In Florida Bankruptcy Cases, Raise Claims or Lose Them

Florida Bankruptcy Cases

In February, the 2nd Circuit handed down an interesting, unpublished Bankruptcy case, In re Residential Capital, LLC that demonstrates just how complicated the intersection between bankruptcy law, foreclosure law, and general civil litigation can get. bankruptcy cases
Like many Floridians, Stephanie Harris, an individual residing in Miami, Florida had some difficulty paying her mortgage around 2008. Eventually a mortgage foreclosure action was instituted against her by GMAC Mortgage (“GMACM”), the loan’s servicer, allegedly on behalf of the  loan’s owner in 2008.  Harris defended against the suit on the ground that GMACM brought the suit on behalf of the wrong securitization trust (i.e. that the named trust didn’t own the mortgage).  GMACM voluntarily dismissed the case.
In 2010, Harris filed for Chapter 7 bankruptcy and subsequently received a discharge.  As part of the proceedings she filed a statement of intent to to reaffirm her debt to GMACM but never actually executed a reaffirmation agreement.  In 2012 another foreclosure lawsuit was filed against Harris by GMACM.  That lawsuit is ongoing.  Subsequently, Residential Capital, LLC (“ResCap”) filed for bankruptcy. In November of 2012, Harris filed a Proof of Claim against ResCap in its bankruptcy case.  In bankruptcy cases, creditors are generally required to file Proof of Claims to notify the court of their claim to part of the bankruptcy estate.
Harris’ Claim seeks $5 million based on wrongful foreclosure and tortious interference with business relationships claims.  Though, it is brought against ResCap, it seems to be tied to conduct by GMACM and does not provide information tying the two companies.  Not surprisingly, ResCap objected to the claim on a variety of grounds, including judicial estoppel for any part of the claim that accrued prior to Harris’ 2010 bankruptcy filing because Harris did not disclose the claim in her 2010 filing.
Let’s break that down a little: Section 521(1) of the Bankruptcy Code requires a debtor in bankruptcy cases (Harris in this case) to disclose all of his or her actual or potential assets, this includes potential lawsuits.  In her 2010 bankruptcy filing, Harris did not disclose a potential lawsuit against ResCap or GMACM.  The Debtors thus argue that judicial estoppel prevents her from now bringing a claim based on actions, like the 2008 foreclosure lawsuit, that accrued prior to the bankruptcy discharge she received in 2011.
Judicial estoppel is a legal principle based in fairness that prevents a party from adopting one position in one court case and another position in a subsequent court case.  The court agreed with the Debtors and found that because she didn’t bring up her claim in her 2010 bankruptcy case, Harris could not now assert a claim based on conduct that accrued prior to that case.
The 2012 foreclosure occurred after the bankruptcy and thus, the part of her claim based on that lawsuit wasn’t precluded on judicial estoppel grounds.   However, the court found that it was none-the-less precluded because Florida does not recognize lawsuits based on attempted wrongful foreclosure.  The 2012 lawsuit was still pending and thus, could only an attempted foreclosure at the time of Harris’ claim.
Facing Foreclosure?  Considering Bankruptcy?
If you don’t find this case or bankruptcy and foreclosure law as interesting as we do or find yourself a little confused, that’s OK.  The Jacksonville bankruptcy attorneys at Adam Law Group keep up to date on the law so you don’t have to.  If you’re facing foreclosure or considering filing for bankruptcy, contact us today to discuss how we can apply this knowledge to help you.