Articles Posted in Chapter 7 Bankruptcy

Quotation of the Day:

“The fundamental issue is that law schools are producing people who are not capable of being counselors. They are lawyers in the sense that they have law degrees, but they aren’t ready to be a provider of services.” Jeffrey W. Carr, General Counsel.

At my Tampa, Florida law firm we pride ourselves in our abilities to counsel clients as to their options and help make decisions that may impact the rest of their lives. We don’t take that responsibility lightly. We don’t just file bankruptcy for everyone who contacts us. It is not one size fits all. We don’t mandate that our bankruptcy clients file according to our schedule when simple timing and planning achieves a much better result. We don’t suggest every client defend their foreclosure or maintain a scorched earth policy. We are able to advise our clients regarding both bankruptcy and foreclosure or civil defense. I have 20 years legal experience in areas of bankruptcy and civil litigation (including foreclosure defense).

Our Florida clients have recently been asking me if there is a new law allowing them to reduce their mortgage balance to the value of their home. This is not accurate and I am not sure where this is coming from. My guess it may be from somewhat misleading and overly optimistic advertisement flyers that are sent to people who have a foreclosure filed against them.

In bankruptcy, specifically a Chapter 13, we can strip a second mortgage. But the court cannot require a first mortgage company on a primary home to reduce the principal balance on their home. Implying otherwise, is simply misleading and inaccurate.

There is also no federal or state law that requires a first mortgage to be reduced to the value of the home.

Mortgage modifications are often determined by whether the owner (not servicer) is either a participant in HAMP or a recipient of TARP bailout funds.

Here’s how to check on your lenders:

First, use our Resource page on our website to look up who likely owns your loan by doing a Fannie, Freddie or MERS lookup search.

Second, see if the owner of your loan is a HAMP or other governmental program participant.

Third, see if the owner of your loan was a recipient of TARP funds in the 2008 bailout.

If your loan passes the above tests, your lender is required to run you through a HAMP analysis (even if they would prefer a short sale). You can qualify for a HAMP modification whether or not you file bankruptcy, although you might find the success rates are higher in a bankruptcy. The Tampa Division bankruptcy courts just established a formal mediation program in October 2011 for homeowners who have experienced difficulty in obtaining mortgage modifications.
Continue reading →

The Bankruptcy Court for the Middle District of Florida, Tampa Division, has recently implemented a mediation program for homeowners wishing to modify their first mortgages. The Orlando Division has had a similar program in place for a year or more and reports a success rate of 70%, unlike the state foreclosure mediation program which has a success rate of less than 5%. Combined with a reduction of debt in a Chapter 7 or even a stripped second mortgage in a Chapter 13, you may find keeping the house to be affordable with a modification. HAMP for instance reduces the interest rate to as little as 2%, may extend the term or carry a portion of the principal without interest to the end of the loan. If you believe that you can afford a (PITI) payment that is approximately 31% of your gross income, you may want to take advantage of this program.

Many reasons exist for the higher rates of success for mediations in bankruptcy. First and foremost, a bankruptcy filing tends to eliminate credit card, medical bills or second mortgage payments allowing for more income to be directed toward the first mortgage. Lenders attorneys have pointed to the smaller, more experienced bankruptcy mediation departments at banks or servicers that allow for better outcomes.

The Tampa Division just approved a standard fee of $1800 for their mediation program this past week payable to the debtor’s attorney in a Chapter 13 Plan (spread out over 5 yrs is $30 monthly). The cost of the mediator will be $350 for two hours split between the mortgage company and the debtor. This is the only fee that will be payable up front at the mediation.

I have discussed the many second mortgages that can be removed or stripped off clients’ property in a Chapter 13 bankruptcy due to the low home values in Florida. Today, I’d like to discuss other possibilities to remove a second mortgage that we are seeing. Today for instance, I received a call from a client who filed a Chapter 7 with us awhile back. She now has received approval for a HAMP waiver of her second mortgage or home equity line of credit. A complete waiver, paid in full. She also has completed a modification under HAMP for her first mortgage. Now the home is affordable and it makes sense for her to keep it. Chase was the servicer this client was working with so it may be worth the time to continue to deal with large servicers to obtain these results.

We also are seeing clients being approached with offers to satisfy their second mortgages in full for about 10 cents on the dollar (i.e. $6,000 lump sum payment to satisfy a $60,000 2nd mortgage). Usually this happens after we file a Chapter 13 threatening to strip the second mortgage, but sometimes it may come out of the blue. For a client who qualifies for a Chapter 7, they then have the option of converting to a Chapter 7 to discharge other unsecured debt and not remaining in a lengthy 3-5 year Chapter 13 Plan. Another option is that the client could simply dismiss the Chapter 13 voluntarily if they have no other debt and are current in their first mortgage or able to obtain a modification.