In re: Arizmendi, No. 09-19263-OB13 (Bankr. S.D. Calif., May 26, 2011)
A recent California bankruptcy case dealt with the issue of a creditor bank that was taking shortcuts with the court and misrepresenting its position.
In the case, Frida Vissuet purchased a home with a $360,000 loan in 2007, secured by a lien on the property. Her mother in law, Jessie Arizmendi, resided in the home and feared they would lose their residence due to the family's inability to make their mortgage payments. The family made a plan to keep the home, whereby Frida transferred a 50% interest to Jessie as a gift, and then seek a reverse mortgage and a modification of the original loan on the house. The strategy was unsuccessful, and the bank moved to foreclose on the home.
As a result, Jessie filed for Chapter 13 bankruptcy, represented by her son, and listed her 50% interest in the home as an asset. Jessie's attorney son proposed a plan to cure the arrearage or late payments on the loan and continue to make mortgage payments. The bank did not object to the plan, and it was confirmed in March of 2010. In September, however, the bank filed a motion for relief from the automatic stay because of post-petition payment defaults, and also argued that Jessie filed for bankruptcy in bad faith.
However, during the ensuing trial, it came forth that the bank was not in possession of the Endorsed Note it claimed to possess, and that in fact the bank had been misrepresenting its position in the case. Because of this, the court required the bank to show specific evidence of its right to be considered in the case, and also a showing that sanctions against the bank would not be appropriate. Once again, the court has shown the necessity of candid and effective representation.
