Once a bankruptcy is filed, the debtor's mortgage loan (the debtor is the person in bankruptcy), unless it is reaffirmed, is discharged in bankruptcy just like any other debt. That means that the debtor's personal liability for the mortgage loan is extinguished; not that they get the house for free. The lien on the home survives the bankruptcy, and if the debtor doesn't pay it, the mortgage company can foreclose on the home.

But a recent court decision by U.S. Bankruptcy Judge Marvin Isgur sitting in Houston says that the mortgage company cannot send you monthly mortgage statements requesting money, if the mortgage loan was discharged in bankruptcy. If they do, it is a violation of the discharge injunction of 11 U.S.C. Section 524. Hernanez v. Caliber Home Loans, Adv. Pro. No. 14-03213, U.S. Bankruptcy Court, SD Texas 2014.

Caliber Home Loans, the defendant, argued that they were protected because there was a disclaimer in the statements, that said that if the borrower had been discharged in bankruptcy, that it was not an attempt to collect a discharged debt. But the Court held:

"(a) disclaimer cannot change the true nature of a communication...(cites omitted)..Caliber effectively asked Hernandez multiple times for payment on the first page of the statement, but then relies on two inconspicuous sentences in fine print hidden within paragraphs of text to claim that they were doing no such thing. A boilerplate disclaimed which is difficult to read, or even find, does not negate Caliber's attempt to enforce a personal liability post-discharge."

Caliber also argued that they were required to send monthly statements because of the federal Truth in Lending Act (TILA), another federal law. Judge Isgur said that is not the issue, holding:

"The monthly statements sent by Caliber appear to meet these requirements, but the issue
is not whether the monthly statement correctly set forth the terms of the mortgage, but whether they constituted an attempt to enforce a personal liability. Because the statements indicated that
they were an attempt to collect a consumer debt and did not make sufficiently clear that  Hernandez had no personal liability on the mortgage, they actually conflict with TILA’s broad
purpose of providing “meaningful disclosure of credit terms.” A consumer reading Caliber’s
statements would likely interpret them to mean that the consumer is still personally liable for the mortgage and is required to make payments. This is simply not the case. By mischaracterizing
the nature of the debt owed and failing to provide meaningful disclosure to the consumer, Caliber acted contrary to TILA’s purpose. Accordingly, Caliber cannot then take shelter under the act."

So, if you have discharged your mortgage loan but continue to receive monthly mortgage statements, you may have a viable cause of action against your mortgage company, at least here in the Southern District of Texas. Of course Caliber may appeal this ruling. A hearing on damages has been set for a future date.

Do you think this case was decided correctly? What if the people that filed bankruptcy wanted to continue to receive statements? And doesn't this decision put mortgage companies "between a rock and a hard place?" Please leave your comments or questions below.

J Thomas Black
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Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization
Does this mean that payment made on the house the eguity built does not belong to you. If you sell you get nothing out of the house.
by Patricia Philpotts August 1, 2018 at 08:52 AM
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