The Issue

The issue is whether a Chapter 11 plan can be crammed down over the secured lender’s objection where the plan provides for the sale or transfer of the secured lender’s collateral with the proceeds going to the secured lender without the secured lender having the right to credit bid for is collateral up to the full amount of its claim.  

New amendments to the Bankruptcy Rules became effective on December 1, 2011.  These amendments add new requirements and potentially harsh penalties for failure to comply.  An overview of those amendments follows.

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Recently, the US Bankruptcy Court for the District of Delaware denied the request of Washington Mutual and WMI Investment Corp. (collectively the Debtors) for confirmation of the Modified Sixth Amended Joint Plain of Affiliated Debtors. Among a number of issues, the Bankruptcy Court determined that the valuation of a captive reinsurance subsidiary (WM Mortgage Reinsurance Company – currently in run-off), which would serve as the most valuable asset of the proposed reorganized debtor was flawed.

On October 20, 2011, the Director of the Arizona Department of Insurance filed a Complaint to place PMI Mortgage Insurance Company (PMI) into receivership in Arizona. In an interim Order, the court required the director, as Receiver, to take possession and control of PMI, which had been under the formal supervision of the insurance department since August 19, 2011. The court also directed that certain related affiliates of PMI be placed under administrative supervision.

In a recent appeal to the Sixth Circuit Bankruptcy Appellate Panel, Inre Collins, 2011 WL 4445451 (6th Cir. BAP Aug. 12, 2011), the trustee sought a declaratory judgment to determine the validity, extent, and priority of liens on the debtor’s real property held by four defendants.  The trustee appealed the district court’s dismissal of his complaint as to purported holders of the debtor’s first and second mortgages on the debtor’s property.

A recent New York bankruptcy case holds that shareholders, directors and officers who dissolve a corporation to avoid paying a judgment against the business may be jointly and severally liable for a non-dischargeable debt in their personal bankruptcies.

Dissatisfied with the ongoing multistate and federal efforts to reach a settlement agreement with major U.S. banks over unlawful foreclosure practices, Massachusetts Attorney General Martha Coakley indicated that her office was independently preparing to file several lawsuits. A number of U.S. states, along with the U.S. Department of Justice, have accused the five largest mortgage servicers, Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Ally Financial and Wells Fargo & Co., of failing to follow proper foreclosure procedures.

Introduction

In re Gelt Financial Corporation (Bankr. E.D. Pa.) Case no. 11-15827

The U.S. Bankruptcy Court for the District of Massachusetts ruled that the Massachusetts Predatory Home Loan Practices Act, Chapter 183C of the General Laws of Massachusetts, is preempted by the high cost home loan provisions of the federal Truth in Lending Act (“TILA”) for federally chartered depository institutions. The July 27 ruling came in a case brought by Massachusetts residents who had jointly received a home mortgage loan from a national bank.