Bankrupt Wins Damages For Bank’s Foreclosure Proceeding

NOVEMBER 22, 1999 VOLUME 7, NUMBER 21

Kenneth A. Kaneb, like many northern retirees, spent his winters in Florida. Although he lived alone after his wife’s death, he owned the family home in Massachusetts and a second home, a condominium, in Florida.

In 1993, at the age of eighty five, Mr. Kaneb found that he had insufficient assets and income to maintain his two-state retirement lifestyle. He filed for bankruptcy in Massachusetts, negotiated the sale of his home in that state and paid off secured creditors, and moved to his Florida condominium.

Once a bankruptcy proceeding is initiated, all legal actions against the bankrupt are suspended automatically by bankruptcy court rules. While it is possible to get the court’s permission to proceed against the bankrupt in individual cases, that permission is not easily gained. The automatic stay of proceedings applies even to the holder of the mortgage on the bankrupt’s real estate, so Mr. Kaneb’s actions stopped the mortgage-holder on his Florida property from foreclosing, at least temporarily.

Shawmut Bank was the original mortgagee of Mr. Kaneb’s Florida condominium, and they argued that the bankruptcy stay should be lifted so that they could initiate foreclosure proceedings. The bankruptcy judge refused to lift the stay, and so Shawmut forwarded the collection file to a Florida attorney’s office to initiate negotiations with Mr. Kaneb and his lawyer.

Shawmut’s Florida attorney did not understand that the bankruptcy court had refused to lift the stay. A copy of the court order which Shawmut had hoped to get signed was included in the file, and the attorney assumed that the original had been signed. She filed a foreclosure action, and published notice of the foreclosure in the local newspapers.

Although Mr. Kaneb’s attorney promptly persuaded the bank’s counsel that the foreclosure was improper, no actions were taken to dismiss the proceeding for six weeks. During that time, neighbors learned of the pending bankruptcy, partly because of a huge volume of “colorful” mail offering to help him work out his financial problems. Mr. Kaneb’s condominium was part of a close-knit gated community, but after news of his difficulties became widespread he stopped receiving invitations to social gatherings and his neighbors began to avoid him.

Mr. Kaneb brought legal action against Shawmut (and its successor, Fleet Mortgage Group) for its violation of the federal bankruptcy stay. After a trial, the bankruptcy court awarded him over $18,000 in legal fees and court costs, plus $25,000 for emotional distress.

The First Circuit Court of Appeals reviewed the case. The court pointed out that “emotional damages” qualify as actual damages, and upheld Mr. Kaneb’s award. Fleet Mortgage Group v. Kaneb, November 8, 1999.

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