The Court of Appeal of the State of California, Second District, recently
confirmed that if a borrower fails to "schedule" or disclose claims
against a creditor in the borrower's bankruptcy proceedings, the borrower
is barred from litigating the undisclosed claims against the creditor in
subsequent proceedings.
The plaintiff-borrower defaulted on his home loan. He entered into a
forbearance agreement with the servicer of the loan, Select Portfolio
Servicing, Inc. ("SPS"), but then re-defaulted. SPS notified the borrower
that his loan had been transferred to Greenwich Investors ("Greenwich").
forbearance agreement with the servicer of the loan, Select Portfolio
Servicing, Inc. ("SPS"), but then re-defaulted. SPS notified the borrower
that his loan had been transferred to Greenwich Investors ("Greenwich").
The borrower then filed for bankruptcy, making no mention of a possible
claim against Greenwich. The borrower's bankruptcy workout plan called
for borrower to make regular payments to Greenwich. The borrower again
defaulted, and Greenwich initiated nonjudicial foreclosure proceedings.
The borrower then filed suit against Greenwich, alleging breach of
contract, fraudulent and negligent misrepresentation, and violation of
foreclosure statutes. These claims arose from Greenwich's alleged failure
to acknowledge the forbearance agreement, as well as Greenwich's alleged
failure to abide by the notice provisions of the relevant foreclosure
statute, among other alleged statutory violations.
claim against Greenwich. The borrower's bankruptcy workout plan called
for borrower to make regular payments to Greenwich. The borrower again
defaulted, and Greenwich initiated nonjudicial foreclosure proceedings.
The borrower then filed suit against Greenwich, alleging breach of
contract, fraudulent and negligent misrepresentation, and violation of
foreclosure statutes. These claims arose from Greenwich's alleged failure
to acknowledge the forbearance agreement, as well as Greenwich's alleged
failure to abide by the notice provisions of the relevant foreclosure
statute, among other alleged statutory violations.
Greenwich demurred to the borrower's complaint, on the grounds that the
borrower was barred from raising his claims by the doctrines of res
judicata and estoppel. The trial court sustained the demurrer, and the
foreclosure sale took place. The borrower appealed, but the appellate
court upheld the trial court's decision.
borrower was barred from raising his claims by the doctrines of res
judicata and estoppel. The trial court sustained the demurrer, and the
foreclosure sale took place. The borrower appealed, but the appellate
court upheld the trial court's decision.
The appellate court's decision to sustain the lower court hinged on the
application of the rule established in Oneida Motor Freight, Inc., v.
United Jersey Bank, 848 F.2d 214 (3d Cir. 1988). As you may recall, the
court in Oneida Motor Freight stated that a party's failure to disclose
litigation claims likely to arise in a nonbankruptcy context "triggers
application of the doctrine of equitable estoppel, operating against a
subsequent attempt to prosecute the action." Id. at 417.
application of the rule established in Oneida Motor Freight, Inc., v.
United Jersey Bank, 848 F.2d 214 (3d Cir. 1988). As you may recall, the
court in Oneida Motor Freight stated that a party's failure to disclose
litigation claims likely to arise in a nonbankruptcy context "triggers
application of the doctrine of equitable estoppel, operating against a
subsequent attempt to prosecute the action." Id. at 417.
The borrower argued that cases decided subsequent to Oneida Motor Freight
provided that the rule applied only where the nondisclosure was
accompanied by bad faith. The court disagreed because, among other
reasons, the cases cited by borrower did not involve a subsequent lawsuit
against an entity that had been a creditor in the bankruptcy proceedings.
As such, in the other cases, the debtor did not benefit from the
nondisclosure. As the cases the borrower relied upon by the borrower were
all distinguishable from the matter at hand, the court concluded that the
Oneida Motor Freight rule should apply. Therefore, the borrower was
barred from litigating the claims he failed to disclose in his bankruptcy
proceedings.
provided that the rule applied only where the nondisclosure was
accompanied by bad faith. The court disagreed because, among other
reasons, the cases cited by borrower did not involve a subsequent lawsuit
against an entity that had been a creditor in the bankruptcy proceedings.
As such, in the other cases, the debtor did not benefit from the
nondisclosure. As the cases the borrower relied upon by the borrower were
all distinguishable from the matter at hand, the court concluded that the
Oneida Motor Freight rule should apply. Therefore, the borrower was
barred from litigating the claims he failed to disclose in his bankruptcy
proceedings.
However, the borrower's statutory claims (lack of notice, failure to
provide a loan modification) arose after the bankruptcy proceedings, and
thus were not barred by the Oneida Motor Freight rule. However, the court
found no merit in either claim.
provide a loan modification) arose after the bankruptcy proceedings, and
thus were not barred by the Oneida Motor Freight rule. However, the court
found no merit in either claim.
The court held that the statutory remedy for lack of notice of the
foreclosure sale is limited to a postponement of the sale. As the
foreclosure sale had already taken place, the court held that borrower had
"no further remedy." The court also held that there is no statutory duty
to provide a loan modification.
foreclosure sale is limited to a postponement of the sale. As the
foreclosure sale had already taken place, the court held that borrower had
"no further remedy." The court also held that there is no statutory duty
to provide a loan modification.
Eric Tsai
McGinnis Wutscher Beiramee LLP
Emerald Plaza
402 West Broadway, Suite 400
San Diego, CA 92101
Direct: (619) 955-6989
McGinnis Wutscher Beiramee LLP
Emerald Plaza
402 West Broadway, Suite 400
San Diego, CA 92101
Direct: (619) 955-6989
Fax: (866) 581-9302
Mobile: (714) 600-6000
Email: etsai@mwbllp.com
Admitted to practice law in California, Nevada and Oregon
McGinnis Wutscher Beiramee LLP
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