WaMu sued after ignoring homeowners’ bankruptcy stay

George and Barbara Dawson purchased their home “subjectto” a first mortgage with Great Western Bank, a predecessor of WashingtonMutual Bank (WaMu), one of the nation’s largest home loan lenders. The loanfell into default for nonpayment.

WaMu held its foreclosure sale on Feb. 8 by submitting a”credit bid” for the mortgage balance. No bidders showed up so WaMutook title to the home.

Purchase Bob Bruss reports online.

But, unknown to WaMu, borrower George Dawson filed Chapter 7bankruptcy on Feb. 6. WaMu was therefore in violation of the bankruptcy”automatic stay” prohibiting further foreclosure proceedings.

On Feb. 20, WaMu served a “Notice to Quit” on theDawsons, claiming ownership of the house. On March 1, WaMu was notified thatGeorge Dawson had filed Chapter 7 bankruptcy on Feb. 6. On March 14, WaMudismissed its unlawful-detainer eviction proceedings against the Dawsons.

However, WaMu did not rescind the foreclosure sale untilAug. 8. On June 2, the Dawsons brought a lawsuit against WaMu seeking damagesfor willful violation of the bankruptcy automatic stay by holding the foreclosuresale.

George Dawson claimed emotional distress damages from WaMufor failure to rescind the foreclosure. He stated he feared loss of his homealthough WaMu had rescinded the eviction proceeding.

If you were the judge, would you award emotional distressdamages for WaMu’s refusal to rescind the foreclosure sale until Aug. 8?

The judge said yes!

The evidence shows WaMu violated George Dawson’s Chapter 7bankruptcy automatic stay, the judge began. Upon being notified of thebankruptcy filing, WaMu dismissed the eviction action but did not rescind theforeclosure sale until five months later, he reported.

Therefore, WaMu was clearly in violation of the Chapter 7automatic stay prohibiting further collection proceedings pending outcome ofthe bankruptcy, the judge explained. Based on the evidence, WaMu is ordered topay $20,000 emotional distress damages, plus $156,819 attorney fees, the judgeruled.

Based on the 2006 U.S. Bankruptcy Court decision in Dawsonv. Washington Mutual Bank, 346 B.R. 503.

(For more information on Bob Bruss publications, visit his
Real Estate Center

Copyright 2006 Inman News

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