At issue are 218 adversary proceedings filed between 2010 and 2012 by Heritage Pacific Financial, LLC, a debt buyer, alleging that promissory notes were nondischargable.Heritage, which filed for bankruptcy, claimed that the borrowers participated with intent to deceive a creditor due to their inflated incomes on applications.
As a judge in one case pointed out:
This . . . loan was made in 2006, when home lending practices in California and the nation as a whole were sloppy at best. The court has a substantial question whether any underwriting due diligence was performed by lenders . . . . Given the industry practices at the time, the court is unwilling to presume that anyone even looked at the financial statements and other documents submitted in support of loan applications. In other words, this court will not presume justifiable reliance by the originating creditor, even if the representations in the financial statement were materially false. Evidence of reliance by the original lender is required.
Still, out of the 218 proceedings filed by Heritage, funds were recovered by the company in 116 cases, totaling over $2,140,000. Adversely, 38 cases were dismissed outright, either by Heritage itself or for other reasons.
This disparity in justice is alarming since these bankruptcy judges clearly ruled very differently in very similar cases. To read the full report, follow this link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2722054&download=yes