MANY homeowners devise strange and unique legal arguments to save their houses from foreclosure. In this case, debtor had not paid his mortgage for some time and was in arrears for about $45,000 on his mortgage. When the bank attempted to foreclose, debtor filed for Chapter 13 to stop foreclosure. After the Chapter 13 plan was confirmed, he was given 36 months to cure the default in equal monthly payments plus interest. This worked out to be about $1,400 for each plan payment. Further on down the line, debtor missed several post-petition mortgage payments so the bank filed a motion for relief asking for the court’s permission to continue foreclosure despite bankruptcy. Debtor then objected to the motion for relief based on a unique legal ground never used before. I have heard of debtor arguments saying that they missed post-petition mortgage payments because a relative died and they used the mortgage payment to pay for the funeral, the money for the mortgage was used for a medical emergency, or even that salary has been reduced due to furlough. All these reasons are not valid grounds to object to a motion for relief for nonpayment of post-petition mortgage payments in Chapter 13.
In Re Walsh, the Bank of New York Mellon Trust Co. sought stay relief to foreclose its first mortgage on the Chapter 13 debtor’s home. The debtor disputed the bank’s entitlement to relief and argued that the bank had forgiven his mortgage arrearage of approximately $45,000 and had agreed not to proceed with foreclosure. The basis for debtor’s position was “accord & satisfaction” which is a legal transaction that involves a process where a debtor writes words on a check saying that if the check is encashed, the debt is settled and paid for. Mr. Walsh said that in August 2010, he made a $1,494.89 payment to the bank by a cashier’s check upon which he wrote “endorsing stops all foreclosure proceedings and continues loan.” In September 2010, he made a $1,522 payment by cashier’s check upon which he wrote “endorsing forgives arrears + related fees and continue the loan as current.” Mr. Walsh probably became a member of the organization that advocates the position that the IRS has no legal authority to collect income taxes just like Wesley Snipes who is currently serving a 3 years prison term for failing to file income tax returns for several years. At the 341 A, Mr. Walsh testified that he failed to pay his house payments for almost a year because Mr. & Mrs. Shrek, the ogres, were his tenants but were way behind in their rent payments. When the trustee asked him why he did not eject them for failure to pay rent, Mr. Walsh replied that the tenants threatened to bite his head off if they ever received a complaint for ejectment.
Mr. Walsh argued that since the bank endorsed and deposited each of the checks, the bank agreed to discontinue foreclosure and reinstate the loan. The court did not agree. The court recognized that there was a legal principle of “accord & satisfaction” to settle a debt but the court said that in order for the debtor’s “accord and satisfaction” argument to succeed, he needed to prove that he acted in good faith and that the amount of the bank’s claim was subject to a legitimate dispute. “The debtor’s failure to object to the bank’s proof of claim, which is prima facie valid, and his failure to deal with the fact that under his confirmed plan the bank’s prepetition arrears presumably have been and will continue to be paid by the Chapter 13 trustee undermine both his good faith and any credible argument for the existence of a bona fide dispute with the prepetition arrears. The debtor’s attempt to eliminate all payment arrears by writing disclaimers on two checks is nothing more than a ‘mere pretense’ to avoid paying a debt he knows is due. ” the court said.
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Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.
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