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Bankruptcy Law Section Board of Directors

Chair: Alice Karen H. BradleyChair-Elect: Shay E. MeaglePast Chair: Thomas D. WalkerBudget Officer: Gerald R. VelardeSecretary: LeNatria Holly JuristNews Letter: Manny Lucero

Members

Chris PierceJames JacobsenAlice Nystel PageCharles R. HughsonBonnie B. GandarillaRuben Trey Arvizu

Young Lawyers Division Liaison

Leslie Dyer Maxwell

Ad hoc members

Ronald E. AndazolaKelley L. Skehen

Inside this issue:

Case Summaries ............................. 4

Core Proceedings .......................... 5

Conversion and Dismissal .......... 5

Claims ................................................ 6

Stay Violations ................................ 6

Mortgages ........................................ 8

Bankruptcy Fraud .......................... 8

A Word From the New Mexico Attorney Generals Office ..........10

Bankruptcy Newsletter June 2012

Upcoming EventsThe 12th Annual Golf TournamentFour Hills Country ClubJune 8, 2012Contact Gerald Velarde, (505) 248-0050 or gvelarde@mac.com

Upcoming CLEs

Chapter 13 Nuts and Bolts CLE September 21, 2012 • all day State Bar Center Section Members get a discount.

Stern v. Marshall Brown Bag Bankruptcy Court August 10, 2012 • noon More information on CLE credit will be forth coming.

If you have any ideas for a brown-bag CLE or a CLE for credit you would like to see, please contact anyone on the Board.

Mark Your Calenders!!!!A Word From The Clerk’s OfficeWe are down 16% the first four months of 2012 vs. same period last year in Bankruptcy filings.

The Clerk’s Office is hosting a delegation of Serbian court administrators the week of May 14 under the Library of Congress Open World Program.

STUDENT LoANS: Is the next generation in trouble?You have seen the news stories and read the articles—young people graduating from college, earning not only a degree, but the baggage of a large student loan. Students are leaving college with student loans that average roughly $27,000 (about $17,000 at UNM) and low or no prospects for getting a job. The total student loan debt is ex-pected to reach $1 trillion (with a “T”) dollars this year, outpacing credit card debt.

Fifteen percent of Americans (37 million) owe $870 billion in student loans, ac-cording to the Federal Reserve Bank of New York, and about two-thirds who hold the loans are under age 30. What’s raising red flags is that the default rates on federal loans are climbing. They hit 8.8% in 2009, nearly double the rate five years earlier, according to the most recent Department of Education figures.

Do we really want our future generation to deal with student loan debt that is out of control. New employees now have to decide, “Do I buy a house or pay my loans?” Some really can’t do both. “Do I wait to start a family or pay my loans?” By focusing all of earning potential on paying huge student loans, many don’t contribute to an already weak economy, thereby prolonging or even reversing the strides that have been made to strengthen the economy. Discharging student loans is the next growth area for bankruptcy practitioners. However, as the current discharge provisions are

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written, the chances of getting student loans discharged are almost non-existent.

Student loans were dischargeable in bankruptcy prior to 1976. With the introduction of the US Bankruptcy Code (11 USC 101 et seq) in 1978, the ability to discharge edu-cation loans was limited. Subsequent changes in the law have further narrowed the dischargeability of education debt.

The exception to discharge for private student loans evolved over time. Prior to 1984, only private student loans made by a “nonprofit institution of higher educa-tion” were excepted from discharge. This was intended to protect the National Defense Student Loan Program (NDSL), the predecessor to the Perkins Loan Program. Those loans were made by colleges using a revolving loan fund created using matching federal contributions. The Bankruptcy Amendments and Federal Judgeship Act of 1984 made private student loans from all nonprofit lend-ers excepted from discharge, not just colleges, by striking the words “of higher education.” The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ex-panded this to include all “qualified education loans,” re-gardless of whether a nonprofit institution was involved in making the loans.

In 1993, the Higher Education Amendments of 1992 (P.L. 102-325) amended the Higher Education Act of

1965 to add income-contingent re-payment as an option within the Di-rect Loan program. This repayment plan bases monthly loan payments on 20% of discretionary income, with discretionary income defined as the amount by which adjusted gross income exceeds 100% of the poverty line. After 25 years in repay-ment, the remaining amount owed is forgiven. The US Department of Education may require defaulted borrowers to repay their loans under income-contingent repayment. The availability of income-contingent repayment blocks most undue hard-ship petitions concerning federal student loans. (Parent PLUS loans are not eligible for income-contin-gent repayment.)

Prior to 1998, there were a couple of ways to discharge student loans. If a loan had been in repayment for seven years with no deferments, the debtor could file an adver-sary and obtain a discharge. Congress did away with this provision due to its belief that there would be a rise in student loan defaults and a race to the bankruptcy court. In 1998, an amendment struck the requirement that al-lowed education loans to be discharged after seven years in repayment. A review of the history of discharges prior to the amendment shows that only one percent of stu-dent loan discharges were granted based on the seven-year look back provision. (Dept. of Education statistics).

Today only the hardship provisions of 11 U.S.C. 523(a)(8) are available to students seeking a discharge of stu-dent loans. The law lets you eliminate your student loans if paying them creates an “undue hardship” for you and your family. You must prove to the bankruptcy court that you’re only earning enough to pay for a “minimal standard of living.” This usually means you can’t afford cable, Internet or a cell phone even without paying your student loans. You also have to prove that your finances aren’t likely to get better. Case law also looks to see if the debtor was able to make at least a few payments prior to the filing of the petition. The Tenth Circuit and the Bankruptcy Courts look to Educ.Credit Mgmt. Corp. v. Polleys, 356 F.3d 1302 (10th Cir.2004) which adopted the Brunner v. N.Y. State Higher Educ. Servs. Corp., 831 F.2d

Student Loans: Is the next generation in trouble? continued from cover

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395 (2d Cir.1987) case. The Department of Education’s Income Contingent Repayment plan is recognized by the courts as a good option for debtors to look at before filing an adversary proceeding.

As the cost of tuition continues to rise, driven by the sorry state of state budgets, concerns of mass defaults continue to rise. However, the reward for obtaining a college edu-cation is clear. The earning potential for a person with a college degree continues to be a proven fact, but there-in lies the rub. In order to place yourself in a situation where your earning potential is greater, you must take on more and more debt earlier in life. Some members of Congress don’t see a problem, saying that the earning potential will more than pay off the student loans. Sena-tor Charles E. Grassley (R-IA) argued that the real issue was not the amount of debt, but rather why tuition was increasing and the fact that students couldn’t find jobs. Reducing student loan debt, he asserted, would not solve those problems. It would only reward those who sought a “bailout at the expense of others.” Senator Grassley ar-gued that the 2005 changes had been made to treat all loans alike and to eliminate problems that had been no-ticed after the 1978 Code was enacted and where debtors had “strategically file[d] bankruptcy just to get their stu-dent loans discharged.” The result of limiting such dis-charges, he asserted, was to make interest rates on loans more affordable than they otherwise would be. Instead of encouraging bankruptcy discharges, he argued, efforts should be made to address the root causes of rapidly ris-ing tuition costs.

In an effort to tackle the growing issue of student loans, Senators Dick Durbin (D-Ill.), Al Franken (D-Minn.), and Sheldon Whitehouse (D-R.I.) have introduced the Fairness for Struggling Students Act of 2011 in the U.S. Senate. Representatives Steve Cohen (D-Tenn.), Danny Davis (D-Ill.), John Conyers (D-Mich.), and George Miller (D-Calif.) introduced the related Private Student Loan Bankruptcy Fairness Act of 2011 in the House of Representatives. Both bills would restore the ability to discharge commercial student loans in bankruptcy pro-ceedings, reversing a 2005 change to the law for borrow-ers who find themselves unable to make payments on their loans.

As explained in a press release from Senator Durbin’s of-fice, “Before changes were made to the bankruptcy code

in 2005, only government issued or guaranteed student loans were protected during bankruptcy. This protection has been in place since 1978 and was intended to safe-guard federal investments in higher education. Today’s bill would restore the bankruptcy law, as it pertains to private student loans, to the language that was in place before 2005, so that privately issued student loans will once again be dischargeable in bankruptcy.”

Representative Cohen emphasized the need for the bill, echoing the sentiment of many who are concerned with the nation’s rapidly rising educational debt, “People who seek higher education to better their futures should not be dissuaded from doing so by the threat of financial ruin.” He added, “The bankruptcy system should work as a safety net that allows people to get the education they want with the assurance that, should their finances come under strain by layoffs, accidents or other unforeseen life events, they will be protected. My bill takes a modest but important step in achieving this goal.”

Bankruptcy protection is particularly important when it comes to private and commercial student loans because these loans are not eligible for the repayment assistance, forgiveness, and relief programs that accompany federal student loans. For example, neither the Income-Based Repayment plan nor the Public Service Loan Forgiveness program is available for commercial loans. Access to these and other forgiveness programs is a significant factor to consider when choosing which types of student loans you should borrow to help finance your higher education. Applications for consolidation under the Ford programs currently available through the Department of Education are available at its website.

Both bills have garnered the official backing of at least 35 organizations, including the American Federation of Teachers, the Institute for College Access & Success and its Project on Student Debt, and the National Consumer Law Center. In a letter to Senator Durbin, they expressed their support, stating, “Your bill would restore fairness for struggling Americans who pursued the American dream by going to college, only to find themselves in financial distress.”

Only time will tell. iIs there a crisis or will this all work out in the end? Stay tuned.

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SUPREME COURT OF THE UNITED STATES HALL ET UX. v. UNITED STATES

No. 10–875. Argued November 29, 2011—Decided May 14, 2012

Chapter 12 of the Bankruptcy Code allows farmer debt-ors with regular annual income to adjust their debts subject to a reorganization plan. The plan must provide for full payment of priority claims. 11 U. S. C. §1222(a)(2). Under §1222(a)(2)(A), however, certain governmen-tal claims arising from the disposition of farm assets are stripped of priority status and downgraded to general, unsecured claims that are dischargeable after less than full payment. That exception applies only to claims “en-titled to priority under [11 U. S. C. §507]” in the first place. As relevant here, §507(a)(2) covers “administrative expenses allowed under §503(b),” which includes “any tax . . . incurred by the estate.” §503(b)(B)(i).Petitioners filed for Chapter 12 bankruptcy and then sold their farm. They proposed a plan under which they would pay off outstanding liabilities with proceeds from the sale. The Internal Revenue Service (IRS) objected, asserting a tax on the capital gains from the sale. Petitioners then pro-posed treating the tax as an unsecured claim to be paid to the extent funds were available, with the unpaid balance being discharged. The Bankruptcy Court sustained an IRS objection, the District Court reversed, and the Ninth Circuit reversed the District Court. The Ninth Circuit held that because a Chapter 12 estate is not a separate taxable entity under the Internal Revenue Code (IRC), 26 U. S. C. §§1398, 1399, it does not “incur” postpeti-tion federal income taxes. The Ninth Circuit concluded that because the tax was not “incurred by the estate” un-der §503(b), it was not a priority claim eligible for the §1222(a)(2)(A) exception.

Held: The federal income tax liability resulting from pe-titioners’ postpetition farm sale is not “incurred by the estate” under §503(b) of the Bankruptcy Code and thus is neither collectible nor dischargeable in the Chapter 12 plan. Pp. 4-17. (a) The phrase “incurred by the estate” bears a plain and natural reading. A tax “incurred by the estate” is a tax for which the estate itself is liable. Only certain estates are liable for federal income taxes. IRC §§1398 and 1399 define the division of responsibilities for the

CASE SUMMARIESpayment of taxes between the estate and the debtor on a chapter-by chapter basis. Under those provisions, a Chapter 12 estate is not a separately taxable entity. The debtor—not the trustee—is generally liable for taxes and files the only tax return. The postpetition income taxes are thus not “incurred by the estate.” Pp. 4-5. (b) Section 346 of the Bankruptcy Code and its longstanding interplay with IRC §§1398 and 1399 rein-force that whether an estate “incurs” taxes turns on Con-gress’ chapter-specific guidance on which estates are sep-arately taxable. The original §346 established that state or local income taxes could be imposed only on the estate in an individual-debtor Chapter 7 or 11 bankruptcy, and only on the debtor in a Chapter 13 bankruptcy. Congress applied the framework of §346 to federal taxes two years later: IRC §1398 and 1399 established that the estate is separately taxable in individual-debtor Chapter 7 or 11 cases, and not separately taxable in Chapter 13 (and now Chapter 12) cases. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 subsequently amended §346, expressly aligning its assignment of state or local taxes with the IRC separate taxable entity rules for fed-eral taxes. This Court assumes that Congress is aware of existing law when it passes legislation, and the existing law at the enactment of §1222(a)(2)(A) indicated that an estate’s liability for taxes turned on separate taxable entity rules. Pp. 6-9. c) Chapter 13, on which Chapter 12 was mod-eled, further bolsters this Court’s holding. Established understandings hold that postpetition income taxes are not “incurred by the [Chapter 13] estate” under§503(b) because they are the liability of the Chapter 13 debtor alone. The Government has also long hewed to this po-sition. Section 1305(a)(1), which gives holders of post-petition claims the option of collecting postpetition tax-es within the bankruptcy case, would be superfluous if postpetition tax liabilities were automatically collectible inside the bankruptcy. It is thus clear that postpetition income taxes are not automatically collectible in a Chap-ter 13 plan and are not administrative expenses under §503(b). To hold otherwise in Chapter 12 would disrupt settled practices in Chapter 13 cases. Pp. 9-12. (d) None of the contrary arguments by petition-ers and the dissent overcomes the statute’s plain language, context, and structure. There is no textual basis for giving “incurred by the estate” a temporal meaning, such that it refers to all taxes “incurred postpetition.”

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CoRE PRoCEEDINGS, “Related to” JurisdictionIn re BearingPoint, Inc., 453 B.R. 486 (Bankr. S.D. N.Y. 2011). In this case, the judge confronted some of the fall-out from the Stern v. Marshall decision. In confirming the plan, he had granted the creditors’ committee request to limit the scope of the releases given to management, but had used his own approach by which he required that any such suits must be heard only within his court (or the dis-trict court). His idea, he had indicated, was to ensure that suits that were brought were not frivolous or “left to the vagaries of state court jury trials in remote jurisdictions.” After Stern, though, he concluded that he might need to revise his approach. In particular, he noted that, it was un-clear whether, even with consent of the parties, he could hear and enter final decisions on the state law issues in a pending matter. And, he pointedly noted that the defen-dants had not made any clear or unequivocal statements about their intention to consent to bankruptcy court ju-risdiction or to waive a right to seek withdrawal of the reference. As a result, he concluded that the process could quickly degenerate into a morass of procedural issues.

He also noted that (despite his prior reasoning about why he thought that jurisdiction should be limited to his court where he could use his experience with respect to the case), that background could only go so far since he could not properly use it to substitute for actual testimony and fact-finding. (And that would be even more true with any local district judge who would have no actual knowledge of the case itself.) Finally, he noted that the trustee’s re-quest to hold the hearing in Virginia was warranted in that the company was actually based there (despite hav-ing filed in New York) and it would be easier to obtain service over the relevant parties. He also concluded that, in light of the Stern issues, the case would likely proceed more quickly there. Accordingly, he held that he could modify the existing plan provisions that limited jurisdic-tion to New York courts, and that, in the future, he would only require an initial screening function in his court and not necessarily assume that all suits should be heard there.

CoNVERSIoN AND DISMISSALTaylor v. Winnecour, 460 B.R. 673 (W.D. Penn. 2011). Although the language in Section 1307 would appear to unequivocally allow a debtor to dismiss her Chapter 13 case at any time, the courts have disagreed over whether that right can be denied altogether or subordinated to a request for the case to be converted to Chapter 7 if abuse is shown. Since the Supreme Court’s decision in Marra-ma v. Citizens Bank of Massachusetts, 549 U.S. 365 (2007), which held that a debtor, under relatively similar lan-guage in Section 706(a), did not have an absolute right to convert to Chapter 13 from Chapter 7, many courts have held that the same reasoning would apply to the right to obtain dismissal of the Chapter 13 case. The court here sided with that view, noting that the Fifth, Eighth, and Ninth Circuits agreed, although other courts, most no-tably, the Second Circuit do not. It also agreed with the bankruptcy court that the debtor’s behavior met the level for a finding of abuse that would bar dismissal of the case in the fact of opposition by other parties.

In re DeFrantz (Nady v. DeFrantz), 454 B.R. 108 (9th Cir. BAP 2011). Somewhat contrary to Taylor, the BAP con-cluded that, in the related scenario, i.e., where a Chapter 13 debtor seeks to convert its case to Chapter 7 and the creditor seeks to have it dismissed, the right to convert is absolute. At least in that scenario, where a debtor would be retained in bankruptcy system, and subject to the con-trol of a trustee, the BAP held that there were sufficient safeguards to deal with abusive behavior in the Chapter 13 period. If the debtor had engaged in false statements in its schedules for instance, or failed to follow orders to provide discovery, those were matters that could be dealt with in Chapter 7 under the objection to discharge provi-sions which could in many ways be more draconian than a mere dismissal of the case.

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CLAIMS: Monetary Claims vs. Injunctive ReliefIn re Otero, 2011 Bankr. LEXIS 2901 (Bankr. N.D. Ohio 6/27/11). After the debtor received his Chapter 7 dis-charge, his former employer filed suit against him and his new employer alleging that the debtor was violating a no-compete agreement by working for the new employer. The only relief sought against the debtor was an injunc-tion to enforce the clause. The debtor sought to have the former employer held in contempt, but the court found that the actions against the debtor were not attempts to

collect on a discharged claim. A claim relating to a re-quest for an injunction must show that the equitable re-lief is an alternative to a money judgment. The grant of injunctive relief, though, can only be made under state law by showing that the monetary relief is inadequate and would not provide an appropriate substitute. Barring a debtor from violating a no-compete agreement where he would not even have to pay anything to comply does not violate the discharge injunction.

STAY VIoLATIoNS10th Circuit Requires Original Note and Reverses Stay Relief

In Re Mark Stanley Miller, 2012 U.S. App. Lexis 1863. After Deutsche Bank National Trust Company (Deutsche Bank) brought a foreclosure action against the home owned by ap-pellants Mark Stanley Miller and Jamileh Miller and ob-tained an Order Authorizing Sale (OAS) from a Colorado court, the Millers filed a Chapter 13 bankruptcy petition. Upon the filing of their petition, an automatic stay entered, halting the foreclosure proceedings. See 11 U.S.C. § 362(a). Deutsche Bank obtained an order from the bankruptcy court relieving it from the stay to permit the foreclosure to con-tinue. See id.  [*2] § 362(d). The Tenth Circuit Bankruptcy Appellate Panel (BAP) affirmed the bankruptcy court’s or-der granting Deutsche Bank relief from the automatic stay. The Millers now appeal from the BAP’s order affirming re-lief from stay. The issue before the Tenth Circuit Court was whether Deutsche Bank established that it was a “party in interest” entitled to seek and obtain relief from the stay. See id. The court concluded that Deutsche Bank did not meet its burden of proof on this issue, reversed the BAP’s order and remand for further proceedings.

On April 20, 2006, the Millers executed a promissory note (Note) in the amount of $216,236 in favor of IndyMac Bank, F.S.B. (IndyMac). The Note was secured by a Deed of Trust assigning a security interest in the Millers’ Colorado home to the public trustee of Arapahoe County and creat-ing a power of sale in the public trustee. The Deed of Trust identified Mortgage Electronic Registration Systems, Inc. (MERS), acting as a nominee for IndyMac, as its beneficiary. It further provided that “[t]he Note . . . (together with this Security Instrument) can be sold one or more times without prior notice to Borrower.”

The Millers filed their Chapter 13 bankruptcy petition on June 22, 2010. On October 7, 2010, Deutsche Bank filed its motion for relief from stay. In its motion, Deutsche Bank recited that it was the current owner of the Note and Deed of Trust. A copy of the Note, indorsed in blank, was attached to the motion.

The Millers responded in two ways. First, they filed an ad-versary proceeding in which they accused Deutsche Bank of filing a fraudulent foreclosure and fraudulently seeking relief from stay. (The adversary proceeding is not a subject of this appeal.) Second, they lodged an objection to the motion for relief from stay. In their objection, the Millers asserted that Deutsche Bank was not the proper party in interest and lacked standing to bring the motion. Specifically, they com-plained that Deutsche Bank had not produced the original Note or proved that it was in possession of the Note. On November 3, 2010, the bankruptcy court held a hearing on the motion for relief from stay. During the hearing, counsel for Deutsche Bank proffered a copy of the    [*6] Note in-dorsed in blank by IndyMac, along with a copy of the Deed of Trust. The bankruptcy judge asked counsel “where is the original of the note right now?” Aplt. App., Vol. II at 95. Counsel responded, “The original of the note has been re-quested, and it should be on the way to our firm here shortly. I can present that at any evidentiary hearing.”  Id. Appar-ently, no further evidentiary hearing was held on the issue of Deutsche Bank’s possession of the Note. Instead, the bankruptcy court made findings from the bench at the close of the hearing on the motion for relief from stay. The court observed that it had a copy of the Note and that “I have representation of counsel that the original is on its way.” Id. at 107. After noting the state court’s findings that Deutsche Bank had standing to proceed under Colorado Rule of Civil Procedure 120, the bankruptcy court found that “sufficient grounds exist for the lifting of the automatic stay” and that relief from stay was appropriate. Id. at 110.

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The BAP affirmed the Bankruptcy Court. The Tenth Circuit reversed and remanded.

Garrett v. Cook, 652 F.3d 1249 (10th Cir. 2011). Ordinar-ily any action brought against the debtor is subject to the automatic stay, and that bar continues even if the debtor is the party that seeks to appeal an adverse ruling therein. Conversely, an action brought by the debtor is not subject to the stay and the defendants may file appeals without violat-ing the stay. In this instance, the debtor was a defendant in a state court action but, after filing his petition, the bank-ruptcy court lifted the stay to allow that action to proceed in state court. After some three years of litigation, and a number of unfavorable rulings, the debtor removed the ac-tion to the federal district court, asserting that the Hispanic state court judge (and others in the state court system) were biased against him because he was a “white guy.” The dis-trict court considered his removal notice, held that it was frivolous, and remanded the matter to the state court. It also issued an award of damages against the debtor.

The Tenth Circuit concluded that there was no violation of the stay in the district court’s action, despite the fact that it came in the course of a suit originally initiated against the debtor. While that was true, it was the debtor’s own, post-petition actions to step away from the state court litigation and initiate a separate, new federal court action that resulted in the award of sanctions. In that context, the stay was not violated both because the sanctions dealt with a purely post-petition cause of action for damages that did not exist and could not have been litigated prior to the petition date and because it was the debtor’s choice to initiate that new litiga-tion that led to the damages. Accordingly, the award of dam-ages to defendants was affirmed.

In re Randolph Towers Coop., Inc., 458 B.R. 1 (Bankr. D.D.C. 2011). A bank’s decision to put a restraint on withdrawals from a debtor’s bank account until the funds are transferred to a proper “debtor in possession” account does not violate the stay. The bank does not hold “property of the estate,” rather, as noted in Citizens Bank of Maryland v. Strumpf, 516 U.S. 16 (1995), a bank account is, in reality, nothing more than a debtor-creditor relationship between the depositor and the bank. The bank does not hold the debtor’s “money” in a vault; it takes in his deposits, uses them for its own purposes and promises that it will pay him back those amounts at a later date. The courts have never treated mere breaches of contract as either a violation of the stay, or Section 542, the turnover section. In neither case, did Congress intend for courts to exercise the contempt power to deal with disputed contrac-tual obligations. That is particularly true here where the bank

merely exercised a temporary freeze over the funds to ensure that it did not allow them to be used for the improper pay-ment of prepetition expenses. The court noted that the Su-preme Court had upheld such a freeze in Strumpf because of the nature of the contractual relationship between the bank and the debtor; that analysis would not change whether the funds were held for a day or a week or a year.

In re Ogunfiditimi (Ogunfiditimi v. Deutsche Bank National Trust Company), 2011 Bankr. LEXIS 2627 (Bankr. D. Md. 7/6/11). This case illustrates an increasing problem: the debtor has real property assets as to which he is underwater and wants to surrender them to the lender, but the lender says, “thanks but no thanks.” The lender does not wish to release its lien (on the assumption that property values will eventually go up and/or that it can collect its debt should the debtor procure a short sale), but it refused to complete a foreclosure and take over ownership of the property because of the costs it will entail for property taxes, maintenance and the like once it owns the property . The court was sympa-thetic but saw no basis in the Code under which it could force the lender to assert or abandon those secured interests simply because the debtor did not want to continue to incur the burdens of ownership of the property.

In re Jenkins, 2011 Bankr. LEXIS 2539 (Bankr. N.D. N.Y. 7/1/11). This pre-BAPBCPA case illustrates how stringent-ly courts interpret stay issues. The county and the debtor’s wife were charged with contempt for attempting to collect prepetition arrears for child support. Although they strenu-ously argued that they were only pursuing charges for failure to make postpetition payments, the court concluded that (apparently in large part due to glitches in record-keeping, deductions, and transmission of payments), the requests that were put at issue in the contempt proceedings in state court necessarily must have included at least some prepetition ar-rears. The court found that the inclusion of those prepetition amounts tainted any actions that included them even if there were also clearly postpetition arrears that had accrued.

The breadth of the stay analysis is conveyed by the court’s statement that even if the actions were taken “inadvertently or by mistake,” they would still fall under the prohibitions on “willful” acts that violate the stay. To meet that criteria, the court stated, it must only be shown that an intended act was taken with knowledge of the stay’s existence even if the creditor had no idea that its action would violate the stay. Such a violation, the court held, would entitle the debtor to actual damages although the lack of any true intent might preclude the imposition of punitive sanctions.

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In addition, the court noted, while it might be true that non-bankruptcy courts would have the power to determine the applicability of the stay and such a ruling might or might not require deference from the bankruptcy court, it need not do so here because there was no indication that the state court judge had actually considered or ruled on the stay is-

sues. Simply proceeding without taking up or discussing the stay issue did not create any sort of considered ruling to which the bankruptcy court might need to defer. This il-lustrates the practical importance of having a clear, on the record, determination by the state court on the stay issue if it decides to proceed after the bankruptcy case is filed.

MoRTGAGESScarborough v. LaSalle Bank Nat. Ass’n”Scarborough v. La-Salle Bank Nat. Ass’n 2012 WL 288564,C.A.10 (Utah), 2012. Mortgagor filed state court action against mort-gagee, as well as several other entities, claiming that pre-default sale of his mortgage and its securitization ef-fectively prevented defendants from instituting foreclo-sure proceedings against him. After removal, the United States District Court for the District of Utah, 2011 WL 1549432, granted summary judgment in favor of defen-dants, and mortgagor appealed.

Holding: The Court of Appeals, held that securitization of a mortgage does not render the holder of the underly-ing trust deed and its nominees unable to foreclose absent authorization from every investor holding an interest in the securitized mortgage. Under federal and Utah law, securitization of a mortgage does not render the holder of the underlying trust deed and its nominees unable to foreclose absent authorization from every investor hold-ing an interest in the securitized mortgage.

Clementson v. Countrywide Financial Corp. 2012 WL 375508, C.A.10 (Colo.), 2012. Mortgagor brought pro se state-court action against, inter alia, mortgagee’s successor, asserting claims for violation of Colorado Consumer Protection Act (CPPA), fraud re-

sulting in theft, conspiracy to commit fraud resulting in theft, tortious acts resulting in personal injuries, breach of contract, breach of implied covenant of good faith and fair dealing, and violation of Colorado Organized Crime and Control Act (COCCA). After action was removed, the United States District Court for the District of Colo-rado, 2011 WL 1884627, adopting the report and recom-mendation of the United States Magistrate Judge, 2011 WL 1884715, dismissed claims and entered judgment for successor. Mortgagor appealed.

Holdings: The Court of Appeals, held that: (1) district court was not required to identify deficien-cies in mortgagor’s filings, explain them, and invite him to correct them; (2) mortgagor lacked standing to assert his claims, which were property of his Chapter 7 estate; (3) mortgagor’s claim based on postpetition request for mortgage modification was estate property; (4) mortgagor’s claims accrued once mortgagor was aware that defendants had engaged in alleged improper or ille-gal activity; (5) mortgagor was not entitled to equitable relief from state statutes of limitations; and (6) complaint failed to state claim under COCCA.

Affirmed.

BANKRUPTCY FRAUDU.S. v. Moser, 453 Fed.Appx. 762, C.A.10 (Kan.),2011.Defendant was convicted of conspiracy to commit bankruptcy fraud and bankruptcy fraud, following jury trial in the United States District Court for the District of Kansas. Following denial of his motion for acquittal, 2010 WL 2757281, defen-dant was sentenced to 121 months’ imprisonment. Defendant appealed.

Holdings: The Court of Appeals, Paul J. Kelly, Jr., Circuit Judge, held that:

(1) six counts of bankruptcy fraud were not multiplicitous, and (2) sufficient evidence supported bankruptcy fraud conviction.

Affirmed.

This case involves sixteen acres of land and a barn located on that land in Johnson County, Kansas, owned by Jeffrey Miller (Miller Enterprises). Miller Enterprises leased the land and barn to Hallmark Arabian Farms LLC (HAF),

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whose employees offered riding lessons and cared for boarded horses. Mr. Moser was a member and manager of HAF. HAF entered into a lease and option agreement with Miller En-terprises on August 1, 2003, and was behind on its lease pay-ments and in default of the terms of the option by July 2004. On March 11, 2005, Miller Enterprises filed proceedings to evict HAF due to unpaid rent in the amount of $64,000.00.

On April 27, 2005, Mr. Moser, and his wife, Doris Moser, filed a voluntary Chapter 7 bankruptcy petition. In a Chapter 7 case, the debtor must disclose all assets and liabilities in bankruptcy schedules and on a Statement of Financial Af-fairs (SOFA). The petition and schedules are signed by the debtor under penalty of perjury. In a Chapter 7 case, a trustee is appointed to recover the debtor’s assets and to pay off credi-tors. The trustee also holds a “section 341 hearing” where the creditors meet and examine the debtor under oath regarding the information contained in the schedules and SOFA. Mr. Moser’s trustee, David Seitter, conducted section 341 hear-ings on June 20, 2005 and September 13, 2005. Mr. Moser signed an Acknowledgment of Debtor Responsibilities on June 17, 2005—stating that he understood his legal obliga-tion to report to the trustee about all assets and creditors, and to cooperate with the trustee during his case. Thereafter, on June 24, 2005, Mr. Moser entered into a sub-lease agreement with Mr. Tom Heshion, leasing him stalls on the property for $3,500 per month and selling certain tools, machinery, and furniture to him for $5,000. He did not disclose this agree-ment to his trustee. Mr. Moser received a discharge of debt on May 17, 2006. Scott Goldstein, an attorney who worked with Mr. Seitter and assisted him on the case, testified that at the time of discharge, there continued to be confusion regarding Mr. Moser’s assets, partially due to his unwillingness to be forthright.

On the SOFA, Mr. Moser listed a transfer to Jeff Miller in October 2004 of “Gold and Silver Coins and Collectible Stamps” valued at $125,000. At trial, Mr. Goldstein explained the difference between a transfer and a pledge of property—a transfer indicates that the debtor no longer has control of the property, a pledge as collateral indicates that the debtor still owns the property, but that it is subject to a lien or security interest. Over time, Mr. Moser equivocated on whether the stamps or coins were returned to him. Id. at 85. Mr. Goldstein eventually learned from Mr. Miller’s attorney that all of these items had been returned to Mr. Moser.

Mr. Moser also disclosed on his schedules that he held a stock interest of unknown value in HAF, but failed to disclose that he also owned an option to purchase the real property on which HAF was located from Mr. Miller. The option to

purchase the 16.5 acres, entered into on August 1, 2003, was valued at $1.5 million.

Mr. David Seitter, as trustee, testified that he did not find out about the assignment or pledging of collateral of gold and silver coins until December 2005, at the earliest. He also felt that since HAF was listed on the schedules as having an un-known value, he needed to further investigate its value. The initial 341 hearing on June 20, 2005 did not answer all of Mr. Seitter’s questions, so a second was scheduled on September 13, 2005. In this hearing, Mr. Moser did not disclose that he had reached a confidential settlement agreement ending the pending lawsuit with Mr. Miller on August 31, 2005—only two weeks earlier. Mr. Seitter did not find out about the settle-ment until he received a letter from Mr. Moser’s bankruptcy attorney on or about November 29, 2005. The letter disclosed the settlement terms, giving HAF an option to purchase the real estate for $1,140,000 before October 15, 2005. Mr. Moser also signed an “Acknowledgment, Receipt of Collat-eral and Release” on August 31, 2005, providing that all of the property he had delivered to Mr. Miller for purposes of secur-ing obligations was returned to him. On October 25, 2005, HAF assigned the option to purchase the land, to Malcolm Knarr. In return, Mr. and Mrs. Moser could choose between a 50% equity position in the real property, or a commission. HAF also entered into a sublease agreement whereby Obeyan Arabian Farms and Thomas Heshion were to pay a security deposit in the amount of $5,000 to HAF.

Mr. Moser filed a Chapter 13 bankruptcy petition on April 3, 2007. Mr. William Griffin was appointed trustee in this case. In the Chapter 13 petition, Mr. Moser asserted that he had a 50% equity position in the real property that was the subject of the option, with an estimated market value of $1,550,000, but did not mention coins or stamps.

On May 9, 2007, Mr. Griffin conducted a 341 hearing where he questioned Mr. Moser about his equity position in the op-tion, and the status of any coins or stamps. At this hearing, Mr. Moser testified that he had received some of the coins back from Mr. Miller, but not all of them. Initially, he had not made reference on the schedules to coins or stamps, but he amended the SOFA after the hearing to include a transfer to Miller in 2004 of coins and stamps valued at $10,000.Prior to sentencing, Mr. Moser filed a motion to impose a single punishment for his convictions on Counts 2–8 and to vacate Counts 3–8 on the basis that the convictions were multiplicitous. The district court denied the motion, holding that each charge was based on a distinct act of concealment, each occurring at different time after the duty to disclose had arisen.

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A WoRD FRoM THE NEW MEXICo ATToRNEY GENERALS oFFICEAG oKs Settlement with Top Mortgage Service BanksForeclosure Abuses Agreement Worth $91.7 Million to N.M.

(SANTA FE)---Attorney General Gary King today announced that he has signed a landmark agreement with the nation’s largest mortgage servicers to address New Mexico foreclosure abuses and fraudulent prac-tices.

“I am extremely pleased that this national settlement will provide real relief to affected New Mexico bor-rowers and eliminate many of the unfair practices that contributed to mortgage-related financial losses in our state and across the country,” said AG King. “Also, the settlement does not grant any immunity from related criminal offenses and will not prevent potential New Mexico criminal prosecutions in the future.”

While the settlement includes significant relief for homeowners, it also puts in place new protections for homeowners in the form of mortgage servicing stan-dards. Those protections would likely not have been in-cluded if the state had pursued only a money judgment in a trial. The agreement does not prevent homeowners or investors from pursuing individual, institutional, or class action civil cases against the five servicers. The pact also enables state attorneys general and federal agencies to investigate and pursue other aspects of the mortgage crisis, including securities cases.

Only loans being serviced by one of the five named banks—Ally, Bank of America (BOA), Citi, Wells Far-go and JP Morgan Chase—are covered by the agree-ment. New Mexico’s estimated share of the settlement is $91.7 million. The settlement is part of a larger national joint federal-state agreement over foreclosure abuses and fraud, and unacceptable nationwide mortgage ser-vicing practices by the named banks. United States At-torney General Eric Holder, U.S. Housing and Urban Development (HUD) Secretary Shaun Donovan and a bipartisan group of state attorneys general announced the national settlement today in Washington, D.C.

New Mexico borrowers will benefit from approxi-mately:• $63 million in homeowner relief through loan term

modifications, principal reduction, and other direct relief.

• $12.5 million for refinancing for borrowers who are underwater and current on loans.

• $16 million for state payments designated to: a) Payments to borrowers for mortgage servicing

abuse ($4.5 million). b) Payments for state foreclosure prevention efforts,

homeowner hotline, outreach and housing coun-seling ($11.7 million).

• $1 million for the State Financial Institutions Divi-sion.

The unprecedented joint state-federal settlement is the result of a massive civil law enforcement investiga-tion that includes state attorneys general, state banking regulators across the country, and nearly a dozen fed-eral agencies. The settlement holds banks accountable

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for past mortgage servicing and foreclosure fraud and abuses and provides relief to homeowners. With the backing of a federal court order and the oversight of an independent monitor, the settlement stops future fraud and abuse. Under the agreement, the five servicers have agreed to $25 billion in relief under a joint state-national settlement structure. An independent monitor, who will report to states’ attorneys general, including AG King, will ensure mortgage servicer compliance. Because of the complexity of the mortgage market and this agree-ment, which will span a three-year period, in some cases participating mortgage servicers will contact borrowers directly regarding loan modification options. However, borrowers should contact their mortgage servicer to ob-tain more information about specific loan modification programs and whether they qualify under terms of this settlement. Settlement administrators or state attorneys general may also contact borrowers regarding certain aspects of the settlement.

Nationally:• Servicers commit a minimum of $17 billion directly

to borrowers through a series of national homeowner relief effort options, including principal reduction. Given how the settlement is structured, servicers will actually provide up to an estimated $32 billion in di-rect homeowner relief.

• Servicers commit $3 billion to a mortgage refinancing program for borrowers who are current but owe more than their home is currently worth.

• Servicers pay $5 billion to the states and federal gov-ernment ($4.25 billion to the states and $750 million to the federal government). The state payments in-clude funding for payments to borrowers for mortgage servicing abuse.

• Homeowners receive comprehensive new protections from new mortgage loan servicing and foreclosure standards.

• An independent monitor will ensure mortgage ser-vicer compliance.

• Government can pursue civil claims outside of the agreement, any criminal case; borrowers and inves-tors can pursue individual, institutional, or class action cases regardless of agreement.

Mortgage servicer phone numbers for their customers who want to inquire about the settlement:

• BofA: 1-877-488-7814• Citi: 1-866-272-4749• Chase: 1-866-372-6901• GMAC: 1-800-766-4622• Wells Fargo: 1-800-288-3212

More information will be made available as the settlement programs are implemented.

For more information on the proposed agreement:

FOR NM HOMEOWNERS: 1-800-678-1508Information Form for NM Homeowners: Link to the form below.

https://docs.google.com/a/nmag.gov/spreadsheet/viewform?formkey=dHpDak5xMGJ0TjBlMTl2MEppem43dkE6MQ

Other Websites:www.NationalForeclosureSettlement.com

www.HUD.govwww.DOJ.gov

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Great links to improve your practice:The Supreme Court blog on all things bankruptcy—a great place to keep current:

http://www.bankruptcylitigationblog.com/archives/cat-us-supreme-court-cases.html

Have clients that have tax problems but don’t want to file a bankruptcy? Check out the IRS website dealing with installment payments.

Try this link: http://www.irs.gov/individuals/article/0,,id=243335,00.html.(If that doesn’t work, go to irs.gov and input “Installment Agreement” in the search engine.)

Want to have an article published in this newsletter?

Contact Manny Luceromanny.lucero@usdoj.gov

ROSE -- STEWART III Retired United States Bankruptcy Judge for the District of New Mexico, passed away March 25 at his home in Albuquerque. Stewart had a long and rewarding career as an attorney and a judge, and an even longer and more rewarding life as a wonderful husband, father, grandfather, stepfather, and fast friend. He is survived by his beloved wife, Rose Spader; brother Paul Z. Rose (Ann); daughters Connie Rose Hunter (Tom), Carolyn Rose (David Midget), Sheila Rose Gillespie (Dennis); grandchildren Ian Stewart Hunter, Timothy Young Hunter, Jamie Lee Hunter, Hannah Rose Midget, Lau-

ren Rose Gillespie, and Carlton Davis Gillespie; and Rose Spader’s five children, Denise, Debbie, Michael, Mark, and Matthew, and her five grandchildren. He was preceded in death by his wife of 40+ years, JoAnn Dinsmoor Rose. Stew moved to New Mexico in 1949 and began his love affair with the West. From backpacking through the San Pedro Parks Wilderness (well, with a horse) to sailing his homemade Hobi on Cochiti Lake, to shooting his potato cannon at one-too-many mountain man rendezvous, to skiing at Sandia Peak, to enjoying a stirrup cup before the hunt with the Juan Tomas Hounds, he made the most of this land and this life. In 1982 Stew was appointed to the bench, and with his customary focus, intel-ligence, cigarettes, and positive outlook, served for 16 years in positions including chief bankruptcy judge, judge on the Appellate Panel of the 10th Circuit, and visiting judge for districts of Kansas, Colorado, Utah and Southern Florida. He received an Outstanding Judicial Service Award from the State Bar of New Mexico in 1992. He had great affection for his fellow judges, clerks, deputies, and secretaries. Before be-coming a judge, he was an attorney with the firms of McNeany, Rose, & Sholer and Ashby, Rose, & Sholer. Please join us in celebration of the life of Judge Stewart Rose on June 1, from 5–9 p.m. at the Albuquerque Country Club, 601 Laguna Dr. SW, Albuquerque. The family requests that in lieu of flowers, donations may be made to your favorite charity.

Published in the Albuquerque Journal on Sunday April 01, 2012