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Can a failure to act be a fraudulent transfer?
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Dear Pat,
Thank you for your thoughts.
Unfortunately, the relevant case law is less than favorable. In Rehbein v. CitiMortgage, Inc., 937 F. Supp. 2d 753, 762 (E.D. Va. 2013), Lawrence v. Wells Fargo Bank, N.A., No. 14-1272-PJH, 2014 WL 2705425, at *6 (N.D. Cal. June 13, 2014), and Jurewitz v. Bank of Am., N.A., 938 F. Supp. 2d 994, 998 (S.D. Cal. 2013) we have statements like individual borrowers are merely incidental beneficiaries of the National Mortgage Settlement, and so have no right to bring third-party suits to enforce the Consent Judgment. Thus, any claims that allege a violation of the Consent Judgment should be dismissed.
In light of the standing problem, my thought was to get into the shoes of the U.S. using the IRS, which is a subdivision of the U.S. Department of the Treasury a signatory to the Consent Judgment. The only way I can see to do this is to appeal to 544(b)(1) and use the IRSs fraudulent transfer avoidance power in 28 U.S.C. 3301-3308. (The Chapter 11 debtor has the power of a trustee under 1107(a).) Since the IRS filed a proof of claim for unsecured taxes that include liabilities from before the Consent Judgment, I can use the In re CVAH, Inc., 570 B.R. 816 (Bankr. D. Idaho 2017) holding John Faucher mentioned to get into the IRSs shoes with a six-year look-back period if I can establish that there was a fraudulent transfer.
For that reason I want to argue the following: Based on the relevant terms of the Consent Judgment B of A was required to extinguish the second, and reconvey back to the debtor. When they didnt, they received the value of the then current balance on the second, without giving the debtor a reasonably equivalent value in exchange. At the time, the debtor was in a pending Chapter 7 (he didnt receive a discharge) and according to his schedules he was insolvent. Thus, B of As failure to reconvey constituted an avoidable fraudulent transfer.
The big hurdle: Can a failure to act constitute a transfer? That was the point of my previous post.
Any thoughts?
Thanks,
Nicholas Gebelt
Nicholas Gebelt, Ph.D., J.D.
Attorney at Law
Certified Bankruptcy Law Specialist State Bar of California Board of Legal Specialization
Law Offices of Nicholas Gebelt
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Nick:
Intentional or negligent tort by Bof A: duty, breach, damages.
Debtor is third party bennie of original agreement, so should have standing. FF is holding the TD as a constructive trustee and should reconvey to the debtor.
If you have any questions or concerns, please contact me.
Pat
Patrick T. Green
1010 E. Union St. Ste. 206
Pasadena, CA 91106
Ph: 626-449-8433
Fax: 626-449-0565
Email: pat@fitzgreenlaw.com
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Dear Listmates,
A Chapter 11 client had two mortgages on his home with Bank of America. B
of A entered a settlement judgment with most of the states including
California that included a modification provision: If B of A modified the
first by reducing the principal balance, and if the second (a) had a balance
of more than $5,000, (b) monthly payments of more than $100, and (c) the
debtor was more than 180 days delinquent on the second, then B of A was
required to extinguish the second.
B of A reduced the principal balance, and the second satisifed the
aforementioned conditions. However, instead of extinguishing the second, B
of A sold it to First Franklin, which filed a proof of claim in the Chapter
11 case. I filed an adversary to wipe out the second, disallow the claim,
and avoid the lien. FF filed a 12(b)(6) motion asserting that the debtor
lacked standing to enforce the judgment because he wasnt a party to the
litigation.
I think that Californias private attorney general statute may help with the
standing issue. Any thoughts?
However, it occurred to me that perhaps I should amend the complaint to
include a fraudulent transfer avoidance action. Perhaps B of As failure to
reconvey constituted a fraudulent transfer of the debtors interest in the
property to the extent of the second deed of trust. However, its failure to
reconvey was inaction rather than action. Was that inaction an avoidable
fraudulent transfer? Can a failure to act be a fraudulent transfer? Was B
of As subsequent transfer to FF an avoidable fraudulent transfer?
Any thoughts?
Thanks for your wisdom,
Nick
Nicholas Gebelt
Nicholas Gebelt, Ph.D., J.D.
Attorney at Law
Certified Bankruptcy Law Specialist State Bar of California Board of Legal
Specialization
Law Offices of Nicholas Gebelt
15150 Hornell Street
Whittier, CA 90604
Phone: 562.777.9159
FAX: 562.946.1365
Email: ngebelt@goodbye2debt.com
Web: www.goodbye2debt.com
Blog:
www.southerncaliforniabankruptcylawblog.com/
Important notice required by 11 U.S.C. 528: We are a debt relief agency.
We help people file for bankruptcy relief under the Bankruptcy Code.
Confidentiality Note: This e-mail is intended only for the person or entity
to which it is addressed and may contain information that is privileged,
confidential, or otherwise protected from disclosure. Dissemination,
distribution, or copying of this e-mail or the information herein by anyone
other than the intended recipient, or an employee or agent responsible for
delivering the message to the intended recipient, is prohibited. If you
have received this e-mail in error, please notify us immediately at
562.777.9159 or e-mail info@gebeltlaw.com and
destroy the original message and all copies.
Representation Note: If you have not signed a contract of representation,
the Law Offices of Nicholas Gebelt do not represent you, and this email does
not contain any legal advice for you.
Privacy Warning: The use of e-mail involves risk that the message may be
intercepted by third parties (such as the government). Contacting me by
email is your acknowledgment that you waive the risk of emails sent to me,
and that you waive the risk of emails sent from me to you. Further,
accessing websites carries the risk of detection of your access not only in
real time, but also by discovery. If you have ANYTHING that is sensitive to
convey to me, it should be given in a face-to-face meeting.
IRS Circular 230 Disclosure: In order to comply with the requirements
imposed by the Internal Revenue Service, we inform you that any U.S. tax
advice contained in this communication (including any attachments) is not
intended to be used, and cannot be used, for the purpose of (i) avoiding
penalties under the Internal Revenue code, or (ii) promoting, marketing, or
recommending to another party any transaction or matter addressed herein.
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