Can trustee require current financials - 18 months post discharge (Chap 7)

[justbroke]

I wouldn't turn them over unless you will get your homestead exemption. Anyhow, this is a sad day. Too bad the judge can't find out and make a sua sponte decision.

[freeatlast09]

Anyhow, this is a sad day.

Yes it is. This is shameful stuff. The only good thing here is that we didn't want the house, but how long will it be before upside down homeowners that want to keep their house are forced out for a few bucks in the Trustees coffers?

I recently read about a case in Arizona in which the Trustee held the case open for a few years and let the person's house appreciate in value (this was in '06 or so when values were really going up) and once the value exceeded the exemption, he took the house and sold it. I always thought the Chap 7 was a snapshot of values/assets on the day of filing. I guess that's not even true anymore when this type of thing can happen.

[despritfreya]

I recently read about a case in Arizona in which the Trustee held the case open for a few years and let the person's house appreciate in value (this was in '06 or so when values were really going up) and once the value exceeded the exemption, he took the house and sold it. I always thought the Chap 7 was a snapshot of values/assets on the day of filing. I guess that's not even true anymore when this type of thing can happen.

In Gebhart v. Gaughan (9th Cir., 2010 - I don’t have the full cite handy), which was actually two cases combined into one appeal, the Gebhart bk judge determined that the Trustee could sell the homestead property once it had value in excess of the allowed exemption. The bk judge determined that the allowed exemption is only for the dollars asserted, not the property. The Bankruptcy Appellate Panel (BAP) affirmed the decision. In the companion case the same thing happened but the bk judge determined that the property was exempt, not simply the $$ amount and denied the Trustee’s request to sell the property even though such a sale would have produced $$ in excess of the allowed exemption. The BAP, in the companion case, reversed the lower court. An appeal to the 9th Cir. Court of Appeals was brought by both debtors.

The issue raised:

“Our question is whether the bankruptcy Trustees may force a sale of the homestead properties in order to recover the excess equity, or whether instead the debtors should be allowed to retain any postpetition increase in the fair market value of their homes. . . (and)whether the Trustee’s failure to object to the homestead exemption claim within the period allowed by statute resulted in the homestead property being withdrawn from the bankruptcy estate at that point.”

The 9th Cir. sided with the BAP. “The homestead exemptions available to the debtors in both of these cases, however, do not permit the exemption of entire properties, but rather specific dollar amounts. . . The implications for the cases at issue here are clear: the fact that the value of the claimed exemption plus the amount of the encumbrances on the debtor’s residence was, in each case, equal to the market value of the residence at the time of filing the petition did not remove the entire asset from the estate.”

This is different from OP’s situation where there is no equity and the Trustee is wheeling & dealing to create the illusion of equity by getting a kickback. This type of conduct is much more insidious than a Trustee holding out until the property exceeds the value of the exemption. At least when that happens, the debtor get’s something - and in Gebhart’s case, the amount would have been $100k (the Az exemption at the time he filed).

In Gebhart, the 9th Cir. did recognized the potential abuse by a Trustee if he/she fail to quickly administer the case. However, that particular issue was not before the Court. The Court did state, “A trustee has a duty under 11 U.S.C. § 704(a)(1) to administer the case quickly and expeditiously, and we reach no decision as to whether the Trustee failed to live up to this duty by leaving the case open for eighteen months without activity. If there were any misconduct by the Trustee, the duty to police it falls on the U.S. Trustee . . . who may suspend or expel a trustee for failure to perform her duties or comply with the Bankruptcy Code.”

While the history behind the case is horrible, I actually agree with the decision. A Trustee does get the appreciation of the asset over and above the exemption. I, however, would have allowed Gebhart the exemption amount as it stands today, $150k, not what it was when he filed, $100k. I also agree with the Court when it stated "Gebhart was no more ignorant of the true facts than was the Trustee". Gebhart filed in 2003. The application to sell the property was done in 2006. Why he allowed the case to proceed beyond a "reasonable" period without seeking an abandonment - especially as home value were skyrocketing, is beyond me.

Des.

[justbroke]

Yes, I don't like the wheeling and dealing part and creating equity when there isn't any! Even if the Trustee somehow convinces the bank that they earned a commission by selling the property, albeit short, I still don't see how the Trustee earned a commission when they are paying one (or two) Realtors! Something is ROTTEN in Denmark ladies and gentlemen. Rotten.

I like how the 9th Circuit stated that the Office of the United States Trustee should deal with this! That is the UST's job. That is, to police the system and ensure that not only debtors but panel Trustee's are within the law. Now I'm wondering how many times this panel trustee has gotten away with this.

[despritfreya]

I like how the 9th Circuit stated that the Office of the United States Trustee should deal with this! That is the UST's job. That is, to police the system and ensure that not only debtors but panel Trustee's are within the law. Now I'm wondering how many times this panel trustee has gotten away with this.

The problem is that you have the "fox watching the hen house" (I think that's the metaphor). The UST is quick to go after document preparers and/or overcharging attorneys since those make for nice headlines - protecting debtors and such. But to clean its own house - well I suspect such would not be good for the headlines.

Des.

[keepsmiling]

It just gets worse and worse. Very serious implications here from all angles, but I can certainly see why the banks and trustees would want to head this way-- and who is to stop them? The banks pretty much get to make all the rules and play the game any way that works for them.

I'd have a hard time working up any eagerness to get the ball rolling on digging up all that financial stuff. What's the carrot? How about since everyone is making "side deals" you get one too???

So dh - who's handled a few short sales-is insisting that this 15K MUST show on the RESPA and that the bank is entitled to it if it's there. AND that the Attorney Ethics Board needs to be contacted about this.

[freeatlast09]

It just gets worse and worse. Very serious implications here from all angles, but I can certainly see why the banks and trustees would want to head this way-- and who is to stop them? The banks pretty much get to make all the rules and play the game any way that works for them.

I'd have a hard time working up any eagerness to get the ball rolling on digging up all that financial stuff. What's the carrot? How about since everyone is making "side deals" you get one too???

So dh - who's handled a few short sales-is insisting that this 15K MUST show on the RESPA and that the bank is entitled to it if it's there. AND that the Attorney Ethics Board needs to be contacted about this.

You're right. It makes me wonder how far the banks and powers that be will push us all before we break. The banks make the rules and own the politicians. As far as I can see, the only fighter out there is Elizabeth Warren and she is encountering resistance from all sides.

You also may be right on the $15k issue and the bank's entitlement to it. I don't think we can see the structure of the deal until it's filed with the court? My new stresser (is that a word?) in this whole thing is that even if we are compelled to provide the documents, I don't see much chance of this sale happening. You just know that BofA is going to deny it or mess it up somehow. Once it falls apart, then we'll be back to square one waiting for foreclosure with the our name still on the deed.

The fun continues. Oh well, as your screen name says: keep smiling.

[keepsmiling]

An attorney we spoke with recently- who happens to be a bootcamper- told us that the tt's are REELING from the housing bubble bust. They were raking it in for awhile with all that equity. Now they are spinning in circles and have probably been trying to come up with this alternative scenario. If this flies, it will be the REAL BK Reform Act.

Ouch, Ouch, Ouch. I so hope you can find someone to challenge this. Try calling the ethics board. Although I don't know if tt's have to play by the "regular" rules....

[catleg]

I wouldn't produce any documents until compelled by a court order.
Alternatively I would offer to make a side deal as long as you are compensated properly for your time and expenses at some lawyer-esque rate like $250/hour.
There really isn't too much they can do to you at this point.
Meanwhile tick-tock the clock is running on the short sale and sooner or later some party will back out.

[justbroke]

Actually, now that I think of this, the Trustee needs to file a Motion to Sell Free and Clear with the court before selling any property of the estate. This is standard and required practice. So my question is, has that motion already been filed and granted? If not, your attorney only needs to object to it and have this brought out into the open.

Just thinking.

[freeatlast09]

So my question is, has that motion already been filed and granted?

There has been nothing filed in this case since discharge except a change of address (for one of the creditors attorneys) and 'Trustee's Interim Report on File With the UST'. That's it. The only thing that has happened in the 18 months since discharge has been the real estate agent dropping the price every 4-6 weeks. In looking at the documents of the case, I also notice the Trustee's listing agreement with the agent (court approved) was only for 6 months. He never renewed it. Probably because the judge would have asked why he was listing a property short?

[justbroke]

I'm starting to think a Motion to Compel Abandonment would get this in front of the Judge so that the Court will see what's going on. Just me thinking again; don't mind me.

[chicagoannie]

This sucks at every conceivable level-- except, of course, for the tt and his realtor pal

How friendly is the OP's attorney with this trustee???!!!

[freeatlast09]

Just me thinking again; don't mind me.

That’s cool - I like thinkers... so much so that we just got back from a meeting with another attorney. I figured I wouldn’t take bad medical news without a second opinion so why take legal advice without it?

You should have seen this attorney’s expression when we said BofA wants post-petition tax returns, bank statements, paystubs, hardship letter, current monthly budget. His first question was “What business is it of theirs?”

He further stated everything we’ve been saying in all these posts – it’s irrelevant to the short sale and invasion of our privacy. His opinion was the same as Des – sure the Trustee is within his rights and can ask for post-petition financials if fraud is suspected, but that is not the case here and we are under no obligation to help him sell his property.

That leads to his biggest point (also made by Des earlier) – this house is the property of the bankruptcy estate. It was on the day we surrendered it. He’s trying to sell it as property of the estate so this is between the Trustee and BofA. They need to work it out amongst themselves.

We also talked about the $15k side deal. That one also stunned him as he has never heard of such a thing. (Side note: this new attorney has quite a bit of real estate law in his background and has worked with many foreclosure and short sales both with and without a bankruptcy discharge) He couldn’t understand why in the world BofA would go along with that part of it. He was quite perplexed at this ‘fake equity’.

That’s all the updates for now. Thanks to all who keep following this situation and posting good thoughts. We really appreciate it.

[justbroke]

You just have to shake your head and go "wow". (I'm sure your new attorney was saying "wow" a lot!)