California Foreclosure Process - Know the Timeline

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       As we head into the fall of 2011, we are seeing more and more nonjudicial foreclosures being started by lenders.  In California, if you are behind on your home loan, your lender will typically use a nonjudicial foreclosure process known as a trustee’s sale to sell your home.  While it is possible for a lender to use a judicial foreclosure process which is filed through a state court action, the judicial foreclosure process is much more expensive and takes longer.  The only time we typically see a judicial foreclosure is when the lender is certain that the borrower has sufficient income or assets to pay a deficiency balance….think doctors, investment bankers.

The following is the minimum timeline for a nonjudicial foreclosure in California:

Day 1- For loans made between January 1, 2003 and December 31, 2007 on residential one-four unit owner occupied properties, California Civil Code Section 2923.5(a), requires the lender to contact the borrower by phone or in person to assess the borrower’s financial situation and explore options for avoiding foreclosure.  During the conversation, the lender must inform the borrower of the right to meet with the lender within 14 days.  The lender must also give the borrower the toll free number for finding a HUD certified housing counseling agency. 

Day 31- The Notice of Default (“NOD”) is recorded in the county where the real property is located.  Within 10 days after recordation of the NOD, a copy of the NOD must be mailed by registered or certified mail to the borrower and to any parties with a recorded Request for Notice. The NOD must run 3 months before the Notice of Sale can be posted.

Day 116-121- The Notice of Trustee’s Sale must set forth the date, time and place of the Sale.  It must also include the total amount of the unpaid balance and reasonably estimated costs, expenses, and advances at the time of the initial publication of the Notice.  The Notice must be recorded, posted, published and also mailed by registered or certified mail as well as first class mail to the borrower.  The Notice must run once a week for 3 consecutive weeks in a newspaper of general circulation.

Day 135- Up to 5 business days before the Trustee’s Sale, the borrower may reinstate the loan i.e. bring current by paying the missed payments plus allowable costs.  If the Sale is postponed, the date for the borrower to reinstate is postponed accordingly.

Day 141- At the Trustee’s Sale, the property is sold through a public auction to the highest bidder.  The borrower still has the right to redeem the property, but he must pay the entire debt, plus interest and costs before the bidding begins at the Sale.

        Most nonjudicial foreclosure in California take far longer than 141 days because the foreclosure process will be put on hold during a loan modification or short sale.  However, there is no requirement for the foreclosure to be put on hold and a borrower should not count on additional time.  This is a complicated area of the law and the implications for personal liability and tax liability are great.  If you are considering a default on your home, I urge you to seek legal counsel as soon as possible to fully understand the consequences of the decision and the other options available to you.  In see people for free 30 minute consultations in my offices located in Walnut Creek, Antioch and Brentwood.    

WE ARE DEBT RELIEF AGENCY AND HELP PEOPLE FILE FOR BANKRUPTCY. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UP IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.    GRIMESBKLAW.COM

© 2011 Joan Grimes

New Law on Short Sale - What you Should Know to Protect Yourself

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Effective July 15, 2011, California Code of Civil Procedure (“CCP”) 580(e) was amended to prohibit a deficiency judgment on any loan secured solely by a deed of trust on a 1-4 unit dwelling sold in a short sale.  Enough legal jargon…what exactly does this mean and how does apply to you?

First, it means that if your lenders agree to a short sale, it will release you from your personal liability on loans secured solely by a deed of trust against a dwelling of 1- 4 units.  If the lenders want the short sale to go through, they will have to be satisfied with the proceeds from the sale.  The banks can no longer demand that borrowers sign promissory notes… AND no more tricking borrowers into believing that releasing of the lien was in fact releasing their personal liability.  The lenders do not have to agree to the short sale, but if they agree, they cannot come after you once the short sale is completed.  However, if you think this is too good to be true…you’re right. Keep reading!

Second, there is no requirement for a release of personal liability on anything other than a consensual lien i.e. no requirement to release judgment lien or liens placed on the property such as by a homeowners association or taxing authority.  These parties do not have to agree to accept the proceeds from the sale as payment in full. The forgiveness of personal liability also does not apply to borrowers who are corporations, limited liability companies, limited partnership or political subdivision of the state.  In addition, it also does not prohibit the lender from obtaining a judgment for fraud with respect to the short sale or waste committed to the property.

Third, CCP 580(e) does not release you from any tax liability.  Remember, every short sale has tax implications. The IRS/State Franchise Tax Board wants to know two things: 1) Did you make any money on the deal and 2) Did you borrow any money which was not repaid?  If you made money on the deal, including taking out cash to buy another house, car, pay off credit card, you may have a gain. If you borrowed money which was not repaid, you will have Cancellation of Debt Income (“CODI”).  CODI will be taxable to you at your current tax rate unless an exception applies. Make sure you know all the tax implications before the short sale is completed.  If there is CODI, it can be discharged in bankruptcy, but only if the bankruptcy is filed prior to the short sale being completed.

In conclusion, CCP 580(e) is a mixed bag for consumers.  It may help reduce personal liability while increasing tax liability.  There is no question that this new law is going to hurt the lenders and help the IRS and State Franchise Tax Board.  This will be found money for the tax man.  Borrowers will see the forgiveness of personal liability and completely disregard the tax consequences.   Don’t be one of those people!  If you are considering a short sale, seek legal advice prior to starting the short sale process.  This is a complicated area of the law, but a bankruptcy or real estate attorney should be able to make to an analysis of your particular situation fairly quickly.   I see people for a FREE 30 minute consultations at my offices located in Walnut Creek, Antioch and Brentwood.

THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.         GRIMESBKLAW.COM  (925) 323-7772     

© 2011 Joan Grimes

Credit After Foreclosure, Short Sale or Bankruptcy

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Are you worried about your credit after a foreclosure, short sale or bankruptcy?  Specifically, do you want to know when you reasonably expect to buy another home?  If this is concern for you, here is an overview of Fannie Mae credit guidelines. 

Foreclosure Sale-  A borrower will be eligible to obtain credit to purchase another principal residence 7 years from the date of the foreclosure sale.  However, if a borrower has “extenuating circumstances” they may be eligible for a loan in 3 years.  Extenuating circumstances are nonrecurring events that are beyond the borrower’s control that resulted in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations such as illness, divorce, job loss or reduction of income.

Short Sale-  A borrower will be eligible to obtain credit to purchase another principal residence 2 years from the date the short sale is completed, but the borrower is limited to a maximum loan to value ratio of 80%.  If the borrower has “extenuating circumstances” as set forth above, the maximum loan to value ratio could be 90%.  If the loan(s) are current at the time of the sale, it may be possible to qualify even sooner depending on your circumstances.  Short sales can be reported various ways by the lenders, but the most common is a “paid in full” with a “settled for less than owed” code from the reporting agencies.  If the loan(s) are delinquent, the loans will also indicate delinquent status i.e. 60, 90, 120 or 150 past due.

Bankruptcy-  A borrower will be eligible to obtain credit to purchase another principal residence 4 years from the discharge or dismissal date of a Chapter 7.  In a Chapter 13 case, it is 2 years from the discharge date or 4 years from the dismissal date.  In a Chapter 13 filing, the borrower is given credit for repaying some or all of their debt.  On the other hand, if the Chapter 13 is dismissed, the time period will be 4 years.   There is an “extenuating circumstances” allowance in Chapter 7 cases, but not in Chapter 13. 

Re-Establishing Credit- It is very important that borrowers re-establish credit after a bankruptcy case and improve credit after a short sale or foreclosure.  To have credit, you need to use credit.  Probably the most important thing to do besides allowing time to pass is to open a few new credit accounts, use the credit and make payments in a timely manner.  To the extent there is a mix of old and new credit accounts, that is preferred.  Credit histories that include older, established accounts generally represent lower credit risk.  However, an older, established credit history that has many new accounts may indicate that the borrower is overextended.  Also to this point, we do not recommend any borrowers to use more than ½ of any credit available on an account. 

In conclusion, the above is an overview of Fannie Mae’s credit guidelines for credit after a Foreclosure, Short Sale and Bankruptcy.  However,  there are lenders who do not sell their loans to Fannie Mae or other governmental agencies.  Therefore, if you have a foreclosure, short sale or bankruptcy, it may be possible to obtain a home loan prior to the time frames set forth above depending on your income, down payment and other extenuating circumstances.  Also, it should be noted that Fannie Mae is having problems of its own.  Therefore, it is important to keep asking if there have been any changes to the guidelines.  Foreclosures, Short Sales and Bankruptcy are very serious matters.  You are in the deep end of the pool.  Before attempting to proceed with a short sale, foreclosure or bankruptcy, I urge you to seek legal counsel about the options available to you.  I see people every day for a FREE 30 minute consultation in Walnut Creek, Antioch and Brentwood.

WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.   GRIMESBK.AW.COM  (925) 323-7772     © 2011 Joan Grimes

Top 10 Signs You Should See a Bankruptcy Attorney

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These are difficult times and it is easy to ignore the signs of trouble when you are overwhelmed with work, spouses acting like children, children acting like teenagers and teenagers just being completely out of control.  So, to help you sort out the kind of trouble which warrants a visit to a bankruptcy attorney, here are my Top 10 signs you should see a Bankruptcy Attorney:

     10.  People are taking pictures of your house and it is not because they love your yard.

      9. You are contemplating taking money from your retirement account and you are not retired.

      8. You have taken money from your retirement account and you are not retired.

      7. You know all your creditors by their caller ID numbers.

      6. You cannot pay off your credit cards in full in the next 12 months and continue to eat.

      5. You go to get in your car and it is gone.

      4. You have run out of relatives willing to lend you money.

      3. Your wages are being garnished or your bank account has been levied.

      2. Your house is so far underwater that the sharks are circling and you do not live in a flood plain.

      DRUM ROLL PLEASE,

      1. You are actually contemplating moving in with your mother-in-law.

       If any of the above things are happening to you or have happened to you, it is time to see a bankruptcy attorney.  You did not make this economic meltdown, but you can make the CHOICE to stop letting it control your life.  The real estate speculation game is over for now. The banks won this round, but don’t let them continue to dictate your life.  Cut your losses now and leave the casino i.e. the house/car/motor home that is worth less than you owe on it.  Reclaim your financial future.  Save cash for your retirement.  It is much easier to buy food with cash than sheet rock.  There is not going to be any principal or long term payment reduction on home loans.  The banks are protected by this government and until that changes … (never), consumers must stop giving all the cards to the banks.  Cash is king.  If you don’t have the money to buy something outright, wait until you do.  The lenders have no problem doing what is in their best interest and you should not either.  I see people every day for a 30 minute FREE consultation at my offices in Walnut Creek, Antioch and Brentwood.   

WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A  SHORT SALE OR FORECLOSURE. THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION. GRIMESBKLAW.COM (925)323-7772

© 2011 Joan Grimes



Penny Wise, Pound Foolish - Filing Bankruptcy without a Bankruptcy Attorney

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When a person is experiencing financial problems and knows a Bankruptcy must be filed, it is very tempting to consider filing without an attorney.   However, before you start down the road of filing on your own and opening up a GOLD MINE for the bankruptcy trustee and your creditors, consider the following:

1.  If you miss even one exemption for which you are entitled or the timing of bankruptcy filing is not correct, all the savings you made by filing on your own are GONE.  If you do not properly exempt assets, the bankruptcy trustee WILL take your assets and sell them for the benefit of creditors.  The Trustee is not there to help or educate you!  Their job is to maximize the recovery for creditors AFTER paying themselves.  Let me tell you that this is happening every day.  I can’t even begin to tell you the number of times I have seen trustees take money from bank accounts, tax refunds, jewelry and vehicles because the Debtors did not have representation.  

2.  If you omit property either intentionally or inadvertently, the trustee can take the omitted property and sell it for the benefit of creditors or can move for a denial of discharge.

3.  If you miss or don’t include debts, either intentionally or inadvertently, the debt may be deemed nondischargeable or the court may move for dismissal.

4.  If you don’t understand the Means Test, you may not qualify for bankruptcy or may end up filing the wrong type of bankruptcy case.

5.  If you have a business and your bankruptcy case is not filed properly, you may end up losing the business or assets of the business.

6.  If you are on title to bank accounts, personal property or real property with relatives, the trustee or creditors may attempt to take the property even if you claim to have only bare legal title versus an equitable interest in the property.  Do you understand the effect of inheritance after a bankruptcy filing?

7.  If you don’t understand real property law, you may end up filing an unnecessary bankruptcy or alternatively may increase your personal and/or tax liability by completing a short sale or foreclosure prior to the bankruptcy filing.

8.  If you don’t understand tax law and own real property or have significant amounts of debt, don’t even think about filing bankruptcy on your own especially if you have assets such pensions, IRA, 401k or other assets such as annuities.  You don’t want to trade bank and credit card collectors for the IRS or State Franchise Board.  The fact that you currently do not have equity in the property is irrelevant.

In conclusion, filing bankruptcy on your own is almost always a very bad idea and ends up costing more in the long run because of assets lost or other problems with the bankruptcy case.   The above is just a few of the issues which must be addressed prior the bankruptcy filing.  Bankruptcy is very complicated area of the law and is a mine field for the unwary.   Even attorney who are general practitioners will not generally file bankruptcy cases because of the complexities involved in the filings.  If you don’t have the money to file bankruptcy at this time, you should still seek legal counsel and discuss your options.  Most bankruptcy attorneys allow payment of fees over time.  Don’t be a Penny Wise and Pound Foolish.  I see people every day for FREE 30 minute consultations at my offices located in Walnut Creek, Antioch and Brentwood.

WE ARE A DEBT RELIEF AGENCY.  WE HELP PEOPLE FILE FOR BANKRUPTCY.  THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN   MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION. 

GRIMESBKLAW.COM  (925) 323-7772  © 2011 Joan Grimes

You Can't Take It With You...Or Can You?

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FIXTURES

When a person knows that a home is going to be lost in a foreclosure, it is very tempting to try and take everything that is not nailed down and sometimes stuff which is nailed down.  Sometimes, the homeowner thinks they have a right to take everything they purchased or maybe they think the removal of the property will not affect the value of the property.    However, before anything is removed from a home in foreclosure, here are the laws you should know.

First, under California Civil Code Section 2929, “no person whose interest is subject to the lien of a mortgage may do any act which will substantially impair the mortgagee’s security. “  A violation of this law, will give rise to a claim for “waste.”  Also, while California Civil Code Sections 580(b) and (d) create bars to deficiency claims by a lender after a trustee’s sale, there is an exception for “bad faith waste.”

Second, bad faith waste is anything done with reckless, intentional or malice towards the lenders.  So, if property is intentionally removed from the property even if it was not done with recklessness or with malice and it substantially impair a lender’s security, a claim for waste will still remain.  The statute of limitations for bringing the claim will usually be 4 years from the date of the foreclosure.

Third, claims for waste usually arise when fixtures or permanent items are removed.  An easy definition of a fixture is anything nailed down or becomes permanently attached to a property whether inside the house or outside.  So that means the following should not be removed:  built-in anything including bookcases, bbq and shutters.  It also means that light fixtures, doors and tile work should not be removed.   If it is nailed down, screwed in or was especially made for the house, it should stay with the house. 

Fourth, a claim for waste can continue in bankruptcy under Bankruptcy Code Section 523(a)(6) if the court finds a wrongful act, done intentionally and which necessarily causes injury and is done without just cause or excuse.  The possibility of a claim being made is REAL.  We had a judgment entered against a debtor in Oakland in 2010 for waste for removal of fixtures valued at $77,000, 

In conclusion, if a property is going to be lost in foreclosure, nothing should be removed from the property if it is nailed down or has become a permanent part of the property.  It is fine to take the washer/ dryer, refrigerator and anything that is just plugged in.  If you have a favorite lamp or chandelier and want to take it, it should be replaced with a similar quality product.   

If you going to be losing a home, a real estate or bankruptcy attorney will be able to advise you whether a short sale may be a better alternative for you than a foreclosure.  Also, if you have other debt which you are unable to pay off such as credit cards, lines of credit or car loans, a bankruptcy may be the best alternative for you.  I see people every day for a FREE 30 minute consultation in my offices located in Walnut Creek, Antioch and Brentwood.

WE ARE A DEBT RELIEF AGENCY.  WE HELP PEOPLE FILE FOR BANKRUPTCY.  THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN   MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.  GRIMESBKLAW.COM

© 2011 Joan Grimes

Bankruptcy & Employment Discrimination

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The Law You Should Know

Finding a job has never been harder.  Concerns about employment discrimination can be very important during the job hunt.  If you are looking for a job or have a job and are experiencing financial problems which may cause you to file bankruptcy, here is the law you should know. 

1. A private employer may have the right to discriminated against a prospective employee based on a prior bankruptcy filing.  There is a split on authority on this issue.  The 9th Circuit which includes California has held that a prospective employer did not violate the Bankruptcy Code Protection against discriminatory treatment as specified in 11 USC 525 unless the Debtor’s bankruptcy status was the sole reason for denial of employment.  Comeaux v. Brown & Williamson Tobacco Co., 915 F.2d 1264 (9th Cir. 1990) In the Comeaux case, the employer ran a credit check and decided not to hire the employee and thus the bankruptcy file was not the “sole” reason for the decision not to hire.  On the other hand, the 3rd Circuit and the majority of courts that have considered this issue have held that a private employer has the right to discriminated against a prospective employee based on a bankruptcy filing.  Rea v. Federated Investors, 627 F.3d 937 (3d Cir. 2010).   There is no time limit on asking although it will only show on a credit report for 10 years from the date of the bankruptcy filing.

2. A private employer cannot terminate or discriminate with respect to a  current employee solely because an individual has been a debtor under the Bankruptcy Code.  However, the Bankruptcy Code does not prohibit an employer from terminating a current employee because they default on a loan usually a loan with the employer.  It is an open question of whether a private employer can terminate an employee when the employee was not on notice of a termination provision when the loan was made to the employee.  11 USC 525(b)

3. The government whether a city, county, state or federal government or any unit thereof, may not deny, revoke, suspend or refuse to renew a license, permit, charter or deny employment, terminate the employment of, or discriminate with respect to any prospective employee solely because he/she  is or has been debtor under the Bankruptcy Code.  The governmental provision is much broader than the private employers because 525(a) added the phrases “deny employment to” as a prohibited act. 

In conclusion, the only safe harbor protection against bankruptcy discrimination in employment appears to be working for the government.  Since we can’t all work for the government, a decision to file bankruptcy needs to be made very carefully if you are seeking employment or are currently employed by an employer who routinely runs credit checks on employees or who makes loans to employees.  

If you work for an employer where you have a loan, it may be better to file bankruptcy prior to a default since the Bankruptcy Code provides protection from termination solely because of a bankruptcy filing.  On the other hand, if you know a prospective employer will be asking about your financial situation and any prior bankruptcy filing, it may be better to delay the filing and explain the reason for the financial problems.  This is a complicated area of the law and any decision to file bankruptcy or delay the filing, should not be made without legal advice.  I see people every day for a free 30 minute consultation at my offices located in Walnut Creek, Antioch and Brentwood.

WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.   GRIMESBK.AW.COM           

© 2011 Joan Grimes

Advice From People Who Filed Bankruptcy

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 I have been asking people who come into my office if they have any advice/regrets about their actions prior to filing bankruptcy.  Here is their advice:

1. Seek Legal Counsel.  Don’t wait to find out your options.  Almost every person said they wish they had come in sooner.  Many have said they would have done things differently had they known the law and available options.

2. Don’t borrow or take money from your 401k, IRA, Savings Account, Children’s Saving Account, Deferred Compensation to cure to the default.  So many people regret borrowing or taking a distribution from their retirement plan.  Unfortunately, many people don’t know that this money, if borrowed, must be repaid in full or it will be considered income and taxed accordingly.  In addition, this tax cannot be discharge in bankruptcy.  It is heart breaking to see people take money out of their retirement to stay current on the mortgage, to only lose the house at the later time, but are still responsible for tax liability of the distribution.  

3. Don’t borrow money from family or friends to stay current on mortgage or other bills.    Family and friends want/expect to be repaid irrespective of whether you file bankruptcy.   In the eyes of the bankruptcy code, your family and friends are just another lender and will not receive preferential treatment.  

4. Don’t juggle credit cards to pay mortgage.  Cash advances and balance transfers may cause problems in a bankruptcy.  In addition, depending on the type of real estate debt you have, a short sale or foreclosure may be possible without a bankruptcy.  However, if you run up your credit cards trying to keep the house, a bankruptcy may be evitable.

5.  Don’t leave house until property forecloses or short sale is complete.  Almost every person that has left their home prior to the foreclosure or short sale being completed regrets the decision.  Once you stop paying on the mortgage, your rent is “free” with the exception of paying the Homeowners Dues and keeping insurance on the property.  Further, since you are still responsible for the maintenance  of the property until the foreclosure or short sale, you might as well enjoy it and save some money.  No reason to pay rent any soon than necessary.

6.  Don’t let your cultural pride stand in the way of you making sound financial decisions.  There is nothing to be ashamed of.  You did not make this economic meltdown.  You are not responsible for the economic collapse facing the Bay Area.  The economy of your parents’ generation is not the same as today.   

7.  Don’t co-sign for anyone.  No one can promise the future.  So many clients regret co-signing for a friend or relative. Co-signing for cars, furniture, Time-Shares and homes seemed like a good idea, but times change and suddenly there is a default.  Worst of all, don’t co-sign on Student Loans.  The default  rate by students who have had a friend or family member co-sign is much higher and YOU CANNOT DISCHARGE CO-SIGNED STUDENT LOANS IN BANKRUPTCY!

If you do not have sufficient income to pay your bills as they come due and owing, you should seek legal counsel before withdrawing any monies from a retirement account, savings account or taking a loan against your home or car.  These are difficult times, but do not miss the help and protection provided by the Bankruptcy Code and California law by waiting too long.  Just because this ship is underwater does not mean that you should give up your life vests that you will need to keep you afloat!

Want to learn more, listen to Joan Grimes recent interview on the Bay Area Real Estate show on FOX NEWSRADIO 910 AM with Krista Mashore.  Joan reveals some of the regrets she hears from clients filing bankruptcy. 

 

WE ARE A DEBT RELIEF AGENCY.  WE HELP PEOPLE FILE BANKRUPTCY.  THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.              

© 2011 Joan Grimes

Thinking About a Short Sale or Foreclosure?

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The Law you Should Know

Before you consider a short sale or foreclosure, here is the law you should know.

First, there are two types of debts.  They are unsecured and secured.  Unsecured debt is the bare promise to pay.  The most common form is credit card debt.  Secured debt, on the other hand, has two parts.  The first part is the bare promise to pay which on a car loan or real estate loan is the Promissory Note.  What makes secured debt different than unsecured debt is the security given by the borrower to ensure the promise is kept.  This security on real property is called a Deed of Trust and on a car loan it is the lienholder on the Certificate of Title.

Second, on real estate loan, there are two different types of promises to pay.   Non-Recourse or Recourse.  A Non-recourse loan is (1) the loan or loans obtained to purchase a 1-4 unit property in which the borrower occupies at least one unit or (2) seller carry back.  Everything else is recourse debt i.e. the refinance of the real property, lines of credit, the loan or loans used to purchase a rental property.

Third, under California law, a short sale or foreclosure can stay on a credit report for up to 7 years.

Fourth, personal liability depends on whether you do a short sale or foreclosure.  If you do a short sale, you can have personal liability unless it is waived by the lender.  Remember, a short sale is just like any other sale and if you don’t pay the full amount, the lender can request payment.   If you allow your property to be foreclosed in a non-judicial foreclosure sale, you will not have any personal liability as to the loan that is foreclosed on because California is an anti-deficiency state i.e. the lender waives its right to come after you on the loan that they foreclosed on.    However, if there are junior liens to the foreclosing lien, they will have the right to sue you after the foreclose.  They are called “sold out” junior i.e. they lost their lien, but they still have the promise to pay and thus have the right to sue you on the promissory note.

Fifth, in every short sale or foreclosure, there are tax implications.  The IRS wants to know two things.  They are (1) did you make any money on the deal and (2) did you borrow any money which was not repaid.  If you made money on the deal including taking out cash to buy another house, buy another car, pay off credit card, you may have gain.  If you borrowed money which is not repaid either through a short sale or foreclosure, you may Cancellation of Debt Income (“CODI”).  There are exceptions to the CODI, but be very cautious of tax implications because it is a very complicated area of the law.
In conclusion, a short sale or foreclosure without tax and legal advice is like jumping into the middle of the ocean with no life vest.  Don’t do it.  The California Association of Realtor is so concerned about this issue that the Short Sale Addendum specifically tells sellers to obtain tax and legal advice prior to proceeding with a short sale.  Help is available to you.  Do not take on personal liability or tax liability which could have been eliminated through a bankruptcy or reduced with first obtaining tax and legal advice. 

WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN  MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.    

 

 

Beware of the HOA

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Dues, Assessments, Liens and Foreclosures

Last week, a person came into my office saying he received a letter from his Homeowners Association (“HOA”) offering to rent his house to him. Needless to say, he was not happy. He knew he was behind on HOA dues, but his lender hadn't even started foreclosing on his house.

Welcome to the new frontier of the mortgage crisis in California. The homeowner's HOA had foreclosed on his property before the lender. While this has been common in Hawaii for years, this is relatively new in California. If you are behind on your HOA dues or assessment, here is the California law you need to know.

HOAs are regulated by the California Davis-Stirling Common Interest Development Act in Civil Code Section 1367 et seq. Pursuant to Davis-Stirling, an HOA can levy dues and assessments necessary for the development. A regular or special assessment is a debt of the owner. If an owner is behind on dues or assessments, the HOA can record a lien against the property. At least 30 days prior to recording the lien, the HOA is required to notify the owner by certified mail.

The recording of a lien does not automatically allow a foreclosure by the HOA. Rather, an HOA may not foreclose until the amount of the delinquent dues and assessments secured by the lien, exclusive of any accelerated assessments, late charges, fees and costs of collection, attorney's fees, or interest, equals or exceeds one thousand eight hundred dollars ($1,800) or the assessments secured by the lien are more than 12 months delinquent. In addition, the HOA still maintains its rights to proceed in state court against the owner for delinquent dues and assessments.

If the HOA decides to proceed with a foreclosure of its lien, in most instances it will proceed with a non-judicial foreclosure pursuant to CC 2924 which will require the a Notice of Default and Notice of Sale. If the HOA does foreclose on its lien, the owner still has a 90 day right of redemption and the HOA would still be taking the property subject to any senior liens.

Therefore, if you are behind on your HOA dues and assessments, you need to be aware that the HOA can foreclose before your lender and become your landlord. If you are trying to buy the maximum amount of time in your home prior a foreclosure, it may be better to keep your HOA dues current.

If you are filing bankruptcy or have filed bankruptcy, there are special rules you need to know. First, all dues and assessments which come due prior to the date of filing are included in the bankruptcy discharge. HOWEVER, under 11 USC 523(a) (16), Congress carved out a special exception as to post-petition dues and assessments. Specifically, the owner continues to be responsible for all dues and assessments which came due after the filing of the bankruptcy as “long as the debtor or the trustee has a legal, equitable or possessory ownership interest” in the property i.e. until someone forecloses or buys your property, you are responsible for the HOA dues and assessments. Therefore, if you do not pay your HOA dues or assessments after a bankruptcy filing, do not be surprised to find yourself being sued in state court by your HOA or having your property foreclosed.

In conclusion, beware of the HOA. They know where you live. This is a complicated area of the law and I recommend you to seek legal counsel prior to allowing your HOA dues or assessments to become delinquent. Like everything else in life, there are consequences to actions as well as inaction. In this case, there may be personal liability and tax consequences. I provide a free 30 minute consultation at all of my three offices located in Walnut Creek, Antioch and Brentwood.

WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY. THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.

© 2011 Joan M. Grimes. Grimesbklaw.com

Should You File for Bankruptcy?

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A common question people ask me is whether they should file for bankruptcy. They don’t want to file, but they also know that they cannot continue with the status quo. Here is what I ask them:

  1. Can you pay your bills as they come due and owing?

  2. Can you pay off your credit card bills in full in the next 12 months?

  3. If you own a house, do you have a fixed rate mortgage that you can payoff by the time you retire? Is your house worth what you owe against it?

If you have answered “no” to any of these questions, you should be considering whether a fresh start through bankruptcy maybe the right decision for you.

A fresh start has been provided to the Banks, the Investment Companies, and the Insurance Companies and a fresh start is available to consumers. Most home loan made between 2001-2007 could not be paid off on a person income. More than anyone, the banks knew that a person can only pay off in home loan debt of 2-21/2 times their gross household income in this lifetime and save for retirement and raise a child or two.

A fresh start for a consumer is usually a Chapter 7 bankruptcy. A Chapter 7 is a straight bankruptcy also known as a liquidation case. In a Chapter 7 case, all assets and liabilities are included and the Chapter 7 Trustee will have the right to liquidate non-exempt assets for the benefit of creditors. In exchange for including all assets and liabilities, an individual’s promise to pay on most debts are forgiven through a discharge.

In most cases, there are no assets available to creditors because all of the assets are exempt or encumbered by liens to the full extent of their value. Exempt assets that the Chapter 7 Trustee cannot reach include 401k, IRA, Annuity, retirement plan, equity in a car up to $3,525, most household goods and furnishing, life insurance, most personal injury actions, and then $23,250 in other assets such as motorcycles, boats, RV or additional equity in cars or other items.

Most people who are having problems paying their bills qualify for Chapter 7 Bankruptcy either because their income is low or because their mortgage payments and other secured loans such as car loans are too high in relation to their income. However, a person should not delay in seeking legal advice. The loss of a home prior to a bankruptcy filing either through a short sale or foreclosure may make an individual’s income too high for a Chapter 7 and the only option will be Chapter 13 repayment plan which will last between 3-5 years. In addition, there may be personal liability and tax consequences which could have been eliminated in a bankruptcy.

In conclusion, if you are having financial problems, seek legal counsel. You did not make this real estate and credit card meltdown. There are serious personal liability and tax consequence of a short sale and foreclosure. Make sure you understand your legal rights prior to undertaking either a short sale or allowing your property to be foreclosed. Do not lose sleep and your sanity worrying about financial problems. Help is available to you just like it was to the Bank, Investment Companies and the Insurance Companies.

WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY. THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION. © 2010

Joan M. Grimes. Grimesbklaw.com

Can I Just Walk Away?

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Foreclosure Sales and Bankruptcy

When a person is behind on a home loan, it is very common to think a foreclosure sale will solve all their problems with regards to the home.   However, all too often, a foreclosure sale is just the start of the problems.  In some cases, the cause of the problem is a junior lien which starts collecting.  In other cases, it is an unexpected tax bill as a result of the foreclosure sale which the borrower was unaware. 

In many cases, a bankruptcy filing prior to the foreclosure sale would have discharged the liability on any additional loans on the property, avoided the tax liability completely and allowed the person to stay in the property several additional months.  Additionally, a foreclosure sale prior to a bankruptcy filing may cause a person not to qualify for a Chapter 7 bankruptcy leaving a person in a Chapter 13 bankruptcy for 3-5 years.  What should a person consider prior to allowing a property to be sold at a foreclosure sale?

First, prior to allowing a property to be sold through a foreclosure sale, (1) determine the affect of the foreclosure sale on your credit, (2) is there any personal liability on a lien after the foreclosure sale which could be discharged in a bankruptcy filing and (3) is there any tax liability which could be discharged through a bankruptcy filing prior to the foreclosure sale.

Second, could a Chapter 13 bankruptcy filing avoid a junior lien on your principal residence which would have allowed you to retain the real property?  Under the Bankruptcy law, a junior lien on a person’s principal residence which does not attach to equity in the real property, can be avoided through a Chapter 13 Plan.  For example, if the current fair market value of a principal residence is $250,000 and the balance on the first deed of trust is $300,000, then a junior lien could be avoided through the Chapter 13 Plan. A Chapter 13 also allows a person to cure a default on a home loan over time which may be all that is necessary to avoid a foreclosure sale.

Third, are there any other reasons that a bankruptcy filing may be appropriate prior to a foreclosure sale.  The most common reason is that there is significant unsecured debt which can be discharged in the bankruptcy.  In addition, a bankruptcy filing will allow a person to remain in the property additional time.

In conclusion, a foreclosure sale of real property without a bankruptcy filing may be the right decision.  However, a foreclosure sale may have serious personal liability and tax consequences which should be analyzed by a bankruptcy or real estate attorney prior to the foreclosure sale.  This is a complicated area of the law, but a bankruptcy or real estate attorney should be able to make to an analysis of your particular situation fairly quickly.  I see people for a free 30 minute consultation at my offices in Walnut Creek, Antioch and Brentwood. 

WE ARE A DEBT RELIEF AGENCY.  WE HELP PEOPLE FILE FOR BANKRUPTCY.  THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN   MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.               

 © 2010 Joan Grimes

Late on Mortgage Payments? Is a Loan Modification for You?

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 In the last column, I discussed the “overall” problems with loan modifications. Specifically, that most of the programs do not give any meaningful modification to the loan and there is no “upfront” approval or denial of the modification prior to entering into the trial modifications payments.

Since the column was published, I have received many calls wanting to know more nuts and bolts information about the current state of loan modification programs. So here is what I know after 2 years.

1. Income- The borrower needs to have documented income.  If the borrower does not receive a regular paycheck, monies need to be going through a bank account to show income.  Loan modifications are much harder for self-employed individuals.

2. Loan Modification Payments include payment of principal.  Therefore, if you have an option arm loan (also known as a pick-a-payment) or an interest only loan, the loan modification payment will in all likelihood be higher than your prior payment amount.  Also, loan modification payments will  include an impound for taxes and insurance which will further increase the monthly payment.     

3.  There are no principal balance reductions.  The best we have seen is where the investor waives the accrued interest on the loan.  If a person tells you they got a principal reduction, it is usually means that a portion of the loan balance is now a  silent second which will need to be paid at the time of sale of the property or as a balloon payment later.

4.  A trial modification does not guarantee a permanent modification.  I have clients who have been in trial modifications for over 1 year with no permanent modification.  The word on the street is that “new” people who are applying for modifications will have their underwriting done prior to starting the trial modification and that the modification is guaranteed.  However, I will believe it when I see it. 

5.  Consider filing bankruptcy to discharge credit card and other unsecured debt before applying for loan modification.  When you apply for a loan modification, the lender will run your credit.  While a low credit score will not prevent a modification, the less unsecured debt you have, the more money you will have available to make the modification payments.  A Chapter 13 may also be available to avoid a junior lien on your home.    

6.  Net Present Value Test.  This is the mystery calculation used by investors to determine whether a loan modification should approved.  What we do know is that the borrower’s long term ability to pay on a modification combined with the present value of the investor’s investment i.e. the collateral weighs heavily in the calculation.  Therefore, if you live in a “low” foreclosure area such as Danville or San Ramon, the likelihood that an investor will want “get out” now, is very high.  On the other hand, if the value of the investment is very low at this time i.e. the value of the home is low, the lender will be more inclined to approve the modification.

In conclusion, most loan modifications make no sense for borrowers.   There will be no principal reduction or long term payment reduction.  However, if you are considering a a default on your home or considering a loan modification, I urge you to seek legal counsel as soon as possible to fully understand the consequences of the decision.    

*WE ARE DEBT RELIEF AGENCY AND HELP PEOPLE FILE FOR BANKRUPTCY. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UP IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.   

© 2010 Joan Grimes



 

If Your Ship is Sinking, Don’t Give Away Your Life Vest!

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One of the saddest things is when a person comes into my office explaining that they have waited to come in until they have used up all their savings, retirement funds, equity in their home and/or have gotten a loan on their car just to keep paying their credit cards and other debts.  This just breaks my heart because it was completely unnecessary.

The Bankruptcy Code does not want or encourage people to wait until they have used up all of their assets to file bankruptcy.   In fact, the Bankruptcy Code and California law discourages these actions by specifically protecting certain assets in a bankruptcy case from the reach of creditors.  So what  are some of the assets which are generally protected and what actions should you be taking to protect these assets?

Retirement Accounts- All private retirement plans and profit sharing plans are exempt.   Also, exempt are IRAs, IRA rollovers, Roth IRA and Keogh plans held by self employed individuals to the extent necessary for the support.   Therefore, you should not be using retirement accounts to pay credit cards, bringing home loan payments current on a house that is underwater or other bills which could be discharged in a bankruptcy.  Every withdrawal from a retirement account will be taxed on both federal and state levels as well as incurring the 10% penalty for early withdrawal unless it falls under an exception for early withdrawals.  If you are in your 30’s-40’s, a withdrawal of $1,000 will amount to a loss of $10,000 in retirement income.  If you are in your 20’s, a withdrawal of $1,000 will amount to a loss of $20,000 in retirement income.  The withdrawal of even smallest amount will be a huge reduction in retirement income later.

Homestead Exemption- The California homestead exemption applies to your principal “dwelling” on the date the bankruptcy petition is filed.  The minimum homestead exemption in California effective January 1, 2010 is $75,000.  The exemption is increased to $100,000 if the you or your spouse reside in the homestead or at least other one member of the family resides in the residence and does not own an interest in the residence.  The homestead exemption is increased to $175,000 if you or your spouse meets the minimum age of 65, is disabled or meet the “low income” qualifications’.  Therefore, if you still have equity in your home, do not use it to pay dischargeable debt such as credit card or personal loans.

Personal Property, Cars and Jewelry-   A person can generally exempt all household furnishing and goods, wearing apparel, appliances, books, animals, crops or musical instrument held primarily for personal, family or household use as long as any individual items could not be sold at a garage sale for more than $525.00.  In addition, a person can have  equity in a car and certain amounts of jewelry depending on the exemptions used in the Bankruptcy case.  Therefore, no loans should be taken out on a vehicle which is paid off.

Wildcard Exemption-  If the homestead exemption is not used as discussed above, a person can have in addition to the car, jewelry and household goods and furnishing exemptions, retirement accounts and the other exemptions provided under California law, a person can have up to $23,250 in cash and other assets at the time of the bankruptcy petition which will be exempt.  That means there is no reason to sell the RV, boat or use up your savings unless that is really want you want to do so.  However, if you are not going to be paying your credit card or other installment debt, you should make sure that you are not putting money in a bank or credit union where you have debt.  Many banks and credit union have agreements that allow set-offs if a loan is in default from other checking or savings accounts.

Personal Injury and Workers Compensation Awards-  Personal injury settlements are generally exempt under “lost compensation” and future earning awards are exempt to the extent reasonably necessary for support.  In addition, Workers Compensation Awards are exempt.

Life Insurance-  Term Life Insurance is generally exempt and Universal or Whole Life up to a cash value of $11,800.  Therefore, term life/whole life insurance should not be cancelled since it is much more expensive to obtain as you get older.

The purpose of the Bankruptcy Code is to provide people with a fresh start.  A fresh start does not mean empty cupboards, empty retirement accounts, empty savings accounts or no equity in a car or home.  We are all living longer and we will need food in our cupboards, money in our retirement accounts and a car that is paid off. 

If you do not have sufficient income to pay your bills as they come due and owing, you should seek legal counsel before withdrawing any monies from a retirement account, savings account or taking a loan against your home or car.  These are difficult times, but do not miss the help and protection provided by the Bankruptcy Code and California law by waiting too long.   Just because this ship is underwater does not mean that you should give up your life vests that you will need to keep you afloat!  

THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.              

© 2010 Joan Grimes

411 on Bankruptcy

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When people come in for an initial consultation, they want to know three things. First, is bankruptcy appropriate for their financial problems? Second, what options are available under Bankruptcy Code? And third, how will bankruptcy affect their lives after the bankruptcy is done.

Bankruptcy may be the appropriate remedy if a person is having difficulty paying their bills as they come due and owing, have credit card debt they have been unable to pay off or have long term debt such as home loans which they are having difficulty paying.

The most common form of bankruptcy is a Chapter 7. A Chapter 7 is a straight bankruptcy also known as a liquidation case. In a Chapter 7 case, all assets and liabilities are included and the Chapter 7 Trustee will have the right to liquidate non-exempt assets for the benefit of creditors. In exchange for including all assets and liabilities, an individual’s promise to pay on most debts are forgiven through a discharge.

In most cases, there are no assets available to creditors because all of the assets are exempt or encumbered by liens to the full extent of their value. Exempt assets include IRA or retirement plans, equity in a car up to $3,525, most household goods and furnishing, life insurance and then $23,250 in other assets such as balances in bank accounts or additional equity in cars or other items.

A Chapter 13 is a Consumer Reorganization which is usually used when a borrower needs one of the special “bells and whistles” provided by the Code. The most common bells and whistles are that the Debtor has non-exempt assets that they want to keep or they have a junior lien on a primary residence that does not attach to any equity which could be avoided in a Chapter 13 or maybe they have a car loan which is older than 910 days which they can reduce to the current fair market value.

The Chapter 7 process usually takes approximately 4 months from the date of filing to closing of the case. While a bankruptcy can stay on a person’s credit for a maximum of 10 years, Fannie Mae’s guidelines provide that a person will be eligible to purchase with a FHA loan product in as little as 2 years after the closing of the bankruptcy. New credit is usually granted within 1 year, but at lower limits and higher interest rates. The Chapter 13 process takes between 3-5 years, but provides greater relief in many situations.

Most people who are having problems paying their bills qualify for Chapter 7 Bankruptcy either because their income is low or because their mortgage payments and other secured loans such as car loans are too high in relation to their income. However, a person should not delay in seeking legal advice. The loss of a home prior to a bankruptcy filing either through a short sale or foreclosure may make an individual’s income too high for a Chapter 7 and the only option will be Chapter 13 repayment plan which will last between 3-5 years. In addition, there may be personal liability and tax consequences which could have been eliminated in a bankruptcy.

 

In conclusion, if you are having financial problems, seek legal counsel. You did not make this real estate and credit card meltdown. Do not lose sleep and your sanity worrying about financial problems.

 

WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING A DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY. THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.  

© 2010 Joan Grimes

Do you have a Junior Mortgage on Your House?

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Lien Stripping in Chapter 13

One of the great advantages of a Chapter 13 bankruptcy at this time is ability to strip a lien on your principal residence that does not attach to any equity. Here is a common example: Principal residence has current fair market value of $300,000. The first mortgage has a balance of $400,000 and the second mortgage has a balance of $100,000. Because the second mortgage does not attach to any equity in the property, the lien can be avoided or “stripped” in a Chapter 13 thereby removing the balance of $100,000 at the completion of the Chapter 13 case.

When does a Chapter 13 lien stripping case make sense? First, the principal residence must be your principal residence i.e. where you sleep at night. Second, you don’t want to file a Chapter 13 to strip a lien unless you really, really want to stay in this house. Third, the balance on the junior lien needs to be large enough combined with other debt to make a Chapter 13 advantageous i.e. you don’t want to file Chapter 13 to avoid a lien of $10,000. 

If a Chapter 13 is sounding like something that might work for you, there are several other things to consider. First, we must make sure all of the owners of the property and all of the people who signed on the mortgage note at we need to strip are filing bankruptcy. For example, if the property is owned by both you and your spouse, we cannot strip off the mortgage unless both of you are filing bankruptcy. Second, in order to strip off the mortgage, we have to prove that your real property is not worth more than the payoff balances on the other senior mortgages. That is, we need to prove that there is no value, not even one dollar, left in your real property to “secure” the mortgage we are trying to strip in the Chapter 13. Third, you need to have a “real” senior mortgage or at least a reasonable “hope” of you through a modification. The best senior mortgages for lien stripping cases are 30 year fixed that you can really afford or a mortgage that has been modified into a loan you can afford. If the senior mortgage is going to reset into a payment you cannot afford in 1,2,3 or 4 years, there is no reason to spend the money to strip a junior lien and then lose the house to a foreclosure by the senior lender later.

In conclusion, there has never been a better time for Chapter 13 lien stripping cases. Home values are low and the number of junior liens that do not attach to any equity are at an all time high. This is truly the lemonade out lemons recipe if you are intending on staying in your current residence and meet the requirements for a Chapter 13. Prior to simply walking away for your current residence, it may be a good idea to consider a Chapter 13 and see what it can do for you.

 

WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A SHORT SALE OR FORECLOSURE. THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.

© 2010 Joan Grimes

How to Avoid Bankruptcy

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 Everywhere we go today, someone has a friend or neighbor who has either filed bankruptcy or is contemplating bankruptcy. If your friend or neighbor has lost a job, lost their savings in the stock market crash or has a house hopelessly underwater, there may be no other option.

However, for most of us, bankruptcy need not be part of our future. However, it will take careful planning and constant vigilance. We are bombarded everyday with marketing trying to convince us that things are necessary today whether a new car, kitchen or mattress. In order to avoid the pitfalls of overextending yourself, here is a easy to remember guideline.

 

  1. Cash is King. If you don’t have cash, you don’t buy it. This principle should apply to all purchases with the exception of a house. If don’t have the money to purchase that car outright, you shouldn’t be purchasing it. A new car loses between 20-30% of their value when they are driven off the car lot. In the old days, we were told to be a new car because it was more dependable. You didn’t know the history of the car. However, we the development of Car-Fact and more dependable cars, used cars should be considered and encouraged. If you are able to save enough money to buy a new car outright and you still want to use that money to buy a new car, that is up to you. However, it is my experience, that a person who is able to save enough money to buy a new car will use that money for something else.

  2. A House is Shelter. It is not an investment. An investment is something other than your shelter. It may be good investment for your heirs, but for you, it is just shelter. As long as we cannot eat our homes, they are not an investment. The goal should always be to pay off your home so you have a place to live once you no longer working. A good rule of thumb is that a home loan should never be more than 2-2.5 times your household gross income. Therefore, if your family’s gross household income is $100,000., the home loan should never exceed $250,000. As a percentage of your income, a house payment including principal, interest, taxes and hazard insurance and mortgage insurance should not exceed 30% of your take home pay. Also, remember that if you have an interest only or option arm loan, you are in reality renting your home. You can only own your home if you are paying off the principal. We know that if the home loan is kept to reasonable amount, there will be no need to for credit card use or other uses of credit.

While these simple principals may seem obvious right now in the middle of the current economic crisis, we should try to think more about them for the good times ahead. Credit will again flow easily and there will be marketing people on every corner trying to sell us the newest shiny products for us to consume today. However, let us try to be a little older and wiser the next time through. Remember, cash is king and house is just shelter. We make a house a home, not the other way around.

     

WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A SHORT SALE OR FORECLOSURE. THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.
© 2010 Joan Grimes