Last March, the US saw perhaps the most egregious violation of the automatic stay when a US Bankruptcy Judge in California, Judge Christopher Klein, summed up a debtor’s interaction with Bank of America as a “Kafkaesque nightmare.” In that case, Judge Klein described Bank of America’s actions, with respect to the Automatic Stay under the Bankruptcy Code, as “brazen,” “heartless,” and “institutional obstinance and dishonesty.” As a result, the Judge ordered Bank of America to pay the debtor $46 million.

A main feature of the Bankruptcy Code is the Automatic Stay, wherein all collection action against a debtor are halted for amounts owed prior to the filing stop. This includes a foreclosure action, which was not honored in this case.

The Case

In 2009, Sacramento residents Erik and Renee Sundquist sought a loan modification from Bank of America, which at that time was servicing the Sundquist’s mortgage. The Bank told them that they should default on the mortgage to be eligible for a loan modification. The Bank then sent numerous loan modification documents that, according the Court Opinion, the Bank had no intention of executing. In all, there were over 20 attempts at sending loan modification documents.

In 2010, the Sundquists filed for Chapter 13 bankruptcy protection. At this point, an automatic stay is triggered that, among other things, stops foreclosure proceedings. Nonetheless, the bank sent them an eviction notice and demanded that they move out. The Sundquists moved out. In the meantime, the house was looted and there was no payment on the homeowner’s association fees. The homeonwer’s association hit them with a $20,000 fine for not taking care of the property.

Seeing that their bankruptcy filing was not getting the desired result (a stay against foreclosure on their house), the Sundquists moved to rescind their bankruptcy filing. They contacted the Consumer Financial Protection Bureau, or CFPB, who contacted the bank. The bank denied any wrongdoing.

Renee Sundquist, as a result of the bank’s actions, suffered from Post Traumatic Stress Disorder and Erik attempted suicide. There were also reports of bank agents coming to the door, which terrified the Sundquist children.

In the meantime, without informing the Sundquists, the bank rescinded the foreclosure and stopped foreclosure action. Although this occurred, the Sundquists lived with foreclosure stress and bankruptcy stress.

This evidence was presented at the trial. The Judge ordered the bank to pay the Sundquists $1.075 million for the house, the loss of appliances, fees owed to the homeowner’s association and similar items. The Judge also ordered the bank to pay the Sundquists an additional $45 million in punitive damages for its behavior during the ordeal. The Judge considered all of the bank’s egrigous behavior, including its dishonesty with the CFPB. The Judge reasoned that had punitive damages been three to six times the amount of actual damages, the bank would have laughed it off in the boardroom. As such, the Judge slapped the bank with a hefty $45 million fine.

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