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Summarizing by Amir Shachmurove

Cowin v. Countrywide Home Loans, Inc. (In the Matter of Cowin)

A ‘no harm, no foul’ stay violation is harmless error.

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Case Type:
Case Status:
15-20600, 16-20100 (consolidated) (5th Circuit, Jul 18,2017) Published
1. Trial evidence that debtor (Corwin) cause companies that he controlled to use contracts containing language contrary to Texas tax lien foreclosure law was sufficient to establish that Corwin had the required intent for § 523(a)(4) and (a)(6). 2. The intent of the co-conspirators in a conspiracy to violate Texas tax lien foreclosure law was sufficient to establish intent under § 523(a)(4). 3. The bankruptcy court did not violate the automatic stay by entering judgment in an adversary proceeding after the bankruptcy case in which the A/P was filed was dismissed.
Procedural context:
On appeal from a bench trial on the tax lien foreclosure fraud and a nondischargeability complaint arising from a settlement involving tax lien foreclosure fraud.
The debtor, Corwin, controlled two companies that made "loans" to pay real estate taxes to persons. The scheme worked as follows: (i) borrower/purchasers would bid at condominium association foreclosure sales. After purchasing the trustee's deed, the borrower/purchasers and one of Corwin's companies would enter into an agreement calling for the borrower/purchaser to pay the real estate taxes on the property. The company would do so, and then foreclose on the resulting tax transfer lien. Under Texas law, the tax transfer lien had priority over other interests. The statutes provide that the tax transfer-lien foreclosure sale wipes out the junior liens, but that the excess proceeds of the sale were to be paid to the junior lienholders. The Corwin-company contracts with the purchaser/borrowers omitted this language, instead calling for the excess foreclosure proceeds to be paid to the purchaser/borrower. In practice, the Corwin companies promptly commenced foreclosure proceedings once paying the real estate taxes. The proceeds from the foreclosure sale were paid to the trustee ($1,000 per sale), to the Corwin companies, in full payment of the tax transfer lien, and then to the purchaser/borrower. The legitimate mortgagees did not receive any payment from these tax transfer lien sales. One lender sued Corwin in the Southern District of Texas. While the case was pending, Corwin filed a Chapter 11 petition in the US Bankruptcy Court for the Southern District of Texas. The bankruptcy case was dismissed five weeks later. Corwin filed a second bankruptcy case in short order. In the second bankruptcy case, another group of mortgage lenders filed adversary proceedings to have their debt deemed nondischargeable. Seven months later, Corwin's second bankruptcy case was dismissed for abuse of process. The bankruptcy court, however, retained jurisdiction over the adversary proceedings. The first case was litigated in January 2013, resulting in a settlement, to be evidenced by a judgment to be entered by the district court. The following month (February 2013), Corwin filed a voluntary Chapter 7 bankruptcy case. The bankruptcy court lifted the automatic stay so that the district court could enter the settlement judgment. The bankruptcy court tried the adversary proceedings and entered a judgment against Corwin. The settlement judgment creditor then filed its own nondischargeability adversary proceeding against Corwin. Again, the bankruptcy court found that the debt was nondischargeable.

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