Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box

Make Sure Your Mortgage Is Current At Bankruptcy’s End

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What do you really owe on your home mortgage when you get to the end of your Chapter 13 case?

For years, homeowners couldn’t tell where they were or how to get answers.

But with the recent changes to bankruptcy rules, you don’t have to wonder where you stand with your mortgage lender.

  • Are you really, fully current with the mortgage?
  • Are there fees and charges that you don’t know about?
  • Are you ready to emerge from bankruptcy 100% paid up?
  • Is the lender really poised to start foreclosure?

Starting December 1, 2016, your Chapter 13 trustee is required to flush out any surprises that lurk in your home loan servicer’s accounts.

And a federal judge stands by to sort it out.

When my client’s Chapter 13 case was through,  she was $62,000 better off, because of the rule.

Let’s hear it for Bankruptcy Rule 3002.1.

Why we needed this rule

Rule 3002.1 addresses the lack of transparency that used to exist about your home loan during a Chapter 13.

The Chapter 13 runs 3 to 5 years, and the automatic stay limits the lender’s ability to let you know what’s happening with the loan.  (This assumes that the lender ever really wanted to let you know what’s happening, but that’s another rant, another day.)

Lots can happen during those years. Too often, before the rule, debtors would get their Chapter 13 discharge and a foreclosure notice practically in the same day’s mail.

It might be late fees, forced placed insurance, or just plain accounting mistakes.  Whatever the reason, the consequences were horrific.

What the rule does

If your Chapter 13 plan provides for payment on your home mortgage, your lender (or the servicer for the lender) must give certain notices to you, the court, and the trustee during the case.

First, they must file a notice if the payment amount changes during the case.  The notice must be given at least 21 days before the change takes place.

Second, they must file a notice of any fees, expenses or charges added to the loan balance that were incurred after the case was filed.  The notice must be given within 180 days of the time when the charge was incurred.

If you dispute that the charge is allowable, you have a year from the filing of the notice to file a motion and schedule a hearing before the court about the charge.

Current at case end

When you’ve made the last payment to your Chapter 13 plan, the trustee must file a notice of final cure payment and send the notice to you, your attorney, and the creditor.

The notice says that the trustee believes you to have cured any pre bankruptcy default and alleges that you are fully current with payments and fees that came due after you filed.

The mortgage lender must file a responsive pleading within 21 days.  If the lender claims that there are unpaid amounts, they must itemize the fees and expenses that they claim are still outstanding in a payment history.

Bingo:  you have visibility.  And you have a right to file a motion before the court to determine if you’ve cured the default and paid everything that is required of you afterwards.

If the lender screwed up

Chances are pretty high that the servicer has screwed up.  Often that takes the form of failure to have given you timely notice of fees added to the loan.  Remember, notice must be given within 180 days of when the fees were incurred.

If the lender has failed to give proper notice, the judge can bar the lender from offering evidence in the hearing to determine if you’re current and can award you your attorneys fees caused by the failure.

The rule in action

A lender’s failure to follow the rule in the case of one of my clients resulted in the lender having to forgive some $62,000 in post filing fees and taxes they’d paid without telling my client.  In addition, they paid my fees for getting the charges  wiped out.

You can read the court’s opinion with the details of each blunder the bank made.

I believe that such results are just the tip of the iceberg in this field.

Get through the maze

The beauty of Rule 3002.1 is that it gets to the heart of your dealings with your home mortgage lender while you still have access to a bankruptcy judge to make things right.

It’s up to you and your attorney to see that the trustee gives the required notice.  If the trustee doesn’t, the debtor can.

Then you need analyze the response of the lender and challenge behavior that isn’t compliant with the law.

Don’t miss out on getting all the relief that Chapter 13 entitles you to.

More

RESPA to the rescue:  send information

Mortgage statements after bankruptcy

What’s discharged in a bankruptcy

 

Your Right To Credit Reporting After Bankruptcy

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credit report after bankruptcy

You’ve finished your Chapter 13 and emerged from bankruptcy with your home loan current.

But your credit report is a blank page as to your mortgage.

The mortgage servicer isn’t reporting your payments to the credit reporting agencies.  

Nothing. Nada.  Crickets.

So, even though you’re making regular payments, you’re not visibly rebuilding your credit.

Ask the servicer and they’ll tell you that they can’t report your payments “because of your bankruptcy discharge“.

But they are wrong:  a little-discussed provision of Chapter 13 says that long-term mortgage debt is not discharged in 13.

Yup.  The mortgage loan is not discharged as a personal obligation.

And therefore, there is no bar to the servicer reporting your payments, and every danger should they not report.

Servicer’s obligation to report

Put simply, if a creditor reported to credit reporting agencies before the bankruptcy was filed, then there is an obligation to report after the bankruptcy.  The “furnisher”, the creditor who supplies information to the credit reporting agency, has an obligation to make the information on file fully accurate.

In contrast to an unsecured debt like a credit card, which should be reported as having a zero balance after the discharge, the mortgage loan after Chapter 13 has a balance.

Presumably, it is also current.  Both facts which should appear on your credit report.

Mortgages excluded from Chapter 13 discharge

I’m certain you will have to cite to bankruptcy law when you challenge the improper reporting on a mortgage loan after Chapter 13.

Here’s the part of the Bankruptcy Code that excludes long term debt like your mortgage.

Section 1328 says,

(a)… the court shall grant the debtor a discharge of all debts provided for by the plan …, except any debt—

(1)provided for under section 1322(b)(5); 

The section that 1328 incorporates, Section 1322(b), says

(b)Subject to subsections (a) and (c) of this section, the plan may—

(5) … provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or secured claim on which the last payment is due after the date on which the final payment under the plan is due;

Get mortgage payments reported

If you find that your post discharge payments on your home loan aren’t being reported, challenge the accuracy of what is on your report about that loan with the credit reporting agency.

It is the CRA’s responsibility to see that information in your credit file is accurate.  The CRA is supposed to ask the furnisher to reinvestigate the challenged tradeline.

The Consumer Financial Protection Bureau has a how-to, with a template letter, on how to dispute inaccurate information on your credit report.

Get the good information reported.

More

How to find and fix credit reporting errors

Your post bankruptcy to-do list

The Debt You Thought Was Gone: When Old Liens Suddenly Appear

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I Have Forgotten Something

What do you do when you discover a judgment lien long after you filed bankruptcy?

Your bankruptcy case is closed.

You’re recovering nicely.

Then you find there’s a judgment lien on your house that you didn’t know about.

And the law says that liens survive a bankruptcy case, unless the bankruptcy court orders otherwise.

Is there anything you can do to get rid of the lien?

Most likely, yes.

Can the lien be avoided

The debtor (that’s you, the person who filed the bankruptcy) can ask the bankruptcy court to void a lien on their property if

  • The debt existed when the bankruptcy case was first filed
  • The lien is a judgment lien
  • The property to which the lien attaches was claimed exempt
  • The property had too little value to pay any senior liens, the judgment lien, and your exemption

Let’s look at each requirement for an avoidable lien, found in Bankruptcy Code 522(f).

Predates the bankruptcy

Bankruptcy impacts only debts that predate the filing of the case.  That doesn’t mean that there has to be a default on the debt or a lawsuit filed.

But the events that create the debt have to have happened before the bankruptcy was filed:  you used the credit card;  you were involved in an accident; or you were transported by ambulance.

Your bankruptcy case potentially effects all debts arising before you filed.  But the legal rights involved can’t have arisen since your bankruptcy was filed.

Lien secures a judgment

Liens that can be wiped out because they impair exemptions must be judicial liens, that is a lien created by a lawsuit.

Voluntary liens, like mortgages and home equity lines of credit can’t be eliminated because they interfere with exemptions. This section of the law deals only with involuntary liens.

You can’t eliminate statutory liens, either.  Tax liens are created by statute.  They aren’t covered by this provision of the bankruptcy code.

Property was claimed exempt

Because this part of the law is focused on seeing that you get the full benefits of the exemptions you claimed, the property affected by the lien must have been claimed exempt.

Some courts will avoid a lien if the property in question could have been claimed exempt.

Lien frustrates claim of exemption

To meet this condition for avoidance, some math is required.

As of the day the case was originally filed, the value of the property then had to have been insufficient to pay the balance of any voluntary liens on the property, the exemption, and the lien you want to avoid.

It may be that the lien at issue is avoidable only in part, if the value of the house would pay mortgages and the exemption, and something beyond.

The fact that there is no value in excess of the voluntary liens doesn’t prevent you from avoiding the lien. It’s not an all or nothing thing.

Revisiting your case

So, what do you do when the lien is discovered well after your bankruptcy case is over?  Reopen the case, and ask the court to avoid the lien or liens that impair your exemption.

Your motion to reopen needs to tell the court what you want to achieve.  Usually, you attach your motion to avoid the lien to the motion to reopen the case.

Most courts will want you to pay a new filing fee, to pay for the new work the court is going to do.  You can ask that the fee be refunded, but usually, you’ll have to pay up front to get started.

This isn’t a new bankruptcy case. You aren’t endangering the financial recovery you’ve made since your bankruptcy.  You are revisiting the old case to take care of old business.

The lawyer who helped you with the original case can handle the lien avoidance, or you can engage another bankruptcy lawyer to accomplish this task.

When time is tight

The overlooked judgment lien usually pops up when you are ready to sell your home or to refinance it.

Often that means you are working to deadlines.

A motion to reopen and to avoid a lien is likely to take 45-60 days before you have a bankruptcy court order in hand, voiding the lien.

If you find yourself short of time, consider negotiating for the escrow to hold the money that would otherwise go to the holder of the lien when the deal closes, while you go back to bankruptcy court.

If you didn’t check the public record before you filed your bankruptcy case to check for judgment liens, do it now.  Don’t wait for a time crunch.

Thankfully, bankruptcy courts are accustomed to helping with the overlooked lien.

More

Tax liens after bankruptcy

What was discharged in my bankruptcy case

Stripping off mortgage liens

Post bankruptcy check list

Image: Fotolia.com

 

5 Essential Tips To Understand Your Mortgage Loan

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mortgage debt

Figuring out what you owe on your home loan can be harder than a calculus exam.

For most people, their mortgage is their biggest debt.  And their home is their most important asset.

Yet, the people accounting for your payments are increasingly incapable of the very basics of their job.  And that makes your job, as borrower and homeowner, more challenging.

Not your parents’ home loan

Things have changed since the local bank made you a loan to buy a house and collected the payments you made on that loan.

Now, home loans get sold to someone else the moment the deal closes.  The right to collect the loan payments is bought and sold separately from the right to the payment amount.

And increasingly, the servicers make mistakes as they cut  corners to make a buck.

What do you need to know to assess whether your loan servicer has got the numbers right?

1.  Principal balance isn’t what you owe

Ask someone what they owe on their mortgage and they’ll recite the principal balance.  The principal balance is the remaining part of the amount originally borrowed that is still unpaid.

Yet you may well owe additional sums:  delinquent payments that are mostly interest;  late fees;  escrow advances; or the junk fees that most delinquent loans are larded with.

Finding the principal balance gets trickier yet if the loan has been modified to include a non-interest bearing amount or some other, non standard adjustment.

So the amount necessary to pay off the loan upon sale, or refinance, may well include charges from the past plus fees for calculating what you need to pay to satisfy the debt.

2.  Payments are credited to oldest month unpaid

If you fall behind on a home loan, then resume making payments, your payment is credited to the oldest month still unpaid.

So the payment you make in June may be credited to February.

And the servicer will report that you remain due for June, even though you sent a check in June.  It’s all in the rules about how payments are credited under the terms of the note.

3.  Payments may not be credited

Loan servicers seem to have a separate “pocket” labeled “Suspense”  into which they sometimes dump your payment. They’ve got your money, they just haven’t credited it to the amount you owe.

The only reason for putting funds in suspense that seems justified is when the payment is too little to make a full payment on the loan.  Servicers don’t have to credit partial payments.

So, they put the money in suspense until they receive enough money to make the regular payment.

For reasons no servicer has ever adequately explained, I’ve seen suspense accounts in the tens or even a hundred thousand dollars.

So, a mortgage statement that doesn’t address any funds held in suspense doesn’t tell the whole story.

4.  Escrow accounts contain something extra

If your property taxes and hazard insurance are paid by the lender, you have an escrow account.

Under federal law, the lender is allowed to collect more than the sum of the year’s taxes and insurance as protection against the borrower’s non payment.

The extra money, the “cushion”, can be no more than 1/6 th of the annual expenditures.  It remains your money, it’s just held by the servicer should it have to pay when you haven’t paid.

You should get an annual escrow analysis that shows income and expenses in the past year’s escrow account and a projection of the coming year’s expenses.

That projection will determine what you pay in escrow payments going forward.

5.  Statement doesn’t come from owner of note

Ever since loans were bundled up and sold on Wall Street to investment trusts, the work of collecting your payments has been handed off to loan “servicers”.

The owner of the note pays a company to deposit your payments, keep track of fees and expenses, and take action if you don’t pay.

The servicer seldom owns the note, they just own the right to collect the money.

And servicers change.  Sometimes as often as we change the oil in our car.

When there’s a loan handoff from one servicer to a new servicer, details about anything unusual in the loan account sometimes get lost.

Get behind the monthly statement

The problem of finding out what the servicer thinks you owe became such a problem that regulations written pursuant to the Dodd-Frank act gave borrowers some clout.

Now, a borrower with a home loan can make a Request For Information about their loan and expect answers within a shorter period than under the old law.

If the servicing of the loan has changed hands, the borrower has a window in which to request information from the old servicer, to compare with what the new servicer thinks.

Find the “how-to” for a Request for Information.

More

Your mortgage and your credit report after Chapter 13

Bad mortgage accounting violates your Chapter 13 discharge

Get tax credit for curing mortgage defaults in Chapter 13

How Chapter 13 works

 

 

 

 

 

7 Essentials To Keep Your House In Chapter 13 Bankruptcy

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Saving your home ranks high on the list of reasons people file Chapter 13.

The automatic stay stops foreclosures; Chapter 13 gives you time to fix the problem.

Powerful stuff.

But the stay and more time alone isn’t enough to save the day if you run afoul of other rules, written and unwritten, about homeownership in Chapter 13.

So, here’s your manual for Keeping Your Home Through Bankruptcy.

Read your Chapter 13 plan

The basic premise of Chapter 13 is that you continue making payments on your home loan during the plan.  Typically, you make the payments that come due after you file, plus catch up on any missed payments via your payments to the Chapter 13 trustee.

In the Bay Area, debtors can choose direct payment or a conduit plan

Every Chapter 13 district does things a little differently  but they all treat post filing payments in one of two ways:  either the homeowner makes the payments directly to the mortgage servicer, just as if there were no bankruptcy.  Or, the on going payments are made to the Chapter 13 trustee, who in turn pays the mortgage servicer. (Those are called conduit payments.)

Make sure you know how it works in your district,  and when your first payment after filing bankruptcy is due.

Keep track of payments you make

Future disputes about whether you made payments directly to the servicer are virtually certain.  Arm yourself with a paper record.

You want your paper trail to be complete and retrievable.  Chances are, the servicer’s records won’t be as good.

I suggest clients pay by personal check (so you get a cancelled check) and transmit that payment by a means that gets you a receipt showing delivery.  With a receipt, you can monitor whether the servicer is promptly crediting your payment, as they are required to do.

Any automatic payments from your bank account or even your ability to pay electronically will undoubtedly be canceled by the servicer.

Compare monthly statements

A new federal rule requires servicers to continue sending you monthly mortgage statements.  That’s a welcome change.

More on the new mortgage statement format

The rule breaks out what is happening with your loan, both as to any pre-bankruptcy default and as to the post-filing payments.

Check out the statements to see if they are consistent, and save them for support in case there’s a dispute in the future.

Watch for payment changes

Your monthly payment on your home loan may change during the Chapter 13.  Escrow amounts for taxes or insurance may change; your loan may have an adjustable rate, or a time-limited interest only feature.

Bankruptcy rule 3002.1 now requires the servicer to give you advance notice of any change in the monthly payment you must make.  If you are in a conduit district, where the trustee makes the on-going payment, ask your attorney how increases in payments are handled.

The rule also requires the servicer to disclose any fees, expenses or charges that it adds to the loan balance during your case.  The disclosure must be made to you, your attorney and the court within 180 days of the expense being incurred.  You have the right to challenge the expense and have a hearing on whether it’s truly owed.

Pay your property taxes

Depending on your loan terms, you may pay property taxes directly to the local taxing authority.  Staying current on property taxes is a condition of being in good standing on your loan.

Know whether your property taxes are escrowed and thus included in your monthly payment, or whether you pay them directly.

Make it a habit to set aside 1/12th of your annual property taxes when you make your mortgage payment, so you don’t fall behind.

Avoid suffering a motion for relief from stay

The automatic stay is automatic, but it’s not necessarily forever.

If you fail to make required ongoing payments or fail to keep the property insured, the servicer can file a motion asking the court to lift the stay and allow it to foreclose.

More about motions for relief from the stay

Even if you manage to get a deal to cure any defaults, a motion to lift the stay will add to the lender’s attorneys fees, which they will want to collect from you.  And that’s on top of whatever you have to pay your own attorney to protect your property.

Don’t go there:  stay current.

Deduct the mortgage interest you pay

A large part of most mortgage payments is made up of interest on the loan balance.  That interest and any property taxes you pay to the lender are probably tax deductible.  But for reasons I can’t explain, servicers don’t give you a tax form 1098 showing the deductible payments you’ve made or the trustee has made on your behalf.

Follow our how-to on calculating your deduction and assembling the records to support your claimed deduction.  If you don’t do it, you can be sure the IRS won’t do it for you.

Reducing your income tax bill frees up money to make your plan payments.

Heads up and keep your house

This post bankruptcy to-do list isn’t complicated but it is important.  Armed with knowledge of the possible pitfalls, you can head off trouble and sail through Chapter 13.

More

Mistakes that crater Chapter 13 plans

If you can’t make your plan payments

Why discharge gets snatched away at plan’s end

No Foreclosure If Loan Modification In Process

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foreclosure roofline 650 taberandrew

The cruelest trick played on homeowners trying to modify their mortgage was dual tracking.

One side of the bank assured the borrower that their loan modification application was being considered and they didn’t need to worry.

All the while, the other side of the bank was conducting a foreclosure sale.

The borrower wakes up to find that they are no longer homeowners.

No more.

New federal rules prohibit dual tracking

Mortgage lenders are now prohibited by federal law from conducting a foreclosure while a mortgage modification application is under consideration.

Regulation X – Real Estate Settlement Procedures Act

Before a foreclosure is begun, the lender or their servicer must take steps to let the borrower know what options exist to keep the house.  The mandated timeline creates a four month interval between delinquency and starting the foreclosure in which alternatives can be explored.

Live contact with borrower

Mortgage servicers must attempt to make live contact with borrowers who become delinquent within 36 days of the delinquency.  A voicemail message doesn’t cut it.  Reg. X §1024.39

The servicer must describe the kinds of loss mitigation options that are available and they must establish a single point of contact for the borrower with the servicer.  Reg. X § 1024.40

No foreclosure can be instituted until 120 days have passed from the first delinquency.  More importantly, if a complete loan modification application has been submitted to the the servicer by the 120 day point, no foreclosure can be begun.  Reg. X §1024.41

Last minute help

If the borrower misses the 120 day deadline for submitting a loan modification application, there’s still protection in the new rules.

If a loan mod application is made more than 37 days before the foreclosure sale, the servicer cannot conduct a foreclosure sale until it issues a decision on the application.

The new rules deal with a myriad of variations on these timelines.  The theme in the rules is consistent:  federal law requires a decision on a loan modification application before the foreclosure train chugs down that track.

If the servicer breaks the rules

The new rules have teeth.

Borrowers who believe their servicer has failed to follow the rules can sue the servicer.  If you can prove your case, you can collect your actual damages as a result of the violation; your costs of suit; and your attorneys’ fees.

These regulations implement provisions of the Dodd Frank legislation; they became effective January 10, 2014.

Another arrow in homeowner’s quiver

These rules do not preempt other rights that homeowner’s have in this arena that give them greater rights.

Like any new law, we will have to see how they work over time.

While the rules don’t require servicers to modify loans, they do require servicers to refrain from foreclosing while a loan modification application is pending.

Image courtesy flickr and taberandrew.

Before You List Your Home For Sale: The Essential First Task

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Selling your home?  Before you interview a realtor, before you lift a paint brush, or clean a closet, you need to write a letter.

A letter to the servicer of your mortgage.

You want full disclosure of what charges, fees, expenses and other “stuff” they want to collect from you when your sale closes.

For all you know, they’ve stuffed your loan full of fees, not authorized by law or agreement,  that pad their bottom line, and suck money out of your pocket.

Or, they’ve misapplied your payments or failed to note a mortgage modification.

So, your first step in selling your home is to get a handle on the loan payoff, while there’s still time to strip the mistakes and the junk fees from the payoff demand.

Why tackle your loan first?

Start with your loan because, while federal law requires them to make full disclosure if you ask, they get 30 business days to do so.

So it may be a month and a half before you have their first response.  And if you don’t agree with the figures they produce, it takes longer still to resolve the dispute.

All too often, the inflated payoff demand doesn’t surface until your sale is about to close.  Maybe the payoff demand from the servicer bears little relation to the mortgage statement you’ve been receiving monthly.

And with a sales contract in place, a deadline for closing, and a buyer’s loan commitment about to expire, too many sellers are forced to accept the servicer’s numbers or lose the sale.

They end up paying too much because there’s no time.

Since good information takes time, start here first.

How to make a Request For Information

The Dodd Frank Act beefed up your rights as a home loan borrower to get information from the servicer of your loan.  Time lines were shortened;  broader inquiries were permitted.  And some consequences created for failure to respond.

Here are the essentials of a Request for Information under Reg. X 1024.36

An enforceable request must

  • Be in writing
  • Identify the borrower, the loan and the property address
  • Indicate that the property is your principal residence
  • Set out the information you seek
  • Be sent to the specially designated address of the servicer for RIF’s

The last requirement, delivery to the servicer’s designated address, that trips people up.  The magic address is often found on the back of the monthly mortgage statement.

Sometimes the address designated uses the previous name for the kind of request we’re talking about: Qualified Written Request.  Servicers usually have the address on their website, tho it may require digging to find it.

Don’t send an RFI with your payment.  Don’t ask for it over the phone.  You have a right to good answers only if you follow the procedures in the regulation.

What to ask the servicer

If you are selling your home, you want a payoff figure, itemized.

RFI example

Chances are you know what the principal balance is.  It’s the other stuff that doesn’t necessarily appear on your statement that you want to flush out.

Are there late fees, escrow deficiencies, non-interest bearing balances, inspection fees, appraisal fees, processing fees.

You get the picture.  Fees, fees, fees.  For too many servicers, the money is all in the fees.  Find out ahead of time what you are facing.

Heading to sale

With your RFI in the mail, you can turn to the myriad of other things to do to get your house on the market.

Mark your calendar for 30 business days so you know when to expect good information.

If you get a response and you don’t agree with it, call the servicer.  Complain to the CFPB.  Ask a HUD certified housing counselor for help.  Get an attorney.

Consumer rights are only meaningful if they are used.

7 Keys To Keeping Your House: Chapter 13 After You File

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keep the house

Filing Chapter 13 bankruptcy stops the foreclosure.  You’ve protected your home, for the moment.

Bankruptcy gets you a sheltered legal environment to address the problems with your mortgage.

You heave a sigh of relief.

But the fight to keep your house isn’t over, just because there’s a stay.  You’ve just gotten through the first round.

You need to stay on your toes for the balance of the match to emerge with your house safe at the end of your bankruptcy.

Here’s what you need to know.

Mortgage lenders get special consideration

In the bankruptcy context,  the mortgage lender gets privileged treatment.

Anglo Saxon law, from which US law is drawn, has long given particular protection to the claims of property owners.  After all, it was those who owned property who wrote the laws.

The mortgage lender gets that special treatment because the lender’s lien is a property interest in your home.

That lien entitles the lender to regular payments;  if payments aren’t made, the lender can ask for relief from stay to foreclose.

The exception is if the value of the collateral is less than the total of the liens ahead of the lien in question.  Think:  underwater second mortgage.

Follow these 7 keys for keeping your house AND getting a discharge in Chapter 13.

1.  Regular mortgage payments required

Most Chapter 13 plans provide that the trustee pays the arrears on your mortgage, while you make the payments that come due after filing.

Make the payments- that means property taxes and insurance as well.

Too often, homeowners get fixated on paying the arrearages on their mortgage that they overlook, or struggle, with the ongoing payments.

Court are intolerant of borrowers who want the protection of the bankruptcy stay, but don’t take seriously their obligation to pay the monthly payments that come due after filing.

That intolerance spills over into dismissal of  Chapter 13 cases without a discharge when debtors fail to make current payments.

2.  Look for other liens

Chapter 13 isn’t limited to fixing problems with mortgage liens.  Your plan can either avoid altogether or reduce the amount of tax or judgment liens,

Make sure that you check the public record to see if any avoidable liens have attached, unnoticed, to your home.

If you find liens, your plan can cut them down to size.

3.  Pursue modification

Your best bet may be to agree with the lender on a modification of your mortgage.  Nothing in Chapter 13 stops the parties from considering modification.

Northern California bankruptcy judges have decreed that negotiations for a modification do not violate the automatic stay

Frequently, the modified mortgage either folds the arrears into the loan balance, to be paid over the life of the loan. Or, modification designates a portion of the amount owed as not bearing interest, but payable at loan-end or sale.

A modification that cures the arrears may eliminate the mortgage arrears portion of a Chapter 13 monthly payment, thereby increasing the chances of success.

4.  Review the lender’s claim

In order to be paid in a Chapter 13, a creditor must file a proof of claim.  For mortgages secured by the debtor’s principal residence, a detailed attachment is required.

The mortgage attachment must account for payments and charges to the loan from the date of the first, uncured default.

The POC also contains an analysis of any escrowed taxes and insurance, and the adequacy of the monthly payment to pay those expenses.

Dig into these numbers and see if they match your payment records and whether they are otherwise complete.

There’s lots of data there, some of it correct and some woefully wrong.

5.  Keep records of  your payments

Too many mortgage servicers fail the fundamental task of accepting your payments and crediting them properly.

The method of accounting changes with bankruptcy:  payments made after filing are supposed to be credited to a separate accounting for your loan, while the pre bankruptcy record stands alone

Servicers don’t always do that.  Payments sometimes sit for months on someone’s desk, undeposited.

I tell clients to pay with paper checks on their accounts and send the payment by a method that gets you a receipt upon delivery to the servicer.

It’s a hassle, I know, but you end up with a record from your bank that the check was cashed, and you have proof that it was delivered.  The added expense is nothing to the cost of your attorney having to track down the facts showing you paid.

6.  Read payment change notices

If your monthly mortgage payment changes after you file bankruptcy, the servicer must send you a Notice Of Payment Change.

The change may be driven by an interest rate change or a change in the cost of escrowed taxes or insurance.

Even though it comes on a court form, and looks dense, you’ve got to read it and adjust your post filing payments on your mortgage accordingly.

If you’re uncertain, ask your lawyer.

7.  Exploit case-end rules

When you’ve made your last payment to the trustee, bankruptcy rules require a notice to the mortgage servicer about the state of your loan balance.

If the lender claims that either the pre-bankruptcy claim hasn’t been paid in full, OR, that there are unpaid amounts arising after you filed, they must file a reply.

This call-and-response procedure flushes out any difficulties that show in the lender’s books, and provides a mechanism and a judge to sort things out.

The goal is to exit bankruptcy knowing exactly where you stand on the home loan.

Make sure this happens in your case.

If you change your mind

Things change over time.  If you find that keeping the house no longer fits with your financial future, tell your lawyer immediately.

The confirmed Chapter 13 plan obligates you to make the payments you promised as well as obligating your creditors to stand down.

There’s nothing wrong with changing your mind, so long as you change your Chapter 13 plan to match.

Far too many debtors recently get to the end of the case and get their cases dismissed, without a discharge, because they stopped paying on the mortgage and didn’t alert their lawyer.

More

Make sure you don’t lose house and discharge

Monitoring your mortgage loan 

Before you list your house for sale

 

No House, No Discharge When Chapter 13 Goes Off Script

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Chapter 13 alarm

Sound the alarm.

What began as a trickle of Chapter 13 cases ending badly has become a torrent.

More and more, bankruptcy judges are strictly enforcing the direct pay term of Chapter 13 plans:

If your plan says you will pay your on-going mortgage payments directly, and you don’t pay as promised, the judge may dismiss your case without a discharge.

How discharge differs from dismissal

After three to five years in bankruptcy, you end up with neither house nor a discharge of your debts.

Bummer!

Chapter 13 plans have teeth

Here’s why failing to follow through on your plan can be fatal.

The Chapter 13 plan becomes a court order when it’s confirmed by the court.  It requires the creditors to wait for their money, sets out the payments to be made, and binds all parties to its terms.

In many districts, the trustee pays any arrearages on home mortgages, but the debtor pays the mortgage payments directly that come due during the plan.

But all too often, the debtor stops making the on-going payments to the mortgage lender, without telling any of the other interested parties, like their attorney, the trustee, and the court.

The lack of payments goes unremarked. 

Checklist for keeping your house and your discharge

But with the advent of Rule 3002.1, there’s a reckoning at the end of the plan.  The trustee files with the court a notice of final cure payment, alleging that all is well with the mortgage.

When the lender responds that the debtor isn’t current on the post filing payments, all hell breaks loose.

Too often, the court finds that the debtor’s failure to pay the ongoing mortgage payments is a material breach of the plan.  Because the plan hasn’t been fully performed, the case gets closed without a discharge.

Presumably, foreclosure follows, or another Chapter 13 filing.

Why Chapter 13’s are dismissed

In the debtor’s mind, it’s easy to see the on going payments as something just between the borrower and the lender.  If the lender isn’t happy, it can ask for relief from stay.

But the bankruptcy system sees it differently.

Since the debtor proposed the terms of the Chapter 13 plan, there’s a logic in sanctioning the debtor if he doesn’t do as he proposed to do.

The court would certainly sanction creditors if they didn’t honor the plan.

Consequences of dismissal

Dismissal without a discharge means that none of your debts is wiped out at the end of the plan.

Sometimes, that’s OK, if you’ve managed through the plan to pay taxes or your car loan.

But more often, it means that your personal obligation on the home loan lives on, along with any of the unsecured debt like credit cards, pay day loans, and medical bills survive as legally enforceable debts.

If you stripped off an underwater mortgage or avoided a judgment lien in the Chapter 13, you lose those benefits.

Preserving your bankruptcy discharge

The trick to getting your discharge is simple:  speak up.

Talk to your attorney when you begin having trouble making the on-going mortgage payment.

Talk through whether the problem is temporary or the inevitable consequence of too little income or intervening circumstances.

There are fixes.

  • You can modify your plan to terms you can live with as long as you are within the five year duration of a plan.
  • Maybe you surrender the house.
  • Maybe you reduce the plan payment til you catch up on the mortgage.
  • Maybe you dismiss this case and refile again to include the new arrears in a new plan.
  • Maybe converting to Chapter 7 works for you now.

But know that failing to address the issue puts the discharge at risk.  Chances are, you have too much at stake to keep quiet.

More

When a Chapter 13 falters

Why Chapter 13 plans fail

Can you change lawyers mid case?

Bankruptcy terms simplified

Don’t Fall For Your Mortgage Lender’s Insurance

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lender home insuranceIf the mortgage company provides your property insurance, you are not in good hands.

No matter how much time it saves you.

Your lender is not a good neighbor when it comes to insurance.

When your insurance lapses

Somehow my client let her homeowners insurance lapse.  She wasn’t worried about it, she told me, because the mortgage lender had gotten insurance on her home.

She was content, she said, to let the lender take care of that complication in her life.

Only the complication wasn’t being “taken care of” because the lender’s force-placed insurance didn’t protect my client or her interest in her home.

Lender protects only themselves

Normally, you pick out an insurance carrier to insure your home and to protect yourself against the risks that property owners have.

Your mortgage requires that you insure the property and name the lender as an additional insured.  That way, if the house, which is part of the collateral for the loan, burns down, the lender gets all or part of the insurance proceeds to make up for the loss of the structure.

Your mortgage also provides that if you don’t get insurance to protect the lender, they can get it for you, and you’ll have to pay for it.

But here’s the catch: force placed insurance  protects only the lender up to the amount of its loan.

Your equity in the property is not covered, nor are you insured against personal injury claims related to the  property.

Not to mention the fact that force-placed insurance is very expensive.

So, my client who thought she’d off-loaded the job of providing insurance, had no protection from the lender’s insurance.  All she had was the bill for three times what she was paying before, for half the coverage.

Homeowners exposed to injury liability

Homeowner’s insurance usually protects far more than the house on the lot.  It protects you from claims by visitors to your property for injuries they suffer on your property.

And other, quite unexpected stuff.

Early in my legal career, I found that my client’s homeowner’s policy covered the damages his son caused spinning wheelies in his dad’s car on the high school football field in the dark of night.

Our legal system assigns liability to property owners for injuries that occur on the property, often without regard to fault,.  For that reason,  I advise that people walking away from homes or investment property continue to pay for liability insurance even if they aren’t paying the mortgage and are indifferent if the property burns down.

Take insurance matters into your own hands and be genuinely protected.

More

Little known step that’s critical before listing house for sale

Your house needs an annual check up

How California homesteads work

Your home provides a poor retirement

Image courtesy of Artotem 

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