Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box

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. 

 

 

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. [Read more…]

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…]

You Keep Underwater Property in Bankruptcy

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underwater real estate

 

Good news or bad news, the bankruptcy trustee doesn’t want your underwater property.

Trustees only want the good stuff, the assets that generate cash to pay creditors.

That doesn’t include real estate where the debt is on par with the property’s fair market value.

Will we have to sell?

My clients this week own a number of rental properties where the loans  match the properties’ value.

The clients thought the properties had long-term appreciation potential and were just certain that filing Chapter 7 meant giving up the properties.

Not so.

The trustee’s focus is the here and now. [Read more…]

New Tool For Homeowners Against Mortgage Lender Mistakes

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mortgage abuse

 

Pstt! Homeowners.  Bankruptcy Lawyers.

We’ve been handed a new tool for dealing with problems with mortgage lenders.

Or maybe the courts are just showing us how to use some tools we’ve accumulated.  Tools to make sure that homeowners who emerge from Chapter 13 are right and square with their mortgage lender.

Scott v. Caliber (Bankr. N. D. Okla 2015)  holds the lender who snoozed through the bankruptcy case guilty of violating the discharge by claiming there was a mortgage delinquency.

Here’s how it developed.

Mortgage woes in Chapter 13

Getting current on a delinquent home loan is often the central goal of a Chapter 13.

The problem is that too often the debtor completes the bankruptcy case, only to get a notice from the lender that he’s not current, but facing foreclosure again.

This happened often enough that the Bankruptcy Rules Committee gave us a new rule to flush out these problems before a Chapter 13 case closes.

This is huge (to use a currently popular term) because while the bankruptcy case is open, you have a judge available to hear and resolve disputes about whether the mortgage is current or not.

Or, put another way, you find out, while you have options, whether the lender agrees you’re good to go.

Bankruptcy Rule 3002.1

The basic new tool is the rule that requires a Chapter 13 trustee to send out a notice at the end of the case declaring the mortgage fully current.  The lender or the servicer must then file a written response, agreeing that the loan is current, or asserting that deficiencies remain.

The rule mandates a loan history be attached if the servicer asserts that the loan isn’t current.

Right there, we’re ahead of the usual game, where the lender used to just say “you’re behind” but provides no evidence.

What happened to the Scotts

At the end of Ms. Scott’s Chapter 13, the trustee gave notice to the servicer that the mortgage was current.  Caliber didn’t respond.

But just weeks later, Caliber sent a statement to Ms. Scott claiming that payments were overdue and imposing late charges of more than $1000.  Then they sent back the regular monthly payment the Scotts made.

The bankruptcy judge was having none of it.

Citing 11 USC 524(i), Judge Michael held that the attempt to collect late fees violated the discharge.

(i) The willful failure of a creditor to credit payments received under a plan confirmed under this title, unless the order confirming the plan is revoked, the plan is in default, or the creditor has not received payments required to be made under the plan in the manner required by the plan (including crediting the amounts required under the plan), shall constitute a violation of an injunction under subsection (a)(2) if the act of the creditor to collect and failure to credit payments in the manner required by the plan caused material injury to the debtor.

When Caliber failed to dispute the trustee’s notice that the mortgage was current, that became an established fact.

If the mortgage is current, there can’t be any late fees owed, the judge reasoned, and the claim that there are unpaid fees proves that Caliber didn’t properly credit the payments made during the Chapter 13.

And failure to properly credit the payments is a discharge violation.

Hallelujah!

Mortgage servicing

In my view, mortgage servicing is a pus pocket in the financial services industry.

Servicers make money when they can find borrowers in default.  They have been virtually unaccountable in the real world.

Up until recently, it’s been difficult to get timely, meaningful information from servicers.  When you find a problem in how your loan is handled, it’s difficult to get it fixed.

And most state courts still think that banks must be capable and trustworthy.

Things are changing with the CFPB regulations making it easier to get information and the comparable changes in bankruptcy rules.

I continue to recommend that every homeowner with a loan make an annual request for information to check on what the servicer is doing with your payments.

643 Bair Island Road
Suite 403
Redwood City, CA 94063
Phone: (650) 694-4700

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