National Mortgage Settlement Not Property of Bankruptcy Estate, 9th Cir. BAP Rules

The Ninth Circuit Bankruptcy Appellate Panel recently denied a trustee's motion to seize a settlement payment received by an Arizona consumer after bankruptcy.

Almost 6 years after filing chapter 7 bankruptcy, Arizona consumer Carrie Neidorf received a $31,250 settlement check from Bank of America.

The check was part of a national mortgage servicing settlement between banking regulators and certain financial institutions reached in February 2012. The settlement concerned widespread illegal foreclosure tactics by each of the nation's largest mortgage servicers.

The bankruptcy judge ultimately denied the trustee's motion to seize Neidorf's settlement payment, and the trustee appealed. On appeal, the trustee was represented by Michael Paul Lane and the consumer was represented by her bankruptcy attorney, Neeley Law Firm PLC.

The appellate panel determined that the trustee could not meet his burden to prove the settlement payment was property of the estate. The panel reasoned that the debtor was entitled to participate in the settlement based on illegal foreclosure activities occurring only after she filed bankruptcy.

Read the entire case opinion here.

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Michael Fuller is a partner at Olsen Daines PC in Portland, Oregon and an adjunct professor of consumer law at Lewis & Clark Law School.