In 1987, Barbara and George Dawson purchased their home. They obtained a home loan from a predecessor of Washington Mutual Bank (WaMu).
In 1996, the mortgage was in default. WaMu scheduled its foreclosure sale. But just before that sale, George Dawson filed Chapter 7 bankruptcy.
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WaMu claimed it did not receive notice of the bankruptcy filing so it proceeded with the foreclosure sale and took title to the home when no bidders showed up at the auction.
WaMu then began eviction of the Dawsons. When it then received notice of George’s earlier Chapter 7 bankruptcy filing, WaMu withdrew its eviction filing, which violated the bankruptcy automatic stay.
However, in 1998 the Dawsons filed Chapter 13 bankruptcy reorganization. WaMu filed a proof of claim as to the mortgage debt still owed. But the Dawsons claimed emotional distress damages for WaMu’s violation of the bankruptcy automatic stay in George’s prior Chapter 7 bankruptcy in 1996.
If you were the bankruptcy judge would you rule the Dawsons are entitled to emotional distress damages when WaMu violated the bankruptcy automatic stay in 1996?
The judge said no!
Because mortgage lender WaMu was not notified of George Dawson’s bankruptcy filing in 1996, it was quite reasonable in conducting the foreclosure sale and proceeding with eviction, the judge explained.
However, upon being informed of Dawson’s bankruptcy filing, WaMu promptly terminated its eviction action, the judge reported.
Damages for emotional distress for violation of the automatic stay are available under federal law, the judge continued, but the circumstances must be “egregious” for damages to be awarded to the debtor.
Under the circumstances, WaMu’s violation of the bankruptcy automatic stay was innocent and not egregious so no emotional damages shall be awarded, the judge ruled.
Based on the U.S. Court of Appeals decision in In Re Dawson, 367 Fed.3d 1174.
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