In Rem Relief Comes to Massachusetts

While in rem relief has been used and litigated in such hotbeds of bankruptcy filings (and abuse) as California, see, e.g., Fernandez v. GE Capital Mortgage Svcs, Inc. (In re Fernandez), 1998 WL 80821 (9th Cir.BAP (Cal.)), in rem relief has been slow to migrate to New England. Of late, however, the Bankruptcy Courts in Massachusetts have begun to exhibit little patience with serial and abusive bankruptcy filers. In Worcester in October 1998, Judge Queenan awarded relief from the automatic stay to a foreclosing lender and extended it to in rem relief with respect to the debtor’s real property. The Court also dismissed the debtor’s case and required that the debtor and his wife obtain court approval prior to any bankruptcy filing within the following 180 days. In re Yiantsidis, No. 98-46078-JFQ (Bankr. D. Mass.). The debtor’s petition was the fourth case that he or his wife had filed since 1993, and was filed after the Superior Court ordered the debtor to pay $1,000 in foreclosure costs to the mortgagee to obtain a two-week forbearance from foreclosure. The debtor was also seven years in arrears on the mortgage.

Lack of Good Faith

The debtor appealed Judge Queenan’s Order to the First Circuit Bankruptcy Appellate Panel and filed a Motion for Stay pending appeal. In a strongly worded opinion, the BAP denied the debtor’s Motion for a Stay, citing the Bankruptcy Court’s finding that the prior filings by the debtor and his wife, along with the fact that the debtor offered no evidence of changed circumstances, indicated a lack of good faith. In finding that there was no likelihood that the debtor would succeed on the merits of the appeal, the BAP offered a detailed analysis of the issue of good faith and serial filings.

In that same month in Boston, the Chief Judge of the Bankruptcy Court also utilized in rem relief by imposing an equitable servitude upon property owned by the debtor in order to bar the debtor’s extensive family from halting foreclosure proceedings on the debtor’s property by serial filings. In re Monteiro, No. 98-11741-CJK (Bankr. D. Mass.). The Court found cause warranting in rem relief due to the debtor’s delay in filing bifurcation motions and amended plans, the existence of a lengthy prior bankruptcy and the debtor’s failure to make any payments to the mortgagee for more than two years.

Abusive Use

In the Fernandez case in California, the Bankruptcy Court had found that the filing of five bankruptcy petitions in less than eight months by the debtor, his wife and their transferee was abusive and allowed a secured creditor in rem relief. While the 9th Circuit BAP on appeal declined to rule on the propriety or efficacy of in rem orders, it clearly took note of the Debtor’s lack of good faith.

With the proper showing by a lender of bad faith or abusive use of the Bankruptcy Code by a debtor, it now appears that, like their West Coast cousins, the Bankruptcy Courts in Massachusetts are willing to grant extraordinary relief to mortgagees.