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Thursday, December 15, 2016

FANNIE MAE and FREDDIE MAC Announce New Mortgage Modification Program for 2017 as HAMP Expires

          Fannie Mae and Freddie Mac in January, 2017 will begin a program to aid homeowners who are behind on their mortgage payments, the companies announced December 14, 2016.
The Flex Modification loan program replaces a the HAMP foreclosure-prevention policy that's set to expire at the end of this year. HAMP was enacted to help distressed homeowner due to the mortgage crisis that started in 2007-2008. Loan servicers have until October, 2017 to start the program.
The new loan modification guidelines are expected to increase the population of homeowners eligible for lower monthly payments, short sales and other alternatives to foreclosure, according to Fannie Mae.
        "We believe the program is flexible to adjust for regional and even local differences in housing," said Bill Cleary, vice president of Fannie Mae's single-family servicing policy. "It provides the greatest amount of assistance to those areas in need." HAMP, was adopted in 2008 as millions of homeowners fell behind on their payments. Over time, more than 1 million trial mortgage modifications were started . Many ended in new defaults, but eight years after the collapse, nearly 360,000 borrowers are still in the program and continue to make payments on their modified loans, according to the Federal Housing Finance Agency. The statistics show the higher percentage of successful modification involved the ones that decreased monthly mortgage payments the most.

        The goal, with HAMP and its replacement, is to prevent foreclosures and preserve homeownership and limit losses to taxpayers, which stand behind the mortgages guaranteed by Fannie and Freddie. In  general the costs to modify a loan are less than to foreclose one and take possession of  delinquent borrowers homes.

       "By avoiding the high costs associated with foreclosures, the Flex Modification will result in significant savings for the Enterprises and taxpayers," FHFA Deputy Director Sandra Thompson said in a written statement. "And it will provide borrowers who face permanent hardships with a sustainable modification." This is good news for both borrowners, lenders and taxpayers that meaningful mortgage modifications will still be an option after Decemeber 31, 2016.

Monday, April 18, 2016

Do I Need to Reaffirm my Car Loan if I File Chapter 7 Bankruptcy in Connecticut?

       In 2005 in an attempt to favor auto loan lenders Section 362 of  the bankruptcy code was amended to make redemption or reaffirmation of auto loans a necessary requirement for debtors filing Chapter 7 for those debtors that want to retain their cars. Suffice it to say redemption which means payment in full of the auto loan at time of filing is not a realistic option so the focus of this post is on the reaffirmation requirement. Before this amendment the preferred and common approach to auto loans for cars intended to be kept post-filing was the retain and pay approach. In order to discuss this approach I need to first make the distinction between the effect of the discharge of a secured debt versus an unsecured debt. It is relatively easy to understand the discharge of an unsecured debt like a credit card. Upon the successful completion of the Chapter 7 the debtor's obligation to pay this credit card debt is terminated. For a secured debt like a car loan it is not as simple to understand. It is true that the actual debt is discharged, but the security agreement survives the bankruptcy requiring the debtor to continue to pay the monthly payment in order to keep the car. If the debtor takes the retain and pay approach without reaffirmation they continue to pay, but can stop paying at any time and surrender the car without any deficiency due. This is clearly the preferred approach in most cases where debtors' budgets are tight if not negative at  the time of filing and the fact that cars generally after a few years depreciate quickly resulting in loan balances in excess of these cars' values. This is especially the case with debtors who have high interest rate car loans when they file bankruptcy which is quite common. Reaffirmation of an auto loan leaves the debtor in the same position prior to filing with the auto loan debt not discharged and reported on their credit report. In order to reaffirm under the current code the auto loan payment cannot impose an undue hardship on the debtor. In other words the debtor's budget must show they can afford it at time of filing and debtor's bankruptcy counsel must affirm this fact with the filing of the reaffirmation agreement for court approval. Herein lies the problem of this requirement as indicated above many debtors' budgets do not show they can afford their car payments not to mention the fact many of their cars are not worth what they owe. They're not eligible to reaffirm due to the code's hardship requirement. Also it is clearly not in their best interests anyways to reaffirm a debt on a car that is currently underwater. In Connecticut as well as other states throughout the country this placed debtors in a very difficult position since in almost all cases debtors at the time of filing do not want to surrender their cars that they need to get to work and live their lives. Despite the fact their budgets may show they may not be able to afford their auto loans they do what they have to do to keep their cars.
       I am pleased to tell Connecticut debtors that our legislature enacted a solution to the problem created by the 2005 amendment to Section 362 of the Bankruptcy Code which allows debtors to continue to use the preferred retain and pay approach and still keep their cars. In 2009  the Connecticut legislature repealed and replaced Section 36a-785 of the Connecticut General Statutes with a provision that specifically states the filing of bankruptcy in itself does not constitute a default under the terms of an auto loan security agreement. The practical effect of this new statute was that car loan lenders could not refuse to continue to receive loan payments from Chapter 7 debtors despite the fact they did not reaffirm their car loans. Therefore, the loans that are being paid are not in default and auto loan lenders are not able to take any action to repossess these vehicles. This change essentially restored the right to retain and pay without reaffirmation for Connecticut Chapter 7 debtors and was accepted by auto loan lenders once they were educated by debtors' attorneys like myself as to this new Connecticut statute. In conclusion, the answer to the question posed as the title to this post is no! Furthermore, when considering reaffirmation of a car loan where you may have equity in your car you need to review in depth with your attorney the advantages and disadvantages before going forward with reaffirmation.

Wednesday, March 30, 2016

How Long Can I Stay in My Home After a Foreclosure Starts in Connecticut?

     Connecticut is a judicial foreclosure state so a foreclosures action is commenced with the service of a foreclosure summons and complaint on the borrower(s)/homeowner(s).  This means that although you may have had  many conversations with a mortgage lender's collection and/or loss mitigation department in which you have been told you are in a foreclosure this really means you are in pre-foreclosure status until you are actually served with this foreclosure writ. Therefore, the time frame discussed in this post as to the time you have left to stay in your home starts with the actual commencement of the foreclosure action not bank employee statements you are in foreclosure. The time that you have left in your home depends on what actions you take after the service of the foreclosure writ. In Connecticut the foreclosure writ includes an application for foreclosure mediation with a court mediator which is described in more detail in prior posts to this blog. Generally speaking homeowners who reside in 1 up to 4 family homes who are signatories to the note secured by the mortgage being foreclosed are eligible for court mediation. You can apply for mediation either pro se or with the help of an attorney which I recommend if your goal is to obtain a loan modification. The statute governing mediation  provides you with the right to stay in mediation up to eight months and can be extended if the lender agrees or you can prove to the court you have the right to extend based on the current status of your loan modification negotiations with your lender. Foreclosure mediation is one way to extend your stay in your home and may ultimately result in your keeping your home if you receive an acceptable loan modification. At a minimum based on my experience for most clients I have represented whether they receive an acceptable modification or not the mediation process does take eight months and sometimes longer.
      While you are in mediation the foreclosure action is stayed and cannot proceed further so the bank cannot file default motions creating the need to file defensive pleadings. When mediation is terminated for defendants who do not go forward with  loan modifications there is still an opportunity to buy more time to reside in their homes. This also holds true in situations where a defendant does not pursue mediation at the onset of the foreclosure action. As indicated above foreclosure is a judicial process in Connecticut and a defendant has the right file an answer and special defenses to the foreclosure action. Banks are sloppy and makes mistakes at times which lead to facts which support the filing of these defensive pleadings. These pleadings are not necessarily designed to result in a defendant's verdict's at trial which is extremely difficult to do if the action is based on delinquent payments of a validly executed note and mortgage. What these defensive pleadings do provide is more time in your home and the delay of the foreclosure action. On average at a minimum I  have found that these pleadings provide an additional 9 months to a year before the completion of the foreclosure. In some cases I have seen foreclosures delayed years. Of course one caveat to add here is that during this period the debt due continues to accumulate and if there is a deficiency due than in some cases a Chapter 7 bankruptcy filing may be needed which can further extend time in your home usually by about 2 months, however, the existence of a deficiency does not mandate a Chapter 7 filing by itself and each case is unique. Especially in cases where there is no other debt issues since I have not seen banks be very aggressive in pursuing deficiencies in this state. This could change and like all of what I have been discussing the help of an experienced foreclosure defense and bankruptcy attorney is critical to properly protect your interests.
     In conclusion, whether using foreclosure mediation and/or defensive pleadings Connecticut homeowners can buy significant time in their homes after the start of a foreclosure action. If your goal is to stay in your home as long as you can you should contact an experienced foreclosure defense attorney to help you accomplish this.

Monday, March 7, 2016

Fair Market Value Exemptions in Chapter 7 Bankruptcy

 In  Schwab v. Reilly130 S. Ct. 2652 (2010) the United States Supreme Court made an important ruling effecting the treatment of exemptions for debtors' assets. The debtor in that case valued and exempted under the federal exemptions her business equipment at $10,718.00. Her clear intention was to exempt all of her business equipment to retain her ownership post-bankruptcy. The Chapter 7 trustee did not object to her exemption within the requisite 30 day period. Nevertheless the trustee did file an application with the court to appoint an auctioneer to sell this business equipment to net any proceeds above the exemption amount after fees and costs involved. The bankruptcy court denied the trustee's motion to sell based on the premise the assets were fully exempted., This ruling was upheld by the Third Circuit on appeal. Judge Thomas wrote a majority decision for the Supreme Court which reversed and remanded this decision ruling in part that with a facially valid exemption claimed by the debtor it is too burdensome to require a Chapter 7 trustee to object to the exemption. The court further clarified that a debtor can signal it intends to exempt the entire asset by listing the exempt value as either "fair market value (FMV)" or "100 percent of FMV". One can certainly argue that the Third Circuit's reasoning that the debtor intended to exempt the 100% of FMV by valuing and exempting the equipment assets at $10,718.00 was enough. The Supreme Court has added this extra requirement to make it more than clear when a debtor is exempting the full value of an asset. The result of the subject case is telling since by avoiding an objection to exemption hearing re: valuation of the equipment assets the trustee clearly placed the debtor in a difficult position. One can presume she exempted this business equipment to continue to use it in her business to generate income, The trustee now had the ability to seize this property to sell it. The likely result is that debtor would settle with the trustee and possibly pay even more than what the trustee would recover at auction to maintain possession of this business equipment to keep her business running.
     Therefore, in exempting assets like business equipment where a debtor provides a value that may be subject to question claiming 100% of FMV is a necessity based on ruling in Schwab v. Reilly.