Congratulations, You Have Been Offered a Loan Modification! Your Loan Servicer Will Soon Foreclose on Your Home!

January 27, 2014

Do not think your nightmare is over because you have signed and returned a permanent loan modification. Loan servicers are notorious for failing to honor permanent loan modifications. In our experience, they're all bad, but Bank of America is the worst.

Here's how to improve your chances of getting your loan modification honored:

First, meticulously follow the instructions provided with your loan modification. No matter how nuanced and ridiculous the instructions are, follow them exactly. For example, one servicer provides a sheet titled "Instructions for Notary," for which there are multiple versions, but some require any months to be spelled out. If you write "Dec." or "12" instead of "December," the servicer will tell you months later that you have not entered into a loan modification because you did not follow instructions. This is obviously a bad faith attempt to collect additional payments from you before foreclosing on you, but nonetheless, you must not give the servicer reasons to do so.

Second, make your payments distinctly identifiable to the modified payment. If you are paying by check, write in the memo line, for example, "June 2014 loan modification payment." If you are paying by phone (because your ridiculous servicer requires you to), insist that they note the "June 2014 loan modification payment" information on your account. This can be crucial to successful litigation later. Your servicer will later defend your lawsuit on grounds that it never signed and returned the agreement ("statute of frauds" defense). Well, by following this advice, you are creating the "partial performance" exception to the statute of frauds defense.

Third, call your servicer regularly to ask why you have not yet received the permanent modification agreement executed by the servicer. You will receive a response such as, "Oh, it takes time, just give it time and keep making your payments." Express to the representative that you are concerned, and ask that they please make notes of your concerns, and their response. Always play nice with these reps--get them on your side, willing to help. The individual reps often do want to help--the servicing company fat cats just do not let them help. You are again helping your future litigation tremendously by creating this record--building your "partial performance" exception to your servicer's unconscionable defense.

Fourth, if your servicer refuses to accept your payment, politely explain that you must make the payment, and that the servicer can figure out the problem later. If the representative remains unwilling to accept payment, kindly ask him or her to make note of the conversation. Call back again later, and try with a different rep. If you just cannot make a payment, save the payments for coming current after your litigation.

Fifth, file a Consumer Complaint with the Florida Office of the Attorney General Consumer Protection Division. Also, file a complaint with the federal Consumer Financial Protection Bureau. Also, file a complaint with the Florida Office of Financial Regulation. Filing complaints with these agencies can help tremendously, as the loan servicers often can only be motivated by public exposure of their recklessness. Make sure your complaints are well-written and detailed to be effective! On more than one occasion, we have had servicers' responses to these complaints help us in litigation.

If, despite your best efforts, your servicer commences or resumes your foreclosure, or if you are fearful that your servicer will not honor your loan modification, contact Parker & DuFresne, P.A. and discuss your concerns with one of our experienced lawyers. We are actively engaged in Mortgage Servicing Litigation, and we often work on a contingency basis in these suits, as the Fair Debt Collection Practices Act and the Florida Consumer Collection Practices Act provide that the loan servicer pay our fees if we are successful.

Missing Payments on Your HELOC? You Are Not Alone.

December 12, 2013

In a recent Reuters article, defaults on second mortgages will likely trigger another round of foreclosures.

Homeowners who took out home equity lines of credit during the housing boom are increasingly missing payments. This trend could continue as the time when homeowners will have to start paying the principal down on those loans is fast approaching. Approximately 40% of HELOCs could be affected with a staggering sum of $220 billion.

The housing bubble and its aftermath is still affecting consumers and their families today. As HELOC payments in the billions of dollars jump, consumers still facing a soft job market or stagnant wages won't adjust to the increased payments demanded by the Banks.

The Banks too may see their profits eaten away by HELOC loses. Banks aggressively offered these loans to consumers in the heyday of the housing market without much regard to borrower's ability to pay but as the economy limps along they are getting nervous. The housing market everyone claims is reviving, is still on life support.

If you are delinquent on a HELOC or know you will face a delinquency in the near future, speak to a qualified bankruptcy lawyer about your options, including a lien strip.

At Parker & DuFresne, P.A. our experienced bankruptcy lawyers can review your entire financial picture and provide you with options before your HELOC resets.

Your Mortgage Loan Servicer Is Bound to Follow State--and Possibly Federal--Debt Collection Laws.

November 12, 2013

The Fair Debt Collection Practices Act ("FDCPA") provides that a mortgage loan servicer is not governed by the FDCPA--because the servicer is not a "debt collector." However, federal appellate courts and trial courts have held/ruled that a mortgage loan servicer who is assigned a mortgage loan debt while it is in default is a "debt collector," and is thus governed by the FDCPA.

The reason behind this distinction is as follows: Debt collection laws were meant to protect consumers from debt collectors because these entities do not have a reason to maintain a good relationship with consumers. Thus, debt collectors may employ extraordinary means of collecting a debt. But, the need to protect consumers from the original loan servicer is not as great because, in theory, the loan servicer will want to maintain a good public image and gain your repeat business. A loan servicer that has been assigned a debt that is in default, is more akin to a debt collector because it chose to be in the business of default loan servicing.

This means that if you are behind on payments and you receive a letter from a loan servicer notifying you that your loan servicer has changed, your loan servicer is governed by the FDCPA. Likewise, if you were behind on your payments and filed a Chapter 13 bankruptcy, and you server changes in the middle of your bankruptcy, your servicer is likely governed by the FDCPA--depending on your specific Chapter 13 plan.

If you find yourself in either of these scenarios, the FDCPA prohibits your loan servicer from
•Contacting you directly when you are represented by an attorney,
•Contacting you at an usual time or place, or at work when your work prohibits such communications,
•Misrepresenting the character, amount, or legal status of the debt,
•Contacting repeatedly,
•Misrepresenting the character, amount, or legal status of the debt,
•Threatening to communicate false, disparaging credit information,
•Repeatedly calling third parties for location information
•And many more things.

The Florida Legislature decided to provide extra protections to consumers, beyond the protections of the FDCPA. The Florida Consumer Collection Practices Act ("FCCPA") applies to "any person," not just "debt collectors." This means that your mortgage loans servicer is regulated by the FCCPA even if you have never defaulted. Also, the FCCPA prohibits much of the same conduct as the FDCPA. Most common violations that Parker & DuFresne sees are entities attempting to collect a debt that is owned by another entity, entities attempting to collect improper fees and charges that resulted from the entities improper loan servicing, and contacting clients that are represented by an attorney.

This blog is providing very basic information. The bottom line is that if someone is attempting to collect money from you in a way that does not seem right, it probably is not right. Parker & DuFresne represents consumers in matters such as these all the time. Our FDCPA and FCCPA clients do not pay costs or fees. Contact us for a free consultation.

Substitution of Collateral in a Florida Bankruptcy: Is it Possible?

April 24, 2013

Often times, Debtors are involved in accidents where personal property is totaled or unsalvageable. Many times these accidents occur while a bankruptcy is pending and the Debtor still owes a secured lender for the property. I must note the strategy detailed below is really only relevant to Chapter 13 and Chapter 11 cases. What is substitution of collateral? What the Debtor is generally looking to do is use the insurance proceeds from the accident, apply them to new property, and essentially substitute the newly acquired property as the former secured lender's collateral.

You may be asking, what benefit is there to doing this? Well, it may allow a Debtor to purchase a new vehicle outright without new financing terms. It's likely the Debtor will benefit from not having to pay off a secured creditor in full and worry about being able to afford a new vehicle. If the insurance proceeds are less than what is owed on the vehicle, this strategy will not work. You see this scenario most often with work vehicles. However, the issue is also very common in Chapter 11 business cases where business equipment is damaged and needs to be replaced.

Unfortunately, the strategy does not always work smoothly and the creditor may resist the motion to substitute collateral. The good creditor attorneys, who understand the law, will not object. Generally, the insurance adjuster will not release the insurance proceeds without the title being surrendered by the secured lender. This may put the Debtor in an even tougher situation financially especially if the Debtor is relying on a new piece of property for work purposes. Most Debtors cannot afford to wait months for the litigation to get resolved. Arguably, a creditor's failure to release the title to the insurance company is a violation of the automatic stay (assuming no stay relief has been ordered).

There is case law that holds that the creditor is entitled to adequate protection of its collateral especially when the creditor seeks stay relief but the debtor objects. Forms of adequate protection can vary. An example of providing adequate protection is making sure the secured property is being insured and if there is equity in the collateral, the creditor is deemed to have adequate protection. If the debtor offers a replacement lien (essentially what the motion to substitute collateral looks to accomplish), the creditor is deemed to be provided adequate protection.

How is this applied? Let's say a Debtor is paying on a vehicle in a Chapter 13 plan and the monthly payment attributed to the vehicle is $300.00 and $10,000.00 is still owed on the vehicle. The Debtor then gets in an accident and the vehicle is totaled. Say the Debtor is scheduled to receive $15,000.00 in insurance proceeds. The motion to substitute collateral allows the debtor to purchase a new vehicle with the insurance proceeds and the secured lender takes a lien on the new collateral for the amount owed. The Debtor would continue to pay the $300.00 per month in the plan even though it is for a totally different vehicle. Should the Debtor miss payments, the creditor could look to get stay relief to enforce its state court remedies.

If you have questions about this topic or other bankruptcy matters, speak with an experienced bankruptcy attorney.

Florida Appears to be Facing a Housing Shortage--Possibly Evan a Bubble.

April 19, 2013

The buzz in Florida is that there is a shortage of homes available for sale, which is driving up the price of homes. CNBC reports that the National Association of Realtors notes an "acute lack of supply" in some popular markets. Despite these inventory shortages, some markets are staying warm.

One of the driving forces of this market condition is an influx of investors paying above-market prices for homes for use as rentals. In some Florida communities, these well-funded investment entities are bullying others out of the market by paying 45% more for homes than their value, as reported by RealtyTrac. Florida Realtors reports that Investment firms bought over 5,200 Florida properties in 2012 and are determined to buy more this year. RealtyTrac offers a helpful tool for finding Florida foreclosure sales.

Another driving force, is what has been termed as a "shadow inventory," which consists of homes that have become bank or that remain in the foreclosure process, which banks do not put on the market--to avoid taking a hit on the sale value. RealtyTrac reports that more than 111,000 homes in south Florida are in the "shadow inventory." There is a similar effect on homes that have not been foreclosed. Homeowners who bought homes are unable or unwilling to sell because they would be required to bring an exorbitant amount of cash to the sale to satisfy their loan. Florida has over 90,000 pending foreclosures/zombie homes, which represents 30% of all foreclosure actions in America.

As a result of banks' reluctance to take on more distressed properties, banks appear to be offering foreclosure alternatives more often, such as short sales and principal reductions often over $100 thousand.

Proposed Foreclosure Law Designed to Accelerate the Foreclosure Process

February 18, 2013

Earlier this month, the House Civil Justice Subcommittee approved a bill designed to accelerate the foreclosure process in Florida. Republican, Kathleen Passidomo, sponsor of HB 87, frames the bill as a way to speed up the foreclosure process while ensuring due process. But, lenders and borrowers alike are fearful of some of the Bill's provisions.

The current Bill, which is a revision of a bill that died last year in the Senate, provides liability for entities that wrongfully claim to be holders of or entitled to enforce lost notes. Thus, the Bill might provide an incentive for the "foreclosure mills" to have their paperwork in order before filing suit. However, this penalty of perjury is not a new concept to the judicial system. The problem has not been whether there is a penalty for perjury, but rather whether a judge will deem evidence to be fraudulent. Discovery requests that attempt to uncover facts and evidence related to the validity of a lender's evidence are almost always objected to on grounds of relevance. And these objections are rarely overruled when challenged in court. The borrower's only hope is that the evidence (usually related to transfer of a loan) is defective on its face. In which case, the evidence is usually just disregarded as flawed--rather than deemed fraudulent.

The Bill would also require homeowners to show cause as to why a foreclosure judgment should not be entered when the lender appears to have its paperwork in order. This is problematic because some court systems have a knack for disregarding the rules of civil procedure in an attempt to read between the lines and judge a case before the issues have been fully developed. Some fear that allowing judges more discretion, at the expense of bright line rules of procedure, might lead to more wrongful foreclosures.

Passidomo also noted that the Bill attempts to beef up the Uniform Commercial Code's requirements of proof for a lost note. However, this focus on procedures for a lost note is misplaced. These suits hardly ever boil down to establishment of a lost note. The cases are most often solved on grounds of a purported note endorsement, as lenders argue that the notes are negotiable instruments. Improperly viewing these promissory notes as negotiable instruments allows lenders to get around establishing a chain of title for the loan, whether consideration was paid for the promissory note, and so on--essentially any detail that might support whether a plaintiff is actually owner of the note.

In summary, as long as courts are willing to disregard defects in a plaintiff's case--and judges are given more discretion to do so--all the penalties in the world cannot help instill due process in this process. For further detail on the implications of HB 87, read Chip Parker's blog on the subject.

Did You Receive a Proper Notice of Acceleration?

January 8, 2013

Before your mortgage company can file a foreclosure on your Florida home, it must send you a very specific letter known as a "Notice of Intent to Accellerate" or "Default Letter." If your mortgage servicer fails to serve you with a proper notice, your foreclosure is improper and subject to dismissal.

Nearly every residential mortgage is a Freddie Mac/Fannie Mae Uniform Instrument, regardless of whether either Fannie Mae (FNMA) or Freddie Mac (FHLMC) owns the mortgage. The mortgage servicing industry created the "Uniform Instrument" because Fannie and Freddie own 60% of all mortgages, but before they will purchase a mortgage loan from a bank, the security instrument (ie. the mortgage) must meet Fannie or Freddie guideline. So, for the sake of uniformity and ease of servicing by the banks, the same uniform mortgage is used throughout the country in almost every case.

The standard Fannie/Freddie mortgage has all the basic terms already completed. All that is left to do during a closing is fill in information on the lender, the borrower, the dates, the address, the property description, and so on.

In addition to the uniform paragraphs that exist in nearly every single mortgage in the United States, there are state-specific, special paragraphs, known as non-uniform covenants, which are inserted into the Fannie/Freddie mortgage. The Notice of Intent to Accelerate is a non-uniform covenant because the requirements vary, depending upon the applicable state foreclosure law. The biggest difference between state foreclosure laws is whether a state is judicial or non-judicial, and the uniform mortgage is modified based upon which type of foreclosure process exists in the state where the property is located.

Florida is a judicial foreclosure state, meaning the lender files a foreclosure action in state court. In non-judicial foreclosure states, a third-party trustee sells the property without help from the court. In these non-judicial foreclosure states, it is the borrower who brings a court action to stop the foreclosure.

**This article focuses on the language found in judicial foreclosure states like Florida. Remember, the language is different in non-judicial foreclosure states, like California.**

The requirements of the acceleration notice are spelled out in paragraph 22 (sometimes paragraph 21) of the mortgage. Paragraph 22 is often the only paragraph written in bold typeface--meaning that the text of the paragraph is emphasized as important, and this paragraph uses the word "shall" in spelling out the exactly what your mortgage company must include in the notice of acceleration letter to you.

In pertinent part, "The notice shall specify: (a) the default; (b) the action required to cure the default; (c) a date, not less than 30 days from the date the notice is given to Borrower, by which the default must be cured; and (d) that failure to cure the default on or before the date specified in the notice may result in acceleration . . ."

Further, the lender shall specify that failure to cure the default may result in foreclosure by judicial proceeding. The notice of acceleration shall also inform the borrower of the right to assert defenses in the judicial foreclosure proceeding that is filed by the lender.

The requirement most frequently violated by the servicer is its failure to clearly state "the action required to cure the default." The problem occurs because the default letter usually states, "To cure your default, you must, on or before [the 30th day], pay [the servicer] the amount of $*** plus any additional monthly payments, late charges and fees which come due."

Even if a payment comes due during that default period, the homeowner should know what that amount is unless it changes monthly, BUT how would a homeowner know what late charges and fees are without specifically being told? Therefore, the homeowner does not know the action required to cure the default.

Sometimes the default letter goes on to say, "You should call us to get an exact figure." The mortgage requires the letter itself to identify "the action." Instructing the homeowner to call the servicer to find out what action is required fails to comply.

In Florida, the notice of acceleration requirements spelled out above, are intended to be the borrower's "Miranda Rights" in the mortgage foreclosure context. This notice of acceleration is the borrower's last--and utmost serious--warning before foreclosure proceedings are begun.

In summary, because the mortgage uses very clear, bolded language including terms such as "shall," and because Florida is a judicial foreclosure state, it clear that these notice of acceleration requirements were intended to be strictly followed. In fact, Florida appellate courts have held that strict compliance with the notice of acceleration requirements of Paragraph 22 is required before the lender can foreclose. However, servicers often fail to provide the notice of acceleration at all, or the notice fails to comply with the strict requirements of the mortgage.

Has your lender provided you with proper notice of acceleration? Likely not. What should you do? Contact a law firm with thousands of hours of experience representing homeowners in foreclosure cases.

My Personal and Business Bankruptcies: Can I combine them into one Case?

January 2, 2013

A debtor can combine his or her personal and business debts in one bankruptcy filing if he or she is a sole proprietor. However, if the business is incorporated, the debts owed by the business will not be discharged, even if the sole shareholder files a personal bankruptcy discharging the same debt. Only the individual who filed the case discharges the debt (normally a personal guarantee of the corporation's obligation).

Normally, a Chapter 7 for a corporation is unnecessary. Small corporations usually just liquidate assets and "die." If the shareholders don't want to deal with lawsuits against their corporation, they will often file a Corporate Chapter 7 to avoid having to participate in the suit, including appearances at hearings or depositions. In a Chapter 7 business bankruptcy, there is no formal discharge. There is a liquidation of assets and a formal dissolution or "winding down" of the company.

The benefit to filing a Chapter 7 business bankruptcy is having the bankruptcy trustee liquidate the assets and pay the priority debts (IRS, state department of revenue, employee wages, etc.) first. This should help relieve, but may not completely absolve, the owners, shareholders or officers of whatever personal liabilities they may have regarding those debts. Once again, this is usually something the shareholders can accomplish on their own by liquidating corporate assets and using the proceeds to pay priority creditors.

In most cases, the corporation's debts are guaranteed by the individual shareholders (seemed like a good idea at the time, huh?), and the shareholders often seek individual relief under Chapter 7 or 13 of the bankruptcy code. However, if a shareholder files for personal bankruptcy, the vendor or supplier that relied on his personal guarantee will likely stop extending credit to the business.

Things can get tricky if the guarantor does not qualify to file a Chapter 7 bankruptcy. If the guarantees, combined with all other debt owed personally by the guarantor exceed the Chapter 13 debt limits ($1.081M secured and $360K unsecured), the guarantor's only other alternative may be Chapter 11. Given the cost, every option to avoid Chapter 11 should be explored by an experienced bankruptcy lawyer, but if Chapter 11 is the only way out, only an experienced Chapter 11 attorney should file the case.

If you have questions about a personal or business bankruptcy, please contact us at your earliest convenience. Check out our website for more valuable information.

Homeowners Must Compete with State Governments for Mortgage Settlement Relief Funds

November 30, 2012

As states have begun allocating funds from the National Mortgage Settlement, news reports are surfacing that indicate some state governments intend to use the funds for unintended purposes. Enterprise Community Partners, a housing nonprofit organization, released a report on the topic in October. The Report indicates that a majority of states are using the funds from the mortgage settlement as intended, but the largest recipients are not.

Of the $25 billion from the Mortgage Settlement, $2.5 billion was designated for direct payments to the states to use in preventing foreclosures, stabilizing communities, and regulating financial fraud. As of October, the funds had been allocated as follows: $966 million was apportioned to housing and foreclosure-related activities (the intended use for the funds), $988 million was diverted to states' general funds for non-housing uses (not the intended use for the funds), and $588 million was not yet allocated.

Attorneys general were instrumental in negotiating the Mortgage Settlement and how the funds were to be allocated. However, governors and legislators have attempted to influence how the funds will be used. Florida was the second largest recipient of funds--$334 million. Until recently, the sum remained in escrow pending the resolution of a dispute between Florida's Attorney General, Pam Bondi, and the Florida Legislature over who has the authority to distribute the funds.

Pam Bondi recently came to an agreement with the Florida Legislature to use $260 million for homeowner relief, the other $74 million has been committed to Florida's general revenue fund. With 78% of the money that was allocated to Florida going to its intended purpose, Florida might appear to have relatively favorable plans for homeowners. On the other hand, California, the largest recipient of funds has decided to apportion all of the funds to its general revenue fund--more specifically, California's governor decided to use the funds to go toward the state's $15.7 billion budget gap.

Pam Bondi stated that $60 million for homeowner relief will go foreclosure-related legal assistance, foreclosure prevention, home buyer or renter assistance, counseling, and other forms of help. But, for those of us doing the math, a concern arises with respect to the $200 million for which Pam Bondi gave the Florida Legislature power to appropriate. Thus, while Pam Bondi might make favorable statements as to how the funds might be allocated, she has given up the power to uphold her statements. The Florida Legislature could follow California's lead by using the funds to supplement budget shortfalls in Florida. The fate of the $200 million remains in the hands of individual Senate members.

Aggressive Debt Collection Violates Federal and Florida Law

November 1, 2012

Overly aggressive consumer debt collectors are usually breaking Federal and Florida law. As we all know, times are tough and many Americans are falling behind on debts. The debt collection industry, too, is struggling to squeeze every possible penny out of debtors who have defaulted on various debts. This has lead to debt collectors acting extremely aggressively and, often, illegally.

In many instances, once a debt, for example a credit card debt, goes unpaid for a certain amount of time, the credit card company will sell it to a debt collection company for pennies on the dollar. The debt collection company then tries to collect as much of the debt as possible. There is nothing illegal about this arrangement. The major problem is that debt collection companies, in their attempt to make a profit, often attempt to collect debts in an overly aggressive and, ultimately, illegal manner.

The problem of debt collectors attempting to collect debts in an aggressive and illegal manner, is prevalent across the country. The Federal Trade Commission and the Consumer Financial Protection Bureau are trying to crack down on this problem, but as consumers are often not aware that the debt collectors' actions are illegal or that they have any recourse, the problem persists.

Debt collectors' actions in collecting debts are limited by both the federal Fair Debt Collection Practices Act and, in Florida, the Florida Consumer Collection Practices Act. These limitations apply even if you owe all or part of the money the debt collector is trying to collect. Debt collectors have impersonated police officers, called consumers homes at all hours of the day and night, threatened to have them fired from their jobs or to physically harm them, or threatened to have them arrested. All of these things are illegal.

Under federal and Florida consumer protection law, debt collectors cannot, among other things, harass you or your family members, cannot call late at night or early in the morning, cannot threaten you with violence, cannot use profane language, and cannot contact you about a debt when they know you are represented by an attorney. If you are being harassed by debt collectors in violation of these laws, you can sue them and receive money damages. The debt collector may also be required to pay any attorneys fees and costs you incur as a result of your suit against it.
Visit Parker and DuFresne, PA's consumer protection page for more information about your rights.

Federal Fraud Task Force Seeks to Hold Major Financial Institutions Accountable for Housing Market Crash

October 29, 2012

Mortgage-Backed Securities are commonplace in today's housing market woes. The securities are often blamed as one of the causes of the housing market crash, and thus the crash of the economy. However, the Residential Mortgage Backed Securities Fraud Working Group ("RMBS Fraud Working Group") seeks to hold the major financial institutions accountable for the problems they have caused.

All investments represent an opportunity for the owner of the investment to make a profit on the risk taken in funding the investment--the Risk-Return Tradeoff. For example, a mortgagor/lender takes on the risk that the mortgagee/homeowner might default on his or her loan. In theory, the mortgagor takes on this risk because the mortgagor anticipates the revenue received from interest on all of its loans--on average--will be more than the costs incurred from the occasional homeowners who default. Assuming these mortgage loans were made prudently, the mortgages have value--they can be bought and sold because the income stream will provide revenue over the life of the loan.

Entities purchase these mortgage loans and pool them together to form Mortgage-Backed Securities, as a more marketable way to get investors. As such, it is easier to get someone to invest their money in a security instrument that is made up of many mortgage loans, rather than single mortgage loans--because the risk and reward of investing is made more stable by including many investments into one.

The key to prudent investing is knowledge of the risk--so that you are able to determine whether the reward will be worthwhile. The problem with the Mortgage Backed Securities is that major financial institutions have misrepresented the risk associated with the investments. This turns a great idea into a terrible idea.

Early this month, the New York Attorney General Eric Schneiderman, filed suit against JPMorgan Chase (formerly known as Bear Sterns & Co.) and EMC Mortgage LLC for misleading investors as to the riskiness of the Mortgage Backed Securities. Bear Sterns was obligated to evaluate the riskiness of the mortgage loans, continue to monitor the loans, and report to the investors. However, Bear Sterns allegedly failed to properly evaluate these loans, and securitized billions of dollars of mortgage loans that were likely to default. Investors are alleged to have suffered losses of about $22.5 billion so far, and about 43% of the $30 billion in unpaid principle is at risk of going unpaid.

Schneiderman's suit is intended to be the first suit of many filed by the RMBS Fraud Working Group, which was created by President Obama to uncover and punish the misconduct that lead to the financial crisis. The New York Times provides a more comprehensive account of the suit.

What does it mean to "redeem" property in Bankruptcy?

October 25, 2012

As a Northeast Florida bankruptcy attorney, this issue comes up on a daily basis. In chapter 7 cases, many debtors are faced with the issue of either reaffirming debt, surrendering the property that secures the debt, or rolling the dice and pay the debt without reaffirming the loan. The decision comes up most often with motor vehicles and household goods.

In many cases, the debtor is asked to reaffirm a car loan which exceeds the value of the vehicle. Sometimes that excess is substantial and the debtor struggles between having no vehicle, having an excessive debt on a vehicle, or hope to find post-bankruptcy financing for a new vehicle. Furthermore, if the debtor(s) reaffirms the debt, the debtor(s) remains personally responsible for the debt post-bankruptcy. If there is a default post-bankruptcy on the loan, the creditor may be able to pursue the debtor(s) for a deficiency balance if forced to repossess the vehicle.

Redemption allows the debtor to purchase the vehicle at the fair market value from the creditor who currently finances the vehicle. The only drawback is that the debtor must make a lump sum payment before the conclusion of the bankruptcy in order to redeem the collateral.

Most debtors do not have access to resources that would allow them to make this type of payment; however, there is a growing trend in business industries extending lines of credit to debtors and using the vehicle or good as collateral for the loan post-bankruptcy. Of course the debtor must be approved for the financing and it may seem counter-intuitive that the debtor would apply for a car loan while the bankruptcy is pending, but it could reduce the amount owed by thousands of dollars and could substantially lower the debtor's car payment.

In chapter 13 cases, the debtor may be able to "cram-down" the value of the loan down to the value of the vehicle with a significantly lower interest rate. There are a few qualification measures that need to be taken into consideration before the action is taken in bankruptcy court. Consult with an experienced bankruptcy attorney about the redemption process and cramming down your vehicle and other household goods in bankruptcy.

Poor Record Keeping by Debt Collectors Causes Illegal Debt Collection

October 22, 2012

Illegal debt collection is often the result of poor record keeping by debt collectors. In today's tough economic times, it comes as no surprise that many Americans are finding it difficult to make ends meet. Increasingly, Americans are falling behind on debts such as credit cards, loans, and medical bills. This has lead to an increase in attempted collection of these debts, often by debt collectors acting illegally.

In many instances, once a debt, for example a credit card debt, goes unpaid for a certain amount of time, the credit card company will sell it to a debt collection company for pennies on the dollar. The debt collection company then tries to collect as much of the debt as possible. There is nothing illegal about this arrangement. This can lead to problems, however, because the credit card company often sells the debt to the debt collection company with incomplete or inaccurate information as to the identity of debtor and/or the amount of the debt. NPR's Diane Rehm recently discussed the consumer debt buying industry with a consumer attorney, a representative of the Federal Trade Commission (the "FTC"), and a representative of the credit card industry.

This becomes a problem first when a debt collector begins contacting you, but becomes even more of a problem if the debt collector actually files a law suit against you. Initially, when you find out that a debt collection company is attempting to collect a debt from you, you should request validation of the debt. If you request validation, under the Fair Debt Collection Practices Act (the "FDCPA"), the debt collector is required to provide it. It is also a requirement that the debt collection inform you of the right to request validation within five days of its initial communication with you. It is important that you request validation within thirty days of receiving this notice. If you do not receive the notice, you can still request validation, but, again, it is important to do so within thirty days. If you request validation before the end of the thirty day period, the debt collector must stop attempting to collect the debt from you until it has responded to your request. A letter from the FTC clarifies that is it the debt collector who must provide the validation of the debt, not the original creditor. Failure to respond to your request for validation and continuing to attempt to collect the debt before responding to your validation request are both violations of the FDCPA.

If the debt collector does eventually file a law suit against you to collect the debt, it still may not have all the information to prove that you owe the debt, the correct amount of the debt, or that they are the correct party collect the debt from you. In fact, several state attorneys general are currently investigating this problem this problem at JPMorgan Chase. Debt collectors rely on the fact that when they sue to collect debts, most people do not come to court to fight them. This way, they are able to move their cases through the system, often without having to prove that they are suing the correct person for the correct amount with all the correct paperwork, and get their judgment. If you are sued for a debt, it is very important that you appear in court or hire an attorney to appear for you to question the documentation submitted by the debt collector. You can fight the case and, if the debt collector cannot show the necessary documentation, you could win and prevent a judgment against you. You may even be awarded money damages and the debt collector could have to pay your attorney's fees.

Visit Parker and DuFresne, PA's consumer protection page for more information about your rights.

The Banks' Initial Approach to the Recent "National Mortgage Settlement" Appears to Be Less than Helpful to Distressed Homeowners

September 18, 2012

In February 2012, state and federal governments reached an agreement with the country's five largest loan servicers, offering a glimmer of hope for property owners who are facing foreclosure. The effected banks are Ally/GMAC, Bank of America, Citi, JPMorgan Chase, and Wells Fargo. This is often referred to as the "National Mortgage Settlement." Borrowers whose homes are owned or serviced by the settling banks may be eligible for benefits such as:

  • Principal reductions for homeowner seeking loan modifications,
  • Refinancing at low interest rates for borrowers whose mortgages exceed home value, and
  • Payments to some borrowers who lost their homes to foreclosure.
Banks were required to offer up to $17 billion in principal reductions and other loan modifications, $3 billion in refinancing relief, and $1.5 billion to homeowners who lost their homes. The settlement also provides for regulation of the settling banks by:
  • Setting standards for servicer staffing and training levels,
  • Setting standards for execution of documents in foreclosure cases,
  • Curbing improper fee charging, and
  • Maintaining a single point of contact.

CNN Money posted a good summary of what is expected of the settlement.

This was promising news for those who have fallen victim to a seemingly hopeless housing crisis. And the Settlement may still have a positive effect in the future, as the Settlement is set to be implemented over the next three years. Ideally, servicers should be identifying homeowners who are eligible for refinancing, principal reductions, and cash payments. The idea was that banks were supposed to offer meaningful relief to those who have been taken advantage of or most in need of keeping their home

However, initial observations indicate the Settlement is not off to a promising start. A common theme appears to be forming where banks are forgiving the second mortgages of homeowners who are in the middle of foreclosure proceedings. This is certainly exciting for the homeowners who are relieved of their second mortgage, but the banks appear to "complying" with the Settlement in a manner that has little effect on the big picture.

Rather, the second-mortgage debts the banks forgive would often go uncollected anyway. The net effect in this situation is that the homeowner is left with having to litigate the foreclosure on the first mortgage, often while attempting to receive a modification. In some cases, the homeowner's best option may be to file bankruptcy anyway. In which case, the foreclosure is stopped and the homeowner has the opportunity to become current on the first mortgage. Also, the homeowner is often able to have the second mortgage "stripped" --meaning discharged in bankruptcy. The Office of Mortgage Settlement posted a detailed progress report on the Settlement.

Why not offer a meaningful principle reduction on the first mortgage!? This would avoid costly litigation, time and patience in seeking a loan modification, and bankruptcy in some cases. The answer is that banks are profit driven entities that will do everything in their best interest--even after a national settlement agreement.

We remain hopeful the Settlement will have promising results in the future. In any event, there is hope--we offer real solutions in defending foreclosures, negotiating loan modifications, and bankruptcy filings--all under one roof.