Bankruptcy & Loan Modifications

Personal Bankruptcy Filings Rising Fast

info — Tue, 05 Jan 2010 13:58:43 +0000

In today’s Wall Street Journal, I found a great article by Sare Murray and Conor Dougherty about the increase in bankrutpcy filings.

The number of Americans filing for personal bankruptcy rose by nearly a third in 2009, a surge largely driven by foreclosures and job losses.

And more people are filing for Chapter 7 bankruptcy, which liquidates assets to pay off some debts and absolves the filers of others. That is significant because a 2005 overhaul of federal bankruptcy laws aimed to encourage Chapter 13 filings, which force consumers to sign onto debt-repayment plans in exchange for keeping certain assets.

The changes were designed to make it more difficult for people to shed their debt, particularly in a Chapter 7 filling. A “means” test, for example, was introduced to separate those who could afford to repay their debt from those who couldn’t. A Chapter 7 filing is off the table if the means test determines a person is able to pay back at least a portion of the debt after it is restructured.

to read the rest of the aritcle on Personal Bankruptcy Filings Rising Fast, click here.

How do you sell your home in a Bankruptcy

info — Sun, 29 Nov 2009 13:22:02 +0000

There are two main chapters (or types) of Bankruptcy that Consumers typically file. Chapter 7 (liquidation) and Chapter 13 (reorganization). In order to sell your property in either of these, the bankruptcy court must not have an interest in the property or give permission to effectuate a sale. Under the Federal bankruptcy law, as soon as you file for bankruptcy, all of your legal and equitable interests become assets of the bankruptcy estate and as a result, is administered or managed by the Bankruptcy Court Trustee. What this means in plain English is that all of things you thought you owned, are temporarily owned by the bankruptcy court, unless those assets have been exempted in order to ensure a fresh start.In Massachusetts and most other states, the Debtor will attend a hearing called a “Meeting of Creditors” where the Trustee will ask questions about the Debtor’s property and then decide if he or she will abandon those assets. At that point, the abandoned assets are no longer property of the estate.

With respect to a Chapter 7 bankruptcy, as soon as the Trustee abandons his or her interest in the property, you are free to sell the home. If time is of the essence, your bankruptcy attorney can file a motion with the court requesting the Trustee abandon the property, but your attorney must demonstrate the sale will fail unless it is effectuated before your case is discharged, which is typically less then 60 after the Meeting of Creditors.

When determining if you can sell your home in a Chapter 13, the issues become significantly more complex due to the length of time a case is open, usually three to five years, and the nature of reorganization and the repayment plan.

As in a Chapter 7 case, the Debtor’s property remains the property of the bankruptcy estate, including the Debtor’s house or condo. The big difference is that the chapter 13 trustee shall have no responsibility regarding the use or maintenance of property of the estate, such as the Debtor’s home. As such, the trustee will have an interest in a home sale, and the debtor must obtain a Bankruptcy Court order approving the sale.

When drafting a motion to present to the court to allow a sale, the motion needs to assert the sale price, disclose the amounts of all liens and mortgages being paid off, and list payments to any professionals such as attorneys and real estate agents. The motion must be served on all parties who may have an interest in the sale, and if anyone files an objection within the 20-day deadline, the court will schedule a hearing on the motion. These motions are fairly common, and when they are done correctly, the court usually grants the motion without requiring a hearing.

How the HAMP loan modifications effect your credit score

info — Thu, 19 Nov 2009 23:39:15 +0000

This post discusses (1) how they are being reported, (2) how they should be reported, (3) what you can do to get your HAMP-modified mortgage reported correctly, and (4) possible effects even the “correct” reporting might have on your credit score.

How HAMP-modified loans are being reported now

Many servicers are reporting the modified mortgages to the credit bureaus as a “rolling 30-day late” while the modification is in its trial period.

(The “trial period” is generally a three month period during which the homeowner must make all payments on time under a proposed modification plan. If the homeowner does so, he or she will be offered a modification under HAMP.)

Homeowners are deemed “delinquent” during the trial period because the modified payment amount is less than the original mortgage payment amount, but the homeowner is not yet officially in the modification program.

So, the credit reporting system interprets this as the homeowner’s making a partial mortgage payment each month. Consequently, a new 30-day late is reported each month during the trial period.

Some servicers have told homeowners they are required by the Treasury Department to report the modified mortgages this way. Other servicers have told homeowners Treasury instructed them to report the mortgages as “late” in order to weed out people who could afford to pay the original amount of their mortgage.

How HAMP-modified loans SHOULD be reported during the trial period

But, borrowers who are current on their mortgage when they enter into the trial modification period should NOT be reported as late, according to servicer guidelines for Fannie Mae, Freddie Mac, as well as other loans (”non-GSE loans”) being modified by HAMP-participating servicers.

Homeowners who were delinquent when they entered the modification trial period, however, will continue to be reported as delinquent during the trial period. See below for more detail.

Information to forward to your servicer if it’s reporting incorrectly

If your loan is owned or guaranteed by Fannie Mae, see page 12 of Fannie Mae Servicing Guide Announcement 09-05R for information about credit reporting for HAMP-modified Fannie Mae loans. It says:

“If a borrower is current when they enter the Trial Period, the servicer should report the borrower current but on a modified payment if the borrower makes timely payments by the last business day of each Trial Period month at the modified amount during the Trial Period. If a borrower is delinquent when they enter the Trial Period, the servicer should continue to report in such a manner that accurately reflects the borrower’s delinquency and workout status following usual and customary reporting standards. In both cases the servicer should report the modification when it becomes final.”

If your loan is owned or guaranteed by Freddie Mac, see page 5 of Freddie Mac Publication 800 for servicer instructions re: credit reporting of modified loans. It says:

“Borrowers who are current when they enter into the Trial Period and make payments by the 30th day of each month, report as current, but on a modified payment. Borrowers who are delinquent when they enter into the Trial Period or do not make payments by the 30th of each month, report according to borrower’s delinquency and workout status. Notify when borrowers have completed the modification.”

If your loan is NOT owned or guaranteed by Fannie Mae or Freddie Mac, see page 22 of “HAMP Servicer Supplemental Directive 09-01″ for information about credit reporting guidelines for modified non-GSE loans. It specifies the following:

“The servicer should continue to report a “full-file” status report to the four major credit repositories for each loan under the HAMP … on the basis of the following: (i) for borrowers who are current when they enter the trial period, the servicer should report the borrower current but on a modified payment if the borrower makes timely payments by the 30th day of each trial period month at the modified amount during the trial period, as well as report the modification when completed, and (ii) for borrowers who are delinquent when they enter the trial period, the servicer should continue to report in such a manner that accurately reflects the borrower’s delinquency and workout status following usual and customary reporting standards, as well as report the modification when completed. More detailed guidance on these reporting requirements will be published by the CDIA.”

What does this mean for homeowners who are thinking about applying for a modification?

To help minimize damage to your credit report and score, you should apply and try to get into a trial period while you are still current on your mortgage.

You do not have to be behind on your mortgage to apply for a HAMP modification.

What does this mean for homeowners who have recently applied for a modification?

Verify that your lender or servicer understands how it should be reporting your modified loan. Do this before starting your modification program, if possible.

Several homeowners have told our office they had to send a copy of the relevant HAMP credit reporting guidelines to the servicers, who were apparently unaware the guidelines existed.

Remember, you can review all the HAMP and HARP mortgage servicer guidelines at this link.

Will the reporting of “current, but on a modified amount” hurt my credit?

It is impossible to say for sure because FICO does not publish its scoring model.

But, “current, but on modified amount” might ding your score a little. This reporting is telling the credit bureau you are currently paying as agreed, but less than the original amount you contracted to pay.

The FICO scoring model may not give you full credit for paying as agreed. But, this will not be nearly as damaging as rolling 30-day lates.

What if my modification is not through HAMP?

The credit reporting guidelines above apply only to HAMP-modified loans. If you have arranged a non-HAMP modification with your lender or you have modified your loan through another mortgage relief program, these credit reporting guidelines will not apply.

Be sure to negotiate the credit reporting with your serivcer as part of your overall modification package. Even if the servicer insists on reporting your loan negatively, at least you can make an informed decision as to whether a particular modification package will work for you.

This post was originally posted on Karen Ware

Banks’s must Produce the Note to foreclose

info — Sun, 08 Nov 2009 13:25:27 +0000

I recently came across a great article drafted by a former paralegal of our firm, Rick D. Misitano regarding foreclosure defense. Below are the pertinent parts of that article.
When a lender can’t produce the original note, allowing a foreclosure to proceed puts the homeowner at risk of owing that debt again to another party in the future.

So, what happens when the lender tells the Court it can’t produce the original note, because it is lost? Let’s start with the basics. If a lender wants to foreclose on a property, it has to be able to show that it is, in fact, the appropriate person to whom the money is owed. That right to foreclose belongs ONLY to the person who has legitimate POSSESSION OF THE ORIGINAL NOTE - not a copy, not an electronic entry, but the original note itself with the original signature of the person(s) who allegedly owes the money along with appropriate raised notary seal and signature. So, if you are faced with a foreclosure, you have every right to demand that the person or entity trying to take your property, first prove to the Court that they have the legal right do to so in the first place by proving they have legal possession of the original promissory note.

In my opinion, an original mortgage note is a VERY valuable legal instrument, much like legal tender and should be guarded and protected as such by the person holding such an asset. Loosing an original mortgage note is like loosing a $100 bill or a gift card or a lottery ticket.

Let’s say (as an example) I scratched a million dollar winning lottery ticket and I just stuck it somewhere and misplaced it and now cannot find it. Do you think I could just show up at lottery headquarters and claim my prize without having the actual winning ticket? What if I made a photo copy of the ticket? Would I get my winnings then? What if you loaned me $100 and I tried to pay you back with a photo copy of a $100 bill? Would you accept my payment? What if I paid you back with a photo copy of a personal check made out to you for $100? Would you accept my payment then? Do you think your bank would honor a photo copy of my personal check made payable to you for the hundred bucks? Or do you think they would want the original check from me with my original signature so they can verify my check is authentic and is a payment I authorized? The same principle applies to the person or entity claiming to be the legal holder of an original mortgage note. He who holds the note holds the key and has an absolute duty to safeguard such an important legal instrument at all costs!

What the Lender Must Do

What often happens, however, is that the lender claims it doesn’t have the original note, because that note has been lost or destroyed. If the lender is making such a claim, the law requires the lender to prove all of the following under the “Uniform Commercial Code”, which is a set of laws governing commercial transactions that many states have adopted. It contains a specific provision on this subject (Section 3-309) which states that a person can enforce a promissory note without having the original, BUT only under certain limited circumstances.

1. The person or entity has to swear and attest that it no longer has the original note;
2. The person or entity has to prove that it was properly in possession of the note and was entitled to enforce it WHEN it lost possession of the note;
3. The person or entity has to prove it didn’t “lose” possession simply because it transferred the note to someone else (i.e., it’s not really lost); and
4. The person or entity has to prove that it cannot produce the original note because the instrument was destroyed or its whereabouts cannot be determined or it was stolen by someone who had no right to it.

All of these matters have to be definitively proven by the person or entity trying to foreclose on the property. It is not the obligation of the borrower to prove or disprove any of this. The borrower can challenge the right of the person or entity trying to foreclose and demand proof.

The Court’s Important Role

It is up to the Court to determine whether the lender has satisfactorily proven why it no longer can produce the original note. The Court also has to be satisfied that when the original note was lost, the person trying to foreclose on the property had possession of the note at the time it was lost. Until the Court has been satisfied of all of this, the foreclosure cannot proceed.

It is also important for the Court itself to understand that this issue is not merely a “technicality” and the judge should not be satisfied with anything less than full proof of this issue. The Court itself needs to appreciate the fact that if it should agree that an original note has been legitimately lost (and allows the foreclosure to proceed) it is the borrower who is still at risk.

Why? Because incredibly, even if a Court has found that the original note is lost and the foreclosure sale is finalized, if someone later turns up with the original note and proves that it is the proper holder of the note (and not the person who foreclosed on the property) the original borrower is STILL LIABLE.

That’s right. Someone took your home and the Court allowed it because it believed that the lender proved that the note was lost and it was the proper party. Then someone legitimate shows up in the future with the actual note and you still owe that person the money even though your property was taken with the blessing of the Court. Trust me, this is a very serious issue regarding foreclosures! Homeowners pursuing a short-sale should be very concerned and should seek out the advice of legal counsel if seeking such option. Homeowners who are seeking to do a loan modification should be even more concerned! This issue has affected many of our our own clients who have retained us because they negotiated a short sale themselves (or via their real estate agents) and are now being sued by parties claiming to be the legal holders of their mortgage notes even after they have already sold their homes! These homeowners had the need to sell their property by means of a negotiated short-sale (so they could avoid a foreclosure) only to find out that the entity claiming to have the legal right and authority to enter into such negotiations and accept such settlements sold their note to another entity and weren’t even aware of it. Several months (and even years) later, the newly assigned lenders (now claiming to be the rightful owners of our client’s original notes) have since come forward and have filed suite seeking to recover their entire outstanding principle balances owed to them (prior to the homeowners closing their short-sale transactions with the wrong note holders). And (if you are a homeowner seeking a loan modification) you absolutely need to verify who currently holds your original note. Otherwise, if you enter into a loan modification agreement with the wrong party (or should be successful in getting your note totally re-written for better terms) you could be creating a whole new mortgage debt that you would be responsible for if there were someone else out there claiming to legally hold your original note.

How to Remove a Judgment Lien from your property

info — Thu, 05 Nov 2009 20:47:43 +0000

Many homeowners have found themselves in the position of owing money on a debt which they simply can not pay back, or have been sued by someone and failed to respond to the law suit. When this happens, the Plaintiff often will attempt to collect on their judgment by putting a lien on the homeowner’s property. Many of my bankruptcy client’s have come to me with just such a situation. This becomes an issue after a consumer’s unsecured debts have been discharged in bankruptcy. The reason is simple; the homeowner has a lien against their house post bankruptcy and they do not owe any money to the lien holder.

After a Chapter 7 discharge, a debtor may avoid a judicial lien by motion to the Court. To the extent lien impairs an exemption to which the debtor otherwise would have been entitled under the Bankruptcy laws. As a result, the bankruptcy court will grant a Chapter 7 debtor’s motion seeking to avoid a judicial lien if debtor’s equity in the property is less than the amount protected under the Massachusetts Homestead Act, which currently stands at $500,000 in value for the land and building, M.G.L. c. 188 § 1, and when the creditor’s lien fully impaired the debtor’s equity in the property. In re Lyons, 355 B.R. 287 (2006).

So what is the gist of all of this legal speak? When the collateral has no value, the creditor has no claim against it because it will be treated as unsecured, and thus the debtor may discharge that lien.

Will you loose an investment property in a Chapter 7 bankruptcy?

info — Mon, 12 Oct 2009 15:45:09 +0000

Before a Debtor files a Chapter 7 bankruptcy, there are certain considerations to take into account. One of the most significant considerations is whether the Debtor will loose any property. The general rule is that no Debtor in a Chapter 7 case should have more then one home with equity. The reasoning behind this is simply that the equity in any investment property should be used to pay back creditors. However, what happens in the situation that a Debtor does not really have a right to property, but rather is on a deed in name only. For example, two people own a property jointly, but only one of them receives any income from the property, pays all the bills and takes care of the property. If this is the situation, the Debtor may be able to save the invest-ment home by claiming that they only have equitable title, or in the alterative that they are a beneficiary of a resulting trust.

The law in Massachusetts can create an interst in property which is called a resulting trust. Such a resulting trust is imposed by law to protect a person who has paid the sale price for prop-erty.

A resulting trust arises when one person pays all or a specific portion of the consideration for a conveyance of property taken in the name of another. Lewis v. Mills, 32 Mass.App.Ct. 660, 593 N.E.2d 1312 (1992).

This type of trust can play a major role when one person, especially a spouce pays for a piece of property and the title is taken in the name of the other, or of both spouses as tenants by the en-tirety, Goldman v. Finkel, 341 Mass. 492, 170 N.E.2d 474 (1960); In such a situation, there is a presumption that a gift was intended, however, a resulting trust may still be proved if there was no intention of making a gift. Krasner v. Krasner, 362 Mass. 186, 285 N.E.2d 398 (1972).

With respect to a bankruptcy proceeding, in order to protect property from the bankrutpcy es-tate, the party claiming all of the premises on a resulting trust must show that he or she contrib-uted all of the consideration for the premises. McDonald v. Conway, 254 Mass. 429, 150 N.E. 200 (1926).

THEY CHANGED THE LOCKS!! NOW WHAT??

info — Fri, 11 Sep 2009 18:33:47 +0000

Agents and brokers have been asking us what happens when a lender winterizes a home and changes the locks on a homeowner while they are in the process of doing a short sale.

First of all, let me make it perfectly clear: A homeowner remains the homeowner until they no longer own their home. This means that unless and until the lender auctions the home and completes the foreclosure process by recording the foreclosure deed, the homeowner continues to have all of the full legal rights, authority and benefits of being a homeowner.

Keep in mind, the lender/investor has a collateral stake in their investment and has the right to make certain their investment is protected. This means if the lender has a reasonable suspicion that a property has been vacated or abandoned, they have a right to make reasonable entry to secure the property in order to prevent damage, vandalism, etc. However, just because a lender takes precautionary measures to “secure” a property does not mean they can take “possession” from the homeowner. If locks are changed at anytime prior to a foreclosure deed being recorded, the homeowner has the right to change the locks out themselves and continue their possession until the disposition of their property is concluded.

Also keep in mind that even if the homeowner’s property is auctioned and they are still occupying their home at the time, they can remain in their home until a judge tells them they need to vacate. All tenancy laws would need to be followed and the new owners (whether it be a bank buyback (REO) or third party purchase) would have to follow proper eviction procedures.

IMPORTANT - Foreclosed homeowners should NOT accept any “Cash for Keys” offers from the lender or third party purchaser unless they are absolutely certain they can realistically fulfill the terms of such agreement, which include the ability to vacate the property by a certain date. If the homeowner should accept such an agreement, they will loose any protections and rights they may have had available to them.

The forgoing post was written by Rick D. Misitano

Attorney Michael Goldstein inteviewed on Money Matters

Attorney Goldstein — Thu, 20 Aug 2009 02:21:44 +0000

Michael Goldstein, a Bankrutpcy Attorney for the Law Office of Goldstein and Clegg was recently interviewed along with Jill Phillips, owner of Legal Administrative Answers on the popular financial radio talk show. You can view the first part of the interview by going to: http://www.youtube.com/watch?v=9Gp6l3UtOUQ

The Top Bankruptcy Questions

info — Wed, 12 Aug 2009 21:27:44 +0000

As a practicing bankruptcy attorney in Massachusetts, I been asked many questions about certain debts and assets, which people have and are concerned with prior to filing bankruptcy.   I have determined the top bankruptcy questions that I receive below:
Q: What income do I need to disclose on my bankruptcy petition?

A: The following types of income need to be reported:

1. wages, salary, tips or bonuses
2. Profit from a business
3. bank interest
4. Stock dividends
5. Royalties
6. income from realestate
7. Pensions and retirement income not part of an ERISA protected account
8. Child support or Alimony
9. Unemployment or workers compensation benefits

Q:         Will filing for bankruptcy protect me from creditors?
A:         When you file for bankruptcy, Section 362 of Title 11 provides an automatic stay. The automatic stay stops most creditors from taking any action to collect the debts you owe them unless the bankruptcy court lifts the stay and lets the creditor precede with collections.

Q: What if a creditor tries to collect after my bankruptcy?
A: If a creditor attempts to collect a debt after your bankruptcy is discharged, the creditor would be violating the law and could be held in contempt of court. The only way a creditor can come after you following your discharge is if you neglect to list the creditor on your bankruptcy forms and fail to provide notice to said creditor of your bankruptcy.

Q:         Will my creditors object to my bankruptcy filing?
A:         Although every creditor has the right to object to a bankruptcy filing, most creditors will just write off your debt, as a result of the legal fees they may incur in trying to prove their debt should survive your filing.

Q:         What’s the value of my house and car?
A:         In order to determine if certain property will be exempt under the bankruptcy law, you need to value the property at the replacement value. This value can make the difference whether you get to keep your house or car. You should consult with a local bankruptcy attorney to find out what the maximum value of property is in your state. However, if you want to get a good idea of the market value of your property, you should look at your tax bill, which will have an accessed value.

Q: Can I file for Chapter 7 even if I make too much?
A: You may still be able to file for chapter 7 bankruptcy protection even if you make a significant amount of money. If your projected disposable income over the next five years is less than $6,000 ($100/month), you qualify under the means test exception and can file under Chapter 7.

If your disposable income falls between $6,000 and $10,000 over the next five years then you must compare your disposable income over the next five years to a percentage of your unsecured debt to determine whether any significant repayment to your creditors is possible. If your disposable income over those five years is greater than 25% of your unsecured, non-priority debts, you find yourself in the same circumstances as if you’d had more than $10,000 in disposable income. If your disposable income over a five year period is less than 25% of your unsecured, non-priority debts, you “pass” the means test.

Press Release on the HAMP Program

Attorney Goldstein — Sun, 26 Jul 2009 11:23:47 +0000

The United States Treasury Deptartment published a press release in March of this year that details the new Home Affordable Modification Program (”HAMP”). I have written many blog posts with respect to this program and have personally been able to use this program to help many clients. I thought it would be a good idea to post the link on the Massachusetts Bankruptcy Blog to this Press Release: http://www.treas.gov/press/releases/reports/modification_program_guidelines.pdf

If you have any questions, you can always contact a bankrutpcy attorney in your area to discuss HAMP.