The United States Supreme Court granted certiorari yeterday in two of the three Chapter 7 lien-strip-off cases challenging the Eleventh Circuit decision in McNeal. Bank of Amer. v. Toledo-Cardona, No. 14-163 and Bank of Amer. v. Caulkett, No. 13-1421 (petition granted Nov. 17, 2014) (consolidated for argument) (Bank of Amer. v. Bello, No. 14-235 is still pending). In McNeal v. GMAC Mortg., 735 F.3d 1263 (11th Cir. 2012) pet. den. (May 20, 2014), the court bucked the trend to find that Dewsnup v. Timm, 502 U.S. 410 (1992), which held that a partially secured lien could not be stripped-down in chapter 7, did not apply to wholly unsecured liens. These are liens including second mortgages for which based on the value of the property there is no equity after the first lien on the property which usually in these cases is the first mortgage. There are more than a dozen cases currently pending in the Eleventh Circuit challenging this decision, but, after an early unsuccessful attempt to bring the issue before the Supreme Court (Bank of America v. Sinkfield, No. 13-700 (cert. denied, March 31, 2014)) the issue is now on track for final resolution. Briefing should be completed by March and argument is likely to be scheduled for the last week of March, with decision projected sometime in June.
Currently debtors can only strip down, which means convert a secured debt to an unsecured debt, wholly unsecured liens including mortgages in Chapter 13 cases. Chapter 13 debtors depending on their income may still have to pay some of this debt of as unsecured debt in their plans. If the Supreme Court does allow this type of strip downs in Chapter 7 cases it will help many debtors who own underwater homes with wholly unsecured second mortgages. If these debtors qualify for a Chapter 7 and can still afford to pay the first mortgages on their homes they can strip down their wholly unsecured second mortgages and discharge this debt along with their other unsecured debt. This will allow more homeowners to keep their homes and obtain a better fresh start from their Chapter 7 bankruptcy filings, Stay tuned to future posts to my blog and I will let you know when this decision comes down from the court.
Bankruptcy and Foreclosure Defense blog with posts designed to provide helpful information in understandable terms to people facing financial problems by a Connecticut attorney.
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Tuesday, November 18, 2014
Supreme Court to Hear Case Allowing Strip-Down of Wholly Unsecured Mortgage in Chapter 7 Case
Thursday, October 30, 2014
Connecticut Homeowners Don't Be Scammed By Bogus Mortgage Modification Companies!
I have blogged before about the victimization of clients who have retained me after being ripped off by out state mortgage companies. I believe it is a good time to revisit this topic. These companies collect high fees like $5,000 which they sometimes don't even fully explain to their victims that these are fees to them not funds to be applied to the mortgage debt due, In almost all cases they are unlicensed and operating illegally in Connecticut. More importantly they fail to advise their victims who are defendants in a foreclosure action of the existence of the Superior Court's foreclosure mediation program. This foreclosure mediation program stays the subject foreclosure action to provide the homeowner time to negotiate on their own or with the help of an attorney a mortgage modification with the mortgage lender. This means the foreclosure process does not go forward during mediation and no foreclosure signs or auctions for the homeowner to worry about. The victims of scam artist mortgage modification companies are denied this opportunity since these companies advise their victims not to participate in foreclosure mediation or simply are ignorant it exists. Unfortunately homeowners rely on them and many times lose their homes due to this fact since these companies are really only interested in the fee paid them and not obtaining a mortgage modification for their victims. If you are the victim of a mortgage modification company and still in a foreclosure action it may not be too late to participate in Connecticut's foreclosure mediation program. You should contact a Connecticut attorney well versed in foreclosure defense and the foreclosure mediation program to file a motion for re -inclusion in this program. With the right argument made on your behalf by your attorney these motions are looked on favorably by Connecticut foreclosure judges and in most cases will be granted. If you are a victim of these bogus mortgage modification companies don't let your home slip a way if there is a chance to save it.
Friday, June 6, 2014
Connecticut Adopts Optional Method of Foreclosure Known as Foreclosure by Market Sale
Effective October 1,
2014 Connecticut General Statutes Section 49-24 was amended to allow mortgage
lenders holding first mortgages on residential properties by agreement with
mortgagors aka borrower occupants to enter into a foreclosure by private market
sale. Presumably the main impetus for this optional method of foreclosure is
the recognition that foreclosure auctions do not attract the highest and best
sales prices for foreclosed properties. I applaud the Connecticut legislature's
attempt to solve this problem, but in reading how the process will work under
the statute I find it convoluted and unattractive to mortgagors, prospective purchasers and their real
estate agents. Foreclosures by sale
via auction are usually ordered in cases where there is equity in the
property for the mortgagor and/or subsequent lienholders on the property. It
appears to me that this foreclosure by market sale is supposed to be attractive
to mortgagors in this position, but not underwater mortgagors since unlike a
short sale it does not provide for any debt forgiveness. If this amendment
was pushed through by lenders as an alternative to short sales it clearly is
not and hopefully mortgagors who could benefit from a short sale will not
choose this option instead.
My first comment in looking at the process established by this
amendment is that a distressed mortgagor with equity in his property seeking to
sell his property would be better served selling it himself with the help of a
real estate agent. If a foreclosure is started and additional time to sell is
needed the mortgagor should first file for foreclosure mediation. If more
time is needed beyond mediation than he can file an answer and special defenses to the
foreclosure with the assistance of an experienced foreclosure defense attorney.
The process starts out with a preforeclosure notice to mortgagors of the
availability of a private market sale foreclosure. The process requires the
mortgagor to contact a real estate agent to assess the feasibility of listing
the property for sale, but the listing cannot take place until lender does an interior
appraisal and agrees to listing of property for private mortgage sale. The
mortgagor will be required to sign as part of the private market sale agreement
that they forgo their right to participate in foreclosure mediation which to me
is a red flag that this is a lender friendly drafted amendment to the statute
with the ulterior motive of keeping files out of mediation which the
legislators who approved it were probably not even aware of. The foreclosure
action will be commenced after receipt of a mutually acceptable contract and
the statute attempts to fast track the foreclosure judgment which includes the
approval of the contract as well as the fees and expenses of the sale including
buyers anticipated expenses. Based on my experience with short sales the
required participation of lenders in this process will delay the closing
considerably beyond what the drafters of this amendment planned. The court
requirements for buyers will require them to incur more attorney fees than a
normal sale. I see the reality of this process adding more time than the average
buyer will want to wait for the closing to take place with additional fees that
they will not want to incur. I also forsee major problems with any buyer trying
to finance their purchase under this process. Which of course means the pool of
buyers will be reduced to mostly cash buyers looking for bargains which defeats
the purpose of a private sale over an auction in the first place. In fact I do
not see this new option bringing any new pool of buyers offering higher prices
for foreclosed properties. The amendment also gives subordinate lienholders
with right of refusal law days in inverse right of priority. This adds an
additional uncertainty to process for buyers that they may lose property to
subsequent lienholder so all their time and effort will be wasted despite
mechanism for eventually getting back their approved anticipated costs, but
possibly not actual costs. The problems outlined above will also make this
option not attractive for agents who will likely advise both sellers and
buyers against it. This is magnified by the fact that once sale is approved by
court a "person" presumably not the borrower is appointed to make the
sale and transfer title. Consequently, the seller the client of the agent is
out of the picture and the agent will be dealing with possibly a court
appointed attorney similar to a Committee for a foreclosure auction. Something
most real estate agents would prefer to avoid and adds additional complexity
for a purchaser's lender in the unlikely event there is one if they have to
process and review for underwriting. I have only highlighted some of the
drawbacks of this new foreclosure option and my overall opinion is that it is
not a good option for a distressed mortgagor trying to sell their home due to many
practical problems with process established in the statute and lack of true
benefits to the mortgagor. As stated in bold above there is a much better and
simpler way for a mortgagor to buy the
time necessary to sell their property them self which will attract a larger pool
of interested buyers and consequently a higher purchase price.
Wednesday, March 19, 2014
Common Bankruptcy Terms
Although I try to write
the posts to this blog in understandable terms since bankruptcy is a complex
area of law it can be difficult at times not to use terms that may not be
readily understandable by the average consumer. I have listed below some common
terms used in bankruptcy with their simple definitions to help resolve this
issue.
Debt- monetary obligation owed to another
individual or entity. Common examples are credit card, mortgage, car loan and
medical debt
Debtor-individual or entity that owes debts and debtor is primary
term used to describe individual or entity filing bankruptcy.
Creditor-individual or entity who is owed a debt by
debtor.
Secured Creditor- this creditor is owed a debt which is secured by collateral
which they can take action to take possession of and sell to satisfy debt owed
if debtor fails to pay debt. One common example is lender holding secured
mortgage on home, which is the collateral and lender has right to foreclose if
debtor defaults on mortgage. Another example is auto loan where vehicle is
collateral which lender can repossess and auction of if debtor defaults.
Unsecured Creditor-there is no collateral securing this
creditor's debt- most common example credit card debt.
Real Property- land with or without home or other building located on it.
Asset-personal or real property owned by debtor. In bankruptcy
assets that need to be disclosed can take many forms from the obvious like bank
accounts and homes to less obvious like potential tax refunds and law suits
brought by debtors against other parties.
Bankruptcy Estate-upon filing bankruptcy all of the debtor's
property becomes property of the bankruptcy estate
Exemptions-certain property of the debtor can be
exempted out of the bankruptcy estate using state or federal exemptions
allowing debtor to keep exempt personal and real property. Common examples are
homestead exemption for a debtor's principal residences and motor vehicle
exemptions. A debtor must choose at the time of filing to use either the
federal exemptions which are uniform in all states or state exemptions which
vary by state.
Chapter 7 Trustee-attorney assigned by court from local
panel of trustees whose main function is to determine if Chapter 7 debtor has
non-exempt assets he can sell for the benefit of unsecured creditors. This
trustee conducts the Meeting of Creditors
prior to which he will have reviewed requisite financial documents provided by
debtor's counsel and at the meeting question the debtor under oath with his
counsel present to determine the accuracy and completeness of the information
listed in their bankruptcy schedules. It is very unusual for actual creditors
to attend the meeting of creditors since bankruptcy has evolved to have the
Chapter 7 trustee represent their best interests at this meeting.
Discharge-this describes the goal sought by the
debtor by filing bankruptcy. The issuance of the notice of discharge which
occurs 60 days after the meeting of creditors terminates all debts owed by the
debtor which are subject to discharge. For example this includes unsecured debt
like credit cards and medical bills. There are exceptions to discharge and
distinctions to be made by the effect of discharge on unsecured vs. secured
debt which I shall make a topic of a future post to this blog.
This post was an
attempt to help consumers understand some common bankruptcy terms and only
scratches the service of this complex area of law. I hope you found it helpful
and will continue to try to provide more helpful information with future posts
to this blog.
Friday, January 10, 2014
When Considering Filing Bankruptcy Should I Use My Retirement Funds to Pay My Debts Instead?
I heard it again from a prospective bankruptcy client that he cleaned out his retirement funds to pay his high medical bills despite having been just laid off from his job. He still has $40,000 in other debts and needs to file bankruptcy. When he comes in for his consultation next week I will have to tell him the disheartening news that he could have kept his retirement funds and included his medical bills in his Chapter 7 Bankruptcy. 401ks, 403bs, IRAs and similar retirement plans are all exempt assets which Debtors can keep and the bankruptcy trustee cannot seize these funds for the benefit of creditors. The laudable public policy decision behind this exemption is that debtors should not be stripped of their retirement savings when filing bankruptcy. If debtors were to lose their retirement savings by filing bankruptcy the whole idea of a fresh start would be defeated since they would be left with nothing to fall back on during their retirement years. So I cannot stress enough to anyone with debt problems please consult with a bankruptcy attorney before using retirement funds to pay debt. Not only may Chapter 7 Bankruptcy be the answer, but in addition to depleting your retirement funds by paying delinquent bills you will also incur the income tax liability for redeeming these funds prior to your retirement age.
Tuesday, January 7, 2014
Can I Keep My Car if I File Chapter 7 Bankruptcy in Connecticut?
Most of my Chapter 7 Bankruptcy clients own a car and one of
the first questions they ask me is can they keep their car if they file
bankruptcy. In most cases the answer is yes whether they own their
vehicles outright or they are secured by auto loans. Debtors in Connecticut are entitled to use either the Federal or Connecticut asset exemptions in Connecticut . The Federal exemptions
under the Bankruptcy Code which are the most common exemptions my clients
use provide a motor vehicle exemption up to $3,675 of the car’s value which by
itself may appear to pose a problem to some debtors who own their vehicles
outright. This problem of excess value above the $3,675 figure is usually
solved by application of the "wild card" exemption which provides an
additional $1,225 plus up to $11,500 of the unused portion of the $22,975.00
federal homestead exemption. This automatically means that for all renters they
have $16,400.00 to apply to their vehicle(s) and bank accounts with their
household items, jewelry and retirement assets(if any) covered by other asset
exemptions. Most homeowners who consult with me to file bankruptcy either
have no or so little equity in their homes that there are sufficient exemptions
available to them to allow them to keep their cars as well.
For those clients with car loans most
vehicles are under secured and no exemptions are needed and if there is some
equity there are more than enough exemptions to cover same. In most cases this
holds true whether they rent or own their homes. For individual homeowners with
equity in excess of $22,975 or joint homeowners in excess of $45,950 who wish
to retain their homes they have to use the Connecticut exemptions which
provides an exemption up to $75,000 for the equity in their homes.
Unfortunately the motor vehicle exemption is only $3,500 with a wild card
exemption of only $1,000. They are instances when faced with this situation and
a client who owns a car with a value in excess of the $3,500 to $4,500 filing
bankruptcy puts the car's equity at risk. When it's close I have had clients
file and negotiate a buy out of the difference above the exemption with the
trustee. With cars that have more significant value this may not be an option.
The second issue concerning the retention
of your motor vehicle has to do with the reaffirmation of auto loans. In 2005
the Bankruptcy Code was amended in an attempt to remove what is known as the
"ride through" or "retain and pay" option with regard to
car loans in bankruptcy. Per the amended code your options were limited to
surrendering your vehicle or retaining via redemption(payoff) or
reaffirmation as listed on a form entitled "Statement of Intention"
to be filed with the court for service on your creditors with your Chapter 7
bankruptcy filing. I have yet to meet with a bankruptcy client who is in a
position to redeem their vehicle. For those who want to retain their vehicles
the issue of reaffirmation usually must be addressed. In simple terms when a
reaffirmation agreement is signed by the debtor and lender it is filed with
court and the auto loan debt is not discharged by the bankruptcy and is paid
and reported on debtor's credit report as if no bankruptcy were filed. For auto
loans other than those from credit unions the reaffirmation agreement form
requires that the debtor's attorney to sign off that the reaffirmation
agreement does not impose an undue hardship on the debtor. In most cases this
is not possible due to the fact the secured debt exceeds the value of the
vehicle and/or the debtors' current income and expenses. In recognition of this
dilemma the Connecticut
legislature in 2009 came to the rescue with a revision of CGS section 36a-785
clearly stating the filing of a Chapter 7 by itself does not constitute a
default of an auto loan allowing a lender to repossess a secured vehicle. The
practical effect of this revision was to take the teeth out of the 2005 code
amendment and allow for the continuance of the “retain and pay” option without
reaffirmation of car loans in Connecticut .
This fact seems to have been acknowledged by all auto lenders who have been
educated about this state statute by the bankruptcy attorneys in this state.
Therefore, in practically all my cases my clients keep their cars with the
debts discharged and have the option to continue to pay their car loans and
keep their cars. If their loans become too difficult to pay in the future or
their cars break down they can stop paying and let the lender take back their
cars without any liability for the loan balance due. At this point this post is
already longer than I intended and I will leave the issue of leased cars in
bankruptcy which is less cut and dry for a future post to my blog.
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