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Posts Tagged ‘mortgage’

Another Real DLF Client

Monday, October 4th, 2010
This series gives you a glimpse into the lives of real DLF clients.  These are not actors, but real people facing real life and receiving real help from DLF and the US Bankruptcy Court. *

Meet the Smiths, Bob and Jane.  They have been married 23 years and have 3 boys, 13, 16 & 18.  Their lives are moving along well, the boys are healthy, involved in sports, but the financial piece of their lives is troublesome.  The first and second mortgages on their home recently adjusted from low teaser rates to fully amortized payments.  Bob and Jane had planned on the increased house payments, but what they didn’t know is that Bob would take a significant pay cut and lose the bulk of his yearly bonus.  Jane is looking for work, but it is taking longer than she anticipated to land a job.

While their house payment goes north, a large chunk of their monthly income is going to keep credit cards current.  Without the credit card debt, life would be tight, but they’re make it.  Without the credit card debt and with a job for Jane, they’d be just fine.

Bob’s income exceeds the average for the state of California, but their expenses are such that they qualify for a Chapter 7 bankruptcy.  The Chapter 7 bankruptcy will allow them to get rid of their credit cards debt, keep their cars and house

*  Names and details have been changed to maintain attorney client confidentiality.

Can I keep my house in bankruptcy? Another exciting installment of “Ask Doan Law Firm” (Part 2).

Friday, October 1st, 2010

Q:  Can I keep my house in bankruptcy?

A:  In the last post we analyzed this question in a Chapter 7.  Let’s look at a Chapter 13.

Just like a Chapter 7, in a Chapter 13 you receive an automatic stay on the date of filing.  That means no foreclosure can take place without court permission, i.e., the court grants a Motion for Relief from Stay.

Chapter 13 is a bit different because you are proposing a holistic financial plan for the next 3 – 5 years.  Your intention with the house will be a driving force in the plan.  Just like in a Chapter 7, you can surrender the house.  If you do, the resulting debt will put into the pot with your unsecured debt, credit cards, medical debt, etc., and will be addressed in your plan.

If you’d like to keep the house in a Chapter 13 plan, it needs to be part of the entire plan.  That means you need to be able to pay the payment, taxes, insurance and repairs going forward.  This often works because when the rest of your debt is worked into an affordable plan payment, the house may become affordable.

The Chapter 13 plan must address any missed payments.  These are priority claims and will be given special treatment.  You need to make sure you can make a plan payment large enough to catch up the house over the 3 – 5 years of your Chapter 13 plan.

As you might guess, keeping your home in a Chapter 13 is complicated to determine; you’re going to need assistance.  Doan Law Firm has a team of Chapter 13 professionals that do only Chapter 13 bankruptcies all day, every day.  They’re very knowledgeable, caring, and are ready to help you.

Can I keep my house in bankruptcy? Another exciting installment of “Ask Doan Law Firm” (Part 1).

Wednesday, September 29th, 2010

Q:  Can I keep my house in bankruptcy?

A:  As with most bankruptcy questions, the answer is a hearty, “it depends”.  Let’s narrow it down a bit.

The day you file a Chapter 7 bankruptcy, you receive an automatic stay.  The automatic stay prevents any creditor from taking any action against you.  This means your mortgage company, cannot foreclose no matter where they were in the process.  In your bankruptcy petition (paperwork) you indicate if you plan to surrender the home or keep it.  In bankruptcy, the general rule is if you keep the asset you keep the debt.

If you are current on your mortgage payments, you can continue to make those payments and take the house through the bankruptcy, paying all the way.  If you are not current, you need a plan that will get you current.  The key is usually in the automatic stay.  As we mentioned, when you file, every one of your creditors must stop all collection action.  You won’t be paying your credit cards and wage garnishments and bank levies will stop.  That can give you just the breathing room you need to catch-up your home.  Some clients borrow the back amount from a family member or friend.  If the house makes sense once you jettison all the other debt, it can be a good idea to borrow to catch up the back payments.

The reason you need a plan for bringing your house current and a time frame on the plan is that the bank can potentially file a Motion for Relief from Stay.  When you file bankruptcy, the bank has two options, (i) wait for the bankruptcy to be complete and proceed with the foreclosure; or (ii) file a Motion for Relief from Stay asking the court to allow them to proceed with the foreclosure.  There’s no way to predict which path the bank will take.  On one hand, if you’re not going to bring the house current, the bank wants the property.  On the other hand, it will take about 2 months for the court to hear a Motion for Relief from Stay and the bank knows the bankruptcy will be complete in about 6 months.  A Motion for Relief from Stay costs the bank attorney and filing fees, so they may decide to wait.

Another important thing to note at this juncture is that if you keep the asset (house) and keep the debt (mortgage), you keep the debt as it is.  The bankruptcy court doesn’t have the power to modify a home loan.  There’s been some discussion among the powers-that-be about grating the court that power, but for now they don’t have it.  If you keep the house, it will be with the current mortgage.  You do still, however, have the right to continue to engage in any loan modification discussions with the bank.

In the next post we will look at keeping your home in a Chapter 13 bankruptcy.

Keep an Eye on Your Mortgage Company and Their Locksmith

Monday, May 17th, 2010

Recently it has become common practice for mortgage lenders to keep an eye on their investments once they near foreclosure.  Sometimes, the lender sends out a realtor to appraise and review the property and occasionally the lender authorizes their agent to change the locks to secure and protect their investment.

Lenders supposedly instruct their agents to secure only abandoned property, but the locksmith is no doubt under a financial incentive to change locks – surely he is paid more when he finds an abandoned property and has to add on hardware to his bill.

These actions are blatantly illegal, and yet they have become commonplace. In a recent case in Sarasota, Florida, the lender even locked up the wrong property!  Chaos ensued.  You own your property until it is sold on the courthouse steps, and even after that, you may have rights; however courts frequently turn a blind eye to these home invasions because usually no one cares.

The moral of the story is to Stand Up for Yourself!  If you have been victimized by your mortgage lender in this way, please call our Orange County bankruptcy law firm or another attorney to ensure and enforce your rights.

Chapter 13 – A Viable Loan Modification for Your Second Residence

Tuesday, May 11th, 2010

Another Installment of “Ask Doan Law Firm

Q: I was reading in the newspaper that when you file for a chapter 13, you can also request to modify your 1st mortgage to the current value of the house.  Is this correct?

A: The bankruptcy code specifically prohibits modification of a mortgage on a primary residence.  A mortgage on a secondary residence may be modified. The way the modification works is that the court may “cram-down” the principal amount of a mortgage on a property to its market value.  However, the court’s ability to do this only lasts for the duration of the bankruptcy so the entire market value of the home must be paid during the course of the bankruptcy so that the court may “finalize” the loan modification before the bankruptcy ends. It is based on the same code provisions that allow a bankruptcy court to determine that secondary (and tertiary, etc) trust deeds on a property are completely unsecured by any residual value in a property after considering the first trust deed (primary mortgage) and current fair market value, which results in the court’s ability to grant the lien strips.

Thus, if the “non-primary residence” property has a market value of $200K, then you must pay $200K in the course of about 3-5 years (i.e. about $3,667 per month) in addition to any other amounts required by your bankruptcy plan. In addition, depending on your county, the Trustee may decide not to let this come at the expense of your unsecured creditors… therefore it effectively cannot be your own money that pays this monthly amount (you will need a renter) or you will also need to pay off an equivalent amount of your unsecured creditors.

Practically speaking, cramdowns on mortgages only occur when the property value is very low.

Previously, the bankruptcy court did have the power to modify mortgages on primary residences. Congress explicitly removed this power and as of the last Bankruptcy Code revision has not reinstated it. There was legislation last year regarding reinstating this power of the court, but it was contained in a broader bill rejected by the US Senate.  Currently to the best of my knowledge the legislation has not been reintroduced.

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