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.

Fair Market Value Exemptions in Chapter 7 Bankruptcy

 In  Schwab v. Reilly, 130 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.

United States Supreme Court Decision Not to Allow Strip Down of Wholly Unsecured Second Mortgages in Chapter 7 Provides No Relief to Homeowners and No Practical Benefit to Secured Lenders

      The United States Supreme Court in the consolidated cases "Bank of Amer. v. Toledo-Cardona," and "Bank of Amer. v. Caulkett" decided on June 1, 2015 that wholly unsecured mortgages cannot be stripped down essentially turning them into discharged unsecured debt. This decision leaves unchanged the existing law that partially unsecured second mortgages cannot be stripped down. This decision reversed the lower court's decisions in these cases upheld by the Eleventh Circuit which gave consumer bankruptcy attorneys and their clients hope throughout the country that real relief could be provided to homeowners in situations similar to the debtors in these cases. The court relied heavily on the previous case dealing with this issue “Dewsnup v. Tims” and like many court decisions not the practical and societal effect on debtors. The reality is that after filing a Chapter 7 with two mortgages with the first mortgage debt exceeding the value of the property the second mortgage holder will not likely recover any funds from the debtor. The debtor homeowner will either surrender their property in the Chapter 7 or wait till they are forced to give up their property post-discharge after the bank forecloses. In many cases these second mortgage debts have been charged off by lender even before the debtors file bankruptcy. One would have hoped the Supreme Court had the foresight to recognize the practical effects of their decision. The result is that more homeowners will lose their homes with no practical benefit to the overwhelming majority of underwater second mortgage holders. Since these mortgage holders’ debts are discharged they will not receive any funds from a foreclosure. Also this decision hurts first mortgage holders as well because even though their debt may exceed the value of the debtors' homes the large majority of these debtors want to stay in their homes and will continue to pay down these mortgages and hold onto their homes for the long run. Also these homeowners would be more inclined to seek acceptable mortgage modifications with first mortgage holders if the second mortgages could be stripped. This would mean less foreclosures and less bank owned properties. Therefore, this is not only a loss for debtors, but for banks as well and the plaintiff lender here may ultimately regret the continuing negative impact this decision will have on the housing market.

Supreme Court to Hear Case Allowing Strip-Down of Wholly Unsecured Mortgage in Chapter 7 Case

      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.

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.