Connecticut Short Sales and Deeds In Lieu of Foreclosures in a Nutshell

     In situations where homeowners with relatively small amount of unsecured debt are faced with foreclosure and who do not want to keep their homes Chapter 7 bankruptcy may not be the best first option. Chapter 7 Bankruptcy may not also be an option due to the income/asset situation of the homeowner. Other options to consider are a short sale or deed in lieu of foreclosure. A short sale is where the mortgage lender(s) approves a sale for less than the debt due it and depending on the homeowner's income and asset status the homeowner is released from their mortgage obligation without any or with some contribution and/or unsecured promissory note to the lender. Deed in lieu of foreclosure is where property is deeded back to lender with same analysis whether or not homeowner's release from the debt includes some contribution from them. In both situations the mortgage lenders require financial documents similar to mortgage modification applications. Lenders prefer short sales so they generally require the property be listed for a short sale first for a minimum of 3 to 6 months before considering a deed in lieu. Both of these options are available under the HAFA program for loans that are eligible for HAMP loan modification process which covers all Fannie Mae and Freddie Mac owned or guaranteed loans and loans serviced by HAMP participating loan servicers issued prior to Janaury 1, 2009. The advantage to pursuing a HAFA short sale or deed in lieu is that if you are approved for either the mortgage lender is required to waive any potential deficiency.
     The approval process of either of these options can take some time and for short sales you need to have a buyer that is willing to wait for the lender to come to a decision. The same holds true for a deed in lieu especially since you have to usually start the short sale process first before converting to a deed in lieu application. In many cases a foreclosure will be commenced before the lender has made a decision.   The good news is that both of these options are considered as suitable matters for the court's foreclosure mediation program. You can apply for this program and with the recommended assistance of a qualified attorney use the mediator to help negotiate either the short sale or deed in lieu. While in your in mediation the mortgage lender cannot proceed with its foreclosure so there is added incentive for them to accelerate their approval process. There are important tax considerations with the forgiveness of debt from a short sale or deed in lieu. Through December 31, 2012 any imputed debt from this forgiveness is exempted from Federal income taxation. Clearly if Congress does not act to extend this tax exemption the attractiveness of a short sale or deed in lieu will be greatly diminished.  Consequently, anyone considering a short sale now would be encouraged to make that decision quickly since as indicated above the process will take time and the clock on the federal tax exemption is ticking away.
UPDATE: GOOD NEWS FOR POTENTIAL SHORT SELLERS IN 2016 THIS FEDERAL TAX EXEMPTION WAS EXTENDED THROUGH JANUARY 1, 2016.

It's Not Too Late To File Bankruptcy Just Because Judgments Have Been Entered Against You

     I have found that some of my clients with debt problems have the common misconception that once a judgment is entered against them they cannot seek relief with a bankruptcy filing. They unfortunately suffer through wage garnishments and bank executions without realizing that the filing of a Chapter 7 bankruptcy will stay all judgments and all related collection attempts by the judgment creditor. Furthermore, once the Chapter 7 discharge is entered these judgments are voided and debtors are free from future creditor collection efforts. I take great satisfaction in providing my bankruptcy clients with the serenity that they no longer have to be fearful that their wages will be garnished or their bank accounts cleaned out. There is no reason to lose hope just because judgments have been entered against you. Bankruptcy does still offer the relief you need to obtain a fresh start.

Holiday Thoughts

     This blog deals with issues that one does not associate with the good cheer of the holidays and foreclosure and bankruptcy are not something that people want to face any time of year. For those of you facing these problems unless you received an unexpected large monetary gift for Christmas your debt problems will not go away by themselves, however, there is hope since there are options available to provide relief from these debt problems. I promise to do my best to help my clients find relief in the coming year. Best wishes to those facing financial difficulties and that no matter how insurmountable these problems may appear now you are able obtain some relief in 2012.

What's The Next Step When Served With a Foreclosure Writ in Connecticut?

       

In Connecticut foreclosure writs are served by State Marshalls who despite the common belief to the contrary do not have to serve a homeowner in hand rather they can make abode service which means rubber banding to a front door constitutes valid service. If the wind has not blown your writ away (I wish this was only a joke, but it happens on occasion) and you find this on your door what is your next step. The first thing you'll see in front of the actual summons is the notice of foreclosure mediation. It sometimes confusing placement aside this well intentioned program was enacted by the Connecticut legislature to provide homeowners with the opportunity to enlist the help of a mediator to negotiate a modification of their mortgage loan and place the foreclosure process on hold during mediation.  Based on my experience prior to deciding on proceeding with mediation homeowners should consult with an attorney especially one with both bankruptcy and foreclosure defense/workout expertise. In my case I offer a free initial consultation to review all of the homeowner's options and recommend the best option to suit the facts of their case.

 I do recommend foreclosure mediation in most cases. Foreclosure mediators are judicial department employees who work at the courthouses where the mediation sessions are held. They are borrower friendly since their goal and reason for existence is to achieve an acceptable settlement of the parties. This does not always mean a modification, however, this can also mean a short sale, a deed in lieu of foreclosure or an agreed upon judgment date. In order to qualify for foreclosure mediation:

You must be the owner-occupant of a 1, 2, 3 or 4 family residential property;

you must be the borrower; the signatory to the mortgage note;

the property being foreclosed must be your primary residence;

the mortgage on your owner-occupied residential property must be in foreclosure; and the property must be located in Connecticut. See Form JD-CV-108.

Based on my experience I have seen more loans modified in foreclosure mediation than by borrowers on their own. This is an unfortunate reality of the current way most banks handle modification requests and that it takes the actual commencement of the foreclosure to lead to an acceptable modification. Again this is not to say all cases in mediation are modified, however, it does allow homeowners the opportunity to plan and negotiate other resolutions as well like short sales. Finally, no matter what the ultimate result mediation stops the foreclosure process and provides additional time to homeowners to stay in their homes while negotiating with their mortgage lenders.

Removal of Judgment Liens in Bankruptcy

In many Chapter 7 bankruptcy cases where debtors are seeking to discharge their unsecured debts or Chapter 13 payment plan bankruptcy cases where debtors are paying only a portion or not any of their unsecured debt homeowners can remove existing judgment liens from their primary residences.  This lien avoidance under Section 522f of the Code allows homeowners to use their homestead exemption under Federal or State Law as necessary to obtain an order to record on the land records which effectively releases the judgment liens avoided by the order. This secured debt is therefore converted to unsecured debt just like credit card debt and can be discharged like other unsecured debt.  The fact a judgment by itself has been entered on a debt does not make it nondischargeable.  The usual formula to determine if a judgment lien can be avoided takes into consideration the value of the property and compares it against consensual liens like mortgages on the property together with the appropriate homestead exemption. If the total amount of the mortgage(s) plus the homestead exemption equal or exceed the value of the property the judgment liens can be avoided.  Therefore, in a Chapter 7 debtors can enhance their fresh start by not only discharging unsecured debt, but can remove judgment liens to increase their equity in their homes. In a Chapter 13 case the same is true contingent upon the successful completion of their Chapter 13 payment plan.

Wife Calls in Bomb Threats to Bank to Avoid Husband Finding About Bad Debts

  

I started to draft a post about how to react if you receive a foreclosure writ and will post that shortly, but an article in the Hartford Courant today caught my eye. As stated in the title above a Coventry woman desperate to avoid her husband from finding out about the financial mess their family was in called in bomb threats to their bank. According to the article she had lost her job and did not tell her husband about this financial mess. This is such a sad case for so many reasons. I have had clients contact me to file bankruptcy in similar situations where one spouse for various reasons has either accumulated debt or is aware of high debt that the other spouse is not aware of. It can be a very trying experience for both of them and in these initial meetings the phrase "counselor at law" comes to mind because their is a lot of counseling involved to smooth over the clients’ emotions to focus on what they need to do get a fresh start by filing bankruptcy.  This woman was obviously scared to face this issue with her husband. She may not been aware of or was afraid of bankruptcy as an option to provide relief from these debts.  In 2005 when the bankruptcy code was amended there was a tremendous amount of negative press generated about qualifying for bankruptcy and the demonization of people who do. I remember distinctly asking Elizabeth Warren, at that time still a relatively unknown Harvard professor, at a bankruptcy forum about the 2005 pro-creditor code amendments if Congress had considered what effect these changes would have on people facing desperate financial situations. Since then I have had to counsel many clients to overcome the shame they feel that they have to file bankruptcy.  Contrary to the opinion expressed by bankruptcy critics based on my experience the overwhelming majority of debtors file bankruptcy reluctantly and as a last resort. They have legitimate reasons and studies have shown that job loss, illness and high medical expenses, divorce and foreclosure are the primary reasons. I hope this woman gets the help she needs since her financial distress led her to a desperate and criminal act which has now only compounded her problems. In my opinion she needs immediate mental health care and a good criminal defense lawyer to help her. Eventually, she and her husband may need to file bankruptcy if the debts are as bad as they appear to be and they can get the relief the bankruptcy code was enacted to provide.

Intro to My New Blog

        The time has come for me to start blogging as a way to reach out to people  in the State of Connecticut who are looking for answers to their financial problems including creditor harrassment, bank and wage executions, foreclosure and related distressed real estate matters. I have seen alot in my 26 years in practice the majority of which has been focussed on one side or the other of debtor creditor law. I represented credtiors and foreclosing lenders in the late 80's thru the mid 90's and saw how the cyclical nature of economic downturns effected homeowners and what worked and didn't work to resolve these problems.  I have represented primarily debtors since the mid 90's and unfortunately right now we are in a mess of downturn which seems to continue to go down without a true upswing in sight for distressed homeowners and the chronically unemployed.  The message I plan to convey through this blog is one of hope and that there are options available to help debtors to climb out of their financial holes. I will try to keep it as simple as possible while discussing what at times can be a very technical area of law.