George and Barbara Dawson purchased their home “subject to” a first mortgage with Great Western Bank, a predecessor of Washington Mutual Bank (WaMu), one of the nation’s largest home loan lenders. The loan fell 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 WaMu took title to the home.

Purchase Bob Bruss reports online.

But, unknown to WaMu, borrower George Dawson filed Chapter 7 bankruptcy 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 the Dawsons, claiming ownership of the house. On March 1, WaMu was notified that George Dawson had filed Chapter 7 bankruptcy on Feb. 6. On March 14, WaMu dismissed its unlawful-detainer eviction proceedings against the Dawsons.

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

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 He stated he feared loss of his home although WaMu had rescinded the eviction proceeding.

If you were the judge, would you award emotional distress damages 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 7 bankruptcy automatic stay, the judge began. Upon being notified of the bankruptcy filing, WaMu dismissed the eviction action but did not rescind the foreclosure sale until five months later, he reported.

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

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

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

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