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I have discussed the many second mortgages that can be removed or stripped off clients’ property in a Chapter 13 bankruptcy due to the low home values in Florida. Today, I’d like to discuss other possibilities to remove a second mortgage that we are seeing. Today for instance, I received a call from a client who filed a Chapter 7 with us awhile back. She now has received approval for a HAMP waiver of her second mortgage or home equity line of credit. A complete waiver, paid in full. She also has completed a modification under HAMP for her first mortgage. Now the home is affordable and it makes sense for her to keep it. Chase was the servicer this client was working with so it may be worth the time to continue to deal with large servicers to obtain these results.

We also are seeing clients being approached with offers to satisfy their second mortgages in full for about 10 cents on the dollar (i.e. $6,000 lump sum payment to satisfy a $60,000 2nd mortgage). Usually this happens after we file a Chapter 13 threatening to strip the second mortgage, but sometimes it may come out of the blue. For a client who qualifies for a Chapter 7, they then have the option of converting to a Chapter 7 to discharge other unsecured debt and not remaining in a lengthy 3-5 year Chapter 13 Plan. Another option is that the client could simply dismiss the Chapter 13 voluntarily if they have no other debt and are current in their first mortgage or able to obtain a modification.

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exempt-full.jpgBankruptcy clients who are new to Florida come to our office complaining about what I call the Exemptions Calculus Problem. Learning calculus seems simpler. Below are some useful sites and a brief explanation as to how exemptions work.

First, exemptions in bankruptcy are important because they decide what you get to keep in a bankruptcy. In Florida, we have very strong homestead exemptions and retirement asset exemptions for an IRA, 401k, 403(b) or annuities. Not so much for personal property unless you are surrendering your home and can claim a $4,000 wildcard exemption in addition to a $1,000 exemption. Vehicles are allotted a $1,000 equity exemption. Anything more, you have to pay to keep or give up.

However, the rules vary dramatically when you have lived in Florida for less than two years. Then we either use the state’s exemption where you moved from or the federal exemptions. Ironically, you cannot use the federal exemptions when you have lived here for two years or more, because Florida has opted out of the federal exemptions. Federal exemptions provide a very generous personal property exemption.

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underwater mortgage.jpgHave you been considering walking away from your house payments and mortgage? According to a recent CNN article, many homeowners are getting ruthless and voluntarily choosing to walk away. We are seeing this more and more among our foreclosure defense and short sale clients. Sometimes it is better to take the credit hit and save money on huge mortgage payments on an underwater asset. Home values have continued to slide another 11% in Florida in February when compared to the same month in 2010. CBS MoneyWatch reports that 47% of Florida homeowners are underwater.

Fannie Mae reports in a recent survey that the number of homeowners who would even consider walking away has increased from 15% to 27% this year. This is despite Fannie Mae’s threat to withhold Fannie Mae backed financing for strategic defaulters that it made over a year ago.

So what should you consider before you make such a decision? Well, first of all, if you have a good job, assets and a strong credit report, you can be a target for a deficiency lawsuit later down the road as Florida is a “recourse” state. Banks and other owners of mortgage debt have up to five years to pursue you to collect the unpaid balance. The question is will they? If you look good to them on paper, it is more likely you will be sued for a deficiency. If this is the case, or you think your finances will pick up over the next few years, you may want to consider a short sale to at least try to open negotiations for a full or partial deficiency waiver. Alternatively, many clients elect to file bankruptcy now while they qualify to order to obtain closure and gain the certain knowledge that they cannot be sued later.
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In an article recently about shedding second mortgages, I am reminded that many people still do not realize that they can often strip their second mortgage forever in a Chapter 13 Bankruptcy. Although this article addresses homeowners in California, the same is true for our Florida clients.

The key is that your bankruptcy attorney has to show that your home is worth less in today’s market than the balance of your first mortgage. You do not have to be behind in your payments. You do not need the permission of the second mortgage company. Your attorney simply files a motion with the court to determine secured status, attaches exhibits of valuation (which can vary from the most recent tax assessment, a BPO, an appraisal or even comps), and waits to see if the mortgage company objects. Often, they do not bother or they consent. If they do fight it, the court will set an evidentiary hearing to determine the value if the bank brings evidence that the value is higher. Then you get into the dueling appraisal war. None of our cases have gotten that far and we’ve probably stripped off 50 2nd mortgages in the last couple years.

This is one way to drop your principal balance if the banks won’t agree. It may be the only way to save an underwater home and get back to paying its real value. It doesn’t matter what the second mortgage was used for, whether it was an 80/20 loan, or used to fund start up costs for a business, or payoff credit card debt or cars.

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The Eleventh Circuit Court of Appeals which governs the State of Florida, recently ruled on May 17, 2011 in the case of Myers v. TooJay’s Management Corp. that private employers can legally deny employment to applicants if they filed for bankruptcy. In doing so, our Circuit is now consistent with similar rulings in the 3rd and 5th Circuits.

However, anyone who is trying to decide whether to file bankruptcy when they are job hunting should keep in mind that prospective employers will pull credit reports. Many employers will rescind offers of employment or refuse to hire a person merely because of a bad payment history. Any delinquent payments could equally affect an employment decision. Refusal to hire someone due to his or her credit history is not by itself unlawful (there may be a limitation as to whether or not a credit report may be pulled if the prospect has not signed an authorization to do so).

In fact, some employers would prefer that a prospective employee has discharged their debts. Many employers would rather not deal with creditors calling its employees during work hours on the job and don’t want the administrative headaches associated with processing wage garnishments. These employers would rather hire someone who is debt-free, instead of someone who has debt problems.

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imagesCACZWJSW.jpgElusive principal reductions are hard to come by, but we recently scored a very big win on behalf of one of our prior foreclosure clients turned Chapter 13 client. This week Ocwen agreed to a reduction in principal from $130,000 to $49,000 at 2.625% interest. This family’s principal and interest payment dropped to $224. Escrow is anticipated at another $200 for taxes and insurance.

This Bartow, Polk County, Florida family had lost their employment in 2008. By the time they obtained new employment nearly two years had passed and a foreclosure lawsuit was filed by MERS as nominee for Home 123 Corporation in 2008. A HAMP mod was denied during the foreclosure process. Prior to a foreclosure judgment being entered, the family filed a Chapter 13 in a final effort to keep their home. One of the problems was that the arrearage was $31,000 all of which had to be paid in the five year Chapter 13 plan. Moreover the home was valued now at $50,000 per the most recent tax assessment while $130,000 was owed on the home on a first mortgage. In bankruptcy, we as debtor’s counsel filed an objection to the Proof of Claim on the basis that proper documentation was not filed. Missing endorsements demonstrated a lack of standing on behalf of the mortgage company, among other problems.

A couple weeks before trial, we arranged a conciliation conference with opposing counsel and their client. Our clients were again considered for a HAMP modification which was denied a second time. We offered a new amortizing mortgage of $50,000 at 30 years at 5% interest. Ocwen came forward with an independent modification of something even better: $49,000 at 2.625 %. Payment $224 plus escrow. Hard to beat. Clients jumped at the offer needless to say.

To give credit where credit is due, I have no idea how much of this was because of Ocwen or because of our stellar legal wrangling 🙂 I have heard of Ocwen reducing principal elsewhere in the nation, but have seen no reports locally. In an article in DSNews.com a site for those in the mortgage default servicing industry, Ocwen has explained in their experience negative equity increases the likelihood of a re-default 1.5 to 2 times and that approximately 15 percent of all Ocwen loan modification involve some element of principal reduction.
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Fico 2.bmpFico 1.bmpA lot of our clients in the Tampa Bay area have questions regarding how exactly their credit score will be impacted by a short sale, foreclosure, or a bankruptcy.

A recent article by FICO, Banking Analytics Blog, researched these very questions.

The FICO study focused on three sample consumers with credit scores of 680, 720 and 780. As shown by the charts above, the answer depends a lot on what the existing credit score is. The higher your score is, the longer it appears to fully recover. However, after 18 months of otherwise good credit, this impact may be minimized.

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house on tide.jpgIn Florida, our Tampa Bay area homeowners are faced with a dilemma whether to claim the homestead exemption for their underwater homes. Historically, Florida homeowners have been allowed to keep or exempt $1,000 of personal property in a Chapter 7 bankruptcy. This isn’t much, and many homeowners had to pay the bankruptcy trustee to keep anything in excess of $1,000 per debtor. However, in the past few years, the Florida legislature passed Florida Statute 222.25(4) what is referred to as the “wildcard” exemption which allows an additional $4,000 exemption for personal property when the homeowner is not claiming the homestead exemption. Florida judges have determined that the exemptions can be stacked and now homeowners who do not claim the homestead exemption can keep up to $5,000 in personal property.

This year, the Florida Supreme Court in Osbourne v. Dumoulin, No. SC09-751 ruled that a homeowner can claim the wildcard exemption even though they are keeping their home when it has no equity. Some judges were already ruling in this manner. As a result, many attorneys began to claim the $4,000 wildcard exemption and avoided claiming the home as exempt. Trustees were not interested in the home because it had no equity so there was no need to claim the homestead exemption.

Seeing the profit potential, some companies have begun to contact the Chapter 7 trustees in the Tampa Bay area and offering to buy the bankruptcy estate’s interest in the homes where no homestead exemption is claimed. Their goal is for the approximate $2,000 that they pay the trustee, the real estate firm will then put the house up for a short sale where they make a few bucks, and charge the homeowner rent in the meantime. The homeowner gets blindsided when they intended to keep the home all along.

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extracashpic.jpgIn a new incentive program beginning in late 2010, Chase is purportly offering $10,000 to $20,000 to homeowners who take the effort to short sale their property. The offer includes a waiver of any deficiency balance. But it only applies to loans actually owned by Chase, not just serviced by Chase. An article in the St. Pete Times today discusses the program in more depth. Chase is apparently providing approvals in approximately 35 to 40 days after an offer is made, while most short sales take at least six months to conclude.

This is opposite of a growing trend of banks and servicers refusing to grant deficiency waivers.

Many loans are actually owned by Freddie Mac or Fannie Mae now though. To check if your loan is owned by Fannie Mae or Freddie Mac, go to the Freddie look-up site and Fannie look-up site which provide an instant answer. No guarantees that the sites are accurate although in our experience they usually are accurate (even though the loan documentation may still be up for challenge do to failures and inconsistencies in the paperwork).

One other way to possibly see who purports to own and service your loan is the MERS look up site.

So if your servicer is Chase and you are unable to continue making your house payments and a modification seems out of reach or doesn’t make sense, use the look up sites above to try and identify if Chase is only the servicer, or if they are also the owner of your loan. You can also call Chase directly and ask if Chase owns your loan or if they are merely servicing it for an investor. Ask who the investor is if possible. The more knowledgeable you are, the more you will know what options are available to you.

There are other more exact methods of determing the owner of your loan as well.
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