By Michael L. Moskowitz and Melissa A. Guseynov

Creditors beware: changes are afoot and attention must be paid to these changes or your rights in bankruptcy may be prejudiced. We have previously written about the practices and procedures required under Rule 3002 of the Federal Rules of Bankruptcy Procedure (“Bankruptcy Rules”). However, as of December 1, 2017, certain revisions to Bankruptcy Rule 3002 will both require secured creditors to file proofs of claim and substantially reduce the amount of time provided to creditors to file a proof of claim in Chapters 7, 12 and 13 bankruptcy cases.

It has long been recognized that for a secured claim to be “allowed” in bankruptcy, a creditor must file a proof of claim. In its current form, Bankruptcy Rule 3002(a) merely states that an “unsecured creditor or an equity security holder must file a proof of claim or interest …” The fact that Bankruptcy Rule 3002 does not specifically mention secured claims has resulted in conflicting case law as to whether a secured creditor must file proof of claim. As a result, the revised text of Bankruptcy Rule 3002 clarifies that a secured creditor must file a proof of claim in order for the claim to be “allowed.” However, the amended Bankruptcy Rule also provides that a secured creditor’s failure to file a proof of claim does not affect the underlying lien.

Founding partners Richard E. Weltman and Michael L. Moskowitz are pleased to announce that effective May 15, 2017, the attorneys at Weltman & Moskowitz, LLP have become Counsel to the Chicago-based Chuhak & Tecson, P.C. law firm. This alliance allows both firms to develop new relationships and to expand Chuhak & Tecson’s presence in New York and New Jersey. Both firms remain independent.  

The new alliance enables Chuhak & Tecson to continue to offer its New York and New Jersey clients many business legal services including lender rights, banking, loan workouts related to conventional and SBA products, bankruptcy and creditor’s rights, counseling, foreclosures, loan documentation, real estate leasing, purchase and sale transactions, and commercial litigation.

By Michael L. Moskowitz and Michele K. Jaspan

Recently we were tasked by one of our long-time lender clients to file what should have been a run-of-the-mill residential mortgage foreclosure case in New Jersey after borrower’s failure to make mortgage payments on a first mortgage and credit line mortgage.

Upon receipt of the file, we analyzed the title report and determined only the credit line mortgage appeared of record. We asked the title company to double check the county records since lender advised there were two mortgages in default. Further investigation revealed the first mortgage had erroneously been marked “discharged” instead of another mortgage which had been paid in full. The balance due on the discharged mortgage was more than $300,000 at the time of the default. In the aggregate, the two mortgages totaled in excess of $500,000, excluding costs and expenses.

Weltman & Moskowitz, LLP has announced the expansion of its Litigation Practice and Bankruptcy and Creditors' Rights Groups with the addition of Debra Kramer, Anthony M. Vassallo and Adrienne Woods, three seasoned bankruptcy attorneys. Each is joining the firm as Of Counsel. The expansion allows Weltman & Moskowitz to leverage their talents for the firm’s clients. Debra, Tony and Adrienne will support the firm’s Bankruptcy & Creditors' Rights Group and Litigation Practice for clients in New York and New Jersey.

By Michael L. Moskowitz and Melissa A. Guseynov

In an opinion dated March 9, 2017, Bankruptcy Judge Alan S. Trust dismissed the Chapter 13 petition filed by Mary C. Addams (“Debtor”) on motion of Michael and Jamie Shapiro (“Shapiros”). The motion to dismiss was based upon Debtor’s inability to confirm a feasible Chapter 13 plan. The Shapiros held a second mortgage lien against Debtor’s two-family house where she lived, as well as rented out part of the property. In response to the motion, Debtor sought to bifurcate the Shapiros’ mortgage into secured and unsecured claims. In re Addams, 2017 WL 944190 (Bankr. E.D.N.Y. Mar. 9, 2017). This opinion diverges from rulings in the First and Third Circuits and may ultimately lead to review by the Supreme Court. Read the full opinion here.

By Michael L. Moskowitz and Melissa A. Guseynov

In a recent decision of particular relevance to mortgage lenders, Veltre v. Fifth Third Bank, 2017 WL 387361 (Bankr. W.D. Pa. Jan. 27, 2017), the United States Bankruptcy Court for the Western District of Pennsylvania held that property sold at a properly conducted and non-collusive foreclosure sale may not serve as the basis for a preference action under section 547 of the Bankruptcy Code. This decision focuses attention on the debate over whether a creditor who forecloses on real property receives a preference or fraudulent transfer, even if the foreclosure sale complied with applicable state law.   

By Michael L. Moskowitz and Melissa A. Guseynov

In a recent decision of consequence to mortgage lenders, the United States Bankruptcy Court for the District of Massachusetts concluded that a Chapter 7 Trustee may avoid a debtor’s mortgage and maintain it for the benefit of the bankruptcy estate. See Eastern Bank v. Benton (In re Thomas H. and Nancy C. Benton), 2016 WL 53581 (Bankr. D. Mass. Jan. 4, 2017). Simply put, the Bankruptcy Court held that, when a mortgage contains a correct street address but an incorrect legal description, the mortgage lien is avoidable by the bankruptcy trustee in his or her role as a hypothetical bona fide purchaser of a debtor’s property under section 544 of the Bankruptcy Code.

By Michael L. Moskowitz and Melissa A. Guseynov

In an opinion dated February 6, 2017, the Bankruptcy Court for the Northern District of Ohio disallowed a mortgage servicer’s untimely proof of claim in a Chapter 13 case, holding that secured creditors are subject to the same 90-day deadline for filing proofs of claim as unsecured creditors. In re Dumbuya, 2017 WL 486917 (Bankr. N.D. Ohio Feb. 6, 2017). Read the full opinion here.

Weltman & Moskowitz, LLP is proud to announce that founding partners Richard Weltman and Michael Moskowitz have both been selected as Metro New York Area Super Lawyers for 2017. This is the fourth consecutive year each has been recognized as a top bankruptcy/debtor and creditors’ rights attorney. This honor is a product of a rigorous investigative process by the publishers of Law and Politics. Attorneys are selected based on professional accomplishments, licensing and certifications, peer recognition and personal achievement. The final published list represents no more than 5% of the lawyers in each state. The firm is also proud to announce that Melissa Guseynov, an associate of the firm, has been selected as a New York Metro Rising Star! This selection is limited to no more than 2.5% of the attorneys in New York State. The Super Lawyers objective is to create a credible list of outstanding attorneys, and the lawyers of Weltman & Moskowitz, LLP are proud to be recognized for their hard work and client dedication.

By Michael L. Moskowitz and Michele K. Jaspan

Our firm was tasked by one of our lender clients to file a residential mortgage foreclosure case in New Jersey after borrower’s failure to make mortgage payments. Borrower, assisted by a purported residential foreclosure defense expert, sought to place numerous roadblocks to the foreclosure action, including the filing of an answer containing the usual boilerplate meritless “defenses.” Ultimately, after extensive discovery and unnecessary litigation caused by borrower’s “scorched-earth” tactics, final judgment of foreclosure was rendered in favor of lender. Of course, this is not the end of the story, only the beginning.

By Michael L. Moskowitz and Melissa A. Guseynov

On March 22, 2017, the United States Supreme Court held that bankruptcy courts lack the power to dismiss chapter 11 cases by structured dismissal if they provide for distributions that do not adhere to the Bankruptcy Code’s priority rules without the consent of the affected creditors. Czyzewski et al. v. Jevic Holding Corp. et al. (Case No. 15-649) (Sup. Ct.).     

By Michael L. Moskowitz and Michele K. Jaspan

We previously reported about Lenders’ Chapter 13 obligations set forth in Bankruptcy Rule 3002.1, entitled Notice Relating to Claims Secured by Security Interest in the Debtor’s Principal Residence (click here). To reiterate, a mortgage lender must provide to debtor, debtor’s counsel, and the chapter 13 bankruptcy trustee, notice of any fees, expenses or charges incurred by lender in connection with its claim, following commencement of the chapter 13 case. In addition, lender must notify the same parties about any changes to the monthly mortgage payments which come due post-petition.

By Michael L. Moskowitz and Melissa A. Guseynov

On September 23, 2016, Bankruptcy Judge Christine M. Gravelle, U.S.B.J. held that a chapter 13 debtor may strip off a wholly unsecured lien on a primary residence where the debtor is the sole owner of the property, even if the non-debtor ex-spouse is liable on the debt which the debtor seeks to strip. In re Mensah-Narh, 2016 WL 5334973 (Bankr. D.N.J.. Sept. 23, 2016).  Read the full opinion here.

By Michael L. Moskowitz and Melissa A. Guseynov

On October 27, 2016, the Court of Appeals for the Ninth Circuit held that a credit union’s proofs of claim were properly rejected by the Bankruptcy Court as untimely, and that the debtor’s acknowledgment of debt owed to the credit union in her bankruptcy schedules was not an informal proof of claim. In re Barker, 2016 WL 6276078 (9th Cir. Oct. 27, 2016). Read the full opinion here.

By Michael L. Moskowitz and Melissa A. Guseynov

Generally, the concept of “reclamation” protects vendors in Chapter 11 cases because it provides a way to either retrieve goods delivered to a debtor pre-petition or to recover the value of those goods. On August 24, 2016, Bankruptcy Judge Mary F. Walrath, sitting in the Bankruptcy Court for the District of Delaware, bolstered creditors’ reclamation rights when she overruled an objection to a vendor’s claim for reclamation under section 546(c) of the Bankruptcy Code. In re Reichold Holdings US, Inc., et al., 556 B.R. 107 (Bankr. D. Del. 2016). This decision marks a noteworthy success for vendors asserting reclamation rights under the Bankruptcy Code.

Oftentimes, creditors wait too long before demanding reclamation or stopping delivery of their goods. This may result in a substantially smaller recovery on their claims. Trade creditors may significantly increase their recovery by reacting quickly when their buyer files for bankruptcy. This is crucial because once a chapter 11 case is filed, 11 U.S.C. § 546 controls the reclamation process.

By Michael L. Moskowitz and Michele K. Jaspan

In Part I we highlighted how the amendments to the NY Real Property Actions and Proceedings Law (“RPAPL”), which became effective on December 20, 2016, affect lenders duties and obligations with respect to vacant and abandoned properties in foreclosure. In Part II we will address how the RPAPL amendments impact the foreclosure settlement conferences and pre-foreclosure notices.

By Michael L. Moskowitz and Michele K. Jaspan

On June 23, 2016, Governor Andrew Cuomo signed into law Chapter 73 of the Laws of New York 2016. We addressed the new law in a previous post which you can see here. We will address these changes in two separate blog posts. This first post addresses vacant and abandoned properties. Part II will address changes to foreclosure settlement conferences and the required pre-foreclosure notices.   

This legislation amends the Real Property Actions and Proceedings Law (“RPAPL”) and Civil Practice Law and Rules pertaining to residential mortgage loans and foreclosure. The changes go into effect on December 20, 2016. The new changes include provisions which govern procedures for vacant and abandoned properties, establish timelines for the sale of property post-foreclosure judgment, and provide enhanced protections for homeowners in default of their mortgage.  The new legislation imposes new obligations on lenders which will surely increase costs and add potential liability as follows: