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B4

Saving Manufactured Housing from Foreclosure/Repoession

Daniel Hedges

Geoffrey Walsh

B4

Session B4 Saving Manufactured Housing from Foreclosure/Repossession Thursday Nov. 7, 2013 10:10-11:10 a.m. Dan Hedges & Geoff Walsh

A. Why Aggressively Litigate Mobile Home Purchase Transactions

1. Economically exploited group of consumers ● poor quality home ● interest rates and other charges

2. Significant economic justice possible by pursing both (1) a civil proceeding (adversary proceeding or separate court proceeding) and (2) a Chapter 13

cramdown 3. Advantages of a Concurrent Bankruptcy? ● Avoiding arbitration claims – core proceeding ● In Personam Jurisdiction ● Venue & Service Requirements ● Avoiding DOI (Discharge of Indebtedness) Income ● Where to file – may be critical ● Consider exemptions; however 4. Who Can File Chapter 13? ● “Individual whose income is sufficiently stable and regular to enable such individual to make payments under a plan under chapter 13.” 11 U.S.C. § 101(30) ● Social Security, public benefits, child support income generally may be used to fund plan ● Debt limitations $1,081,400 secured; $360,475 unsecured 5. Four Ways to Deal with a Secured Claim in Chapter 13

● Cure a pre-bankruptcy payment default (e.g., pay the arrearage over time) and maintain ongoing payments while the stay and a repayment

plan are in effect ● Remove or reduce a lien ● Pay a lien in full over time, modify terms ● Do nothing about the lien 6. Modification Provisions ● Section 1322(b)(2) – The plan may “modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims” ● Parsing Section 1322(b)(2) – The plan may “modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence, or of

holders of unsecured claims, or leave unaffected the rights of holders of any class of claims” ● Many times in the claim the creditor admits that it is secured by both real and personal property 7. Personal or Real Property? ● Status determined by state law

● Most courts say mobile homes not real property for purposes of §1322(b)(2) – In re Reinhardt, 563 F.3d 558 (6th Cir. 2009) – In re Ennis, 558 F.3d 343 (4th Cir. 2009) ● Definition of “debtor’s principal residence” is § 101(13A) doesn’t trump “real property” requirement that triggers § 1322(b)(2)’s protection for lender B. Basic Mobile Home Contract Formation 1. Solicitation ● Offer of item on lot ● Picking out options ● Acceptance = contract ● Payment of downpayment = contract ● A “writing” = contract ● Intention of seller to provide financing 2. Consumer Credit Sale Contract ● Cash contract/downpayment receipt

● No disclosures on paper (think TIL, RESPA, ECOA and how that plays into lending expert; more important than the claim)

● Basic common law of contract/statute of frauds ● Bait & switch 3. Subsequent Disclosure of Credit Terms ● Common law claims or statutory deception claims

● UDAP, Unconscionability, Fraudulent Suppression, Fraud/ Misrepresentation, bait & switch

● Breach of contract ● Repudiation ● Actual & punitive damages 4. Experts on Origination ● Mortgage Lending or personal property financing ● Mobile home expert (simple NADA person - e.g., retired mobile home salesman 5. Mobile Home Expert - Retrospective Valuation to Date of Sale for Civil Action ● Unconscionable price ● Bait & switch on home sold ● Different serial number

● Warranty claims ● Cost of set up 6. Mobile Home Expert - Current Valuation ● For Chapter 13 ● Report explains how it can be moved 7. Litigation ● Consumer debtor in chapter 13 can bring claims under TILA, HOEPA, RESPA, including rescission claims, in bankruptcy court ● May be brought as recoupment (counterclaim) against lender’s claim

● May be brought as affirmative lawsuit in bankruptcy court (“adversary proceeding” similar to a federal court lawsuit)

8. Civil Complaint Review C. Typical Doublewide/Singlewide Mobile Home Contract 1. HUD Standard Homes – doublewide with 2 halves, each one two I beams designed to be set on pillars – no weight bearing rectangular foundation 2. Personal property type claims ● UCC Article 2 & 9 issues ● Breach of warranty ● Vertical integration of parties – much of the industry in eastern U.S. now controlled by Clayton and its finance arms Vanderbilt Mortgage & Finance, Inc./21st Mortgage Services, Inc. ● Vs. Modular Claims (BOCA standards homes designed to be set on rectangular foundation) (See below) 3. Legal Relationship of the Parties – Common Law ● Principal/Agency Relationship – – the lender and Broker through the correspondent agreement – the tablefunding lender and the assignee (agreement to originate, PSA, etc.) – England v. MG Investments, 93 F.Supp.2d 718, 723 (S.D. W. Va. 2000) ● Joint Venture/Conspiracy – the Pooling and Servicing Agreement is indicative of a common business enterprise – i.e. joint venture. Short v. Wells Fargo Bank Minnesota, 401 F.Supp.2d 549, 563-65 (S.D. W. Va. 2005) ● Principal/Agency – Servicer to Holder ● Holder subject to all claims/not a BFP 4. Common Law Defenses & Claims ● Unconscionable contract – centuries old contract defense

● Fraud – contract defense, actual and punitive damages ● Conversion (e.g. closer, broker) ● Unauthorized practice of law – broker, lender or closer doc. preparation ● Malpractice or negligence - closer ● Breach of good faith and fair dealing ● Breach of implied confidential relationship ● Breach of fiduciary duty – brokers to clients ● Breach of contract for broker services; or no contract 5. Loan Origination Expert

● Origination practices violate lending industry standards for prudent loan origination ● Loan was without net economic benefit to the borrower; or terms of the loan were inappropriate for borrower’s economic circumstances

● Loan made without due regard for ability to pay ● Loan is inconsistent with lender’s origination standards ● Closing conduct violates industry standards – lenders expect a real estate secured loan closing to be completed in a professional manner which allows the opportunity for the borrower to understand the basic terms of the transaction and make meaningful inquiry into the loan terms D. Bankruptcy Chapter 13 1. Chapter 13 “cramdown” ● How it works ● If creditor objects to plan’s treatment of secured claim, plan must: – Allow creditor to retain lien securing its claim; and – Provide creditor with payments over life of plan that will total present value of allowed secured claim. 11 U.S.C. § 1325(a)(5) – Provide creditor with “present value” interest. Most courts apply Till (prime + 1-3% factor) 2. The “Allowed Secured Claim”

● “Allowed secured claim” is limited to the value of the collateral – §506(a)

● §506(d) – lien is void to the extent that it secures a claim which is not an allowed secured claim ● Undersecured claims may be bifurcated into their secured and unsecured portions 3. The Cramdown and Mobile Homes ● The result in In re Reinhardt, 563 F.3d 558 (6th Cir. 2009): – Lender’s claim: $44,824 (mobile home and land) – Allowed Secured Claim: $15,000 ($12,000 mobile home and $3,000 land) – The difference $44,824 - $15,000 paid pro rata as unsecured claim 4. Valuation of Claim ● Valuation determined by federal standard

● §506(a) controls: a “replacement value” standard ● The price a retail merchant would charge for a mobile home of same make and model, considering its age and condition as of date of hearing ● Standard incorporated from Associates Commercial Corp. v. Rash, 520 U.S.C. 953 (1997) (used also for car valuations) 5. Replacement Value ● No add-on for “in place” value for mobile home sited in park. In re Young, 367 B.R. 183(Bankr. N.D. Cal. 2007)

● Focus is not on value if repossessed or foreclosed, less emphasis on comps 6. Burden of Proof/Evidence of Value ● Debtor’s initial burden to present some evidence to rebut creditor’s proof of claim (not a heavy burden) ● Then creditor’s burden to establish value and extent of lien ● See generally In re Coleman, 373 B.R. 907 (Bankr. W.D. Mo. 2007) ● NADA guide may be “starting point” – See e.g. In re Kollmorgen, 2012 WL 195200 (Bankr. D. Kan. Jan. 20, 2012) ● Guide must be adjusted for geographic location, condition, components ● Debtor can testify as to value. In re Stratton, 248 B.R. 177 (Bankr. D. Mont. 2000) (important that debtor present evidence of factors lowering value) ● An appraisal/valuation can be worth the cost and necessary if creditor has one E. Modular Home (BOCA standard home designed to be set on rectangular foundation) 1. Most real property type claims ● State building code violations ● Hidden defect claims ● Violation of BOCA standards ● Assignee liability issues

2. Often more like a standard mortgage case (broker, closer, lender, holder) ● Most states Chapter 13 cramdown not apply ● Real v. personal – factual state law issue 3. Expert ● Building standards person ● Real estate appraiser F. Other Bankruptcy Issues 1. Jurisdiction of Bankruptcy Court - 28 U.S.C. § 1334 ● Core matters - 28 U.S.C. §157(b)(2); Stern v. Marshall, 131 S.Ct. 2594 ● Related matters (nor arising in or under Code) must have nexus to Property of estate ● Property of estate: broad definitions in § 541 and § 1306 ● Mandatory abstention if non-core and test met

● Permissive factors – In re McDaniel, 364 B.R. 644 (S.D. Ohio 2007) ● Withdrawal to District Court ● Creditor may submit to jurisdiction of court by filing proof of claim 2. Procedures for Cramdown ● Often addressed as part of plan confirmation ● Motion to determine value of claim secured by lien (Rule 3012) ● Adversary Proceeding (“AP”) objecting to creditor’s proof of claim and seeking determination of extent of lien ● Local rule of court preference may dictate procedure ● Full discovery rights for motion (“contested matter”) or AP 3. Cramdown Procedure - Tips ● Order/judgments (including plan confirmation order) should specifically address valuation, removal of lien ● Do not ignore the creditor’s proof of claim – ultimately it should reflect cramdown status ● Always err in favor of clearest possible plan language ● Always err in favor of abundant and clear notices to an affected creditor 4. Other Bankruptcy Options ● Cure default in financing instrument ● Assume park lot lease and cure lease default ● Strip off wholly unsecured junior liens even if real property ● Pay off short-term loan, § 1322(c)(1) ● Redeem in Chapter 7 – 11 U.S.C. § 722 – Same valuation standard: § 506(a)(2) – But must pay redemption amount promptly (can be within 30 days of valuation hearing), no long-term payment option as in Chapter 13

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IN THE UNITED STATES BANKRUPTCY COURTFOR THE SOUTHERN DISTRICT OF WEST VIRGINIA

In re:

THOMAS CALVIN KELLER, Case No. 5:12-BK-50005Chapter 7

Debtor.

______________________________________________________________________________

THOMAS CALVIN KELLER,

Plaintiff,

v. Adversary Proceeding No. 5:12-ap-05005

VANDERBILT MORTGAGE ANDFINANCE, INC., and CMH HOMES, INC.,

Defendant.

AMENDED ADVERSARY COMPLAINT AND MORE DEFINITE STATEMENTRe: Schedule A & Schedule B Assets

1. (a) Plaintiff states pursuant to Local Rule of Bankruptcy Procedure 7008.1

that this is a core proceeding as that term is defined by §157(b)(2) Title 28 of the United States

Code.

(b) This proceeding arises out of an illegal foreclosure. The Plaintiff seeks a

determination as to whether the real and personal property are assets of the estate.

(c) A separate civil action involving the validity of the sale and financing is

filed in Circuit Court.

PARTIES

2. The Plaintiff, Thomas Calvin Keller, is the borrower of the loan that is the

Case 5:12-ap-05005 Doc 8 Filed 04/20/12 Entered 04/20/12 16:56:06 Desc Main Document Page 1 of 9

subject of this action. The Plaintiff has a high school education and is unsophisticated in

financial matters. He resides near Beckley, Raleigh County, West Virginia.

3. (a) Lender: The Defendant, Vanderbilt Mortgage and Finance, Inc. (“Vanderbilt”)

is a corporation with its principal place of business at 500 Alcoa Trail, Maryville, TN 37804.

Vanderbilt is the lender and servicer of the Plaintiff’s loan transactions. (b) Seller: The

Defendant CMH Homes, Inc. is a corporation with its principal place of business at 5000 Clayton

Road, Maryville, TN 37084, and is an affiliate with common directors with the Defendant

Vanderbilt.

FACTUAL ALLEGATIONS

Purchase of Home

4. In 2006 Plaintiff resided in the home on a small lot (1.05 A) and mobile home

both of which he had purchased for $15,000 in 1993.

5. The mobile home was destroyed by fire.

Doublewide Sale - August 24, 2006

6. Upon seeking a home, Plaintiff was shown by Defendant a doublewide for sale at

the sales lot of the Defendant in Raleigh County, West Virginia.

7. On August 24, 2006, the Plaintiff agreed to purchase the doublewide home

financed by the Defendant. This home had window shutters and solid wood kitchen cabinets.

The Plaintiff paid a $300 down payment toward the purchase and financing and was provided

documentation thereof.

Written Sales Agreement - April 26, 2007

8. This purchase was followed by a more detailed sales agreement provided by

Defendant and signed on April 26, 2007.


9. (a) Plaintiff was informed that the price would be $48,000 including set up

costs.

(b) Plaintiff was not provided any terms of the credit transaction in this

writing evidencing the transaction.

(c) Defendant arranged for a title search of Plaintiff’s real estate.

(d) If there was an appraisal, the Plaintiff has never been provided a copy.

The Plaintiff was not provided a copy of a Notice of Right to Receive Copy of any Appraisal

during the application process. Had Plaintiff known the valuation of his real property, he would

have been more informed about the transaction and could have made a more informed decision.

10. The sales agreement sold to the Plaintiff the Fleetwood, Model Greenhill, 2007 46

x 24, Serial No. VAFL 719 AB63299-GT-13 to Plaintiff for $48,000.

Financing - June 26, 2007

11. The financing of the doublewide with the seller’s affiliate from Defendant

Vanderbilt took place on June 26, 2007. Plaintiff was not provided with any financing

documents prior to the closing of the loan (sales documents only).

12. Plaintiff was told to meet the Defendant at a restaurant along the West Virginia

Turnpike.

13. No attorney was present at the closing of the financing.

14. Upon information, Plaintiff was charged for the closing. The closer was not an

attorney who could explain the details and import of the transaction.

15. (a) A deed of trust was executed on Plaintiff’s lot (real property) calling for a

principal of $58,730.30, more than $10,000 more than the agreed contract price.

(b) The Deed of Trust allowed for the sale at public auction in the event of


breach.

(c) The Deed of Trust was thereafter recorded. The statutory procedure for

changing personal property into real property was not included as a part of the transaction.

Subsequent Delivery of the Doublewide

16. (a) In or about the first week of August 2007, well after the closing, a

doublewide was delivered to Plaintiff’s real property.

(b) The doublewide was set up on the real property of the Plaintiff but never

attached thereto.

(c) The statutory procedure to convert a doublewide to real property was never

involved.

(d) Vanderbilt recorded the personal property title with the DMV on August

16, 2007.

17. (a) The home delivered was not the home shown. It was different in quality

including, but not limited to, the kitchen cabinets and lack of shutters.

(b) The serial number was different than the one sold to him – VAFL 719

A/B63538-GT13. This was not discovered until February 2012.

18. The home delivered was at an excessive price for the one delivered.

Servicing

19. Plaintiff contacted Vanderbilt on numerous occasions about trying to reduce the

payments and interest rate. Vanderbilt refused.

Foreclosure

20. Plaintiff received a notice of foreclosure in September 2011.

21. Pursuant to W. Va. Code § 7-3-2 the County Commission of Raleigh County has


established the public operation hours of the Raleigh County Courthouse to be 8:30 a.m. - 4:30

p.m. Monday through Friday.

22. (a) Defendant scheduled the foreclosure for 9 p.m. on October 11, 2011, at the

Raleigh County Courthouse and gave notice thereof to Plaintiff. This was after dark and not

during said public business hours.

(b) Plaintiff went to the designated sale location at the prescribed time and no

one appeared. (It appears that there could have been an error in the notice with the intended hour

being 9:00 a.m.)

(c) A sale at 9 p.m., more than four hours after the close of public hours, is

not a public action under the Deed of Trust.

Damage

23. Plaintiff suffered annoyance and inconvenience and loss of home and real

property.

COUNT I – IMPROPER SALE

24. The Plaintiff incorporates the preceding paragraphs by reference.

25. The Plaintiff alleges that the ostensible sale at 9 p.m. on October 11, 2011 at the

Raleigh County Courthouse of the real property was not a public sale within the meaning of the

Deed of Trust and Chapter 38, Article 1 of the W. Va. Code, and that the ostensible sale did not

take place and is void and unenforceable, and therefore part of the estate set forth in Schedule A.

WHEREFORE, Plaintiff prays for appropriate declaration and relief.

COUNT II – NO SALE OF UNATTACHED PERSONAL PROPERTY


27. Plaintiff alleges that to the extent that there was a valid foreclosure sale of


property it was a sale of the personal property only.

WHEREFORE, Plaintiff prays for appropriate declaratory relief.

COUNT III – UNCONSCIONABLE INDUCEMENT


29. The Plaintiff is an unsophisticated consumer and did not understand the details of

the transaction.

30. (a) The Plaintiff was obligated to purchase prior to disclosure of credit terms.

(b) The Plaintiff was not provided with any of the loan documents or credit

terms prior to agreement to purchase and finance in advance of the closing.

(c) The Plaintiff was not provided essential documents at the closing.

(d) The Plaintiff was delivered a home different than the one sold to him.

31. The loan that is the subject of this action was closed in a manner, without

meaningful explanation to the Plaintiff of the import and details of the transaction.

32. The loan contains several substantively unfair terms, including but not limited to:

(a) the terms were in excess of the reasonable value.

(b) The home delivered was not the home shown to Plaintiff.

33. The loan issued the Plaintiff was unconscionable, under all circumstances alleged,

at the time it was made and/or was induced by unconscionable conduct, and therefore was

unenforceable.

WHEREFORE, the Plaintiff respectfully requests the following relief:

(a) A declaration that Plaintiff’s loan and security instrument was induced by

unconscionable conduct and/or contained unconscionable terms;

(b) Actual damages;


(c) Actual damages for incidental and consequential damages;

(d) Appropriate civil penalties;

(e) Appropriate equitable relief;

(f) Reasonable attorney fees and the cost of this litigation; and

(g) Such other relief as the Court may deem equitable and just.

COUNT IV – FRAUD

34. Plaintiff incorporates the preceding paragraphs by reference.

35. Upon information and belief, the Defendant suppressed from the Plaintiff that

home delivered was not the home sold to him.

36. The Defendant intentionally suppressed the information for the purpose of

inducing the Plaintiff into the contract.

37. The Defendant’s conduct was intentional and material.

38. The Plaintiff reasonably relied upon the Defendant to deliver to him the home that

he had originally agreed to purchase.

39. The Plaintiff has been damaged by the Defendant’s conduct.

WHEREFORE, Plaintiff respectfully prays for judgment against the Defendants:

(a) That the Plaintiff be awarded his actual damages and punitive damages.

(b) That the Plaintiff be awarded attorneys fees, costs and such other relief as

the Court may deem appropriate and just.

COUNT V – FRAUD

40. Plaintiff incorporates the preceding paragraphs by reference.

41. Upon information and belief, the Defendants suppressed from the Plaintiff that it

intended to charge the Plaintiff a price in excess of the value of the home.


42. The Defendants intentionally suppressed the credit terms and value for the

purpose of inducing the Plaintiff into the contract.

43. The Defendants’ conduct was intentional and material.

44. The Plaintiff reasonably relied upon the origination of the loan being consistent

with prudent and proper lending practices when entering into the loan agreement.

45. The Plaintiff has been damages by the Defendants’ conduct.

WHEREFORE, the Plaintiff respectfully prays for equitable and other appropriate relief.

THOMAS CALVIN KELLER,By Counsel.

/s/ Daniel F. Hedges Daniel F. Hedges (WV Bar ID #1660)Jacklyn A. Gonzales (WV Bar ID #11361)Mountain State Justice, Inc.1031 Quarrier Street, Suite 200Charleston, WV 25301Telephone: (304) 344-3144Facsimile: (304)344-3145


IN THE UNITED STATES BANKRUPTCY COURTFOR THE SOUTHERN DISTRICT OF WEST VIRGINIA

In re:

THOMAS CALVIN KELLER, Case No. 5:12-BK-50005Chapter 7

Debtor.

______________________________________________________________________________

THOMAS CALVIN KELLER,

Plaintiff,

v. Adversary Proceeding No. 5:12-ap-05005

VANDERBILT MORTGAGE ANDFINANCE, INC., and CMH HOMES, INC.,

Defendant.

CERTIFICATE OF SERVICE

I, Daniel F. Hedges, counsel for the Plaintiff, hereby certify that on the 20 day of April,th

2012, I electronically filed AMENDED ADVERSARY COMPLAINT AND MORE DEFINITE

STATEMENT with the Clerk of the Court using the CM/ECF system which will send

notification of such filing to the following CM/ECF participants:

Randall L. Saunders, EsquireNELSON MULLINS RILEY & SCARBOROUGH LLP949 Third Avenue / Suite 200Huntington, WV 25701

/s/ Daniel F. Hedges Daniel F. Hedges (State Bar ID. 1660)


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