Source: Strong Arm Powers: What Can Be Done With An Avoided Lien
For the court ruling, see DeGiacomo v. Traverse
(In re Traverse), 753 F.3d 19 (1st Cir. 2014).
Go here for a friend of the court" brief in support of the homeowner
, filed by the National Consumer Bankruptcy Rights Center
and the National Association of Consumer Bankruptcy Attorneys
Go here for other posts involving 'rogue' Chapter 7 trustees
In a unanimous decision, the 3-judge appeals panel opens its ruling by summarizing in a nutshell what the Chapter 7 Trustee tried to pull, attempting to use a bank's failure to record its first mortgage as the basis for selling a home out from under a bankrupt homeowner and give her the boot
, despite the fact that the homeowner was not in default in her mortgage payments
, and despite the fact that she was entitled to homestead exemption protection
under Massachusetts law:
- In 2005, six years before filing a petition for Chapter 7 bankruptcy, Virginia Traverse secured a loan with a mortgage on her home. In the years before her bankruptcy and continuing since filing her petition, Traverse has remained current on all mortgage payments on the property.
Because Traverse's home is subject to a homestead exemption under Massachusetts law, in these circumstances the Bankruptcy Code would ordinarily allow Traverse to pass through bankruptcy in possession of her home.
Yet because Traverse's bank failed to record the mortgage with the appropriate registry, the bankruptcy trustee contends that his power to avoid and preserve the mortgage justifies him in selling Traverse's home as property of the bankruptcy estate. The bankruptcy judge and Bankruptcy Appellate Panel accepted the trustee's view. We reverse.
The bad news in this case was that the Chapter 7 Trustee actually persuaded two lower courts to go along with his argument that the home should be sold out from under the now-no-longer-screwed over homeowner; the good news is that the homeowner apparently had the wherewithal to take the case to a Federal Appeals Court, which responded with a "No Sale!" and promptly reversed the lower courts.
In conclusion, it merits noting that two national non-profit consumer bankruptcy advocacy organizations, the National Consumer Bankruptcy Rights Center
("NCBRC") and the National Association of Consumer Bankruptcy Attorneys
saw fit to jump into the fray by filing a friend of the court" brief in support of the homeowner
, reflecting the significance of this litigation, not only for homeowners filing for bankruptcy in Massachusetts, but for similarly situated homeowners in other states, particularly those providing its residents with generous state homestead exemptions (ie. Florida, Texas, Iowa, Kansas, Oklahoma, South Dakota, Minnesota, among others come to mind). See, generally: