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$45 Million for Stay Violations

posted by Alan White

How much in punitive damages is enough to punish unlawful conduct and deter its repetition? $45 million was one bankruptcy court's opinion, in the case of a wrongful home foreclosure and eviction in knowing violation of the automatic stay.

The court described the plaintiff-debtors’ treatment by defendant Bank of America as Kafkaesque, and found their deeply emotional testimony (one of them attempted suicide during the ordeal) completely credible, awarding more than $1 million in actual damages for the loss of housing and emotional distress. The court also noted that Bank of America had repeatedly settled cases with federal and state regulators for hundreds of millions, and even billions, of dollars, in recognition of serious and repeated compliance failures, including some related directly to servicing home mortgages.  

The fascinating 107-page opinion grapples at length with the dilemma of awarding enough punitive damages to effectively deter the defendant while avoiding an unseemly windfall to the plaintiffs. The solution: the decision awards $40 of the $45 million punitive award to consumer advocacy organizations and the five public California law schools. Citing an Ohio case, state statutes and several law review articles, the court proposes this split award technique as an appropriate step forward in the federal common law of §362(k) punitive damages. An interesting appeal is sure to follow.


Gee, a bankruptcy judge who thinks a bank can do wrong. Who'd uh thunk?

Alan, I don't know who to kiss first you or Judge Klein. Thank you for sharing this - I'm sure the majority of homeowners I know can relate.

What I found very interesting was the reference to the Fannie/Freddie/FHFA $9.5 Billion BofA fine; however, the $65.65 Billion BofA Settlement with the DOJ wasn't mentioned. The DOJ case gives us a jury trial conviction and Fannie as the concealed real party in interest in these Countrywide/BofA cases. It appears, the loans were sold directly to Fannie before the Trusts and Fannie maintains an interest as guarantor, yet another underlying issue. Although many of the documents in the DOJ case remain sealed - on the DOJ press release page are several documents linked at the bottom that indicate some of the loans and several pages of trusts. The Complaints, including the DOJ Intervenor Complaint is available through ECF - worthwhile reading.

For deeper digging one must read the SEC Complaints against Fannie / Freddie and the accompanying Non-Prosecution Agreements. Amazing what information can be put together.

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