Earlier this week, the U.S. Supreme Court held that a creditor who deliberately files a bankruptcy proof of claim for a time-barred claim does not violate the Fair Debt Collection Practices Act (FDCPA). Midland Funding v. Johnson, No. 16-348, 581 U.S. __ (May 15, 2017) (slip op.). The 5-3 decision authored by Justice Stephen Breyer was met with a blistering dissent by Justice Sonia Sotomayor.  While the decision will help unscrupulous debt collectors, it will likely hurt legitimate creditors such as banks.

The FDCPA imposes penalties for “unfair and unconscionable means to collect a debt.” 15 U.S.C. § 1692f. All states have statutes of limitation setting a time limit on bringing certain types of lawsuits.  Once the limitations period has passed, a creditor may not sue to collect the debt.  The debt does, however, in some sense continue to exist.  If the debtor chooses to repay a time-barred debt, the creditor can keep the money.  As a banker, please be sure to send a thank-you note when this happens; you’ll be in no danger of writers’ cramp given the infrequency of the occurrence.

Continue Reading A “Pro-Creditor” Supreme Court Decision That Does No Favor for Banks

In chapter 11 bankruptcy cases, it is not uncommon for secured parties/lenders to provide a “carve-out” for various professional fees.  Frequently there may be a “carve-out” for “all chapter 11 professionals” or the “carve-out” may be broken out in different amounts for the debtor’s professionals as opposed to, for example, Creditors’ Committee professionals.  These “carve-outs” can often be in a Cash Collateral Order (assuming the debtor is using the secured party’s collateral) or in a DIP Order (debtor-in-possession financing). So what does a carve-out mean?

Continue Reading So What Does a Bankruptcy Carve-Out Clause Really Mean? Delaware Bankruptcy Court Concludes It is Not a Cap on Fees After All

In a win for secured creditors, the Ninth Circuit Court of Appeals recently held that a debtor who sought to cure a pre-petition default of its loan through its Chapter 11 plan must pay the default rate of interest set forth in the note. In Pacifica L 51 LLC v. New Investments Inc., the debtor proposed to pay the outstanding amount due under the note at the pre-default interest rate.  This proposal was in accordance with law in the Ninth Circuit, which held that even if a loan agreement provided for a higher post-default interest rate, a debtor who cured a default was entitled to repay at the lower, pre-default rate.

Continue Reading Ninth Circuit Holds Debtor Must Pay Default Interest Rate in Order to Cure Under Bankruptcy Plan

Massachusetts is notorious for having hyper-technical rules about notarization.  The trouble started in 2009 with the bankruptcy case of Matthew H. Giroux.  Mr. Giroux signed a mortgage in front of a notary public.  He acknowledged to the notary public that he signed the mortgage voluntarily for its stated purpose.  The notary public signed where he was supposed to, affixed his notarial seal, and inserted the expiration of his commission.  The mortgage was then recorded in the appropriate registry of deeds.  The notary public, however, forgot to insert Mr. Giroux’s name in the certificate of acknowledgement (the notary block on the mortgage); so it said: “[B]efore me personally appeared _____________ to me known to be the person (or persons) described in and who executed the foregoing instrument . . . .”  The bankruptcy court didn’t like that and invalidated the mortgage.

Ok, lesson learned.  Notaries—don’t forget to fill in the name of the person who signed the mortgage.

Continue Reading New Forms May Alleviate Some Concerns About Massachusetts Notarizations

Massachusetts bankruptcy courts have invalidated mortgages containing defects, including the failure of lenders to observe strict formalities in the execution of mortgage acknowledgements.   Continue Reading The Massachusetts Supreme Judicial Court Lends a Helping Hand to Inadvertent Lender Omissions in the Execution of Mortgage Acknowledgements