Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box

The Secret Life Of Liens: Your Property Encumbered

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liens on your homeCan “they” put a lien on me?

If you have debts you can’t pay, it’s a critical question.

The man sitting across the desk from me owed a fistfull of taxes.  He proposed to transfer his interest in the family home to save the house from the tax lien which was filed against him.

He thought that the lien on the house would vanish once the home wasn’t in his name any longer.

And that sort of follows from the idea that the lien is “on” the person.

But that’s not how liens work.

Liens are creatures of law:  whether you think about them as barnacles, leaches, or ticks, the idea is the same.

They attach to assets and follow the asset wherever it goes.

Liens on property

Liens are interests in the property owned by a person against whom a lien has been filed.

The lienholder has rights in the property.  Those rights are different from the rights of the legal owner, but they are powerful still.

The lien operates to carve out a slice  out of the affected assets that are owned by the person who owes money in favor of the creditor.  The lien creates collateral for payment of the debt. [Read more…]

Make Sure Your Mortgage Is Current At Bankruptcy’s End

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maze-1804499_1280_opt

 

At the end of your Chapter 13 case, 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 case was through,  the rule resulted in her being $62,000 better off than she would have been otherwise.

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. [Read more…]

Legacy of the Mortgage Lending Frenzy Returns

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Just when I thought that most of the pain from the mortgage lending bubble of a decade ago was behind us, we arrive at a painful milestone.

Those 10 years-interest only loans from 2006 and 2007 are resetting.

Instead of being interest only, they now move to principal and interest.  And the balance originally borrowed for 30 years, has to be repaid in the remaining 20 years of the loan.

Ouch.

Yet, many homeowners I’ve talked to are only vaguely aware that the earth under them is about to shift.  Or have only a vague plan about what to do now that it has shifted.

How amortization works

Amortization is the mathematical formula that tells you how much you have to pay each month, at a given interest rate, in order to pay off a loan over a given number of years.

The standard home loan in the US is a 30 year loan.  The fixed monthly payment is calculated so that by the end of thirty years, you have repaid the amount borrowed and the interest that the loan accrued over those three decades.  In the early years, most of the payment goes to interest.  As the principal is reduced, interest is a smaller share of each payment.

Suppose you borrow $300,000 at 5% , amortized over 30 years.  The monthly payment is $1610. In the first month, $350 goes to pay off principal, and $1250 goes to interest.

By the last payment, the principal is fully repaid.

But let’s look at the same 30 year loan, assuming it was interest only for 10 years, and the entire loan is repaid in the remaining 20 years of the loan term.

In year 11, the payment moves to $1980 per month.  The first payment in the amortization period is $780 is principal and $1250 is interest.

Coping with mortgage reset

In the best of all possible worlds, you saw the reset coming and have the increased cash flow available to make the larger payments of principal and interest payment.  Good work.

But if the increased payment finds you still budget challenged, you’ve got a problem.

Your choices include refinancing the loan, replacing the existing loan with a new loan, with a life longer than the 20 years remaining on your current loan.

Modification of the loan with the current lender may be an option, though you usually have to show some evidence of hardship to qualify for modification.  The government-regulated loan modification programs have expired.

You can use this juncture to consider selling the home, if it’s time to relocate, downsize, or escape the work involved with home ownership.

Lastly, you can look at your options to eliminate other expenses from your budget to free up cash, or other ways to increase your income with a second job or getting a housemate.

Don’t forget that  Housing and Urban Development offers expert housing counselors, free of charge.

 

 

 

 

Worthless Mortgage Liens Keep Homeowner At Risk

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mortgage after bankruptcy

The client originally had his choice of bankruptcy chapters.

He could file Chapter 7, get quick relief, and put “everything” behind him.

Or his could file Chapter 13, propose a plan that would strip off liens and pay the taxes that would survive the Chapter 7.

He chose 7, and briskly got a discharge.

He forgot that the mortgage lender was a predator.

Return of the lien

Then he called me again. Seems that the Chase, holder of the junior lien on his house, sent him a letter about their lien and their continuing rights to foreclose.  They had their sights on him.

Could they do that? he asked.

Could they?  Sure.  It’s a bankruptcy basic that liens survive a discharge, unless the bankruptcy judge orders otherwise.  The lienholder couldn’t sue him for money, because he’d gotten a discharge, but they retained their lien rights, including the right to foreclose.

Would they?  Not in a million years, on the numbers in his case.  The house was underwater as to the senior lien.  If the second place lien foreclosed, they acquire a property with the first lien still in place and then they owe the first a monthly payment.

Not going to happen.

Lien laying in wait

But, the second can sit there, waiting until either property values go up (a lot, in this case) or until he pays down the first.  They can then grab the value created.

We offered the collection agency for Chase a couple thousand for the release of the lien.   They wanted ten times that much.

The power of Chapter 13 then became crystal clear to my client.

Power of 13

In Chapter 13, the court can void the junior lien without any payment to Chase.

My client has income taxes that survived the Chapter 7 because they were too recent to discharge.  He can pay pay the taxes and pay a chunk of his attorneys fees through the plan.

Chase doesn’t get to bargain or hold out.  If the evidence shows Chase’s lien attaches to no value in the property, after calculating the balance owed to senior liens, Chase is wiped out.

It’s too bad that it takes a second bankruptcy case to accomplish this.  But sometimes, these things don’t become clear until the dust settles.

Image courtesy of Flickr and orangejack. 

 

 

Inherited Homes Now Come With Full Measure Of Consumer Rights

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mortgage servicing rightsHalf a loaf is what you too often got when you weren’t the original borrower on a home loan.

Whether you inherited the property or it was awarded to you in a divorce, you get shortchanged by the mortgage lender.

Even with  a court order from a divorce or a deed from the probate court making you the owner of the property, too often the bank holding the mortgage loan didn’t accord you the full set of rights they had to give the original borrower.

While the law says you own the property, the mortgage lender says “so what?”

But that just changed.

Starting in April, 2018, CFPB amendments to RESPA and TILA  rules extend mortgage servicing protections to successors in interest in real estate.  Those who inherit property, or are awarded a home in divorce, now have the same federal rights with respect to the home loan as the original borrower.

‘Bout time.

Now, if you are a successor in interest on a home, you are now entitled to make a Request for Information about the loan; dispute the lender’s accounting; and participate in loan modifications, just as if you’d been the original borrower.

Who are successors?

In a stroke of efficiency, the new CFPB rules adopted the list of protected successors from 20 year old federal law.

The Garn-St.Germain Act created a list of transfers of real property that are excepted from enforcement of a contractual “due on sale” clause.  Transfers that don’t fall in the list of exceptions can trigger a foreclosure since the note is now due in full.

The protected transfers include

  • a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
  • a transfer to a relative resulting from the death of a borrower;
  • a transfer where the spouse or children of the borrower become an owner of the property;
  • a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property;
Now, acquire property by any of these kinds of transactions and you have the full complement of rights under RESPA and TILA

Getting confirmed as a successor

Under the new rule, the definition of a “borrower” is expanded to include a confirmed successor in interest.

When a successor makes a written request of a mortgage servicer that indicates that the person making the request may be a successor, and provides enough information to allow the servicer to identify the original borrower and the loan in question,  the servicer has duties to the requestor.

Within specified time frames, the servicer must indicate what documents are needed to confirm that the person making the request is a protected successor.  The document request must reasonable under the laws of the jurisdiction, the situation of the successor, and the documents already in the servicer’s possession.

Borrowers have rights

As a confirmed successor in interest, all of the RESPA and TILA protections are available to you.

It does not matter for these purposes that you aren’t liable on the underlying loan.  Your property is liable, and thus you can invoke your rights to get information, challenge errors, have payments properly credited, and be considered for loss mitigation.

More

New rules/better information for borrowers in bankruptcy

More about the new Request for Information

California’s better way to pass real estate at death

 

 

 

Sloppy Mortgage Servicers Prey On Borrowers

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banks behaving badly

 

Given the way they behave, you’d think mortgage servicers actually flew a pirate flag over their operations.

They cash your check for the mortgage payment, then who knows what they do with it and what they credit it to.

Outside of bankruptcy, screw ups in handling your payments are a breach of the contract between you and the lender.  The servicer is the agent for the lender.

Good luck in getting the real story about what’s going on, and call up a miracle to get it fixed.

But, if you’ve been through Chapter 13, you’ve got a teammate in the fight to get proper credit for your payments:  the bankruptcy judge.

Because in, or after, a Chapter 13, getting the loan accounting wrong violates federal bankruptcy law. [Read more…]

Why Your Mortgage Lender Won’t Send Statements After Bankruptcy

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Don't gag mortgage servicersLists of stupid laws are lots of fun, when they don’t really touch your life.

But the law that gags mortgage lenders after bankruptcy isn’t funny.

Preventing lenders from sending mortgage statements to homeowners after bankruptcy just sets families up for foreclosure and rewards servicers with the fees that follow default.

It’s just a stupid result that no one has fixed.

Bankruptcy laws collide

Two clients this week weren’t laughing when two different bankruptcy laws collided:

One law says that the lender’s lien on your home remains enforceable after bankruptcy.

The second law prohibits efforts to collect a debt after bankruptcy.

The survival of the lien after bankruptcy protects the secured lender;  the injunction against post bankruptcy collection protects the debtor.

But what if the debtor wants, and needs, to continuing paying?  The intersection of these two provisions thwarts both. [Read more…]

Hidden Dangers In Tapping The Reverse Mortgage Piggybank

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broken piggybank-images of moneyActor Fred Thompson used to appear on my Sunday morning news program every week touting the benefits of a “government insured”,  safe, reverse mortgage.

Get the money you deserve to live the good life, he urged.

I’m watching the aftermath of that sales pitch play out for one of my clients, and it’s not “the good life” I’m watching.

In fact, the foreclosure sale on the home is scheduled for next week.

Intentions thwarted

The borrower, a single woman of many decades,  took out the reverse mortgage and drew down on the loan.

She has passed away, leaving the house to my client.

The house may have as much as $300,000 in equity over and above the reverse mortgage.

But because the borrower has passed away, the lender won’t take payments from anyone else.  The loan is due and full, says the lien holder, and that’s that.

The climate for a refinance of the property in the hands of my client isn’t auspicious, so the house, and all that equity, may go, not to the relative of choice, but to the “friendly”, reverse mortgage lender.

Bankruptcy possible

A bankruptcy filing may solve this particular problem.  We’ll see.

Bankruptcy is an option only because the heir to the house is an individual.  Individuals can file bankruptcy.  Trusts and estates cannot.

If the elderly borrower had left the house to her estate, the automatic stay that comes with a bankruptcy filing, would not be available to the probate estate.  The probate estate isn’t eligible for bankruptcy relief.

House as piggybank

The risks of reverse mortgages are becoming more apparent, summarized in this Consumer Financial Protection Bureau report to Congress.

A surviving spouse who is not on the loan may have no right to stay in the home on the borrower’s death.   The loan is complex and may encourage premature tapping of home equity.

In the bigger picture, the pressure to tap home equity to support retirement is the predicable result of regarding your home as your piggybank or your retirement nest egg.

The only way to take advantage of that nest egg is to either sell the house or to borrow against it.  By retirement age, most homeowners aren’t great candidates for a conventional loan contemplating monthly payments.

And as we’ve seen in the Great Recession, you can’t count on a robust real estate market when you need that equity for retirement.

So, the gap in the retirement safety net is created, and in steps Fred Thompson and the company he shills for.

As the sergeant on Hill Street Blues said every shift:  Hey, let’s be careful out there.

 Image courtesy of Flickr and Images of Money

 

Loan Modification: The $100,000 Mistake

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loan payoff

 

The job of a mortgage servicer is to collect loan payments and keep track of what’s owed on the mortgage.  That shouldn’t be too hard.

But the evidence is that they don’t do that basic job very well.

Throw a loan modification into the mix, and who knows what you’ll get.

Accounting for modification

I got a glimpse of what we face when my client requested a loan payoff in connection with a sale.

The loan had been modified some five years ago, with the result that a sizable hunk of the amount due when the loan was modified was due only upon sale.

Asked for a payoff, the servicer returned a payoff that failed to include some $127,000 of non interest bearing principal.

Granted, this particular mistake cut in favor of my client.  Who are we to complain?

But it is just as easy to image that the blunder works the other way:  the requested payoff doesn’t take into account the changes made to the debt when the loan was modified downward.  The payoff demand could just as easily have been calculated at the old, higher rates in effect before modification.

Multiply this instance by a fraction of the modified loans out there, and we need to tell Houston we have a problem.

Mortgage modifications to the rescue

Mortgage modifications were supposed to save both individual homeowners and the economy as a whole.

They promised to keep homeowners in their homes despite the housing crash of the Great Recession.

To some extent that has worked.

Or at least mortgage modifications spread the failures out over time so that the market wasn’t glutted with foreclosed properties.

But anyone who has attempted a mortgage modification knows first hand the frustration of submitting an application to the servicer.

Over and over, the servicer claims that you haven’t sent the documents, or the documents are stale or incomplete.

That inability to account for the modificiation application documents is, I’m afraid, just a sneak-peak at the next mortgage horror:

Servicers have no records about the loans they did modify.

Or, more precisely, the records they have are not to be trusted.

Rotten record keeping

The casualness with which servicers approached modifications has scared me for sometime.

  • modification agreements were poorly drafted
  • borrowers never got copies signed by the lender
  • changes in terms not part of public record

Mortgage accounting departmentThe quality of the customer interface at the servicer was laughable, if it wasn’t frightening.

The problems are compounded when the servicing on loans changes hands.

The new servicer starts with the ending balances from the prior servicer.  Few records other than an electronic data base change hands.  Any mistakes made by the prior servicer are now impenetrable.

The terms, or maybe even the enforceability of the modification itself, are lost in the mists of time.

Practice self defense

Who knew that homeownership was going to be a contact sport?

But you have to assume, if you got a loan modification, it will be up to you to defend the modification when the time comes to pay it off.

Here’s the homeowner’s two step:

  1. Keep good records– find and preserve the loan modification agreement.  Treat it as being just as important as the deed to your home.
  2. Request mortgage accounting each year –  make an annual request for the state of your loan, and preserve the response

Your goal is to have your own records supporting the terms of the loan modification and to catch any problems in accounting early.

May all the lender’s mistakes cut in your favor, and may the Force be with you.

You’ll need all the help you can get.

Nightmare image: 

Monkey at typewriter:  Oliver Hammond

Getting A Loan Modification Is Only Half The Fight

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loan modification battlesFor all of you who stressed, strained, fretted, wheedled, worried, fought, kicked, and even gouged to finally wrest a loan modification from the lender/servicer that controls of your home loan, I have a message.

The fight may not be over.

“We Don’t Have Any Record of Your Loan Modification.”

I’ve seen and heard dozens of different variations on this theme. When my law partner and I see more than 2 or 3 unrelated clients with the exact same fact patterns, we know that the problem is massive.

We’ve seen scores of homeowners with the exact same problem.  It’s the same despite the fact that they are dealing with different lenders in different parts of California and out of state.

The themes for this horror-story fall into at least two different categories.

The Train Never Was on the Track

[Read more…]

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Suite 403
Redwood City, CA 94063
Phone: (650) 694-4700

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