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Recent Case Decisions Relevant to Low Income Housing

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Recent Case Decisions Relevant to Low Income Housing
Issue 29, Fall 2005


Recent Case Decisions Relevant to Low Income Housing

by Jim Schaafsma, MPLP Housing Law Attorney

 

Bankruptcy Court decision saying §8 owner is governmental unit is affirmed

A U.S. District Court (E.D. Mich.) judge recently affirmed a bankruptcy court decision that a project-based Section 8 landlord was a "governmental unit" for purposes of 11 USC 525(a), the anti-discrimination provision of the Bankruptcy Code. (The case name is New Baltimore Towers v. Oksentowicz, Case No. 04-73913 ; the opinion is unpublished and except on the PACER system it does not appear to be available electronically; if you want a copy of the decision, contact Jim Schaafsma at MPLP; jschaafs@umich.edu) That provision prohibits units of government from discriminating against persons (e.g. denying assistance) solely because of a bankruptcy filing. John Kraus from Lakeshore Legal Services handled both the bankruptcy and federal district court cases. The bankruptcy court's decision (In re Oksentowicz, 314 B.R. 638 (2005) was issued last September, and summarized for the Housing Task Force. Here's a short recap.

A little more than six months after getting a bankruptcy discharge, Thomas Oksentowicz applied for and was denied admission to New Baltimore Place (NBP), HUD subsidized multifamily rental property. NBP cited poor credit as the reason for denial. Oksentowicz filed a motion in the bankruptcy court alleging that NBP's denial violated 525(a). In its reply, NBT claimed it was not subject to 525(a) because it was not a governmental unit and also that the denial was not based solely on the bankruptcy filing. The bankruptcy court held that although NBP was privately owned, it was a governmental unit because of the "significant entwinement" of its operations with "governmental [HUD] policies, management, and control. To NBP's argument that the bankruptcy was not the sole reason for rejecting the rental application, the bankruptcy court said that the only negative entries on his credit report were related to the bankruptcy case.

In its opinion, the district court (J. O'Meara) cited several other federal court cases that decided the issue differently than the bankruptcy court, but after a short review of the bankruptcy court decision, and with little discussion, it said it "agrees and will affirm the order of the bankruptcy court." However concise, this decision is a very good one. It does not appear that NBP has appealed the decision.

6th Circuit says mortgage default cannot be cured in bankruptcy after foreclosure sale

The U.S.6th Circuit Court of Appeals recently held that a Chapter 13 bankruptcy debtor cannot not cure a mortgage default after a mortgage foreclosure sale is held. Reaching this result involved interpretation of a provision of the Bankruptcy Code, 11 USC 1322(c)(1), which says that a Chapter 13 plan may provide for the curing of a default related to a lien on the debtor's principal residence until that residence "is sold at a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law." To the question of whether the right to cure extends until the expiration of the redemption period following the sale, the Court said no, saying that a foreclosure sale is a "single, discrete event." Recognizing that there are 2 "schools of thought" on this issue, the Court concluded that the statutory language is unambiguous, and so, rejected the school that says the statutory language is ambiguous and then looks to the legislative history for support in concluding that the right to cure extends beyond the auction date to the point where the sale is completed under state law. In reaching its decision, the Court rejected the argument that the phrase "conducted in accordance with applicable nonbankruptcy law" stretches the "meaning of 'foreclosure sale' to encompass a state-law redemption period."

As the Court notes, its decision is consistent with the 6th Circuit's ruling in In re Glenn, 760 F.2d 1428 (6th Cir. 1985), a case decided before §1322(c)(1) came into effect in 1995, and considered cure rights under §1322(b)(3) and (5). The case is In re Cain, 423 F.3d 617 (6th Cir. 2005).

Mich Court of Appeals says mistake in foreclosure sales notice does not necessitate new sale

At least as far as this editor has noticed, there haven't been many Michigan appellate decisions addressing issues relevant to low income renter and homeowners lately, which is probably a good thing. And so, maybe more because of the dearth of recent notable cases than the significance of the case, here's a summary of an unpublished Michigan Court of Appeals decision in which the Court said that a misstatement in a foreclosure notice did not require a new foreclosure sale because the mortgagor had suffered no harm. The case is Homestead Savings Bank v. Norman Nealey Builders, Inc. http://www.michbar.org/opinions/appeals/2005/102505/29211.pdf

The plaintiff Homestead Savings Bank lent money to and received a mortgage from the defendant, Nealey Builders, Inc. for several units in a condominium development. Nealey defaulted on the loan, and Homestead began foreclosure by advertisement proceedings. The foreclosure notice indicated a 6 month redemption period; the proper period was one year. After the sale, the plaintiff recorded an affidavit correcting the error.

In an action to determine the parties' rights that Homestead initiated, Nealey claimed that the entire foreclosure was void and would have to be done again, because of the misstatement in the notice. The trial court determined that Nealey had not been harmed by the mistake and had not tried to redeem the property.

Citing Jackson Investment v. Pittsfield Products, 162 Mich App 750 (1987), the appeals court said that a defective foreclosure notice renders a foreclosure sale voidable. In such a case, the court said that "[i]f no harm was caused by the defect and the mortgagor would have been in no better position had the notice been fully proper, then this Court will not automatically find the foreclosure sale void." The court found no evidence that the defective notice prejudiced Nealey or caused it any harm, and so, concluded that the trial court's summary disposition in Homestead's favor was proper.

To Nealey's due process argument, the Court said it was misplaced and inapplicable, because, citing Cheff v Edwards, 203 Mich App 557 (1994), a foreclosure by advertisement is not a judicial action and does not involve state action for due process clause purposes, but rather is contractually based.


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