Suspension of foreclosure can be interpreted broadly, 2nd Circuit claims

The United States Court of Appeals for the Second Circuit on Wednesday upheld foreclosure restrictions applied to a limited liability company that owned property because a resident who filed for bankruptcy held a controlling interest in the LLC. .

In Bayview Loan Servicing v. Eileen Fogarty, the appeals court found that the mortgage company had “willfully” violated a stay of auto foreclosure by proceeding despite its knowledge of the petition. (Attempts to reach a legal representative for Bayview had failed at the time of this writing.)

The case is a reminder that courts tend to take a broad view of bankruptcy-related foreclosure restrictions, said Stephen Newman, partner in Stroock & Stroock & Lavan’s Financial Services Litigation, Regulatory & Enforcement Group. .

“This is yet another message from the courts to the effect of, ‘If there is bankruptcy in the vicinity of the transaction, file a formal motion to lift the automatic stay,'” Newman said in an email.

Fogarty had filed the bankruptcy petition after Bayview obtained a judgment allowing it to proceed with a foreclosure sale. She then informed the repairman “that, in her opinion, proceeding with the foreclosure sale would violate the automatic stay,” according to court documents.

While the motion “may well have been filed in good faith,” its existence “risked inconveniencing and disrupting the court-ordered sale,” and that was an understandable concern for the repairer, the court said.

However, although the mortgage company could have addressed this concern in other ways if it had led to an “unfair” situation, it did not, the court said.

“Here, Bayview did not take advantage of this means. Accordingly, we must find that Bayview breached the Automatic Stay when it proceeded with the sale after Fogarty filed its bankruptcy petition,” the appeals court said.

This suggests that “the surest source of action is to ask the court to [a] stay even…when you think the bankruptcy case is not filed in good faith,” Newman said.

Globally, delinquency rate have been historically low, but lockdown activity has increased over the past year as pandemic-related restrictions and relief have been rolled back, heightening the need to pay attention to the legal requirements surrounding the process.

Although the mortgage market in May only had a foreclosure rate of 0.33%, it was 17.55% higher than 12 months ago, according to the latest report from Black Knight. Mortgage monitor report. In addition, a growing share of the small number of borrowers still emerging from pandemic-related forbearance are request changes loan terms due to the long-term decline in income. Initial analyzes indicate that 10% of borrowers who have had payment suspensions could default.

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