Issue Preclusion from State Foreclosure Findings in Bankruptcy Claims: Commentary on In re Ditech Holding Corp. (2d Cir. 2025)

Issue Preclusion from State Foreclosure Findings in Bankruptcy Claims: Commentary on In re Ditech Holding Corp. (2d Cir. 2025)

Note: The Second Circuit expressly issued this as a “Summary Order” without precedential effect under Local Rule 32.1.1. It may be cited, but it is not binding precedent. The discussion below focuses on its persuasive value and doctrinal clarifications.

I. Introduction

This commentary analyzes the Second Circuit’s summary order in In re Ditech Holding Corporation, No. 24‑3229‑bk (2d Cir. Dec. 8, 2025), affirming the disallowance and expungement of a $300,000 proof of claim filed by Kevin Snyder and the Estate of Mary Snyder in Ditech’s Chapter 11 case.

The decision sits at the intersection of:

  • State-court mortgage foreclosure litigation in South Carolina;
  • Federal bankruptcy claims-allowance and discharge; and
  • Consumer protection claims under South Carolina and federal law.

The core question was whether a borrower, having already litigated foreclosure-related issues in state court and lost, could relitigate those same issues—or claims dependent on them—in the debtor’s subsequent Chapter 11 bankruptcy via a proof of claim.

The Second Circuit (Judges Jacobs and Bianco, and District Judge Bolden sitting by designation) holds that:

  • South Carolina foreclosure findings that the servicer acted in good faith and complied with a key South Carolina Administrative Order are entitled to collateral estoppel (issue preclusion) effect in the later bankruptcy claims process.
  • A prior stipulation in state court that dismissal was “without prejudice” to a bankruptcy claim does not waive or disable issue preclusion.
  • The borrower’s remaining contractual and statutory theories fail under Rule 12(b)(6)-type plausibility review, and some RESPA theories are forfeited because they were raised too late.

Although nonprecedential, the order offers a detailed and careful application of South Carolina preclusion law in the federal bankruptcy context and clarifies how state foreclosure adjudications can sharply constrain borrowers’ later claims in a Chapter 11 proceeding.

II. Summary of the Opinion

The Second Circuit affirms the district court’s judgment (Judge Clarke, S.D.N.Y.), which in turn affirmed the bankruptcy court’s order disallowing and expunging the Snyders’ $300,000 claim against Ditech.

The Court’s key holdings are:

  1. Collateral Estoppel: Under South Carolina law, Snyder is precluded from relitigating whether Ditech and its predecessors:
    • violated the South Carolina Supreme Court’s 2011 Administrative Order on mortgage foreclosures, or
    • acted in bad faith in the foreclosure process.
    These issues were actually litigated, directly decided, and necessary to the state foreclosure judgment.
  2. Scope of Preclusion: Because of that preclusive effect, several claims necessarily failed:
    • civil compensatory contempt for violation of the Administrative Order;
    • breach of contract to the extent based on alleged bad faith or Administrative Order violations; and
    • SCUTPA claims premised on the same alleged misconduct.
  3. Remaining Theories Fail on the Merits:
    • The freestanding breach-of-contract claim based on failure to notify of mortgage assignments was not plausibly pled.
    • SCUTPA claims premised on the South Carolina “Attorney Preference Statute” and RESPA were legally deficient and also lacked the required “public interest” impact under SCUTPA.
    • New RESPA theories (delayed responses, etc.) raised only on appeal were forfeited.
  4. Bankruptcy-Specific Issues:
    • The claim was properly disallowed and expunged at a sufficiency hearing using a Rule 12(b)(6)-type standard.
    • Leave to amend to obtain administrative expense priority was correctly denied as futile.
    • Any request to estimate the claim amount is moot once the claim is disallowed.

The Court also rejects Snyder’s remaining arguments, including an assertion that the bankruptcy court “dishonored” the state-court stipulation, and affirms in full.

III. Factual and Procedural Background

A. The Mortgage and Foreclosure

  • 1989: The Snyders purchased a home in Charleston, South Carolina, financing it with a promissory note secured by a mortgage.
  • 2005: The loan was refinanced. BAC Home Loans Servicing, L.P. (“BAC”), a predecessor to Ditech, serviced the loan.
  • 2010: After the Snyders fell behind, BAC filed a South Carolina foreclosure action.

In that foreclosure action, the Snyders filed counterclaims seeking monetary and non-monetary relief, including:

  • civil compensatory contempt (for alleged violations of the South Carolina Supreme Court’s 2011 Administrative Order on Mortgage Foreclosure Actions);
  • breach of contract (including breach of the implied covenant of good faith and fair dealing);
  • violations of the South Carolina Unfair Trade Practices Act (“SCUTPA”) premised on:
    • Administrative Order violations;
    • RESPA violations; and
    • violations of S.C. Code § 37‑10‑102(a) (the Attorney Preference Statute);
  • quiet title.

In 2013, a Master-in-Equity stayed the foreclosure while the parties engaged in “foreclosure intervention” (South Carolina’s process for loss mitigation / loan modification). Over the years, servicing of the loan changed hands, eventually to Ditech.

B. Ditech’s Bankruptcy and the State Foreclosure Judgment

  • February 11, 2019: Ditech filed for Chapter 11 relief in the Southern District of New York.
  • March 1, 2019: Ditech filed a notice of bankruptcy in the state foreclosure action, invoking the automatic stay. The notice carved out an exception allowing proceedings that merely defended or enjoined foreclosure.

Within that carve-out, Snyder and Ditech filed cross-motions for summary judgment on non-monetary issues. The Master-in-Equity:

  • ruled for Ditech, ordered foreclosure, and
  • expressly found that Ditech and its predecessors:
    • acted in “good faith,” and
    • complied with the South Carolina Administrative Order.

These findings were critical: the Administrative Order conditioned the right to obtain foreclosure on compliance and good-faith loss-mitigation efforts.

C. The Stipulation of Dismissal and State Appellate Proceedings

On January 2, 2020, the parties executed a Stipulation of Dismissal in state court that:

  • dismissed Snyder’s remaining claims with prejudice, but
  • added this clause: “This stipulation is made without prejudice to, and specifically preserving [Snyder’s] claim in the pending bankruptcy.”

Later:

  • The South Carolina Court of Appeals affirmed the foreclosure judgment and related rulings, including the Administrative Order and good-faith findings.
  • The South Carolina Supreme Court denied Snyder’s petition for certiorari.

D. The Bankruptcy Proof of Claim and Objections

In Ditech’s Chapter 11 case, Snyder filed an unsecured, unliquidated proof of claim for $300,000, referencing his South Carolina counterclaims as the basis.

The Consumer Claims Trustee objected, arguing that:

  • state-court findings precluded the claim; and
  • even apart from preclusion, Snyder failed to state any viable cause of action.

The Trustee also moved to estimate the claim at $300,000 for reserve purposes; Snyder argued the reserve should be $400,000 and that his claim deserved administrative expense priority.

E. Bankruptcy and District Court Rulings

  • Bankruptcy Court (Nov. 7, 2023): Disallowed and expunged Snyder’s claim, holding:
    • collateral estoppel barred all claims premised on Administrative Order violations or bad faith;
    • the remaining contract and SCUTPA theories were implausible or legally defective;
    • any independent RESPA theory failed; and
    • the claim was not nondischargeable, not entitled to administrative priority, and no reserve was warranted.
  • District Court (Nov. 7, 2024): Affirmed, reiterating:
    • preclusive effect of the South Carolina decisions;
    • insufficiency of remaining claims;
    • forfeiture of new RESPA arguments first raised on appeal; and
    • futility of any amendment to seek administrative expense priority.

Snyder appealed to the Second Circuit, challenging chiefly:

  • application of collateral estoppel;
  • dismissal of his civil contempt, contract, RESPA, and SCUTPA claims; and
  • denial of leave to amend to assert administrative priority.

IV. Analysis

A. Precedents and Authorities Cited

1. Standard of Review and Bankruptcy Context

  • In re Belton v. GE Capital Retail Bank, 961 F.3d 612 (2d Cir. 2020):
    • Confirms that on appeal from a district court sitting in review of a bankruptcy court, the court of appeals reviews the bankruptcy court’s decision “plenary[ly]” and “independent[ly]” of the district court’s analysis.
    • Legal conclusions are reviewed de novo.
  • Fed. R. Bankr. P. 7012(b) & Fed. R. Civ. P. 12(b)(6):
    • A sufficiency hearing on an objection to a proof of claim uses the same standard as a Rule 12(b)(6) motion to dismiss: a claim must be “plausible” on its face.

2. Preclusion Doctrine and State Law

  • Conopco, Inc. v. Roll Int’l, 231 F.3d 82 (2d Cir. 2000):
    • Establishes that federal courts must apply the preclusion law of the state rendering the prior judgment.
    • Here, South Carolina preclusion law controls.
  • State v. Hewins, 760 S.E.2d 814 (S.C. 2014):
    • Sets out South Carolina’s collateral estoppel elements:
      1. the issue was actually litigated;
      2. directly determined in the prior action; and
      3. necessary to support the prior judgment.
  • Carolina Renewal, Inc. v. S.C. Dep’t of Transp., 684 S.E.2d 779 (S.C. Ct. App. 2009):
    • Clarifies that collateral estoppel applies “regardless of whether the claims in the first and subsequent lawsuits are the same.”
    • This is critical to rejecting Snyder’s argument that only non-monetary relief was litigated in state court, whereas he sought money damages in bankruptcy.
  • State v. Bacote, 503 S.E.2d 161 (S.C. 1998) and Restatement (Second) of Judgments § 28:
    • South Carolina generally follows the Restatement’s approach to exceptions to issue preclusion.
    • Section 28(3) & comment d: an exception exists when:
      • there are substantial differences in the quality or extensiveness of procedures, or
      • jurisdictional allocation is such that an issue previously decided only “incidentally” by a court lacking jurisdiction to decide it directly should not be binding in a later action before a court of special competence.
    • The Second Circuit finds neither circumstance present here.

3. State Substantive Law: SCUTPA, Attorney Preference Statute

  • SCUTPA – S.C. CODE ANN. § 39‑5‑20(a):
    • Prohibits “[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.”
  • Noack Enters., Inc. v. Country Corner Interiors of Hilton Head Island, Inc., 351 S.E.2d 347 (S.C. Ct. App. 1986):
    • SCUTPA is not violated when a claim merely seeks to “redress a private wrong where the public interest is unaffected.”
    • Requires a showing of some broader public impact.
  • S.C. CODE ANN. § 37‑10‑102(a) (Attorney Preference Statute):
    • Requires creditors, prior to closing, to ascertain the borrower’s preferred legal counsel and to comply with that preference.
    • The Master-in-Equity concluded that Mary Snyder was not a “borrower” for purposes of this statute because she did not co-sign the promissory note; the Second Circuit defers to that interpretation.

4. Federal Consumer Statutes and Federalism Concerns

  • RESPA – 12 U.S.C. § 2605(a):
    • Requires the loan originator to provide a Servicing Disclosure Statement, not subsequent loan servicers.
    • The bankruptcy court and Second Circuit rely on this plain text to reject Snyder’s theory that Ditech and its servicing predecessors violated § 2605(a) by not providing that disclosure.
  • E. Fork Funding LLC v. U.S. Bank, N.A., 118 F.4th 488 (2d Cir. 2024):
    • Reaffirms a “basic principle[] of federalism”: federal courts should defer to state courts for definitive interpretations of state law, particularly novel statutes not yet determined by the state’s highest court.
    • The Second Circuit invokes this prudential principle in refusing to second-guess the Master-in-Equity’s interpretation of the Attorney Preference Statute.
  • Katel Ltd. Liab. Co. v. AT&T Corp., 607 F.3d 60 (2d Cir. 2010):
    • An argument raised for the first time on appeal is typically forfeited.
    • The Court applies this to reject new breach-of-contract theories (delay in foreclosure, notice defects) and new RESPA theories (delayed responses to written requests) that Snyder did not raise in the bankruptcy court.

B. The Court’s Legal Reasoning

1. Application of Collateral Estoppel

The linchpin of the case is the preclusive impact of the South Carolina foreclosure judgments.

(a) Issues Precluded

The Court identifies two central issues that were decided in the state foreclosure action:

  • whether Ditech and its predecessors violated the Administrative Order governing foreclosure procedures, including requirements for good-faith foreclosure intervention; and
  • whether Ditech and its predecessors acted in bad faith in handling the foreclosure and loss-mitigation process.

The Master-in-Equity explicitly found that they:

  • acted “in good faith,” and
  • “complied with” the Administrative Order.

The South Carolina Court of Appeals affirmed these findings; certiorari was denied by the state’s highest court.

(b) Satisfaction of South Carolina’s Elements

  1. Actually Litigated:
    • Snyder argued in state court that Ditech and its predecessors had repeatedly violated the Administrative Order and acted in bad faith; these issues were squarely raised in summary-judgment briefing.
  2. Directly Determined:
    • The Master-in-Equity’s order directly resolved these issues, expressly finding compliance and good faith.
    • The appellate affirmance cements that determination.
  3. Necessary to the Judgment:
    • Compliance with the Administrative Order was a prerequisite to the right to foreclose; therefore, the finding of compliance and good faith was necessary to support the foreclosure decree.

Because all three elements from Hewins were met, the Second Circuit holds that Snyder is barred from relitigating those issues in bankruptcy.

(c) Different Remedies Do Not Defeat Preclusion

Snyder’s primary response is that the state court dealt only with non-monetary relief (foreclosure vs. quiet title, etc.), whereas in bankruptcy he seeks solely monetary damages. The Court rejects this as legally irrelevant under Carolina Renewal: issue preclusion applies regardless of whether the subsequent suit seeks different remedies or asserts different causes of action, so long as the issue is the same.

(d) The Stipulation and Alleged Waiver of Preclusion

Snyder also contends that the parties’ stipulation, dismissing the remaining state claims “without prejudice” to his bankruptcy claim, waived any preclusion defenses. The Court disagrees:

  • At most, the stipulation could preserve his ability to file a claim in bankruptcy without being blocked by claim preclusion (res judicata) based on the state-court dismissal.
  • But nothing in the language waived issue preclusion (collateral estoppel) as to factual and legal determinations already made (e.g., compliance with the Administrative Order, good faith).

Thus, Ditech (through the Consumer Claims Trustee) remained free to assert collateral estoppel in the bankruptcy court.

(e) Rejection of the Restatement § 28 Exceptions

Snyder further invokes the Restatement’s exceptions, arguing that preclusion would be unfair because:

  • the procedures in state court were different, or
  • jurisdictional allocation should have left some issues to bankruptcy court alone.

The Court finds:

  • No procedural disparity: Snyder points to no meaningful difference in the “quality or extensiveness” of procedures between the South Carolina courts and bankruptcy court.
  • No jurisdictional anomaly: The South Carolina courts had jurisdiction, and indeed the obligation, to determine compliance with the Administrative Order and good faith as direct and central issues in the foreclosure. This was not an incidental or ultra vires determination.

Accordingly, the Restatement § 28(3) exception does not apply, and there is no unfairness or injustice warranting departure from preclusion.

(f) Consequence: Several Causes of Action Are Doomed

Once the preclusion analysis is complete, several of Snyder’s theories necessarily fail because they depend on showing that Ditech:

  • violated the Administrative Order; or
  • acted in bad faith.

Those include:

  • civil compensatory contempt (for alleged Administrative Order violations);
  • breach of contract insofar as based on a breach of the implied covenant of good faith and fair dealing in the foreclosure/loss-mitigation process; and
  • SCUTPA claims premised on noncompliance with the Administrative Order.

The bankruptcy court’s objection to these portions of the proof of claim was therefore properly sustained.

2. Evaluation of Remaining Contract and SCUTPA Theories

With Administrative Order-related issues off the table, the Court then analyzes Snyder’s remaining claims.

(a) Breach of Contract – Failure to Notify of Assignment

Snyder alleged that Ditech and its predecessors breached the note and mortgage by failing to notify him of loan assignments. The bankruptcy court characterized this as inadequately pled because:

  • he did not identify any specific assignment for which notice was due; and
  • he did not explain how and why any such failure would constitute a breach of the contract terms.

The district court and Second Circuit agree. Without factual content—such as a contract provision obligating notice, a particular assignment, and resulting harm—the claim does not meet basic plausibility standards.

On appeal Snyder tries to pivot, arguing for the first time that:

  • unreasonable delays in the foreclosure process, and
  • notice defects,
constitute contractual breaches. These new theories are deemed forfeited under Katel because they were not properly raised below.

(b) SCUTPA Based on the Attorney Preference Statute

Snyder also claims an unfair trade practice based on alleged violations of the Attorney Preference Statute (S.C. Code § 37‑10‑102(a))—specifically, failure to ascertain Mary Snyder’s choice of attorney at closing.

The Master-in-Equity found that Mary Snyder was not a “borrower” because she was not a co-signer on the note, and therefore the statute did not apply to her. The Second Circuit declines to disturb that interpretation, citing:

  • the principle of federalism and deference to state-court interpretation of state law (East Fork Funding), and
  • the absence of contrary guidance from the South Carolina Supreme Court.

Without a predicate statutory violation, the SCUTPA claim fails. Additionally, as discussed below, SCUTPA requires a public interest impact, which Snyder did not plausibly allege.

(c) SCUTPA Based on RESPA Violations

As to RESPA, Snyder advanced two different theories at different stages:

  1. Original theory (in state court and bankruptcy):
    • Ditech and its predecessors failed to provide a “Servicing Disclosure Statement” as required by 12 U.S.C. § 2605(a).
    • The bankruptcy court correctly observed that § 2605(a) imposes this duty on the loan originator, not subsequent servicers like Ditech’s predecessors. Therefore, there can be no RESPA violation by the servicer on this theory.
  2. New theory (raised for the first time in the district court and then in the Second Circuit):
    • Ditech and its predecessors delayed resolving the foreclosure by years and took years to respond to “qualified written requests” or requests for information, allegedly violating other RESPA provisions.
    • The district court deemed these arguments forfeited, and the Second Circuit agrees, applying Katel (no new arguments on appeal).

Furthermore, whether viewed as a standalone RESPA claim or as a predicate for SCUTPA, Snyder’s RESPA-based theory fails under either preclusion, pleading, or forfeiture doctrines.

(d) SCUTPA’s “Public Impact” Requirement

Even assuming arguendo that there had been statutory violations, SCUTPA is not satisfied by a purely private dispute between individual parties. Under Noack, the plaintiff must demonstrate some effect on the public interest—such as a pattern of practice or market-wide impact.

The bankruptcy court and district court found, and the Second Circuit agrees, that Snyder failed to plead any public impact:

  • the allegations relate solely to the Snyders’ loan and foreclosure; and
  • no facts suggest that Ditech or its predecessors engaged in a broader scheme affecting similarly situated borrowers.

Therefore, any SCUTPA claim based on RESPA or the Attorney Preference Statute also fails for lack of the required public-interest component.

3. Bankruptcy Issues: Claim Disallowance, Priority, and Estimation

(a) Disallowance of the Claim at a Sufficiency Hearing

Because all of Snyder’s causes of action—those precluded and those inadequately pled or forfeited—failed, the bankruptcy court disallowed and expunged the proof of claim.

Under Bankruptcy Rule 7012(b), which incorporates Rule 12(b)(6), the bankruptcy court may disallow a claim at a sufficiency hearing when it fails to state a plausible claim upon which relief can be granted. The Second Circuit affirms that this standard was properly applied.

(b) Administrative Expense Priority and Futility of Amendment

Snyder orally requested leave to amend his proof of claim to assert administrative expense priority, which would elevate his claim above other unsecured creditors. The bankruptcy court denied this request; the district court and Second Circuit agree that:

  • any such amendment would be futile because Snyder has no viable underlying cause of action; and
  • administrative expense status under 11 U.S.C. § 503(b) generally requires a postpetition transaction that benefits the estate. Snyder’s theories arise primarily from prepetition conduct surrounding the mortgage and foreclosure.

Without a viable substantive claim, re-labeling it as “administrative” cannot save it.

(c) Claim Estimation and Mootness

The Consumer Claims Trustee originally moved to estimate the claim at $300,000 for reserve purposes; Snyder sought a higher reserve. Once the bankruptcy court disallowed the claim entirely—and that disallowance is affirmed on appeal—there is no claim left to estimate:

  • The question of reserving funds is therefore moot.

V. Impact and Practical Implications

A. For Borrowers and Consumer Claimants

  • State foreclosure findings carry heavy weight in later bankruptcy claims.
    • Borrowers who vigorously litigate in state foreclosure court—and lose—may find themselves precluded from relitigating those same issues in federal bankruptcy proceedings, even if the forum, remedies, or legal theories differ.
  • “Without prejudice” stipulations are not silver bullets.
    • A stipulation preserving a claim for bankruptcy may prevent outright claim-preclusion, but it does not automatically waive issue preclusion arising from prior factual/legal determinations.
  • Pleading specificity matters.
    • Generic or conclusory references to “assignment” or “breach” without concrete allegations (which assignment, what contractual provision, what damages) will not survive a Rule 12(b)(6)-type sufficiency review in bankruptcy.
  • Raise all viable legal theories early.
    • New RESPA or contract theories raised for the first time on appeal will be treated as forfeited, foreclosing potentially meritorious angles that were not timely asserted.

B. For Mortgage Servicers, Trustees, and Bankruptcy Estates

  • State-court foreclosure victories can simplify the bankruptcy claims landscape.
    • Where pre-bankruptcy foreclosure actions culminate in detailed factual findings (e.g., no bad faith, compliance with applicable orders), those determinations can be leveraged in bankruptcy to bar duplicative consumer claims via collateral estoppel.
  • Trustees and debtors can confidently invoke issue preclusion.
    • The decision strongly supports invoking state preclusion law at the claims-allowance stage to prevent repetitive litigation and protect estate assets from re-agitated disputes.
  • Limitations of “preservation” language.
    • Parties drafting stipulations should understand that preserving the “right to file” a claim is not the same as immunizing that claim from preclusion-based objections once filed.

C. For Federal Courts Applying State Law

  • Deference to state-court statutory interpretation.
    • Following East Fork Funding, the decision underscores federal courts’ reluctance to reinterpret state statutes (like the Attorney Preference Statute) where state courts have already addressed them, even at trial-level, particularly absent contrary authority from the state’s highest court.
  • Faithful application of state preclusion law.
    • The opinion reinforces Conopco’s directive that federal courts must apply the preclusion rules of the state issuing the prior judgment, including that state’s nuanced exceptions drawn from the Restatement (Second) of Judgments.

D. SCUTPA and Consumer Protection Litigation

  • Public interest requirement remains a robust gatekeeper.
    • The opinion exemplifies how SCUTPA claims will fail when plaintiffs do not allege a pattern, systemic practice, or any impact beyond their individual dispute.
  • SCUTPA is not a catch-all for every mortgage or foreclosure grievance.
    • Absent a broader marketplace effect or multiple consumers affected by similar conduct, purely private mortgage disputes will generally fall short.

VI. Complex Concepts Simplified

1. Collateral Estoppel vs. Res Judicata

  • Collateral estoppel (issue preclusion):
    • Prevents relitigation of specific issues of fact or law that were:
      1. actually litigated,
      2. actually decided, and
      3. necessary to the prior judgment,
      even if the new lawsuit involves different claims or remedies.
  • Res judicata (claim preclusion):
    • Bars entire claims that were or could have been brought in the past lawsuit between the same parties arising from the same transaction or occurrence.

In this case, the stipulation arguably preserved Snyder’s ability to bring a claim in bankruptcy (res judicata), but it did not prevent Ditech from arguing that certain issues had already been decided against Snyder (collateral estoppel).

2. Disallowance of Claims in Chapter 11

  • When a creditor files a proof of claim, it is deemed allowed unless a party in interest objects.
  • If the debtor or trustee objects and challenges the legal sufficiency of the claim, the bankruptcy court can apply a Rule 12(b)(6)-like standard:
    • Does the claim, taken as true, state a plausible legal theory entitling the creditor to relief?
  • If not, the claim can be disallowed (rejected) and even expunged from the claims register.

3. Administrative Expense Priority

  • Under 11 U.S.C. § 503(b), certain expenses incurred after the bankruptcy filing that benefit the estate (e.g., postpetition services) get “administrative expense” status.
  • These claims are paid ahead of general unsecured claims.
  • A creditor cannot transform a prepetition damages claim into an administrative expense simply by labeling it as such; the underlying facts must support priority status.

4. SCUTPA’s Public Interest Requirement

  • SCUTPA targets practices that affect the public or consumer market, not merely private contractual disputes.
  • Courts typically look for:
    • evidence of a repeating pattern of similar misconduct affecting other consumers, or
    • practices that could reasonably be expected to affect others.
  • A single, isolated dispute between a debtor and a servicer, absent broader allegations, usually does not suffice.

5. South Carolina Attorney Preference Statute

  • Section 37‑10‑102(a) requires creditors to:
    • ask the borrower before closing which attorney they want to represent them, and
    • comply with that preference.
  • Here, the key interpretative question was whether Mary Snyder, not on the promissory note, was a “borrower.” The Master-in-Equity said no, and the Second Circuit deferred to that conclusion.

6. RESPA Servicing Disclosure Statement (§ 2605(a))

  • RESPA § 2605(a) requires the originator of a mortgage loan to notify the borrower about whether servicing may be assigned/sold and about the new servicer.
  • Subsequent servicers do not have that particular obligation under § 2605(a).
  • Snyder’s attempt to pin RESPA liability on loan servicers for not providing the original Servicing Disclosure Statement fails on the statute’s text.

VII. Conclusion

The Second Circuit’s summary order in In re Ditech Holding Corporation, though nonprecedential, is a careful and instructive application of South Carolina collateral estoppel principles within federal bankruptcy claims practice.

The Court emphasizes that:

  • Issues fully litigated and necessarily decided in a state foreclosure action—such as compliance with statewide administrative foreclosure orders and the servicer’s good faith—cannot be relitigated in the debtor’s subsequent Chapter 11 case through a proof of claim.
  • “Without prejudice” preservation language in a state-court stipulation may preserve a forum for later litigation but does not immunize a creditor from the preclusive effect of prior issue determinations.
  • Remaining consumer claims grounded in breach of contract, SCUTPA, or RESPA must satisfy basic pleading standards, respect statutory limits, and clear the hurdles of public impact (for SCUTPA) and non-forfeiture (for appellate review).

Practically, the decision underscores that borrowers cannot use bankruptcy claims as a second bite at the apple after losing in foreclosure court, at least where issues of good faith and statutory compliance were previously litigated to conclusion. For bankruptcy estates and mortgage servicers, it confirms the strategic value of state-court findings and the availability of preclusion doctrines to streamline and limit subsequent claims in Chapter 11.

Case Details

Year: 2025
Court: Court of Appeals for the Second Circuit

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