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extracashpic.jpgIn a new incentive program beginning in late 2010, Chase is purportly offering $10,000 to $20,000 to homeowners who take the effort to short sale their property. The offer includes a waiver of any deficiency balance. But it only applies to loans actually owned by Chase, not just serviced by Chase. An article in the St. Pete Times today discusses the program in more depth. Chase is apparently providing approvals in approximately 35 to 40 days after an offer is made, while most short sales take at least six months to conclude.

This is opposite of a growing trend of banks and servicers refusing to grant deficiency waivers.

Many loans are actually owned by Freddie Mac or Fannie Mae now though. To check if your loan is owned by Fannie Mae or Freddie Mac, go to the Freddie look-up site and Fannie look-up site which provide an instant answer. No guarantees that the sites are accurate although in our experience they usually are accurate (even though the loan documentation may still be up for challenge do to failures and inconsistencies in the paperwork).

One other way to possibly see who purports to own and service your loan is the MERS look up site.

So if your servicer is Chase and you are unable to continue making your house payments and a modification seems out of reach or doesn’t make sense, use the look up sites above to try and identify if Chase is only the servicer, or if they are also the owner of your loan. You can also call Chase directly and ask if Chase owns your loan or if they are merely servicing it for an investor. Ask who the investor is if possible. The more knowledgeable you are, the more you will know what options are available to you.

There are other more exact methods of determing the owner of your loan as well.
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We have noticed here in the Tampa Bay, Florida legal community that written deficiency waivers of the unpaid loan balances for first mortgages are getting harder to come by. A recent St. Petersburg, Florida Times article focuses in on the potential landmine: “People have no idea of all the trouble that is coming” says Margery Golant, a lawyer in Broward County who sees deficiency defense cases on the rise. Florida is known as a recourse state and the lenders have a right to obtain a personal judgment for the remaining unpaid balance. They then can seek to collect that debt by garnishing wages or bank accounts or placing a lien on other property that the debtor owns.

This is true of short sales regardless of lender. It is also true of deed in lieu or other voluntary return of the property through a consent judgment in rem (which means against the property only). Even Freddie Mac has aggressively pursued new reduced promissory notes in short sales.

What does this mean? We think it means someone will come knocking to collect that debt eventually. It might be five years down the road (prior to the expiration of the statute of limitations), but if the lender obtains a deficiency judgment, like any judgment it can be collected for 10 years and renewed for a second 10 year period. In the State of Florida, a judgment creditor has 20 years to try and collect an unpaid judgment.

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Sheila Blair, FDIC chairman, announced Friday a new proposal to resolve the foreclosure fraud issues that have arisen, particularly in Florida, a judicial foreclosure state. It is being presented as a settlement of the fraudulent issues by the five major mortgage servicers. The nation-wide “cash for keys” program would provide homeowners up to $21,000 to voluntarily leave their home. I would presume that the program would require the homeowner to also waive any legal rights and claims against the mortgage company.

Interesting idea. Now the homeowner would have the funds to pay a down payment on a new performing loan on probably a less costly and more affordable home. Somehow they would be expected to qualify for financing despite the hit their credit will take giving up the present home.

Please note this is only a proposal (not a law or anything yet), and the banks strongly object to it. It is being targeted to only those homeowners who are 90 or more days delinquent. It is a step toward winding down HAMP which is expected to occur in the next year or two. Other proposals being discussed may include a menu of options available to a servicer including “cash for keys” or principal write down. There are a number of parties involved though for an agreement to be reached. The parties raising claims include the Department of Justice, all 50 state attorney-general, various banking regulators, the FDIC, the Treasury, and the new Consumer Financial Protection Bureau. You then have an industry full of banks and mortgage servicers on the other side.
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lifering.jpgCurrently, the Bankruptcy Code does not allow a bankruptcy court to modify a bankruptcy debtor’s first mortgage on his or her primary home. It does not prevent a mortgage company from modifying a loan if it voluntary agrees, but nothing allows the bankruptcy judge the power to force a principal reduction for an underwater home.

It has been this Tampa Bay law firm’s opinion that eventually principal reductions will become more widespread. It has been reported that banks now hold only 15% of the nation’s home mortgages, and that the remainder are now owned by Freddie Mac, Fannie Mae and numerous securitized trusts. When this mess first began, banks held a much larger percentage of home loans which have now been transferred to Fannie and Freddie. I believe the banks should have been forced to eat the loans they made, but I digress. At least now the nation is in a position to permit principal reductions because it is much less likely to crash the five major banks.

NACBA (National Association of Consumer Bankruptcy Attorneys) has announced a proposal to address the dilemma of underwater homes. This new proposal, the Principal Paydown Plan, would provide:

1) Interest rate reductions to 0% for the first mortgage to allow the entire monthly mortgage loan payment to go directly to principal;

2) During a five year plan, the borrower’s minimum monthly housing payment would be calculated similar to a HAMP modification payment at 31% of gross income;

3) At the end of the five year period, the remaining principal balance would be amortized over 25 years at the Freddie Mac survey rate (running approximately 4.75% now);

4) The bankruptcy judge and Chapter 13 trustee would approve of the eligibility of the borrower and feasibility of the payments, something that they presently do in all Chapter 13 cases;

5) The borrower agrees to a general settlement of all claims against the lender and servicer and avoiding title and loan litigation.
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courthouse.bmp Finally, a win in the Florida Supreme Court for bankruptcy debtors. In February, the Osbourne v. Dumoulin decision puts to rest an issue in Florida where judges disagreed on how much personal property a debtor could keep when filing bankruptcy. Generally a debtor using Florida state exemptions can keep $1,000 in personal property. They can retain additional personal property, but they have to pay to keep anything above the exempt amount. However, if a Florida debtor is not claiming a homestead exemption, they can claim a larger $4,000 wildcard exemption to protect additional personal property such as bank accounts, equity in vehicles etc.

Even our four bankruptcy judges in Tampa, Florida disagreed on how to apply the wildcard exemptions in cases where the home was underwater. After Dumoulin, in cases where the debtors own a home that has negative equity, they can now claim an additional $4,000 wildcard exemption to keep additional personal property. This can be very valuable since Florida’s personal property exemptions are one of the lowest in the country. Most people haven’t minded too much because Florida’s homestead and IRA/401k exemptions are very favorable to debtors. But nowadays, many people have negative home equity and have cashed out or borrowed against their 401ks and don’t receive the benefit of those broad exemptions.

Application of exemptions can be complicated especially in cases where the debtor has recently moved from another state, please consult with an attorney regarding the proper use of exemptions. Arkovich Law

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Bank cracks.jpgOn March 9, 2011, Bank of America Corp. (BAC) announced it is segregating its good and bad mortgages into two separate entities. After swallowing Countrywide, Bank of America is America’s biggest lender with 13.9 million mortgages. Often referred to as being too big to fail, frankly it is also too big to manage its mortgage loans competently and effectively as shown time and time again in our foreclosure defense practice.

The riskiest and worst performing “legacy” loans total approximately 6.7 million loans and include those that are currrently 60 or more days delinquent. It also includes those loans often referenced as toxic loans (negative amortizing loans, interest only, Alt-A, and subprime loans). Roughly, this totals approximately $1 trillion dollars.

Keep in mind BOA has approxmately $148 billion in equity. This equates to 15% of the $1 trillion dolllars of impaired assets. BOA is obviously and unquestionably insolvent. The FDIC should have locked the doors already. Some enterprising person or entity should consider filing an involuntary bankruptcy petition for them.

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wells fargo.jpgThe Middle District of Florida, Tampa Division, upheld Wells Fargo’s practice of freezing bank accounts of Chapter 7 bankruptcy debtors. In re Young, 439 B.R. 211 (Bankr. M.D. Fla. 2010). In ruling that the administrative freeze was not a violation of the stay, the Court denied sanctions against Wells Fargo.

We are advising our bankruptcy clients to move their bank accounts (checking, savings, CDs etc.) to other banks when filing a Chapter 7 bankruptcy. To our knowledge, Wells Fargo (and Wachovia which was merged into Wells Fargo) is the only bank that has taken this position. This avoids panicked calls from our clients when their bank account is frozen and they learn that it may take 30 days for the trustee to abandon any non-exempt interest in the account.

For the time being, this ruling is only applicable to Chapter 7 cases. The Court in Young unequivocally stated that its holding should only apply to Chapter 7 cases and that it would view an administrative freeze on accounts in a Chapter 11 or 13 as a violation of the automatic stay. The Wells Fargo administrative policy may be limited to accounts of $5,000 or greater, but I wouldn’t trust that they won’t freeze an account with less. The reasoning behind them holding the money for the bankruptcy trustee to decide what to do with it applies when a bank account has less than $1,000 in it due to the low personal property exemptions in the State of Florida.

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Debt buyers pay pennies on the dollar for the right to collect delinquent credit card balances and other consumer debt, but they do not often pay the creditor for the back-up documentation. After a lawsuit is filed in Florida, if the consumer’s attorney requests that such documentation be produced, and the debt buyer fails to do so, the lawsuit can be dismissed. In Florida, documentation upon which the claim relies must be attached to the initial Complaint but it often is missing. Since most cases go unchallenged, the debt buyer gets a judgment without having proved its case.

However, more consumers are recognizing that hiring an attorney to defend a debt buyer’s lawsuit can help. As a result there is an uptick in dismissals is resulting from the assembly line debt buyer lawsuits. One of the frequent approaches taken by consumer’s counsel is that they ask for the affidavits upon which the debt buyers rely to prove up the debt be stricken when the supporting documentation is not provided. In Florida, all affidavits used in connection with summary judgment must attach the books and records upon which the affiant reviewed and relied. In some cases, the documentation is contracdictory such as in an alleged assignment of the debt where the assignment does not exist or it is faulty. Riddle v. Unifund CCR Partners, 298 S.W. 3d 780 (Tex. Ct. App. 2009).

Affidavits can also be challenged for admissibility when the business records exception to hearsay is found to not apply. Many counsel skip over challenging the application of the business records exception, but it can be a very valuable tool. For instance a Missouri appellate decision in Asset Acceptance v. Lodge, 2010 WL 3759538 (Mo. Ct. App. Sept. 28, 2010), stated:

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Complaints regarding creditor debt collection agencies, debt buyers, collection attorneys, and many mortgage servicers generate more complaints to the Federal Trade Commission (FTC) that any other industry. In additon to the Fair Debt Collection Practices Act (FDCPA), Florida consumers can take advantage of the Florida Consumer Collection Practices Act (FCCPA). One key difference is that the FDCPA applies only to debt collectors and it excludes its protections when the original creditor is collecting its own debt. In Florida, the FCCPA protects consumers from both debt collectors and original creditors. Another reason why Florida’s law is more expansive is that extends the $1,000 in statutory damages to multiple violations allowing for a greater recovery than the one time $1,000 available under the FDCPA regardless of the number of violations.

Complaints of illegal debt collection and abusive tactics rose from 5,064 in 1999 to 26,652 in 2009. Higher levels of unsustainable debt is part of the reason for such a significant increase, but more likely it is due to the fact that the collections industry makes millions of autodialed calls every business hour.

More attorneys are stepping up in an effort to enforce consumers’ rights by filing FDCPA and FCCPA lawsuits. Our law firm began taking FDCPA and FCCPA cases at the beginning of 2010 as a natural offshoot of our bankruptcy practice. Many more bankruptcy attorneys are recoginizing that the overly aggressive actions by creditors are splitting families, causing job losses and significant emotional distress in the more egregious cases.

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Florida’s Middle District which covers Tampa, Orlando, Fort Myers and Jacksonville was second only to the Los Angeles district in bankruptcy filings from October 2009 to September 2010. The Florida Middle District recorded 66,861 bankruptcy filings including all chapters.

That translates to approximately one person out of 100 in these two districts declared bankruptcy last year, based upon a 2009 U.S. Census.

The downturn that began in 2007 has led to an increased number of bankruptcies. The decrease in home equity made people feel less wealthy and they are more apt to file bankruptcy when the credit card debt seems overwhelming. No longer is equity available in homes to tap in an effort to pay down unsecured debt such as credit cards. Realizing this, many people have come to the conclusion that bankruptcy is their way out. Also Americans are coming to realize that the social stigma of filing bankruptcy has nearly disappeared.

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