FYI: 9th Cir Affirms Bankruptcy Court Ruling Avoiding Judgment Lien on Calif Homestead Property

The U.S. Court of Appeals for the Ninth Circuit recently affirmed a bankruptcy court's judgment in favor of a debtor who sought to avoid a judgment lien under California's homestead exemption law.  

 

In so ruling, the Ninth Circuit held that, when a judgment lien impairs a debtor's state-law homestead exemption, the Bankruptcy Code requires courts to determine the exemption to which the debtor would have been entitled in the absence of the lien. 

 

Here, Ninth Circuit held, the California exemption amount in effect at the time of the filing of the bankruptcy petition applied, even though the language of the California exemption for judgment liens would have required calculation of the amount of the exemption as of a different date.

 

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

 

In 2014, a creditor filed a judgment lien for $256,075.95 against a debtor's home in California ("judgment lien"). Seven years later, in 2021, the debtor filed a Chapter 7 bankruptcy petition. Before the debtor's bankruptcy petition was filed, California amended its bankruptcy laws to substantially increase the homestead exemption to the greater of one (1) the "median sale price for a single-family home" in the debtor's county the year before the debtor claims the exemption, "not to exceed" $600,000; or (2) $300,000. See Cal. Civ. Proc. Code § 704.730(a) (2021).

 

California opted out of the default exemptions provided in the Bankruptcy Code, and California's homestead exemption prescribes a set exemption amount based on the characteristics of the property and homeowner.

 

Based on the homestead exemption in effect at the time the debtor filed bankruptcy, the debtor claimed a $600,000 homestead exemption and sought to avoid the entire judgment lien.  However, the trustee argued that California Code of Civil Procedure § 703.050(a) requires that "the amount of an exemption shall be made by application of the exemption statutes in effect . . . at the time the judgment creditor's lien on the property was created".  Therefore, the trustee argued, the debtor was only entitled to the $100,000 homestead exemption available when the judgment lien was originally recorded in 2014.

 

The debtor's calculation valued the homestead exemption at $600,000 which would result in the avoidance of the entire judgment lien. The trustee calculated the homestead exemption at $100,000.00 which would result in the creditor receiving $434,029.72.

 

The bankruptcy court held that 11 U.S.C. § 522(f) required application of the $600,000 homestead exemption in effect in 2021, when the bankruptcy petition was filed, and that the debtor could therefore avoid the entire judgment lien. The trustee appealed.

 

On appeal, the Ninth Circuit examined how the Bankruptcy Code's lien avoidance procedure applies to liens that "impair an exemption to which the debtor would have been entitled" under 11 U.S.C. § 522(f)(1). 

 

Under Section 522, a lien may be avoided when "the sum of (i) the lien; (ii) all other liens on the property; and (iii) the amount of the exemption that the debtor could claim if there were no liens on the property" is greater than "the value that the debtor's interest in the property would have in the absence of any liens." Id. § 522(f)(2)(A).

 

The Ninth Circuit held that the Supreme Court of the United States' ruling in Owen v. Owen, 500 U.S. 305 (1991), controlled here.  Relying on Owen, the Ninth Circuit held that Section 522(f) requires courts to determine the exemption to which the debtor would have been entitled but for the existence of the judicial lien at issue. The Court of Appeals noted the importance of the phrase "would have been" entitled to in the absence of any judgment liens.

 

Based on this language, Owen held that Section 522(f) "establishes as the baseline, against which impairment is to be measured, not an exemption to which the debtor 'is entitled,' but one to which he 'would have been entitled.'" Id. at 311. Based on the holding in Owen, the Court of Appeals determined that at the time of the debtor's bankruptcy filing, absent the judgment lien, debtor could claim a $600,000.00 homestead exemption under Cal. Civ. Proc. Code § 704.730 (2021).

 

The trustee argued that under existing Ninth Circuit precedent the bankruptcy court had to apply the state exemption law with all its restrictions and limitations.  Wolfe v. Jacobson (In re Jacobson), 676 F.3d 1193 (9th Cir. 2012). The Ninth Circuit in In re Jacobson held that "it is the entire state law applicable on the filing date that is determinative of whether an exemption applies". 

 

The Ninth Circuit disagreed because, under Owen, the Bankruptcy Code's policy of permitting state-defined exemptions is not "absolute" and must be applied along with whatever competing or limiting policies are in the Bankruptcy Code."  500 U.S. at 313. In addition, the Court of Appeals noted, In re Jacobson addressed "whether certain funds belonged to a Chapter 7 estate," and "[n]othing in the case concerned the lien avoidance procedures at issue here."  Therefore, the Ninth Circuit held, Owen and not In re Jacobson was "the relevant precedent".

 

Accordingly, the Ninth Circuit affirmed the bankruptcy court's ruling.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th 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   |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   Texas   |   Washington, DC

 

 

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

  

 

 

 

FYI: 8th Cir Holds Statute of Limitations for Facial Challenges to Agency Action Accrue at Publication

The U.S. Court of Appeals for Eighth Circuit recently held that, when plaintiffs bring a facial challenge to a final agency action, the right of action accrues and the limitations period begins to run upon publication of the regulation.

 

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

 

The North Dakota Retail Association, the North Dakota Petroleum Marketers Association, and a North Dakota convenience store (Merchants) filed a complaint against the Board of Governors of the Federal Reserve System (FRB) raising a facial challenge to a regulation relating to the collection of interchange fees by third parties authorized to collect interchange fees, alleging that the regulation violated the Administrative Procedures Act, 5 U.S.C. § 704 (APA).

 

The FRB moved to dismiss the complaint as barred by the statute of limitations. The trial court dismissed, finding (i) a 2015 clarification of the regulation at issue did not constitute a final agency action to renew the statute of limitations, (ii) the statute of limitations on the convenience store's claims began to run with the publication of the regulation in 2011, and (iii) the Merchants' claims did not warrant equitable tolling. The Merchants timely appealed.

 

On appeal, the Merchants first argued that the statute of limitations renewed when the FRB published the clarification in 2015.

 

"Agency action made reviewable by statute and final agency action for which there is no other adequate remedy in a court are subject to judicial review." 5 U.S.C. § 704. Under the APA, "[t]wo conditions must be satisfied for an agency action to be final." Sisseton-Wahpeton Oyate of Lake Traverse Res. v. Corps of Eng'rs, 888 F.3d 906, 914-15 (8th Cir. 2018).

 

First, the action cannot be tentative or interlocutory in nature and "must mark the 'consummation of the agency's decision-making process.'" Id. at 915, quoting Bennett v. Spear, 520 U.S. 154, 177- 78 (1997). "Second, 'the action must be one by which rights or obligations have been determined, or from which legal consequences will flow.'" Id., quoting Bennett, 520 U.S. at 178.

 

"To constitute a final agency action, the agency's action must have inflicted 'an actual, concrete injury' upon the party seeking judicial review." Id., quoting Williamson Cty. Reg'l Planning v. Hamilton Bank, 473 U.S. 172, 193 (1985).

 

Here, the Eighth Circuit held that the 2015 clarification was not a final agency action because it was not was not the final "consummation of the agency's decision-making process." Sisseton-Wahpeton Oyate, 888 F.3d at 915.  Specifically, the clarification did not modify the regulation or create any additional rights or obligations as to the Merchants. See id.

 

Furthermore, the Court observed that the clarification did not create a new fee or expand any existing fees, nor did it "inflict[] 'an actual, concrete injury' upon the [Merchants]." Id., quoting Williamson Cty. Reg'l Planning, 473 U.S. at 193.

 

The Merchants also asserted that the convenience store's facial challenge to the regulation first accrued when the store opened in 2018, rather than when the regulation was published in 2011.

 

Claims arising under the APA are subject to a six-year statute of limitations. See 5 U.S.C. § 704; 28 U.S.C. § 2401(a); see also Izaak Walton League of Am., Inc. v. Kimbell, 558 F.3d 751, 758 (8th Cir. 2009). "A claim against [the] United States first accrues on the date when all the events have occurred which fix the liability of the Government and entitle the claimant to institute an action." Id. at 759.

 

The "standard rule [is] that accrual occurs when the plaintiff has a complete and present cause of action." Rassier v. Sanner, 996 F.3d 832, 836 (8th Cir. 2021), quoting Bay Area Laundry & Dry Cleaning Pension Tr. Fund v. Ferbar Corp. of California, 522 U.S. 192, 201 (1997).

 

The Eighth Circuit rejected the Merchants' argument because, in Izaak Walton, it held that the six-year statute of limitations accrued upon publication of the regulation and barred plaintiffs' facial challenge. See Izaak Walton, 558 F.3d at 762.

 

Additionally, the Court noted that other circuit courts have held that APA claims accrue, and the statute of limitations begins to run, when an agency publishes a regulation. See, e.g., Trafalgar Cap. Assocs. v. Cuomo, 159 F.3d 21, 34 (1st Cr. 1998); Wong v. Doar, 571 F.3d 247, 263 (2d Cir. 2009); Paucar v. AG of the United States, 545 Fed. Appx. 121, 124 (3d Cir. 2013); Outdoor Amusement Bus. Ass'n v. Dep't of Homeland Sec., 983 F.3d 671, 681-82 (4th Cir. 2020); Sierra Club v. Slater, 120 F.3d 623, 631 (6th Cir. 1997); Shiny Rock Min. Corp. v. United States, 906 F.2d 1362, 1363 (9th Cir. 1990); Vincent Murphy Chevrolet Co. v. United States, 766 F.2d 449, 452 (10th Cir. 1985); Ctr. for Biological Diversity v. Hamilton, 453 F.3d 1331, 1334-35 (11th Cir. 2006); Harris v. FAA, 353 F.3d 1006, 1010 (D.C. Cir. 2004); Preminger v. Sec'y of Veterans Affairs, 498 F.3d 1265, 1272 (Fed. Cir. 2007).

 

Thus, the Eighth Circuit concluded that, when plaintiffs bring a facial challenge to a final agency action, the right of action accrues, and the limitations period begins to run, upon publication of the regulation.

 

In this case, the Merchants challenged the collection of interchange fees by third parties authorized to collect interchange fees by the regulation. See 76 Fed. Reg. 43,394. As part of this challenge, the Merchants sought to invalidate the text of the regulation in all applications. Thus, the Eighth Circuit concluded that the Merchants brought a facial challenge to the regulation, making it untimely. See 28 U.S.C. § 2401(a).

 

However, the Eighth Circuit observed that plaintiffs, like the convenience store, with untimely facial challenges may have a remedy.

 

"In some cases, a plaintiff may escape the statute of limitations by establishing that he or she is eligible for equitable tolling." Sisseton-Wahpeton Oyate, 888 F.3d at 917. "Equitable tolling allows for an extension of the prescribed limitations period 'when the plaintiff, despite all due diligence, is unable to obtain vital information bearing on the existence of his [or her] claim.'" Id.

 

A plaintiff is entitled to equitable tolling only by showing "'(1) that he [or she] has been pursuing his [or her] rights diligently, and (2) that some extraordinary circumstances stood in his [or her] way' and prevented timely filing." Holland v. Florida, 560 U.S. 631, 649 (2010), quoting Pace v. DiGuglielmo, 544 U.S. 408, 418 (2005).

 

Ultimately, the Eighth Circuit held that the Merchants' equitable tolling argument failed on its merits. The Merchants had notice of the publication of the regulation in 2011, but did not sue the FRB until more than ten years later. The Merchants also failed to show that they had been pursuing their rights diligently. See Holland, 560 U.S. at 649.

 

Because the FRB published the regulation in 2011 and the Merchants were not eligible for equitable tolling, the Court concluded that the Merchants' facial challenge to the regulation remained time-barred by the six-year statute of limitations under 28 U.S.C. § 2401(a).

 

Accordingly, the Eighth Circuit affirmed the judgment of the trial court.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th 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   |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   Texas   |   Washington, DC

 

 

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

  

 

 

 

FYI: Ill App Ct (1st Dist) Rejects Challenge to Foreclosure Affidavit Based on Reliance on Prior Servicer's Records

The Appellate Court of Illinois, First District, recently upheld a trial court's order granting a mortgagee's motion for summary judgment, judgment of foreclosure, sale, and order confirming the foreclosure sale.

 

In so ruling, the Appellate Court held that:

 

-1  The current mortgagee's reliance on the business records of prior mortgage servicers in its summary judgment and foreclosure affidavit did not affect the propriety of the affidavit; and

 

-2  The borrower's affidavit asserting performance under a supposed Home Affordable Modification Program ("HAMP") agreement were unsubstantiated, conclusory and merely self-serving, and the trial court did not err in disregarding and rejecting the borrower's affidavit.

 

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

 

A borrower obtained a loan secured by a mortgage in 2007.  The mortgage loan was subsequently sold and assigned to a different company (First Assignee). In 2011, the First Assignee filed a foreclosure action against the borrower.

 

The borrower defended the foreclosure action and argued that that he entered into the loan with the originating lender, and that the First Assignee did not have standing to bring the foreclosure action. After a prolonged period of litigation, the mortgage loan was sold and assigned again, a different company (Second Assignee) was substituted in as the plaintiff of the foreclosure action.

 

In 2017, the Second Assignee filed a motion for judgment of foreclosure and sale of the property and a motion for summary judgment against the borrower. The borrower responded to the motion for summary judgment by submitting an affidavit that included allegations that he entered into a trial loan modification program plan with the First Assignee.

 

The borrower swore in his affidavit that the First Assignee promised to allow him to receive a permanent loan modification under the Home Affordable Modification Program (HAMP), that he made three trial loan payments, and that the First Assignee verbally informed him that "because of a system backlog, the loan documents would be delayed and he would need to continue making loan payments in the meantime".  Under these circumstances, the borrower argued, the foreclosure should never have been filed, and the Second Assignee "was legally bound to give a permanent HAMP loan modification to him."  The borrower filed his own motion for summary judgment against the mortgagee based on the same affidavit.

 

The Second Assignee argued that the borrower raised these allegations for the first time at the motion for summary judgment and therefore should be deemed waived and not considered.  Moreover, the Second Assignee argued, the borrower's only evidence supporting borrower's claim was his self-serving and unsupported affidavit. In 2017, the trial court denied both parties motions for summary judgment but ruled the Second Assignee did have standing to pursue the foreclosure.

 

In 2019, the mortgage loan was sold and assigned again and another entity (Third Assignee) was substituted in as the foreclosure plaintiff. The Third Assignee filed a new motion for summary judgment and argued that it established a prima facie case for foreclosure, that the borrower had waived any HAMP-related defense, and that the HAMP program was terminated such that the borrower had no available remedy. The Third Assignee also argued that the borrower's only evidence supporting borrower's claim was his self-serving and unsupported affidavit.

 

In 2019, the mortgage loan was sold and assigned again and another entity (Fourth Assignee) substituted in as the foreclosure plaintiff in the case prior to the adjudication of the motion for summary judgment. The borrower also cross-filed a motion for summary judgment raising substantially similar claims and defenses that he raised in the previous motion for summary judgment hearing.

 

This time, the trial court granted the mortgagee's summary judgment motion and denied borrower's summary judgment motion. In its ruling, the trial court found that the mortgagee's business records affidavit complied with Illinois Supreme Court rules and were admissible while the borrower's affidavit was conclusory and referred to unsubstantiated promises and allegations that were not supported with other evidence. As a result, the trial court held the borrower did not raise any genuine issues of material fact to overcome the mortgagee's motion for summary judgment.

 

In June of 2021, the trial court entered a judgment of foreclosure and sale of the property and entered an order approving the sale. This appeal followed.

 

On appeal, the borrower argued that the statements in his affidavit regarding his alleged approval for a HAMP loan modification and performance under its terms created a genuine issue of a material fact; his affidavit was not merely conclusory, and that the trial court improperly considered the mortgagee's affidavit instead of declaring it inadmissible hearsay due to the fact that it relied on records of other companies.

 

In addressing the borrower's arguments, the Appellate Court found that the borrower was properly informed that his loan modification application was denied. Furthermore, the Appellate Court held that the business records affidavit submitted by the plaintiff was admissible because the business records affidavit was made in the regular course of business and at or near the time of event or occurrence.  US Bank, National Ass'n v. Avdic, 2014 IL App (1st) 132430, ¶ 40).

 

The Appellate Court further acknowledged that banks freely buy, sell, and transfer mortgage loans and it was not relevant that some business records were created by another company.

 

Lastly, the Appellate Court concurred with the trial court that the borrower's affidavit was self-serving and conclusory, and did not create any genuine issue of material fact sufficient to deny the mortgagee's motion for summary judgment.

 

Accordingly, the Appellate Court held that the trial court properly granted the mortgagee's motion for summary judgment and denied the borrower's cross-motion for summary judgment, and therefore affirmed the trial court's judgment.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th 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   |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   Texas   |   Washington, DC

 

 

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