Tenth Circuit Rules Settlement Agreement Between Foreclosing Lender and Trustee Can Proceed Over Debtor Objections The Tenth Circuit Bankruptcy Appellate Panel (“BAP”) recently affirmed a bankruptcy court’s approval of a settlement agreement between a foreclosing lender and Chapter 7 trustee despite the objections of the debtor.

In In re Lisa Kay Brumfiel, U.S. Bank initiated foreclosure proceedings against borrower Brumfiel, who had defaulted on her mortgage loan. Brumfiel argued that she was not obligated to pay because the promissory note had been improperly assigned to U.S. Bank. Brumfiel filed a Chapter 7 bankruptcy petition and received her personal discharge after her case was deemed a “no asset” bankruptcy. Brumfiel then filed a wrongful foreclosure action against the bank in federal district court, which temporarily halted the non-judicial foreclosure. The lender then filed a judicial foreclosure action.

The federal court ruled it was the bankruptcy estate, not the debtor, which had standing to pursue the claims alleged in the debtor’s complaint. Brumfiel appealed the order and also reopened her bankruptcy case. In an effort to get rid of the debtor’s claims, the Chapter 7 trustee filed a motion to abandon the claims on behalf of the estate. However, the bank objected to this. The trustee then agreed to accept $10,000 to settle the claims. Brumfiel appealed, arguing that the trustee had abandoned her claims.

In its ruling, the Tenth Circuit BAP found that the Brumfiel’s claims could not have been abandoned because they were not included on her original Chapter 7 petition. As to Brumfiel’s argument that the settlement order was void because the bankruptcy court did not have jurisdiction, the BAP said that “by statute the Bankruptcy Court has ‘exclusive jurisdiction of all the property, wherever located, of the debtor as of the commencement of [the] case, and the property of the estate.’  Once Debtor filed her [Chapter 7 Petition], she could not divest the bankruptcy court of jurisdiction over property of the bankruptcy estate simply by filing claims against the lender in other courts.  Additionally, subsequent to Debtor’s appeal to this Court of the Bankruptcy Court’s Order Approving Settlement Agreement, both the appeal pending before the Colorado Court of Appeals and the appeal pending before the Tenth Circuit were decided.”

In addition, the court noted, “A bankruptcy court’s order approving a negotiated settlement is entitled to deferential review, and this Court can only reverse the Order Approving Settlement if there has been an abuse of discretion.  Debtor points to no specific finding or conclusion in the bankruptcy court’s analysis that constitutes error, and we see none.”

The BAP concluded that the bankruptcy court had jurisdiction to approve the settlement agreement between the foreclosing lender and the trustee.

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