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

The Challenge to Get Americans to Save

Many Americans find themselves filing for bankruptcy when an unexpected expense (like an illness, death in the family, divorce or layoff) leaves them in the lurch. Unfortunately, what that means is that too many people don’t realize until too late how important it is to have a financial safety net.

A savings cushion can make the difference between managing during a crisis and being overwhelmed—that’s why building a savings fund is an important part of any bankruptcy recovery.

Think, Save, Win

A recent story from the New York Times tells about how asset manager TIAA-CREF, founded by philanthropist Andrew Carnegie, has decided to challenge the country to start saving more.

Here’s the deal:

• Think of ways to save: TIAA-CREF has initiated a contest that challenges Americans to think of a way to increase our country’s savings rate (which, in the recent past, dipped to below zero, meaning we were spending more than we were making) to ten percent of income in two years.
• Get creative: As the Times article points out, the savings plan can be anything – a government program, an online tool, a business, a game, and so on. As the contest’s guidelines state, the idea must be original, workable and inspire U.S. citizens to begin saving more in the next two years.
• Get paid: The prize offered for the winning idea is $50,000—no small sum for most of us. Plus, several runners-up will receive cash prizes as well.

Saving some of the money you make is one of the most effective ways to prepare yourself for a crisis, whether economic or otherwise. Even getting minor car repairs can be a huge financial stressor if you don’t have adequate funds set aside.

This potentially lucrative contest requires that ideas follow these guidelines:

• Creativity: The winning idea will, according to contest rules, be original. That could mean using tools in a new way or developing entirely new tools to get people to start saving.
• Feasibility: In order for an idea to win, it must be realistically possible—in other words, the various social structures we have in place must be able to execute the plan.
• Effectiveness: Needless to say, an idea won’t win if it doesn’t actually work. The winning concept will function in the real world.
• Clarity: Remember that you need to communicate your idea to strangers who will be judging you, so be as direct and concise as possible.

When you’ve come up with your winning idea, enter at TIAA-CREF's Facebook page.

Additional Resources

The Decline in the U.S. Personal Savings Rate (PDF)

Posted in Bankruptcy and the Economy, savings, savings challenege, savings rate | Comments Off