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Consumer Bankruptcy Law and Practice: 9.7.3.2.4 Leases involving residential property

Special problems are posed under the stay provisions in cases that involve leases of residential property.513 While it may be quite possible for a debtor to give a lessor adequate protection, perhaps in the form of a security deposit, it is usually difficult to argue that the debtor has equity in the leased premises unless the debtor has a long-term lease at a rate below current market values, or receives other benefits from remaining in possession, such as the special rights available in public housing or in a rent-control jurisdiction.

Consumer Bankruptcy Law and Practice: 9.7.3.3.2 Other tactics

Discovery may be helpful, as always, in narrowing the issues or pointing up flaws in an opponent’s case. In any case, because of the time deadlines involved in stay litigation, a motion for expedited discovery is usually necessary to complete discovery within the thirty days before the preliminary hearing. One positive result of such a motion is often a quick stipulation from the party seeking relief from the stay agreeing that the hearing (and the stay) can be continued beyond the thirty-day deadline.

Consumer Bankruptcy Law and Practice: 9.7.3.3.3 Stays pending appeal

If an appeal is contemplated after the automatic stay is terminated by order of the court or otherwise, it may be essential to obtain a stay pending appeal. The rules provide a fourteen-day delay in the effectiveness of an order granting relief from stay in order to provide time to seek a stay pending appeal, but a court may order otherwise.537 Therefore, if a possible appeal is contemplated, a debtor should argue against any language in the court’s order changing the normal fourteen-day delay of relief from the stay.

Consumer Banking and Payments Law: 1.5.10.2.2 Affirmative misrepresentations

There is broad agreement that federal law does not preempt claims that banks made affirmative misrepresentations about the operation of their overdraft programs.202 As the Ninth Circuit has stated, “[s]tate laws of general application, which merely require all businesses (including national banks) to refrain from fraudulent, unfair, or illegal behavior, do not necessarily impair a bank’s ability to exercise its . . . powers.”203

Consumer Banking and Payments Law: 1.5.10.2.3 Duty of good faith and unconscionability

A number of courts have held that federal law does not preempt a claim that a bank violated the duty of good faith and fair dealing by measures such as manipulation of posting order.204 Since the duty of good faith and fair dealing is uniformly imposed on all parties as an element of contract law, courts have recognized that compliance with that duty has no more than an incidental effect on a bank’s exercise of its deposit-taking powers, so it falls within the savings clause of the preemption regulation.2

Consumer Banking and Payments Law: 6.7.5.2 Consumer Liability for Unauthorized Transfer If Bound by Agency

A consumer can be liable for an unauthorized funds transfer if the consumer authorized the payment order or if the consumer is otherwise bound by the payment order under applicable laws of agency.458 However, it is highly unlikely that a bank would be able to assert that a consumer is bound under the applicable laws of agency. As the First Circuit explained, “ ‘in a very large percentage of cases covered by Article 4A, . . .

Consumer Banking and Payments Law: 6.7.5.3.1 Transfer deemed authorized if validated by agreed-upon, commercially reasonable security procedure

Article 4A provides a second way for a bank to shift liability to the consumer for unauthorized funds transfers.460 A funds transfer is deemed authorized by the consumer if the bank verified the authenticity of the instruction with a security procedure agreed to by the consumer.461 The bank must verify the authenticity of the payment order in good faith using a commercially reasonable security procedure t

Consumer Banking and Payments Law: 6.7.5.3.2 Consumer must agree to the security procedure

To shift the liability of an unauthorized transfer to a consumer, the security procedure used by the bank must be one “established by agreement of a customer and a receiving bank.”464 The term does not apply to “procedures that the receiving bank may follow unilaterally in processing payment orders.”465 The consumer must agree to a specific security procedure, not merely the fact that the bank will use so

Consumer Banking and Payments Law: 6.7.5.5 Consumer Liability for an Unauthorized Transfer Can Be Limited by Agreement or By Showing That It Was Not Caused Directly or Indirectly by the Consumer

Although an unauthorized funds transfer may be deemed authorized because the consumer’s bank verified the authenticity of the instruction with a security procedure agreed to by the consumer—i.e., the bank validated the funds transfer—Article 4A does provide a mechanism for limiting or eliminating the consumer’s liability.494

Consumer Banking and Payments Law: 6.7.8.2 Common Law Claims That Are Not Preempted by UCC Article 4A

Article 4A is not the “exclusive means by which a plaintiff can seek to redress an alleged harm arising from a funds transfer.”568 A plaintiff may assert a common law claim based upon a funds transfer if the claim “(1) arises from circumstances not contemplated in Article 4A or (2) represents rights and obligations not contrary to those set forth in Article 4A.”569 As the First Circuit put it, “courts hav

Home Foreclosures: 10.8.2.1a. The Significance of When the Lease Commenced

The two key predictors under state law as to whether a tenant has rights to remain in the foreclosed property are whether the lease was executed before or after the mortgage and whether a foreclosure is judicial or non-judicial.621 If a lease was consummated prior to creation of the mortgage, the lease generally is treated as not extinguished by the foreclosure, in both judicial and non-judicial foreclosure states.622 This is so because the foreclosure purchaser acquires no greater interest than

Repossessions: 14.1.2.4 Where a State Statute Defines a Lease as a Security Interest

A Nevada statute requires that dealers provide consumer vehicle lessees with a special disclosure statement. If the dealer does not obtain the consumer’s signature on that disclosure statement, the lease shall be deemed a retail installment contract for the sale of the vehicle.38 In that case, not only the state installment sales statute, but UCC Article 9 should apply to the transaction.

Consumer Bankruptcy Law and Practice: 11.6 Using Chapter 13 to Deal with Secured Creditors

11.6.1 Modification of Secured Creditors’ Rights in Claims Not Secured Only by Real Estate That Is the Debtor’s Principal Residence11.6.1.1 Generally

Perhaps the greatest powers to affect the rights of secured creditors are found in the provisions of chapter 13. Bankruptcy Code section 1322 provides that the debtor’s plan may modify the rights of holders of most secured claims, other than some claims secured only by a security interest in real property that is the debtor’s principal residence.

Consumer Bankruptcy Law and Practice: 15.4.3.8.2.1 Loans related to government units and nonprofit institutions: § 523(a)(8)(A)(i)

The exception has had several different wordings and, as amended in 1990,528 covers an “educational benefit, overpayment or loan”529 that is “made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or a nonprofit institution.”530 This language covers most, if not all, student loans made or insured by nonprofit institutions or governmental units.

Consumer Bankruptcy Law and Practice: 15.4.3.8.2.2 Funds received as educational benefits, scholarships, or stipends; § 523(a)(8)(A)(ii)

The exception also applies to “an obligation to repay funds received as an educational benefit, scholarship, or stipend.”535 This language in subpart (A)(ii) is applicable to certain educational benefit grants involving funds received by the debtor or advanced on the debtor’s behalf.536 However, subpart (A)(ii) is not a “catch-all” provision designed to include every type of transaction that creates an educational benefit for a debtor.537 Important

Consumer Bankruptcy Law and Practice: 15.4.3.8.2.3 Private student loans; § 523(a)(8)(B)

The exception was broadened in 2005 to also include, in subpart (B), any other education loans from for-profit lenders if they are qualified education loans as defined in section 221(d)(1) of the Internal Revenue Code.541 The term “qualified education loan” is defined in section 221(d)(1) of the Internal Revenue Code to mean any indebtedness incurred by the taxpayer solely to pay qualified higher education expenses.542 Debtors who have incurred debt for education and other purposes may