Sunday, February 27th, 2011
Earlier this month on my Atlanta-bankruptcy web site blog I discussed an interesting case involving mortgage loan deficiency claims that was issued by the Georgia Court of Appeals and Georgia Supreme Court. In the River Farm vs. Suntrust case, the Georgia courts ruled that a mortgage lender could sue a defaulted borrower on the promissory note and thereby bypass the deficiency confirmation process associated with a foreclosure. This ruling is important because property values in Georgia have been trending downward and more and more often I am seeing cases where the balance due on a mortgage exceeds the fair market value of my client's home.
This court case should be of concern to you if you intend to walk away from your home because you are delinquent or if your are so "underwater" with your mortgage that it does not make sense to fight to keep a home that may never be worth what is owed on it. If you do walk away (without filing bankruptcy), your lender may sue you on the mortgage loan contract instead of foreclosing. The lender would refrain from foreclosing to avoid a legal requirement associated with foreclosure that would require the lender to appear before a judge to argue that the foreclosure sale price was reasonable.
In my article, I pointed out that this change in the law might encourage more people to file bankruptcies since a bankruptcy can discharge any deficiency claim.
However, there is another potential problem area that could arise if your lender holds off on foreclosing. This problem area relates to homeowners' association (HOA) dues.
Under Georgia law, homeowners' associations enjoy special protections. Unpaid dues can automatically can become liens that encumber your property. As HOA lawyers read the law, if you file a bankruptcy and surrender your home, your delinquent HOA dues as of the date of filing will be discharged. However, ongoing dues that accrue after the filing remain your obligation until title passes. In other words, if your HOA dues are $100 per month and you file Chapter 7 bankruptcy on February 28, your dues begin accruing again on March 1. If your lender does not foreclose until November, you would, in theory, be responsible for 8 months of dues, or $800, after your filing, even though you have stated your intention to surrender your house in bankruptcy.
Obviously, a provision of the law that involuntarily re-obligates you to hundreds or thousands of dollars of monthly dues on an asset you have surrendered seems contrary to the public policy associated with bankruptcy. Nevertheless, this is how lawyers for homeowners' associations read the law.
I discussed this issue with an attorney at a law firm that represents HOA's in the Atlanta area and throughout Georgia. This lawyer offered the above explanation of the law but he said that as a practical matter, his firm has not and does not plan to sue a homeowner for HOA dues that arise after a bankruptcy case has been filed, as long as the homeowner vacates the premises. However, the homeowner is presumably fair game if he remains in the house (or rents it out) while the bank is dilly-dallying about foreclosing.
He also advised me that his firm does not report post-petition HOA delinquencies to credit bureaus.
The problem here, of course, is that the HOA lawyer's explanation of policy is just that – a voluntary policy. Is it possible that this HOA law firm or one like it could change its policy? Is it possible that the HOA itself might sell this receivable to a debt buyer who would not hesitate to sue you?
I would not assume that an HOA or a debt buyer will necessarily write off otherwise collectible debt, but until this issue is litigated in a Georgia court, we will not know the answer to this issue. I do think that a homeowner who remains in a house after surrendering that house in a bankruptcy will face an increased likelihood of an HOA lawsuit. I will also continue my practice of rejected the HOA contract as part of my bankruptcy filings.
Posted in Foreclosure issues, Georgia Bankruptcy, Mortgage, Repossession issues, accruing, an, area, associations, case, claims, deficiency, delinquent, dilly dallying, discussed, dues, enjoy, foreclosing he, foreclosing , hoa, homeowners, homeowners association lawsuits, interesting, involving, law i, loan, month, mortgage deficiency claims, ongoing, problem, protections , read, relates, special, the, unpaid | Comments Off
Monday, May 31st, 2010
Every week I receive several phone calls from homeowners who want to take advantage of the federal HAMP (Home Affordable Mortgage Program) but do not know where to start. Often these callers are behind two or three months and are receiving foreclosure notices, but they really do not want to file Chapter 13 before exhausting all non-bankruptcy alternatives.
These homeowners may have received foreclosure notices that suggest that the mortgage lender intends to negotiate or modify their mortgage. Georgia law now provides that all foreclosure notices must include a "negotiation provision." O.C.G.A. Section 44-14-162.2 provides:
Notice of the initiation of proceedings to exercise a power of sale in a mortgage, security deed, or other lien contract shall be given to the debtor by the secured creditor no later than 30 days before the date of the proposed foreclosure. Such notice shall be in writing, shall include the name, address, and telephone number of the individual or entity who shall have full authority to negotiate, amend, and modify all terms of the mortgage with the debtor, and shall be sent by registered or certified mail or statutory overnight delivery, return receipt requested, to the property address or to such other address as the debtor may designate by written notice to the secured creditor.
However, in real life, very few of these homeowners have had much success in reaching a deal with their lenders.
What about the highly touted HAMP program? A quick search on the Internet reveals dozens of articles suggesting that, to date, HAMP is not working.
Now comes word that the federal government has modified HAMP to include homeowners in bankruptcy with new guidelines effective on June 1. Supplemental directive 10-02 specifically addresses the applicability of HAMP to homeowners in bankruptcy.
These directives are intended for mortgage servicers and set out numerous obligations for servicers. I did find a fairly comprehensive Making Home Affordable FAQ section written for borrowers on the MakingHomeAffordable.gov site.
In reviewing the HAMP materials, it appears to me that the program is designed to direct homeowners to approved HAMP counselors, rather than to have homeowners apply directly. Further there appear to be regulations that apply to mortgage servicers where they must proactively advise homeowners of possible eligibility. The on-going issue – the HAMP rules are so complex that most individuals will have no idea about whether they are eligible. For example, to qualify for a modification, here are the requirements set out in the FAQ:
- Be the owner-occupant of a one- to four-unit home.
- Have an unpaid principal balance that is equal to or less than:
- 1 Unit: $729,750
- 2 Units: $934,200
- 3 Units: $1,129,250
- 4 Units: $1,403,400
- Have a first lien mortgage that was originated on or before January 1, 2009.
- Have a monthly mortgage payment (including taxes, insurance, and home owners association dues) greater than 31% of your monthly gross (pre-tax) income.
- Have a mortgage payment that is not affordable due to a financial hardship that can be documented.
Would you know what documents to produce, or how to calculate 31% of your monthly gross income? The government goes on to advise you that "only your servicer will be able to tell you if you qualify." In other words, you are expected to turn to the foreclosing lender to help you apply for a program that will stop foreclosure.
Thanks to Las Vegas bankruptcy attorney Randy Creighton for highlighting the June 1, 2010 HAMP changes on his well researched blog post.
Posted in 1 , 10 02, Borrowers, HAMP, Mortgage, Mortgage modifications, a, addresses, affordable, applicability, approved, bankruptcy and HAMP, bankruptcy and mortgage modification, changes to HAMP, counselors, directive, eligibility , federal, highly, home, homeowners, issue, june, lenders what, makinghomeaffordable gov, materials, modified, on going, program, program , quick, reviewing, rules, search, site in, specifically, supplemental, the, touted | Comments Off
