A Sacramento bankruptcy judge issued a hard hitting judgment against Bank of America for the way it handled a single residential foreclosure in Lincoln, California. Referring to the famous novelist whose works evoke oppressive and nightmarish characteristics, Judge Klein wrote: “Franz Kafka lives… [and] he works at Bank of America.” This ruling has been widely discussed for the hefty award recovered by the plaintiff. In addition to the harsh ruling, Judge Klein memorialized a rule that was not previously addressed in case law – the affirmative duty of an attorney to search bankruptcy filings to confirm whether a violation of a stay order was likely. While this rule could arguably be characterized as dicta, because there were no claims against the attorneys in the suit, all attorneys should take note of this rule or risk serious consequences. The relevant facts are summarized below.
In 2008, the plaintiffs entered into a loan with the expectation that they could refinance or modify the loan immediately after closing. However, after closing, Bank of America said that it would not consider a loan modification request unless and until the homeowners ceased making payment. Accordingly, in 2009, the homeowners defaulted on their loan payments, which triggered a series of troublesome events. During the course of the ensuing years, Bank of America strung along the homeowners with multiple “lost” loan modification requests, while at the same time pursuing foreclosure.