Category Archives: Bankruptcy and Mortgages

If You Are Having A Problem With Your Home Loan Payment Call a Bankruptcy Attorney

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One of the most frustrating parts of my job is over and over again talking to people that file Chapter 13 bankruptcy cases to stop a foreclosure or eviction without proper legal advice from an actual bankruptcy attorney. By the time they speak to me there is usually too much water under the bridge for me to get involved and actually obtain them relief under the Bankruptcy Code they are entitled to. I say entitled to because the Bankruptcy Code is the law. You just have to follow it and get relief. Most skeleton Chapter 13 bankruptcy petitions should never have been filed to begin with.

Five Steps To Help Prevent Getting Scammed

These five steps cannot guarantee you will not get scammed, but they will limit your risk to getting scammed, losing your house and paying too much for the services provided to you.

1. Never ever wait until the last minute to start getting information; the problem did not come up overnight, so the solution will not come overnight either….
2. Make sure the person helping you signs the documents filed with the court; not you;
3. Only do business with someone that is local in your area and not hundreds of miles away;
4. Only do business with someone you have actually met in person and they have an office you can walk into if you want;
5. Google the phone number, fax number, email address, name of person or business name you are dealing with … basically Google each and every bit of identifying information you are given . . . most likely someone has already complained about them and Google will find it for you.

The Automatic Stay is a Jewel to be Coveted, Not Abused

The automatic stay is the backbone of the bankruptcy process and is the single most important and precious jewel to be coveted, not abused. Section 362 of the Bankruptcy Code provides the very lengthy law of how the automatic stay is implemented. A general description is the automatic stay stops almost all collection activity by creditors to give the bankruptcy filer breathing room to figure things out and reorganize or discharge their debts according to the Bankruptcy Code. That includes lawsuits, repossession, foreclosure, wage garnishment, levies, phone calls, letter and on and on. The automatic stay is the most powerful tool for a Bankruptcy Attorney to help people or businesses in financial distress. There are many limits in the automatic stay and for purposes of this article I will focus on the people filing their own cases with advice from the wrong people. What I find is multiple bankruptcy petitions filed by people trying to save a house more often than not. The first petition filed for relief they receive an unlimited automatic stay. There are no timing restrictions as long as the case remains open and not dismissed. This is what everyone should want, the bankruptcy case, whether Chapter 13, Chapter 7 or some other chapter of the Bankruptcy Code, to progress properly and the bankruptcy filer is not in jeopardy of the automatic stay not being in place. The single best way to ensure this is retaining an experienced bankruptcy attorney to file your case. If your home is in jeopardy do not trust a realtor or some other non-bankruptcy professional to help you.

Danger of Multiple Bankruptcy Filings

What I see over and over again with bankruptcy filers getting bad information is there case is just dismissed for not filing the proper documents in the beginning or not timely filing the proper documents after the case is filed. What the unscrupulous realtor, attorney or company will do is tell you or give you the basic forms to file a skeleton bankruptcy petition to obtain the automatic stay. That includes the voluntary petition, statement of social security number, creditor matrix and most likely an application to pay the $310 court filing fee in payments. The really horrible people will not even tell you about the application to pay the court filing fee in payments and make you waste the entire $310 even though they know the case will just be dismissed. They know the case will be dismissed because the forms described above are all they are going to help you with. That is it. You will have 14 days from when the court enters an order for you to file the rest of the documents to actually complete the petition. So the bankruptcy filer is now representing themselves and has only filed the basic forms to get the case started and does not know what to do next…… The bankruptcy filer will have paid whatever the unscrupulous person charge, usually well over a thousand dollars or more, plus the court filing fee of $310 and the Chapter 13 bankruptcy case is dismissed usually within three weeks.

If your first case is dismissed for some reason and you file a second case within a year you only get a 30 days automatic stay unless the stay is extended within that 30 days. There is no guarantee the court will extend the automatic stay and if a creditor objects to the extension it is even less likely the automatic stay will be extended. The third case filed within a year gets absolutely no automatic stay unless the automatic stay is imposed. Again, there is no guarantee the court will impose the automatic stay.

Required Credit Counseling Course Completion Prior to Filing a Bankruptcy Case

Another trap that realtors and unscrupulous people do not tell the bankruptcy filer is that they must complete the credit counseling course prior to filing for bankruptcy. The credit counseling only takes a few hours to complete and should cost less than $10.00 to complete. Skeleton Chapter 13 bankruptcy petition after skeleton bankruptcy petition is filed without the bankruptcy filer completing the credit counseling course prior to the filing of the case. I am a Bankruptcy Attorney that has either filed or been involved in literally thousands of bankruptcy cases and I only know of one or two circumstances in which the court allowed someone to take the credit counseling course after the bankruptcy case was filed or waived the requirement entirely. Since 2005 BACPA changes to the Bankruptcy Code, Section 109(h)(1) requires the completion of credit counseling within the 180-day period prior to the filing of the petition. Section 109(h)(3) provides a temporary exemption from that requirement if the bankruptcy filer submits a certification that: (i) describes exigent circumstances that merit a waiver of the requirements of [section 109(h)(1)]; (ii) states that the bankruptcy filer requested credit counseling services from an approved nonprofit budget and credit counseling agency, but was unable to obtain the services referred to in [section 109(h)(1)] during the 7-day period beginning on the date on which the debtor made that request; and (iii) is satisfactory to the court. Section 109(h)(4) provides a total waiver if the Court determined, upon notice and hearing, that the debtor is unable to complete the credit counseling requirement due to incapacity, disability, or active military duty in a military combat zone. If you have in jeopardy of losing your home just complete the credit counseling course before filing the bankruptcy case and do not play around with attempting have the court give you more time or waive the requirement. It is just not worth it.

Do Not Fall For the Mortgage Litigation Scam

The mortgage litigation scam is only a ploy for criminals to get around the laws making it a criminal act to take money upfront to do a loan modification and a ploy to get around only charging you $150 as a bankruptcy petition preparer. I keep writing about this and it keeps happening. I do not know what the solution is. I try and educate people to enforce their rights and apparently they do not take my advice. Or there are just more and more of these unscrupulous people replacing the ones that go away. If you missed mortgage payments and owe thousands and thousands of dollars because you did not make the mortgage payments rarely are there issues for you to litigate. Especially if you are a consumer and this is regarding your home. We keep finding people in the Bay Area doing business with businesses in Southern California to litigate mortgage issues that appear to be purely scams. If you are litigating a mortgage problem that is legitimate you should not be directed to file a skeleton bankruptcy petition that you sign and file yourself. That makes no sense. When an attorney takes your money to do something they are supposed to sign and file the documents on your behalf because they are representing you and take on the liability for their work. That is how it is supposed to work. Also, why do business with someone that is hundreds of miles away that will most likely never give you your money back when you figure out it was a scam? Are you going to sue them for the $1,000 – $4,000 you gave them already? I seriously doubt it and I have yet to see it.

Improper Estate Planning Leads to Sale of Properties in Bankruptcy

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If you have properties you are trying protect either for estate planning purposes or for purposes of filing bankruptcy the most important lesson is to plan properly. It is always best to obtain the advice of an experienced professional like an estate planning attorney or a bankruptcy attorney to ensure you do not lose the very property you are trying to protect.

One family learned this lesson the hard way. In Oklahoma, Mr. and Mrs. Gragg transferred title to their three properties to themselves and their two daughters (Angela Harrison and Melody Lavender) via quitclaim deeds so that each of them had a 25% interest in the properties as joint tenants with the right to survivorship. They did this for estate planning purposes. Only two of the properties were at issue in this case. Both of the properties were paid in full. Neither of their daughters had made any payments towards to the house and the Graggs received all the rent and paid the corresponding taxes and used the deductions on their tax returns. Ms. Harrison filed for Chapter 7 bankruptcy protection. (In re Angela Michelle Edmound Harrison, Case No. 11-13580). Ms. Harrison listed her 25% interest in the properties in the petition schedules with footnotes indicating that her and her sister were added to the title of the properties for their parent’s estate planning purposes only. Harrison claimed she did not have any ownership or control over the properties. The total market value for both of the properties in question is approximately $170,000 to $180,000. The total creditor claims filed in the case was approximately $35,000. The Chapter 7 trustee in the case moved the court to sell the two properties for the benefit of Ms. Harrison’s creditors even though there were three other people on title to the properties that did not file bankruptcy. The trustee proposed to sell the both properties because the properties could not be properly partitioned and sold. The trustee is proposing to sell both properties, give the Graggs and Ms. Lavendar their 75% of the proceeds and pay Ms. Harrison’s creditors in the bankruptcy case with Ms. Harrison’s 25% of the proceeds. The Graggs objected to this sale and argued that Ms. Harrison did not have any recognizable interest in the property and the trustee did not have the right to sell the properties.

The judge in this case concluded that Oklahoma law controls and under Oklahoma law, a quitclaim deed is sufficient to provide notice of the claim to title in the property. If the deed itself does not convey what the original parties intended to convey, the law allows the parties to show what the original intent was. Whether that intent should be binding on an innocent third party buyer is the big question in this case. Once a bankruptcy petition is filed the trustee steps into the shoes of a bona fide purchaser of the property. Based upon the deeds themselves, nothing provides notice to the bona fide purchaser that the deed was only for estate planning purposes. The deeds only show that each party receives 25% interest in the properties as joint tenants with the right of survivorship. Nothing puts the bona fide purchaser on notice that the actual circumstances are different than what is listed on the deed. The Graggs also argued that since they paid for all expenses and taxes related to the property their daughters only hold bare legal title and that Ms. Hamilton’s interest is subject to a resulting trust in favor of the Graggs. The trustee does not dispute this. The court indicated that even if there was a resulting trust Oklahoma law mandated that express or implied trusts do not defeat the title of a bona fide purchaser of real property.

The Graggs lost their properties in bankruptcy even though they did not file bankruptcy themselves. One issue not discussed in the case is that the Graggs could have purchased the bankruptcy estate’s interest in the two properties instead of both properties being sold. As long as the bankruptcy estate receives the same value as if the properties were sold. It is unclear whether Harrison’s bankruptcy attorneys attempted this or if it was even financially possible for the Graggs to do. Even though the Graggs received the full value of their interest in the properties minus Ms. Harrison’s 25% share the Graggs no longer have the rental properties and lost a chunk of their income stream. This is all because they used the wrong estate planning tool. If they had an attorney draw up a revocable living trust naming their daughters as beneficiaries and including a spendthrift provision in their trust the scenario could have played out differently.

What Happens If My House Is Foreclosed On Before Filing Bankruptcy But Recording of the Trustee’s Deed Is After I File Bankruptcy?

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If you are trying to save your house from foreclosure the best way to avoid any confusion is to file for bankruptcy as soon as possible before your trustee sale date. Once your bankruptcy case is filed there is an automatic stay in place to prevent the sale of your home. If the trustee sale still goes through, the sale will be voided as it is in violation of the automatic stay.

What happens when you filed your bankruptcy case after the trustee sale was conducted but before the trustee’s deed is recorded with the county? Pursuant to California Civil Code Section 2924h(c), “…the trustee’s sale shall be deemed final upon the acceptance of the last and highest bid, and shall be deemed perfected as of 8 a.m. on the actual date of sale if the trustee’s deed is recorded within 15 calendar days after the sale…”

The courts in California are divided over the interpretation of this issue. One court in the Northern District of California indicated that if the bankruptcy case was filed after the trustee’s sale but before the recording of the trustee’s deed, the recording of the trustee’s deed is not a violation of the automatic stay and the secured creditors can proceed, making the foreclosure final. In Re Garner, 208 B.R. 698 (Bankr. N.D. Cal. 1997). In the Garner case, Minnie Bee Garner defaulted on her mortgage and her home was foreclosed on March 11, 1997. She filed for Chapter 13 bankruptcy protection on March 12, 1997. The foreclosure sale deed was issued to the third party purchaser on March 13, 1997 and the third party purchaser recorded the deed with the county on March 18, 1997. The secured creditor’s bankruptcy attorney filed a motion for relief from stay and the court granted it and held that as long as the deed was recorded within 15 days of the sale, issuing the deed did not violate the automatic stay. Therefore, the third party purchaser’s interest in the property was not avoided by the filing of Ms. Garner’s bankruptcy case.

A more recent case in the Central District of California held differently than Garner above. In In re: Gonzalez, Case No. 6:11-BK-15665-MW (C.D. Cal. 2011), there was a foreclosure sale of Mr. Gonzalez’s property on February 22, 2011. Mr. Gonzalez filed for bankruptcy on the same day. The exact time of the final bid is uncertain but for purposes of the case the exact time and whether the foreclosure sale went through before or after Mr. Gonzalez filed for bankruptcy did not matter. The deed was recorded with the county recorder’s office on March 2, 2011. The judge in this case held that at the time the bankruptcy petition was filed Mr. Gonzalez still held title to the property because the deed was not recorded yet. The subsequent filing of the deed after the bankruptcy petition was filed violated the automatic stay and therefore the recorded deed is void. The judge goes on to say that the provision of the California Civil Code Section 2924h that deems the sale to be final as of 8 a.m. on the actual date of sale does not matter because the deed filed with the county was void, and execution of a voided deed is a void act and does not create or perfect title. Upon appeal of this decision to the District Court for the Central District of California the Bankruptcy Court judge’s ruling was reversed. Like in Garner, the recording of the deed of trust was not a violation of the automatic stay.

This is a perfect example of similar facts but different outcomes even though they are all from the state of California. Maybe legislation will resolve this issue in a future time so there is no more confusion. As of right now if you have any issues you should consult a bankruptcy lawyer. The best way to avoid this issue is to make sure your bankruptcy case is filed at least a day before your trustee sale date. So that is what happens if your house is foreclosed on before filing bankruptcy and the recording of the trustee’s deed is after you file bankruptcy.

Can I Modify My Mortgage in Bankruptcy?

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One of the most frequently asked questions during my consultations with clients is “Can I modify my mortgage in bankruptcy?”  This question is very reasonable given that most of our clients own houses with mortgages that exceed what their house is worth.  The answer depends on the circumstances.

As discussed in my previous articles, one of the major benefits of filing a Chapter 13 bankruptcy is the ability to get rid of junior liens recorded against a house if the senior lien is underwater.  Getting rid of junior liens has helped a lot of homeowners keep their homes.  However, sometimes filing bankruptcy and getting rid of a second mortgage still not enough to help some homeowners because their house is heavily underwater.  Consider the following example:  Your house is currently worth $180,000, first mortgage is $300,000 and there is a home equity line of credit for $150,000.  Yes, it is a huge advantage for a homeowner to get rid of the $150,000 home equity line in the Chapter 13 bankruptcy, but even without the $150,000 equity line of credit, the house is still underwater about $120,000.

Can anything be done about this?  Can the first mortgage be modified in a Chapter 13 bankruptcy case?  The ability to modify the first mortgage depends on whether the house is considered a primary residence or an investment property.  Pursuant to 11 U.S.C. §1322(b)(2), a Chapter 13 plan may “modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence…” This means that homeowners may modify their mortgages in a Chapter 13 bankruptcy case as long as the mortgage is not for their primary residence.  This is unfortunate since that is precisely what most homeowners need right now – the ability to modify the first mortgage of their primary residence.  There are currently no laws in place that would allow the modification of the first mortgage on a primary residence, but we can always hope that Congress will enact some laws in the future that will help homeowners with their underwater homes.

On a more positive note, 11 U.S.C. §1322(b)(2) of Bankruptcy Code indicates that mortgages on an investment property can be modified.  In the example above, the first mortgage of $300,000 can be decreased in a Chapter 13 bankruptcy case to the fair market value of the home: $180,000.  The only catch is that the homeowner would have to pay the entire $180,000 in the Chapter 13 plan in order to take advantage of the modification.  Chapter 13 plan cannot be stretched to more than 5 years (60 months).  Therefore, assuming a 5-year Chapter 13 plan, the minimum Chapter 13 monthly payment would need to be at least $3,000 ($180,000 / 60).  In some jurisdictions you can propose to pay interest only to the mortgage company and then make a balloon payment during the last six months of the chapter 13 plan.  Please keep in mind that this is a very simplistic calculation geared more towards understanding the concept rather than the actual calculation.  There is normally interest and other fees that would be added to this Chapter 13 monthly payment plan.  The ability to modify mortgages for investment property is unfortunately seldom used mainly due to the fact that homeowners would have to pay for the entire modified amount in their Chapter 13 plans under most circumstances.  Modifying a mortgage for an investment property would be great for people who own investment properties in areas with very depressed home values.