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Adam Leitman Bailey, P.C. Protects Voided Second Mortgage in Bankruptcy

Aggressive action by Adam Leitman Bailey, P.C. enabled a mortgage lender to recover in bankruptcy on a voided second mortgage, despite the lender’s failure to file a timely bankruptcy claim.  Although a late filing is generally fatal to a bankruptcy claim, and despite the bankruptcy trustee already moving to disallow the claim, Adam Leitman Bailey, P.C. successfully moved to amend the trustee’s claim schedule and to permit the lender to recover on the claim.

The lender held a second position mortgage secured by an upstate New York residential property, and the borrowers/debtors filed for Chapter 13 bankruptcy. Since the amount due on the first mortgage exceeded the value of the property, the debtors were able to void the second mortgage lien, leaving the lender with an unsecured claim only.

Under the Federal Rules of Bankruptcy Procedure, to recover on its now-unsecured claim, the lender was required to file a proof of claim within 30 days of the order voiding the mortgage lien becoming final. The lender, however, failed to do so.

The lender retained Adam Leitman Bailey, P.C. after it received a motion from the Chapter 13 trustee seeking approval of a schedule of creditors and disallowing all other claims, including the lender’s “not filed” claim. Faced with controlling case law holding that bankruptcy courts are without jurisdiction to extend the claim-filing deadline, Adam Leitman Bailey, P.C. sought a creative way to allow the claim to be filed. It found an Indiana bankruptcy court decision holding a late-filed claim could be paid where there was no objection from the debtor, the trustee, or any other party in interest.

Relying on this case, Adam Leitman Bailey, P.C filed the late claim and moved to modify the trustee’s claim schedule to include the lender’s claim. After argument and with no objection, the court had the law that it needed to grant the motion, allowing the lender to have its claim paid under the debtor’s Chapter 13 Plan.

Jackie Halpern Weinstein of the Foreclosure, Title, and Bankruptcy/Creditor’s Rights Groups at Adam Leitman Bailey, P.C. won this for the lender.

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