Posted on Nov 06, 2014

If you file bankruptcy and don't sign a reaffirmation agreement, the mortgage loan is discharged in bankruptcy. That means that your personal liability for the mortgage loan is extinguished; not that you get the house for free. The lien on the home survives, and if you don't pay, 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.

The mortgage company Caliber Home Loans argued that they are protected because there was a disclaimer in the statements, that said that if the borrower had been discharged, 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."

The mortgage company 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 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.

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J Thomas Black
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Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization