Still No Justice for Mortgage Abuses

EDITORIAL

Published: September 1, 2012 135 Comments

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It has been six months since the big banks settled with state and federal officials over evidence of widespread foreclosure fraud, promising to provide $25 billion in mortgage relief in exchange for not being sued over past foreclosure abuses.

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• Mortgage Plan Gives Billions to Homeowners, but With Exceptions (February 10, 2012)

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At the time, it looked like a sweet deal for the banks. The fines were paltry compared with the damage done to homeowners and the economy. And much of the relief the banks were obliged to provide could be met by continuing more or less with business as usual.

It still looks like a sweet deal.

The Office of Mortgage Settlement Oversight, the monitor of the settlement, released a preliminary report last week showing that 138,000 homeowners had received some form of relief from March 1 through June 30. That is roughly the number that would have been expected under various aid programs in effect before the settlement. Worse, with some three million borrowers now in or near foreclosure, according to Moody’s Analytics, it is nowhere near the level of relief needed to fix the housing market.

The type of relief provided — mostly short sales, in which a bank allows a homeowner to sell for less than is owed on the mortgage — had become increasingly common before the settlement.

Short sales are better than foreclosures, in part because they prevent vacancies that depress house values. But they are not punishment for wrongdoing in any meaningful sense; rather, they allow banks to get higher prices for underwater properties than they could have gotten in foreclosure sales.

Nor do they fulfill the settlement’s main purpose: to keep underwater borrowers in their homes by reducing the principal on their mortgage loans. According to the monitor’s report, $8.7 billion of debt has been written off in short sales versus only $750 million of principal reduction from loan modifications.

The settlement was not, of course, intended as a cure for the housing bust. And future progress reports will no doubt show many more homeowners receiving big loan modifications. But, based on the banks’ performance so far, it also seems likely they will be able to structure the required relief in ways designed to tidy up their balance sheets, rather than to save as many homes as possible.

Even the relief that is provided may turn out to be less than meets the eye. That’s because much of the debt forgiven in short sales and loan modifications will be counted as taxable income to the borrowers, creating huge tax bills they will not be able to pay.

Mortgage debt that is forgiven is exempt from taxation under current law, but only if the debt was used to buy or improve the house. The law does not exempt debt forgiven on many home equity loans, even though the foreclosure settlement envisions billions of dollars in modifications to such loans.

Several bills in Congress call for extending the law, which is set to expire at the end of the year. But what is obviously needed is a broader law shielding all forgiven mortgage debt from tax.

Meanwhile, an investigation into the mortgage abuses that led to the financial crisis, promised by President Obama in January, has been slow to produce results. The settlement left open the possibility of civil and criminal suits on mortgage securitizations and other practices that inflated the bubble. The aim is to produce deeper accountability and larger fines with which to provide even more mortgage relief, but no suits have yet been filed.

The economy will not recover and justice will not be done unless and until the mortgage mess is resolved.

A version of this editorial appeared in print on September 2, 2012, on page SR10 of the New York edition with the headline: Still No Justice for Mortgage Abuses.

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In re: Krista Lynn Purvis Complaint for Violation of Automatic Stay

AUG28
2012WRITTEN BY ADMIN

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
IN RE: : CHAPTER SEVEN
:
KRISTA LYNN PURVIS : BANKRUPTCY NO.: 5-11-bk-04996-JJT
aka KRIS PURVIS, :
:
DEBTOR :
:
KRISTA LYNN PURVIS, : {Nature of Proceeding: Defendant’s
: Motion to Dismiss Plaintiff’s Complaint for
PLAINTIFF : Violations of the Automatic Stay Pursuant
: to F.R.C.P. 12(b)(6) and F.R.B.P. 7012(b)
vs. : (Doc. #5)}
:
FIRST NATIONAL BANK OF :
PENNSYLVANIA, :
:
DEFENDANT : ADVERSARY NO.: 5-11-ap-00488-JJT
OPINION1
Before the Court is Defendant’s Motion to Dismiss the underlying Complaint under
Federal Rule of Civil Procedure 12(b)(6) as made applicable to adversary proceedings in
bankruptcy by Federal Rule of Bankruptcy Procedure 7012(b). For the reasons set forth herein,
the Court denies the Motion to Dismiss.
The allegations of the underlying Complaint for Violations of the Automatic Stay can be
summarized as follows. Prior to the filing of the bankruptcy petition of July 18, 2011, the
Defendant scheduled a sheriff sale of Debtor’s property with the Lackawanna County Sheriff’s
Office with said sale being scheduled for October 4, 2011. Subsequent to the filing of the
bankruptcy, the Lackawanna County Sheriff, pursuant to Defendant’s instructions, posted a
Drafted with the assistance of Richard P. Rogers, Law Clerk.
1
[K:\Cathy\Opinions-Orders filed 2012\5-11-ap-00488-JJT_Purvis.pdf]notice on Debtor’s property indicating that the property was to be sold on October 4, 2011.
Thereafter, on three separate occasions namely, September 9, September 16, and September 23,
2011, Debtor’s property was subject to an advertisement in the Scranton Times Tribune and the
Lackawanna County Jurist. The allegations are that the posting of the property and
advertisement of the Sheriff’s sale were all done pursuant to the requirements of a foreclosure
sale process.
2
The Complaint alleges that at all times subsequent to the filing of the underlying
bankruptcy case, the Defendant was aware of the filing of the bankruptcy. On September 15,
2011, Defendant even filed a Motion for Relief from the Automatic Stay. It is further alleged
that on the morning of October 4, 2011, the day of the Sheriff’s sale, Defendant instructed the
Sheriff to continue the sale to November 15, 2011. Based upon these factual allegations, the
Plaintiff requests the Court find that the Defendant violated 11 U.S.C. § 362(a), and as a result of
that violation, she should be awarded actual damages including costs, attorney’s fees, and
punitive damages. Defendant’s response attacks the allegations of the Complaint on several
avenues. First, Defendant argues that in order to receive damages, the Plaintiff must prove the
Defendant willfully violated the automatic stay, and the allegations of the Complaint falls short
in this regard. Defendant also asserts that both Pennsylvania State law and Bankruptcy lawis
clear that a scheduled Sheriff’s sale can be continued post-petition without there being a violation
of the automatic stay. Furthermore, the rescheduling of the sale is not a violation because the
In addition to the posting and advertising of the Debtor’s property at 82 Pike Street, Carbondale,
2
Pennsylvania, was the Plaintiff’s/Debtor’s parents’ property at 99 Pike Street, Carbondale, Pennsylvania. Debtor’s
parents are not debtors under the United States Bankruptcy Code, and Defendant was informed that the 99 Pike
Street property was incorrectly included in the foreclosure proceedings.
[K:\Cathy\Opinions-Orders filed 2012\5-11-ap-00488-JJT_Purvis.pdf] 2action simply maintains the “status quo” between the debtor and the creditor. Closely tied to this
argument is that the Defendant took no affirmative action in violation of the stay but that it was
the Sheriff of Lackawanna County who did the postings for the sale.
In considering a motion to dismiss, the Rule is that “once a claim has been stated
adequately, it may be supported by showing any set of facts consistent with the allegations of the
complaint.” Phillips v. County of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008) citing Bell
Atlantic Corp. v. Twombly, 550 U.S. 554, 127 S.Ct. 1955, 167 L.Ed.2d 929 at 1969 (2007).
“Factual allegations must be enough to raise a right to relief above the speculative level . . . .”
Twombly, 127 S.Ct. at 1965.
The Court will “accept all factual allegations as true, construe the complaint in the light
most favorable to the plaintiff, and determine whether, under any reasonable reading of the
complaint, the plaintiff may be entitled to relief.” Phillips v. County of Allegheny, 515 F.3d at
233 citing Twombly, 127 S.Ct. at 1969 n.8 and Pinker v. Roche Holdings, Ltd., 292 F.3d 361,
374 n.7 (3d Cir. 2002).
The Plaintiff points outs that Defendant concentrates its argument solely on whether the
oral continuance of the Sheriff’s sale on October 4, 2011, served to protect the “status quo”
vis-à-vis the parties, while ignoring the impact the posting and triple advertisement of the
Sheriff’s sale in local papers may have had on the automatic stay. Defendant, however, deflected
attention from itself by indicating that it was actually the Sheriff that did the posting and the
advertising and minimized any responsibility of the Defendant in the state procedures leading to
the Sheriff’s sale, all the while ignoring the fact that the Sheriff operates at the behest of the
Defendant.
[K:\Cathy\Opinions-Orders filed 2012\5-11-ap-00488-JJT_Purvis.pdf] 3Defendant also asserts the Debtor cannot and has not set forth any damages that occurred
to her as a result of the Sheriff’s sale being advertised or in the bankruptcy. We direct the
Defendant’s attention to paragraphs 29 and 30 of the Complaint which set forth the allegations of
Plaintiff’s damages, and we find that under our previous rulings in the Solfanelli case at
Solfanelli v. Meridian Bank (In re Solfanelli), 206 B.R. 699, 703 (Bankr. M.D.Pa.. 1996), aff’d in
part, rev’d in part, In re Solfanelli, 230 B.R. 54 (M.D.Pa. 1999), judgment aff’d and remanded,
Solfanelli v. Corestates Bank, N.A., 203 F.3d 197 (3d Cir. 2000), sufficient allegations remain in
support of the allegation of damages.
It is for these reasons that the Court finds the instant Complaint survives the requirements
of a Rule 12(b)(6) Motion as set forth in Twombly, supra, and the Court will deny the instant
Motion to Dismiss. The Court will further Order the Defendant to file an Answer to the
Complaint on or within twenty (20) days of the date of this Order.
My Order will follow.
Date: May 30, 2012
[K:\Cathy\Opinions-Orders filed 2012\5-11-ap-00488-JJT_Purvis.pdf] 4IN THE UNITED STATES BANKRUPTCY COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
IN RE: : CHAPTER SEVEN
:
KRISTA LYNN PURVIS : BANKRUPTCY NO.: 5-11-bk-04996-JJT
aka KRIS PURVIS, :
:
DEBTOR :
:
KRISTA LYNN PURVIS, : {Nature of Proceeding: Defendant’s
: Motion to Dismiss Plaintiff’s Complaint for
PLAINTIFF : Violations of the Automatic Stay Pursuant
: to F.R.C.P. 12(b)(6) and F.R.B.P. 7012(b)
vs. : (Doc. #5)}
:
FIRST NATIONAL BANK OF :
PENNSYLVANIA, :
:
DEFENDANT : ADVERSARY NO.: 5-11-ap-00488-JJT
ORDER
For those reasons indicated in the Opinion filed this date, IT IS HEREBY
ORDERED that Defendant’s Motion to Dismiss Plaintiff’s Complaint for Violations of
the Automatic Stay, (Doc. #5), is DENIED.
IT IS FURTHER ORDERED that Defendant shall an Answer to the Complaint on or
within twenty (20) days of the date of this Order.
Date: May 30, 2012
[K:\Cathy\Opinions-Orders filed 2012\5-11-ap-00488-JJT_Purvis.pdf

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