Bankruptcy Questions Answered

What You Can Learn from 2010’s Top Scams

While many people are looking forward to the new year, it’s also important to take time to look back on what we learned from 2010. So here’s a review of some of the major scams that we saw in the past year (listed on WalletPop.com) and what you can do to protect your finances from similar ones.

Protect Your Finances from Future Scams

• Mortgage Relief Scams: Scammers know that people who are feeling desperate make good targets, so times of economic distress provide scam artists with plenty of opportunities for ripping people off. Scams offering fake mortgage relief take advantage of people in danger of losing their homes by offering fake services to negotiate with lenders or change mortgage terms, and real opportunities for struggling homeowners to throw away money they can’t afford to lose. Lesson: You are the only one responsible for saving your home and/or mortgage. If you want help, you must ask for it and do some work to find the right group to provide it.
• Debt Relief & Reduction Scams: Like mortgage relief scams, debt relief scams work by charging consumers steep upfront fees for debt-reduction services that the scammer never delivers. Though new rules have strengthened consumer protections against debt settlement companies (which are sometimes little more than dolled-up scammers), many groups are apparently still finding ways to get around these rules. Lesson: Do your homework before committing to any debt relief firm. Visit the Better Business Bureau, compare fees among companies, and consider your alternatives (like credit counseling and bankruptcy). Most importantly, if something sounds too good to be true, don’t believe it.
• Robocall Scams: These scams work by contacting vast numbers of consumers with recorded telephone messages and promising some attractive service (like quick debt reduction) – naturally, for a steep price. Lesson: Getting out of debt is almost never a quick process. If someone promises a quick fix for your debt, turn the other way and run (and don’t write any checks in the meantime).
• Identity Theft Scams: Identity theft is perhaps one of the most troubling crimes of the information age – correcting the damage done by identity thieves can take hours of time and lead to anger and frustration. And identity thieves are masters at taking advantage of new technologies to get our information – emails, text messages, online buying sites and other popular media have all been used by identity thieves to lure in unsuspecting consumers. Lesson: Guard your personal information carefully. Don’t ever wire money to strangers, reply to unfamiliar emails, text sensitive information or otherwise reveal too much of your personal data.

Keep Your Money Safe in 2011

The sad truth about scams is this: there will always be a new scam out there – the nature of legislation is that it is slow and retroactive, meaning that unscrupulous individuals will always be able to outpace laws. But if you approach your everyday transactions and interactions with reasonable skepticism, you should be able to keep yourself and your money safe.

Posted in Financial Literacy, Foreclosure, Identity Theft, predatory lending, scams | Comments Off

Rescission: A Foreclosure-Fighting Tool in Peril

The Federal Reserve has proposed a troubling change that could all but eliminate one tool homeowners have to fight mortgage foreclosure, a recent post from Credit.com blog highlights. The tool is called rescission. Here’s what it is and what might happen to it.

What Is Rescission?

Rescission is a process that more or less offers homeowners a chance to get out of a mortgage if they can prove it was fraudulently or deceptively originated. Specifically:

• Deceptive & fraudulent mortgage lending: One phenomenon reported frequently during the subprime housing boom of a few years ago was lenders who allegedly lied about specific terms of mortgage loans (whether that meant concealing balloon payments, misrepresenting the nature of adjustable rate mortgages or something else), or encouraged borrowers to do so (usually by inflating their income level). Unsurprisingly, many borrowers who signed such mortgages ended up unable to make payments at some point.
• Beginning of the foreclosure process: After a few months of failing to make mortgage payments, most homeowners will receive notice from their lenders of foreclosure proceedings. Naturally, this is not pleasant for anyone and can lead to serious stress and financial trouble for affected families.
• Limited protections in Chapter 13 bankruptcy: While some homeowners are able to find relief from foreclosure proceedings in bankruptcy court, many others find that bankruptcy only addresses some of their problems – after all, the bankruptcy court cannot modify the terms of a mortgage loan.
• Rescission’s foreclosure prevention: One of the few options available to many homeowners facing foreclosure, then, has been the process of rescission, which works like this: if a homeowner provides a written statement to his lender that his loan was originated fraudulently and can prove as much in court, the court may rule to cancel the terms of the current mortgage. The borrower can then take on a different loan from a different lender to repay the balance to the original creditor.

Essentially, the process of rescission allows homeowners to trade out fraudulent mortgage loans for more affordable, honestly originated ones.

The Fed’s Proposal to Change Rescission

But, as CreditBloggers reports, the Federal Reserve has proposed a change to the rescission laws that would require mortgage borrowers to repay the entirety of their fraudulent mortgage loans and only then challenge the loan’s legality.

As many consumer advocates have pointed out, this would remove much of the foreclosure-prevention potential the current rescission process offers and would prevent most ordinary homeowners from hanging on to their houses.

To learn more about the proposed rule change and the consumer advocates fighting against it, please visit the article linked to above. To learn more about your potential for relieving your mortgage debt with rescission, contact a lawyer in your area.

Posted in Bankruptcy Law, Chapter 13 Bankruptcy, Foreclosure, Mortgage Foreclosure | Comments Off

Bureau of Consumer Financial Protection Overseer Named

The New York Times reported last week that the newly created Bureau of Consumer Financial Protection now has an overseer of enforcement. Richard Cordray, former attorney general of Ohio, was reportedly hired to the post by presidential appointee Elizabeth Warren, who is currently in charge of the bureau.

So what will Mr. Cordray’s responsibilities be in the new post? According to the Times, he’ll be focused on overseeing enforcement actions for a variety of consumer-related financial issues, including the following:

• Foreclosure fraud: Recent financial news like the robo-signing scandal and other questionable foreclosure practices would fall under Mr. Cordray’s purview, it seems. And, as sources note, he ought to be prepared to fight against such questionable bank behavior, since his position as Ohio’s AG included fighting certain kinds of foreclosure fraud.
• Abusive payday lenders: As many debt-laden Americans know, payday lenders can charge outlandish fees and interest rates and lead ordinary consumers into a crippling cycle of debt. As part of his position in the Bureau of Consumer Financial Protection, Mr. Cordray would be responsible for making sure that regulations and laws for payday lenders are sufficient, followed and enforced.
• Questionable bank behavior: On a grander scale, Cordray’s responsibilities may reach as far as making sure larger financial entities like banks and other lenders follow laws designed to keep them from engaging in the sort of risky, fast-and-loose behavior that led to the crash of the housing market and touched off the current recession.

Cordray’s Past Consumer Protection Actions

So how did Cordray get the job? It seems his résumé includes a variety of consumer-friendly moves, including:

• Lawsuits against big financial firms: The Times reports that Cordray managed to squeeze $2 billion from major names in the finance world, including American International Group (AIG), Merril Lynch and Marsh & McLennan.
• Bold strikes at government overseers: Another notch on Cordray’s belt, the Times notes, is that he called out the Securities and Exchange Commission (SEC) for falling down on the job and thus enabling many of the abuses in the finance world that led to our current financial mess.

Role of the Consumer Financial Protection Bureau

Many consumer advocates lauded the creation of the Consumer Financial Protection Bureau, which was outlined in the financial overhaul bill passed early in Obama’s tenure as president. When it is fully up and running, the bureau, headed by former Harvard bankruptcy professor Elizabeth Warren, will be responsible for making sure consumer interests are taken into consideration when lawmakers consider regulatory changes for financial and other matters.

Posted in Bankruptcy and the Economy, Consumer Protection, Economy, Financial Literacy, Foreclosure | Comments Off

Your Life after Foreclosure

If you, like millions of other Americans, are currently in some stage of the foreclosure process, you’re probably wondering what you can expect from life after foreclosure. The bad news is that losing a home to the bank will almost certainly have a negative impact on your credit – the good news, though, is that the current foreclosure glut means that mortgage foreclosure might not be quite as bad as it used to be.

What to Expect from Credit, Jobs, Cars and More

So which areas of your life might be affected by foreclosure action? According to a recent posting from WalletPop.com, a lot.

• Your credit: As with a bankruptcy filing, a mortgage foreclosure will remain on your credit report for seven years – but the overall impact it has on your score and the way creditors view you should decrease with time. Because you likely won’t be able to open any new credit cards in the months and years directly following your foreclosure, it’s a good idea to keep up with payments on whatever cards you have now. Credit cards can play a central role in helping you rebuild your credit and thus qualifying for loans in the future.
• Your career: Though some states have outlawed pre-hiring credit checks, many states still permit it, and plenty of employers take a peek at applicants’ credit histories as part of the screening process. If you’re looking for work, it’s important to be realistic and understand that your foreclosure might prevent you from getting jobs in economic fields.
• Future purchases and loans: As mentioned above, a mortgage foreclosure will ding your credit rating in a pretty serious way, so you shouldn’t expect to qualify for a car loan or a new mortgage for a while. But that doesn’t mean you’ll be stranded on an island without any options for moving forward. The WalletPop.com post mentions one option called a “lease purchase,” wherein a person can agree to make regular rental payments to a landlord and decide, at some future point, to put those payments toward the purchase of the house.

On the Bright Side: Greater Understanding

The bright spot in all this foreclosure gloom is that, because so many Americans are currently struggling with foreclosure-related problems, more people are aware of the sorts of extenuating circumstances (like death, divorce, serious illness or injury, job loss, etc.) that can lead otherwise responsible financially individuals into mortgage foreclosure.

So, suggests the post mentioned above, don’t underestimate the power of explaining your situation to potential lenders or sellers. And, of course, don’t ever give up on rebuilding and maintaining your credit to demonstrate that you’re a good credit risk.

Posted in Foreclosure, Mortgage Foreclosure, Personal Finance, recession | Comments Off

Inside the Mind of a Bankruptcy Lawyer – Should I File and if so, Why Should I Choose Your Firm?

There are dozens of lawyers out there who offer to prepare and file bankruptcy cases.  Some work in high volume "bankruptcy mill" firms that compete on price while others compete on experience, knowledge and service.  Usually the cost differential is a few hundred dollars, but when you are considering bankruptcy, every dollar counts – so why would you want a lawyer like me as opposed to a firm that would offer to represent you for a lower price?

I could offer a glib answer like "if you needed brain surgery, would you look for the cheapest surgeon on the one with the most experience and industry recognition" but that does not really answer the question.  Perhaps it would be helpful if you could look over my shoulder as I analyze a real life situation that came before me recently.

Earlier this month an email arrived from a couple who wanted information about bankruptcy.  The wife wrote that she was a stay at home mom raising 2 children and that her husband lost his job about a year ago, and recently started back to work at a lower paying job.  Their current household income is just under $50,000.  They own a house that is now worth less than what they paid for it – the house is worth about $200,000 – the first mortgage is $210,000 and the second mortgage is $35,000.  They own one older car outright and are financing a mini-van.  They have also incurred around $25,000 of credit card debt – most of which was used trying to keep the mortgage current.

Earlier this year they fell behind on both the first and second mortgage.  The first mortgage lender started foreclosure proceedings, but suspended foreclosure and offered to consider my potential clients for a mortgage modification.  They have been making modified payments for several months but when they called the lender to ask if they had been approved for a permanent modification, the account rep told them that their modification paperwork had not been approved but that their application had been sent to another department for a reconsideration.  News of this decision had not been provided to my prospective clients – the only reason they found out was from their call.  No one from the mysterious reconsideration division was available and their multiple calls have not been returned for over 2 weeks.

They decided to contact me because they are getting the sense that the mortgage company is unlikely to approve their modification and they want to be prepared for a possible foreclosure.  What are their options? Here is what I advised them through my conversation with the wife:

First, I asked what was their desire regarding the house – was keeping the house a priority?  The wife responded that they would like to keep their house but they were not sure they could afford it given the husband's reduced salary.

I explained that Chapter 13 is the type of bankruptcy that can stop a foreclosure but that Chapter 13 would not allow us to change the amount of the monthly payments, nor would it change the total balance due on the mortgage.  Chapter 13 would allow them to "cure" their arrearage by paying that arrearage (the past due payments) over a five year period of time, along with other debts that would also be included in the Chapter 13 payment plan. However, if they were not able to afford the regular monthly payments Chapter 13 probably did not make much sense.

The only possible justification for a Chapter 13 would arise from the possibility that they could use Chapter 13 to "strip" the second mortgage and make that unsecured.  Under Chapter 13 law, a second mortgage that is wholly unsecured, meaning that the balance due the first mortgage exceeds the fair market value of the home.  If the second mortgage is wholly unsecured, we can file a motion to strip the lien, thereby making the second mortgage debt an unsecured claim in the Chapter 13.  If our Chapter 13 plan called for paying unsecured debt at 5 cents on the dollar, then Chapter 13 might be something to consider.

In this case, the wife advised me that the monthly payment due the first lender was more than what they could afford, plus she did not seem enthusiastic about signing on for a five year payment plan, so we decided to remove Chapter 13 from consideration.

We then proceeded to discuss Chapter 7.

I pointed out that Chapter 7 would allow the couple to discharge their credit card debt as well as any potential liability arising from the surrender of their home.  I felt that the real danger came from the second mortgage lender as it has been my experience that first lenders rarely pursue deficiency claims because  of the Georgia law that requires them to go to court to certify the deficiency before a judge within 30 days of the foreclosure.  Second mortgage holders, by contrast, need only file suit on the promissory note associated with their loans.  I see far more deficiency balance claims from second mortgage lenders than from first mortgage lenders.

I also noted that since the foreclosure process could take several months, one strategy here would be to remain in the house and pay nothing – nothing to either mortgage lender and nothing to the credit card lenders.  This strategy would allow my prospective clients to reduce their budget outflow dramatically for several months while they built up a small cash reserve, and then file bankruptcy in four to six months when creditors were starting to take action.  I noted that this strategy was based on economics, and that they would have to be comfortable with the moral implications of this course of action.  I also noted that this "wait until the last minute" strategy would cause significant damage to their credit in addition to the bankruptcy.  By contrast, filing a Chapter 7 when there were few or no 120 day late references would make recovery from bankruptcy a little easier.  Credit reports document payment histories and while a bankruptcy discharge will put the balances at zero, it does not delete the negative payment histories.

On the other hand, I advised the wife that if she and her husband waited to file and the husband secured a better, higher paying job, their household income might leave them with disposable income in their budget, or it might cause their household income to exceed the median income for a family of four, thereby making Chapter 7 much more difficult or impossible.  It has been my experience that when household income exceeds the median (in Georgia the current median income for a family of 4 is $68,258) by $10,000 or more, it can be very difficult to qualify for Chapter 7 under the means test.  Thus, if the husband was actively looking for employment and his target income was $80,000 or more, waiting to file Chapter 7 might not be the best idea.

The wife then asked me about the credit report issue – how long would it take for she and her husband to rebuild their credit.  I responded by saying that it my experience, a Chapter 7 debtor can expect his credit score to remain depressed for eight months to a year following the Chapter 7 discharge.  However, Chapter 7 has the positive effect of eliminating all debt and thereby causing an improvement to the debt to income ratio.  Further, individuals can only file Chapter 7 once every eight years – so from a lender's perspective a recently discharged debtor has no debt and cannot file bankruptcy for at least 8 years.

I assured the wife that I made it my practice to follow up with my clients who had received a discharge to review their credit reports three to five months after discharge.  I have found that at least half of the time, there are errors on the credit reports that artificially depress post bankruptcy credit scores and sometimes, the errors are actionable, meaning that we can collect damages from creditors for Fair Debt Collection Practices Act violations.  In a few cases I have been able to collect enough in damages to cover the attorney's fees and filing fees associated with the original bankruptcy filing!

I ended by conversation with the wife by thanking her for contacting me.  I then followed up our conversation with a brief email summarizing what we had spoken about and providing her with the "get started" link to one of my web sites.

I hope you can see that even a "simple" fact pattern can give rise to a variety of options and pratical considerations.  Consumer bankruptcy is not a "one size fits all" practice and I am able to raise all of the points that I did because I have seen a lot of different issues over the past 23 years.  If you have any questions about what have written here or if you want to discuss your personal situation, I encourage you to contact attorney Susan Blum or me by phone at 770-393-4985 or send us an email.

Posted in Chapter 13, Chapter 7, Credit, Current, Foreclosure, General consumer bankruptcy info, Georgia Bankruptcy, Lenders, Mortgage, a, and, because , choosing a bankruptcy lawyer, claims, deficiency, document, easier  , exceeds, georgia, histories, house, household, in, income, keeping, lender, median, payment, priority  , proceedings, pursue, rarely, reports, responded, started, the, wife | Comments Off

Mortgage Foreclosures & Delinquencies

In light of some mixed news about housing and foreclosure for the second quarter of this year, the outlook isn’t too rosy for the short-term future of the nation’s real estate market, a recent New York Times article notes.

Here’s a look at some of the numbers released recently by the Mortgage Bankers Association and various government organizations and what they might mean for the housing market:

• According to the MBA, the number of homes currently in some stage of foreclosure fell in the second quarter of 2010, marking the first such decline since 2006.
• Sources note that foreclosures on subprime loans may have already peaked and are likely now dropping off; however, it seems that prime loans are now in danger of default, partly because of continued high unemployment.
• Mortgages that are 90 days past due (considered to be in “serious default”) accounted for 9.11 percent of all loans in the second quarter, a drop from 9.54 percent in the first quarter of this year.
• Sources note that existing home sales in July 2010 were 26 percent lower than they were in July 2009.
• Sales of new homes, it seems, were down 32 percent in July 2010, compared to a year earlier, apparently making the month the slowest on record (with stats going back to 1963).
• As many as seven million households were behind on mortgage payments in July, according to sources (down from the high of eight million, reached about eight months ago).
• Numbers suggest that banks and lenders are starting to clear the foreclosure logjam: in July, 279,685 foreclosures were started, an increase from 225,700 in June.

Clearly, these numbers don’t exactly point at recovery in the housing market—and some analysts have reportedly predicted that as many as four million American families could lose their homes to foreclosure before the crisis eases.

And such a high rate of foreclosures could have a seriously detrimental effect on the overall economy:

• Less money, less spending: Consumers who are struggling to make mortgage payments are likely to spend less in other areas, meaning that consumer-supported economic growth may be weak.
• More foreclosures, more houses: As banks start foreclosing on homes, more vacant properties will flood an already saturated market.
• More houses, lower prices: This inundation of homes will mean that supply is far higher than demand, and could lead to further drops in housing prices.
• Lower prices, more underwater mortgages: As home values continue to decrease, more borrowers will likely find that they owe more on their homes than those properties are currently worth.

There is no clear end in sight for this cycle of foreclosure.

Additional Resources

Home Insecurity

Posted in Bankruptcy and the Economy, Economy, Foreclosure, delinquencies, housing | Comments Off

Can You Rely on a Verbal Promise that Your Foreclosure Will be Delayed?

Last month, I met several times with a potential Chapter 13 client who was facing a mortgage foreclosure.  Over the course of the past few months he has been juggling his creditors and bills trying to stay afloat and during that time he fell behind to his mortgage company by more than four months, and found himself in the foreclosure process.

This individual earns over $100,000 annually, but, unfortunately he used to earn more than double this amount.  His problem was not the mortgage, but his other bills, including a very high car payment and a mortgage payment arising from a failing real estate investment.

Not surprisingly the foreclosure notice got his attention.  He immediately took action by calling me to discuss Chapter 13 bankruptcy and by contacting his mortgage company to discuss repayment options.   By the Wednesday prior to the pending foreclosure sale scheduled for the following Tuesday, my client had provided me with enough information so that I could prepare a rough draft of a Chapter 13.   In this case, by the way, my client and I entered into an agreement whereby he paid me around $300 to open a file and to start entering information into my petition preparation program.

On the pre-foreclosure Wednesday he called to say that after a lot of discussion he was expecting a decision the next day from his mortgage company but that if he did not hear from them by mid-day on Thursday, we would be proceeding with the Chapter 13.  A few hours later he called back to say that his mortgage company had agreed to postpone the foreclosure until September and that the Chapter 13 was on hold for now.

Let's analyze what my client did right and what he did wrong.

On the positive side, he did the following right:

• he did not panic – he approached the problem as a business problem not as a personal, moral failure
• he began to address the problem early.  His first contact with me was literally the day he received the foreclosure notice.  He correctly guessed that the negotiation process with the lender would take several weeks
• he took a two step approach to the problem – he opened negotiations with his lender, and at the same time he started planning for a Chapter 13
• he retained me early on in the process and paid me a small sum ($300) to start the petition preparation process.  He also obtained his credit counseling certificate shortly after our first meeting.  Contrast that to some of the potential bankruptcy filers who call me on the Friday before foreclosure looking to start the process.
• he convinced his lender to delay the foreclosure by two months – a 2 month delay is preferable to a 1 month delay in that my client now has enough time to try and sell his home

Now, what did he do wrong?

• my main criticism is his failure to get a written confirmation of the suspension of the foreclosure.  What if the lender's representative failed to communicate with the foreclosing attorney?  What if the lender's representative is simply dishonest?  Can a verbal promise by a lender's representative to delay a foreclosure be enforceable?  What would the remedy be?

I am very wary of relying on verbal promises.  In law school, my contracts professor once made the comment that "an oral contract is worth the paper it is written on," and I do not disagree.

I did find a California state appellate case in which an appeals court found that a homeowner who relied to his detriment on a broken promise by a lender to delay a foreclosure had a cause of action for money damages.  However, even in this California case (which would not serve as binding precedent in Georgia) the foreclosure was not reversed and the only issue to be considered by the trial court on appeal was money damages.  Add to this months and months of delay and I wonder if the homeowner in the California case felt that he won anything.  (Thanks to Michael Renne and his San Francisco Bankruptcy Law blog for his post about Garcia v. World Savings.)

When your home is at risk, I would not rely on any verbal promises from your mortgage company.  I would also not rely on an email as the admissability of emails as evidence is questionable.  Instead I would suggest that you ask for a faxed letter from your lender or its attorney on letterhead, with the original mailed to you.  Further, if you enter into an agreement with the lender directly, you should contact the foreclosing attorney's office (with a copy of the foreclosure suspension letter) to confirm that they are aware of the deal as well.

Posted in Alternatives To Bankruptcy, Debt negotiation, Foreclosure, Foreclosure issues, Garcia v. World Savings, Michael Renne, Petition, a, chapter 13 and foreclosure, delay, estate, failing, foreclosure negotiations, garcia, georgia foreclosure, investment not, letter, my, notice, pending, post, pre foreclosure, preparation, program on, promise, promises  , real, representative, sale, savings, scheduled, surprisingly, suspension, the, v, verbal, verbal agreement to stop foreclosure, wednesday, world | Comments Off

Foreclosures Likely to Top One Million This Year

A recent report from National Public Radio notes that mortgage foreclosures are likely to reach the one million mark in 2010. To put this figure in context, consider these statistics, pulled from the real estate tracking site RealtyTrac.com:

• In a typical year, the United States sees about 100,000 homes enter foreclosure—a mere tenth of the number expected this year.
• In 2009, considered a big year for foreclosures, 900,000 homes were foreclosed on by banks.
• In the first five months of 2010 alone, 528,000 homes have entered foreclosure—already more than five times the yearly average.
• A whopping 1.7 million U.S. homeowners got some kind of foreclosure-related notice between January and June of this year (some of those houses have already gone into foreclosure). This translates to one in 78 homes in the country.

Understanding the Foreclosure Process

So what causes a bank to foreclose on a home? It can take as long as 15 months for a bank to repossess a home once a borrower is 30 days overdue on payments, according to sources. Here’s an idea of what might happen:

• Missed payments

: If a mortgage payment is thirty days or more late, the homeowner is said to be delinquent on payments. At this point, the lending bank may send a notice of foreclosure. This is kind of the first warning of foreclosure a homeowner can get. At this point, it’s a good idea to contact your lender if you’re having financial difficulties. You may also want to consider consulting with a bankruptcy lawyer about whether Chapter 13 bankruptcy is a viable option to stop your home’s foreclosure.

• Bank notifications: If a borrower continues to miss payments or stops making payments altogether, the bank will likely send notice that foreclosure proceedings have begun. While procedures and laws differ from state to state, homeowners can generally expect various types of notification in the mail and/or via telephone.
• Eviction: Once the bank has processed various paperwork, it can evict the residents of the house and reclaim the property as its own. Because of the unprecedented number of foreclosure cases currently active in the U.S., banks may (but won’t necessarily) take longer than usual to actually evict tenants.
• Foreclosure auction or sale: The bank now owns the home and may choose to sell it at a foreclosure auction or via short sale. Often, as sources note, any proceeds the bank makes from such a sale might be used to cover legal costs for the foreclosure process or the unpaid portion of the mortgage.

Clearly, the news of massive foreclosure action isn’t good for individuals and families who are losing their homes, but it’s also a bad sign for the larger economy. As more and more properties glut the real estate market, prices fall and the chances of a swift recovery in that area diminish.

Posted in Foreclosure, Mortgage, Mortgage Foreclosure, statistics | Comments Off

A New Unexpected Cause of Foreclosure Examined

A recent report from National Public Radio describes a shocking and troubling occurrence happening in certain neighborhoods in the United States. Apparently, some homeowners are finding their houses foreclosed on—but not because they fell behind on mortgage payments.

It seems that failure to pay homeowners association (HOA) dues constitutes legal ground for the HOA to foreclose on and resell a property.

A Devastating Oversight

The case detailed in the NPR story involves a deployed Captain serving in Iraq and his wife: they had, according to reports, paid for their home in full but missed two HOA payments—and their house was foreclosed on, sold for the amount of the overdue dues plus legal costs, and sold again for a profit.

Here’s what you need to know in order to protect yourself and your family from facing such an unfortunate fate:

• In the U.S., 33 states have laws that permit HOAs to place liens on homes for which dues are not paid and collect on those liens (i.e. foreclose on the home) without putting the case before a judge.
• In some states, processing a foreclosure takes less than a month—meaning that families have little time to take action to protect their property.
• Because of the tough economy, it seems more families than ever are missing payments and don’t believe it when they’re told they could lose their home for failure to pay a couple hundred dollars’ worth of fees or dues.

The truth of the matter, though, is that you can lose your home in many states simply for missing payments to your HOA. If you’re pressed for cash and worried about making such payments, contact your HOA and explain the situation.

The most important thing to do is to attack the problem head on rather than waiting until it’s too late—if you can’t afford the dues now, you definitely can’t afford to make alternate housing arrangements, but that could be the position you’re in if you miss too many checks.

And, while it may be the least appealing thing you can think of if you’re falling behind on various financial obligations, be sure to open mail as soon as you receive it, as it could contain important and time-sensitive information about some of all of your debts. Remember: avoiding debt doesn’t make it go away, and in this economy it’s important to take any and all warning signs of personal economic turmoil seriously.

Posted in Foreclosure, Mortgage, Mortgage Foreclosure, trends | Comments Off

Complex Issues Often Arise in Personal Bankruptcy

Bankruptcies come in all shapes and sizes. Some are relatively simple, while others pose particularly troublesome issues. While legal counsel can be beneficial for any type of bankruptcy, many people find experienced attorneys especially helpful during complex filings.

In response to a growing trend of bankruptcy in the Phoenix metropolitan area, which is on pace for around 30,000 filings this year, The Arizona Republic recently listed a few of the most vexing bankruptcy issues:

Divorces

During divorce proceedings, spouses will sometimes agree to shield each other from certain debts, which often include debts incurred during marriage. However, if one spouse later files for bankruptcy, creditors could go after the other spouse for payments on specific debts, despite the previous agreement between the divorced couple.

So, by shielding a spouse from debts during a divorce proceeding, an individual could prevent that debt from being dischargeable during bankruptcy. As a result, couples going through a divorce should tread carefully if one party expects to file for bankruptcy afterward. There may be options to protect both parties and discharge the debt, but these are sometimes best determined by experienced attorneys.

Homeowners Association Fees

Some filers for bankruptcy have recently learned that homeowners associations can still collect unpaid fees, even after those filers have given up their homes. While this scenario may sound implausible, The Arizona Republic offered a fairly common example.

If a homeowner buys a home using a mortgage and fails to make payments on time, that individual may simply leave the home while the lender begins foreclosure proceedings. During this lag, a homeowners association may continue to charge the former homeowner membership fees.

These fees may continue to be charged until the bank completes a foreclosure, which may take several months. If you are facing a foreclosure or a bankruptcy and fear a similar problem, you may wish to contact a bankruptcy attorney.

Faulty Deeds that Leave Loopholes for Trustees

Another complex issue can arise when a homeowner files for bankruptcy. Even if the homeowner makes his or her mortgage payments on time, court-appointed trustees may look for flaws in the mortgage paperwork in order to push their claim in front of a creditor’s.

While this scenario may seem far-fetched, it has occurred, and title companies that complete mortgage paperwork do make mistakes. If such a mistake occurs, and the mortgage lender can’t prove its claim, the trustee could simply sell the home. Again, this is not a terribly common problem, but seeking legal counsel can help avoid such a financial nightmare.

Additional Resources

To read in-depth analysis of further complex issues posed by personal bankruptcy, check out these materials provided by the American Bar Association.

Posted in Bankruptcy Filing Requirements, Bankruptcy Process, Divorce, Foreclosure | Comments Off