LINKS & STATUTES
BOOKS & SEMINARS
CARES ACT DOES NOT PRECLUDE A COVID-19 FORBEARANCE
In a letter dated January 20, 2022 ... Creditor's representative, Jeanine Boirard, stated that Debtor was denied a "Forbearance plan due to bankruptcy status, although the Bankruptcy is now completed."
The Creditor's statement is problematic and concerning for three reasons.
First, neither the CARES Act nor FHA's applicable default servicing guideline preclude providing borrowers a COVID-19 Forbearance because they are in bankruptcy.
Second, Debtor's bankruptcy continues as an ongoing Chapter 13 reorganization as no orders entered by the Court have dismissed or "concluded" Debtor's bankruptcy.
Finally, Creditor's use of the term "Forbearance plan" instead of "COVID-19 Forbearance" in the January 12, 2022, letter gives the appearance that Creditor is confusing FHA's "Formal Forbearance Plan" program with COVID-19 Forbearance under the CARES Act, which unlike FHA's Formal Forbearance Plan, simply requires that Debtor attest to a financial hardship, directly or indirectly, caused by COVID-19 to secure forbearance relief.
Overall, the Court's consideration of this letter raises significant concerns that the processes Creditor employs comply with the requirements of the law.
" ... the Court GRANTS Debtor's Motion for Reconsideration, VACATES the order granting Creditor relief from stay entered on October 29, 2021..."
HELD: DEBTOR CANNOT RECOVER EQUITY LOST IN FORECLOSURE
On October 3, 2016, Effect Lake purchased a tax sale certificate encumbering Debtor's home located at 60 Maplewood Avenue, Maplewood, New Jersey (the "Property").
Effect Lake filed a tax sale foreclosure action in State Court on January 22, 2019. On January 31, 2019, Effect Lake filed a lis pendens for the foreclosure action with the Essex County Register's Office.
The State Court entered final judgment on September 30, 2019. Debtor filed her bankruptcy petition on February 7, 2020.
Debtor has derivative standing to pursue this avoidance action under § 548.
The prefatory language of § 548 states that "the trustee many avoid any transfer…" By its plain language, § 548 only grants the trustee standing to avoid fraudulent transfers.
Yet the Third Circuit has recognized that bankruptcy courts can confer derivative standing upon parties other than the trustee to pursue § 548 actions. Pursuant to the reasoning in Cybergenics, the Court entered a Consent Order on March 25, 2022 conferring derivative standing upon the Debtor to pursue this § 548 action.
c. Debtor can only recover the Property for the benefit of creditors.
Avoidance actions can only be brought for the benefit of creditors. Debtors are not entitled to benefit from avoidance actions. Accordingly, courts have limited recovery under § 548 to allowed claims to prevent a windfall to the Debtor.
The Court finds that the Debtor only has standing to avoid the value of the Property to the extent of her exemption and the amount necessary to satisfy her creditors. Unfortunately, the Debtor cannot recover the equity she lost in the tax foreclosure.
FORECLOSURE SALE SET ASIDE AS NOT IN EXCHANGE FOR REASONABLY EQUIVALENT VALUE
Ultimately, a default judgment of foreclosure was entered in Ontario County's favor on March 2, 2017, which entitled the County to possession of and all equity in the property.
Two months later, the Hamptons filed a Chapter 13 bankruptcy plan providing for payment of their entire tax arrears. Shortly afterwards, they filed an avoidance proceeding against the County, seeking to set aside the transfer of their home in tax foreclosure as constructively fraudulent under 11 U.S.C. § 548(a)(1)(B).
Two weeks later, the County sold the home at auction for $27,000. The County notified the bidders, however, that title to the Hamptons' home was in dispute and would not be transferred until determination of this adversary proceeding.
In Bankruptcy Court, the transfer of the Hamptons' home was set aside as constructively fraudulent because it was not in exchange for "reasonably equivalent value" under Section 548. ...