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Lender must pay millions in wrongful foreclosure case

Florida consumers might expect that when they file for bankruptcy, all creditors are supposed to stop any proceedings against them. When a lender in California went ahead with foreclosure proceedings even after a couple filed for Chapter 13 bankruptcy, it was sued and ordered to pay more than $45 million in damages.

The case began when a couple was told by their mortgage lender that they had to default on their loan in order to get a loan modification. By defaulting, they then lost many of those modifications while others were declared insufficient. The couple filed for Chapter 13 bankruptcy, but the lender moved to eviction and foreclosure despite the automatic stay of bankruptcy. The lender eventually rescinded the foreclosure but without telling the couple and not before taking some of their appliances and other items from the home and neglecting its upkeep.

The couple suffered severe emotional distress as a result. A judge in an adversary proceeding awarded them a total of $300,000 for this plus nearly $500,000 for lost income. There were also awards for loss of personal property and other expenses. The judge then awarded $45 million in punitive damages on the grounds that the situation was a result of corporate culture and it was necessary to levy a penalty that would send a message.

In most circumstances, a Chapter 13 bankruptcy should proceed more smoothly than this. Filing for bankruptcy puts an end to creditor harassment or any action by creditors, and the debtor is then able to create a payment plan to pay back creditors over a period of either three or five years. An lawyer could discuss a client’s eligibility for Chapter 13 and the procedures involved as well as reviewing other options for debt relief.

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