Breaking Story in Central District: Bankruptcy Hijacking
Tales of woe about bankruptcy "hijackings" began lighting up our local listserv last month where consumer attorneys discussed fraudulent Proofs of Claim that sounded so bizarre that they couldn't possibly be true. Then, just the other day, we received this message:
Due to the current rampant bankruptcy "hijacking" problem that is occurring within the Central District, where real property is "transferred" to your debtor without their knowledge, the Court has informed the bar that if a RFS motion [Motion For Relief From Stay] with a request for Extraordinary Relief is then filed against one of your debtors and your debtor(s) have no knowledge or interest in the real property, it STRONGLY recommends that you file a Response to the Motion, providing evidence (a Declaration of the Debtor) of the fact that the debtor has no interest or knowledge of this transfer or of this real property. Based on the evidence provided, the Court will then attempt to modify the Extraordinary Relief request in order to make it explicit that this specific debtor was not involved in the scheme to hinder, delay or defraud creditors.
A bankruptcy hijacking is where a fraudulent Proof of Claim is filed in an innocent Debtor's
bankruptcy case to stop a foreclosure on a home that the Debtor has no interest in. This is an intricate crime spree to stop foreclosures on homes without the owners of the property actually filing bankruptcy. If you've experienced a mysterious filing in your bankruptcy case, please contact your attorney. For Debtors without counsel, please contact your bankruptcy Trustee and report the problem.
Local attorney Gerald McNally, Jr. of McNally and Associates, P.C. explains the mechanics of a bankruptcy hijacking:
The mechanics of the hijacking and why we as Debtors’ Counsel are burdened with this plague:
1. a random deed is downloaded from the county recorder’s database (through access to a title company or a service like Dataquick.
2. The original information on the deed is photoshopped out, and the fraudulent information is photosshopped in---leaving the original county recorder’s filing imprint, and the notary stamp.
3. This is then presented to the foreclosure trustee as evidence to stop the sale.
4. Where the fault lies is that neither the Lender, nor the Title Officer of the title company guaranteeing the trustee’s sale does what he/she/it ought to do.
5. What the Bank/T.O. OUGHT to do is take the instrument number of the deed and look it up. This is very easy to do with either the Ticor or the other major database. Then it would be easy to determine if the document was genuine. And if the document was not genuine, reject the deed and complete the foreclosure.
6. Instead, the Bank/T.O. just ASSUMES the correctness of the false deed and then contacts Debtor’s Counsel; now this pile of "doo doo" becomes the Debtor’s Counsel’s problem, and must almost be handled unpaid.
7. Compounding the crime, Counsel for the Lender, often files its MFRS with the false deed, a patent violation of Rule 9011. Even after being advised by Debtor’s Counsel with evidence that the false deed is in fact patently false.
8. So the bankruptcy system is burdened by (1) the laziness and/or cowardice of the lender and/or title company, not to mention their counsel who file these baseless MFRS documents.
9. In fact, counsel for one lender admitted that 30% of the deeds used as a basis for these MFRSs were fraudulent.
Be sure your bankruptcy attorney is well versed in the Local Bankruptcy Rules and Procedures. You can always locate a bankruptcy attorney from the Central District Consumer Bankruptcy Attorney Association website. Our members have access to our listserv, where we have access to current news and information to help our clients.
