Kandi Kaufman was in default on her home loan secured by her six-bedroom, 5,230-square-foot house. She received a written loan solicitation from Coast Capital Corp. offering to refinance her mortgage “regardless of credit history, income or employment” to prevent foreclosure.
Kaufman’s loan application disclosed she was unemployed, had judgments against her, was delinquent on her home mortgage, had previously filed bankruptcy, was involved in a pending lawsuit, and had no other major assets than her home. Nevertheless, Coast agreed to refinance her existing loan.
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The new loan arranged by Coast was funded by Polo Investments Fund I, a $10 million partnership organized by Coast. Not surprisingly, the new loan secured by Kaufman’s home immediately went into default.
Polo foreclosed on the home. Since there were no bidders, Polo took title. Coast’s loan agent Joe Monte then bought the home from Polo.
Following the foreclosure sale of Kaufman’s home to Polo, she was evicted. Her personal property furnishings were removed and held in storage.
A few days later, Kaufman filed personal Chapter 13 bankruptcy reorganization. Upon filing bankruptcy, the federal automatic bankruptcy stay takes effect and creditors are prohibited from proceeding with collections, foreclosure or sale of the bankrupt’s assets.
However, in violation of the bankruptcy automatic stay, Polo’s storage company held an auction of Kaufman’s furnishings and clothing, worth at least $116,000. The sale produced $24,599 gross proceeds of which the storage auctioneer claimed a $12,800 sales commission.
Advertising of the sale was limited to a single line in the jobber-wholesaler section of a local newspaper. The foreclosing lender kept the sales proceeds, which far exceeded the modest storage costs.
After learning of the sale in violation of the bankruptcy automatic stay, Kaufman sued Coast, Polo and Coast’s loan agent, Joe Monte. She asked for punitive damages for selling her personal property, including her child’s toys, in violation of the bankruptcy automatic stay.
If you were the bankruptcy court judge would you impose punitive damages against the defendants for violating the bankruptcy automatic stay?
The judge said yes!
It is clear the defendants knew about Kaufman’s bankruptcy filing, the judge began. But they willfully violated the bankruptcy automatic stay by selling her personal property after evicting her from the foreclosed house, he explained.
Although rarely used, the judge continued, federal Bankruptcy Code 362(h) allows imposition of punitive damages when a creditor willfully violates the bankruptcy automatic stay. This egregious case clearly calls for imposition of punitive damages against the defendants, he emphasized.
Kaufman’s actual damages were $116,000 for the lost value of her personal property, including clothes and her 5-year-old child’s toys, the judge noted.
Calculated on the net worth of the defendants, punitive damages are jointly and severally imposed on lender Polo Investments for $450,000; $50,000 against loan broker Coast Capital Corp.; $240,000 against loan agent Joe Monte; and $15,000 against auctioneer Michael Albino for violating the bankruptcy automatic stay, the judge ruled.
Based on the 2004 U.S. Bankruptcy Court decision in In Re Kaufman, 315 B.R. 858.
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