BCLP Global Restructuring & Insolvency Developments

Global Restructuring & Insolvency Developments

New York

Main Content

Reverse Mortgage Update: New York Law Mandates New Foreclosure Notices and Certificate of Merit

Editors’ Note:  While this post is not a per se bankruptcy issue, matters on consumer financial services are always in the curtilage of bankruptcy and the U.S. Bankruptcy Code.  Our BCLP consumer financial services colleague Cathy Welker is an expert in this area, advising banks, servicers, and other financial institutions on the Byzantine regulatory world they face, not only in New York where she practices but also at the federal level.  Likewise, BCLP’s Dallas office enjoys the benefits of Greg Sachnik, a former senior banking executive deep in the front lines of TILA, RESPA, deceptive trade practices, wrongful foreclosure, and fair debt collection.  We appreciate seeing this update from them, especially as reverse mortgage issues grow exponentially – according to one study, reverse mortgage foreclosures increased by over 600 percent in recent years.  So we are pleased to re-publish it here, and for you to read

What’s Yours is Mine and What’s Mine is For the Benefit of My Creditors: Bankruptcy Courts Remain Reluctant to Impose Constructive Trusts on Debtor Property

February 27, 2017

Categories

There is an inherent tension between the goals of bankruptcy law and the state law doctrine of constructive trust.  A central tenet of bankruptcy policy is that similarly situated creditors should be treated equally: because an insolvent business or individual will not be able to pay all creditors in full, a proper bankruptcy system must provide as equitable a distribution to each of them as possible.  Constructive trust law, on the other hand, works to the advantage of a single creditor – which always means the detriment of the others when everyone is competing for limited funds.

Constructive trusts are imposed when “property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest.”  Beatty v Guggenheim_Exploration_Co, 225 N.Y. 380, 386 (1919) (Cardozo, J.).  When a creditor in a bankruptcy case alleges that the debtor is

The attorneys of Bryan Cave LLP make this site available to you only for the educational purposes of imparting general information and a general understanding of the law. This site does not offer specific legal advice. Your use of this site does not create an attorney-client relationship between you and Bryan Cave LLP or any of its attorneys. Do not use this site as a substitute for specific legal advice from a licensed attorney. Much of the information on this site is based upon preliminary discussions in the absence of definitive advice or policy statements and therefore may change as soon as more definitive advice is available. Please review our full disclaimer.