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mortgage-crisis.jpgThe ordinary household is drowning in mortgage debt. Sure, some homeowners were reckless, but most were not. Regardless of fault however until the mortgage crisis is fixed and our unemployment is cut in half, our country’s households will continue their downfall. This Thursday, President Obama is to announce some sort of plan to reduce unemployment and provide solutions to our mortgage crisis.

The New York Times editorial recently addressed NACBA’s Principal Paydown Plan. I urge everyone to read this editiorial and contact your representatives or the Whitehouse to support this plan which would amend the bankruptcy code to allow mortgage payments in a Chapter 13 Plan to go directly to principal thereby reducing or eliminating the underwater portion.

New approaches are necessary. HAMP has probably caused more foreclosures than it helped because of the poor implementation by the banks and mortgage servicers. For instance, I can’t count the number of homeowners who have said that their mortgage company told them they had to be three months behind before a modification could be discussed, only to call three months later and hear that modifications are only available for borrowers who are current. This doesn’t even count the homeowners who have given up after submitting their paperwork umpteen times. Or those on endless trials only to be told they don’t qualify and now owe $30,000 back payments by Friday. Oh and they can’t get a loan to catch up the arrears because their credit has been dinged by the servicer who failed to explain that a mortgage modification would destroy their credit.
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debt downgrade.jpgLet’s put into perspective the recent S&P debt downgrade of the United States.

U.S. Tax Revenue: $2,170,000,000,000 Fed. Budget: $3,820,000,000,000 New Debt: $1,650,000,000,000 National Debt: $14,271,000,000,000 Recent Budget Cut: $38,500,000,000

Now let’s remove 8 zeros and compare this to an ordinary household:

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creditcards.bmpAll this talk about a foreclosure plaintiff needing to have proper standing, chain of title and assignment records reminds us that the same is required, but often overlooked, in credit card lawsuits.

In Florida, debt collectors bringing lawsuits for unpaid credit card balances are required pursuant to Florida Statute Section 559.715 to show that any assignment of consumer debts is done with “written notice of such assignment within 30 days after the assignment”. If the creditor cannot produce evidence of the notice, the case should be dismissed. See LVNV Funding, LLC v. Harris (Fla. Miami Dade Cty. Ct. June 24, 2009). Also the courts regularly require documentation of the assignment by an authorized representative of the original creditor before a third party is allowed to obtain a judgment against the consumer.

Increasingly, evidence has appeared that shows debt buyers do not actually own the debt they are suing to recover. Large portfolios of accounts are divided and subdivided and sold to multiple buyers. Sometimes the debt buyer fails to pay in full for the accounts, and the right to collect is returned to the original creditor. More layers of complexity are added if the debt was pooled as part of a securitization. The debt collector will rarely reveal the existence of the trust even though it is the true owner of the debt.
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forkinroad.bmpOur Florida clients sometimes ask me why they cannot strip off a second mortgage in a Chapter 7 like often done in a Chapter 13 bankruptcy nowadays. The limitation can be found in the United States Supreme Court’s decision in Dewsnup v. Timm, 502 U.S. 410, 417 (1992). The Court noted a distinction between the in rem and in personam claims created by a lien on a debtor’s property. The Court held that a Chapter 7 discharge of personal obligation leaves the in rem obligation intact against the property.

Even though a client might qualify to file a Chapter 7, sometimes the extra remedies available in a Chapter 13 make the more lengthy plan worthwhile. Under 11 U.S.C. 1322 a wholly unsecured second mortgage or HELOC can be stripped off a homestead. However, one other key difference exists between a Chapter 7 and 13. If a debtor retains a home in a Chapter 13, they are still personally liable for the first mortgage even if the second mortgage is stripped. Therefore, a Chapter 7 may still be best if the home is worth much less than the amount owed on a first mortgage and the debtor is uncertain about keeping the home long term.

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nacba.jpgNACBA (National Association of Consumer Bankruptcy Attorneys) responded this weekend to the government’s latest approach to the foreclosure crisis with what I call the Principal Paydown Plan.

Rather than turn us into a nation of renters under the recent suggestion that Freddie and Fannie rent their foreclosed properties or sell them as rentals, NACBA suggests again that a Chapter 13 bankruptcy can be modified to help families avoid foreclosure on massively underwater property. Without more focus on prevention, our housing market is certainly facing additional downturns.

The Principal Paydown Plan would require the reduction of interest on a primary mortgage to 0% during a Chapter 13 Plan thereby relegating the entire payment to principal (plus escrow). At the end of the bankruptcy, the debtor would have paid down their mortgage in many cases to the approximate fair market value of the property helping to slow the foreclosure numbers for those homeowners who would otherwise strategically default believing that their home value will take 10 or more years to recover.

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short sale.jpgWhen listing and selling a home in a short sale, homeowners should consider including language to limit recovery of any unpaid amounts by the mortgage company (known as the deficiency balance). In Florida, we recommend this limitation be placed in the Purchase and Sale Contract. This way when the lender/bank agrees to the short sale, they are in essence agreeing to the terms of the contract between the buyer and seller. It is no different than if you wrote in “as-is” to limit your liability as to the condition of the property. I’d recommend something like the following be inserted into the contract:

The sale of this property is contingent upon the lender’s acceptance of all sale/purchase contract terms including a complete discharge/forgiveness of debt of any remaining deficiency amounts on the loan. Accordingly, the bank’s acceptance of this short sale agreement will constitute payment in full of both the first and second mortgage notes on this property and represent a waiver of any future lender right to pursue an action and/or judgment against the owners/borrowers to recover any deficiency amounts arising from this short sale transaction.

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closed.bmpThe special foreclosure courts in HIllsborough county are shutting down the end of this week. Does this mean the foreclosure crisis is finally at an end? Not exactly.

In 2010, the Florida legislature approved legislative funding to the Florida court system to help eliminate the backlog in foreclosure cases. Filing fees shot up from approximately $300 to $900 – $1900 for foreclosure plaintiffs. A budget surplus of $100 million in the court trust fund existed. In Hillsborough County alone, this money was used to hire and assign six judges solely to foreclosure cases. Their goal was to eliminate 62% of the backlog which existed last year. I’m not positive, but this goal may have been met, I know it was on target a few months ago. However, the legal challenges to the cases have increased dramatically, and foreclosures are slowing. Due in large part to the defective affidavit backlash, foreclosure filings dropped off a cliff early last fall and have remained low to date. The $100 million surplus has turned into a $72.3 million deficit. In May, Governor Scott had to approve last minute funding to keep our courts open.

Today, I found out that In three days time, these six judges are going to have to find other work as the foreclosure special divisions in Hillsborough County are shutting down because funding was pulled.

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HOA.jpgIt has been my practice to advise clients to remain current on their Homeowners Association dues (HOA) even though they are behind or in foreclosure on their first mortgage. Today, an article appeared in the St. Pete Times describing a local company Prop. Inc. and its purchase of 71 properties in Hillborough County, Florida in the past eight months. The company appears to be run by several ex-cons although what they are doing is perfectly legal.

Homeowners Associations have become much more aggressive in the past few months. We have seen HOAs file motions to intervene in some of our pending foreclosure defense cases in the Tampa Bay area and then move to set the action for trial even when the homeowner and the bank do not want to go to trial. Perhaps a trial modification or forbearance agreement is even in place. Attorney

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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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