Ever hear of that old adage? It’s the first thing that comes to mind when you read the recent case In Re: Michael White and Brenda Joyce White out of the Northern District of Texas, Dallas Division decided on December 7, 2007. With all the publicity the mortgage housing industry is getting lately, it appears that there are “unrelated actors in the middle, who appear to be unscrupulously taking advantage of people”. This particular story, though there are several that are remarkably similar, goes like this:

Mr. and Mrs. White, in an effort to save their homestead, filed for bankruptcy in Texas. The Creditor filed a Motion for Relief from the Automatic Stay, which was later granted. Just days before the foreclosure sale, however, the Creditor was notified via facsimile that 1% interest of the house in question had been sold to someone who had just filed a pro se bankruptcy petition in California, Los Angeles Division. The Creditor stopped the foreclosure proceedings immediately to investigate. After speaking to the unsuspecting California petitioner, and obtaining a signed Affidavit that she had no knowledge of the transfer of interest, filed for a Show Cause hearing with the Dallas Bankruptcy Court.

At the hearing, the Debtors in the Dallas case told of receiving hundreds of propositions from companies claiming that they could legally save their house from the impending foreclosure. The Debtors, desperate to save their home, contacted one such company and was told that they would need to pay a monthly fee and they could postpone the foreclosure for up to 36 months. The Court, after having heard all the testimony in the Show Cause hearing, stated in its opinion that “the Whites have been naively duped in this matter and have not themselves knowingly or fraudulently participated in acts that might be described as a bankruptcy crime”.

The Court discharged the show cause order as to the Debtors, Ordered a Show Cause hearing as to the “Bankruptcy Servicers”; issued an order confirming the automatic stay had been terminated; and reported the possible bankruptcy crimes to several federal and state criminal agencies.

Here’s the link to Judge Jernigan: http://www.txnb.uscourts.gov/opinions/sgj/06-32324_20071207.pdf

Chandra