Maryland Legal Alert for Financial Services
Maryland Legal Alert - February 2021
IN THIS ISSUE:
SUPREME COURT RULES THAT RETENTION OF ESTATE PROPERTY SEIZED BEFORE BANKRUPTCY FILING DOES NOT VIOLATE THE AUTOMATIC STAY
We have updated our recurring article: A Survey of Activities Identified as Unfair, Deceptive, or Abusive by the CFPB. The article provides a detailed summary of enforcement actions brought by the Consumer Financial Protection Bureau (CFPB) concerning unfair, deceptive and abusive acts or practices (UDAAPs) in the second half of 2020. A review of the specific acts or practices identified by the CFPB as being problematic and resulting in UDAAP violations is instructive for industry participants in conducting their own internal compliance reviews to ensure that they do not engage in similar practices.
Contact Bryan M. Mull | 410-576-4227
Contact Christopher R. Rahl | 410-576-4222
As we previously reported, Governor Lawrence Hogan, Jr. issued an executive order on December 17, 2020 (December Order), in which he directed that the Maryland Department of Labor’s Commissioner of Financial Regulation (Commissioner) reopen the notice of intent to foreclose online registry (NOI Registry) on February 1, 2021. Governor Hogan had previously ordered the closure of the NOI Registry, which effectively halted the initiation of new residential foreclosures in Maryland. In the December Order, Governor Hogan also granted the Commissioner with the authority to delay the reopening of the NOI Registry through further regulatory guidance.
On January 28, 2021, the Commissioner issued guidance extending the reopening of the NOI Registry to March 1, 2021. The Commissioner’s guidance comes on the heels of several federal authorities announcing that their own foreclosure moratoria would be extended through February 28, 2021 (Federal Housing Finance Agency and Veterans Benefits Administration) and March 31, 2021 (U.S. Housing and Urban Development).
Please contact Bryan M. Mull with any questions concerning the foreclosure restrictions.
For additional information on the impact of the coronavirus, visit our information hub for a list of up-to-date content.
Contact Bryan M. Mull | 410-576-4227
Supreme Court Rules That Retention of Estate Property Seized Before Bankruptcy Filing Does Not Violate the Automatic Stay
Resolving a circuit court split, the U.S. Supreme Court recently held that a non-debtor who merely retains bankruptcy estate property following the filing of the bankruptcy petition does not exercise control over estate property in violation of Section 362(a)(3) of the Bankruptcy Code.
This case, City of Chicago, Illinois v. Fulton, arose from the City of Chicago’s (City) practice of retaining individuals’ impounded cars after the individuals filed Chapter 13 bankruptcy petitions. At the time of the filings, the individuals’ interests in their cars became property of their bankruptcy estates. After the debtors filed their bankruptcy petitions, the City declined to return the cars to the debtors. The debtors then alleged that the City violated the automatic stay; specifically, Section 362(a)(3)’s prohibition against “any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.” (emphasis added). The bankruptcy courts sided with the debtors and the U.S. Court of Appeals for the 7th Circuit later affirmed those rulings in a consolidated opinion.
The Supreme Court overruled the lower courts, emphasizing that Section 362(a)(3) must be read in conjunction with Section 542 of the Bankruptcy Code, which governs the turnover of estate property. The Court reasoned that if mere retention of property seized prepetition constituted an exercise of control over estate property in violation of Section 362(a)(3), this provision would, in effect, turn into a “blanket turnover provision” rendering Section 542 superfluous.
The Court also noted that the debtors’ reading of Section 362(a)(3) contradicts Section 542, since the turnover provision provides that property of inconsequential value to the estate need not be turned over. The Court further reasoned that the legislative history of Section 362(a)(3) dictates that the section only stays affirmative acts to exercise control over estate property.
Practice Point: While this ruling provides much needed clarity to non-debtors holding estate property at the time of petition, there are important caveats. As noted in Justice Sonia Sotomayor’s concurring opinion, the Court’s ruling does not address whether the circumstances of a non-debtor’s retention of estate property may otherwise constitute a stay violation. The ruling also does not relieve a non-debtor from its turnover obligations under Section 542. Non-debtors holding estate property at the time of petition should promptly evaluate their risks and obligations in connection with the seized property.
Please contact Christopher R. Rahl with any questions concerning this topic.