Summary:

Brenda Hughes asserted that MTGLQ and U.S. Bank violated the discharge injunction under 11 U.S.C. § 524(a) and sought a determination that a state court judgment reforming a deed of trust was void.

Prior to bankruptcy,  Ms.  Hughes  had signed a promissory note secured by a deed of trust, which was,  after the completion of her bankruptcy, reformed by a state court to correct errors.    Ms.  Hughes alleged that the Defendants violated the discharge injunction by continuing foreclosure actions and sending communications related to the debt.  She further  sought a declaration that the reformation judgment was void and that Defendants' actions violated the Bankruptcy Code.

The bankruptcy court began by finding jurisdiction over the adversary proceeding and ruling that the claims were not barred by the Rooker-Feldman doctrine or issue/claim preclusion, as the claims involved enforcing the discharge injunction rather than challenging the state court's judgment.



The bankruptcy court found that the reformation of the deed of trust was a permissible in rem action that did not violate the discharge injunction nor,  since it did not impermissibly seek to reestablish Ms.  Hughes personal liability,  was it void under 11 U.S.C. § 524(a)(1)..  Similarly,  the foreclosure proceeding, which enforced the lien on the property (but not personal liability), was also permissible and did not violate the discharge injunction.  Lastly, the foreclosure letter and Requests for Contact were deemed informational and necessary for pursuing in rem rights, thus not violating the discharge injunction.

A demand letter dated  August 13, 2023,  which stated that Shellpoint was a debt collector  seeking to collect a debt,   could, however,  plausibly be interpreted as a demand for payment and allowed this claim to proceed, along with the monthly mortgage statements,  which did not appear to have any bankruptcy discharge disclaimer.



Accordingly,  the court granted Defendants’ motion to dismiss claims related to the reformation action, foreclosure action, and specific communications (e.g., requests for contact),  but allow the claims related to  the August 13, 2023 letter and mortgage statements  to proceed. 

Commentary:

This case may be impacted by Koontz v. SN Servicing,  which was argued at the 4th Circuit Court of Appeals at the beginning of December and raises issues regarding the extent to which the lack of personal liability (in Koontz resulting from the lack of a reaffirmation)  impacts subsequent in rem  collection efforts. See the attached amicus brief.

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