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
by Hearthstone Legal Group | Nov 5, 2024 | BANKRUPTCY LAW
HEARTHSTONE LEGAL GROUP President, Herbert N. Wiggins
FAIR LENDING/MORTGAGES/BANKRUPTCY/TECHNOLOGY
October 22, 2024
In bankruptcy, timing is often everything. For example, the United States Code says that payment by a debtor to a creditor within 90 days of the debtor’s filing of the bankruptcy petition can be voided as a “preferential transfer,” because it appears to favor one creditor over another. Such a transaction can be undone by the US Trustee. 11 USC Sec. 547.
Similarly, a transaction made near in time to the bankruptcy, that seeks to change title to one of the debtor’s assets, or otherwise seems intended to make collection by the creditor more difficult, can be deemed a fraudulent transfer, and undone by the Trustee. 11 USC Sec. 548 (defining fraudulent transfer) and 544 (allowing US Trustee to use state law to show fraud).
In the recent case of In re O’Gorman, a homeowner in Napa Valley, in Northern California’s wine country, was on the verge of foreclosure. The home was valued at $2.5 million. The second mortgage holder paid off the delinquent first mortgage, thus becoming the only lender, but when the homeowner fell behind on the “new” mortgage, she transferred the property to a third party, and then filed for bankruptcy.
The holder of the mortgage filed a secured claim. But the US Trustee filed an “adversary proceeding,” claiming that the transfer was fraudulent. The bankruptcy Court agreed that the transaction appeared fraudulent as a matter of law, relying on several “indicia of fraud” under California law:
To establish O’Gorman’s fraudulent intent, the Trustee argued that at least six of the eleven “badges of fraud” enumerated in Cal. Civ. Code § 3439.04(b)(1)-(11) were present:
(a) the transfer was to an insider, the Lovering Tubbs Trust, in which O’Gorman held a 20% beneficial interest;
(b) O’Gorman remained in control of the property after the transfer;
(c) at the time of the transfer, Reynolds (the lender) had been pursuing a foreclosure on his deed of trust and the transfer was designed to thwart that effort;
(d) the transfer was a transfer of substantially all of O’Gorman’s assets;
(e) by transferring the property to the Lovering Tubbs Trust, O’Gorman removed the property from the reach of her creditors; and
(f) the Lovering Tubbs Trust paid no consideration for the property.
The 9th Circuit Court of Appeals upheld the bankruptcy court, noting that, while reading someone’s mind to find fraudulent intent is impossible, the indicia of fraud in the transaction were indisputable and overwhelming. The result was that the wine country home went back into the “bankruptcy estate.”
It is almost never a good idea to change title to any significant asset shortly before a bankruptcy. The odds are that the trustee or other creditors are going to cry foul. Here, the creditor and Trustee successfully did so.
In re: DEBBIE REID O’GORMAN, Debtor; THE LOVERING TUBBS TRUST, Trustee; CLC COMPLIANCE, INC., Trustee; PACIFIC EQUITIES, LLC, Appellants, v. TIMOTHY W. HOFFMAN, Chapter 7 Trustee, Appellee. No. 23-60005
Ninth Circuit Court of Appeals, Argued and Submitted 2/13/2024 San Francisco, CA
Filed September 9, 2024
Case No. 23-60005
THIS POST DOES NOT CONSTITUTE LEGAL ADVICE; PLEASE CONSULT AN ATTORNEY
Depending upon the makeup of the House and Senate, and the occupant of the White House as of January 2025, the administration will either be more fully able to go forward with loan forgiveness plans, or will be completely stymied, and a significant portion of the Biden Administration’s recovery program may be permanently blocked.
WARNING: THIS POST DOES NOT CREATE AN ATTORNEY/CLIENT RELATIONSHIP, AND DOES NOT CONSTITUTE LEGAL ADVICE; PLEASE CONSULT AN ATTORNEY
by Hearthstone Legal Group | Jun 9, 2024 | BANKRUPTCY LAW, constitution, debt relief
The Great Recession, the economic downtown that spanned 2008 to 2012, was the worst economic crisis in the United States since the depression of 1929 to 1939. Federal Reserve History, The Great Recession and its Aftermath.
One of the outgrowths of the Great Recession was the Consumer Financial Protection Bureau, which sought to protect consumers from unfair, predatory, or illegal conduct by financial institutions:
Title 12, Chapter 53, Subchapter V of the U.S. Code contains the legislation that created and regulates the Bureau. Legal Information Institute, Cornell University School of Law.
In or about 2020, the Community Financial Services Association of America, Limited, and others brought suit in the 5th Circuit (located in the South, and known to be quite conservative), to have the funding source of the CFPB declared unconstitutional, and thus force Congress back to the drawing board with regard to funding the organization. The underlying goal was seemingly to deny funding to the CFPB and thereby defang it as a regulatory body. The 5th Circuit held that the CFPB’s funding was unconstitutional.
However, the federal government appealed the 5th Circuit ruling, and the US Supreme Court issued his ruling in May 2024, upholding the funding of the CFPB, and thus granting a lifeline to the agency itself.
The key argument in the Supreme Court was “source and purpose” form of funding of the CFPB, by which Congress grants an appropriation of up to $600 million for enforcement of the agency’s regulations, was unconstitutionally vague, and a breach of the Appropriations Clause, Art. I, §9, cl. 7. The Community Financial Services Association of America, Limited, argued that such funding would place no restrictions on CFPB’s funding authority, and represented an abdication of funding authority by Congress, in favor of the executive branch.
At oral argument and in its written opinion, the Supreme Court pushed back, pointing out that the Customs Service, from its beginning, and the US Postal Service, had funding that either was not subject to a fixed annual limit, or had the discretion to spend within specific bounds to effect their statutory mission.
Associate Justice Thomas, writing for the majority, said that:
“In short, the origins of the Appropriations Clause confirm that appropriations needed to designate particular revenues for identified purposes. Beyond that, however, early legislative bodies exercised a wide range of discretion. Some appropriations required expenditure of a particular amount, while others allowed the recipient of the appropriated money to spend up to a cap. Some appropriations were time limited, others were not. And, the specificity with which appropriations designated the objects of the expenditures varied greatly.”
. . .
“[The CFPB’s] funding statute contains the requisite features of a congressional appropriation. The statute authorizes the Bureau to draw public funds from a particular source—“the combined earnings of the Federal Reserve System,” in an amount not exceeding an inflation-adjusted cap. 12 U. S. C. §§5497(a)(1), (2)(A)–(B). And, it specifies the objects for which the Bureau can use those funds–to “pay the expenses of the Bureau in carrying out its duties and responsibilities.” §5497(c)(1).
“[Para.] Further, the Bureau’s funding mechanism fits comfortably with the First Congress’ appropriations practice . . .
“[Para.] For these reasons, we conclude that the statute that authorizes the Bureau to draw funds from the combined earnings of the Federal Reserve System is an “Appropriatio[n] made by Law.” We therefore hold that the requirements of the Appropriations Clause are satisfied.”
[Bold and italics added]
Applying this reasoning to the CFPB, the SCOTUS held at the term “appropriation,” as understood at the time of the adoption of the Constitution, did not require Congress to a fixed figure every year. And appropriation may validly be based upon a combination of both fees generated and Congressional grant, and moreover, need not be fixed as a required expenditure every fiscal year.
In the end, the legal questions were 1) does the Appropriations Clause of the Constitution bar Congress from giving an agency an upper limit budget appropriation, stating that the agency may spend no more than $XX in the fiscal year, rather than a fixed a dollar amount, and 2) does such funding violate separation of powers, by abdicating to the executive branch the decision or the extent of funding granted to the regulatory agency.
The Supreme Court answered “no” to both questions.
Consumer Financial Protection Bureau v. Community Financial Services Association of America, Limited, Docket No. 22-448, Decided May 16, 2024
The CFPB will live to fight another day.
THIS POST DOES NOT CONSTITUTE LEGAL ADVICE; PLEASE CONSULT AN ATTORNEY
by Hearthstone Legal Group | Apr 9, 2024 | bankruptcy, BANKRUPTCY LAW, constitution, creditors
Much is being made of whether or not a bankruptcy will be filed, with regard to the recent large judgment issued by the Supreme Court of New York, the Hon. Arthur Engoron, against the former president and his company.
Much has also been made as to whether this will cause a certain amount of delay in the collection of the judgment.
The Complaint filed by Attorney General Letitia James against Donald Trump, his children and associates, and various corporate organizations associated with him, consisted of various allegations of fraud: Count 1- persistent and repeated fraud; Count 2- falsifying business records; Count 3- conspiracy to falsify business records; Count 4 – illegally issuing false financial statements; Count 5 – conspiracy to falsify false financial statements; Count 6 – insurance fraud; Count 7 – conspiracy to commit insurance fraud.
In other words, the Attorney General’s complaint, and the verdict rendered thereunder, are explicitly and overwhelmingly devoted to fraudulent actions against the defendants. Fraud is the gravamen of the case.
Furthermore, the Bankruptcy Code, 11 USC Section 523(a)(2)(A), explicitly states that there is no bankruptcy discharge for “money, property, services, or an extension, renewal, or refinancing credit, to the extent obtained by false pretenses, a false representation, or actual fraud . . . “
Because the New York Supreme Court has adjudicated the statements made by the defendants to be fraudulent, they would appear to be no question but that the discharge in bankruptcy would not apply to the attorney general’s judgment made against Trump and his co-defendants. The judgment would remain collectible after the bankruptcy proceedings conclude.
Therefore, a Chapter 7 or Chapter 11 bankruptcy filed by Trump or any of his co-defendants would appear doomed to ultimate failure: there would be no discharge for debts connected to fraud, and all of the debts in this case are connected to fraud.
Of course, the Bankruptcy Court is a federal court, and a separate jurisdiction. Theoretically, there could be a delay in enforcement of the judgment, while the Attorney General files and prosecutes what is known as an “adversary proceeding,” in the bankruptcy court, to seek a holding that the debts in question are based upon fraud, and non-dischargeable under the Bankruptcy Code.
The ultimate result would not appear in question, although no one can ever predict the outcome of litigation. However, given the factual and legal findings of the New York Supreme Court, it seems exceedingly unlikely that a bankruptcy court would find that the Attorney General’s judgment, and this collectible debt, is not connected to fraud.
Additionally, as Mr. Giuliani has found out in his bankruptcy proceedings, the debtor is required to submit truthful information regarding his/her/its holdings, and this has been something that Mr. Trump and his associates have found very difficult to do. Statements regarding assets are under penalty of perjury, and failure to make truthful statements could only further endanger the declarant with the Federal authorities.
Thus, even though there may be an upside for anyone filing bankruptcy related to this judgment, in causing a small amount of delay, the downside would be that any debtor who files bankruptcy with regard to debts that are already adjudicated as fraudulent will risk further prejudicing himself, herself, or itself, if any statements made to the bankruptcy court are anything but 100% true and accurate.
THIS ANALYSIS IS A COMMENTARY AND NOT LEGAL ADVICE
