On February 1, 2013, the First Circuit Court of Appeals issued a decision in the case of Canning v. HSBC. Molleur Law Office prosecuted the case in the Bankruptcy Court and on appeal to the First Circuit.
In the Canning case, the Cannings filed Chapter 7 bankruptcy and surrendered their home in Sanford, Maine to HSBC, the mortgage holder. They moved out of the home and gave possession of the home to HSBC. HSBC refused to accept possession, and asserted that the Cannings still owed the value of the home , although HSBC expressed a willingness to consider a short sale of the property. The Cannings refused and asserted that HSBC was violating the discharge injunction by requesting money from them and refusing to accept the surrender of the home.
The Bankruptcy Court disagreed with the Cannings and held that the home still had substantial value and that HSBC was not seeking all the money it was owed - it was just seeking the value of the home. The Cannings relied upon the case of Pratt v. GMAC for its authority that HSBC violated the discharge injunction. The Bankruptcy Court again disagreed, and held that the Cannings were overreaching in the relief they were seeking.
The Cannings appealed to the Bankruptcy Appellate Panel for the First Circuit, and after receiving another ruling for HSBC, they appealed to the First Circuit Court of Appeals. The Court of Appeals held that the value of the home was not determinative - instead the question was whether the Cannings were "between a rock and a hard place". In other words, if the Cannings had taken all the steps they could to work with HSBC and then had been unable to free themselves from the property ownership, a mortgage lender could be held to violate the discharge injunction. In the Canning case, the Court concluded that the Cannings had not taken every step possible to work with HSBC, and therefore, there was no discharge injunction violation.
Although the First Circuit decision was disappointing, the First Circuit provided a road map for success in future discharge injunction violation cases. In instances where debtors have made every effort to cooperate with a mortgage lender and have been unable to transfer the real estate out of their names, it is possible to pursue a discharge injunction violation against a mortgage lender. Molleur Law Office will continue to seek relief for homeowners burdened with homes they need to "surrender" to their mortgage lenders and hopes to achieve success for homeowners in the future.