Texas Bankruptcy Blog : Texas Bankruptcy Lawyer & Attorney : Fears Nachawati law Firm : Chapter 7, Chapter 13, Consumer Bankrutpcy : Dallas, Fort Worth, Austin, Houston, San Antonio

 In “the old days” (before 2005) a bankruptcy debtor with a mortgage problem could file a Chapter 7 bankruptcy and discharge all of his unsecured debts, then immediately turn around and file a Chapter 13 to deal with real estate debt. Bankruptcy attorneys referred to this as a “Chapter 20” (Chapter 7 plus Chapter 13). The 2005 amendments to the Bankruptcy Code sought to kill this practice; however one recent case may bring Chapter 20 back to life.

The Bankruptcy Appellate Panel for the federal Eighth Circuit Court of Appeals has ruled in favor of a debtor who filed a Chapter 13 bankruptcy to strip away a wholly unsecured second mortgage, even though he was not eligible for a discharge in the Chapter 13 case. In this case, In re Fisette, No. 11-6012 (8th Cir. BAP Aug. 29, 2011), the debtor filed his Chapter 13 case soon after receiving a discharge in a previous Chapter 7 case. The Bankruptcy Code requires that a debtor wait six years after a Chapter 7 case to be eligible for a Chapter 13 discharge, so the debtor was not eligible for a Chapter 13 discharge. After filing Chapter 7, Fisette continued to make payments on his home without formally reaffirming his personal obligation on any of his three mortgages. By 2010 he was behind on his mortgage payments. Since the total amount owed on his first mortgage was more that his house was worth, Fisette decided to ask the bankruptcy court to strip away the second and third mortgages.

The Eighth Circuit BAP allowed Fisette to strip away the junior mortgages. Since Fisette had previously been discharged of his personal obligation on the junior mortgages during his Chapter 7 case, the bank had no recourse against Fisette or his property. This is the first time a federal appellate court has allowed lien stripping in a “Chapter 20” case since 2005.

Bankruptcy law can be extremely complex and is constantly changing. If you need the help and protection of the federal bankruptcy courts, get assistance from an experienced bankruptcy attorney. Your attorney can explain your rights and your options, and help you decide on the right course for you and your family.

The Washington Post recently reported that the Obama administration is not planning another large federally funded program to relieving the troubled housing market. This news comes despite the President's acknowledgement that the billions of dollars already spent to bolster the weak housing market has not solved the problem.

The Post reports that the housing market is suffering from a glut of inventory. The article cites David Stevens, head of the Mortgage Bankers Association, who says that it would take more than nine months to sell all of the homes on the market at the current sales rate. To add to this grim news, industry statistics suggest that more than four million homeowners are having trouble paying their mortgages.

In direct opposition to promises made to the federal government, many banks have been reluctant to write down the balances of underwater mortgages. In some cases banks have misled homeowners into spending their savings with false promises of modifying their mortgages. So what can a homeowner do to take control?

The federal bankruptcy law can restore balance between the struggling homeowner and the bank. Filing a bankruptcy will immediately stop the foreclosure process, and provides time to consider available repayment options. A Chapter 13 bankruptcy case can force a creditor to accept monthly payments for mortgage arrears over a three to five year period. Additionally, an entirely unsecured junior mortgage can be stripped away and included in a discharge as an unsecured debt.

For those debtors with underwater mortgages, the bankruptcy discharge acts as a hammer during the negotiation process. If the lender refuses to negotiate, the homeowner can walk away through a Chapter 7 or 13 bankruptcy discharge with a fresh financial start. Bankruptcy debtors are also eligible to participate in loan modification programs. Finally, a Chapter 7 case provides an opportunity to negotiate a new contract between the lender and borrower in the form of a reaffirmation agreement.

If you are experiencing trouble with your home mortgage, consult with an experienced Texas  bankruptcy attorney and review your options. The federal bankruptcy law provides a distressed homeowner with options to cure a serious financial problem.
 

A short sale is the sale of real estate for less than the balance owed on the property. Short sales are common in today's real estate market, where home prices have fallen and the home owner is no longer able to pay the mortgage loan. A short sale takes cooperation between the home owner and the lender to sell the property at a loss. Both parties must consent to the sale. A short sale can avoid a foreclosure, which can be mutually beneficial to the parties. The lender avoids the expense of a foreclosure and the home owner avoids the negative impact on personal credit.

Short sales were seldom used by homeowners prior to the mortgage crisis because a short sale results in a deficiency balance obligation to the homeowner. The home owner was sometimes sued for the difference between the amount owed on the home and the short sale price, or, more commonly was taxed by the IRS on the amount "forgiven" by the lender. Either way, a short sale created another heavy burden on the home owner.

In response to the mortgage crisis, the Mortgage Forgiveness Debt Relief Act was signed into law in 2007 which excludes from income a discharge of debt on a principle residence. Debt forgiven by a lender in connection with a foreclosure, refinance, or short sale in calendar years 2007 through 2012 is eligible for this relief. Up to $2 million is excluded ($1 million if married filing separately). This relief only applies to a principal residence, and does not include a second home, credit cards, or a car loan.

A forgiven debt is generally taxed as income to the tax payer, but that is not always the case. The most common exclusions of this tax are: (1) if the tax payer was insolvent immediately before the debt was forgiven; (2) if the debt was discharged in bankruptcy; or (3) if the debt is a qualified principal residence indebtedness until 2012.

If you are struggling with a home mortgage and need to walk away, consult with an experienced bankruptcy attorney and learn how the law can work for you. Your attorney can explain your options and together you can make the decisions for a better financial future.

Home values in the United States have plummeted 26.7 percent since peaking in 2006, according to a report released by Zillow.com. The report also sites the hardest-hit cities are Miami-Fort Lauderdale, FL; Detroit, MI; Pheonix, AZ; Riverside, CA: and Orlando, FL, each recording more than a 50% dip since 2006. Zillow estimates that 27% of all U.S. homeowners have negative equity in their property. The Zillow press release can be found here.

Some economists are predicting that the real estate market will bottom out soon and then begin a slow recovery process. Sadly, foreclosures may rise again in 2011 and reverse the negative equity statistic as people with underwater mortgages lose their homes. Nationally, about one home in every 1,000 was foreclosed on during December, 2010.

Foreclosure is a very stressful process. It is a public record and is often published in the newspaper. A foreclosure can happen rapidly and often forces the homeowner to move before ready. This can be a major disruption to family and children. Of course it impacts your credit score for years.

By filing bankruptcy, the foreclosure process can be avoided. In some cases, a Chapter 13 bankruptcy can provide the debtor time to cure an arrearage over three to five years in small payments and stop foreclosure completely. In other cases bankruptcy can strip away an entirely unsecured second mortgage, thereby freeing up money to pay the first mortgage. Lenders are also able to modify your home mortgage during bankruptcy through the federal Making Home Affordable Program.

If you are underwater and struggling to pay your home mortgage, speak with an experienced attorney and learn how the federal bankruptcy laws can help you. Whether you need to pay past-due mortgage payments, strip away a junior lien, or surrender the property and “walk away,” your bankruptcy attorney can explain the costs and benefits of each option.  Call today and get the advice that can help you build a better financial future.

Realizing that you can no longer pay for your home means that you have difficult decisions to make.  While modification and even lien stripping in bankruptcy may be options for some, if you truly cannot afford to keep your home, you must decide on the best way to walk away.

Do Nothing

If you do not pay your mortgage payment, the lien holder will foreclose on your property.  Although not paying your mortgage payment and the resulting foreclosure will significantly harm your credit rating, the home finance industry is presently in such turmoil that it may be months to more than a year before the lien holder forecloses on your property.  During this time you live rent free and can save for the future.  Note that if you do not maintain insurance and do not pay real estate taxes, the foreclosure timeline will likely accelerate.  Also note that under the Mortgage Forgiveness Debt Relief Act, which extends through 2012, income normally attributable by the IRS in connection with a foreclosure is not taxable, although you may be liable for a deficiency balance when the home is sold for less than you owe.  A foreclosure is listed as a public record on your credit report and the late payments are also reported.

Deed in Lieu of Foreclosure

Some financial “experts” have advised distressed homeowners to “just walk away.”  Walking away from a home is easier said than done, since you still own the home and are legally responsible for the property in a variety of ways.  One way to legally “walk away” is to transfer title of the property via a Deed in Lieu of Foreclosure.  Now the lien holder owns the property, which may sound pretty good until the property is sold for less than you owe, triggering a deficiency balance.  You may also end up owing taxes on the difference. 

Short Sale

A Short Sale is a sale for less than what is owed by the seller.  A lender will sometimes agree to allow the property to be sold for less than you owe if it is clear that you are unable to continue paying for the property and the home is upside-down.  In many cases the Short Sale deficiency is forgiven by the lien holder, but that will depend on the lender and on state law.  A Short Sale is identified as a settlement on your credit report and will hurt your score, although not as much as foreclosure or bankruptcy.

Bankruptcy

A bankruptcy is a legal discharge of your debt.  It is the cleanest and most powerful option to “walk away” from the home with no contract or tax obligation.  A bankruptcy uses the power of federal law to stop further negative credit reporting and collection attempts.  In the end your credit report identifies the loan as “Discharged in Bankruptcy” with a “Zero Balance.”  The bankruptcy record will stay on your credit report for up to ten years, but by surrendering the property you will avoid a foreclosure on your record.

If you need to walk away from your home and are weighing your options, consult with an experienced bankruptcy attorney and learn how the federal bankruptcy laws can help.  Bankruptcy can provide you time to move without foreclosure and without owing money in connection with the home.

Fears & Nachawati Bankruptcy Law Offices

4925 Greenville Ave Suite 715, Dallas, TX 75206 (214) 890-0711
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Data recently released by Standard & Poor shows that home prices have dropped roughly two percent nationwide since June. This news is a grim reminder to homeowners that real estate is dragging behind in the economic recovery. In some cities, notably Phoenix and Las Vegas, home prices are now roughly where they were in 2000, while a 27 percent advance would have been needed to keep pace with inflation.

Some analysts have speculated that the homebuyer's tax credit artificially supported the housing market, and now that this credit has ended, the impact of foreclosures and a glut of homes for sale will depress prices in many areas. However, an improving economy could offset that trend and increase demand for homes as the job market improves.

In many cases the federal bankruptcy laws can help a family deal with a home that is losing value. During a Chapter 13 bankruptcy a debtor is able to strip away an entirely unsecured second and/or third home lien. A junior lien is unsecured when the senior lien is more than the value of the home. An unsecured junior lien can be stripped and the debt discharged during a Chapter 13 bankruptcy.

A Chapter 13 bankruptcy also provides an opportunity to negotiate with the lender for a modification of the debt. In some cases the lender may reduce principle or interest and modify the existing note, making staying and paying on the home a more attractive option.

During Chapter 7 or Chapter 13, a debtor is able to walk away from a house and discharge the debt. In this way bankruptcy can be used as a financial tool to relieve the burden of a declining investment.

If you are struggling with debt and overwhelmed by a home that is depreciating in value, speak with an experienced bankruptcy attorney and discuss your options. Your bankruptcy attorney can help you devise a plan to eliminate your debt and improve your financial situation, both short term and long term.
 

Recently many Americans have sought bankruptcy protection as a result of the recession and housing crisis. Unfortunately, the bankruptcy laws cannot force a lender to refinance your home mortgage. However, you ay be able to modify your home mortgage during a Chapter 13 bankruptcy under the “Making Home Affordable” program. In Chapter 7, you may seek refinancing after bankruptcy.

If you seek refinancing from Fannie Mae and Freddie Mac after your Chapter 7 bankruptcy, the discharge must have been granted more than four years previously. FHA requires two years between the discharge date and a home loan. Borrowers must show a good credit history since the discharge and the ability to manage personal finances.  In some cases a borrower may obtain financing before the two year mark, if there is evidence of extenuating circumstances causing the bankruptcy.

Qualifying for refinancing is no different for individuals with bankruptcy on their credit record. The minimum credit score is currently set at 580. The borrower must show an acceptable debt to income ratio, stable employment, and a history of responsible credit management. A lender may ask the borrower for a statement explaining how the events that led to the bankruptcy are not likely to recur.

The FHA offers a “streamlined refinancing” program for qualified borrowers. Information about this program can be found at the Department of Housing and Urban Development web site: http://www.hud.gov/offices/hsg/sfh/buying/streamli.cfm

If you need to file bankruptcy, but are concerned about keeping your home, speak with an experienced bankruptcy attorney. Your attorney can discuss your options under the federal bankruptcy laws, as well as your after-bankruptcy options for refinancing. Don’t let your financial circumstances get the best of you! Know your legal rights and use the law to your advantage.

4925 Greenville Ave Suite 715, Office 1, Dallas, TX 75206 (214) 890-0711 Google Bankruptcy Reviews  | Firm Website |  Yahoo Bankruptcy Reviews  |  Directions

The traditional wisdom for debtors in bankruptcy was to protect your home and discharge unsecured debts.  In some cases, bankruptcy attorneys advised surrendering a vehicle and eliminating the monthly auto payment in order to afford the home mortgage.  Back when real estate prices were appreciating at staggering rates, that wisdom was sound advice.  It was important to protect an asset that was appreciating quickly and could be used to secure a family’s financial future.

Unfortunately, times have changed.

Over the past few years housing prices have flattened, or even depreciated.  In many areas home prices have dropped significantly.  For a debtor who is upside-down on a home loan, it usually doesn’t make sense to try to dig out of negative equity and continue to pay on a home that is a liability, not an asset.

If your mortgage is stressing your family’s budget, it may be wise to walk away.  It is important to consider surrendering your home during bankruptcy and renting rather than continuing to pay a burdensome mortgage payment, taxes, insurance, home repairs, and maintenance.  The question to answer is whether walking away will save you money in the short run and the long run.

One tool for this analysis is provided free of charge at Trulia.com.  Trulia maintains a rent vs. buy calculator that compares the cost of buying a home against the costs of renting.  Using the calculator you can determine whether keeping your home is a smart financial decision.  Trulia also publishes a Rent vs. Buy Index, which tracks whether buying a home or renting is less expensive in America's 50 largest cities, based on current market conditions.

Deciding whether to walk away from a home is often difficult, but is an important consideration for any home owner facing bankruptcy.  When a debtor surrenders property in bankruptcy there is generally no financial consequence to the debtor, and the debt is discharged by the bankruptcy court.  If you are considering surrendering your home during bankruptcy, speak with an experienced attorney and discuss the advantages and disadvantages of the process.  Your bankruptcy attorney can help you reach a decision that is right for you and your family.

Fears & Nachawati Law Offices

4925 Greenville Ave Suite 715, Office 1, Dallas, TX 75206 (214) 890-0711  Google Reviews ‎  |  fnlawfirm.com  |  Directions

Recently allegations have been made against several prominent mortgage lenders claiming the use of flawed and in some cases fraudulent documents during the foreclosure process.  In one GMAC Mortgage has been accused of using a “notary-mill” to crank out upwards of 10,000 foreclosure documents each month without reviewing the documents.  Similar accusations have been leveled at Bank of America.  In states that use judicial foreclosure, this activity amounts to a fraud upon the court and is illegal.

JPMorgan Chase, Ally Bank's GMAC Mortgage and PNC Financial have all suspended foreclosures in states that require a judge’s order.  Bank of America has suspended all foreclosures in all 50 states.  State attorney generals across the nation have joined an investigation into these foreclosure practices.  In Congress, Nancy Pelosi and Christopher Dodd, have called for a federal investigation, and U.S. Attorney General Eric Holder said he is looking into the matter. 

Potentially millions of foreclosures across the United States are subject to challenge.  In some cases courts are denying the lender’s foreclosure suit because it cannot produce clear title.  A recent lawsuit in federal court in Louisville alleges that banks participating in MERS (a mortgage document clearing house) conspired to produce false promissory notes, affidavits, and mortgage assignments to be used in mortgage foreclosures.  Similar class actions have been filed against MERS in Florida and New York.

As a result of this mortgage document fiasco, one title insurance company, Old Republic National Title Insurance, has announced that it will no longer write new insurance policies for homes that have been foreclosed on by JPMorgan Chase and GMAC Mortgage.  Homeowners who have purchased foreclosed homes may not have clear title and may face difficulty in selling their homes in the future.

If you are facing foreclosure, consult with an experienced bankruptcy attorney and discuss your options.  There are many options for homeowners who are unable to make their mortgage payments.  Your bankruptcy attorney can discuss your options and protect your legal rights.

Fears & Nachawati Law Offices

4925 Greenville Ave Suite 715, Office 1, Dallas, TX 75206 (214) 890-0711  Google Reviews ‎  |  fnlawfirm.com  |  Directions

For many, walking away from a home loan is the right decision.  The recent economic downturn has left many homeowners owing substantially more than their home is worth and it may take many years of payments simply to break even.  In other cases homeowners have suffered a job loss, a reduction in pay, or other financial change that makes their present home unaffordable. 

The down-side to walking away from a home is that the debt still remains.  The mortgage company will take your home through foreclosure and sell it, sometimes at a steep discount, and you will be liable for the deficiency balance.  The mortgage company may try to collect or it may assign your debt to a collection company.  Harassing phone calls, threatening letters, and finally a lawsuit are inevitable.  Often the lawsuit is filed years later and just before the statute of limitations expires.  By then you may have rebuilt your credit and be in a much better financial situation.  The effect of this lawsuit can be devastating. 

Bankruptcy law can help you walk away and discharge your obligation to pay any balance on a home loan once and for all.  The instant you file bankruptcy you are under the protection of the United States Bankruptcy Court and creditors are prohibited from taking any collection action against you.  The bankruptcy filing immediately stops any foreclosure or repossession action, and any lawsuit.  This protection, called the automatic stay, extends through the duration of your bankruptcy case.  A creditor must seek permission from the bankruptcy court in order to start or continue the foreclosure process while you are under bankruptcy protection.  The filing of a bankruptcy case generally forestalls the foreclosure process for months and gives you the opportunity to walk away on your own terms. 

At the conclusion of your bankruptcy case you will receive an order of discharge from the bankruptcy judge.  This order permanently prohibits all discharge creditors from taking collection action against you.  However, once the bankruptcy case is closed, the mortgage company can commence foreclosure proceedings to take possession of your home, but cannot collect money from you personally. 

If you are considering walking away from your home, speak with an experienced bankruptcy attorney and learn how bankruptcy can help mitigate your financial exposure.  An experience bankruptcy attorney can explain your options and help you decide on a path that makes the most financial sense for your family.

Around the country courts are questioning the standing of MERS to assert legal rights in
foreclosure or bankruptcy proceedings. Many courts are finding that Mortgage Electronic
Registration System, or “MERS,” is not a legal mortgage holder for lenders, investors
and their loan servicers, and are invalidating bankruptcy claims or foreclosure processes.

On its website MERS describes itself:

MERS is an innovative process that simplifies the way mortgage
ownership and servicing rights are originated, sold and tracked. Created by
the real estate finance industry, MERS eliminates the need to prepare and
record assignments when trading residential and commercial mortgage
loans.

Since the mortgage bubble burst, MERS has come under increasing attack in state and
federal courts. Some courts (most notably in Kansas, Florida, and New York) have found
that MERS does not have standing to assert mortgage rights because it is a mere nominee,
and not a mortgage assignee (an assignment of a mortgage without the debt transfers
nothing. 55 Am. Jur. 2d, Mortgages § 1002). Additionally, MERS routinely skips legally
required processes when a mortgage is transferred.

MERS is not the beneficiary of a Deed of Trust, and has no ownership or possession of a
promissory note. Therefore, many courts are finding noncompliance with state laws.
Recently one bankruptcy court in the State of New York invalidated a bankruptcy claim
by MERS when the company could not show how it had standing in the case.

Many bankruptcy attorneys are demanding proof of assignment and documents
establishing a paper trail for their client’s mortgage. In many cases MERS is unable to
provide this information; much like collection companies often cannot prove a debt.
Original documents, recorded deeds, payment history, and executed assignments seem to
be inconsequential matters to the MERS powerhouse. Fortunately, MERS is now under
attack and accused of not following legal processes. It will be very interesting to see how
the state and federal appellate courts address the MERS debacle.

If you are dealing with an uncooperative mortgage company and need assistance saving
your home, speak with an experienced bankruptcy attorney and discuss your options.
There are many legal options available and your bankruptcy attorney can help you
determine the best choice for your family.

Many homeowners participating in the federal “Making Home Affordable” program, a federal mortgage assistance program, have found that the program benefits have not lived up to the political promises.  Homeowners have discovered that this refinance process is not only difficult, but in some cases can be destructive to their credit.

The Making Home Affordable program is a $75 billion dollar loan modification program aimed at helping homeowners refinance their mortgages to terms they can afford.  The program is actually two refinance processes: first, a refinance program for homeowners with Fannie Mae and Freddie Mac loans; and second, a modification program for everyone else.  The “everyone else” program is the “Home Affordable Modification Program” (HAMP).  Under HAMP, homeowners who have experienced financial difficultly (e.g. a job loss or high medical bills) and are struggling with their current mortgage payments can reduce their mortgage payment by lowering their interest rate up to two percent and extending the repayment period up to 40 years. 

While the promise of refinance sounds like a blessing, the process can be both slow-moving and full of unexpected surprises.  For instance, to qualify under HAMP the homeowner must, among other requirements, make all mortgage payments on time for a three-month trial period.  In essence, the program requires timely payments that you can’t afford before the loan can be modified to a payment you can afford! 

Homeowners who seek assistance under HAMP are also surprised by an immediate reduction of their credit score during the three month repayment period.  By applying for a home loan modification, you are announcing to the credit industry that you are experiencing financial difficulty.  This can lower your credit score by up to a staggering 150 points, making it difficult to obtain other types of credit including auto loans.  This initial drop can only be rectified over time.

If you are experiencing financial difficulty, educate yourself to all your legal options.  Only an attorney can advise you regarding your legal options including bankruptcy, debt settlement options, and government assistance programs.  An experienced bankruptcy attorney can help you evaluate your financial position and choose the right option for your family.