Mortgage Foreclosure attorneys in New Jersey will be busy as mortgage foreclosures are up and climbing

Bloomberg News reports that New Jersey has now passed Nevada and is #2 behind only Florida in the number of loans in serious default. (Bloomberg, Sept. 18, 2012 “New Jersey Housing Suffers as Defaults Exceed Nevada: Mortgages).  As we have reported, a lot of existing foreclosures were put on hold until the courts sorted out new requirements to protect against “robo-signing”.  We hear that atop the large number of pending cases,  a flood of new cases expected to be filed in the next few months. Right now, Bloomberg reports, there are 60,000 pending open foreclosures, with borrowers who have not made a payment in the past 934 days, according to Lender Processing Services Inc.

This is going to be good news for mortgage foreclosure attorneys, both those who file these suits and those who defend. Those who want to keep their homes will need the help of experienced counsel. We still believe many mortgage lenders are going to have problems if challenged in meeting their burden of proving that the plaintiff in foreclosure actually holds the mortgage with the right to sue. Other defenses may be available.

As we have reported elsewhere, the loan modification process has been disorganized and uneven. But for those who want to keep their homes, a Chapter 13 Bankruptcy may provide help in a variety of ways. (see our other blog posts on this). Mortgage lenders, if acting rationally, would be making deals. But few who have dealt with process have good things to report about how it is being handled. Many have horror stories.

In the meantime, we can expect the long delays (about 3 years) from start to finish of a foreclosure will keep many defaulting homeowners in their homes, giving them a much-needed break and opportunity to settle other debts. Clearly, the foreclosure system is not helping lenders.

According to Bloomberg, the “shadow inventory” of foreclosed properties is still increasing in the Northeast. They report that the hidden supply of homes dwarfs the “visible inventory” of homes for sale.

By all accounts, this mess is not getting better. We have suggested some of the reasons for the logjam in other blog posts. But eventually it will all get resolved. It just shouldn’t take so long. This situation is not helping our economy.

For more information, please see our other blog posts. Steven Neuner is available to assist borrowers with defending foreclosures or seeking other solutions.

Foreclosure Advice

Short sales and modifications- the system is not working, still…

I read with fascination this New York Times article detailing a horror story where a mortgage loan servicer approved a short sale and after the closing reneged, sending back the agreed upon sale proceeds. http://www.nytimes.com/2012/09/16/business/a-florida-condo-sale-and-a-markets-dysfunction-fair-game.html?_r=1 I wish I could report that this is an isolated incident. In fact, what I have seen and what I am hearing is that mortgage servicers who deal with loan modifications and short sales are too often disorganized, dysfunctional or worse. Example: a mortgage modification with substantial principal reduction is sent to borrowers who then sign all the papers and send them back via overnight mail, with proof of delivery. They go to bankruptcy court and get court approval, on notice to the lender. The lender claims they never got the papers. They send letters making spurious claims that conditions are not met. They send threatening default letters, even though payments are being made. Even when the papers are all re-signed and re-sent using THEIR FedEx envelope, they claim they never got the papers.

Anyone who does much of this work has similar stories.

Why this happens is anyone’s guess. The suggestion is that the loan modification process ought to be taken out of the hands of the lenders or servicers, and put in the hands of a single agency that applies consistent standards. The agency is already in place: the bankruptcy courts. The authority can be limited to existing mortgages in default, so that new mortgage lending is not affected.

The New Jersey Bankruptcy Court already has a voluntary Loss Mitigation process in place, where all the documents are uploaded to an independent web portal, so there is never any claim or question about what was sent and received or when because it is all there for all the participants to see. And the process requires a designated single contact person with authority.

All we need to do is give the Court the authority to restructure the mortgage in Chapter 13. This is not that different from the court’s existing work. The lender/investors would see more income. More borrowers would be able and willing to save their homes. Less foreclosed or unsold inventory. Who are the losers? Servicers whose contracts pay them per loan, even for those in default. And all those companies and professionals who do foreclosures.

Until we have a rational, efficient and predictable system to deal with defaults on securitized loans, the current mess will continue.

By the way, as an historical aside, we had something similar in the late 1980’s with massive Savings and Loan closures. The solution there was to give their assets to the Resolution Trust Corporation which by all accounts did an efficient job of liquidation and recovery.

Overview of Short Sales

Student Loan debt is the looming new crisis- but some options are open to dealing with collectors

Student Loans are now bigger than credit card debt, and cannot be discharged in bankruptcy (except for the really destitute and hopeless; very hard to show). And the government has access to information and collection methods not available to other creditors. As a result, the New York Times reports, debt collectors are pursuing these types of collection accounts and making much higher collection percentages. http://www.nytimes.com/2012/09/09/business/once-a-student-now-dogged-by-collection-agencies.html?_r=1

In many cases, this situation is putting an enormous strain on some unfortunate borrowers.

But, as the article points out, there are some programs to help. These include income based payment programs and discharges for those in public service. http://studentaid.ed.gov/repay-loans/forgiveness-cancellation. The first step for anyone is to get, keep and save all your student loan applications and documents.

And even though a personal bankruptcy will not discharge all student loan debt, it can help. In some cases, a Chapter 13 can be used to funnel payment to these debts.

As I have written before on these pages, the whole student loan situation is a ticking time bomb…

Getting a business loan requires planning

A recent article in the New York Times underscores that getting business loans requires thought and planning. http://boss.blogs.nytimes.com/2012/08/16/when-looking-for-a-loan-you-cant-fight-gravity/. More times than I can count, business people have come to me because they put their homes and future income up to obtain a loan for a business that later began failing. Sometimes the loans are used to pay the owners salaries, so that they are in effect borrowing to pay themselves!

Before getting any loan for a business, the owners need to have a plan how the loan is going to be paid back. If the loan is being used to keep the doors open instead of expanding or investing in making the business better, this is a big red flag.

One banker recently confided to me that banks are competing to sign up customers, but the customers they are chasing are the cream of the crop. Otherwise they are not interested. To get the best terms, you the business owner need to make your business model attractive. This requires  well-thought-out planning supported by realistic projections and solid data.

In these tough times, the businesses that survive will be the ones that thrive. Make yours one of the success stories.

For more about avoiding or dealing with business problems, take a look at our website and blog.

The continuing obligation to accurately list all claims and property in bankruptcy: what you do not list can cost you plenty.

In a bankruptcy, I often tell clients they are entering a “fishbowl” in which they have to list and disclose all property. Not doing so can get debtors in plenty of trouble. When what is not listed happens to be a valuable lawsuit, non disclosure can also cost them and the unfortunate attorneys who handle such claims plenty. This is the message from two recent Circuit Court cases, Guay v Burack, 677 F.3d 10 (1st Cir. 2012), and Love v. Tyson Foods, Inc.  677 F.3d 258 (5th Cir,2012). In both cases, a failure to list pending lawsuits in a timely fashion caused the courts to dismiss those suits, under the doctrine of judicial estoppel. In both cases, the debtors in bankruptcy did disclose the lawsuits, but in both cases, the courts held that “too little, too late” was not enough to save the day.

In Guay v Burack, the debtors initially filed under Chapter 11. While they were in Chapter 11,  police executed search warrants and caused alleged damage to their property. Their case was converted to Chapter 7, and 3 days later, Mr. Guay filed a pro-se civil rights suit in federal court. His wife followed with a similar suit. The Guays did not list these claims in their original bankrutpcy filing because the incidents had not occurred. However, they were required to amend to list them, and were later ordered to do so. Instead, they refused, and in fact filed affidavits stating that there was no need to do so as their original papers were accurate. Even though the Chapter 7 trustee learned about the suit and later abandoned the claim as not being of sufficient value, the courts held that judicial estoppel required that their complaints be dismissed, as they had taken inconsistent positions in the bankruptcy and district court, playing “fast and loose” with the system. Interestingly, the suits were not a secret for very long. At the First Meeting of Creditors, the debtors disclosed the existence of the suits to the Chapter 7 trustee, but only after being questioned by counsel appearing for the State of New Hampshire. The Trustee later gave up the claims by filing an abandonment.

In Love v Tyson Foods, Mr. Love filed a federal suit alleging violations of his civil rights and employment discrimination, while he was a debtor in a pending Chapter 13 case. Love did not disclose his claims against Tyson and affirmatively stated “NONE” on Schedule B, item 21, which required the identification of “[o]ther contingent and unliquidated claims of every nature.” On September 22, 2008, the bankruptcy court confirmed Love’s Chapter 13 plan, which did not mention the then-pending EEOC matter and provided that Love’s unsecured creditors would receive no payment. Only after Tyson moved to dismiss the lawsuits did Love file amendments listing these assets. By that time, his Plan had been confirmed. He never moved to amend it to make any money from the lawsuit available for his creditors. The District Court and later the Circuit Court agreed that this was “too little too late”, and that under the circumstances, judicial estoppel should result in the suits being dismissed.

Debtors in bankruptcy have a continuing duty to disclose assets and claims such as these, in the Schedules they file with the bankruptcy court. Disclosure should include assets acquired or claims that arose while a debtor is in Chapter 11 or Chapter 13. Not doing so, these courts emphasize, is playing with fire.

Judicial Estoppel is a doctrine that punishes those who say one thing in one court, and say something materially inconsistent in a later proceeding, in bad faith. Where once a court has accepted the position asserted and acts on that position, a litigant cannot “play fast and loose” by then taking a different position in another court to gain some advantage or with a motive to do so.

Attorneys who handle these types of suits for debtors in bankruptcy have to be careful as well. The risk of judicial estoppel dismissal is only one of the risks or issues presented. Early consultation with experienced bankruptcy counsel is essential.

Bankruptcy & Law Suits

Doing business with businesses in Chapter 11 and trustees in bankruptcy-the importance of getting paid and knowing the ropes

We often counsel businesses that are asked to perform services for a company in Chapter 11 bankruptcy or a trustee for a debtor. Our advice is simple. Make sure you have the proper paperwork and watch that you get paid. A recent decision out of the New Jersey Bankruptcy Court, In re Livore, 2012 WL 2400469 (2012)  underscores this. Mr. Livore owned several apartment complexes. He started in Chapter 11 but soon found himself in Chapter 7. The Chapter 7 trustee decided it was going to be profitable to run these apartment complexes and got section 721 court authority to do so, evidently thinking the complexes could managed,  and sold as a going concern with money left over for creditors. He hired a property management company and real estate brokers. He paid the management company’s bills in the ordinary course of business and paid brokers upon sale of some of the properties. After all that, he found that, contrary to expectations, there would not be enough money left even to pay his fees and expenses, and other “administrative expenses”. Under the Bankruptcy Code, all persons with “administrative claims” for goods or services supplied after the bankruptcy filing that benefit the bankruptcy estate being administered are supposed to be paid first, and if there is not enough money to pay them all, they are all supposed to receive the same pro-rata percentage of the funds available. So the Trustee filed a motion asking the court to order the management company to refund some of the money they got paid because on a pro-rata basis in hindsight, the management company had been overpaid, leaving less money  to pay everyone else with administrative claims, including  the trustee’s attorney and his accountant,   the US Trustee and others.

Chief Judge Wizmur denied the motion, saying in essence that when a trustee (and by extension any Chapter 11 or Chapter 13 debtor) hires someone in the ordinary course of business under authority granted under the Bankruptcy Code, the money paid to such people on an ongoing basis is theirs to keep, and cannot be “clawed back” to “even the pot” for other people who provided services but were not paid. She relied on Bankruptcy Code section 549 which describes when and how a trustee can recover unauthorized post-petition transfers. That section, she said, limited the trustee’s rights to recover payments made post petition to those that were made without court approval or contrary to bankruptcy code authority.  Since the property manager here was not a “professional” and the trustee had hired and paid him in the “ordinary course of business” after receiving the required court approval to operate the apartment buildings as a business, his doing so was authorized under Bankruptcy Code section 363(c)(1).

This decision is well supported. It is good news for most people who get paid by a Chapter 11 or Chapter 13 debtor or a trustee while a bankruptcy is ongoing. It is not good for those who let unpaid bills mount or who do not get the proper court authorization before doing work or supplying value.

The latter group includes those who provide “professional” services, such as brokers, accountants, lawyers and auctioneers. They still have to make sure that the trustee gets court approval of their employment right at the outset. Judge Wizmur opined that the property manager’s role did not rise to that level.

Anyone who deals with debtors in bankruptcy or their trustees needs to know what is required. At a minimum, a written agreement, and a careful understanding of the legal basis for being hired is critcal, as is prompt billing and payment. One interesting note: had the Trustee engaged the property manager with a written contract that preserved the trustee’s right to “clawback” payments made so as to give all administrative claimants the same treatment, the result might have been different.

 

Credit is a two-edged sword: Businesses, like people, have to be careful how they use it

This article in the August 2, 2012 New York Times, http://www.nytimes.com/2012/08/02/business/smallbusiness/for-small-businesses-bank-loan-alternatives.html?_r=1 details how businesses can borrow money from more expensive sources than bank loans, but at much higher cost. It is informative, but it should remind us all that credit is a two-edget sword. Used properly and with proper planning it can help us thrive but used carelessly it can destroy hard earned success and impose a blight on the future.

Too often we have seen business people who used debt, including factoring or asset based lending (described in this article) to paper over more serious problems. If a business wants or needs to borrow, the first questions have to be “why do we need this?” and “how are we going to pay it back?” If borrowing is used to invest in improvements to business operations, or to expand into a profitable new area, it can be the germinator of future success. But if new debt is being used to pay the owners or carry the business, caution is necessary. Too often we have seen businesses that “kicked the can down the road” by borrowing in this way. Sooner or later the day of reckoning comes.

As with anyone using credit, thought and planning is critical. Business owners need to carefully evaluate present and future cashflow. Evaluate how the new money is going to be used, and balance the benefit against the cost. If a business is losing money, borrowing to make up the loss will simply accelerate the losses. Consideration should be given to reducing expenses before borrowing more.

And throughout this process, the best money a business owner may spend is for accounting or legal advice from professionals experienced in business and turnaround issues. No matter the situation, it always helps to understand all the issues and alternatives, including use of Chapter 11 bankruptcy, or bankruptcy alternatives such as business workouts or assignments for the benefit of creidtors.

Navigating the tricky waters of medical bills-to protect yourself against errors and abuses you need to watch and keep good records

This article in the New York Times highlights a problem we have seen increasingly of late, the sometimes confusing morass of medical bills.  http://www.nytimes.com/2012/06/23/your-money/health-insurance/navigating-the-labyrinth-of-medical-costs-your-money.html?_r=1. In this day and age, everyone needs to watch closely and keep careful records. In law as in life “those with the best paperwork tend to win”. Fighting and challenging medical bills, and demanding that insurance companies pay what they should is time consuming, and sadly, sometimes necessary.

Doing this, we know, can only compound the stress and distress of other problems. Unpaid medical bills may, and are often only part of the problem. If you are loaded with other debt, various forms of debt relief, or debt relief planning may be essential.  Medical bill collectors are held to the same rules and standards as other bill collectors.

We recommend:

1. Keep all your medical bills and medical records for at least 12 months, or until your treatment with that provides is finished and fully paid for 6 months.

2. Read the notices on your right to appeal limitations or denials of insurance and exercise your rights.

3. Anytime you speak to someone, take notes of the date, who you spoke to and what was said. If possible and something significant was said, confirm by fax or email.

4. Read all bills or Explanation of Benefits when you get them. Keep complete copies of all medical insurance policies for at least the past 4 years.

5. When signing agreements with providers, always ask for a copy of what you signed. This is your right. Watch out when signing for someone else.

6. If the bill is old, (ie over 6 years in New Jersey) watch out that by making even a small payment you may resurred an old and timebarred debt.

7. Don’t accept any abusive behavior from any debt collector.

Seek qualified legal advice.

 

Moving out of your home could deprive you of protections under the New Jersey Fair Foreclosure Act

New Jersey’s Fair Foreclosure Act [“the FFA”]  gives homeowners various protections and rights in the event of foreclosure. These include the right to a 30 day “Notice of Intent to Foreclose” so that they can bring the loan current before a foreclosure is started. Also included is the right to notice and a further opportunity to cure the arrears before the lender applies for a judgment by default.  The FFA’s procedures provide not only multiple opportunities to avoid foreclosure, but substantially lengthen the time from the start of the process to foreclosure sale. The FFA applies, by its terms only to “residential mortgages” which are defined as those where the property is a house, real property or condominium located in New Jersey, which is occupied, or is to be occupied, the an individual borrower or  or a member of the [his/her] immediate family, as that person’s residence. The property can contain up to 4 dwelling units as long as the borrower or a family member lives in one of them. The final requirement is that the property “is or is planned to be, occupied by the [borrower] or a member of the [borrower’s]  immediate family as [that person’s] residence at the time the loan is originated.

In a recently reported case in Cape May County, (Sturdy Savings Bank v Roberts) Judge William Todd held that these protections are lost when the borrower or family members move out before a foreclosure is started with no intention to return. This is admittedly contrary to a strict reading of the statute, but Judge Todd looked instead to the purpose of the law, to protect those who currently occupy a mortgaged residence. Since the Roberts’ had moved out long before the foreclosure, he held they were not entitled to the protections intended to help those in residency.

Certain other requirements contained in the court rules, intended to counter abuses such as “robo-signing”, still apply, Judge Todd ruled

For a variety of reasons, we have long encouraged those facing foreclosure not to move out sooner than they have to, unless there is good cause to do so.  This decision simply underscores and confirms that advice. Proper advice and planning, from a qualified attorney, is always wise and worthwhile.

Foreclosure Advice

Is the foreclosure mess ending? Hopeful signs but careful planning still needed.

Recently, the New York Times has reported that the residential housing market is showing signs of life, with prices and sale activity in certain aress going up.  http://www.nytimes.com/2012/06/28/business/economy/new-indications-housing-recovery-is-under-way.html. Another article reports that increasing numbers of homeowners in financial trouble have been able to get help through a refinancing program called HARP. http://www.nytimes.com/2012/06/24/realestate/mortgages-increased-interest-in-expanded-harp.html. (HAMP is the other program people have heard about. HARP is for people who are current on their mortgages)

This is good news for many, but we caution not to look at the problem piecemeal. Too many of our clients did just that, thinking that refinancing their home or taking money out of pensions or IRA’s would solve all their problems when in fact the underlying problem of too little income and too much expense or debt remained. When we help people with a mortgage modification or restructuring, we always counsel that this is only part of the solution. A close look at spending vs income, with planning for future needs (the car will need tires! I need that root canal!) is essential.

Most important is a long term change in lifestyle and priorities. Just as a crash diet fails without long term changes in eating habits, any credit fix will fail if overspending continues. We always explore all the choices our clients have with a  broader long term view in mind.

We hope that all our clients will find their way to long term financial stability, and will learn to enjoy not having to worry about how to pay the next unexpected bill.

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