Bankruptcy Court Dishes Out $45M in Punitive Damages Against Big Bank
A California Bankruptcy Court slapped Bank of America (BofA) with $45M judgment for acting like too many big businesses act in today's world. It's a great moral victory for us consumers that see this sort of behavior out of big businesses on a weekly basis.
Here's what happened:
Mister and Misses Sundquist bought a home by putting $125,000 down and executing a note for the remaining $587,250. Although this seems expensive, remember this is California and Sundquists' credit score was >800. The Sundquists were reluctant to agree to a monthly payment of this amount, but their loan broker promised a loan mod/refi would immediately be available after the purchase, and would be able to lower the payment. The monthly mortgage ended up being $4,557.72. BofA then advised Sundquists that it would not consider a loan mod unless/until they stopped making all payments. So the Sundquists heeded BofA's advice and defaulted on the mortgage. Over the next couple years, the Sundquists applied and re-applied for the promised loan mod/refi, but BofA continued to deny for a myriad of reasons; but BofA always left the door open for future applications.
---It's frustrating how many times consumers get screwed because a salesman makes an empty promise. And although consumers technically have remedies for fraud, misrepresentation, contract, and warranty, by the time you realize you were lied to, you're already in the machine. And once you're in the machine, the adage "possession is nine-tenths of the law" starts to make more sense. The big company has your money. If you request a refund, expect denial, and then a bureaucratic nightmare. Expect hold-music, transfers, and countless peons that don't have any authority. Expect to have to file a lawsuit to get results. The problem is, many times the damage is only a couple hundred dollars, so it's not worth filing a lawsuit over, and the big company just bullied you out of your adult lunch money. It's becoming big company policy to find a way to get your money, and then make it so damn difficult to get it back that you just give up on it.---
Bankruptcy is the consumers' way of fighting back against predatory creditors. The Sundquists filed a chapter 7 bankruptcy to clear out all their unsecured debt, with the hope of keeping their house. They then filed a chapter 13 to force BofA to accept payments. Chapter 13 bankruptcy allowed the Sundquists to "freeze" their mortgage arrears and pay it off over 5 years, without BofA being able to say much at all. However, BofA, with knowledge of the bankruptcy filing, proceeded with the sale of the house, and purchased it for themselves for $652,217.
Bankruptcy is an extremely powerful tool for a consumer, and one reason is called the Automatic Stay. The auto-stay "stays" (stops) all collection efforts against the debtor. Including garnishments, repossessions, phone-calls, letters. In fact, it will stop a foreclosure on the eve of the sale. Here, however, BofA ignored this sacred part of the bankruptcy code, and sold the home - to themselves, nonetheless.
And that is where BofA made its mistake. BofA was getting away with bullying the little guy, but when it violated the auto-stay, it involved the federal court system. The federal court system doesn't have to bother itself with the red tape of bureaucracy; it listens to the story of the big bank machine, and slaps a $45M judgment on them for being difficult, money-grubbing, lying, bureaucratic, etc.
Poetic irony: The great part about this story is that, after all this, BofA still had a chance to walk away the bandit yet again. But it just couldn't get out of its own way.
BofA had violated the bankruptcy auto-stay and sold the house. All it needed to do was rescind the sale, and we'd never hear about this case. But BofA's right hand couldn't talk to its left, and vice versa. BofA's bureaucracy stumbled and tripped as it tried to coordinate something custom, and by doing so, compounded the damage by keeping the house in its name, and by making a series of bone-headed decisions like evicting the Sundquists, removing all the appliances from the house, and allowing the yard to go into disrepair. It's almost as if BofA doesn't have great inter-departmental communications... BofA's dysfunctional bureaucracies and inefficiencies acted as a megaphone to the federal court system. The left hand proudly held up the megaphone and screamed, "Hey! Look at all the terrible things we're doing to this family! Punish us with a $45M judgment!", while the right hand frantically tried to cover its mouth. BofA's bureaucracies and inefficiencies, that are normally designed to make BofA a lot of money, while frustrating consumers like you and me, actually cost them $45M.
Click for a Transcript of the court's decision.