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 | 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
by Hearthstone Legal Group | Mar 5, 2024 | bankruptcy, BANKRUPTCY LAW
Public benefits are frequently a part of bankruptcy proceedings. A debtor may have received worker’s compensation payments, or unemployment benefits. In California, worker’s compensation or unemployment benefits paid before the bankruptcy can be discharged; they are not seen as a non-dischargeable tax. Notrica v. State Comp. Ins. Fund (1999) 70 Cal.App.4th 911, 924-925, 939-940
The recovery of other forms of public benefits, made before the debtor files the bankruptcy petition, is also barred by the bankruptcy discharge; even the US government, as a creditor, cannot seek repayment of the overpayment of such benefits after the debtor’s discharge. In re Madigan, 270 B.R. 749, 752-753 (B.A.P. 9th Cir. 2001); Cooper v. Soc. Sec. Admin. (In re Cooper), BAP WW-23-1098-CBS, 12 & fn. 6, 7, & 8 (B.A.P. 9th Cir. Jan. 16, 2024) [unpublished]
But sometimes, the situation is more complicated. For example, if the debtor is on Social Security Disability Income, without interruption, both before and after the filing of a chapter 7 bankruptcy, and if there is an overpayment, the government may be able to recover that overpayment through reducing benefits after the bankruptcy discharge, under the doctrine of equitable recoupment. All that is required is a “logical relationship” between the pre-petition benefits received by the debtor, and the post-petition payments to the debtor by the government. If there is such a logical relationship, the post-petition benefits may be reduced by the pre-petition overpaymnent, under the doctrine of “equitable recoupment.” This recoupment neither violates the automatic stay, nor the discharge injunction. In re Williamson, 795 Fed.Appx. at 538 (quoting In re TLC Hosps. Inc., 224 F.3d 1008, 1014 (9th Cir. 2000).
The logical relationship test States the following:
“[C]ourts have permitted a variety of obligations to be recouped against each other, requiring only that the obligations be sufficiently interconnected so that it would be unjust to insist that one party fulfill its obligation without requiring the same of the other party.” In re Madigan, 270 B.R. at 755; Cooper v. Soc. Sec. Admin. (In re Cooper), BAP WW-23-1098-CBS, 12 & fn. 6, 7, & 8 (B.A.P. 9th Cir. Jan. 16, 2024) [unpublished]
In Cooper, a former Boeing worker suffered an injury on the job and began receiving workers compensation. He was later determined to be totally disabled, and started to receive workers compensation benefits in addition to a pension. Eventually, he filed his Chapter 7 petition, while he continued to receive uninterrupted SSDI benefits. Through a paperwork glitch, the fact that he was receiving workers compensation was not communicated to the Social Security administration, and eventually SSDI came to the debtor with a $73,000 bill for payments that it would not have made, had it been aware of the workers’ compensation payments.
The court noted that the debtor was not responsible for the paperwork glitch; he had notified the Social Security Office in Washington State of the debtor’s workers compensation case, but that information was never communicated to the primary office in Richmond, California. Nevertheless, the court concluded that the disability both before and after the Chapter 7 petition was the same; that there was a “logical relationship” between the pre-petition overpayments and the post-petition paid benefits; and therefore, under that therefore, the doctrine of “logical recoupment,” the debtor’s post-petition could be reduced, to offset the pre-petition overpayments.
Cooper is an “unpublished” opinion, so it is not authority for the proposition that it cites, but it does cite to numerous published opinions that provide for “equitable recoupment.”
THIS ARTICLE DOES NOT CONSTITUTE LEGAL ADVICE; PLEASE CONSULT WITH AN ATTORNEY
by Hearthstone Legal Group | Dec 28, 2023 | bankruptcy, BANKRUPTCY LAW, Fair Credit Reporting Act, Fair Lending
A recent decision by no less than the California Supreme Court points once again to the difficulty of trying to sue National Banks under California law.
In Sheen v. Wells Fargo Bank (2002) 12 Cal.5th 905, 290 Cal. Rptr. 3d 834, Plaintiff Borrower refinanced his home, using the equity to acquire 2 loans from Wells Fargo. A few years later, borrower experienced financial problems, and sought to refinance. He asked the bank to renegotiate the loan.
Borrower sent in an application, to which Wells Fargo responded, without specifically addressing the modification question. Plaintiff understood the response to mean that Wells Fargo would not foreclose. Eventually, Wells Fargo sold the loan to a secondary lender, who foreclosed.
The California Supreme Court framed the basic question as follows:
“In this case, we address the issue dividing the lower courts: Does a lender owe the borrower a tort duty sounding in general negligence principles to (in plaintiff’s words) “process, review and respond carefully and completely to [a borrower’s] loan modification application,” such that upon a breach of this duty the lender may be liable for the borrower’s economic losses — i.e., pecuniary losses unaccompanied by property damage or personal injury? (See, e.g., Southern California Gas Leak Cases (2019) 7 Cal.5th 391, 398, 247 Cal.Rptr.3d 632, 441 P.3d 881 (Gas Leak Cases).) We conclude that there is no such duty, and thus Wells Fargo’s demurrer to plaintiff’s negligence claim was properly sustained.” 12 Cal.5th at 915.
The California Supreme Court, by Chief Justice Cantil-Sakauye, pointed out that there was no contract to renegotiate, and thus no breach of contract. Wells Fargo had no duty, either under contract or under common law, to grant the loan modification. Because there was no duty, failure to modify the loan meant that there was no negligence.
Furthermore, the Court held that plaintiff could only recover “economic damages,” i.e., no pain and suffering. Because there was no breach of a common law duty, Plaintiff’s damages would appear limited to the value of the home at the time of foreclosure.
The California Supreme Court did suggest that other causes of action, such as promissory estoppel or negligent misrepresentation, might proceed past demurrer, given sufficient allegations. But those causes of action were not part of Sheen’s complaint. 12 Cal.5th at 916.
Plaintiffs might consider looking to federal law, such as the Equal Credit Opportunity Act (“ECOA”), or the Truth in Lending laws, for greater protection with a national bank. Of course, the facts alleged must be adequate for such a complaint, which could also include state law claims. See, for example, 15 USC Sec. 1691; Taylor v. Accredited Home Lenders, Inc., 580 F.Supp.2d 1062, (D.C.S.D.CA, 2008) [each monthly mortgage payment constituted a continuing violation of Plaintiff’s rights under ECOA]; Schlegel v. Wells Fargo Bank, N.A., 720 F.3d 1204 (2013) [ECOA applies to mortgage loans]; Office of the Comptroller of the Currency, Examiner’s Handbook: Fair Lending, (2010); Schwemm & Taren, “Discretionary Pricing, Mortgage Discrimination, and the Fair Housing Act,” 45 Harvard Civil Rights-Civil Liberties Law Review 375, 417 (2010); Peterson, “Predatory Structured Finance,” 28 Cardozo Law Review 2185; Totten, “The Enforcers and the Great Recession,” 36 Cardozo Law Review 1611 (2015).
