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.

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.

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.

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.

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.

I Want To File Chapter 7 Bankruptcy My Spouse Does Not What Should I Do?

     As a Connecticut bankruptcy attorney I sometimes meet with prospective married clients who seek to file Chapter 7 bankruptcy individually. Initially I have to bring to their attention that despite their request to file on their own their spouse's income has to be taken into consideration to determine their ability to file both under the means test which has been discussed in prior posts on this blog as well their joint income compared to their joint expenses. Assuming the non-filing spouse's income does not pose a roadblock to filing a Chapter 7 bankruptcy the next issue I address with these clients is the advisability of filing jointly with their spouse instead of individually. The whole idea of the fresh start from a Chapter 7 filing is defeated if only one spouse files and receives a discharge of their debts, but the other spouse is still left with his own burdensome debt that could have been discharged in a joint filing. In these cases there is usually an initial reluctance on the part of the spouse who wants to avoid filing bankruptcy which requires my meeting with them and stressing the advantages of filing jointly to remove all of the family debts not just their spouse's. The fees and costs are almost the same for filing together so that does not pose a barrier to a joint filing. Each situation is unique and in some cases where it may be advisable for the benefit of both spouses to file jointly one spouse may just be philosophically or emotionally opposed to filing bankruptcy. In such cases I do my best to convince the reluctant spouse that their family will truly benefit from the Chapter 7 filing by filing jointly and sometimes I am successful. In other cases when I am not and one spouse still wants to proceed they can as long the other spouse is willing to cooperate to the extent of providing the necessary income and expense information for their spouse's Chapter 7 filing.

     There are clearly situations where it does make sense for only one spouse to file. One common situation is a recently married couple where one spouse has accumulated debt prior to their marriage, but the other spouse is in relatively good financial shape and their combined income still allows for a Chapter 7  filing by the one spouse. This allows the non-filing spouse to preserve their good credit. It also makes even more sense for the spouse with the problem debt to file Chapter 7 before getting married especially in cases where there may be a means test issue due to the prospective spouse's income once they are married. Another fact scenario where it is advisable for only one spouse to file Chapter 7 is where the other spouse may possess non-exempt assets that would be taken or sold for the benefit of creditors if they file jointly. There also may be situations where delaying one spouse's Chapter 7 filing to allow for a joint filing is advisable. One example of this situation is where one spouse may have tax debt that will become dischargeable if the filing is delayed. Another example is where one spouse may have made a preferential transfer payment for a debt due to a relative within the past year. When the appropriate time has expired to allow both spouses with problem debt to file it definitely makes sense to do so. Again as stated above each situation is unique based on the particular facts involved and stresses the need for any spouse considering filing bankruptcy to meet with an experienced bankruptcy attorney to determine how and when to file.

What is a HAFA Short Sale?

     A Home Affordable Foreclosure Alternative popularly known as a HAFA short sale can provide qualified distressed homeowners who are not able to modify their mortgages or file Chapter 13 bankruptcy to save their homes the ability to sell their homes with no deficiency and receive up to $3,000.00 in relocation funds from their lender.
     Some of the main requirements are:  
       The borrower must still occupy the property;
       The mortgage loan cannot be guaranteed by Freddie Mac or Fannie Mae;
       The mortgage was taken out prior to January 1, 2009;
       The mortgage is either past due or loan is about to go into default;
       The amount  owed on the first mortgage is equal to or less than:

              - $729,750 for a single-family home

              - $934,200 for a 2-unit property

               - $1,129,250 for a 3-unit property
              - $1,403,400 for a 4-unit property;

        There is a hardship such as a reduction of income, medical expenses or a divorce; and

        The property isn't condemned.

     An additional benefit of a HAFA short sale is up to $8,500.00 may be deducted from the reduced payoff to the first mortgage to cover subordinate mortgages and other liens. In order to be considered for a HAFA short sale a request must be submitted before December 31, 2013 and the transaction closing date must be on or before September 30, 2014. In order to receive the relocation benefits the borrower(s) must provide proof of occupancy which is usually a utility bill in the name of the borrower-occupant. If you are already in foreclosure in order to be considered for HAFA eligibility, a request for HAFA:

   Without a purchase offer – must be received greater than or equal to 60 calendar days from the foreclosure sale date or law day for Connecticut borrowers(if applicable)

     With a purchase offer – must be received greater than or equal to 7 calendar days from the foreclosure sale date or law day for Connecticut borrowers (if applicable). 

     The assistance of an experienced attorney can help borrowers satisfy the sometimes difficult requirements both substantive and bureaucratic that can make obtaining HAFA approval more difficult than it should be. Furthermore, in Connecticut a short sale is a foreclosure alternative that is an acceptable matter to be included in the court's foreclosure mediation process. This mediation process allows the borrower defendant to negotiate and obtain short sale approval while the foreclosure process is put on hold with the help and assistance of a court mediator and in many cases their own attorney who can help guide them through the process. For more information about HAFA short sales please go to the following link:  http://homeloanhelp.bankofamerica.com/en/home-affordable-foreclosure-alternatives.html.  Please do not consider my use of a link to a Bank of America HAFA site as an endorsement in any way of this particular lender since the opposite is true based on the hardships my clients have experienced in dealing with this lender.