by Hearthstone Legal Group | Jul 14, 2026 | creditors, mortage
After 9/11, President Bush encouraged Americans to go out and spend money to keep the economy going. One of the results of this, was a housing bubble. This was encouraged not only by the housing and lending industries themselves, but by top levels of government, and by television shows that promoted the undeniable good feeling of homeownership and do it yourself engineering.
One of the features of the housing bubble was the proliferation of second mortgages on relatively new purchases, specifically the home equity line of credit, or other Junior mortgages that allowed homeowners to go out and spend more, leveraging their house to the same or a second lender in the process.
Of course, this came to a screeching halt with the financial crash of 2007, following the failure of Lehman Brothers, the near collapse of General Motors, the implosions of WorldComm and Enron, and the companion collapse in the real estate industry.
No longer could anyone who could fog a mirror get a loan.
Over the years 2007 to 2012, there were some homeowners who were able to refinance or modify their mortgages, which saved them from foreclosure or bankruptcy. However, for many of these homeowners, they didn’t realize that what they had modified or refinanced was the senior mortgage, and not the HELOC, which laid buried in the weeds for years.
But beginning around 2013, holders of the HELOC loans began to spring out of the weeds, and demanded payment or threatened foreclosure. These mortgages, which had laid dormant for years, eventually became known as zombie mortgages, because 1) many homeowners mistakenly believe that modifying the senior mortgage had modified the second, and 2) the holders of the loans had remained silent, and not communicated with the homeowners for years.
The problem of these “springing” or “Zombie” mortgages has continued unabated since the mid-2000 ‘teens. One typical way they come to the attorney’s attention is that the client, blissfully paying his/her/their modified first mortgage, in the first, second, or fifth year after modification, receives a cold, rude letter stating that the property will be placed in default, and on the road to foreclosure, in 60 to 90 days unless the outstanding HELOC is paid off. The client is taken aback, because she/he/they believed that “Everything was modified back in 2010 or 2012 or 2014.” Or, “We thought we had taken care of all the loans.” Or, (even more cynically) “That’s the same lender who has the first mortgage.”
Eventually however, California, has sought to deal with the “zombie” mortgages, expanding protections connection to the Homeowners Bill of Rights.
Specifically, the “Zombie Mortgage” section begins with Civil Code Sec. 2924.13, which entered into effect on July 1, 2025.
The California Credit Union League, in its Summary of California Assembly Bill 130 – Housing, (July 1, 2025), summed up the prohibited conduct under new Civil Code Sec. 2924.13 (b) as follows (the following is presented as part of this commentary on an important public issue):
“Civil Code Sec. 2924.13(b), provides that any one of the following practices alone will be considered an Unlawful practice that could preclude the credit union (or presumably, another lender or servicer) from successfully foreclosing on a second mortgage lien.
“1. The mortgage servicer did not provide the borrower with any written communication regarding the loan secured by the mortgage for at least three years. (Credit unions may not send periodic statements or any other written communication on a second mortgage or home equity lines of credit (HELOC) that has been charged off. This rule also runs afoul of the applicable statute of limitations that allows foreclosure as a remedy well beyond the three year timeframe established here.)
“2. The mortgage servicer failed to provide a transfer of loan servicing notice to the borrower when required to provide that notice by law, including, but not limited to, the federal Real Estate Settlement Procedures Act, as amended (12 U.S.C. Sec. 2601 et seq.), and investor or guarantor requirements.
“3. The mortgage servicer failed to provide a transfer of loan ownership notice to the borrower when required to provide that notice by law, including, but not limited to, the federal Truth in Lending Act, as amended (15 U.S.C. 1601, et seq.), and investor or guarantor requirements.
“4. The mortgage servicer conducted or threatened to conduct a foreclosure sale after providing a form to the borrower indicating that the debt had been written off or discharged, including, but not limited to, an Internal Revenue Service Form 1099. (This raises issues for credit unions when filing 1099-Cs or otherwise communicating in writing about debt that has been discharged, including debt discharged in bankruptcy.)
“5. The mortgage servicer conducted or threatened to conduct a foreclosure sale after the applicable statute of limitations expired.
“6. The mortgage servicer failed to provide a periodic account statement to the borrower when required to provide that statement by law, including, but not limited to, the federal ruth in Lending Act, as amended (15 U.S.C. 1601, et seq.), and investor or guarantor requirements.
(Reg Z allows a lender on a HELOC to stop sending periodic statements to the borrower provided the lender does not continue to charge the borrower for additional interest and/or fees. As such, a credit union that stops sending statements in connection with a second lien HELOC should not be in violation of this subsection if TILA/Reg Z allows the credit union to stop sending statements given the circumstances.)”
Of course, tens of millions of dollars, in cash and real estate, are at stake. Consequently, the lenders and servicers are not taking this medicine lying down (or dead; really?); their lawsuit in federal court in Fresno will be the subject of Part II of “Zombie Loan Apocalypse.”
THIS POST DOES NOT CONSTITUTE LEGAL ADVICE; PLEASE CONSULT AN ATTORNEY
PRESENTED AS COMMENTARY ON AN IMPORTANT PUBLIC ISSUE
by Hearthstone Legal Group | May 26, 2026 | creditors, Fair Credit Reporting Act
A very important legal principle is, “If it’s not in writing, it didn’t happen.” And this is as much true of business transactions as it is in the realm of legal precedents.
When it comes to Court of appeals opinions, they must actually be published to become law. And a recent opinion, LVNV Funding v. Rodriguez, was published, and is now the law with regard to debt collection. Rodriguez v. LVNV Funding, LLC (2024)106 Cal.App.5th 717.
In that case, a creditor filed a collection lawsuit against Yolanda Rodriguez, but soon realized that she was not the same Rodriguez as the person who owed the debt. Apparently, the Rodriguez who was actually sued had communicated with the lender, and tried to prevail upon the creditor not to sue, due to the misidentification. The lender went ahead, however, and filed the lawsuit.
What the matter came before the Court, and the defendant proved that she was not the debtor, the creditor decided to dismiss. But the damage had been done. Ms. Rodriguez had been dragged in the court. She had been forced to answer at the bar. She had been embarrassed. So she sued the creditor.
The trial court, however, found for the creditor, on a type of “litigation priviliege” (specifically here, argued as Anti-SLAPP law), and ruled that Ms. Rodriguez’s suit was barred.
The Fifth Appellate District Court of Appeal (Fresno) forcefully disagreed, and did not keep the matter secret. The creditor has reason to know they sued the wrong person. Ms. Rodriguez’s successful appeal, under California and Federal law, was published, so now the interpretation of the Rosenthal Act and FDCPA in favor of the debtor, can be seen by and cited to by other debtors and their attorneys. That case now stands for the proposition that where the creditor has a reason to know that it is pursuing the wrong person, it does so at its peril. There is no free pass. That Ms. Rodriguez who was sued was allowed to vindicate her rights under California’s new Rosenthal Act, and the Federal Fair Debt Collection Practices Act.
The case is straightforward but has important implications. Research shows that 25% of all civil cases in California are now debt collection. This enormous number unfortunately gives rise to a great potential for abuse. Many debtors do not open their mail, move, and are not aware of lawsuits. And there’s obvious mischief that can be caused by debtors who share the same name, and a creditor who is not careful in determining who is exactly whom.
The second point is that lenders, who have much in the way of resources, are cautioned now to be very careful when suing a defendant who may be misidentified, or who has a legitimate defense to a debt. Simply plowing ahead for the sake of driving a debtor into the dirt is an act which may eventually be punished, and punished very publicly.
FOR EDUCATIONAL PURPOSES ONLY; THIS POST DOES NOT CONSTITUTE LEGAL ADVICE, NOR DOES IT CREATE AN ATTORNEY-CLIENT RELATIONSHIP. PLEASE CONSULT AN ATTORNEY
by Hearthstone Legal Group | Mar 17, 2026 | creditors, Uncategorized
According to Pew Research, litigation by credit card companies and debt collectors against delinquent borrowers (debtors) has reached volume of 25% of civil cases filed in California. Indeed, in the most populous counties of California there were over 2 million such lawsuits between 2009 and 2020. (Raba, One-Sided Litigation: Lessons from Civil Docket Data in California Debt Collection Lawsuits (U. of Chicago Law School, 2023).
The largest 5 creditor lenders or debt collectors filed 533,307 such lawsuits from 2009 to 2020, and cases likely have increased as a result of the Pandemic, inflation, and economic stagnation since 2020.
Not only are such lawsuits of burden on the courts, but they have direct impact upon the debtors lives. Consumer credit suffers. The debtor’s ability to pay other bills or get other loans suffers or disappears. Unsurprisingly, most debtors cannot afford to hire attorneys and file a response to the creditor’s lawsuit. Statewide, debtors filed responses to only 14% of such lawsuits.
Other factors leading to a debtor’s lack of response to a lawsuit are that many of the debts may be several years old; debtors may have forgotten about them; debtors may have moved away from the prior billing address (and thus not received the lawsuit); or the debtor may have changed last name based on marriage (the lawsuit may be against “Mary Smith,” who now married and known as “Mary Jone,” and “Mary Jones” was not served with the lawsuit).
For those who did not respond to such lawsuits, over The end result is that over 130,000 default judgments were taken against debtors. This means that there is a final judgment, which then begins to accrue interest, generally at 10% per year. For example, a judgment that may have started at under $10,000 in 2010, by 2025 could be well over $30,000.
Those defaults, and judgments after trial, can lead to wage garnishments, freezing of bank account, or repossession of cars, and indirectly could lead to eviction or foreclosure on a home (such as where the individual cannot qualify for a loan or re-finance). The impact can be devastating.
The moral of the story is that debtors who are delinquent and credit cards need to carefully monitor their credit, and can reasonably assume that if the debt is over a few years old, there is a collection agency out there trying to get that money. On the other hand, if a debtor can find a lawyer, he or she can attempt to fight the matter, because there are fortunately occasional fraudulent proof of service, which can cause a default to be withdrawn; mistaken calculation of debt; or valid statute of limitations defenses.
Having a lawyer also greatly aids the debtor in negotiating a settlement. Once there is a default and default judgment, the creditor will likely be much less inclined to negotiate.
Keeping up with your credit, opening your mail, and investigating any strange or suspicious claims of delinquent loans, are three effective ways that debtors can protect themselves. And having a lawyer definitely helps.
THIS POST DOES NOT CONSTITUTE LEGAL ADVICE, AND DOES NOT CREATE AN ATTORNEY-CLIENT RELATIONSHIP.
PLEASE CONSULT YOUR OWN ATTORNEY!!
by Hearthstone Legal Group | Feb 7, 2026 | bankruptcy, BANKRUPTCY LAW, creditors, debt relief, Real Estate
About 4 to 6 weeks after the debtor has submitted his / her / there / its Chapter 7 bankruptcy Petition, the debtor will appear in what is known as the 341 meeting. The 341 meeting is named for that section of the Bankruptcy Code, 11 USC section 341, which states, among other things, the following:
“(a)Within a reasonable time after the order for relief in a case under this title, the United States trustee shall convene and preside at a meeting of creditors.
“(b) The United States trustee may convene a meeting of any equity security holders.
“(c) The court may not preside at, and may not attend, any meeting under this section including any final meeting of creditors. . . . “
For most debtors, this is as close as they will ever get to a courtroom. It is also as close as they will get to the judge. Interestingly, the hearing does not take place in a courtroom, and the judge is not present.
The meeting is done in a conference room, with the debtor, the debtor’s attorney, if any, and the assistant United States Trustee. The debtor is under oath and the meeting is recorded on audiotape. There is no judge, no jury, and if the meeting goes well, the debtor will see none of these.
The Sec. 341 meeting is the debtor’s opportunity to confirm the accuracy of the information that she has submitted for consideration by the Bankruptcy Court, via the United States trustees office. The assistant United States trustee will ask if the bankruptcy forms, largely known as “schedules,” are complete and correct, whether there has been a change in the status of any asset or debt, whether any property has recently been transferred, and whether there are any pending lawsuits filed by or against the debtor, among other things. The trustee will ask about changes in title to any property within recent months. In other words, the trustee wants to know if there’s anything that would raise a red flag as property or debt that has not been disclosed, that has changed hands, or that has otherwise been wasted, destroyed, transferred, lost, or is not available for the bankruptcy trustee to seize or sell, if either is indicated by the bankruptcy petition and schedules.
The meeting, which is the culmination of many hours of compiling documents, usually lasts only 5 to 10 minutes. That is the best case scenario. If a debtor finds himself or herself coming back over and over again to give more information, that’s usually an indicator that the trustee feels that the documents are incomplete.
Creditors can also attend, to ask if property that they loaned to Plaintiff has gone missing, or to contest the amount of the debt disclosed by the debtor. It is very rare for creditors to appear at the garden variety Chapter 7 Sec. 341 meeting.
Assuming that the Section 341 meeting goes well, then the next steps are for the trustee to file a “report of no distribution”, stating that he or she did not find any assets to seize and sell, and then it will be up to the Clerk of the court to close the case. The whole process, from the 341 meeting ’til the closure of the case, could take a little as a week or so, or as long as a few months.
THIS POST DOES NOT CONSTITUTE LEGAL ADVICE, AND DOES NOT CREATE AN ATTORNEY-CLIENT RELATIONSHIP; PLEASE CONSULT AN ATTORNEY!!!
by Hearthstone Legal Group | Feb 23, 2025 | bankruptcy, BANKRUPTCY LAW, constitution, creditors
Herbert N. Wiggins, Esq., HEARTHSTONE LEGAL GROUP, & Kyle Gurwell, Esq., LAW OFFICE OF KYLE GURWELL
As of January 1 and July 1, 2025, various parts of California Senate Bill 1286 go into effect. The bill includes a number of revisions to California’s consumer protection laws, broadly known as the Rosenthal Act.
Previously, this author noted how the updated law explicitly allows state government to penalize unfair behavior in a non-judicial foreclosure (for example, Civil Code Section 1788.1 and following, and Civil Code Sections 2923.5 and 2924f).
But the law does not stop there.
For example, the Rosenthal Act originally covered only consumer debts.
New Version: Recent amendments have expanded the Rosenthal Act to cover consumer debts that include court-ordered obligations in certain contexts. It also explicitly addresses predatory practices involving debts related to towing, parking citations, and repossession fees.
Commercial Transactions: A significant update under SB 1286 is the inclusion of certain covered commercial transactions. Specifically, this applies to debts related to small-business loans and commercial leases when the borrower is an individual or sole proprietor. These loans and leases must be primarily for business purposes but may fall under the act’s protections if the borrower faces abusive collection practices. This change reflects California’s recognition that some small business owners and sole proprietors may experience similar vulnerabilities to consumer debtors, particularly when they are personally liable for the debt.
In enforcing violations, the Rosenthal Act works to do the following:
California Rosenthal Act Violations:
Unfair Fees: Imposing unauthorized or excessive fees during repossession.
Credit Reporting Violations: Threatening to report false information to credit bureaus or withholding accurate credit reporting to coerce payment.
Medical Debt Violations: Pursuing collections despite insurance coverage disputes or failing to provide a breakdown of costs.
Housing-Related Collections: Using threats of eviction while demanding unjustified sums or failing to follow required legal procedures.
Service of Process Violations (SB 1286): Attempting to enforce a debt judgment after improper or deceptive service of legal documents.
Commercial Transaction Violations: Engaging in harassment, misrepresentation, or improper service related to small-business debts covered by the new provisions of SB 1286.
Penalties:
Statutory damages up to $1,000 per violation (similar to the FDCPA).
Actual damages, including emotional distress and financial harm.
Attorney’s fees and costs.
Class actions: California courts may apply the FDCPA guidelines for damages or create state-specific penalties depending on the case.
Furthermore, these penalties may be cumulative in particular cases.
CONCLUSION: Creditors are on notice to tread carefully in California.
These violations can cause significant emotional and financial distress for consumers and small business owners, which is why both federal and state laws provide strong recourse.
For example, including granting the Commissioner of California’s Department of Financial Protection and Innovation authority to regulate non-judicial foreclosure under the Rosenthal Act. (Civil Code section 1788.1 and following)
Additionally, changes to the California Homeowner’s Bill of Rights also added additional requirements for non-judicial foreclosures. Civil Code Sections 2923.5 and 2924f.
For those who do run afoul of California’s Rosenthal Act, the penalties can be severe. Damages are $1000 per violation, and potentially punitive damages. The Plaintiff can also seek costs and attorney’s fees from the offending party. Additionally, such behavior can be fined and enjoined under the Unfair Competition Law, Business & Professions Code §17200.
In light of California’s recent experience with wildfires and other disasters, it may be that, beginning in July 2025, debt collectors will have to much more carefully navigate how they seek to collect on mortgages, auto loans, auto leases, and other debts that impacted individuals owe as of that date.
by Hearthstone Legal Group | Dec 26, 2024 | bankruptcy, BANKRUPTCY LAW, constitution, creditors
The Florida Homestead, in the Spotlight
FAIR LENDING/MORTGAGES/BANKRUPTCY/TECHNOLOGY
December 10, 2024
Atlanta, GA election workers, Ruby Freeman and Wandrea ”Shaye” Moss won their $148 MM judgment against former Trump attorney Rudolph Giuliani in late 2023. Mr. Giuliani has been attempting to delay, deny, and frustrate payment of the judgment ever since.
First, he filed for bankruptcy. But when he did not honestly submit information, his case was thrown out. Just as somebody who learned about bankruptcy law from episodic television, he soon found out that bankruptcy requires full truthful disclosure of the debtor’s assets. Mr. Giuliani was not willing to do that, so eventually his bankruptcy was dismissed.
(He was not prosecuted for perjury, which is one penalty for false bankruptcy papers).
Then, Mr. Giuliani apparently removed valuables from his New York apartment, so that those items could not be seized.
Now, the Plaintiffs are looking to take Giuliani’s West Palm Beach, Florida condominium, and Giuliani seeks to assert “homestead” protection. (Palm Beach Daily News, October 29, 2024). A homestead is an exemption for a certain amount of value of a primary residence, protecting that value from a forced sale. Florida, however, has a very generous homestead law, protecting the full value of real estate, provided the property is less than half an acre in size, if it is located in a city. (Florida Constitution, Article X, §4; Chapter 732 and 733 of Florida Statutes)
But there are also filing requirements, as well as the declaration of primary residence. According to certain commentators, someone who wants to claim a Florida homestead must file that notice of intent by March 1st of a particular year (year 1). Then, beginning in the following year (year 2), the individual or individuals can claim a homestead going back to January 1st of the previous year (year 1).
Furthermore, a voters registration or driver’s license will help establish residency.
So, one line of inquiry for the Court will be to find out when Mr. Giuliani recorded his homestead declaration (and to be effective here, would that be March 1 of 2023, the year of the judgment, or by March 1, 2024, when the Plaintiffs are seeking to collect?), and what other steps has he taken to establish Florida as his primary residence.
According to some press reports, Mr. Giuliani has told other individuals, such as bankers, that his residence was New Hampshire. Mr. Giuliani will be grilled on his factual defenses by the Court.
THE ABOVE PHOTO IS FOR ILLUSTRATIVE PURPOSES, AND DOES NOT REPRESENT THE PROPERTY DISCUSSED IN THIS ARTICLE.
THIS POST IS COMMENTARY ON CURRENT EVENTS
THIS POST DOES NOT CONSTITUTE LEGAL ADVICE
