerged from bankruptcy. This violates the goals of bankruptcy even if it does not technically violate the law. As Riverside foreclosure defense attorneys, we're pleased that the Ninth continues to recognize that banks have no right to assess steep fines and push debtors back into foreclosure.

If your loan is in foreclosure or you expect to be there soon and you're tired of mortgage lenders' dirty tricks, you should Howard Law PC for help. For a free, confidential evaluation of your case, send us a message online or call 1-800-872-5925.

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