Los Angeles Bankruptcy Law Monitor : Los Angeles Bankruptcy Lawyer & Attorney : Christine Wilton Law Firm : Southern California Chapter 13 & Chapter 7 Bankruptcy, Foreclosure

How soon can we buy a home after bankruptcy?  This is a frequently asked question from my clients who are struggling to decide whether to fight to save their underwater mortgaged home, or simply walk away and come back into the market within a couple years.  What we are now seeing is a steady stream of buyers who went through the short sale process nearly two years ago, who have saved their money and now have 3-5% to buy again.

Home Ownership University posted FHA, Fannie and Freddie guidelines in their recent article. It is very important to consider your long term goals when making the financial decision to walk away from your present mortgage and start over.  If you are among those who want to re-enter the marketplace in the future, a short sale and/or bankruptcy is clearly a better option than a foreclosure.  Remember that time is of the essence because the safe harbor tax breaks will likely be ending in 2012.

Your credit score is also a factor here and you are wise to work with a reputable credit repair expert whether you decide to file bankruptcy or not because lenders are looking for a score if 640 or better for potential buyers.  If you have debts besides your mortgage, you should consider bankruptcy as an option.  Otherwise, if all you're dealing with is mortgage debt, then a short sale is right for you.

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Wow!  I just read Martin Andelman's blog post entitled, Our Future Hinges on Just ONE Thing and I'm blown away by the time, effort, detail and compassion he continually brings to the table when caring about the American Dream of home ownership.  We can no longer stand idly by and place blame on the "irresponsible homeowner" because the evidence is too compelling against the big banks who played the same tricks on us as they did when they caused the Great Depression of the 1930's.

Don't take my word for it, or Martin's, read the article and share it with as many people as your social network contains.  When We The People join to form a more perfect union, our united voices cannot be ignored.  Look at what happened with the recent Bank of America ATM fee.  As soon as we the people got busy telling everyone not to bank there, they changed their position. 

WE CAN MAKE A DIFFERENCE. 

We really can.

I'm happy to report that my engineer boyfriend has changed his position from blaming the irresponsible homeowner to supporting me in the fight against Big Banks!  Join us in the fight to stabilize our economy and keep Americans in their homes.  Illustration as borrowed from Mandelman Matters.

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On September 20, 2011 I was a speaker for Law Review CLE on the topic of Foreclosure Defense in Orange, California and again on November 10, 2011 in Riverside. My perspective is always from the bankruptcy side where we will file under Chapter 13 of the Bankruptcy Code to initially stop the foreclosure sale. The benefit to this strategy is, the moment the bankruptcy case is filed, the Debtor's mortgage becomes current and the Debtor will make up the mortgage arrears through trustee payments in their Chapter 13 Plan.

Many practitioners in attendance practice in state court's, and it was depressing to hear their state court hurdles of having to file bonds with the court that are prohibitive to the homeowners and the level of difficulty in moving their cases to the discovery phase. Ironically, our bankruptcy judges continue to tell bankruptcy counsel that the foreclosure defense issues like, "who owns the note" argument needs to be addressed in state court.  It's as if the two benches are pointing fingers and neither wants to take the time to learn about the mortgage securitization issues because their calendars are packed.

Never fear that I shared my Max Gardner Bootcamp wisdom, some of my most recent moving papers, and cutting edge legal arguments we are making that we hope will persuade the bench that mortgage creditors are committing fraud upon our courts, every time. There is hope through the bankruptcy process and it's important to hire competent counsel to assist you when facing these complex issues.

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     A literal reading of 11 U.S.C. Section §362(c)(3) terminates the stay 30 days after the filing of the petition only with respect to the debtor, not property of the estate. However, coming into bankruptcy court in the Central District, recent rulings have discussed whether the Stay terminates entirely or only with respect to the Debtor in subsequent bankruptcy case filings.

      In re Reswick Jr., 2011 Bankr. LEXIS 873, (B.A.P. 9th Cir. February 4, 2011) held that the Automatic Stay terminated as to the debtor and property of the debtor’s bankruptcy estate 30 days after the debtor’s second bankruptcy filing. The court agreed with the persuasive reasoning set forth in In re Daniel, 404 B.R. 318 (Bankr. N.D. Ill. 2009), and held that the automatic stay terminated in its entirety on the 30th day after the petition date." (Emphasis added.) This is a minority decision.

The Reswick court analyzed the majority viewpoint [*364],

“The majority interpretation finds the phrase "with respect to the debtor" to be both critical and unambi-guous, and concludes that on the 30th day after the peti-tion date, the automatic stay terminates only with respect to the debtor and the debtor's property, but not as to property of the estate. See, e.g., Holcomb v. Hardeman (In re Holcomb), 380 B.R. 813 (10th Cir. BAP 2008); [**7] Jumpp v. Chase Home Finance, LLC (In re Jumpp), 356 B.R. 789 (1st Cir. BAP 2006); In re Pope, 351 B.R. 14 (Bankr. D.R.I. 2006); In re Murray, 350 B.R. 408 (Bankr. S.D. Ohio 2006); In re Brandon, 349 B.R. 130 (Bankr. M.D.N.C. 2006); Bankers Trust Co. of Cal. v. Gillcrese (In re Gillcrese), 346 B.R. 373 (Bankr. W.D. Pa. 2006); In re Williams, 346 B.R. 361 (Bankr. E.D. Pa. 2006); In re Harris, 342 B.R. 274 (Bankr. N.D. Ohio 2006); In re Jones, 339 B.R. 360 (Bankr. E.D.N.C. 2006); In re Moon, 339 B.R. 668 (Bankr. N.D. Ohio 2006); In re Johnson, 335 B.R. 805 (Bankr. W.D. Tenn. 2006). Although these decisions state that the court need not read beyond the phrase "with respect to the debtor" to discern its meaning, see, e.g., Jones, 399 B.R. at 363 ("Section 362(c)(3)(A) provides that the stay terminates 'with respect to the debtor.' How could that be any clear-er?"), these decisions arguably do read beyond the phrase because they find that the stay terminates with respect to the debtor and to any property of the debtor that is not property of the estate. Id. at 362; see also Holcomb, 380 B.R. at 816 ("[W]e conclude that the language of § 362(c)(3)(A) terminates the stay only as to the debtor [**8] and the debtor's property."); Jumpp, 356 B.R. at 797 ("Section 362(c)(3)(A) provides for a partial termination of the stay.").”

On May 9, 2011, the Central District Riverside Division Court in In re Rinard, 2011 Bankr. LEXIS 1731, Judge Clarkson held,

“Under 11 U.S.C. § 105(a), a bankruptcy court "may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." Section 105(a) gives the bankruptcy courts the power to stay actions that are not subject to the 11 U.S.C. § 362(a) automatic stay (footnote omitted) but "threaten the integrity of a bankrupt's estate." Canter v. Canter (In re Canter), 299 F.3d 1150, 1155 (9th Cir. 2002) (citation and quotation marks omitted); Ingersoll-Rand Fin. Corp. v. Miller Mining Co., 817 F.2d 1424, 1427 (9th Cir. 1987)." Solidus Networks, Inc. v. Excel Innovations, Inc. (In re Excel Innovations, Inc.), 502 F.3d 1086, 1093 (9th Cir. 2007). The Ninth Circuit, in Solidus Network further found that the usual preliminary injunction standard applies to stays of proceedings against non-debtors under § 105(a). Solidus at 1094.”

One of our judges recently overruled a motion for turnover of property that was foreclosed upon after the Stay expired.  What this means is that you MUST file a Motion to Continue the Automatic Stay beyond the 30 days when your client has filed a subsequent filing within 12-months preceding the filing of their current case.  In our Central District these are fairly simple form motions that are routinely granted. These motions MUST be filed and heard within the first 30 days of the case. Don't risk losing your client's assets.

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One of my favorite activities as a leader in my own law firm is to take time and answer questions over at LawQA.  These questions come to me in an email and I respond with short answers most of the time.  This one though, caught my attention because just yesterday my partner John Greifendorff and I sat down with a couple of real estate professionals and discussed the benefits of a short sale after bankruptcy. 

I'll have to admit that in a prior article, Don't Get Stung in a Short Sale, I was of the opinion that a short sale would not serve a consumer at all. There are still warning signs to look out for, but I can now see that a short sale may not only benefit the consumer who eventually wants to buy another home later, it may also help our economy recover faster.

So the question in the title of this article asks which direction should the homeowner take after their bankruptcy case.  Generally, I would answer that it doesn't matter because your legal obligation to pay your debts has already been discharged and you would incur no tax consequences from any of the choices above. However, I will now add that if you want to buy a home again and re-enter the real estate market, you want to consider your options more closely.

I suggest you take some positive steps this way:

• Continue to maintain your home within reason and only using your own "sweat equity" by keeping the grounds and not otherwise destroying the property before you leave;

• Work with qualified, established negotiators to guide you through this short sale process. It is an added bonus, if they work closely with a law firm to review your short sale papers so that the transaction will leave you with no surprises after the close of the sale;

• Ask for "Cash for Keys" or some other incentive to leave at the end and show your good faith by leaving the house in a well cared for condition .

I can now see that a short sale after bankruptcy can be beneficial to the consumer by shortening the time for them to re-enter the real estate market. We know the benefits to the lender are the savings to them because foreclosure is a costly process; and the economic recovery process occurs more quickly when we can help families become homeowners again sooner. Besides who else is going to buy all this real estate that the banks are holding? If you need a referral to a trusted short sale professional, give me a call; I'll be glad to help.

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If you're a California homeowner considering filing bankruptcy to save your home and potentially litigate against your alleged mortgage creditor, there are some steps you can take now to help your bankruptcy litigation attorney later.

First, gather up all your original mortgage loan documents and have them available for your attorney. Keep these loan documents safe and save every notice, account statement,etc. as this information may become important pieces of evidence later on.

Next, you will want to contact your current loan servicer and obtain some very important information about your loan. You'll do this by making what is called a Qualified Written Request ("QWR") under the Real Estate Settlement Procedures Act ("RESPA").

The QWR must be sent to a special address for the loan servicer and that address is usually the "correspondence" address found on the back side of your monthly mortgage statement.  It's best to send this request via certified mail so you can record and prove they actually received your request.

Below is a sample of the letter you could write under RESPA:

Dear Sir or Madam:

 

Please treat this letter as a “qualified written request” under the Federal Servicer Act, which is a part of the Real Estate Settlement Procedures Act, 12 U.S.C. 2605(e).  This request is made on behalf of my Clients about the proper application of payments from the debtors to interest, principal, escrow advances and expenses (in that order of priority as provided for in the loan instruments); about your use of suspense accounts in connection with your receipt of the debtors’ payments; about your use of legacy late charges; about your use of automatically triggered property inspections and broker price opinion charges and fees based on pre-petition legacy accounting for pre-petition arrears; and about legal fees and expenses that have been attached to this account in the form of corporate advances.  Specifically, I am requesting the following information:

1.       A complete and original life of loan transaction history prepared by the Servicer from it's own records using it's own system and default servicing personnel.

 

2.       A copy of your Key Loan Transaction history, bankruptcy work form, or XLS spreadsheet of all accounts associated with this mortgage loan.

 

3.       The Transaction Codes.

 

4.       The Code definitions in plain English.

 

5.       Please attach a copy of the MERS Milestone Reports.

 

6.       Please identify the full name, address and telephone number of the current holder of the original mortgage note including the name, address and phone number of any Trustee under the Trust or other fiduciary.  This request is being made pursuant to Section 1641(f)(2) of the Truth In Lending Act, which requires the servicer to identify the holder of the debt.

 

7.       Copies of all collection notes, collection records, communication files or any other form of recorded data with respect to any communications between you and the debtor.

 

8.       An itemized statement of the full amount needed to reinstate the mortgage as of the date of your response.

 

9.       Copies of all written or recorded communications between you and any non-lawyer third parties regarding this mortgage.

 

10.     All P-309 screen shots of the history all of the accounts (principal, interest, escrow, late charges, legal fees, property inspection fees, broker price opinion fees, statutory expense fees, miscellaneous fees, corporate advance fees, etc.) associated with this loan.

 

To the extent that the servicer of this mortgage loan has charged the debtor’s mortgage loan account any appraisal fees, broker price opinion fees, property inspection/preservation fees, legal fees, recoverable corporate advances and other fees or costs that were not disclosed to the debtors, the debtors dispute any such fees and costs and specifically request that the account be corrected.

Once you have the response from the loan servicer, make an appointment to meet with your Chapter 13 Bankruptcy Litigation Attorney to review the documents and start your bankruptcy case. Remember that most consumer bankruptcy attorneys will offer a FREE initial consultation to help you decide if filing bankruptcy is right for you.  Even if you don't intend to file bankruptcy, a qualified written request will provide you with important information about your mortgage and the creditor.

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U.S. Bank misled the Debtor into abandoning bankruptcy by promising to work with the Debtor on a mortgage reinstatement and loan modification. The case, Aceves v. U.S. Bank, N.A., No. B220922 (Cal.App. Dist.2 01/27/11) the California Court of Appeal for the 2d Appellate Division found that the Debtor could have reasonably relied on the bank's promises, the promises were sufficiently concrete to be enforceable, and the Debtor's decision to forgo Chapter 13 relief was detrimental because it allowed the bank to foreclose on the property. Here's my favorite part:

"Contrary to the bank's contention that Plaintiff's use of the Bankruptcy Code was ipso facto bad faith, Chapter 13 is uniquely tailored to protect homeowners' primary residences from foreclosure," the appellate court said.

After the debtor abandoned her case, the lender foreclosed.  The trial court entered a judgment in favor of U.S. Bank and the appellate court reversed on the issues of promissory estoppel and fraud. This means that if the lender promises to work with you and then they later foreclose after you have taken action in reliance on their promise, the lender could be liable for their actions.  Unfortunately, this story does not have the happiest of endings because the court found no basis for voiding the deed of sale or otherwise invalidating the foreclosure.

The moral of this story is that you receive valuable rights under Chapter 13 Bankruptcy that will stop the foreclosure sale through the injunction provision of 11 U.S.C. §362 (Automatic Stay). The bankruptcy court can reinstate your loan and will permit you to cure your default through Chapter 13 Plan payments over 3 or 5 years. Since Congress refuses to allow bankruptcy judges to modify the terms of the loan, you'll have hire an attorney who focuses their practice on predatory lending, mortgage fraud and the securitized mortgage pools to determine whether you have legal claims that could potentially be litigated during the pendency of your bankruptcy case.

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 We're still uncovering the fraud perpetrated by the mortgage meltdown and have yet to deal with the more than 95 million securitized mortgages that have yet to adjust.  We have seen tremendouse changes in the industry as new laws and regulations are changing the way the industry does business. In the January issue of Los Angeles Lawyer, Beth S. DeSimone, James D. Richman and Tengfei (Harry) Wu of the firm Arnold & Porter, LLP wrote an in-depth article entitled, "Down Payment: The Dodd-Frank Act takes aim at the primary abuses uncovered during the mortgage meltdown." I think the changes in the law are nothing more than a little bit of "CYA" by our government's "turn the other cheek" approach to regulating industry. I mean really, it's only the largest single debt you'll ever enter into in your life, why shouldn't the industry make a little money?  

So, from the mortgage meltdown, we have a new government agency called the Bureau of Consumer Financial Protection (CFBP); don't you feel better now?; and perhaps the most important change is the Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law by Obama on July 21, 2010. The Dodd-Frank Act changes the way mortgage lenders, brokers, appraisers, settlement service providers and other industry participants will conduct business.  It doesn't change the past and may not do enough in protecting consumers, but it sure does make our absent minded government seem interested in the issues. What I really like about these new rules is that a violation is an assertable defense for a borrower in a foreclosure action, without regard to the statute of limitations under Section 1413.

Another important point is that there is a safe harbor for lenders making a qualified mortgage loan that provides seven characteristics under Section 1412.

1. The loan must no permit negative amortization, or subject to certain exceptions, deferred principal;

2. Subject to certain exeptions, it must not require any balloon payment;

3. The income and assets relied on to qualify the borrower must be verified and documented;

4. Underwriting must be based on the full amortization over the loan term;

5. The debt-to-income ratio must not exceed certain guidelines to be set by regulation;

6. Total points and fees must not exceed 3 percent of the total loan amount; and

7. The loan term must not exceed 30 years, subject to certain exceptions.

"Down Payment" provides more detail into the new regulations and features of the Dodd-Frank Act and is a must read for those practitioners helping consumers with their mortgages and real property. Consumers reading this article should take note of the safe-harbour characteristics outlined above because I believe that these should be consumer guidelines when shopping for a mortgage loan.  

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The folks over at Public Counsel Law Center are always providing valuable information to consumers.  Public Counsel Law Center is the nation's leading Pro Bono Law Firm and they do a great job in bankruptcy practice with their reaffirmation clinics and the new help desks at the clerk intake counter. Here are their

5 tips to avoid loan modification scams:

1.  Don't Pay Up Front Fees;

2. Don't Transfer Title or Sell Your House to a "foreclosure rescuer;"

3. Don't Pay your Mortgage Payments to Anyone Other Than Your Lender or Loan Servicer;"

4. Never Sign Any Documents Under Pressure or Without an Opportunity to Review Them.

5. Don't Ignore Letters From Your Lender or Loan Servicer.  Responding is the Best Bet For Saving Your House.

If someone demands an up-front fee, Public Counsel adivses that you can report them to the Attorney General's Office at 1-800-952-5225; or file a complaint online. Remember that the best way to get a workout is to work directly with your lender. 

Remember that the foreclosure process will continue on your home during your attempts to workout a modification agreement with your lender.  You may also want to consult with a bankruptcy lawyer to create an exit strategy if your modification offer falls through and you still want to keep your home. The filing of a bankruptcy case will legally stop the foreclosure process and will give you the breathing room you need to continue to work with your lender and have an advocate on your side.

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 The Court in In re Kemp 2010 WL 4777625 (Bankr. D. N.J. November 10, 2010) held that a claim filed by a mortgage servicer would be disallowed when that creditor did not have possession of the note and the note was not endorsed to the creditor at the time the claim was filed. The bankruptcy court cited New Jersey's Uniform Commercial Code in disallowing the creditor's claim because Countrywide Home Loans, Inc. d/b/a America's Wholesale Lender could not prove that it was the holder in possession of the note; Non-holder in possession; nor Non-holder not in possession of the note. Here in California we have similar codes under the California Commercial Code ("CCC"). 

What this case means for debtors is that debtors must be clearly prepared to challenge claims asserted by their mortgage lenders and/or servicers. When debtor's counsel produce clear records of creditor's failures to document the chain of custody and assignments of promissory notes debtors will successfully knock out these claims.  Debtors counsel must cross-examine witnesses; propound opposing parties for admissible evidence and demonstrate the creditor's failure to follow the CCC.

Once successful in opposing the Proof of Claim filed by the Creditor, the Debtor can then file an Adversary Proceeding (lawsuit) against the creditor to determine the extent, priority and/or validity of the lien as the motion to disallow the claim does not address this issue.

Attorneys representing debtors must be prepared to demand proof of authority and ownership of the note and challenge the effectiveness of any attempt to assign or transfer the note or deed of trust after the bankruptcy case was filed or on the eve of trial because these action not only violate the automatic stay in some cases; they may also violate the securitized trust pooling and servicing agreement. 

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A fundamental part of deciding to file bankruptcy is helping our clients achieve their financial goals.  One of the toughest decisions clients struggle with is deciding whether to keep their homes.  Many Californians are faced with underwater property values; denied loan modifications; falling behind on mortgage payments when their teaser rate terms end; and the fact that we live in a non-judicial foreclosure state where a home can be foreclosed without notice to the courts.

The short answer to this daunting question is Yes you can keep your home and file for bankruptcy. Under Chapter 7 liquidation bankruptcy, it is always recommended that you be current on your mortgage payments and have equity within the California Exemption limits.  If you're behind on your mortgage payments, the most effective way to deal with the "mortgage arrears", as they are called, is to file bankruptcy under Chapter 13 where you get to make up those past due payments over a period of 3-5 years.

The deeper question is whether you're trying to save the impossible American Dream of owning a home and at what price are you willing to pay to have it?  Unless you're stripping off a second mortgage and willing tolitigate against your loan servicer or lender on the securitized mortgage issues, then you may be better off walking away from your home completely because the values will increase over time, but this recovery will take a very long time; 10 years or more.

The numbers are staggering when you look at what you currently owe against a continuing decline in property values and what your home may be worth by the time you're finished paying on that outrageous mortgage.  If you're determined, committed and willing to go the distance and keep your home, the most economical method of saving your home is by filing bankruptcy under Chapter 13 if you're behind on your payments. 

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Tune in to AM830 this Sunday morning from 10 a.m. to 11 a.m. when my partner John Greifendorff and myself, Christine Wilton guest on Real Estate Radio-Southern California with our host, Ron Siegel!

Ron Siegel is host of "Real Estate Radio - Southern California" on ESPN Radio AM 830 KLAA Sunday's from 10-11AM. Every Sunday, Ron discusses current events, real estate, and various other financial topics.  Mr. Siegel runs the Real Estate and Mortgage Resource Center at Stearns Lending and his radio show explores this topic from every angle.

The Real Estate Radio Network, hosted by Ron Siegel, is designed to help Consumers in Southern California understand the HOW and the WHY in our incredible Real Estate Market. Southern California is a unique place to live and an incredible place to invest. If you don’t own a piece of Southern California yet, make sure you tune in and gain all the knowledge you need to make an educated decision about when to enter the market. If you already own a home, listening to the Show will help you understand when it’s a good time to sell or refinance. Either way, the show is for you and we hope you’ll join us this Sunday at 10am on ESPN Radio AM 830 KLAA!

This Sunday morning from 10 a.m. to 11 a.m. we will answer questions that will effectively assist southern California homeowners deal powerfully and effectively with their lenders through bankruptcy.  Bankruptcy is a powerful tool for homeowners and is often overlooked and considered a last resort, yet the injunction that is the automatic stay is enforceable from the moment a bankruptcy case is filed, and Stops foreclosure dead in its tracks.  No other remedy is as effective or as economical to the homeowner.  Send us your questions and we'll do our best to get them all answered.  Thanks for listening!

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The foreclosure crisis is heating up in the media.  Last Friday, Attorney General Jerry Brown issued this Press Release saying,

"All lenders should halt foreclosures until they clear up this mess and ensure that the process is fair and complies with California law,"  Brown said. "Bank of America has taken an important step, and the other major lenders should follow its lead."

Brown called on all banks to halt foreclosures here in California, after the GMAC Mortgage deposition of a robo-signer from Florida was exposed. 

Consumer attorneys nationwide have been attacking this problem since the economic crisis began and we're not about to give up.  When it comes to fighting this fraud in bankruptcy, our fearless leader, O. Max Gardner is leading an army of more than 200 attorneys nationwide through his Bankruptcy Litigation Model Bootcamps.  The news has even reached Edmonton where one graduate's case was recently highlighted,  "'Robo signer' ruling gives owners loophole in foreclosure cases."

Other news releases show that, like dominos, other banks are falling in line and halting their foreclosures under the pressure of the media attention being spotlighted on the industry's careless practices.  The  trust of the American people has eroded as the American dream of homeownership turns into our nation's nightmare because of corporate greed.  The question of whether the foreclosure crisis is slowing the economic recovery is addressed at Daily Finance.

The foreclosure crisis has not slowed recovery, it's the denial of the federal government that this is a problem at all that's causing us to sink deeper into economic uncertainty.  Here's another great article that exposes the Rot from Within the Foreclosure Mess.

It's time for the American people to take back our country.  Make your Vote count!  If you suspect fraud, report it!  Call your local bankruptcy attorney and take a stand to stop your dream from being stolen from you.

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Last week, Yves Smith caused a stir with this post, "Fannie and Freddie Continue to Rely on Foreclosure Mills Despite Evidence of Fraud."  The 64 comments are worth a read, if anything to ferret out the boys from the men in terms of skill level in dealing with the legal issues.  Smith gives acknowledgment to O. Max Gardner, who is the nation's go-to bankruptcy litigation attorney and, I am proud to say that, I am a Lieutenant in his army.  So, what's all the scuttle butt about? 

Smith's post referred to another piece published by Mother Jones, "Fannie and Freddie's Foreclosure Barons," which provides a peek inside the shady document fabrication operations to cover up past mistakes in the mortgage industry and post foreclosure clean-up.  What a mess.

Looking at the securitization issues from a California standpoint, we have both federal and state law to contend with.  From a bankruptcy position, here in the Central District we have the In re Foreclosure cases , In re Hwang, In re Walker, and In re Vargas.  Since the mortgage follows the note, we need a complete, and unbroken chain of custody of the note and adherence to the California Commercial Code.  We are arguing the Creditor has no standing and even if they did, there are major computation errors in their claims. The fight goes on for now.  Results may vary in California.  Side effects include general frustration; nausea; possible foreclosure; and guilt for not paying your mortgage. 

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Homeowners in California have been fighting an uphill battle to unwind wrongful foreclosures and have been getting mixed results in state courts all over California.  I have always said that it's easier to stop a foreclosure by filing bankruptcy than  it is to try to reverse a wrongful foreclosure in state court once it's been sold or reverts back to the bank. 

Mortgage Electronic Registration Systems, Inc., fondly known as 'MERS,' has been named on more than 80% of all California mortgages, but who are they?  MERS came onto the scene back in the 90's, created by the mortgage banking industry to streamline the mortgage process by using electronic commerce to eliminate paper.  What they really did was cheat many local governments out of recordation fees and failed to properly document the assignments and transfers of the sub-prime mortgages as they were allegedly turned into securitized investments.

Mandelman, over at Mandelman Matters, recently posted this article entitled, California Court Rules:  MERS Cant' Foreclose, Citibank Can't Collect.  The court case he cited, In re Walker, 2:10-21656-E-11 is a Chapter 11 case where MERS, acting solely as 'Nominee' assigned a Deed of Trust to the Creditor.  The Court was not swayed by the assignment and held that the Creditor had not demonstrated any document to support its claim that it has standing to enforce the promissory note and deed of trust.

MERS is not a real party in interest and has no right to enforce, assign, or foreclose on any mortgage note, even though their named on the note as a 'nominee' and 'beneficiary.'  So, if you look at your mortgage note and see MERS listed as a nominee and beneficiary, chances are pretty good that your mortgage has been securitized and any attempt to foreclose by the loan servicer, or any entity for that matter is probably unlawful.  Call your lawyer and take action to stop the foreclosure and save your home.

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Recently, Katie Porter, over at Credit Slips, reported that Bank of America (BOA) reached a settlement with the Federal Trade Commission regarding certain mortgage overcharges, including overcharges in bankruptcy once serviced by Countrywide. Henry Sommer joined the conversation, asking if the Bank of America Settlement is a sign of true progress.

After reading the consent judgment and order provided by Katie, followed with Henry's entertaining summary of the requirements set forth in that order that include BOA's agreeing to not lie, cheat, or steal from consumers, I am not getting that warm feeling like we've accomplished much.  Did I miss anything?

Those homeowners that can afford to make a mortgage payment seek Chapter 13 where they are given time to make up the arrears on their mortgage and get their finances back on track.  What has been happening though is that many receive their discharge only to be served a Notice of Foreclosure soon after for charges on their mortgage. I'm even seeing this when the servicer files their proof of claim, declaring that "hey, we're going to do this up front and charge attorneys fees and costs to even file this proof of claim."  They'll also usually include inflated arrears, inspection fees they did not conduct, and other fees and costs that are superfluous to your mortgage. 

It is imperative that debtor's counsel in chapter 13 practice, scrutinize every proof of claim in every case and hold these Creditors to account for their willful failure to follow the law.  If you're a homeowner seeking to stop a foreclosure and you know that you've been overcharged and your loan servicer adding charges incorrectly, don't file under Chapter 13 without a competent attorney that not only practices Chapter 13, but really understands this mortgage mess we're in. 

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California’s mortgage crisis is out of control. The sub-prime lending didn’t end until late 2007 and into early 2008 when the economy collapsed. What further frustrates our sunshine state’s mortgage problems is that we were sold Jumbo loans due to our high property values. A Jumbo loan is a mortgage loan in an amount above conventional conforming loan limits and as of 2010, the limit is $417,000 according to Wikipedia.org. So, many California homeowners are in default on their primary mortgage because their “teaser” rate has ended and they’re now faced with increased interest rates and forced to pay principal and interest on a mortgage that they could not afford, with a jumbo loan that the lender is unwilling to modify.

Homeowners are being led down the primrose path of a modification offer by the lender only as a courtesy due to the HAMP program’s rules and California Law that requires the lender to contact the borrower and attempt a workout. The law, however, does not require a mandatory workout and the sub-prime lender, loan servicers, and asset-backed securitized mortgages will always be refused a modification of their mortgage because the investors don’t want it.

It may seem like we’re in a desperate situation here in California, and that’s why so many scams are cropping up. Recently, I’ve even been marketed to by these forensic mortgage loan audit scammers. They’re a new twist on foreclosure rescue fraud, so be alert to these offers. The envelope looks legitimate, but it’s nothing more than a cleverly disguised marketing piece. They generally target those homeowners in foreclosure, but they’re now starting to target the potential predatory loans too.

If you’re looking for help, avoid:

1. anyone offering guarantees;
2. instructs you not to contact your lender, lawyer, or housing counselor;
3. collects a fee up front; encourages you to lease your home so you can buy it back over time;
4. recommends that you make your mortgage payments to someone other than directly to the lender or loan servicer;
5. offers to buy your home for cash at an amount less than market value; or
6. pressures you to sign papers you haven’t had a chance to read thoroughly or don’t understand. Get Help.

You can always check out the Federal Trade Commission [FTC], the nation’s consumer protection agency for current information and scams to avoid. Contact your lender or loan servicer immediately when you fall behind on your payments. You can also get FREE advice from housing counseling agencies certified by HUD by calling 1-888-995-HOPE. Remember that filing bankruptcy will LEGALLY STOP A FORECLOSURE through the Automatic Stay, 11 U.S.C. §362.

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Your federal government tried to help save your home by creating the Home Affordable Modification Program, or HAMP as we have come to know it.  Too bad it's not working because this program only has a 20% success rate.  Many homeowners who were stuck in the log jam of the HAMP program were forced into bankruptcy, only to find the lenders reject their modification after their case was filed. 

The HAMP administration has created supplemental directives that briefly support modifications for those either in bankruptcy or contemplating filing bankruptcy. These changes become effective June 1, 2010.  Under these new guidelines, servicers must consider borrowers in active bankruptcy for HAMP if a request for modification is received from the borrower, borrower’s counsel or bankruptcy trustee.  Borrowers who are in a trial period plan and subsequently file for bankruptcy may not be denied a HAMP modification on the basis of the bankruptcy filing.  Even if you've received a discharge in your bankruptcy case, you should still be eligible for a HAMP modification. 

Here is some great news for those in a chapter 13 bankruptcy.  As taken directly from the Supplemental Directive 10-02, "When a borrower in an active Chapter 13 bankruptcy is in a trial period plan and the borrower has made post-petition payments on the first lien mortgage in the amount required by the trial period plan, a servicer must not object to confirmation of a borrower’s Chapter 13 plan, move for relief from the automatic bankruptcy stay, or move for dismissal of the Chapter 13 case on the basis that the borrower paid only the amounts due under the trial period plan, as opposed to the non-modified mortgage payments."  This means that if you're in a trial modification and you subsequently file for bankruptcy under Chapter 13, you will continue to pay the modified mortgage payment. 

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In this economy, all cross-sections of our community have been impacted.  Money matters to all of us.  Your local bankruptcy attorneys are working hard to dispel the lies and myths about filing bankruptcy.  It is imperative that the truth be told; bankruptcy is an important tool that will facilitate Economic Recovery for America.  That's why we're coming to the Long Beach Lesbian and Gay Pride Festival, May 15-16, 2010.

Attorney R. Grace Rodriguez is the sponsor of the Financial Wellness Clinic booth inside the festival.  Local Bankruptcy Attorneys will be on hand to answer your questions about debt relief options; fiancial wellness; tips to avoid bankruptcy; the bankruptcy process and life after bankruptcy.  A special note to homeowners:  Filing Bankruptcy Will Stop Foreclosure! 

The lesbian and Gay community has special legal needs when it comes to bankruptcy and financial wellness.  It is more important than ever to know your legal rights.  The attorneys will be dispensing valuable information and providing pricelss resources to the booth's viistors.  Be sure to look for the Financial Wellness Clinic Booth at this year's festival, held in Long Beach on May 15-16, 2010.  Be proud.  Be debt FREE.

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California homeowners don't stand a chance to save their homes outside of bankruptcy because we are in a non-judicial foreclosure state.  This means that lenders can foreclose on a home without going to court.  Filing a civil action in state or federal court is quite costly and, it seems, that many attorneys simply do not recognize a fraudulent claim by a mortgagee when they see it.  So what's a homeowner to do?  File a chapter 13 bankruptcy.

A chapter 13 bankruptcy is a very cost effective device to saving a debtor's home because it immediately brings the mortgage current, and allows the arrears to be paid over time through the plan.  Chapter 13 bankruptcy puts the debtor in control of their case from the very start.

After the case is filed, the mortgagee must file a proof of claim in order to receive any payments under your plan.  The problem starts here.  Professor Katherine Porter, of University of Iowa College of Law wrote and abstract, Misbehavior and mistakes in bankruptcy mortgage claims and says that this misbehavior has largely gone unchecked on a national level.  Scrutinizing the lender's proof of claim is a crucial step to saving your client's home.  Many times there are violations of Federal Rule of Bankruptcy Procedure ("F.R.B.P.") 3001, which requires the use of official court forms and evidentiary requirements. 

We have seen a vast majority of errors in proofs of claims where they fail to properly itemize their fees; or perfect their security interest; or they do not attach any documents at all.  These are just a few reasons counsel should rigorously enforce Rule 3001 and object to any proof of claim that has even the slightest of errors.  As debtor's counsel, it is our duty to preserve the fairness and accuracy of the bankruptcy system because neither  the creditors, nor their counsel seem to be voluntarily complying with all procedures and laws.  Isn't that how we got into this current financial mess in the first place?

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As a consumer debtor, you will usually have two options when deciding to file bankruptcy; Chapter 13 or 7 under the Bankruptcy Code.  The question is which is better?; and which one should you file?  The answers to these questions are as unique as your individual circumstances.

Under Chapter 7 of the Bankruptcy Code, you are declaring that you have no ability to pay your debts at all.  You are, in a sense, liquidating your estate.  From the moment you file your case under chapter 7, the trustee takes control and has the right to take any assets available to pay your debts.  However, you have certain rights to retain assets under California Code of Civil Procedure Sections 703 or 704.  This means, that you will be able to keep your home, cars, retirement accounts, personal belongings, up to the limits pursuant to the law. These cases usually conclude within about six (6) months.

Under Chapter 13, you are declaring that you have some disposable monthly income to apply toward your debts and you are asking the Court to allow you to restructure that debt over time and allow you to pay only what you can afford. 

Chapter 13 is, in my opinion, the best choice to save your home, dispute debts owed, and otherwise hold your creditors accountable for any mistakes in your debt obligations, accounting, collection activity, fraud or abuse.  These cases require a longer period of time, usually up to five (5) years, and there are additional reporting duties involved.  You are strongly discouraged from filing a chapter 13 bankruptcy without an attorney because of the additional local rules, accounting and reporting requirements. 

Most everyone has thought of filing bankruptcy as simply filling out a bunch of forms.  I would have said that before the BAPCPA in 2005.  Now, with the sub-prime mortgage meltdown and their complex financial contracts; scams, despair and desperation of the banking industry; and the complexities of the Bankruptcy Laws, you need to consult with your personal bankruptcy lawyer before your case is filed.  Your bankruptcy lawyer will save you time and money by reviewing your current financial situation and create strategic plan to eliminate your debt with the least amount of money out of your pocket.

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Adversary Proceedings: what are they?  The simple answer to this question is that an adversary proceeding is a civil action in the Federal Bankruptcy Court; it's a lawsuit.  All adversary proceedings are governed by the Federal Rules of Bankruptcy Procedure "F.R.B.P." Part VII.  F.R.B.P. Rule 7001 provides that a party can file an adversary proceeding to recover money or property; to determine the validity, priority, or extent of a lien or other interest in property; to obtain the court's approval to sell property; to object to or revoke a discharge; to object to the an order of confirmation of a chapter 11, chapter 12, or chapter 13 plan; to determine the dischargeability of a debt; to obtain an injunction or other equitable relief; to subordinate any allowed claim or interest; or to obtain a declaratory judgment to any of the foregoing.  There are some exceptions stated in the Rule, but you get the idea.

From the moment you file for bankruptcy, your entire estate comes under the scrutiny of the trustee and the court.  Your bankruptcy lawyer's job is to protect your interests in your estate.  Sometimes this requires the additional work of filing an adversary proceeding.

Why are they used? Adversary proceedings are used to protect your estate.  As an example, I have a client whose home was in foreclosure at the time I filed a chapter 13 case on her behalf.  Upon reviewing her mortgage documents, I determined that I could possibly cramdown her mortgage because some persuasive case law supported this in her situation.  In order to gain the court's approval to cramdown her mortgage, I needed to file an adversary proceeding against the lender.  This is just one example of why we use adversary proceedings in bankruptcy cases.

Who can initiate them? Any party can file an adversary proceeding, but remember that an adversary proceeding has limited scope as discussed above.  Generally, the debtor will initiate an adversary proceeding to protect her estate from creditors who have not followed the law.

How do they affect bankruptcy proceedings?  Generally, an adversary proceeding will cause your bankruptcy discharge to be suspended, or put on hold, until your adversary case has been decided.  This is especially true if the subject of the adversary is to dispute your discharge. 

A knowledgeable bankruptcy attorney will first listen to your unique concerns and create a strategy that will help you to achieve your financial objectives with the least amount of liability.  One of the best reasons to file an adversary case is to protect your home from the predatory lenders who may have lost your note.  Talk to your bankruptcy lawyer today. 

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Let's face it; the economic recession is dragging on and there are no signs of improvement.  The government spending is the only spending that is propping up our economy.  So, when you hear in the news that spending is up, it's your federal government doing the spending with bailout money, and building projects for green technology; that's it.  We consumers are not so fortunate and I'm am proud to be counted with the majority who are paying down our debts, but why?  Why do we continue to be the slaves to our creditors who are increasing interest rates and charging extortion penalties when we're a day late?

Jay Jump, a Washington based consumer bankruptcy attorney addressed this very question in his recent blog post where he discusses, to a group of Realtors, that filing bankruptcy is personal financial responsibility.  His article is pretty lengthy and he admits that at the outset, but he's right on point.  We need to set our emotional high morality aside and look at our own households as small corporations and our families as our shareholders.  When you look at your financial affairs from the perspective of a business owner and who you owe a duty to; your family becomes the priority and your creditors take a back seat.  When you put your priorities in order, filing for bankruptcy makes sense in many cases.

Being financially responsible means cutting your losses before you lose everything.  It means leaving your retirement money where it belongs; for retirement.  When you are financially responsible and know that the numbers don't add up where you can feed your family and pay your debts, then the debts must be discharged in bankruptcy. 

You can transform your financial distress into financial freedom from the moment you sit down with your bankruptcy lawyer.  The stress is further reduced the moment the bankruptcy case is filed on your behalf.  Then, when your discharge notice arrives from the Court, you have done the very best you can and protected your small corporation, Your Family, from financial disaster and made a difference.  Read what Mr. Jump has to say and decide for yourself if filing for bankruptcy is responsible financial behavior because I'm in complete agreement with him.

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Over on MSN Money, Liz Pulliam Weston wrote an article entitled, "Are You Foolish to Pay Your Mortgage?"  I get asked this question all the time, is it worth it to keep my home?  I'm passionate about this subject on behalf of my clients, whom I advise whether filing bankruptcy is in their best interests financially.  What really caught my eye about this article was Law Professor Brent White's paper, "Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis."  I agree with Liz that this is a must read for the finer points and Liz certainly summarizes his points from her perspective that we all need to do our best to save our homes and we all must make the best of a bad situation and know when it's time to walk away from our mortgages.

The good news is that California is a 'non-recourse' state.  This means that lender cannot pursue defaulting homeowners for deficiency judgments where they owe more than what the house is worth or what the lender might receive in a short sale or foreclosure sale.  For Californian's this is good news too because their will be no income tax on the cancelled debt or capital gains taxes to be paid on the deficiency. 

Knowing that we won't get taxed or sued after we walk away from our mortgages here in California should bring a sigh of relief, but when is it a good financial decision to walk away?  Professor White says that when the net cost of homeownership becomes more expensive than the net cost of renting is when you should walk away.  His article provides in-depth details and citations and even a hypothetical example of a couple who bought their home in 2006, at the height of the real estate boom. To make it easy, I've found a housing cost calculator on the internet that might help, but I wouldn't base any decision solely on this information.

I think the biggest challenge is to walk the imaginary road into the future and ask yourself whether you'll be better off in the long run.  I suggest that if you can afford your mortgage payment now, even though you're home's value is less than what you owe, you may be better off in 20 years than if you had rented.  Why?  In 20 years you will likely have paid down your principal, or even paid off your mortgage and if you've been maintaining your home, you're maintenance costs will likely have dropped.  If you rented for 20 years, you're still a renter and we all know the cost to rent will invariably rise over that time too.

I agree with Liz when she says to "Get Help."  Talk to your HUD Counselor, your tax professional and your local bankruptcy lawyer.  The sooner, the better.  Don't spend down any savings trying to save a sinking ship because you may end up in a worse financial situation. 

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The following information has been provided by the  Insolvency Law Committee - Business Law Section of the State Bar of California.  The bulletin was prepared by Gary Kaplan, Special Counsel at the law firm of Farella Braun + Martel LLP in San Francisco. 

In the bulletin, Gary Kaplan writes, "On November 30, 2009, the Departments of Corporations weighed in with its regulations in support of Assembly Bill 7, referred to as the California Foreclosure Prevention Act, which was enacted on February 20, 2009 and became effective upon the issuance of the first set of regulations in support of it.  This marks the third regulatory agency to do so, following the Departments of Financial Institutions and Real Estate.  The new regulations can be found at http://www.corp.ca.gov/OLP/pdf/rm/0509-2B.pdf.  The Act provides a 90-day foreclosure delay for residential mortgage loans on owner-occupied homes where the first loan was recorded between January 1, 2003 and January 1, 2008, unless the loan is serviced by a financial institution that has a comprehensive loan modification program, as specified.  The provisions of this legislation “sunset” on January 1, 2011."

What this means to you, the homeowner, is that generally, you will notice that after you receive a notice of default on your mortgage, your lender will begin sending you loan workout packages and gather information from you to determine whether you qualify for a loan modification.  This seems to be what the lenders are doing during their 90-day moratorium.  We have already seen that these trial loan modifications are not working to modify the majority of home in distress.  This is either because the loan has been sold as an asset-backed security to investors, or the owner simply cannot afford the mortgage.

As I have said before, in the  5 ways to stop foreclosure, only a bankruptcy and a court ordered injunction will legally stop a foreclosure.  The sooner you talk to a bankruptcy lawyer to discuss your options, the more options you will have in creating the best course of action for your particular circumstances.  Every case is unique.  

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Nowadays it seems everyone from big business to celebrities is filing for bankruptcy.  While major corporations are getting government bailouts with our tax dollars, wouldn't it seem fair if we could get a bailout too? 

Sure, you can file for bankruptcy and have many of your debts cleared off your books through a bankruptcy discharge.  But, how do you know if you need to file for bankruptcy?  At what point do you throw up the white flag to your creditors and declare bankruptcy?  Here are 10 signs that are strong indicators that you may need to file for bankruptcy:

1.  You've depleted your savings and are considering cashing out your retirement savings to pay your bills;

2.  You're living on credit cards and your debt increases rather than decreases each month;

3.  Your family has given you loans or bought you food;

4.  You're behind on your rent or mortgage, or are in foreclosure;

5.  You're anxious when the phone rings because the only calls you get are from debt collectors;

6.  You can only afford to pay the minimum payments on your debts and have high interest rates;

7.  You're using the legal loan sharks at those payday advance shops to get cash;

8. You know you have a lot of debt, but don't exactly know how much and you're afraid to look;

9.  Your car is about to be repossessed;

10.  You're being sued and you know you cannot afford to pay for any judgment.

If you, or someone you know is experiencing extreme financial hardship during these challenging economic times, it's important to take action sooner rather than later.  The sooner you discuss your situation with a trusted authority, like your local bankruptcy lawyer, the more likely you will be able to have your debts discharged without having to go broke doing it.  This means that you can save your retirement for retirement and still get out of debt.

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The November, 2009 issue of ABA Journal article entitled, The Bad-Debt Blues, explained the need to take federal taxes into consideration when restructuring debt as, "crucial."  The article provides an excellent overview of the federal tax rules that apply to debt workouts, and focuses on the impact to individual debtors.

The recent media blitz touting the end of the recession is an illusion caused only by government spending.  Bankruptcy filings are still up over last year and climbing to record numbers since the BAPCPA in 2005. Americans continue to struggle with what to do about their debt.

The so-called housing bubble we appear to be experiencing is caused by the fact that banks are holding foreclosed homes in their inventory rather than selling them because putting them on the market will only reduce already depressed housing values.  Similarly, the banks are also refraining from foreclosing on homes and moving toward more workout programs and modifications because they're starting to realize the error of their greedy ways. 

When faced with the tax consequences of the restructuring of individual consumer debt; either through foreclosure, repossession, or modification; filing bankruptcy provides a safe harbor and important IRS exclusions.  There is another exclusion under the Mortgage Forgiveness Debt Relief Act of 2007 that applies to Qualified Principal Residence Indebtedness on or after Jan. 1, 2006. 

It is important to remember that most financial transactions have tax consequences and we all know that ignoring the IRS with its hand out is never a good idea.  Consult with your lawyer to fully understand the tax consequences and restructure debt in the way that best minimizes tax liabilities for you. 

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The gulf states must contend with hurricanes.  The northeast has their bitter cold.  Here in California, we must always be prepared for "The Big One," earthquakes that is.  As our economy limps along, virtually lifeless, and looking more like a depression rather than the politically correct "recession," we must be prepared for the onslaught of more potential foreclosures.

If you, or someone you know is facing or potentially facing a foreclosure, an attorney who is familiar with this area of law can explain your options so you can choose the course of action that is best for your individual needs, goals and desired outcome.

The five (5) ways to stop a foreclosure are:

1. Modification
2. Short Sale
3. Deed in Lieu
4. Bankruptcy
5. Injunction

Of the methods listed above, only a bankruptcy and a court ordered injunction will legally stop a foreclosure and even those methods may be temporary.  Most of the time, the lender may suspend their foreclosure proceedings in order to entertain the workout options of a modification, short sale or deed in lieu of foreclosure, but they are not legally required to do so. 

Recent court rulings in Massachusetts to invalidate thousands of foreclosure proceedings because the chain of title had not included all of the assignments that had taken place prior to foreclosure.  Unfortunately, a homeowner is not likely to invalidate a foreclosure in California after the sale date, especially where a bonified purchaser is involved and the property has been transferred.

A Chapter 13 bankruptcy is still the most economical and effective way to temporarily stop a foreclosure because of the automatic stay.  This allows the homeowner time to make up all past due payments.  This also allows the attorney to file any adversary proceedings necessary to invalidate the foreclosure proceedings and possibly sue the lender under TILA and RESPA violations; potentially recouping damages on behalf of their clients.

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