Magazine article The Journal of Lending & Credit Risk Management

Lender Liable for Violation of Automatic Stay

Magazine article The Journal of Lending & Credit Risk Management

Lender Liable for Violation of Automatic Stay

Article excerpt

Legal caveats in commercial lending.

Fleet Mortgage, Inc. learned a painful lesson about the consequences of violating Section 362 of the Bankruptcy Code in Fleet Mortgage Group, Inc. v. Kaneb, 196 F.3d 265 (1st Cir. 1999).

Kenneth A. Kaneb was an 85-year-old retiree and widower who filed a Chapter 13 bankruptcy petition in 1993. He had residences in both Massachusetts and Florida. He sold his Massachusetts residence to pay his secured creditors and converted to a Chapter 7 bankruptcy. Shawmut Bank N.A., which held a mortgage on his Florida residence, moved to vacate the automatic stay of Section 362 of the Bankruptcy Code but the motion was denied. Settlement negotiations were unavailing.

Shawmut merged with Fleet on November 15, 1995 and Kaneb's file was sent to Florida counsel to begin foreclosure proceedings. The file contained the discharge order and an unsigned order granting relief from the stay. A complaint for foreclosure was filed in a Florida state court on June 4, 1996. Six weeks later, based on a letter from Kaneb, the foreclosure was dismissed.

However, during the six-week period, Kaneb's neighbors learned of the foreclosure and he was socially ostracized. …

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