FYI: 8th Cir BAP Holds Lien On Real Property Held in Tenancy By the Entireties Was Avoidable

The U.S. Bankruptcy Appellate Panel for the Eighth Circuit recently affirmed a bankruptcy court's holding that a creditor held an unenforceable lien against the debtor's real property because the property was owned by the entireties and the lien was thus avoidable under Bankruptcy Code § 522(f)(1).

 

A copy of the opinion is available at:  Link to Opinion

 

The debtor and his wife purchased real property in Missouri in 1995. A limited liability company obtained a judgment against the debtor in Missouri and recorded the judgment in the county where the debtor lived.

 

The debtor filed a Chapter 7 bankruptcy petition and claimed his home as exempt pursuant to Missouri's homestead statute and § 522(b)(3)(B) of the Bankruptcy Code because the home was titled in tenants by the entireties.

 

The debtor filed a motion to avoid the judgment lien under Bankruptcy Code § 522(f)(1) arguing that it impaired his homestead exemption. The creditor objected to the motion, "but it did not object to Debtor's claimed exemption or the discharge of the Debtor's debt. The bankruptcy court entered a Chapter 7 discharge order."

 

The bankruptcy court granted the debtor's motion to avoid the lien, reasoning that the judgment lien "affixed" to the debtor's home once judgment was recorded, but was unenforceable. The creditor appealed the Bankruptcy Appellate Panel, which affirmed, and the creditor appealed to the U.S. Court of Appeals for the Eighth Circuit.

 

The Eighth Circuit reversed and remanded to the bankruptcy court "to determine whether [the creditor] has a judicial lien on the property (either enforceable or unenforceable)."

 

"On remand, the bankruptcy court held that [the creditor] holds an unenforceable judgment lien" and granted the debtor's motion to avoid the lien under § 522(f)(1). The creditor appealed again to the Appellate Panel.

 

The Appellate Panel reasoned that "[t]he Bankruptcy Code allows debtors to exempt certain property from their bankruptcy estates, which are otherwise comprised of all of the debtor's legal or equitable interests in property. … Unless they are avoided, pre-petition judgment liens ordinarily survive a debtor's bankruptcy and can be enforced on exempt property."

 

The creditor argued that while it "does not have a lien for § 522(f)(1) purposes because Debtor and his wife own the Property in a tenancy by the entirety[,] … its lien (which it claims does not exist today) will spring into effect upon the death of the Debtor's wife and survive the bankruptcy estate."

 

The Appellate Panel disagreed, reasoning that the debtor's home was not "real estate" as defined by Missouri law because it was owned by the entireties, and therefore "it was not 'liable to be sold upon execution' based on the judgment, which was against only the Debtor and not his wife."

 

The Appellate Panel then addressed whether a lien existed "for the purpose of § 522(f)(1) by looking to state law in the context of the Bankruptcy Code's definitions of the terms 'judicial lien' and 'lien.' Pursuant to Bankruptcy Code § 101(36), 'a judicial lien' is a 'lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding.' … The Bankruptcy Code defines the term 'lien' as 'a charge against or interest in property to secure payment of a debt or performance of an obligation.' … The legislative history of the Bankruptcy Reform Act states that the definition of 'lien' is 'very broad' and includes 'inchoate liens.' … The purpose of avoidance under § 522 is to allow the debtor to 'void any judicial lien on exempt property.'"

 

The Panel further explained that "[t]he Bankruptcy Code does not limit the avoidance of judicial liens to those liens that are enforceable … [and] [t]he Eighth Circuit 'conclude[d] that where a judgment gives rise to an unenforceable lien, a debtor may move to avoid that lien under § 522(f).' … Where a judgment does not give rise to a lien at all '§ 522(f) is superfluous and without application.'"

 

Because the recording of the judgment cast a cloud on the debtor's exempt homestead property and was a "judicial lien" under the Bankruptcy Code, but unenforceable under Missouri law, the Panel concluded that the creditor "holds an unenforceable lien for the purposes of §522(f)" and the "[a]pplication of § 522(f) will clear the cloud on title."

 

The Panel stressed that it "decision is consistent with the purpose of § 522(f), which favors protecting exemptions at the cost of judicial lienholders as a party of a debtor's fresh start … [and] [t]he legislative history … suggests that a principal reason Congress singled out judicial liens was because they are a device commonly used by creditors to defeat the protection bankruptcy law accords exempt property against debts."

 

The Panel concluded that "[i]t would be unfair to allow [the judgment creditor] to defeat the Debtor's fresh start because it has now devised a scheme whereby it believes it may avoid the protections afforded to the Debtor by § 522(f) and still reap the benefit of its lien upon the death of the Debtor's spouse."

 

Accordingly, the bankruptcy court's ruling was affirmed. 

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: Ill App Ct (1st Dist) Holds City May Not Obtain Money Judgment for Demolition Expenses Merely By Filing Motion

In a case of first impression, the Illinois Appellate Court for the First District recently held that the Illinois Unsafe Buildings Act, 65 ILCS 5/11-31-1 (the "Act") does not authorize a municipality to seek a money judgment for demolition expenses against the owner of a property by simply filing a motion in the same demolition action.

 

In so ruling, the Court found that the plain language of the Act only authorizes a municipality to affirmatively recover the amount of its lien for demolition expenses by either: (1) foreclosing on the lien and obtaining satisfaction through a judicial sale of the property; or  (2) filing a separate civil action seeking a money judgment.

 

Because the municipality's "interpretation of the Act – allowing it to simply file a motion in order to impose personal liability – would impair the due process rights of those it seeks to hold personally liable for demolition costs,"  the Appellate Court reversed the ruling of the trial court.

 

A copy of the opinion is available at:  Link to Opinion

 

As you may recall, the Illinois Unsafe Buildings Act specifies procedures municipalities may pursue to remedy dangerous and unsafe buildings within their borders and to recover the costs of any remedial action taken.  Pursuant to the Act, on January 17, 2012, the City of Chicago ("City") filed suit seeking authority to demolish an allegedly dangerous and unsafe building ("Property") against the owner of the Property ("Borrower") and the mortgage lender ("Lender").   

 

Prior to the demolition case, the Lender filed a mortgage foreclosure action.  In June 2012, the judicial sale of the Property to the Lender was confirmed.  Following the confirmation, a Government-Sponsored Enterprise ("GSE") became the certificate holder and acquired the Property.  The City subsequently joined the GSE as a defendant in the demolition case and dismissed the Lender and Borrower.

 

The City never amended its complaint to include allegations against the GSE nor did it demand that the GSE remedy the dangerous and unsafe conditions at the Property.  Nevertheless, the trial court entered an order of demolition ("Order") for the Property against the GSE on April 9, 2013.

 

The Order found that the conditions of the Property were beyond repair and that judgment in favor of the City seeking demolition authority was warranted.  The Order stipulated that the City's demolition of the Property would "result in a statutory in rem lien that attached only to the subject parcel of real estate."  The Order further provided that "[i]f the City seeks a personal judgment against any individual party to this action, it will proceed by separate motion directed to that party." 

 

The trial court also made a finding pursuant to Illinois Supreme Court Rule 304(a) that there was no just reason to delay enforcement or appeal of the order and retained jurisdiction "for the purpose of ascertaining demolition costs for entry of a money judgment against the defendant owners, as defined by the applicable statutes and ordinances."  Neither party appealed the Order.

 

On April 11, 2013, the GSE sold the Property to a third party ("Buyer").  The City never joined the Buyer as a defendant.  The City demolished the Property nearly two and a half years later, on September 17, 2015, and recorded its lien for demolition costs against the Property in February 2016.

 

On March 29, 2016, the City filed a Motion to Ascertain Demolition and Other Costs ("Motion") seeking a personal money judgment against the GSE totaling $27,042 for demolition and litigation costs.  The Motion did not cite any authority for entering the judgment against the GSE and did not attach any supporting evidence for the amount sought.

 

The GSE filed a response objecting to the entry of judgment arguing that: (1) personal liability for demolition costs was not authorized under the Act; (2) even if the Act applied, the City did not follow the required procedure to obtain a money judgment, which necessitated either foreclosure of the City's demolition lien or the filing of a separate civil action; and (3) the requested relief was unjust because the GSE did not cause the unsafe conditions at the Property and was not the owner when the Property was demolished and the City's lien was perfected.

 

In its reply, the City noted that the Court retained jurisdiction of the demolition case in the Order and argued that the Act authorizes a money judgment against the "owner or owners" of a demolished property.  The City argued it could impose personal liability on the GSE for demolition costs even though it did not currently own the Property because it was an owner of the Property when the Order was entered.  The City further argued that it could obtain a money judgment against the GSE via a motion in the demolition case and that it was not required to foreclose its demolition lien or pursue a separate civil action.

 

The trial court agreed with the City and entered a personal money judgment against the GSE.  The trial court entered an order finding that "because the [d]emolition order was entered while [the GSE] was the owner of the property and because the statute does not provide for relief from liability upon transfer of the property, [the GSE] is liable for [d]emolition costs." 

 

This appeal followed.

 

On appeal, the First District considered whether the Act authorizes a municipality to impose personal liability for demolition costs by filing a motion in the demolition case or whether those sought to be held personally liable for costs are entitled to greater procedural protections.

 

The Court found that the Act "does not anywhere provide for the filing of a motion by the municipality to obtain a money judgment against the 'owner or owners' in the amount of demolition costs.  Rather, the Act's plain language requires the municipality, at its election, to pursue either foreclosure of its demolition lien or a separate civil action against those owners whom it seeks to hold personally liable."

 

Moreover, the First District found that allowing a municipality to simply file a motion to impose personal liability would impair the due process rights of those sought to be held personally liable for demolition costs.  The Court noted that the City's attempt at imposing personal liability is "antithetical to the notice and opportunity to be heard that are the hallmarks of due process" because it does not afford a property owner with the opportunity to contest the legal and factual basis for or amount of its liability for demolition costs through motion practice, discovery or an evidentiary hearing. 

 

The Court explained that the public policy favoring the expeditious demolition or repair of structures that pose hazards to public health and safety support an abbreviated in rem proceeding with a limited burden of proof. However, such proceedings are "not designed to resolve issues concerning which owner or owners of the property are responsible for the property's . . . condition and should therefore be liable for the demolition or repair costs."  Thus, the Court found that such issues are more appropriately decided where the parties' claims may be fully litigated in a later proceeding for the enforcement of a municipality's lien as provided in the Act.

 

Notably, the First District declined to decide the issue of whether a municipality may impose personal liability for demolition costs on parties that did not cause a property's unsafe or hazardous conditions, or parties who owned a property prior to demolition, but who do not own the property either when it is demolished or when the municipality perfects its demolition lien, as it was unnecessary to resolve the appeal. 

 

However, the Court noted that such parties are entitled to contest both the legal and factual basis for a municipality's claim if it elects to pursue foreclosure or a separate civil action for personal liability as provided in the Act.

 

Accordingly, the First District reversed the judgment of the trial court.

 

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: 11th Cir Holds V-Mail Asking Debtor to Call Back is FDCPA "Communication", But Employees Need Not Provide Their Names

The U.S. Court of Appeals for the Eleventh Circuit recently held that a voicemail from a debt collector that merely asks for the debtor to call back constitutes an initial communication under the federal Fair Debt Collection Practices Act (FDCPA) requiring the so-called "mini-Miranda" warning.

 

In so ruling, the Court also held that a debt collector employee does not need to reveal his or her name to provide "meaningful disclosure" of the caller's identity.

 

A copy of the opinion is available at:  Link to the Opinion

 

The defendant debt collector left a voicemail for the plaintiff debtor stating "This is [the Debt Collector] calling with a message. This call is from a debt collector. Please call us at 866-784-1160. Thank you."

 

That was the first call from the debt collector.  The message did not state that the debt collector was attempting to collect a debt from the debtor, or that any information obtained would be used for that purpose.  In addition, the individual employee of the debt collector did not identify him or herself by name. The debt collector later left several more similar voicemails.

 

The debtor filed an FDCPA lawsuit alleging violations of § 1692e(11) and § 1692d(6) for alleged false or misleading representations, and alleged harassment and abuse.

 

As you may recall, section 1692e(11) prohibits "[t]he failure to disclose in the initial written communication with the consumer, and, in addition, if the initial communication with the consumer is oral, in that initial oral communication, that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose, and the failure to disclose in subsequent communications that the communication is from a debt collector, except that this paragraph shall not apply to a formal pleading made in connection with a legal action."

 

In addition, section 1692d generally prohibits harassment, oppression, and abuse in connection with the collection of a debt and under subsection (6) prohibits "telephone calls without meaningful disclosure of the caller's identity."

 

The debt collector filed a motion to dismiss, which the trial court granted, reasoning that the first voicemail was not a debt collection "communication" under the FDCPA, and the voicemails provided "meaningful disclosure" because they contained enough information not to mislead the consumer about the purpose of the call. The debtor appealed.

 

On appeal, the Eleventh Circuit reversed in part and affirmed in part.

 

The Court held that the first voicemail fell under the FDCPA's definition of "communication", because the voicemail conveyed "information regarding a debt [either] directly or indirectly to any person through any medium." 15 U.S.C. § 1692a(2).

 

Even though the voicemail message did not reference the debt in any way, the Eleventh Circuit pointed out that the voicemail conveyed information directly to the debtor by asking to speak with her and providing instructions to return the call, and that it conveyed information "regarding a debt." The Court noted a "communication" does not have to convey anything more specific than that it is about a debt.

 

The Eleventh Circuit then concluded that because the first voicemail was the debt collector's first communication with the debtor, the debtor collector should have, but failed to, provide the "mini-Miranda" warning and thus violated § 1692e(11), thus reversing the district court's grant of the motion to dismiss.

 

Turning the § 1692d(6) claim, the Eleventh Circuit noted that the FDCPA is silent about what "meaningful disclosure" of a caller's identity means, and listed several cases with various holdings and outcomes. The Court then concluded that the debt collector had provided meaningful disclosure, even though the employee callers had not provided their names, because the voicemail messages provided the name of the company.

 

Accordingly, the Eleventh Circuit affirmed the trial court's ruling dismissing the §1692d(6) claim, and reversed and remanded as to the § 1692e(11) claim.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia  |   Illinois   |   Indiana   |   Maryland   |   Massachusetts   |   Michigan   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC   |   Wisconsin

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

Our updates and webinar presentations are available on the internet, in searchable format, at:

 

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FYI: Ill App Ct (1st Dist) Holds Challenges to Foreclosure Failed for Lack of Diligence

The Illinois Appellate Court for the First District recently held that the trial court correctly affirmed a judicial sale and denied a motion to reconsider where an intervenor and alleged owner of the property claimed the mortgage was wiped out by the death of the sole mortgagor, who was only a joint tenant in the property at the time the mortgage was executed.

 

In so ruling, the Court noted that the mortgagee provided proper notice and otherwise complied with all procedural rules for foreclosures in Illinois, whereas the intervenor never recorded the deed to himself and did nothing to stop the foreclosure despite receiving notice of the foreclosure sale. 

 

Thus, "[b]ecause any possible 'injustice,' with respect to [the Intervenor's] purported interest in the property, result[ed] from [the Intervenor's] own negligence," the Appellate Court affirmed the ruling of the trial court in favor of the mortgagee.    

 

A copy of the opinion is available at:  Link to Opinion

 

In 1984, a residential property ("Property") was transferred by quitclaim deed to a husband ("Husband"), wife ("Wife"), and their daughter ("Daughter").  The Property was held in joint tenancy.  The Husband died in 1990.  In 2006, the Wife alone granted the bank ("Bank") a mortgage ("Mortgage") on the Property.  The Wife died in 2012.

 

On May 5, 2015, the Bank filed a mortgage foreclosure action and recorded a lis pendens and notice of foreclosure on May 13, 2015.  On June 17, 2015, the Bank filed the operative amended complaint, adding an individual to act as a court-appointed representative of the deceased Wife. 

 

The complaint alleged that the mortgage loan went into default in January 2013, and identified both the Wife and Daughter as owners of the Property, and also named unknown owners and occupants. 

 

All of the defendants were served, but none appeared.  On November 23, 2015, the trial court entered an order of default against all of the defendants except the court-appointed representative, summary judgment against the court-appointed representative for the Wife, and judgment of foreclosure against all defendants. 

 

A notice of sale was issued on January 14, 2016.  On February 15, 2016, a sale was held and the Property was sold to the Bank.  A motion to confirm the sale was filed on March 25, 2016.

 

On April 11, 2016, an alleged owner ("Intervenor") filed a petition to intervene in the case.  According to the petition, the Husband died in 1990, and therefore when the Wife died in 2012, the Daughter was the sole surviving joint tenant of the Property.  The petition further alleged that the Daughter executed an unrecorded quitclaim deed transferring the Property to the Intervenor on December 9, 2013, before the Bank filed the lawsuit or recorded its lis pendens. 

 

The Intervenor further alleged that he first learned of the foreclosure action when the Daughter provided him with the notice of sale on February 20, 2016, and that on March 13, 2016 he first discovered the alleged quit claim deed to him had never been recorded.

 

On April 21, 2016, the trial court entered an order granting the Intervenor's petition to intervene, and, construing the petition as an objection to the motion to confirm sale, denied any such objection.  The trial court then entered a separate order confirming the sale. 

 

On May 2, 2016, the Intervenor filed a motion to reconsider, wherein he alleged that the Wife's interest in the Property and the Bank's lien on the Property were immediately extinguished upon the Wife's death in 2012.  In his reply brief, the Intervenor also argued for the first time that because the Bank's lien was allegedly extinguished before the lawsuit was filed, the trial court lacked subject matter jurisdiction over the matter and its orders were void. 

 

The trial court denied the motion to reconsider, and the Intervenor appealed.

 

On appeal, the Appellate Court first examined the Intervenor's claim that the trial court lacked subject matter jurisdiction.  The Intervenor argued that because the Bank had no interest in the Property at the time the lawsuit was filed, the trial court lacked jurisdiction over the foreclosure action.

 

The First District disagreed, noting that "even a defectively stated claim is sufficient to invoke the court's subject-matter jurisdiction," and "subject matter jurisdiction does not depend upon the legal sufficiency of the pleadings."  Instead, "the only consideration is whether the alleged claim falls within the general class of cases that the court has the inherent power to determine," and foreclosure suits are "within the general class of cases the circuit court has the inherent power to hear and determine." 

 

In addition, the Appellate Court observed that the Intervenor's argument was more properly viewed as an attack on the Bank's standing, but "issues of standing do not implicate the court's subject matter jurisdiction."  Thus, the Appellate Court determined that it had subject matter jurisdiction over the action.

 

The First District next examined whether the trial court property confirmed the sale.  It noted that the Illinois Mortgage Foreclosure Law ("IMFL") provides the trial court with "broad discretion in approving or disapproving judicial sales." 

 

As you may recall, under IMFL, a foreclosure sale shall be confirmed unless the court finds that: (1) proper notice of the sale was not given, (2) the terms of the sale were unconscionable, (3) the sale was conducted fraudulently, or (4) justice was not otherwise done.

 

The Intervenor argued that the trial court erred in confirming the sale and denying his motion to reconsider because: (1) he owned the Property free and clear of the Bank's lien, (2) the trial court had no power to order the sale of the entire Property when the Wife could only mortgage her partial interest in the Property, and (3) the trial court should have recognized the Intervenor's interest in the Property and his right to a lien on any proceeds from the sale. 

 

The First District found that "none of these arguments leads us to a conclusion that the circuit court abused its discretion or misapplied existing law in confirming the sale of the property or in denying the motion to reconsider that decision." 

 

In reaching its decision, the Appellate Court noted that "in the absence of fraud or irregularity, courts [will] not refuse to confirm a judicial sale merely to protect and interested party against the result of his own negligence." 

 

In this case, the record demonstrated that the Bank: (1) properly served the nonrecord claimants such as the Intervenor by publication, (2) property recorded its lis pendens on May 13, 2015, giving the Intervenor constructive notice of the claim on the property, and (3) properly issued a notice of sale on January 14, 2016. 

 

In contrast, the Intervenor never recorded his quitclaim deed, and did not seek to intervene in the matter "until after the property was sold on February 25, 2016, and after a motion seeking confirmation of that sale was filed on March 25, 2016," despite receiving notice of the sale on February 20, 2016. 

 

Thus, "[b]ecause any possible 'injustice,' with respect to [the Intervenor's] purported interest in the property, result[ed] from [the Intervenor's] own negligence," the Appellate Court affirmed the ruling of the trial court confirming the sale and denying the motion to reconsider.    

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia  |   Illinois   |   Indiana   |   Maryland   |   Massachusetts   |   Michigan   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC   |   Wisconsin

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog™

 

and

 

Webinars

 

and

 

California Finance Law Developments