Archive for 2007

When Your Mortgage Company Files Bankruptcy

The foreclosure crisis sweeping the nation is also sending some mortgage companies into financial ruin, leaving many folks caught in the middle. Last week the Federal Trade Commission issued a new publication giving consumers advice on what to do if their mortgage company files bankruptcy.

The PDF of “How to Manage Your Mortgage If Your Lender Closes or Files for Bankruptcy” can be found here. There is also information how to obtain the publication by mail.

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The US Trustee v. Countrywide

It has been reported that the US Trustee has subpoened records from Countrywide Financial, one the largest mortgage lenders – if not the largest. According to CNNMoney.com (and a New York Times report), in two separate bankruptcy cases in Southern Florida, the debtors

objected to Countrywide’s claims of what was owed on their home loans. One couple contended that their mortgage payments were current, while Countrywide claimed $2,400 in overdue mortgage payments in that case.

Countrywide has not commented on the litigation. Yet.

Read more here.

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The News Today…

If the Federal Reserve cuts rates, mortgage payments should decline, right? Perhaps not.

Today’s Boston Globe also reports on foreclosure rescue scams.

And finally, may Bostonians have noticed the number of new condominium construction projects that have sprung up over the last few years…and the building boom continues. But if you build it, the buyers will not necessarily come. Today’s Boston Herald reports that some new condominium projects are finding that it is easier to rent the units rather than sell them.

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A Thanksgiving Message for My Clients and others…

I imagine it is very hard to think of Thanksgiving when foreclosures in Massachusetts continue to rise. I think I am safe saying that it’s going to be hard for me to think of it, since I’ll be likely thinking about the work I am not getting done while I am visiting family. This is also compounded by the fact that my mind is still reeling from a statistic I heard this afternoon from a prominent creditor’s rights attorney.

At a brown-bag lunch seminar on foreclosures, the attorney told the crowd of debtor and creditor attorneys that in 2008 it is expected that 2 million mortgages will adjust up. In other words, the New Year is not going to bring an end to the housing mess that was brought on by the irrational exuberance (to steal a phrase) in housing. Things are not going to get easier for the people I represent.

Even though people were wishing each other Happy Thanksgiving, many were in a mad rush to get everything done they needed to get done in anticipation of the holiday. As I was sitting at my desk this evening, trying to clean it off before tomorrow – when I know I’ll have more work that I know I need to get done before, like so very many, I hit the road – I received a phone call.

It was a relative of a client who I met last week to discuss options. This client was very nervous – as many are – when they come to meet me. No one really plans on seeing a bankruptcy attorney in their life. You’re never going to open a high school yearbook and under a class picture it reads: “Future plans: I’m going to file bankruptcy!”

At some point during the meeting, his nervousness subsided, and he started to relax and tell me his side of things.

I spent about and hour and a half learning about his history, how the debt grew and grew. And we discussed what we could do to get through bankruptcy; to let him get on with his life. As the meeting went on, he began to smile more. When it was over and as I was walking him out, I asked him if he felt better than he did when he came in. He admitted that he did. I smiled back and said simply “that’s part of my job.” We parted ways, and shortly after that, I headed home.

The relative called to tell me that he died unexpectedly over the weekend. I was taken-aback bit. No, more accurately, I was stunned. The relative had called, knowing that he had come to see me, and just wanted to know if there was anything they needed to know or do. I told them no, not now, but that they could call if they ever had any questions or concerns and perhaps I could help. Then, after I offered my condolences again, there was a long awkward pause.

All day I have been wishing people a “Happy Thanksgiving.” All day I have been either talking to people who deal with people in financial crisis, learning about how to help people in a financial crisis, or talking to people in financial crisis. Yet, during that pause, all I could do was think ‘how can I wish this person a Happy Thanksgiving?’ There was no easy answer to the question, and honestly, I am not sure what I said.

Some of us will have a Happy Thanksgiving, and some of us will not. And the more I think of it, some of them are my clients. It will not always be that way. We will all, at some point, be forced to face loss and pain. I can tell you that some holidays will be happier than others. This is life, and there’s nothing that this bankruptcy lawyer can do to change that. But as we head into Thursday, I urge you all to look around you and be thankful for what you do have.

Chances are, you do have at least one thing to be thankful for: a tomorrow.

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Deutsche Bank Gets a Kick

On October 31, a US District Court judge sitting in the Northern District of Ohio issued a decision involving Deutsche Bank’s attempts to foreclosure on a number of properties in Ohio. The bank claimed that the federal court had jurisdiction because there was diversity of the parties: the parties resided or had a principal place of business in different states, and the amount in controversy exceeds $75,000. The bank is not incorporated nor has a principal place of business in Ohio. The bank was not the original lender, but alleged it held an assignment of the mortgage.

On October 10, the judge ordered the bank to produce a copy of the assignment: “Since the Plaintiff bears the burden of establishing federal diversity jurisdiction as well as standing to bring an action, Plaintiff is ordered by October 17, 2007, to file a copy of these executed Assignments demonstrating Plaintiff was the holder and owner of the Note and Mortgage as of the date the Complaint was filed, or the Court will dismiss the Complaint.”

An assignment was filed on October 10. The document stated that the bank had been assigned the mortgage on August 13, 2007, and purportedly recorded on August 21, 2007.

The complaint was filed on July 27, 2007. In dismissing the foreclosure cases,

This Court acknowledges the right of banks holding valid mortgages, to receive timely payments. And, if they do not receive timely payments, banks have the right to properly file actions on the defaulted notes – seeking foreclosure on the property securing the notes. Yet, this Court possesses the independent obligations to preserve the judicial integrity of the federal court and to jealously guard federal jurisdiction. Neither the fluidity of the secondary mortgage market, nor monetary or economic considerations of the parties, nor the convenience of the litigants supersedes those obligations.

Read the case here, and please be sure you read footnote no. 3 on pages 5-6. It’s priceless.

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The Two Edge’s of BAPCPA’s Sword

There’s been a lot of debate over how unfair BAPCPA (the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005) is on consumer debtors. Some of that debate can actually be found on this site. There have been aspects of BAPCPA that I have called silly, and some that we have to question the logic on. Recently, the US Bankruptcy Court in New Hampshire issued a ruling that appears to correctly interpret the post-BAPCPA Bankruptcy Code, but also shows how absurd the amendments to the code may be.

Prior to BAPCPA, a Chapter 7 filing was not presumed to be an abuse of the bankruptcy code. Abuse needed to be proved by the party claiming it, and a finding of substantial abuse could lead to dismissal or conversion

Under BAPCPA, the word “substantial” disappeared, leaving only “abuse.” Also, the means test was implemented, creating an objective means to determine whether there is a presumption of abuse. If there is a presumption of abuse, the United States Trustee must file a report indicating whether the case is presumptively abusive under 11 U.S.C. Section 707(b) within 10 days of the creditor’s meeting. Within 30 days after that, the US Trustee must either file a motion to dismiss or convert the case, or a statement explaining the reasons why the US Trustee does not consider such a motion to be appropriate.

In the New Hampshire case, the US Trustee wanted to compel the debtor to produce documents as well as submit to a Rule 2004 examination (which is something like a deposition, but isn’t really the same thing – which is another subject I should write about sometime). The US Trustee argued that it did not have enough information to evaluate whether the debtor’s case was presumptively abusive. The US Trustee also argued that under Rule 9011, she had an obligation to conduct a reasonable investigation before filing a motion. Under this rule, a party can be sanctioned for filing a baseless pleading in court. In response, the debtor argued that the US Trustee’s request was overbroad and unduly burdensome.

“Both parties are right,” the court wrote “and both parties are wrong.”

(more…)

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Bad Decisions and Hard Lessons: What happens when you should know better?

Last week, the US Bankruptcy Court in the Western District of Kentucky ruled that a Chapter 7 debtor’s credit card debt was not dischargeable because the debtor used a card that should have been closed. The debtor and the plaintiff divorced in 2003 and as a part of the divorce, the parties agreed to pay their own credit card debt as well as hold each other harmless in the event of default.

The husband and wife had a joint Fleet Visa which was to be paid by the husband. He paid it in April of 2003. The debtor/wife remarried in December of that year and she changed her name. That marriage only lasted a year, but the wife again married and again changed her name.

In 2004, Fleet was bought by Bank of America and issued a new credit card on what was formerly the Fleet Visa account. The debtor used the card, and when the bills arrived, the bills were addressed to her former ex-husband and the debtor using the name she had while married to him. She never notified the bank she was divorced or that her ex-husband’s name should not be on the card.

In 2006, after some business problems and an illness, the debtor filed bankruptcy. The husband sued claiming that the debt was not dischargeable on the basis of fraud. He argued that the debtor knew that she was using a card that was in both their names.

Debtor claimed that she did not know that the husband’s name was still on the account – and that because she had so many other bills at the time, she had no idea it was a joint account. However, this explanation did not make sense since the husband’s name was on the card, and on the bill, and the bills were in a name she used two marriages ago. She also had to reactivate the account, and thus had to have known at that time it was a joint account – as well as in her former name. Even “[i]t was not done knowingly,” the court wrote, “it certainly was done with gross recklessness.”

Because debtor did not take some very simple steps to change the holder of the account, the debt is non-dischargeable, and because of the hold-harmless language of the settlement agreement, she must pay it. Based on these facts, shouldn’t the debtor have known better?

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Nasty Debt Collector, WaMu Responds, and BAPCPA

Houston-based LTD Financial Services got slapped with $1.3 million in civil penalties to settle FDCPA violation charges.

Washington Mutual issued a press release in response to the action filed by the NY Attorney General. We reported on that action earlier this week.

An astute observation on the passage of BAPCPA: “Be careful what you wish for.”

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Rumor Control: Credit Reports and What’s Dischargeable in Chapter 7

I received a call today from someone with questions about Chapter 7. I receive many calls a day, but what made this call interesting was that the caller told me that they conferred with another attorney and was told that with the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, only 50% of debt was now dischargeable in a Chapter 7. My response was “nope, not true.”

The caller also told me that according this other attorney there was no law that required a bankruptcy filing to appear on the credit report for 10 years. According to what the attorney purportedly stated: “Credit card companies want you to believe there is a federal law out there that requires it, but there is not.” My reponse was “that’s not my understanding.” Since this issue is not a primary one in my practice, it’s not something I can rattle off the tip of my tounge, like I might be able to with regard to discharge exceptions. So I decided to take a quick detour from my petition preparations and research the issue a bit further.

Let me start with the easy one: nothing in BAPCPA declared that only 50% of debt would be discharged in Chapter 7. If anyone is telling you that, they do not bankruptcy law.

The claim that there is no federal law that requires a credit card company to report a bankruptcy filing is also hogwash (I could think of another term, but this is a professional site). Title 15, Section 1681c(a)(1) of the United States Code states that credit reports may not contain information concerning “[c]ases under Title 11 or under the Bankruptcy Act that, from the date of entry of the order for relief or the date of adjudication, as the case may be, antedate the report by more than 10 years.” And there is an exception. Under 1681(b)(2) a credit report may contain information about a bankruptcy that is more than 10 years old if the report is to be used in connection with a “(1) a credit transaction involving, or which may reasonably be expected to involve, a principal amount of $150,000 or more; (2) the underwriting of life insurance involving, or which may reasonably be expected to involve, a face amount of $150,000 or more; or (3) the employment of any individual at an annual salary which equals, or which may reasonably be expected to equal $75,000, or more.”

So the bankruptcy can stay on the credit report for up to 10 years, an din come cases, even longer. If any attorney tells you otherwise, invite them to call me.

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Costly Bankruptcy Preparation Mistakes

An interesting case out of the 9th Circuit last week should serve as a reminder to Bankruptcy Attorneys to check and double check documents. It should also serve as a warning to debtors who may be inclined to avoid doing the same thing.

The case involved an $18,000 tax debt that the debtor owed to the Franchise Tax Board in California. The debtor filed a Chapter 13 bankruptcy in 1994 and completed the plan in two years. He received a discharge. The FTB did not file a proof of claim – and because they did not file a proof of claim, they did not get paid through the Chapter 13 plan. When the FTB tried to collect the debt after the bankruptcy discharge entered, the debtor brought an Adversary Proceeding arguing that FTB was violating the discharge injunction.

The debtor argued that FTB received notice of the bankruptcy. FTB did not deny that, but FTB argued that the debtor’s social security number on the notice of creditors meeting (which is sent to creditors notifying them of the meeting held under Section 341 of the Bankruptcy Code) was incorrect. In fact, the last number of the social security number was not correct.

(more…)

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