Adrian Wright seemed to be a typical chapter 13 debtor. She filed her case, sought confirmation of her plan and life was moving along normally. Later on, Adrian stopped paying her payments to the chapter 13 trustee. So, as expected, the chapter 13 trustee moved to dismiss the case. But before the case actually got dismissed, Adrian’s attorney filed a motion to convert the case to a case under chapter 7, as was her absolute right.
As a result, even though the bankruptcy judge ordered dismissal of the chapter 13 case, by the time she did so, there was really no chapter 13 pending, since the case became a case under chapter 7 by operation of law upon conversion to chapter 7. The case stayed in limbo for several months. The clerk, quite properly did not close the case. But because of the order of dismissal, the 341 meeting notice to creditors did not get generated automatically. Several months later, Ms. Wright moved to vacate the order of dismissal of the chapter 13 and to have the case move forward as a chapter 7 case. That motion was granted. At this point, your fearless trustee became appointed as the interim trustee. Here’s where the fun begins.
Before I hold any 341 meeting and, in fact, as soon as I am appointed as trustee, I always check the records of the Recorder of Deeds to see what, if anything, the debtor has been doing with real estate. I do this for every debtor, whether or not real estate is scheduled. We are very fortunate here in the Chicago area that our Cook County Recorder of Deeds maintains its records online. The index is maintained not only by property index number, but also alphabetically by grantors and grantees. I can obtain copies of the actual documents online for a rather nominal charge. It is fast and convenient. Thank you Recorder of Deeds, Bill Moore!
My routine investigation of Adrian Wright real estate situation was surprising even to your jaded chapter 7 trustee. During the time that her chapter 13 had been dismissed, Ms. Wright took advantage of the fact that the records appeared to indicate that she was out of bankruptcy. She entered into a “mortgage rescue” transaction whereby an “investor” granted an interim loan and took back a mortgage to secure that loan. Then another “investor” obtained a fat and juicy appraisal for the property, wherein the debtor sold the property, got a few dollars at closing and the lawyers and “investors” involved in the transaction showed close to $50,000 in fees on the HUD-1 as a part of the transaction. So in this transaction, we had fraud, equity stripping, and attorneys aiding and abetting the fraud. There were quite a few deep pockets, all of who knew that they had exposure, including the “investors”, the attorneys, their malpractice carriers and the title companies involved. Had the debtor herself not been involved in the fraud, I am confident that I would have recovered from the new owner, the lawyers involved in the transaction, the “investors” afforded surplus to the debtor.
I filed a complaint alleging just the fraudulent transfer to begin with. And within weeks, the title company paid enough in settlement to satisfy all filed claims in the case in full as well as all of the trustee’s fees and attorney’s fees and expenses. Naturally, I obtained revocation of debtor’s discharge, just in case a creditor who did not file a claim feel like they wanted to pursue Ms. Wright in the future.
This is not the biggest fraud I have ever seen, but certainly it was one of the juiciest. And it demonstrates that codification of practice and consistent best practices leads to excellent results and finds assets which otherwise would be overlooked.