The latest effort to fix the foreclosure mess has major flaws, according to a recent article in the New York Times, http://www.nytimes.com/2011/12/25/business/foreclosure-relief-dont-hold-your-breath-fair-game.html?_r=1. This time, the focus is on the foreclosure processing abuses by major loan servicers, including the "robo-signing" of court papers.
The problems include an inherent conflict of interest, as highlighted in a recent Senate subcommittee hearing. The problem is that the consultants hired to do the reviews of past practice are being paid by the banks they are reviewing. Those that have done work for these banks in the past or hope to do work for them in the future are not barred from doing these reviews. The Comptroller of the Currency claims they have carefully vetted the consultants chosen, but as the article points out, it took very little time for a researcher to find serious flaws, including a reviewer who has previously done credit reviews possibly of some of the very same loans from which abuses flowed.
This is yet another example of how Washington has not really come to grips with the inherent conflicts of interest and laissez-faire attitude that contributed to our getting in this mess. Until all players in the financial system have clearly defined limits and standards, enforced by independent parties, the system is going to remain broken.
Proponents of reduced regulation forget their history: we had laissez-faire capitalism in the 19th and early decades of the 20th century. The results were bank failures and periodic financial collapses. This is not a history we should like to repeat.
If you have been the victim of a foreclosure scam or abuses by a creditor or mortgage lender, we can provide assistance. See our website at http://www.nv-njlaw.com
Tuesday, December 27, 2011
Thursday, December 15, 2011
Some thoughts for the holidays, even in the midst of financial chaos
The end of year holidays can be especially difficult for people and families in distress. But they are also a time to reflect on what we have and what we value, in the context of what is hopefully a long life. I meet and try to help a lot of people whose financial lives or businesses are out of control or falling apart, and the most important job I have is to help them put things in perspective, so they can take control of their lives. Here are some thoughts from that experience:
1. Life is a long road, and the bumps in the road become less important once we get over them. Many people dwell on the past, how much better things were, how they never thought they would end up where they are now. They forget that in the long run, things work out. Sure, there may be costs and difficulties, but facing them and accepting them leads to calm and reasoned actions. A certain degree of faith that we can get through this often results or is strengthened.
2. Our first obligation is to our family, and to preserving our ability to support them. People worry about the loss of a good credit score, or what people will think, or losing a house they can no longer afford. But our first duty is not to our creditors, but to preserving our ability to support and maintain our families and those important to us. If this means that we have to shed financial obligations that threaten our ability to keep our jobs, or to put food on the table, or to pay for medical care, then so be it. In the long run, things are just things. The goal should be to get back to a situation where our basic living expenses can be paid with the income we have now.
But this may mean telling our children and family some unpleasant truths about our situation. Make no mistake, this is not something most of us want to do, but handled the right way and with the right perspective, it can strengthen our ties to those we love and who are our friends. What the rest think of us should be secondary. And children know that something is wrong. Leveling with them can reduce anxiety, and help them be "part of the team".
3. Enjoy and revel in the things that money cannot buy. Family, friends, shared experiences. I have known people for whom confronting and dealing with their financial situation has been liberating. They have come back to a point of valuing the important things. They have experienced the freedom of not having to worry about preserving things that may not be necessary, at the expense of what should be important.
4. Have faith that no matter what happens, "this too shall pass". Many years ago, someone told me it is not the number of times you fall down that counts, but the number of times you get up. All my clients eventually find a way to get on with their lives. Things get better once you confront the situation and develop a plan to move on. From spinning out of control, they have a grip on the "wheel", and they are steering their lives to a better future.
For more information about this subject, see our website at http://www.nv-njlaw.com/
1. Life is a long road, and the bumps in the road become less important once we get over them. Many people dwell on the past, how much better things were, how they never thought they would end up where they are now. They forget that in the long run, things work out. Sure, there may be costs and difficulties, but facing them and accepting them leads to calm and reasoned actions. A certain degree of faith that we can get through this often results or is strengthened.
2. Our first obligation is to our family, and to preserving our ability to support them. People worry about the loss of a good credit score, or what people will think, or losing a house they can no longer afford. But our first duty is not to our creditors, but to preserving our ability to support and maintain our families and those important to us. If this means that we have to shed financial obligations that threaten our ability to keep our jobs, or to put food on the table, or to pay for medical care, then so be it. In the long run, things are just things. The goal should be to get back to a situation where our basic living expenses can be paid with the income we have now.
But this may mean telling our children and family some unpleasant truths about our situation. Make no mistake, this is not something most of us want to do, but handled the right way and with the right perspective, it can strengthen our ties to those we love and who are our friends. What the rest think of us should be secondary. And children know that something is wrong. Leveling with them can reduce anxiety, and help them be "part of the team".
3. Enjoy and revel in the things that money cannot buy. Family, friends, shared experiences. I have known people for whom confronting and dealing with their financial situation has been liberating. They have come back to a point of valuing the important things. They have experienced the freedom of not having to worry about preserving things that may not be necessary, at the expense of what should be important.
4. Have faith that no matter what happens, "this too shall pass". Many years ago, someone told me it is not the number of times you fall down that counts, but the number of times you get up. All my clients eventually find a way to get on with their lives. Things get better once you confront the situation and develop a plan to move on. From spinning out of control, they have a grip on the "wheel", and they are steering their lives to a better future.
For more information about this subject, see our website at http://www.nv-njlaw.com/
What to tell the kids when financial problems loom large
I am not a psychologist. This article is not psychological advice from a trained or licensed family or mental health professional. However, we have met with many, many people over the years and from that experience can give you the benefit of our perspective. You may be looking at this article because you are in debt and are feeling some guilt about your current circumstances, and especially about how it impacts your family. Guilty feelings are not a bad thing. They mean you acknowledge some responsibility for your current circumstances, and a need to do something. So feeling guilty or scared is normal and healthy. It is what we do with that guilt or fear that is important. I will share some thoughts how to help your children deal with the stress you are going through, and to benefit from the experience. Of course, seeking help from a trained family therapist is always wise, when the situation warrants.
Dealing with financial distress is scary enough. For many of our clients, a major hurdle is what to tell their children. Along with confronting your financial troubles, you have confront your family and the fears you may have about them. Yet a healthy and effective approach to taking control of your life and moving on to the fresh start you need demands that you do so.
A good start is to recognize what you are fearful of and put it into perspective. Downsizing and cutting back mean making hard choices.
Children are GOING to be affected, if they haven’t been already. It's embarrassing to disclose what is happening to you. And it leads to hard questions about how and why. You may feel that telling the children forces you to admit failure, and disappoint what you think are your children’s expectations. You may be afraid that you or your children may lose status or respect among their peers and your neighbors.
While these are real concerns, we believe the right approach can help you minimize the effect they have on you and your family.
First, recognize that children are brilliant at discerning minute changes in their parents’ emotional landscape. They will sense if not know that you are struggling and that things are not right. Not sharing with them what is going on and what you are doing about it can only increase their anxiety. With the right approach, you can lessen the stress on them and yourselves as well.
Explanation can have positive benefits if done rightChildren learn from us both by seeing our mistakes and seeing how we deal with them to move on. Showing your children that you are not hiding from your situation, but taking control of it and making the hard decisions that need to be made is a very positive example. By sharing with your children what you are doing, you also allow them to become part of the solution. You show them that as a family you are working together. For example, you might explain that paying for their new ipod or toys means you will have to give up something more important, like a roof over your head. In the end, you are telling them "We're all in this together" and "We will get through this and move on".
The hard part may be explaining how this situation came about. Don’t be too hard on yourself. The point is not to cast blame. Instead, it is to deal with the past and move on. Maybe the causes were beyond your control and it was just the economy, or an unexpected event. You might want to show how past decisions to buy and spend contributed to this situation--"if I had it all to do over again, this is what I would have done". At the end, you and your children need to deal with past but not dwell on it, and move on: "this is what happened, this is where we are, and we will deal with the present the best way we can, so that we can protect you and the family."
As I have said before in this blog, we often tell our clients that protecting their families and their ability to continue supporting themselves and their children is the single most important mission. Credit scores, paying creditors, concern about what others may think of us are secondary.
The Value of Putting on Blinders. A useful image here is to think of yourself as "putting on blinders". Just as blinders help a horse avoid getting spooked or distracted by extraneous noise, people in financial distress need to put on blinders to the past and the too-distant uncertain future. The past is done: we recognize what happened, but we do not dwell on how much better things were then or what we might have done differently. The distant future is unknown. We can only predict a limited time into the future. Stay focused on the here and now, on what we have to deal with now and what we are reasonably certain will happen or we can control. Bad things could happen or good things could happen, but making decisions today on what might or might not happen is just another distraction sucking emotional energy and attention away from the job at hand.
Of course, before you sit down with the children, you need to take careful stock of your situation. Put together a budget, with your actual monthly income, and the basic and necessary living expenses. You can use one of our budget forms or come to see us for help with this. You also need to have a plan. And we often recommend that our clients write it out and keep it for future reference. The plan can be changed, but in the emotional forest, that piece of paper is a road map to where you are and where you need to go. It can help you keep on track.
In addressing your children, you should decide where to draw the line. You need to retain a zone of privacy--not all your financial affairs are their business. Decide what the children need to know. You are not inviting them to audit your personal finances. You also do not need to make them your emotional caretakers. At the same time, commit to keep them in the know to some degree. And make clear that you still control the finances and make decisions for yourself and the family. Decide in advance what expenses or activities are not going to be changed or touched, except as a last resort. Your children need to know what they will not have to give up, as much as what will be different.
All this is information your children need so they can adjust their expectations and know why things are happening, and how they fit in. But the other tough question is: what do your children do with this knowledge, in dealing with their peers? Here might be some talking points for them:
Dealing with financial distress is scary enough. For many of our clients, a major hurdle is what to tell their children. Along with confronting your financial troubles, you have confront your family and the fears you may have about them. Yet a healthy and effective approach to taking control of your life and moving on to the fresh start you need demands that you do so.
A good start is to recognize what you are fearful of and put it into perspective. Downsizing and cutting back mean making hard choices.
Children are GOING to be affected, if they haven’t been already. It's embarrassing to disclose what is happening to you. And it leads to hard questions about how and why. You may feel that telling the children forces you to admit failure, and disappoint what you think are your children’s expectations. You may be afraid that you or your children may lose status or respect among their peers and your neighbors.
While these are real concerns, we believe the right approach can help you minimize the effect they have on you and your family.
First, recognize that children are brilliant at discerning minute changes in their parents’ emotional landscape. They will sense if not know that you are struggling and that things are not right. Not sharing with them what is going on and what you are doing about it can only increase their anxiety. With the right approach, you can lessen the stress on them and yourselves as well.
Explanation can have positive benefits if done rightChildren learn from us both by seeing our mistakes and seeing how we deal with them to move on. Showing your children that you are not hiding from your situation, but taking control of it and making the hard decisions that need to be made is a very positive example. By sharing with your children what you are doing, you also allow them to become part of the solution. You show them that as a family you are working together. For example, you might explain that paying for their new ipod or toys means you will have to give up something more important, like a roof over your head. In the end, you are telling them "We're all in this together" and "We will get through this and move on".
The hard part may be explaining how this situation came about. Don’t be too hard on yourself. The point is not to cast blame. Instead, it is to deal with the past and move on. Maybe the causes were beyond your control and it was just the economy, or an unexpected event. You might want to show how past decisions to buy and spend contributed to this situation--"if I had it all to do over again, this is what I would have done". At the end, you and your children need to deal with past but not dwell on it, and move on: "this is what happened, this is where we are, and we will deal with the present the best way we can, so that we can protect you and the family."
As I have said before in this blog, we often tell our clients that protecting their families and their ability to continue supporting themselves and their children is the single most important mission. Credit scores, paying creditors, concern about what others may think of us are secondary.
The Value of Putting on Blinders. A useful image here is to think of yourself as "putting on blinders". Just as blinders help a horse avoid getting spooked or distracted by extraneous noise, people in financial distress need to put on blinders to the past and the too-distant uncertain future. The past is done: we recognize what happened, but we do not dwell on how much better things were then or what we might have done differently. The distant future is unknown. We can only predict a limited time into the future. Stay focused on the here and now, on what we have to deal with now and what we are reasonably certain will happen or we can control. Bad things could happen or good things could happen, but making decisions today on what might or might not happen is just another distraction sucking emotional energy and attention away from the job at hand.
Of course, before you sit down with the children, you need to take careful stock of your situation. Put together a budget, with your actual monthly income, and the basic and necessary living expenses. You can use one of our budget forms or come to see us for help with this. You also need to have a plan. And we often recommend that our clients write it out and keep it for future reference. The plan can be changed, but in the emotional forest, that piece of paper is a road map to where you are and where you need to go. It can help you keep on track.
In addressing your children, you should decide where to draw the line. You need to retain a zone of privacy--not all your financial affairs are their business. Decide what the children need to know. You are not inviting them to audit your personal finances. You also do not need to make them your emotional caretakers. At the same time, commit to keep them in the know to some degree. And make clear that you still control the finances and make decisions for yourself and the family. Decide in advance what expenses or activities are not going to be changed or touched, except as a last resort. Your children need to know what they will not have to give up, as much as what will be different.
All this is information your children need so they can adjust their expectations and know why things are happening, and how they fit in. But the other tough question is: what do your children do with this knowledge, in dealing with their peers? Here might be some talking points for them:
- It's not a reason for shame
- Coin is not everything--pride, hard work, and love of family are just as valuable
- "It's not where you end up that counts, its where you started from and how far you traveled"
- Lots of successful people failed at some point in their lives, and went on to success--"behind every great success is a great failure" (eg Walt Disney, Henry Ford)
- Teach them resilience
- Teach them the value of planning and savings.
Wednesday, November 30, 2011
The Science behind the fallibility of memory
We all know that memory is fickle. We have all heard about people falsely convicted based on eye-witness testimony. Any attorney who has tried a case with witnesses knows that what one remembers and what actually happens do not always coincide.
This fascinating article from the New York Times tells us more about how this works and how our memory plays tricks on us. I found it fascinating. I hope you do too. I plan to keep a copy for future reference.
http://www.nytimes.com/2011/11/29/health/the-certainty-of-memory-has-its-day-in-court.html?_r=1
This fascinating article from the New York Times tells us more about how this works and how our memory plays tricks on us. I found it fascinating. I hope you do too. I plan to keep a copy for future reference.
http://www.nytimes.com/2011/11/29/health/the-certainty-of-memory-has-its-day-in-court.html?_r=1
Monday, November 28, 2011
The False Romance of Owning Your Own Business
I commend this article from the Sunday New York Times to you. It is witty, perceptive and cautionary: Starting a business-the romance vs the reality. Little in most people's work experience prepares them for the demands of starting and running a successful business. The rewards are there, true. These include the psychic benefit of being your own boss. But being the boss means you have to pay the bills, and worry about meeting payroll.
True, the financial rewards of owning your own business are unique. The profit you make is yours, at least after taxes. And business owners have tax deductions that others may not have. They have the privilege of deciding for themselves how the business is run. But the flip side is that business owners take the risks.
Running and building a business requires time, care, knowledge and attention. It is really a full-time (if not seven day a week) job. As I've written elsewhere, the easiest thing to do as a business owner is make mistakes. See www.nv-njlaw.com- a business owners guide to avoiding bankruptcy/ Successful business owners have learned to be careful, to attend to details, to know their market and their competition, and to hire and supervise the right support staff. Most importantly, they know when and how to get qualified legal and financial advice. For more about this subject, visit our website at http://www.southjerseybankruptcylaw.com/
True, the financial rewards of owning your own business are unique. The profit you make is yours, at least after taxes. And business owners have tax deductions that others may not have. They have the privilege of deciding for themselves how the business is run. But the flip side is that business owners take the risks.
Running and building a business requires time, care, knowledge and attention. It is really a full-time (if not seven day a week) job. As I've written elsewhere, the easiest thing to do as a business owner is make mistakes. See www.nv-njlaw.com- a business owners guide to avoiding bankruptcy/ Successful business owners have learned to be careful, to attend to details, to know their market and their competition, and to hire and supervise the right support staff. Most importantly, they know when and how to get qualified legal and financial advice. For more about this subject, visit our website at http://www.southjerseybankruptcylaw.com/
Sunday, November 27, 2011
"The Social Network"- a movie with some important business lessons
I just finished watching The Social Network, which if you do not already know is about Mark Zukerberg, one of the co-founders of Facebook. It is really a flashback to his days at Harvard, set against the deposition testimony he and others were giving in the two lawsuits filed against him by (1)Eduardo Saverin, his best friend and original business partner, and (2) by Cameron and Tyler Winklevoss, preppy Harvard students who thought he had agreed to develop their proto-Facebook concept.
The story holds many lessons for today's entrepreneurs. Zukerberg's failings (he still ended up a billionaire) are emblematic of the challenges and mistakes many small business people make. Here is my take on the lessons.
1. Know your limitations and the value of trusted associates whose strengths are your weaknesses. Zukerberg is protrayed as a brilliant geek. In truth, he had low "interpersonal intelligence". This is revealed in the opening scene where his girlfriend, fed up, leaves him. Zukerberg cannot read people. As such he fails to recognize the value of his best friend Eduardo, a business major, and fails to see the true character of the flamboyant Sean Parker (the founder of Napster). He is easily manipulated by Parker (brilliantly portrayed by Justin Timberlake) and by the venture capitalists Sean brings to the table.
Someone once told me that the successful law firm has four partners, the finder, the minder, the grinder and the binder. The first three are obvious. The fourth keeps the other three from killing each other. The point is that a successful venture needs multiple skill sets that rarely are combined in one person. A successful entrepreneur needs to understand her own limitations, and the importance of bringing in those who have the missing skills.
2. Be careful what you promise, but carefully put into writing the agreements and understanding with your business partners. Zukerberg make statements to the Winklevosses that led them to believe he was working with them. He then ignored repeated emails from them asking how he was doing with their project. Had Zukerberg been someone different, he would have treated these fellow students with the directness, honesty and respect they deserved. Had he leveled with them, and had he offered them some small percentage of his project, or told them right away he was unable to help them, maybe he would have avoided the expensive settlement and legal fees that ensued.
3. Develop relationships early on with the right professionals, especially attorneys. Both Zukerberg and Eduardo failed to seek independent legal counsel when it could have helped them. Had they spent a small amount of time and money to meet with an attorney early on, they might have known more of what was coming. But like many people, they sought legal counsel only when things had gotten out of hand. In Zukerberg's case, his attorneys defending the litigation finally had to explain to him why he had to settle. By that point in the movie, that this was the right call was painfully obvious. The lesson: find a trusted and qualified legal adviser early on. An initial meeting with an attorney is usually the best value the legal profession has to offer. And developing that relationship early makes it easier and more natural to seek advice when it is needed. In matters of business, ignorance is not bliss. Zukerberg was brilliant as a programmer, but woefully lacking in the most important knowledge of all, awareness and appreciation of ones own failings and ignorance. Arrogance and inexperience in his case resulted in a lot of expensive mistakes.
One final note. In The Social Network, everything turned out all right because Facebook was so wildly successful that there was enough money to go around, and to pay settlements, leaving Zukerberg still a billionaire. But most start up businesses are not so wildly successful. The kinds of infighting and litigation Zukerberg faced would destroy most businesses. Failing to heed the lessons of The Social Network would for most of us be the real tragedy.
The story holds many lessons for today's entrepreneurs. Zukerberg's failings (he still ended up a billionaire) are emblematic of the challenges and mistakes many small business people make. Here is my take on the lessons.
1. Know your limitations and the value of trusted associates whose strengths are your weaknesses. Zukerberg is protrayed as a brilliant geek. In truth, he had low "interpersonal intelligence". This is revealed in the opening scene where his girlfriend, fed up, leaves him. Zukerberg cannot read people. As such he fails to recognize the value of his best friend Eduardo, a business major, and fails to see the true character of the flamboyant Sean Parker (the founder of Napster). He is easily manipulated by Parker (brilliantly portrayed by Justin Timberlake) and by the venture capitalists Sean brings to the table.
Someone once told me that the successful law firm has four partners, the finder, the minder, the grinder and the binder. The first three are obvious. The fourth keeps the other three from killing each other. The point is that a successful venture needs multiple skill sets that rarely are combined in one person. A successful entrepreneur needs to understand her own limitations, and the importance of bringing in those who have the missing skills.
2. Be careful what you promise, but carefully put into writing the agreements and understanding with your business partners. Zukerberg make statements to the Winklevosses that led them to believe he was working with them. He then ignored repeated emails from them asking how he was doing with their project. Had Zukerberg been someone different, he would have treated these fellow students with the directness, honesty and respect they deserved. Had he leveled with them, and had he offered them some small percentage of his project, or told them right away he was unable to help them, maybe he would have avoided the expensive settlement and legal fees that ensued.
3. Develop relationships early on with the right professionals, especially attorneys. Both Zukerberg and Eduardo failed to seek independent legal counsel when it could have helped them. Had they spent a small amount of time and money to meet with an attorney early on, they might have known more of what was coming. But like many people, they sought legal counsel only when things had gotten out of hand. In Zukerberg's case, his attorneys defending the litigation finally had to explain to him why he had to settle. By that point in the movie, that this was the right call was painfully obvious. The lesson: find a trusted and qualified legal adviser early on. An initial meeting with an attorney is usually the best value the legal profession has to offer. And developing that relationship early makes it easier and more natural to seek advice when it is needed. In matters of business, ignorance is not bliss. Zukerberg was brilliant as a programmer, but woefully lacking in the most important knowledge of all, awareness and appreciation of ones own failings and ignorance. Arrogance and inexperience in his case resulted in a lot of expensive mistakes.
One final note. In The Social Network, everything turned out all right because Facebook was so wildly successful that there was enough money to go around, and to pay settlements, leaving Zukerberg still a billionaire. But most start up businesses are not so wildly successful. The kinds of infighting and litigation Zukerberg faced would destroy most businesses. Failing to heed the lessons of The Social Network would for most of us be the real tragedy.
Friday, November 18, 2011
One person's thrift is another's unemployment.
I found this recent New York Times article thought provoking.
"As graduates move back home economy feels the pain." As it says, when adult children move in with their parents to save money many others lose out and the economy is deprived of the revenues that spending on forming a new household bring.
"As graduates move back home economy feels the pain." As it says, when adult children move in with their parents to save money many others lose out and the economy is deprived of the revenues that spending on forming a new household bring.
I see the point as being that until people start feeling sure of themselves financially, this will continue to go on. In this article, one young man is saving his money to buy a home someday. But like many others, including the wealthy, he is holding back waiting for the right signals to start buying.
Until the real estate market stabilizes this is going to be a recurring problem. Meanwhile we are still seeing people who are unsure which way to move going forward. Many people are looking to mortgage modifications as a way out short of bankruptcy. Efforts to make the mortgage modification process more predictable and user friendly would go a long way to getting the nation back on its feet.
For more about the ways people can get back on their feet, please visit our website at http://www.nv-njlaw.com.
Friday, November 11, 2011
The Third Circuit Issues a Warning to Lawyers: Do Not always accept everything your clients tell you.
In In re Taylor, 655 F.3d 274 (3d Cir. 2011), the Third Circuit Court of Appeals upheld sanctions imposed on lender’s counsel who too blithely and too blindly relied on inaccurate information from its client. In doing so, that Court helped better set the line that attorneys should not cross. The case is a warning to all attorneys about their professional obligations to verify and question what their clients are telling them. It is also as sign of our times, and the mortgage mess we are in.
The case arose from a Chapter 13 Bankruptcy filed by the Taylors. HSBC held the mortgage on their home. HSBC’s counsel, the Udren Law Firm, and its experienced managing attorney filed a request for relief from the automatic stay so as to permit HSBC to pursue foreclosure proceedings despite the bankruptcy filing. As a secured creditor, HSBC had filed a proof of claim. The Taylors filed an objection to that proof of claim. It was how HSBC’s attorneys handled these matters and the representations they made to the court that got them in trouble.
The Taylors had an ongoing payment dispute with HSBC. This arose when HSBC claimed that the Taylors’ home was in a flood zone, obtained "forced insurance" for the property and added the expense to the Taylors’ monthly mortgage payment. The Taylors disputed the additional cost but continued to make their previous regular payments. HSBC refused to acknowledge that the Taylors were making full monthly payments and instead treated them as partial payments, leaving the Taylors further in arrears each month.
After the bankruptcy filing, the managing partner for the Udren Law Firm, Doyle, filed a motion for relief from the automatic stay in which she stated that since the bankruptcy filing the Taylors had not made any payments. The attorney filing this motion relied on a computerized system called "NewTrak" that was processed through a third party. The information supplied to HSBC’s counsel through this system was limited to the loan number, the name and address, payment amounts, late fees and amounts past due. The attorneys initially proceeded with the motion without any knowledge or information that, in fact, there had been a pending dispute about the payments.
This was not the only problem with the motion filed by HSBC’s counsel. The monthly payment amount was inconsistent with the proof of claim HSBC had earlier filed through another firm. Also, the motion papers said that the Taylors’ home had "inconsequential or no equity", something that was later established to have had no basis in fact.
HSBC’s counsel did nothing to verify the information in the motion besides a check of the "screen prints" from the NewTrak information.
The Taylors responded to this motion with documents including cancelled checks which indisputably showed that HSBC’s papers were mistaken in important respects.
The Taylors also filed an objection to HSBC’s proof of claim which detailed the ongoing disputes over flood insurance and pointing out the obvious inaccuracies and inconsistencies in HSBC’s papers. Despite this clear documentation that HSBC’s papers were inaccurate, HSBC’s counsel nevertheless filed a pro forma response reiterating that all figures in the proof of claim were accurate and the charges claimed were contractually correct. While this was ongoing, HSBC’s counsel had served admission requests on the Taylors which they had failed to respond to within the required thirty day period. These requests for admissions sought an admission of statements that were clearly false, namely that the Taylors had made no mortgage payments and had no equity in their home.
When the matter came on for hearing, HSBC’s counsel sent a junior associate whose response to pointed questioning was to ask the court to rely on the Taylors’ failure to respond to the request for admissions. The associate initially sought to have the request for admissions admitted as evidence, even though he knew they contained falsehoods. The court initially directed that counsel obtain an accounting from HSBC. At the next hearing, the same junior associate admitted that he could not obtain any accounting from HSBC and was literally unable to contact it to verify information.
The bankruptcy court issued an Order to Show cause for potential sanctions against HSBC and its counsel, ordering the associate, his managing attorney who had filed the motions, the senior partner of the firm and others to appear and give testimony. After a hearing, the bankruptcy court imposed sanctions on HSBC, the law firm, the managing attorney, and the firm’s senior partner for violations of Rule 9011 (the bankruptcy analogue to Rule 11 of the Federal Rules of Civil Procedure). That Rule states that an attorney signing papers submitted to a court certifies that the allegations and factual contentions have evidentiary support or are likely to have such support. The Rule requires a reasonable inquiry under the circumstances.
On an initial appeal to the U.S. District Court, the bankruptcy court was reversed. The case then came before the Third Circuit Court of Appeals on an appeal filed by the United States Trustee. The Third Circuit reinstated most of the rulings of the bankruptcy court; the senior partner at the firm who had no apparent involvement or supervisory responsibility as to this matter was relieved of the sanctions, but for everyone else including HSBC (who had not been involved in the appeal) sanctions were reinstated (The junior associate got off with a requirement to obtain three CLE credits in professional responsibility.)
How the Third Circuit addressed these matters and the principles it applied are a cautionary tale for all attorneys. First, the court noted that statements by counsel that were "literally true" could still be sanctionable or misleading. Here, HSBC had overstated the amount of arrearages by only $540.00 out of a total of $4,367.00 claimed. The claim that the Taylors were actually behind on their mortgage was true, but this did not satisfy the Third Circuit. It was just as important in that court’s view that the bankruptcy court know that at least some partial payments had been made and that there was a dispute that might explain the remainder of the arrearages.
The first lesson therefore is that attorneys should be clear and complete in their recitations.
The more important lesson from this case is that attorneys cannot blindly rely on representations from their client. The inquiry by counsel has to be reasonable under all the circumstances. The factors the court cited include:
Nothing in Taylor should be surprising to experienced counsel. However, a salutary reminder to all attorneys that a "pure heart and empty head" is not a valid defense in these types of cases. For more about our firm, visit our websites. http://www.nv-njlaw.com/ or our business oriented site, http://southjerseybankruptcylaw.com/
The case arose from a Chapter 13 Bankruptcy filed by the Taylors. HSBC held the mortgage on their home. HSBC’s counsel, the Udren Law Firm, and its experienced managing attorney filed a request for relief from the automatic stay so as to permit HSBC to pursue foreclosure proceedings despite the bankruptcy filing. As a secured creditor, HSBC had filed a proof of claim. The Taylors filed an objection to that proof of claim. It was how HSBC’s attorneys handled these matters and the representations they made to the court that got them in trouble.
The Taylors had an ongoing payment dispute with HSBC. This arose when HSBC claimed that the Taylors’ home was in a flood zone, obtained "forced insurance" for the property and added the expense to the Taylors’ monthly mortgage payment. The Taylors disputed the additional cost but continued to make their previous regular payments. HSBC refused to acknowledge that the Taylors were making full monthly payments and instead treated them as partial payments, leaving the Taylors further in arrears each month.
After the bankruptcy filing, the managing partner for the Udren Law Firm, Doyle, filed a motion for relief from the automatic stay in which she stated that since the bankruptcy filing the Taylors had not made any payments. The attorney filing this motion relied on a computerized system called "NewTrak" that was processed through a third party. The information supplied to HSBC’s counsel through this system was limited to the loan number, the name and address, payment amounts, late fees and amounts past due. The attorneys initially proceeded with the motion without any knowledge or information that, in fact, there had been a pending dispute about the payments.
This was not the only problem with the motion filed by HSBC’s counsel. The monthly payment amount was inconsistent with the proof of claim HSBC had earlier filed through another firm. Also, the motion papers said that the Taylors’ home had "inconsequential or no equity", something that was later established to have had no basis in fact.
HSBC’s counsel did nothing to verify the information in the motion besides a check of the "screen prints" from the NewTrak information.
The Taylors responded to this motion with documents including cancelled checks which indisputably showed that HSBC’s papers were mistaken in important respects.
The Taylors also filed an objection to HSBC’s proof of claim which detailed the ongoing disputes over flood insurance and pointing out the obvious inaccuracies and inconsistencies in HSBC’s papers. Despite this clear documentation that HSBC’s papers were inaccurate, HSBC’s counsel nevertheless filed a pro forma response reiterating that all figures in the proof of claim were accurate and the charges claimed were contractually correct. While this was ongoing, HSBC’s counsel had served admission requests on the Taylors which they had failed to respond to within the required thirty day period. These requests for admissions sought an admission of statements that were clearly false, namely that the Taylors had made no mortgage payments and had no equity in their home.
When the matter came on for hearing, HSBC’s counsel sent a junior associate whose response to pointed questioning was to ask the court to rely on the Taylors’ failure to respond to the request for admissions. The associate initially sought to have the request for admissions admitted as evidence, even though he knew they contained falsehoods. The court initially directed that counsel obtain an accounting from HSBC. At the next hearing, the same junior associate admitted that he could not obtain any accounting from HSBC and was literally unable to contact it to verify information.
The bankruptcy court issued an Order to Show cause for potential sanctions against HSBC and its counsel, ordering the associate, his managing attorney who had filed the motions, the senior partner of the firm and others to appear and give testimony. After a hearing, the bankruptcy court imposed sanctions on HSBC, the law firm, the managing attorney, and the firm’s senior partner for violations of Rule 9011 (the bankruptcy analogue to Rule 11 of the Federal Rules of Civil Procedure). That Rule states that an attorney signing papers submitted to a court certifies that the allegations and factual contentions have evidentiary support or are likely to have such support. The Rule requires a reasonable inquiry under the circumstances.
On an initial appeal to the U.S. District Court, the bankruptcy court was reversed. The case then came before the Third Circuit Court of Appeals on an appeal filed by the United States Trustee. The Third Circuit reinstated most of the rulings of the bankruptcy court; the senior partner at the firm who had no apparent involvement or supervisory responsibility as to this matter was relieved of the sanctions, but for everyone else including HSBC (who had not been involved in the appeal) sanctions were reinstated (The junior associate got off with a requirement to obtain three CLE credits in professional responsibility.)
How the Third Circuit addressed these matters and the principles it applied are a cautionary tale for all attorneys. First, the court noted that statements by counsel that were "literally true" could still be sanctionable or misleading. Here, HSBC had overstated the amount of arrearages by only $540.00 out of a total of $4,367.00 claimed. The claim that the Taylors were actually behind on their mortgage was true, but this did not satisfy the Third Circuit. It was just as important in that court’s view that the bankruptcy court know that at least some partial payments had been made and that there was a dispute that might explain the remainder of the arrearages.
The first lesson therefore is that attorneys should be clear and complete in their recitations.
The more important lesson from this case is that attorneys cannot blindly rely on representations from their client. The inquiry by counsel has to be reasonable under all the circumstances. The factors the court cited include:
- The amount of time available to the signor for conducting factual and legal investigation;
- The necessity for reliance on a client for the underlying factual information;
- The plausibility of the legal position advocated;
- Whether the case was referred to the signor by another member of the bar; and
- The complexity of legal and factual issues implicated.
Nothing in Taylor should be surprising to experienced counsel. However, a salutary reminder to all attorneys that a "pure heart and empty head" is not a valid defense in these types of cases. For more about our firm, visit our websites. http://www.nv-njlaw.com/ or our business oriented site, http://southjerseybankruptcylaw.com/
Monday, November 7, 2011
Buying and Selling Real Estate- unwelcome surprises and new problems- "parties beware"
A recent Smart Money article, "How appraisals are derailing home sales" points out that lenders have established new and much more stringent requirements for appraisals to support mortgage loans. The result is that many deals are being jeopardized when the appraisal comes in below the sale price and the financing applied for is not available. When this happens, the buyer may want her deposit back and the seller will be unhappy at that demand.
The problem is that the "standard form" real estate contract commonly used by brokers creates a critical ambiguity that may result in a needless battle. The problem is in the mortgage contingency clause, which provides that a buyer may cancel if mortgage approval is not obtained by a specified date. On its face this sounds fine, but as always the devil is in the details.
For more on how we can help, please visit our website, http://www.nv-njlaw.com/
Consider the situation where a buyer receives mortgage approval, but that approval is subject to conditions that the buyer cannot meet or did not expect. This could include a "satisfactory appraisal" or an appraisal at a specified value. What then? While New Jersey Courts have interpreted mortgage contingency clauses to mean and require that the buyer have a "firm" commitment, and have allowed Buyers to cancel and get their deposit money back where the commitment had conditions outside their control. Davis v Strazza, 380 N.J. Super 476 (App Div. 2005), who wants to have to go to court because the contract is unclear?
So we always recommend that the contract make clear that the buyer must have a "firm" mortgage commitment that results in availability of mortgage funds at closing, except where the inability to get financing is due to something within the buyer's control, despite good faith efforts.
No one wants a real estate deal to go sour, but even less do we want to end up in court. Given the fluid market we are in, careful review and careful drafting is called for. An experienced attorney should be consulted to make sure there are no unwelcome surprises
The problem is that the "standard form" real estate contract commonly used by brokers creates a critical ambiguity that may result in a needless battle. The problem is in the mortgage contingency clause, which provides that a buyer may cancel if mortgage approval is not obtained by a specified date. On its face this sounds fine, but as always the devil is in the details.
For more on how we can help, please visit our website, http://www.nv-njlaw.com/
Consider the situation where a buyer receives mortgage approval, but that approval is subject to conditions that the buyer cannot meet or did not expect. This could include a "satisfactory appraisal" or an appraisal at a specified value. What then? While New Jersey Courts have interpreted mortgage contingency clauses to mean and require that the buyer have a "firm" commitment, and have allowed Buyers to cancel and get their deposit money back where the commitment had conditions outside their control. Davis v Strazza, 380 N.J. Super 476 (App Div. 2005), who wants to have to go to court because the contract is unclear?
So we always recommend that the contract make clear that the buyer must have a "firm" mortgage commitment that results in availability of mortgage funds at closing, except where the inability to get financing is due to something within the buyer's control, despite good faith efforts.
No one wants a real estate deal to go sour, but even less do we want to end up in court. Given the fluid market we are in, careful review and careful drafting is called for. An experienced attorney should be consulted to make sure there are no unwelcome surprises
Friday, October 21, 2011
Bankruptcy Court allows "Chapter 20" debtor to remove a mortgage from her home
One of the benefits of filing a Chapter 13 Bankruptcy case (where an individual can "reorganize" through a plan providing for payment of creditors over 3 to 5 years), is that Chapter 13 allows some forms of mortgage modification not available elsewhere. Specifically, under certain circumstances junior mortgages can be "stripped off" a home, leaving the borrower with a home that is less financially "underwater". It goes like this:
Let's assume your home is worth $200,000.00 but the first mortgage payoff is $201,000.00. The second mortgage and third mortgage are worthless, because there is zero equity for those lenders. If the home were sold, the first mortgage holder takes it all. When this is the case, in a Chapter 13 case, the borrower can, through her bankruptcy plan, convert these worthless mortgages into unsecured debts. After she completes her plan, the mortgages are "stripped off", leaving only the first mortgage.
This is a big benefit. However, Mrs. Gloster did not have enough income to support any payments to her creditors, so she had to file a Chapter 7 bankruptcy (where "strip off" is not allowed). She got her discharge. This meant that she no longer had any personal liability on either of the two mortgages on her home, but to keep the home she still had to keep paying the first and second mortgages. In her case, the home was worth $182,000. Chase had a first mortgage with a balance of $200,200, and Bank of America ["BOA"] had a second mortgage with a balance of $51171.00. Apparently she was resigned to losing the home. She was behind on both mortgages.
After she got her Chapter 7 discharge, Mrs. Gloster's fortunes changed. She got a raise, and she got Chase to reduce her payment on the first mortgage. This meant she now had some money to fund a Chapter 13 Plan. To save her home, Mrs. Gloster filed a "Chapter 20", ie a new Chapter 13. She did not have to discharge any debt; indeed she could not do so. But what she proposed was to remove the BOA second mortgage through a "strip off" and use monthly payments to bring her first mortgage current.
The problem is that courts around the country disagree whether Mrs. Gloster could do this. Some courts held that a Chapter 13 debtor who is ineligible for a discharge, loses the right to "strip off" mortgages as well Until now, no New Jersey court had issued a published opinion on this point. In In re Gloster, issued October 13, 2011 for publication, Judge Novalyn Winfield, in a carefully reasoned opinion, held that this use of Chapter 20 was allowed, so long as the second bankruptcy filing was made in good faith. Judge Winfield reviewed the existing case law, but was persuaded that nothing in the plain and direct meaning of the bankruptcy code provisions involved prevented Mrs. Gloster from doing what she proposed.
The opinion cautions that a debtor using Chapter 20 this way must demonstrate good faith. Factors to be considered on this issue include (1)whether the debtors have a need for bankruptcy other than lien avoidance [Mrs. Gloster needed to cure mortgage arrears to save her home]; (2)whether debtors acted equitably in proposing the plan [here there were some small payments to be made to non-mortgage unsecured creditors]; (3) whether debtors are devoting their income to the plan [Mrs. Gloster was]; and (4) whether the debtors used serial filings to avoid paying their creditors [Mrs. Gloster could not qualify for Chapter 13 when she filed her Chapter 7, because of lack of income. The mortgage lenders were no worse off than they would be otherwise]
This is a welcome clarification. It also illustrates how, with the proper guidance and under the right circumstances, borrowers can use Chapter 13 to save their home. For more guidance and help with mortgage modification and use of Chapter 13, see our website: Alternatives to Foreclosure
Let's assume your home is worth $200,000.00 but the first mortgage payoff is $201,000.00. The second mortgage and third mortgage are worthless, because there is zero equity for those lenders. If the home were sold, the first mortgage holder takes it all. When this is the case, in a Chapter 13 case, the borrower can, through her bankruptcy plan, convert these worthless mortgages into unsecured debts. After she completes her plan, the mortgages are "stripped off", leaving only the first mortgage.
This is a big benefit. However, Mrs. Gloster did not have enough income to support any payments to her creditors, so she had to file a Chapter 7 bankruptcy (where "strip off" is not allowed). She got her discharge. This meant that she no longer had any personal liability on either of the two mortgages on her home, but to keep the home she still had to keep paying the first and second mortgages. In her case, the home was worth $182,000. Chase had a first mortgage with a balance of $200,200, and Bank of America ["BOA"] had a second mortgage with a balance of $51171.00. Apparently she was resigned to losing the home. She was behind on both mortgages.
After she got her Chapter 7 discharge, Mrs. Gloster's fortunes changed. She got a raise, and she got Chase to reduce her payment on the first mortgage. This meant she now had some money to fund a Chapter 13 Plan. To save her home, Mrs. Gloster filed a "Chapter 20", ie a new Chapter 13. She did not have to discharge any debt; indeed she could not do so. But what she proposed was to remove the BOA second mortgage through a "strip off" and use monthly payments to bring her first mortgage current.
The problem is that courts around the country disagree whether Mrs. Gloster could do this. Some courts held that a Chapter 13 debtor who is ineligible for a discharge, loses the right to "strip off" mortgages as well Until now, no New Jersey court had issued a published opinion on this point. In In re Gloster, issued October 13, 2011 for publication, Judge Novalyn Winfield, in a carefully reasoned opinion, held that this use of Chapter 20 was allowed, so long as the second bankruptcy filing was made in good faith. Judge Winfield reviewed the existing case law, but was persuaded that nothing in the plain and direct meaning of the bankruptcy code provisions involved prevented Mrs. Gloster from doing what she proposed.
The opinion cautions that a debtor using Chapter 20 this way must demonstrate good faith. Factors to be considered on this issue include (1)whether the debtors have a need for bankruptcy other than lien avoidance [Mrs. Gloster needed to cure mortgage arrears to save her home]; (2)whether debtors acted equitably in proposing the plan [here there were some small payments to be made to non-mortgage unsecured creditors]; (3) whether debtors are devoting their income to the plan [Mrs. Gloster was]; and (4) whether the debtors used serial filings to avoid paying their creditors [Mrs. Gloster could not qualify for Chapter 13 when she filed her Chapter 7, because of lack of income. The mortgage lenders were no worse off than they would be otherwise]
This is a welcome clarification. It also illustrates how, with the proper guidance and under the right circumstances, borrowers can use Chapter 13 to save their home. For more guidance and help with mortgage modification and use of Chapter 13, see our website: Alternatives to Foreclosure
Saturday, October 8, 2011
Chapter 13 Bankruptcy- a Swiss Army Knife of Debt Relief–the path to a brighter future
For individuals who qualify and need it, Chapter 13 Bankruptcy is the ideal solution. It provides a simple, direct and relatively inexpensive means for people to reorganize and restructure their debt. It is much cheaper and simpler than Chapter 11.
Like Chapter 11, in Chapter 13 the Bankruptcy Court approves a Plan which redefines what you owe your creditors. At the end of a three or five year payment period, you are free of all debt except the ones you agree to. Of course, you have to fully pay taxes, and if you want to keep property that is subject to a mortgage, car loan, lease or other secured debt, you will still have those debts to deal with after your bankruptcy, except to the extent you are allowed to modify them.
Here is what you can do using Chapter 13:
Saving your home or real estate and reducing mortgage debt to a manageable level.
Let’s say that old car is worth $3000.00 but you owe $6000.00 on it. If the car loan was taken out more than 2 ½ years ago, you can "buy back" the car for the $3000.00 plus interest (usually at a lot lower rate than the contract provides for) paid out over a five year period.
For many other secured debts, the same rules can apply.
Our clients who are successful in Chapter 13 (and we have a high success rate because we are careful to craft plans that work for our clients), have taken control of their lives and are on the road to a new day with a brighter financial future. For more information about gaining control of your life and solving financial problems, see our website. Neuner and Ventura-NJ Bankruptcy
Like Chapter 11, in Chapter 13 the Bankruptcy Court approves a Plan which redefines what you owe your creditors. At the end of a three or five year payment period, you are free of all debt except the ones you agree to. Of course, you have to fully pay taxes, and if you want to keep property that is subject to a mortgage, car loan, lease or other secured debt, you will still have those debts to deal with after your bankruptcy, except to the extent you are allowed to modify them.
Here is what you can do using Chapter 13:
Saving your home or real estate and reducing mortgage debt to a manageable level.
- If your house is worth less than what you owe on the first mortgage, you can remove the second mortgage (called a "strip off"), and instead pay that lender a fraction of what is owed. At the end of your agreed payment plan, you can have the mortgage removed from the title to your home.
- If the mortgage is for a rental or investment property, you will usually be able to "modify" the loan to force the mortgage lender to accept the market value of the property instead of the full balance owed.
- The same thing can be done with other secured loans, subject to some exceptions and special rules
- While most but not all income, payroll or sales taxes have to paid in full (exceptions are certain older taxes, and most tax penalties) you can pay them back over five years with zero interest.
- Very often, such taxes that you could discharge because they are too old have become liens on your home and other property because the tax collector has filed a tax lien. Without bankruptcy, you are still stuck paying that lien even after a bankruptcy discharge. In Chapter 13, however, you can "cram down" tax liens to the value of your property. Let’s say you have $100,000.00 in state or federal tax liens for old taxes that without the tax lien could be discharged in bankruptcy, but the total value of all your property, net of other liens, is $20,000.00. You can pay the tax man the $20,000.00 over five years, and when you are done, the tax lien disappears.
- There are other big tax benefits from any bankruptcy, that apply in Chapter 13.
- First, there is a "home court advantage". Outside of bankruptcy, disputes with the tax man have to be fought out in Washington, DC or in a tax court, giving the tax man the "home court advantage". The Bankruptcy Code gives bankruptcy courts the ability to hear and decide these issues, in a courthouse that may be much closer to home. This is a definite "home court advantage" for the debtor-taxpayer.
- Secondly, if you can settle debts outside of bankruptcy for less than the full amount owed, you will usually get hit with a tax bill from what is called "debt-discharge income". In a bankruptcy discharge, this is not the case.
For many other secured debts, the same rules can apply.
- Even those cases where the Bankruptcy Code requires full payment of debts, the payout is without interest. Compared with the high interest rates–as much as 28% for credit cards–this can be huge savings.
- And for most people, a chapter 13 plan pays a small fraction to garden-variety unsecured debts.
- Many people we seen have tried to negotiate with their creditors. While deals can be made, they are not guaranteed. Each collector wants to extract as much money as they can from you, right now or in a few months. And even if you settle with 7 out of 10 creditors, there is no guarantee that the last 3 will do so on terms you can afford. This leaves you having to consider a bankruptcy anyway.
- A Chapter 13 Plan, once it is confirmed by the court, fixes all your obligations to all your creditors, once and all. And to get the plan approved, it must be one you can actually do.
Our clients who are successful in Chapter 13 (and we have a high success rate because we are careful to craft plans that work for our clients), have taken control of their lives and are on the road to a new day with a brighter financial future. For more information about gaining control of your life and solving financial problems, see our website. Neuner and Ventura-NJ Bankruptcy
Sunday, October 2, 2011
Building a new business from the ashes of the old-a primer on avoiding common mistakes
Here's a scene we see all too commonly. The old business is plagued with troubles that threaten to sink the ship. Unpaid bills are piling up and creditors are going to court. If only the old debts could go away, the business could survive and prosper. The business owners want to just start clean and start over. Yet all too often they charge ahead and make mistakes that result in their creditors and financial problems following them, or worse. Early advice from experienced and qualified legal and financial professionals is essential. This article will touch on the sources of trouble, the problems that arise, and the mistakes that are often made.
1. Mistake: Not putting together a comprehensive plan. A wag once said that "if you don't know where you're going any road will get you there". Success in moving on requires a careful business plan.Which suppliers will be critical to the new business? What debts have the owners personally guaranteed, either by agreement or by law? How the new business going to be restructured? What is the timeline? Where is the money for winding up the old business and getting the new one started going to come from?
Doing it wrong can mean the owners and the new business fail or the old debts follow them into the new endeavor. First, is the problem of fiduciary duty. When a business is at or near collapse (lawyers call this being in the "zone of insolvency") the owners and managers have a fiduciary duty to protect the interests of creditors and can become personally liable as "trustees" if they engage in self-dealing or act solely for their own benefit, at creditors' expense. This does not mean they owners must surrender the business to creditors. It means they have to exercise business judgment to make the best of a bad situation so that whatever is left can be applied to legitimate claims of creditors in some fashion that has the hallmarks of fairness and reasonableness.
Secondly, there is the problem of "successor liability". A new business which takes over an old business's employees, customers, business opportunities and/or operations can be held to be a mere continuation of the old business resulting in potential lawsuits and liability to the old creditors. This is always a risk, but with careful planning the risks can be avoided.
Advance planning and understanding is essential to minimizing these risks. The plan should include a careful evaluation of all the assets and liabilities of the old business, and a timeframe for wrapping things up.
2. Mistake: Not keeping a strict separation between the old and new ventures. A new business needs to be built with new money. The old business and its accounts need to be kept strictly separate from the new. This does not mean that a new business must start from scratch, but the more connections there are between the old and new ventures, the greater the risk of "successor liability". At a minimum, the new business should keep separate accounts and separate contracts. It should avoid using or having a name that is closely similar to the one used by the old business.
All business operations of the new business and the old business should be carefully and scrupulously documented to show that the old management acted responsibly in winding up the old business and everything was kept as much as possible at "arms length".
3. Mistake: Transferring business and business assets to the new business without paying for them. If the old business has equipment or assets that the new business needs, the new business needs to buy them on terms and for a price that are objectively fair and reasonable. More importantly, the payment needs to go into the coffers of the old business. Management should document how they came to the price and terms, if possible based on some objective third party criteria (eg EBay prices, auction sale values etc). The new business need not pay full retail, but should pay something that leaves the old business and its creditors no worse than what would be there in a liquidation scenario. This obligation extends to contracts that the new business takes over and which the old business does not have the ability to complete. Payments from new to old could be structured in a variety of ways, depending on the circumstances. For example, the old company might receive an objectively reasonable percentage of the revenue when received from completing an existing contract. There are a variety of ways to make these arrangements.
4.Mistake: Winding up the old business without proper legal advice. Winding up an old business while starting a new business is risky at best. Owners need to have accountants and lawyers advising them in this process. Each situation is different, but having a carefully thought out plan that is documented is critically important. Both accountants and lawyers should be consulted early on, and should work together. Money should be set aside early for their fees.
5. Mistake: Lying or cheating the old creditors The owners and managers should never make misstatements of fact. Better to say nothing. The last thing you want are allegations of fraud or breach of trust following you. At the same time, every attempt should be made, within reason and within the bounds of financial reality, to settle up with creditors, especially those who are most vocal and aggressive. These offers should be documented. This process gets back to the need for a plan. Owners need to know how far they can go and what they can do.
6. Consider letting a court oversee the windup of the old business. Business owners who are simultaneously wrapping up the old business and trying to start up the new are always in a precarious position, fraught with conflicts of interest. Under the right circumstances, a bankruptcy under Chapter 11 or an Assignment for the Benefit of Creditors under New Jersey law may make a lot of sense. Having an independent fiduciary or court approval for critical steps of the transition goes a long, long way to avoiding later claims of successor liability or breach of fiduciary duty.
We have guided many business owners through these treacherous waters, and on the flip side have pursued on behalf of trustees or creditors those who got it wrong. If you are a business owner in New Jersey, we are available to help. Visit our website to learn more. Neuner and Ventura LLP
1. Mistake: Not putting together a comprehensive plan. A wag once said that "if you don't know where you're going any road will get you there". Success in moving on requires a careful business plan.Which suppliers will be critical to the new business? What debts have the owners personally guaranteed, either by agreement or by law? How the new business going to be restructured? What is the timeline? Where is the money for winding up the old business and getting the new one started going to come from?
Doing it wrong can mean the owners and the new business fail or the old debts follow them into the new endeavor. First, is the problem of fiduciary duty. When a business is at or near collapse (lawyers call this being in the "zone of insolvency") the owners and managers have a fiduciary duty to protect the interests of creditors and can become personally liable as "trustees" if they engage in self-dealing or act solely for their own benefit, at creditors' expense. This does not mean they owners must surrender the business to creditors. It means they have to exercise business judgment to make the best of a bad situation so that whatever is left can be applied to legitimate claims of creditors in some fashion that has the hallmarks of fairness and reasonableness.
Secondly, there is the problem of "successor liability". A new business which takes over an old business's employees, customers, business opportunities and/or operations can be held to be a mere continuation of the old business resulting in potential lawsuits and liability to the old creditors. This is always a risk, but with careful planning the risks can be avoided.
Advance planning and understanding is essential to minimizing these risks. The plan should include a careful evaluation of all the assets and liabilities of the old business, and a timeframe for wrapping things up.
2. Mistake: Not keeping a strict separation between the old and new ventures. A new business needs to be built with new money. The old business and its accounts need to be kept strictly separate from the new. This does not mean that a new business must start from scratch, but the more connections there are between the old and new ventures, the greater the risk of "successor liability". At a minimum, the new business should keep separate accounts and separate contracts. It should avoid using or having a name that is closely similar to the one used by the old business.
All business operations of the new business and the old business should be carefully and scrupulously documented to show that the old management acted responsibly in winding up the old business and everything was kept as much as possible at "arms length".
3. Mistake: Transferring business and business assets to the new business without paying for them. If the old business has equipment or assets that the new business needs, the new business needs to buy them on terms and for a price that are objectively fair and reasonable. More importantly, the payment needs to go into the coffers of the old business. Management should document how they came to the price and terms, if possible based on some objective third party criteria (eg EBay prices, auction sale values etc). The new business need not pay full retail, but should pay something that leaves the old business and its creditors no worse than what would be there in a liquidation scenario. This obligation extends to contracts that the new business takes over and which the old business does not have the ability to complete. Payments from new to old could be structured in a variety of ways, depending on the circumstances. For example, the old company might receive an objectively reasonable percentage of the revenue when received from completing an existing contract. There are a variety of ways to make these arrangements.
4.Mistake: Winding up the old business without proper legal advice. Winding up an old business while starting a new business is risky at best. Owners need to have accountants and lawyers advising them in this process. Each situation is different, but having a carefully thought out plan that is documented is critically important. Both accountants and lawyers should be consulted early on, and should work together. Money should be set aside early for their fees.
5. Mistake: Lying or cheating the old creditors The owners and managers should never make misstatements of fact. Better to say nothing. The last thing you want are allegations of fraud or breach of trust following you. At the same time, every attempt should be made, within reason and within the bounds of financial reality, to settle up with creditors, especially those who are most vocal and aggressive. These offers should be documented. This process gets back to the need for a plan. Owners need to know how far they can go and what they can do.
6. Consider letting a court oversee the windup of the old business. Business owners who are simultaneously wrapping up the old business and trying to start up the new are always in a precarious position, fraught with conflicts of interest. Under the right circumstances, a bankruptcy under Chapter 11 or an Assignment for the Benefit of Creditors under New Jersey law may make a lot of sense. Having an independent fiduciary or court approval for critical steps of the transition goes a long, long way to avoiding later claims of successor liability or breach of fiduciary duty.
We have guided many business owners through these treacherous waters, and on the flip side have pursued on behalf of trustees or creditors those who got it wrong. If you are a business owner in New Jersey, we are available to help. Visit our website to learn more. Neuner and Ventura LLP
Friday, September 23, 2011
Changing course? New directive from HUD to mortgage lenders-reach out to borrowers in bankruptcy
Recently, the department in charge of federal "loss mitigation" programs issued a new directive, which says in part:
"Effective immediately, mortgagees must, upon receipt of notice of a bankruptcy filing, send information to debtor’s counsel indicating that loss mitigation may be available, and provide instruction sufficient to facilitate workout discussions including documentation requirements, timeframes and servicer contact information. Working through debtor’s counsel, mortgagees may offer appropriate loss mitigation options prior to discharge or dismissal, without requiring relief from the automatic stay and in the case of a Chapter 7 bankruptcy, without requiring re-affirmation of the debt. It is strongly recommended that the bankruptcy trustee be copied on all such communications. All loss mitigation actions must be approved by the Bankruptcy Court prior to final execution"
We reported that New Jersey, like other bankruptcy courts, are instituting programs to encourage and facilitate mortgage modifications or other "loss mitigation" approaches like a deed-in-lieu of foreclosure or "short sale". It seems that the federal government is joining the bandwagon.
It remains to be seen if mortgage lender trusts and their servicers will follow through. Efforts to coordinate "short sales" through bankruptcy trustees, in which the trustee sells property, taking a percentage for costs and something for creditors have reportedly fallen flat. Lenders, it seems, just don't get it...they are better off with half a loaf now than much less, much later.
Stay tuned...the foreclosure mess is one of the big problems holding back the economy...isn't it time for all parties to sit down and work out intelligent solutions that cut their losses now and in the future?
"Effective immediately, mortgagees must, upon receipt of notice of a bankruptcy filing, send information to debtor’s counsel indicating that loss mitigation may be available, and provide instruction sufficient to facilitate workout discussions including documentation requirements, timeframes and servicer contact information. Working through debtor’s counsel, mortgagees may offer appropriate loss mitigation options prior to discharge or dismissal, without requiring relief from the automatic stay and in the case of a Chapter 7 bankruptcy, without requiring re-affirmation of the debt. It is strongly recommended that the bankruptcy trustee be copied on all such communications. All loss mitigation actions must be approved by the Bankruptcy Court prior to final execution"
We reported that New Jersey, like other bankruptcy courts, are instituting programs to encourage and facilitate mortgage modifications or other "loss mitigation" approaches like a deed-in-lieu of foreclosure or "short sale". It seems that the federal government is joining the bandwagon.
It remains to be seen if mortgage lender trusts and their servicers will follow through. Efforts to coordinate "short sales" through bankruptcy trustees, in which the trustee sells property, taking a percentage for costs and something for creditors have reportedly fallen flat. Lenders, it seems, just don't get it...they are better off with half a loaf now than much less, much later.
Stay tuned...the foreclosure mess is one of the big problems holding back the economy...isn't it time for all parties to sit down and work out intelligent solutions that cut their losses now and in the future?
Wednesday, September 21, 2011
What you should expect of your NJ bankruptcy lawyer the first time you meet
As NJ bankruptcy lawyers (we also serve clients in the Eastern District of Pennsylvania) we find a lot of misunderstandings about NJ bankruptcy and what a good NJ bankruptcy lawyer should be expected to do. Just as important is that a prospective client do his or her part. I'd like to tell you what our approach as NJ lawyers is and why we do it.
Unlike some others, we treat our initial meeting with you as an in-depth exploration of the problems that led you to financial trouble and the ways we can help you take back control of your life. Too often, we hear that attorneys meet with clients for the first time and give them a brief, vague and general overview of bankruptcy. We don't do that. How bankruptcy works out in practice can be very different based on the facts of your case. So, I sit down and go over some of the problems that got you here, and most importantly go over your budget and finances. I want to know how you will fare if I can remove the pressure of mounting debt for you. I want to be part of an overall solution that brings you to financial stability. I want to explore with you all your choices and options. If bankruptcy is not right for you, I will be the first to tell you.
That is why we ask our clients to fill out a worksheet with lots of yes or no questions, and a household budget. For many people, this is first time they have actually totaled up what they need to spend to keep a roof over their family's head and meet basic costs of living. The result is always illuminating. No matter what you do going forward, you need a plan. And to plan, you need to compare the money coming in to what you need to spend. Whether bankruptcy is right for you usually depends on knowing these simple facts.
The same approach works when we have a client with a business in trouble. At the end of the day, success in turning around a financial mess--whether through bankruptcy, workouts, mortgage modification, or other alternatives--depends on knowing what cash is going to come in and what money needs to be spent now and in the future.
In the initial interview, we also ask a series of carefully targeted questions. These are carefully designed from decades of experience as a NJ Bankruptcy Lawyer and as a bankruptcy trustee to spot the problems that could lie hidden until they blow up derailing our plans and our clients' prospects. We do not want that to happen., As bankruptcy lawyers, we owe that much to our client.
Lastly, we ask our prospective clients to assemble this basic information for us. It is important for them, as well as for us. We recognize it is a burden in what may be a hectic and tension-fraught time in our clients' lives. But for us as NJ Bankruptcy Lawyers, and for our clients, whether they chooose bankruptcy or not, it is time and effort well spent.
NJ bankruptcy, like bankruptcy elsewhere, is not simple. Embarking on it without a careful understanding is asking for trouble. You are entitled to expect that your New Jersey bankruptcy lawyer will take the time to do the job right, and explore all the problems and issues. To make this work, you need to do your part.
Unlike some others, we treat our initial meeting with you as an in-depth exploration of the problems that led you to financial trouble and the ways we can help you take back control of your life. Too often, we hear that attorneys meet with clients for the first time and give them a brief, vague and general overview of bankruptcy. We don't do that. How bankruptcy works out in practice can be very different based on the facts of your case. So, I sit down and go over some of the problems that got you here, and most importantly go over your budget and finances. I want to know how you will fare if I can remove the pressure of mounting debt for you. I want to be part of an overall solution that brings you to financial stability. I want to explore with you all your choices and options. If bankruptcy is not right for you, I will be the first to tell you.
That is why we ask our clients to fill out a worksheet with lots of yes or no questions, and a household budget. For many people, this is first time they have actually totaled up what they need to spend to keep a roof over their family's head and meet basic costs of living. The result is always illuminating. No matter what you do going forward, you need a plan. And to plan, you need to compare the money coming in to what you need to spend. Whether bankruptcy is right for you usually depends on knowing these simple facts.
The same approach works when we have a client with a business in trouble. At the end of the day, success in turning around a financial mess--whether through bankruptcy, workouts, mortgage modification, or other alternatives--depends on knowing what cash is going to come in and what money needs to be spent now and in the future.
In the initial interview, we also ask a series of carefully targeted questions. These are carefully designed from decades of experience as a NJ Bankruptcy Lawyer and as a bankruptcy trustee to spot the problems that could lie hidden until they blow up derailing our plans and our clients' prospects. We do not want that to happen., As bankruptcy lawyers, we owe that much to our client.
Lastly, we ask our prospective clients to assemble this basic information for us. It is important for them, as well as for us. We recognize it is a burden in what may be a hectic and tension-fraught time in our clients' lives. But for us as NJ Bankruptcy Lawyers, and for our clients, whether they chooose bankruptcy or not, it is time and effort well spent.
NJ bankruptcy, like bankruptcy elsewhere, is not simple. Embarking on it without a careful understanding is asking for trouble. You are entitled to expect that your New Jersey bankruptcy lawyer will take the time to do the job right, and explore all the problems and issues. To make this work, you need to do your part.
Saturday, August 13, 2011
Avoiding bankruptcy and saving your business- learning to use the parachute before you need it
A recent blog article in the New York Times reflecting on the lessons to be drawn from the stock market gyrations in the last week contained this quote: " the time to prepare for a "crisis" is long before you find yourself in one. It's not a good idea to figure out how a parachute works after you jump out of the plane." http://bucks.blogs.nytimes.com/2011/08/08/your-neglected-stock-market-backup-plan/. Right away, I was struck how central this idea is in any effort to keeping a business or a household afloat. Too often, I see people who start looking at what is wrong after the fact, when things get out of hand.
A case in point is the business owner I saw recently who only now realizes that his business is failing because he has run out of money to keep it going. Typically, he has unpaid taxes, and has been juggling demands from unpaid suppliers. It became clear after a half hour that he had no idea what his expenses were or how he could pull out of the hole he was in. Financial records were non-existent, and had been that way for a long time. He admitted he really didn't want to know, and had been "robbing peter to pay paul" for a long time.
In today's economy, staying solvent and staying afloat is most of the battle. Yet time and again I see small business owners who have never established the budgeting and financial record keeping they need to know what is going on, week to week if not day to day. These people have no idea what running their business actually costs. As a result, they can easily under-bid a contract or enter into a money losing deal. They end up losing money on each sale but "making it up on volume".
So what should be done? Set up a system of up to date money management and record keeping. Do this as soon as possible. When I have had to run a failing business as Chapter 11 trustee, I quickly learned that I needed to know what was going on as soon as it happened, because when things are tight, things can spiral out of control quickly.
It's not that hard to set up an effective system. Nowadays, even those without bookkeeping or accounting knowledge can use software like Quickbooks or even Quicken Home and Business (there are others but these are the simplest I have seen) to set up budgeting, expense and income tracking. Even if not perfect, any system is better than none. And if you have ever used a checkbook (a quaint 20th century paper based financial planning device) it is easy to get started. Better yet, get some professional help to set up one of these systems and take a course or pick up a video or book about how to use them. Guides and resources abound, on the Internet or at the library or in the bookstore.
Back to my theme. The time to do this is when you do not need it. When the business is starting up is a great time to put financial record keeping systems in place. If the business is running, there are periodic slow times. That is a great time to work on putting the financial house in order.
And there is no substitute for knowing how to use these systems yourself, at least to some degree. The successful small business owner hires skilled people to handle tasks like this, but also knows enough of the basics to take over in a pinch (again, preparing for a crisis, like when the bookkeeper quits). It's your business. You need to know how it runs.
You can do this and invest the time and effort it takes, and be on top of what is going on when the crisis hits. Or you can end up needing a bankruptcy lawyer when the accumulating waves of debt overwhelm you and things have gone past crisis to life-or-death critical. When that happens, the options narrow and the risks grow large. The time to learn how to use a parachute is before you need it.
A case in point is the business owner I saw recently who only now realizes that his business is failing because he has run out of money to keep it going. Typically, he has unpaid taxes, and has been juggling demands from unpaid suppliers. It became clear after a half hour that he had no idea what his expenses were or how he could pull out of the hole he was in. Financial records were non-existent, and had been that way for a long time. He admitted he really didn't want to know, and had been "robbing peter to pay paul" for a long time.
In today's economy, staying solvent and staying afloat is most of the battle. Yet time and again I see small business owners who have never established the budgeting and financial record keeping they need to know what is going on, week to week if not day to day. These people have no idea what running their business actually costs. As a result, they can easily under-bid a contract or enter into a money losing deal. They end up losing money on each sale but "making it up on volume".
So what should be done? Set up a system of up to date money management and record keeping. Do this as soon as possible. When I have had to run a failing business as Chapter 11 trustee, I quickly learned that I needed to know what was going on as soon as it happened, because when things are tight, things can spiral out of control quickly.
It's not that hard to set up an effective system. Nowadays, even those without bookkeeping or accounting knowledge can use software like Quickbooks or even Quicken Home and Business (there are others but these are the simplest I have seen) to set up budgeting, expense and income tracking. Even if not perfect, any system is better than none. And if you have ever used a checkbook (a quaint 20th century paper based financial planning device) it is easy to get started. Better yet, get some professional help to set up one of these systems and take a course or pick up a video or book about how to use them. Guides and resources abound, on the Internet or at the library or in the bookstore.
Back to my theme. The time to do this is when you do not need it. When the business is starting up is a great time to put financial record keeping systems in place. If the business is running, there are periodic slow times. That is a great time to work on putting the financial house in order.
And there is no substitute for knowing how to use these systems yourself, at least to some degree. The successful small business owner hires skilled people to handle tasks like this, but also knows enough of the basics to take over in a pinch (again, preparing for a crisis, like when the bookkeeper quits). It's your business. You need to know how it runs.
You can do this and invest the time and effort it takes, and be on top of what is going on when the crisis hits. Or you can end up needing a bankruptcy lawyer when the accumulating waves of debt overwhelm you and things have gone past crisis to life-or-death critical. When that happens, the options narrow and the risks grow large. The time to learn how to use a parachute is before you need it.
Tuesday, August 2, 2011
Is a bankruptcy the best way to get your mortgage modified?
Anyone interested in a mortgage modification is, by definition, someone who wants to save their home from foreclosure. Most times, they also want to avoid the "stigma" of bankruptcy. But this may be misguided.
First, most people having trouble paying their mortgage have other financial problems, such as large credit card debt. These debts can be easily "modified" through a Chapter 13 bankruptcy (often paying out a fraction of what is owed) or discharged entirely in Chapter 7. Removing this debt burden can often make the difference between losing and saving one's home.
Secondly, a effect of a bankruptcy on one's credit can be overcome over time, by careful spending and payment of debts. Compared to years of financial struggle on one's credit report, a bankruptcy's effect may not be as severe.
But most importantly, bankruptcy courts have gotten involved in the mortgage modification process, and in our experience, when courts get involved, lenders tend to pay more attention and things get done. I have seen this firsthand as a foreclosure mediator in New Jersey.
The track record of mortgage modifications to date has been dismal. Government reports on the process confirm this. Time after time, borrowers report to me that they send papers over and over. The process is glacial. The agents they are dealing with seem not to have a clue, or to care. New people who know nothing about what happened before step in and have no idea what is going on. Even when clients report they have gotten "approval" from one person, in several cases, that approval was later rescinded.
New Jersey has had a state court foreclosure mediation process. The process involves HUD qualified housing counselors, who do a great job. More importantly, lenders become accountable if they drop the ball or ignore the process. What percentage of foreclosures result in a lasting settlement is hard to say. Still the chances of success are better.
The New Jersey Bankruptcy Court has launched a Loss Mitigation Program for anyone in a bankruptcy in New Jersey, whether under Chapter 7 or 13 or another chapter. The program is only for mortgages on the debtor's principal residence. For 90 days, a borrower can request entry into the program to try to work out a mortgage modification, short sale or deed in lieu of foreclosure. The request has to be made at least 3 days before the First Meetin of creditors, which is usually about 20-30 days after the bankruptcy is filed. From there, the court can assist the process, order exchange of information, and can impose sanctions on parties who do not participate in good faith. While the process is ongoing, the borrower does have to pay at least 60% of the monthly principal and interest on the mortgage.
The Court cannot and will not impose a modification on any party, but as stated, court involvement never hurts and generally helps.
More information about the program can be found on the New Jersey Bankruptcy Court website: NJ Bankruptcy Court Loss Mitigation Program and Procedures
We can help you explore this process.
First, most people having trouble paying their mortgage have other financial problems, such as large credit card debt. These debts can be easily "modified" through a Chapter 13 bankruptcy (often paying out a fraction of what is owed) or discharged entirely in Chapter 7. Removing this debt burden can often make the difference between losing and saving one's home.
Secondly, a effect of a bankruptcy on one's credit can be overcome over time, by careful spending and payment of debts. Compared to years of financial struggle on one's credit report, a bankruptcy's effect may not be as severe.
But most importantly, bankruptcy courts have gotten involved in the mortgage modification process, and in our experience, when courts get involved, lenders tend to pay more attention and things get done. I have seen this firsthand as a foreclosure mediator in New Jersey.
The track record of mortgage modifications to date has been dismal. Government reports on the process confirm this. Time after time, borrowers report to me that they send papers over and over. The process is glacial. The agents they are dealing with seem not to have a clue, or to care. New people who know nothing about what happened before step in and have no idea what is going on. Even when clients report they have gotten "approval" from one person, in several cases, that approval was later rescinded.
New Jersey has had a state court foreclosure mediation process. The process involves HUD qualified housing counselors, who do a great job. More importantly, lenders become accountable if they drop the ball or ignore the process. What percentage of foreclosures result in a lasting settlement is hard to say. Still the chances of success are better.
The New Jersey Bankruptcy Court has launched a Loss Mitigation Program for anyone in a bankruptcy in New Jersey, whether under Chapter 7 or 13 or another chapter. The program is only for mortgages on the debtor's principal residence. For 90 days, a borrower can request entry into the program to try to work out a mortgage modification, short sale or deed in lieu of foreclosure. The request has to be made at least 3 days before the First Meetin of creditors, which is usually about 20-30 days after the bankruptcy is filed. From there, the court can assist the process, order exchange of information, and can impose sanctions on parties who do not participate in good faith. While the process is ongoing, the borrower does have to pay at least 60% of the monthly principal and interest on the mortgage.
The Court cannot and will not impose a modification on any party, but as stated, court involvement never hurts and generally helps.
More information about the program can be found on the New Jersey Bankruptcy Court website: NJ Bankruptcy Court Loss Mitigation Program and Procedures
We can help you explore this process.
Wednesday, July 13, 2011
New Jersey Appellate Division sets a higher bar for judgment in suits on unpaid credit cards
The typical suit on a credit card balance is as bare bones as you can get. Typically all the Complaint says is that money is owed on an account. Defending these suits usually falls into one of two categories, either "prove it", or "I don't owe you the money". Typically, at some point the creditor will file a motion for "summary judgment" the jist of which is that there really is no legitimate dispute of fact which needs to take up the court's time on a trial.
That is what happened when LVNV Funding sued Mary Colvel on a Citibank credit card. The trial court granted summary judgment based only on a computer-generated report that showed only a balance due and Ms. Colvel's name. But she disputed that she had gotten any bills on this card or ever had any credit card agreement with Citibank.
On appeal, the New Jersey Appellate Division reversed that judgment, and in doing so, raised the bar a considerable distance to make it harder for lenders to adopt the "because we say so" approach to credit card liability. The Appellate Division has instructed courts that in order to grant summary judgment on an unpaid revolving credit card account, they must be provided a complete account history identifying all transactions and payments or credits, all the applicable periodic rates of interest on the account, all information showing how finance charges are computed on each billing cycle, and the resulting balances. In essence, the lender has to provide the supporting billing statements.
Although this ruling follows the requirements of New Jersey court rules for a default judgment, there is a very good argument that at a contested trial, the lender will have to provide all the same proofs to obtain a judgment, if the defendant contests liability or the balance due.
This is a standard that few creditors on credit card accounts have been willing to meet. Indeed, the plaintiff is often an entity like LVNV, that bought up a lot of these accounts in bulk, and very likely did not get more than a final statement with the balance owed. Forcing the lender to clear this hurdle creates incentives for settlement.
LVNV Funding LLC v Colvell, decided July 12, 2011 and approved for publication, (Docket No. A-1313-10TC)
That is what happened when LVNV Funding sued Mary Colvel on a Citibank credit card. The trial court granted summary judgment based only on a computer-generated report that showed only a balance due and Ms. Colvel's name. But she disputed that she had gotten any bills on this card or ever had any credit card agreement with Citibank.
On appeal, the New Jersey Appellate Division reversed that judgment, and in doing so, raised the bar a considerable distance to make it harder for lenders to adopt the "because we say so" approach to credit card liability. The Appellate Division has instructed courts that in order to grant summary judgment on an unpaid revolving credit card account, they must be provided a complete account history identifying all transactions and payments or credits, all the applicable periodic rates of interest on the account, all information showing how finance charges are computed on each billing cycle, and the resulting balances. In essence, the lender has to provide the supporting billing statements.
Although this ruling follows the requirements of New Jersey court rules for a default judgment, there is a very good argument that at a contested trial, the lender will have to provide all the same proofs to obtain a judgment, if the defendant contests liability or the balance due.
This is a standard that few creditors on credit card accounts have been willing to meet. Indeed, the plaintiff is often an entity like LVNV, that bought up a lot of these accounts in bulk, and very likely did not get more than a final statement with the balance owed. Forcing the lender to clear this hurdle creates incentives for settlement.
LVNV Funding LLC v Colvell, decided July 12, 2011 and approved for publication, (Docket No. A-1313-10TC)
Friday, July 8, 2011
Mortgage Modification-little real change but continuing misconceptions
Recently, the New York Times reported that certain lenders were proactively offering modified terms to borrowers at risk. Big Banks Easing Terms on Loans Deemed as Risks. A close look however shows that lenders are still steadfastly refusing to reduce principal on loans even where the property is very much "underwater". The loans in question are those that called "option-ARM's" that were among the worst of the questionable loans sold to borrowers in the heyday of the "anything goes" mortgage frenzy.
Mortgage modification is a hope and dream of many troubled homeowners, but the process is long, involved, frustrating, and only in a small fraction of cases, in our experience, are the results lasting or worthwhile.
Here are some of the more common misconceptions:
Lenders Have to or Want to Restructure My Mortgage because I owe more than the home is worth.
Lenders do not have any obligation to restructure your mortgage. They have every legal right to pursue all their rights under the loan documents, with few exceptions. The government sponsored "HAMP" or "Making Homes Affordable" programs only offer them incentives if they agree to modify your loan. A few lenders have reached agreements with state attorneys general under which they have agreed to offer borrowers for certain high-risk and speculative mortgage loans an alternative, if they meet certain qualifications. But these are the exception not the rule.And lenders rarely if ever will agree to reduce the principal balance on the loan. Instead they may temporarily reduce the interest rate, or extend the term and/or put the arrears on the back end of the mortgage.
Even this will not happen unless you are able to show that you can afford the reduced payment on the mortgage.
Misconception: Lenders Will Modify My Mortgage Because they will be better off than going through the risk and expense of foreclosure
One would think that a lender would prefer to avoid the expense and risk of foreclosing on someone’s home. After all, the market is flooded with homes and foreclosures. And foreclosures in New Jersey are, as of this writing, taking almost 3 years to get to a sheriff sale. Even then, the lender usually gets the property back and has to sell it in a very slow and continually-declining market. So the lender will act in their own best interest and want to deal, right?
Wrong in many cases. First, the "lender" is not a bank. The loan is almost always held in a trust owned by a large pool of investors. The loan was sold off early on. The Trust is controlled by a trustee whose rights and powers are governed and limited by a Pooling and Servicing Agreement. So who are you dealing with? Usually you are dealing with a Servicer, a company that collects money on each mortgage and performs other administrative functions in handling each mortgage in the trust pool. The Servicer usually gets paid a flat fee and has no incentive deal with your problems. Also, the Servicer’s powers are governed by the Pooling and Servicing Agreement, which usually require that a mortgage in default be foreclosed.
Servicers can and do offer or consider a mortgage modification. But remember that the Servicer’s ability to settle is not under its control. For these mortgage modification programs, there are usually strict guidelines that must be followed. If you do not meet those requirements, you do not get a modification.
Even where you meet the requirements, the process is slow and uncertain. This may be due to under staffing or some other reason. You can expect to have to produce detailed documentation. What you send may very likely get lost at least once and have to be resent. You may receive contradictory instructions. You may end up dealing with different people at different times who will not know anything about your application. Literally, "the left hand does not know what the right is doing". You may or may not get approved. If you are rejected, you probably will not be given an adequate explanation. We have seen situations where people were told they were approved only to later get a rejection letter. The history of loan modifications to date is that only a small percentage of borrowers really get permanent help. You may be one of them, but the process will not be fast or easy.
Careful evaluation of all the options is key to success. Before spending time on a mortgage modification, be sure to work up a personal budget and look at all your finances. The real problem may be with an accumulation of credit card debt or other debts. And in some cases, a bankruptcy may be just what is needed to free up your income so you can keep your home. A bankruptcy can in some cases be used to remove a second mortgage or pay off arrears on a mortgage over up to five years. These are options worth considering. Seek qualified advice from an experienced attorney.
Mortgage modification is a hope and dream of many troubled homeowners, but the process is long, involved, frustrating, and only in a small fraction of cases, in our experience, are the results lasting or worthwhile.
Here are some of the more common misconceptions:
Lenders Have to or Want to Restructure My Mortgage because I owe more than the home is worth.
Lenders do not have any obligation to restructure your mortgage. They have every legal right to pursue all their rights under the loan documents, with few exceptions. The government sponsored "HAMP" or "Making Homes Affordable" programs only offer them incentives if they agree to modify your loan. A few lenders have reached agreements with state attorneys general under which they have agreed to offer borrowers for certain high-risk and speculative mortgage loans an alternative, if they meet certain qualifications. But these are the exception not the rule.And lenders rarely if ever will agree to reduce the principal balance on the loan. Instead they may temporarily reduce the interest rate, or extend the term and/or put the arrears on the back end of the mortgage.
Even this will not happen unless you are able to show that you can afford the reduced payment on the mortgage.
Misconception: Lenders Will Modify My Mortgage Because they will be better off than going through the risk and expense of foreclosure
One would think that a lender would prefer to avoid the expense and risk of foreclosing on someone’s home. After all, the market is flooded with homes and foreclosures. And foreclosures in New Jersey are, as of this writing, taking almost 3 years to get to a sheriff sale. Even then, the lender usually gets the property back and has to sell it in a very slow and continually-declining market. So the lender will act in their own best interest and want to deal, right?
Wrong in many cases. First, the "lender" is not a bank. The loan is almost always held in a trust owned by a large pool of investors. The loan was sold off early on. The Trust is controlled by a trustee whose rights and powers are governed and limited by a Pooling and Servicing Agreement. So who are you dealing with? Usually you are dealing with a Servicer, a company that collects money on each mortgage and performs other administrative functions in handling each mortgage in the trust pool. The Servicer usually gets paid a flat fee and has no incentive deal with your problems. Also, the Servicer’s powers are governed by the Pooling and Servicing Agreement, which usually require that a mortgage in default be foreclosed.
Servicers can and do offer or consider a mortgage modification. But remember that the Servicer’s ability to settle is not under its control. For these mortgage modification programs, there are usually strict guidelines that must be followed. If you do not meet those requirements, you do not get a modification.
Even where you meet the requirements, the process is slow and uncertain. This may be due to under staffing or some other reason. You can expect to have to produce detailed documentation. What you send may very likely get lost at least once and have to be resent. You may receive contradictory instructions. You may end up dealing with different people at different times who will not know anything about your application. Literally, "the left hand does not know what the right is doing". You may or may not get approved. If you are rejected, you probably will not be given an adequate explanation. We have seen situations where people were told they were approved only to later get a rejection letter. The history of loan modifications to date is that only a small percentage of borrowers really get permanent help. You may be one of them, but the process will not be fast or easy.
Careful evaluation of all the options is key to success. Before spending time on a mortgage modification, be sure to work up a personal budget and look at all your finances. The real problem may be with an accumulation of credit card debt or other debts. And in some cases, a bankruptcy may be just what is needed to free up your income so you can keep your home. A bankruptcy can in some cases be used to remove a second mortgage or pay off arrears on a mortgage over up to five years. These are options worth considering. Seek qualified advice from an experienced attorney.
Wednesday, May 11, 2011
Why the opportunity to start over through Bankruptcy is so Important to our Way of Life
There was a time when those who could not pay their debts were subject to arrest and consigned to "debtor’s prison". Indeed the first United States Bankruptcy Act of 1800 continued this practice, allowing creditors to petition to have the debtor’s home broken into, the contents and assets seized and sold, and to leave the debtor penniless. Central Virginia Community College v. Katz 546 U.S. 356, 373, 126 S.Ct. 990, 1002 (2006).
The result was that people and their families were left homeless and destitute, surviving if at all at public expense, and left unable to support themselves. No doubt many fled westward to escape their creditors. Yet in this country, entrepreneurship, and therefore willingness to take risks to achieve success, has always been respected and encouraged. It is said that many a success story is the product of lessons learned from failure.
Today, bankruptcy strikes a more reasonable balance. Those who find themselves in financial trouble can "reset" their financial condition through a bankruptcy discharge of all or a portion of their debts, and through use of exemptions to keep some types and amounts of property for themselves and their families to ensure a reasonable continued existence.. Over 75 years ago our Supreme Court noted that:,
One of the primary purposes of the bankruptcy act is to "relieve the honest debtor from the weight of oppressive indebtedness, and permit him to start afresh free from the obligations and responsibilities consequent upon business misfortunes." This purpose of the act has been again and again emphasized by the courts as being of public as well as private interest, in that it gives to the honest but unfortunate debtor who surrenders for distribution the property which he owns at the time of bankruptcy, a new opportunity in life and a clear field for future effort.
We often tell our clients that their first moral obligation is to their families and to preservation of their ability to support themselves. For business owners a shutdown and liquidation is sometimes wasteful and serves no one well.
Here is a list of 30 famous and successful people who had to file bankruptcy.
Ask yourself what would have happened had they not been able to start over.
Abraham Lincoln [ 16th President of the United States ]
John James Audubon [ Illustrated "Birds of America" ]
P.T. Barnum [ The Great American circus owner ]
John Barrymore [ Actor; Romeo & Juliet ]
Kim Basinger [ Oscar - winning actress (filed bankruptcy in 1993) ]
Frank Baum [ Wizard of Oz author ]
Melvin Belli [Famous Lawyer known as 'The King of Torts' (filed bankruptcy in 1995]
Matthew Brady [Famous US Civil War and portrait photographer (filed bankruptcy in 1872) ]
Toni Braxton [ rock star (filed bankruptcy in 1998) ]
Tia Carrere [ Actor; Wayne's World (filed bankruptcy in 1986) ]
Nell Carter [ Housekeeper on Gimme a Break (filed bankruptcy in 1995 and 2002) ]
Miguel de Cervantes [Novelist; Don Quixote ]
Samuel L. Clemens a/k/a/ "Mark Twain" [best - selling American author - humorist (filed bankruptcy in 1894)
Francis Ford Coppola [ Oscar - winning film writer - director - producer (filed bankruptcy in 1998) ]
Cathy Lee Crosby [ Actress - American Author (filed bankruptcy in 1992) ]
Daniel Defoe [Author; Robinson Crusoe ]
Walt Disney [Oscar - winning film producer, animation & theme park pioneer (when a previous ventura failed he filed bankruptcy in 1923) ]
Henry Ford [Automobile manufacturer ]
William Fox [Co-Founder of 20th Century Fox Film Corporation (filed bankruptcy in 1936) ]
Charles Goodyear [19th century American inventor, who discovered how to vulcanize rubber ]
Merle Haggard [Country music star (filed bankruptcy in 1992) ]
Dorothy Hamill [Olympic gold-medal ice-skater (filed bankruptcy in 1996) ]
H.J. Heinz [Founder of Heinz Ketchup ]
Milton Snavely Hershey [ Founder of Hershey's chocolate ]
Robert Morris [Politician who financed Revolutionary War ]
Thomas Paine [Revolutionary War "Common Sense" pamphleteer and activist ]
Debbie Reynolds [Oscar nominated actress-singer, American Author (filed bankruptcy in 1997)]
Oskar Schindler [Activist who saved over 1000 Jews from the Nazis ]
Nikola Tesla [Invented alternating current ]
Johnny Unitas [Legendary Hall of Fame football quarterback (filed bankruptcy in 1991)]
The result was that people and their families were left homeless and destitute, surviving if at all at public expense, and left unable to support themselves. No doubt many fled westward to escape their creditors. Yet in this country, entrepreneurship, and therefore willingness to take risks to achieve success, has always been respected and encouraged. It is said that many a success story is the product of lessons learned from failure.
Today, bankruptcy strikes a more reasonable balance. Those who find themselves in financial trouble can "reset" their financial condition through a bankruptcy discharge of all or a portion of their debts, and through use of exemptions to keep some types and amounts of property for themselves and their families to ensure a reasonable continued existence.. Over 75 years ago our Supreme Court noted that:,
We often tell our clients that their first moral obligation is to their families and to preservation of their ability to support themselves. For business owners a shutdown and liquidation is sometimes wasteful and serves no one well.
Here is a list of 30 famous and successful people who had to file bankruptcy.
Ask yourself what would have happened had they not been able to start over.
Abraham Lincoln [ 16th President of the United States ]
John James Audubon [ Illustrated "Birds of America" ]
P.T. Barnum [ The Great American circus owner ]
John Barrymore [ Actor; Romeo & Juliet ]
Kim Basinger [ Oscar - winning actress (filed bankruptcy in 1993) ]
Frank Baum [ Wizard of Oz author ]
Melvin Belli [Famous Lawyer known as 'The King of Torts' (filed bankruptcy in 1995]
Matthew Brady [Famous US Civil War and portrait photographer (filed bankruptcy in 1872) ]
Toni Braxton [ rock star (filed bankruptcy in 1998) ]
Tia Carrere [ Actor; Wayne's World (filed bankruptcy in 1986) ]
Nell Carter [ Housekeeper on Gimme a Break (filed bankruptcy in 1995 and 2002) ]
Miguel de Cervantes [Novelist; Don Quixote ]
Samuel L. Clemens a/k/a/ "Mark Twain" [best - selling American author - humorist (filed bankruptcy in 1894)
Francis Ford Coppola [ Oscar - winning film writer - director - producer (filed bankruptcy in 1998) ]
Cathy Lee Crosby [ Actress - American Author (filed bankruptcy in 1992) ]
Daniel Defoe [Author; Robinson Crusoe ]
Walt Disney [Oscar - winning film producer, animation & theme park pioneer (when a previous ventura failed he filed bankruptcy in 1923) ]
Henry Ford [Automobile manufacturer ]
William Fox [Co-Founder of 20th Century Fox Film Corporation (filed bankruptcy in 1936) ]
Charles Goodyear [19th century American inventor, who discovered how to vulcanize rubber ]
Merle Haggard [Country music star (filed bankruptcy in 1992) ]
Dorothy Hamill [Olympic gold-medal ice-skater (filed bankruptcy in 1996) ]
H.J. Heinz [Founder of Heinz Ketchup ]
Milton Snavely Hershey [ Founder of Hershey's chocolate ]
Robert Morris [Politician who financed Revolutionary War ]
Thomas Paine [Revolutionary War "Common Sense" pamphleteer and activist ]
Debbie Reynolds [Oscar nominated actress-singer, American Author (filed bankruptcy in 1997)]
Oskar Schindler [Activist who saved over 1000 Jews from the Nazis ]
Nikola Tesla [Invented alternating current ]
Johnny Unitas [Legendary Hall of Fame football quarterback (filed bankruptcy in 1991)]
Sunday, April 10, 2011
Walking away–the Right Way and the Wrong Way to Leave Your Home during and after a Foreclosure
Too often, a time comes when a homeowner needs to “walk away” from a home they cannot afford, and which is usually in foreclosure. This is a lot more complex legally than it might first appear. In this article, we cover what to do, and what not to do, when the time comes to move out. Generally, there are a lot of reasons to stay in a house until the sheriff’s sale, but sometimes an earlier move-out is necessary.
Keep insurance in place until you no longer own the property. If someone is hurt on the property, or a fire or other catastrophe on your property causes injury or damage to someone else’s property, you can be sued and may be liable. Until 10 days after a Sheriff’s Sale or until the deed is no longer in your name, make sure you have insurance in place for liability claims. If the lender has obtained their own insurance (called “force-placed” insurance) these policies will not cover claims against you, only damage to the property. Even if you have already filed a bankruptcy, this will not protect you against liability for something that happens on the property after you filed. Please note, however, that once the property is vacant, most insurance starts costing a lot more.
After a bankruptcy, keep paying condominium, homeowners association, and other “common area” charges until you are no longer the owner. Even a bankruptcy will not protect you against these charges assessed or incurred after the bankruptcy filing. Any of these charges owed before you file a bankruptcy can be discharged in most cases. This is an area where specialized legal advice is important.
Shut off and get final readings on all utilities. Gas and electric service should be taken out of your name as of the day you move. You should call for a final reading, and ask for a final bill. Shut off the water at the main valve. After that, open up the lowest water tap in the house to drain water from the system to prevent freezing.
Set up postal forwarding. You can do this by going to a post office and asking for a “moving kit”. This will include a postal forwarding postcard. You should do this a few days before your move. This card needs to be mailed or delivered to your local postmaster that handled your mail at your old home.
Document the condition of the home when you moved out. Take digital rictures of the inside or outside. You may need this later for a variety of purposes.
Take all your personal and property records with you. You will likely need them.
Lock the doors and windows, and tell the lender and the local authorities. You remain responsible for the home, and can be issued a citation for local code violations (such as overgrown grass or other violations) UNLESS you take certain steps. Under New Jersey Statutes 46:10B-51, once a foreclosure has been filed, the lender is obligated or liable for any condition on the property that is a nuisance or in violation of any state or local code. So, as soon as possible AFTER you have completely moved out everything you want to keep, you need to write to the lender, the police, and the local housing code official telling them that you have moved out, that the property is vacant and abandoned, and that a foreclosure has been filed. Make sure the letter identifies the foreclosure docket number, the property address, the loan account number, and states who has the keys. We recommend you send this certified mail to the lender, lender’s attorney, local police and local housing code official. Send the keys to the lender’s attorney. Of course, keep a copy of the letter, and record the certified mail numbers for future reference. (Make sure you put your new address on the green card so you get it.). However, it does not hurt to let the lender know when you will be moving out, a few days in advance. If they want to take over the utilities etc, there is no harm in that, but you will still want to get final reads. Finally, if you have a trusted neighbor, you might want to let that person know where you will be.
DO NOT strip or remove anything that is permanently attached to the property. Removing toilets, built in appliances, or anything else that is permanently attached to the property might create legal problems for you in the future.
DO NOT damage the property needlessly. See above.
Get qualified legal advice. If you are in this situation, you should have already obtained legal advice. Just moving out is not always the end of the legal and tax issues that can arise.
Keep insurance in place until you no longer own the property. If someone is hurt on the property, or a fire or other catastrophe on your property causes injury or damage to someone else’s property, you can be sued and may be liable. Until 10 days after a Sheriff’s Sale or until the deed is no longer in your name, make sure you have insurance in place for liability claims. If the lender has obtained their own insurance (called “force-placed” insurance) these policies will not cover claims against you, only damage to the property. Even if you have already filed a bankruptcy, this will not protect you against liability for something that happens on the property after you filed. Please note, however, that once the property is vacant, most insurance starts costing a lot more.
After a bankruptcy, keep paying condominium, homeowners association, and other “common area” charges until you are no longer the owner. Even a bankruptcy will not protect you against these charges assessed or incurred after the bankruptcy filing. Any of these charges owed before you file a bankruptcy can be discharged in most cases. This is an area where specialized legal advice is important.
Shut off and get final readings on all utilities. Gas and electric service should be taken out of your name as of the day you move. You should call for a final reading, and ask for a final bill. Shut off the water at the main valve. After that, open up the lowest water tap in the house to drain water from the system to prevent freezing.
Set up postal forwarding. You can do this by going to a post office and asking for a “moving kit”. This will include a postal forwarding postcard. You should do this a few days before your move. This card needs to be mailed or delivered to your local postmaster that handled your mail at your old home.
Document the condition of the home when you moved out. Take digital rictures of the inside or outside. You may need this later for a variety of purposes.
Take all your personal and property records with you. You will likely need them.
Lock the doors and windows, and tell the lender and the local authorities. You remain responsible for the home, and can be issued a citation for local code violations (such as overgrown grass or other violations) UNLESS you take certain steps. Under New Jersey Statutes 46:10B-51, once a foreclosure has been filed, the lender is obligated or liable for any condition on the property that is a nuisance or in violation of any state or local code. So, as soon as possible AFTER you have completely moved out everything you want to keep, you need to write to the lender, the police, and the local housing code official telling them that you have moved out, that the property is vacant and abandoned, and that a foreclosure has been filed. Make sure the letter identifies the foreclosure docket number, the property address, the loan account number, and states who has the keys. We recommend you send this certified mail to the lender, lender’s attorney, local police and local housing code official. Send the keys to the lender’s attorney. Of course, keep a copy of the letter, and record the certified mail numbers for future reference. (Make sure you put your new address on the green card so you get it.). However, it does not hurt to let the lender know when you will be moving out, a few days in advance. If they want to take over the utilities etc, there is no harm in that, but you will still want to get final reads. Finally, if you have a trusted neighbor, you might want to let that person know where you will be.
DO NOT strip or remove anything that is permanently attached to the property. Removing toilets, built in appliances, or anything else that is permanently attached to the property might create legal problems for you in the future.
DO NOT damage the property needlessly. See above.
Get qualified legal advice. If you are in this situation, you should have already obtained legal advice. Just moving out is not always the end of the legal and tax issues that can arise.
Saturday, March 26, 2011
Force-placed insurance: when your lenders buys your insurance for you it is not doing you any favors
Mortgage lenders are entitled to require that you insure the home or other real estate that you gave them as collateral when you signed the mortgage. For most people, they buy this insurance themselves, or pay the premiums as part of the "escrow" that the lender collects with the mortgage payment.
Rightly or wrongly, the lender may purchase "force placed" insurance. When this happens, you pay a lot more for a lot less. And as a recent New York Times article explains, if the lender did not and should not have bought this policy for you, prompt, well-documented and aggressive action is essential, but even that may not be enough. NY Times, 3-26-11 "Insurance Dictated by the Bank".
Why does this happen? The borrower may have fallen behind on mortgage payments, and the lender, not having gotten payment for insurance premiums, lets the existing relatively cheap homeowners insurance policy lapse, then buys its own policy. Or the borrower may have moved out of the property, and the insurer cancels the homeowner's policy due to enhanced risk. Or the lender may have no right to buy insurance because insurance is in place and paid for.
If you are the homeowner, you should have received notice of any insurance cancellation. If so, you need to act quickly to stop the cancellation. Even if the home is in foreclosure, you as the owner need to have insurance in place until sheriff's sale or until you no longer own the property. You need this to protect you against possible future claims and suits. You need this insurance even if you have filed for bankruptcy. If for example, your home is vacant and burns down after your bankruptcy is filed, damaging your neighbors home, they will have a claim against you and you can expect to defend a lawsuit. Because such post-petition claims are not discharged in bankruptcy, you will have no protection, and will have to pay your own legal fees to defend yourself, not to mention any judgment or verdict against you.
So before your insurance is canceled, consider paying the premium yourself if you are not paying the mortgage payments. If the lender has received payment for such insurance, they are supposed to pay the premium for you. After all you paid for it.
What if the insurance has not been canceled but the lender says you have no insurance and will buy its own policy? You need to act promptly. You need to protest in writing with proof that insurance is in place. And you need to document, by a certified mail receipt or otherwise, that the lender got your notice. And you need to keep all these records.
If you find that your insurance was canceled without notice to you, the cancellation may not be valid, You will need to protest in writing to the lender and your insurance agent, demanding proof of service and reinstatement. You also need legal advice.
If the lender goes ahead and without just cause buys its own policy, you need to keep protesting, because the lender is going to add the additional cost to what you owe on your mortgage. And at that point, you need to seek legal advice. We have been able to get the costs of the wrongfully placed and unnecessary insurance removed from the arrearage or balance the lender claims as due.
Even if you have moved out or expect to be moving out of the property, and will never have to pay the money owed to the lender, you must still be concerned. The policy the lender buys will provide no coverage for you. All it insures is the value of the real estate with any payout only to the lender. Any equity in the property remains uninsured. If your furniture or property is lost, stolen or damaged, you will have no insurance. If someone is injured on the property or it causes damage to their property, (or even if they make a groundless claim against you), you will be uninsured, and you will have to pay for your legal defense out of your own pocket.
As the author of the article cited above shows, getting the lender to back off when they falsely claim insurance is needed is not always simple or easy. But action is essential.
Rightly or wrongly, the lender may purchase "force placed" insurance. When this happens, you pay a lot more for a lot less. And as a recent New York Times article explains, if the lender did not and should not have bought this policy for you, prompt, well-documented and aggressive action is essential, but even that may not be enough. NY Times, 3-26-11 "Insurance Dictated by the Bank".
Why does this happen? The borrower may have fallen behind on mortgage payments, and the lender, not having gotten payment for insurance premiums, lets the existing relatively cheap homeowners insurance policy lapse, then buys its own policy. Or the borrower may have moved out of the property, and the insurer cancels the homeowner's policy due to enhanced risk. Or the lender may have no right to buy insurance because insurance is in place and paid for.
If you are the homeowner, you should have received notice of any insurance cancellation. If so, you need to act quickly to stop the cancellation. Even if the home is in foreclosure, you as the owner need to have insurance in place until sheriff's sale or until you no longer own the property. You need this to protect you against possible future claims and suits. You need this insurance even if you have filed for bankruptcy. If for example, your home is vacant and burns down after your bankruptcy is filed, damaging your neighbors home, they will have a claim against you and you can expect to defend a lawsuit. Because such post-petition claims are not discharged in bankruptcy, you will have no protection, and will have to pay your own legal fees to defend yourself, not to mention any judgment or verdict against you.
So before your insurance is canceled, consider paying the premium yourself if you are not paying the mortgage payments. If the lender has received payment for such insurance, they are supposed to pay the premium for you. After all you paid for it.
What if the insurance has not been canceled but the lender says you have no insurance and will buy its own policy? You need to act promptly. You need to protest in writing with proof that insurance is in place. And you need to document, by a certified mail receipt or otherwise, that the lender got your notice. And you need to keep all these records.
If you find that your insurance was canceled without notice to you, the cancellation may not be valid, You will need to protest in writing to the lender and your insurance agent, demanding proof of service and reinstatement. You also need legal advice.
If the lender goes ahead and without just cause buys its own policy, you need to keep protesting, because the lender is going to add the additional cost to what you owe on your mortgage. And at that point, you need to seek legal advice. We have been able to get the costs of the wrongfully placed and unnecessary insurance removed from the arrearage or balance the lender claims as due.
Even if you have moved out or expect to be moving out of the property, and will never have to pay the money owed to the lender, you must still be concerned. The policy the lender buys will provide no coverage for you. All it insures is the value of the real estate with any payout only to the lender. Any equity in the property remains uninsured. If your furniture or property is lost, stolen or damaged, you will have no insurance. If someone is injured on the property or it causes damage to their property, (or even if they make a groundless claim against you), you will be uninsured, and you will have to pay for your legal defense out of your own pocket.
As the author of the article cited above shows, getting the lender to back off when they falsely claim insurance is needed is not always simple or easy. But action is essential.
Sunday, February 20, 2011
With almost 3 years from mortgage default to foreclosure sale, borrowers benefit but we all lose
Recently on these pages I reviewed a recent New Jersey Appellate Division ruling that makes mortgage lenders "dot their i's and cross their t's" to prove that they have the right to foreclose. This, along with recent scandals about "robo-signing", the flood of foreclosures, and budget cutbacks in state government, has created an enormous foreclosure backlog statewide.
The extent of the problem is astonishing. Recently, a respected partner at one of New Jersey's largest foreclosure law firms told me that statewide it is taking an average of three years from the start of the foreclosure process to foreclosure sale. I recently came across a February 12, 2011 article in the Press of Atlantic City which confirmed this. Quoting statistics compiled by Realty Trac, the article by Business Editor Kevin Post notes that in the last quarter of 2010 it is taking 849 days from the initial court filing to the date of property repossession. (Press of Atlantic City, "Bottom Lines: Foreclosures in New Jersey now take an average of 849 days").
For the homeowners whose home is being foreclosed, this is a boon of sorts. For up to three years, they enjoy the benefit of living in their home "rent free". And if the mortgage is a first mortgage, the chances of their ever being pursued for any unpaid balance after the home is sold are slim, due to a short time for the lender to file such suits (called deficiency actions), and the cloud on title any such suit will place on the property which the lender has sold or will want to sell as soon as possible.
For many borrowers, this allows them time to put their financial house in order, and to accumulate the cash they will need to move and pay rental security deposits.
For the rest of us in the long term, the result is nothing to be glad about. While there are a lot of reasons for the current mess and a lot of blame to go around, in the long run it is the investors in these bad mortgages, and also the rest of us who are fortunate enough not to be facing foreclosure, who will be the ones to pay the piper. That home mortgage financing might not be available to everyone who applies is not necessarily a bad thing. A return to the more careful and stringent lending that was the norm 25 years ago would not be a bad thing. Due to securitization, the pain of the resulting losses is spread among a large number of investors. However, those investors likely include pension funds and for them the losses will be felt down the road by the pensioners whose money is not there when they need it. To the extent the investors in these bad loans include mutual funds that you or I might have invested in, the pain comes back to us.
Most importantly, where is the money for the home loans of the future going to come from? The investors in today's bad mortgages were willing to invest because they were told the investment was safer than it really was, and because they were willing to ignore risk because it was spread out by pooling of larges numbers of individual loans into multi-tiered investment trusts. Given the painful dose of reality now upon us, one can hardly be surprised if future investors in mortgage loans are going to extract a higher risk premium which will then translate into higher cost for borrowers of the future.
This will help to depress the real estate market for a long time to come. The real estate boom of recent years was fueled by an influx of lots of money trying to find a place to invest. This made it easier for less and less qualified borrowers, to buy real estate. That larger pool of buyers increased demand greater than the supply of real estate to purchase. Thus, prices rose. And these price increases led to a self-fulfilling expectation of ever-rising future prices that fuelled more and more speculative buying and borrowing.
Now, just the opposite has happened. Everyone expects that prices will continue falling. That expectation keeps buyers out of the market waiting for the bottom. The bottom will be reached when the prices are low enough to attract enough buyers (besides just well-heeled bottom-fishing investors and those who can pay large sums of cash) so that demand equals supply. Attracting those additional buyers requires availability of financing. If money is harder or more expensive to come by, that will inevitably delay the day when we reach the real estate bottom.
Another cost to all of us derives from having houses in foreclosure for years at a time. Financially strapped homeowners knowing they will not be keeping their homes are not going to improve them. That improvement is one factor that increases property values. They will also defer needed maintenance. This is how neighborhoods and ultimately communities deteriorate. The effects are going to be long-lasting.
And of course, lower property values ultimately yield lower property taxes paid to local government, already hard-hit. Higher tax rates or larger budget deficits have to follow. Less money for schools and needed services means lower property values and a lower quality of life for all of us. Higher taxes will solve that problem, but higher taxes decrease property values.
The ripples of the current crisis are widespread and will be with us for a long time. The solutions will require some major adjustments in the system of mortgage lending, and some creative and cooperative thinking by both the borrower and lender communities. Whether this will happen anytime soon is very much in doubt. My experience is that lenders, constrained by pooling agreements which have no provision for dealing with these types of problems, cannot or will not consider deals that given the reality on the ground make good business sense. Sensible proposals which would have given bankruptcy courts the power to deal with this mess have been vigorously fought by the lending community. Regulations that might prevent a repeat of the speculative bubble that got us here are being fought by the same interest groups. What is clear is that business as usual has to change. Whether that will happen anytime soon is anybody's guess.
The extent of the problem is astonishing. Recently, a respected partner at one of New Jersey's largest foreclosure law firms told me that statewide it is taking an average of three years from the start of the foreclosure process to foreclosure sale. I recently came across a February 12, 2011 article in the Press of Atlantic City which confirmed this. Quoting statistics compiled by Realty Trac, the article by Business Editor Kevin Post notes that in the last quarter of 2010 it is taking 849 days from the initial court filing to the date of property repossession. (Press of Atlantic City, "Bottom Lines: Foreclosures in New Jersey now take an average of 849 days").
For the homeowners whose home is being foreclosed, this is a boon of sorts. For up to three years, they enjoy the benefit of living in their home "rent free". And if the mortgage is a first mortgage, the chances of their ever being pursued for any unpaid balance after the home is sold are slim, due to a short time for the lender to file such suits (called deficiency actions), and the cloud on title any such suit will place on the property which the lender has sold or will want to sell as soon as possible.
For many borrowers, this allows them time to put their financial house in order, and to accumulate the cash they will need to move and pay rental security deposits.
For the rest of us in the long term, the result is nothing to be glad about. While there are a lot of reasons for the current mess and a lot of blame to go around, in the long run it is the investors in these bad mortgages, and also the rest of us who are fortunate enough not to be facing foreclosure, who will be the ones to pay the piper. That home mortgage financing might not be available to everyone who applies is not necessarily a bad thing. A return to the more careful and stringent lending that was the norm 25 years ago would not be a bad thing. Due to securitization, the pain of the resulting losses is spread among a large number of investors. However, those investors likely include pension funds and for them the losses will be felt down the road by the pensioners whose money is not there when they need it. To the extent the investors in these bad loans include mutual funds that you or I might have invested in, the pain comes back to us.
Most importantly, where is the money for the home loans of the future going to come from? The investors in today's bad mortgages were willing to invest because they were told the investment was safer than it really was, and because they were willing to ignore risk because it was spread out by pooling of larges numbers of individual loans into multi-tiered investment trusts. Given the painful dose of reality now upon us, one can hardly be surprised if future investors in mortgage loans are going to extract a higher risk premium which will then translate into higher cost for borrowers of the future.
This will help to depress the real estate market for a long time to come. The real estate boom of recent years was fueled by an influx of lots of money trying to find a place to invest. This made it easier for less and less qualified borrowers, to buy real estate. That larger pool of buyers increased demand greater than the supply of real estate to purchase. Thus, prices rose. And these price increases led to a self-fulfilling expectation of ever-rising future prices that fuelled more and more speculative buying and borrowing.
Now, just the opposite has happened. Everyone expects that prices will continue falling. That expectation keeps buyers out of the market waiting for the bottom. The bottom will be reached when the prices are low enough to attract enough buyers (besides just well-heeled bottom-fishing investors and those who can pay large sums of cash) so that demand equals supply. Attracting those additional buyers requires availability of financing. If money is harder or more expensive to come by, that will inevitably delay the day when we reach the real estate bottom.
Another cost to all of us derives from having houses in foreclosure for years at a time. Financially strapped homeowners knowing they will not be keeping their homes are not going to improve them. That improvement is one factor that increases property values. They will also defer needed maintenance. This is how neighborhoods and ultimately communities deteriorate. The effects are going to be long-lasting.
And of course, lower property values ultimately yield lower property taxes paid to local government, already hard-hit. Higher tax rates or larger budget deficits have to follow. Less money for schools and needed services means lower property values and a lower quality of life for all of us. Higher taxes will solve that problem, but higher taxes decrease property values.
The ripples of the current crisis are widespread and will be with us for a long time. The solutions will require some major adjustments in the system of mortgage lending, and some creative and cooperative thinking by both the borrower and lender communities. Whether this will happen anytime soon is very much in doubt. My experience is that lenders, constrained by pooling agreements which have no provision for dealing with these types of problems, cannot or will not consider deals that given the reality on the ground make good business sense. Sensible proposals which would have given bankruptcy courts the power to deal with this mess have been vigorously fought by the lending community. Regulations that might prevent a repeat of the speculative bubble that got us here are being fought by the same interest groups. What is clear is that business as usual has to change. Whether that will happen anytime soon is anybody's guess.
Wednesday, February 2, 2011
Who can foreclose in New Jersey? The Appellate Division makes lenders "Dot your i's and cross your t's"
On January 28, 2011, the New Jersey Appellate Division, in Wells Fargo Bank N.A. v Ford, 2011 WL 250561 answered the question that has led to differing results in New Jersey state and federal courts: What does a mortgage lender have to prove in order to be allowed to foreclose on a mortgage? The controversy centers on whether the the Plaintiff who has filed the foreclosure has to prove it is the current "holder" of the Note or otherwise entitled to enforce it under the requirements of the Uniform Commercial Code's Article 3, or whether it can get by using "equitable principles". The answer is now that Article 3 is what has to be followed.
In a mortgage loan, the borrower signs an "IOU", usually called a Mortgage Note, promising to repay the loan. To "secure" this promise, the borrower also signs a Mortgage which when recorded makes the title to the real estate subject to a valid lien or "security interest". Although a foreclosure is an action against the real estate based on the mortgage (and commonly for non-business transactions not a suit to collect directly from the borrowers until after a sheriff sale) the party that files for foreclosure must be the party that has the rights to enforce the Note. Because the Note is commonly "negotiable", ie can be sold or transferred, Article 3 of the Uniform Commercial Code applies.
In Ford, the Note had been signed in favor of Argent Mortgage Company. The loan was then "securitized" or sold off in bulk to investors through a trust. Typically, these loans are managed by a servicing company hired by the trustee of the trust. Wells Fargo filed the foreclosure as trustee of that trust. The borrower, however, filed an Answer and Counterclaim alleging among other things that Argent had committed fraud and engaged in predatory lending in making the mortgage loan, and that Wells Fargo was not the party that had the right to foreclose on it. In response, Wells Fargo filed a motion for summary judgment (ie judgment on the papers without a trial). In support it produced an affidavit from a supervisor for a company acting as agent for the servicintg company that was acting as agent for Wells Fargo. Without saying how he got this knowledge or supplying a copy of an assignment or endorsed Note, this person baldly asserted that Wells Fargo was the holder and owner of the Note and Mortgage. Only much later did Wells Fargo's attorneys produce what purported to be a written assignment to Wells Fargo from Argent.
After the lower court ruled for Wells Fargo, Ms. Ford filed an appeal. The Appellate Division held that Wells Fargo had not met its burden of proving its right to foreclose under Article 3 of the UCC. The foreclosure was not dismissed, but was sent back to the lower court for Wells Fargo to attempt to put together its proofs and prove its case properly.
This was not entirely a win for the borrower, but the decision laid out a definitive and binding roadmap of what is required. The court laid out three ways in which Wells Fargo to prove its right to foreclose. First, it could present the original Note endorsed over to it and prove that it had possession of the Note. (a common everyday form of endorsement is when you "sign over" a check payable to you to someone else by signing "Pay to the Order of.." that person on the back). Wells Fargo had gotten the Note, but it had never been endorsed over. For this reason, the "lost note" option did not apply. The only other way Wells Fargo could make its case was to show that it had gotten possession of the Note from Argent along with the lawful rights to collect or enforce the Note. Here, Wells Fargo did produce an assignment. What it did not do was supply an affidavit from a witness that this document was authentic. In short, Wells Fargo had not proven its case the right way. That requires an affidavit or testimony from someone with personal knowledge (showing under oath how he/she got such knowledge) that the assignment was "authentic" and that possession had been given lawfully with intent that Wells Fargo be able to collect and enforce the Note.
In other words, Wells Fargo had not presented proof from a credible and knowledgeable witness whose testimony met the requirements of evidence rules. At best, the borrower won on a "technicality", and Wells Fargo, duly instructed, will no doubt "dot its i's and cross its t's" in short order.
The message however is that in New Jersey, lenders need to do just that.
The borrower did win something valuable. Wells Fargo originally said that it was not subject to Ms. Ford's fraud and predatory lending claims because it was a "holder in due course" that got the Note before it had any notice of those claims, and was in essence, an "innocent buyer" and those claims need to be pursued only against Argent. Not so fast, the Appellate Division noted. By the time Wells Fargo had gotten its assignment, it knew about Ms. Ford's claims and those did not acquire the Note and Mortgage without notice of what it was buying.
Kudos to Margaret Jurow from the Legal Services of New Jersey Predatory Lending Unit for taking this case on and up to the Appellate Division. We expect that lenders have already started preparing their cases more carefully. However, it has long been an open secret sloppy practices reigned, that home mortgages were bought and sold without attention to details, and that the original documents are not always ready at hand if they could be found. Thus, borrowers facing foreclosure will have a binding ruling that will support their demands that foreclosing lenders prove their case. Whether in any one case this is wise or worthwhile, achieving anything other than delaying the day of reckoning, remains to be seen.
In a mortgage loan, the borrower signs an "IOU", usually called a Mortgage Note, promising to repay the loan. To "secure" this promise, the borrower also signs a Mortgage which when recorded makes the title to the real estate subject to a valid lien or "security interest". Although a foreclosure is an action against the real estate based on the mortgage (and commonly for non-business transactions not a suit to collect directly from the borrowers until after a sheriff sale) the party that files for foreclosure must be the party that has the rights to enforce the Note. Because the Note is commonly "negotiable", ie can be sold or transferred, Article 3 of the Uniform Commercial Code applies.
In Ford, the Note had been signed in favor of Argent Mortgage Company. The loan was then "securitized" or sold off in bulk to investors through a trust. Typically, these loans are managed by a servicing company hired by the trustee of the trust. Wells Fargo filed the foreclosure as trustee of that trust. The borrower, however, filed an Answer and Counterclaim alleging among other things that Argent had committed fraud and engaged in predatory lending in making the mortgage loan, and that Wells Fargo was not the party that had the right to foreclose on it. In response, Wells Fargo filed a motion for summary judgment (ie judgment on the papers without a trial). In support it produced an affidavit from a supervisor for a company acting as agent for the servicintg company that was acting as agent for Wells Fargo. Without saying how he got this knowledge or supplying a copy of an assignment or endorsed Note, this person baldly asserted that Wells Fargo was the holder and owner of the Note and Mortgage. Only much later did Wells Fargo's attorneys produce what purported to be a written assignment to Wells Fargo from Argent.
After the lower court ruled for Wells Fargo, Ms. Ford filed an appeal. The Appellate Division held that Wells Fargo had not met its burden of proving its right to foreclose under Article 3 of the UCC. The foreclosure was not dismissed, but was sent back to the lower court for Wells Fargo to attempt to put together its proofs and prove its case properly.
This was not entirely a win for the borrower, but the decision laid out a definitive and binding roadmap of what is required. The court laid out three ways in which Wells Fargo to prove its right to foreclose. First, it could present the original Note endorsed over to it and prove that it had possession of the Note. (a common everyday form of endorsement is when you "sign over" a check payable to you to someone else by signing "Pay to the Order of.." that person on the back). Wells Fargo had gotten the Note, but it had never been endorsed over. For this reason, the "lost note" option did not apply. The only other way Wells Fargo could make its case was to show that it had gotten possession of the Note from Argent along with the lawful rights to collect or enforce the Note. Here, Wells Fargo did produce an assignment. What it did not do was supply an affidavit from a witness that this document was authentic. In short, Wells Fargo had not proven its case the right way. That requires an affidavit or testimony from someone with personal knowledge (showing under oath how he/she got such knowledge) that the assignment was "authentic" and that possession had been given lawfully with intent that Wells Fargo be able to collect and enforce the Note.
In other words, Wells Fargo had not presented proof from a credible and knowledgeable witness whose testimony met the requirements of evidence rules. At best, the borrower won on a "technicality", and Wells Fargo, duly instructed, will no doubt "dot its i's and cross its t's" in short order.
The message however is that in New Jersey, lenders need to do just that.
The borrower did win something valuable. Wells Fargo originally said that it was not subject to Ms. Ford's fraud and predatory lending claims because it was a "holder in due course" that got the Note before it had any notice of those claims, and was in essence, an "innocent buyer" and those claims need to be pursued only against Argent. Not so fast, the Appellate Division noted. By the time Wells Fargo had gotten its assignment, it knew about Ms. Ford's claims and those did not acquire the Note and Mortgage without notice of what it was buying.
Kudos to Margaret Jurow from the Legal Services of New Jersey Predatory Lending Unit for taking this case on and up to the Appellate Division. We expect that lenders have already started preparing their cases more carefully. However, it has long been an open secret sloppy practices reigned, that home mortgages were bought and sold without attention to details, and that the original documents are not always ready at hand if they could be found. Thus, borrowers facing foreclosure will have a binding ruling that will support their demands that foreclosing lenders prove their case. Whether in any one case this is wise or worthwhile, achieving anything other than delaying the day of reckoning, remains to be seen.
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