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
Thursday, May 6th, 2010
Last month, my friend and colleague, Charleston bankruptcy attorney Russ Demott published an interesting article on his web site entitled "Fired for Filing Bankrutcy? No way!" This article was written by Elyria, Ohio bankruptcy lawyer Bill Balena, who notes that the Bankruptcy Code specifically forbids "employee discrimination" based on a bankruptcy filing if:
- You are, or have gone through a bankruptcy proceeding
- You are insolvent either before filing a bankruptcy or while your petition is pending;
- You have not paid a dischargeable debt
Let's take a closer look at what the Code actually says. Pay particular attention to the different language that applies to government employers vs. private employers.
Section 525 of the Bankruptcy Code contains the following language:
As to governmental units:
[with limited exceptions] a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of the case under this title, or during the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act.
As to private employers:
No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt—
(1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act;
(2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or
(3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.
As you can see, the restrictions on discrimination are not identical.
Specifically the limitation on governmental action against insolvent or bankrupt employees or job applicants includes the following prohibitions:
- deny employment to
- terminate the employment of
- discriminate with respect to employment against
By contrast the limitations on private employers against insolvent or bankruptcy employees includes the following prohibitions:
- terminate the employment of
- discriminate with respect to employment against
Now I have not litigated this issue – but I think that a private employer could make a strong argument that the Bankruptcy Code does not forbid denying employment to an insolvent or bankruptcy individual who is applying for a job.
Further, as Mr. Balena points out, if you are applying for a job as an "at will" employee, a prospective employer does not have to explain why he is not hiring you – it can be for any reason. I can't imagine that too many employers would specifically put into writing that you are not being hired because of your credit issues.
In my view, within the context of private employment, Section 525 protections have much more relevance to an employee who already has a job as opposed to a job applicant. Further, I think that Section 525 is somewhat of a toothless tiger in that few employers would specifically identify a bankruptcy as the sole reason for termination (note the language "solely because").
As a practical matter, I cannot recall the last time I observed or even heard of a bankruptcy debtor facing termination or a refusal to hire because of a bankruptcy filing. The sheer numbers of bankruptcy filings in the Northern District of Georgia, for example, are such that almost every company of any size has had one or more employees go through the bankruptcy process. Still, I counsel my clients that Section 525 offers very little in the way of real protection and that there is some risk, even if it is small, that their bankruptcy filing could have a negative impact on employment.
Posted in 525, Attorney, Bankruptcy, Consumer Protection, General consumer bankruptcy info, an, article, bankrupt, charleston, demott, deny, discriminate, discrimination, employees, employers, employers section, employers and bankruptcy filings, employment, government, identical specifically, includes, insolvent, interesting, job termination and bankruptcy filing, limitation, private, prohibitions, published, respect, russ, section 525 of bankruptcy code, terminate, the, vs | Comments Off
