Bankruptcy Questions Answered

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

Forgotten Lawsuit Creates Big Problems for Prior Chapter 7 Client

Earlier this month I received a call from a Chapter 7 client that I had represented several years ago.  He is attempting to refinance his house and has discovered that a judgment creditor has a lien for several thousand dollars.  The creditor was listed on the case, but neither he no I knew that there was any judgment.

I directed him to visit the county courthouse and pull the file for this case.  He did and he reports that the return of service shows that his wife was served by a sheriff's deputy.  His wife has no recollection of being served.  We did list the creditor on the bankruptcy petition but because we did not know that there was a judgment, we did not file a motion to avoid the judgment lien.  What can he do?

There are a number of lessons you can learn from this man's experience.  First, you should always obtain copies of credit reports from all 3 credit bureaus prior to filing bankruptcy.   In Georgia, you can get a free credit report from each of the 3 main credit bureaus twice a year.  Online, you can go to annualcreditreport.com and download your reports.  Because credit reports obviously contain sensitive information the annualcreditreport.com system will ask several questions to identify yourself.  These are usually multiple choice questions – for example, the system may say "your credit report shows that you previously lived on one of the following streets: (a) Oak Street (b) Thompson Street (c) Ivers Road (d) none of the above.

If you are unable to answer these questions, the system will instruct you to mail away for your credit reports – here is a link to a page on my website with the credit report request letters.

Credit reports are helpful because they will usually show pending lawsuits as well as the names, address, account numbers and debt amounts for most of your creditors.  Obviously I can't require all bankruptcy clients to bring me credit reports but it sure helps avoid "forgotten" creditors or judgments.

As far as what we can do, there are a couple of options.  First I want to make sure that service of process was correct.  If you are served with a lawsuit in Georgia, the sheriff's deputy (or private process server) has to complete a document called a "return of service" that states when a party was served and by whom.  Section 9-11-4 of the Official Code of Georgia provides that service on an individual must be made on the defendant himself, or "by leaving copies thereof at the defendant´s dwelling house or usual place of abode with some person of suitable age and discretion then residing therein."

In this case, if the sheriff's deputy served my client's wife, then service is most likely valid.

However, I sometimes see situations where the return of service is unclear as to who was served or even situations where the return of service is blank.  In these cases, a defendant can "collaterally attack" the judgment on the grounds that service was not made and he did not know about the lawsuit.

If it turns out that service is valid, my client will have little choice but to negotiate a settlement of the real estate debt.  Interestingly the Chapter 7 discharge would eliminate any personal liability he might have for this debt, but the liability remains as to his real estate.

My experience has also been that judgment creditors will become more amenable to negotiation the longer a real estate lien remains unpaid.  Here, my client could forego a refinance (or threaten to to forego a refi) and use the argument that the judgment creditor might have to wait for years to get paid as leverage to negotiate a reduced payoff.

Posted in Chapter 7, Chapter 7 issues, Credit, Negotiation, Post bankruptcy credit rebuilding, a, amenable, avoid, bankruptcy and judgments, client, deputy, estate, forego, judgment, lawsuit, letters credit, lien, lien  , longer, my, or, post-bankruptcy, private, process, real, refinance, remains, report, reports, request, served, server, the, threaten, unlisted judgment creditors, unpaid  , wife | Comments Off