If you happen to fall behind on your mortgage payments, then filing Bankruptcy may provide an option to help you catch up and get current on your mortgage.  Specifically, a Chapter 13 Bankruptcy will help the debtor reorganize their creditors and provide for the mortgage arrears to be paid out over a period of 36 to 60 months.  In addition, the Bankruptcy filing would prevent or delay an upcoming foreclosure if the case is filed prior to the sale date. 

Once a debtor files for bankruptcy, an automatic stay is immediately put into place.  The automatic stay, as provided under Section 362 of the Bankruptcy Code, prohibits creditors from continuing collection activity against the debtor during their bankruptcy case.  After the bankruptcy case is filed, the debtor, who may be at risk of foreclosure, must make payments to their Chapter 13 Trustee according to the terms of their Chapter 13 Plan.  The Chapter 13 plan will provide for the payment of the mortgage arrears, along with other creditors if applicable depending on a case by case situation.  If the debtor fails to make the payments according to the Chapter 13 Plan, then the bankruptcy court dismiss the case, or the creditor may petition the court to allow foreclosure proceedings to resume.

Chapter 13 allows the debtor to reorganize their debts and pay them off through a three to five year repayment plan.  If the debtor continues to pay each month, then filing for a Chapter 13 bankruptcy will provide an efficient way to prevent foreclosure and catch up on missed payments.  The debtor must be able to pay the Chapter 13 Plan payments and their regular mortgage payments each month, depending on the jurisdiction which their Bankruptcy case is filed. 

Filing a Chapter 13 bankruptcy is extremely beneficial if you are behind on your mortgage payments.  Due to the automatic stay, creditors will be unable to continue collection activities. You can focus on reorganizing your debts and create a payment plan that will satisfy all of your creditors. 

Foreclosure on homes often happens when lenders want to retrieve the remaining balance of a loan from the homeowner who has stopped making payments. Normally, the lenders will not begin the legal process until the homeowner skipped out on 3 or 4 months worth of payments.  Keep in mind, the foreclosure process varies in each state.  In Texas, foreclosures only take place on the first Tuesday of the month.  In addition, the creditor must provide certain notices informing you of the sale prior to any foreclosure date.  Although there are loss mitigation options available through some lenders, Chapter 13 Bankruptcy also provides an option to delay or prevent foreclosure while providing an avenue for you to catch up on the mortgage arrears.

Chapter 13 is often called “Reorganization Bankruptcy” because it allows you to reorganize your debts and prepare a payment plan. If your home is being foreclosed, then you can file for Chapter 13 and extend your repayment length.  Typical Chapter 13 cases range from 36 to 60 months and arrange monthly payments to your priority, secured, and in certain situations, unsecured creditors.  For many, Chapter 13 provides a beneficial option for people to catch up on the arrears by including the arrears in the Plan and spreading the amount out over five years.  While in Chapter 13, all payments must be made on time, including the regular on-going mortgage payments if they are not part of the Bankruptcy Plan. When the debtor completes all plan payments, the arrears on the mortgage will be cured and the debtor will exit the bankruptcy current on their mortgage.  

Every state has a statute of limitations for filing a foreclosure action. A statute of limitations is a state law that tells the lender that a foreclosure must be filed within a certain time after default on a promissory note. If the foreclosure is not filed by that date, it is not valid and may be stopped or dismissed by a court. A statute of limitations is an “affirmative defense” and must be raised by the homeowner in defense of a foreclosure action. If it is not raised, it is generally considered “waived” and will not be considered in future lawsuits.

The time limit depends on the type of action and the claim that is involved. There are different statutes of limitations for oral contracts, written contracts, personal injury, and fraud. Generally, the statute of limitations for home foreclosures applies to written contracts (i.e. promissory notes). Some states (e.g., New Jersey), have a specific statute of limitations for foreclosure.

Each state has its own statute of limitations, which ranges from three years to 15 years. Most states fall within the three to six year range. The statute of limitations clock for a mortgage foreclosure usually starts when the default occurred, which is generally dated from the last payment.

A foreclosure must be initiated before the expiration of the statute of limitations period. For example, if the expiration of the statute of limitations is March 30, 2015, and the foreclosure is started on March 15, 2015, then the statute of limitations does not apply, even if the foreclosure is not completed before March 30, 2015. However, if the foreclosure action is dismissed or stopped by the lender after March 30, 2015, the time will have expired and the statute of limitations defense is effective against a future foreclosure.

If you have a home that is under threat of foreclosure, consult with an experienced bankruptcy attorney and consider your options.  In some cases, a statute of limitations defense may save your home from foreclosure.

In 2005, Congress, with help (and influence) from creditor lobbyists, chose to add restrictions to the automatic stay and make it harder for a serial filer to get debt relief. Section 362(c)(3)(A) provides that if an individual debtor files a second bankruptcy case within a year of dismissal, the automatic stay terminates “with respect to the debtor on the 30th day after the filing of the later case[.]” The automatic stay may be continued by the bankruptcy court upon a showing of good faith by the debtor.

In English, Section 362(c)(3)(A) means that if you file a second bankruptcy case within a year after the first is dismissed (either by you or by the court), you must ask the bankruptcy court to continue the automatic stay protection or it will expire after thirty days. However, courts across the country disagree as to the effect of this termination.

The vast majority of courts find that when the stay is terminated under Section 362(c)(3)(A), the debtor and his property is fair game, but property of the bankruptcy estate is still protected. This interpretation was recently confirmed by the First Circuit Bankruptcy Appellate Panel in the case of Witkowski v. Knight (In re Witkowski), No. 14-34, __ B.R. __ (B.A.P. 1st Cir. Nov. 13, 2014).

In the Witkowski case, the debtor filed several bankruptcy cases attempting to forestall foreclosure of a residence. When the debtor filed one bankruptcy case within a year of a previous dismissal, and the lender continued a pending foreclosure sale according to state law. The debtor did not seek to extend the automatic stay, but filed a motion seeking sanctions for continuing the foreclosure action in violation of the stay.

The Witkowski court agreed with the debtor and with the majority of courts that the automatic stay was not terminated as to property of the bankruptcy estate, which included the debtor’s residence.

The court then turned to the question of whether the lender’s action constituted a violation of the bankruptcy stay injunction. The court distinguished between taking new action against the debtor and “maintaining the status quo” by continuing a state law foreclosure. The court found that the lender did not take new steps in the foreclosure process after the bankruptcy case was filed and, therefore, did not violate the automatic stay.

While other courts may derive a different result, there are two important rules to learn from Witkowski: (1) most courts agree that the termination of the stay under Section 362(c)(3)(A) does not affect estate property; and (2) there is a growing trend to allow the “maintenance” of foreclosure sales commenced pre-bankruptcy. These are important issues that merit a close watch in the future.

Mortgage servicer PHH Mortgage Corporation is in the news again, this time on the losing end of a $16 million jury verdict. Like many others in Yuba County, California, homeowner Phillip Linza ran into some financial trouble after purchasing his home in 2006. Linza filed bankruptcy in 2009, then worked with PHH for a home loan modification. According to Linza’s attorney, PHH agreed to a loan modification that reduced Linza’s monthly payments from $2,100 to $1,543, which would take effect in January 2011.

Inexplicably, PHH changed the terms. PHH first told Linza his new payment was $2,350 per month, then demanded an extra $7,056. When Linza complained and threatened litigation, he was told, "We’re a multi-billion dollar company. Stand in line because we’ve got a busload of attorneys that are on retainers."

This is not the first time PHH has been in the news. In January, 2014, the Consumer Financial Protection Bureau initiated an administrative proceeding, alleging PHH harmed consumers through a mortgage insurance kickback scheme that started as early as 1995. The CFPB is seeking a civil fine, a permanent injunction to prevent future violations, and victim restitution.

In December, 2013, the New Jersey Attorney General announced a $6.25 million settlement with PHH to resolve allegations that the company misled financially struggling homeowners who sought loan modifications or other help to avoid mortgage delinquency or foreclosure.

In 2011, PHH was hit with a $20 million jury verdict from a Georgia federal court for improperly reporting U.S. Army sergeant David Brash to credit agencies as "seriously delinquent" despite the fact that all his mortgage payments had been automatically deducted from his paycheck. When he tried to resolve the matter, his letters to PHH went unanswered (violating federal law) and his calls were routed to overseas customer services staff who couldn’t answer his questions.

When a mortgage servicer will not play fair, there are few options. Litigation is costly and time-consuming, and also carries some risk since not every consumer lawsuit is successful. For many consumers, the power found in the federal bankruptcy laws is a more certain and permanent option. Most jurisdictions allow a bankruptcy debtor to strip away an unsecured junior lien against a home in a Chapter 13 case. A mortgage arrears may be repaid over three to five years under court supervision, and without threat of an unannounced foreclosure.

A Chapter 7 debtor may discharge a personal obligation on a home loan while retaining the right to modify post-discharge under HAMP. That means that the lender has no recourse against the homeowner for nonpayment, and the property is eligible for loan modification.

If you are experiencing the pains of dealing with an incompetent or dishonest servicing company, consider all of your options, including options found in the federal bankruptcy laws. Bankruptcy is not always the best option, but it is often the most powerful option.

If you are considering filing for bankruptcy please call the experienced attorneys at Fears | Nachawati  Law Firm to set up a free consultation. Call 1.866.705.7584 or send an email to fears@fnlawfirm.com.

The Consumer Financial Protection Bureau has turned its attention to “zombie” foreclosures, as reported by Reuters. A zombie foreclosure occurs when a bank begins a foreclosure, but then abandons the process without informing the homeowner. In most cases the zombie foreclosure is stopped by the bank after the homeowner has moved out of the home. Homeowners don’t realize that they still own their homes, and are still responsible for the mortgage debt, taxes, homeowner association (HOA) dues, and upkeep.

“The CFPB is beginning to look very closely at abandoned properties and zombie foreclosures,” said Laurie Maggiano, the CFPB’s servicing and secondary markets program manager. “There is direct borrower harm if a borrower believes a foreclosure on their property has been conducted and they are no longer responsible, and months or years later find out that they are, that there was never a foreclosure and they have large financial responsibilities that they never knew about.”

Zombie foreclosure often occurs when a bank charges off a low-value property, but does not complete the foreclosure process. By not completing the foreclosure, the bank is not responsible for the property or associated expenses, but still retains a lien which makes it impossible in many cases for the homeowner to sell the property. The property is abandoned and the unwitting homeowner may be civilly or criminally liable for violating local ordinances, failure to pay taxes, etc.

There is no requirement for banks or loan servicers to inform homeowners about lien releases or charge-offs, however the Truth-in-Lending Act requires that servicers send monthly statements to borrowers with delinquent mortgages.

Bankruptcy is little help
Bankruptcy can discharge an individual’s personal obligation to pay a mortgage debt, but a bankruptcy case does not transfer title from the homeowner to the bank. The person still owns the property after bankruptcy, even if he is not obligated to pay the bank.

Courts across the nation have said that the Bankruptcy Code does not require a lender to act upon the surrender of collateral in a bankruptcy. Until the lender is the legal and equitable owner of the property (through a foreclosure, or deed transfer), the debtor may be on the hook for HOA fees, taxes, or property insurance that arise after the bankruptcy filing. These debts are not part of the bankruptcy discharge.

If you are experiencing trouble paying your home mortgage and need to “walk away,” discuss your situation with an experienced bankruptcy attorney at Fears | Nachawati. In many cases, the smart move is to stay in the home (rent free) until the foreclosure is completed. Filing bankruptcy may also buy your family some time to find another home. Contact us today at 1.866.705.7584 or send an email to fears@fnlawfirm.com.

Mortgage servicer Ocwen has joined the list of major lenders and servicers who have agreed to slash mortgages for struggling homeowners. Ocwen agreed to reduce $2 billion in principle for struggling homeowners over a three-year period, and to pay $67 million in cash settlements to individuals who were wrongly displaced from their homes during foreclosure.

The deal was reached as a settlement with federal and state authorities over accusations of deceptive mortgage servicing. The complaint against Ocwen alleged that it engaged in improper shortcuts, imposed unauthorized fees, improperly denied loan modifications, and engaged in illegal foreclosure practices with homeowners. The agreement did not admit any admission of wrongdoing on the part of Ocwen, and there were no criminal charges levied against executives. The settlement includes any wrongdoing by two mortgage servicing companies recently acquired by Ocwen: Homeward Residential Holdings (aka American Home Mortage Servicing) and Litton Loan Servicing.

“We believe Ocwen violated federal consumer financial laws at every stage of the mortgage servicing process,” said Richard Cordray, director of the Consumer Financial Protection Bureau (CFPB). “After examining the potential violations, we have concluded that Ocwen made troubled borrowers more vulnerable to foreclosure.”

Individuals who were foreclosed on between January 1, 2009, and December 31, 2012, may be sent a cash payment. Those eligible to receive payment or mortgage relief will receive notification directly from settlement administrators. More information and qualifying conditions is available on the CFPB website, here. You may also contact your Attorney General’s office and add your name to the contact list for your current address. To find your state’s Attoroney General, click here.


Continue Reading Mortgage Giant Ocwen Agrees to Settlement

When you file a bankruptcy case there is an automatic stay that goes into effect. This stay protects a debtor from their creditors trying to collect. Most importantly it protects a debtor from a foreclosure or a repossession of their home or car. A creditor can request relief from the stay or request that the stay be lifted. Normally they do this when you have missed payments under the plan or direct payments on your secured debt. If the stay is lifted the creditor can start to collect. This means they can start calling you and foreclose, or repossess the collateral.

You will usually be mailed the motion by the creditor. If you get the motion, contact your attorney to discuss your options. Many times the attorney can work with your creditor to resolve the motion without the stay lifting. Usually the best way to resolve the motion is to get caught up with the payments. Sometimes if you are only behind a few payments this can be done prior to the hearing or you can enter an agreement with the creditor to do it over the next few months. Otherwise you may need to change the terms of your plan to cure the delinquency amount through your chapter 13 plan. It’s important to contact your attorney because they know what options will work best to resolve the motion.

Motions to lift stay are much more common in a chapter 13 however they can also occur in a chapter 7 case as well. The reason they are less common in a chapter 7 case is because the case usually only lasts a few months and then the stay ends so it is not necessary to file a motion. If a creditor does file a motion it is usually to repossess collateral the debtor is surrendering. If you are in chapter 7 and you receive a motion to lift stay you should contact your bankruptcy attorney to know what to do next and to discuss your options.

If you have questions about bankruptcy contact the experienced attorney’s at Fears | Nachawati. Call us at 1.866.705.7584 or send an email to fears@fnlawfirm.com to set up a free consultation.

Filing a personal bankruptcy case will stop a judicial or nonjudicial foreclosure whether or not the foreclosure was begun before the bankruptcy. See 11 USC § 362 (a). The only notable exception to the automatic stay is for foreclosures which are brought by the Secretary of HUD on federally insured mortgages for real estate involving five or more units. See 11 USC § 362 (b)(8).

In order to stop the foreclosure, it must not yet be completed and finalized. In other words, you must still own the property at the time you file bankruptcy. Section 1322(c)(1) states that a debtor may cure and reinstate a home mortgage until the property is sold in a foreclosure sale.

Debtor’s Right of Redemption
After the sheriff’s sale, the debtor has no right to cure a default in a Chapter 13 plan. However, the debtor may have a state statutory right to redeem the property. The debtor’s state right of redemption is separate from an ability to cure a default under §1322. A cure leaves the underlying mortgage intact, allows a debtor to reverse acceleration caused by default, and allows a debtor to repay past due amounts over time while maintaining monthly payments. The right to redeem, on the other hand, does not allow the debtor to reverse acceleration and catch up payments. Rather, the debtor must pay the entire amount the purchaser paid at the foreclosure sale plus interest and costs within a statutory period of time.

Trustee’s Rights in Foreclosed Property
A bankruptcy trustee can undo a foreclosure as a fraudulent transfer if a creditor gets a windfall. See 11 USC § 547 and § 548 (up to 90 days before the bankruptcy filing, or within one year if an “insider” forecloses).

Foreclosure after Bankruptcy
Since the bankruptcy filing immediately triggers the automatic stay, the stay is effective whether or not a creditor is aware of the bankruptcy filing. This means that a foreclosure action must stop, even if the creditor has no knowledge of the court’s injunction! In order to proceed with a foreclosure sale after the bankruptcy case is filed, the creditor needs special permission from the bankruptcy court, called “lifting the stay” or “relief from the automatic stay.” This required notice and an opportunity for a hearing. See Rule 4001 FRBP. For more information on contesting a motion to lift stay.

If you are harmed by a foreclosure intentionally performed after your bankruptcy filing, you can “recover actual damages, including costs and attorneys’ fees, and in appropriate circumstances, [you] may recover punitive damages.” See Section 362(k). Bankruptcy judges are not happy with creditors who purposely violate the law. Fortunately enough of them have been slapped so most creditors know better, but from time to time some venture to get around the law. If you are considering filing for bankruptcy or fear foreclosure please call the experienced attorneys at Fears | Nachawati Law Firm to set up a free consultation. Call 1.866.705.7584 or send an email to fears@fnlawfirm.com.

As a general rule, any debt cancelled or forgiven by a creditor must be added to the individual’s income for tax purposes. At the end of the year, a creditor who cancels of forgives a debt must send an IRS Form 1099-c to the Internal Revenue Service and to the taxpayer. Called “cancellation of debt” by the IRS, a cancelled or forgiven debt is no longer borrowed money that will be repaid; it is income that the taxpayer must claim on his or her tax return.

For example, say you borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which is generally taxable income to you. Cancelled debts can arise from charged off loans, debt repayment plans, foreclosures, and short sales.

After the housing bubble burst and many Americans lost their homes, Congress enacted the Mortgage Debt Relief Act of 2007. The Act generally allowed taxpayers to exclude income from a cancelled or forgiven debt after they lost their homes. In other words, the Act meant that taxpayers did not have to pay taxes on any loan deficiency if the home was lost to foreclosure or sold in a short sale.

The Act was intended as short-term relief to help taxpayers avoid high tax debt. It was initially set to run until the end of 2009, but was extended for another three years, then extended again to the end of 2013. It will now expire on December 31, 2013. The Washington Post reports that it is unlikely that Congress will extend this relief again.

This is very troubling news to homeowners still struggling to pay or modify underwater homes. Without this relief, many individuals who lose their homes to foreclosure may be charged huge tax bills many months or even years after foreclosure. Since new tax debts are not dischargeable in bankruptcy, individuals will now suffer the injury of tax debt on top of the insult of losing a home. A large non-dischargeable tax debt can make it impossible to financially recover for many years.

Some states avoid this imputed income problem by prohibiting the lender from assessing a deficiency against a foreclosed home. However, most states do not have this provision, and some only protect certain home deficiencies (such as from a primary home mortgage) and not others (such as a deficiency from a home equity line of credit).

If you are facing a foreclosure sale on your property, discuss your options with an experienced bankruptcy attorney. Filing bankruptcy before foreclosure can avoid the nightmare of cancellation of debt income. Your bankruptcy attorney can review your case and offer a legal solution to your financial problems. For more information and a free consultation contact the experienced attorneys at Fears | Nachawati by calling 1.866.705.7584 or sending an email to fears@fnlawfirm.com.