Can Borrowers Last Without Default? The word amongst the attorneys I have spoken to this week was that perhaps millions of mortgage borrowers - both those already years into modifications as well as new borrowers - cannot last 3 months without a sufficient paycheck. Defaults Inevitable months without a sufficient paycheck. The action of the big 3 mortgage purchasers recognizes this inevitability and certainly a cessation of foreclosure filing on a delinquent loan will act to soften the blow. But these borrowers are still going to be in default and subject to foreclosure when the moratorium is lifted. What then? Solutions? Possible solutions: Reset the mortgage. Allow catch up payments using a very reasonable formula (24 months?). Move the delinquency to the end of the term of the mortgage or add the delinquency to the principal and recast the balance. Perhaps other suggestions from my readers? Those affected need to revisit the issues surrounding Short Sales, Loan Modification, Foreclosure, Deed In LIeu of Foreclosure, and any host of other work out arrangements.
The Difference Between a Reverse Mortgage Foreclosure and a Traditional Mortgage Foreclosure In a traditional residential foreclosure, the lender typically proceeds based upon a default in payments. In other words, the borrower is behind in the monthly payments and has not brought the loan current after a request to do so. In a reverse mortgage, the borrower does not make monthly payments, so the reason for default is different. Under North Carolina General Statute 53-267, there are six different ways that a lender can establish a default in the reverse mortgage. Those six triggering events are as follows: 1. Borrower fails to maintain the property; or 2. Borrower sells the property or conveys title to a third party; or 3. Death of the borrower and no surviving spouse uses the property as a primary residence; or 4. Borrower fails to reside in the property as the primary residence for a period of twelve (12) consecutive months due to a physical or mental illness; or 5. For reasons other than physical or mental illness, borrower fails to use the property as the primary residence for a period of 180 consecutive days, and the property is not used as the primary residence of at least one other borrower, and the lender has not given written permission to abandon the property as the primary residence; or 6. Borrower fails to maintain property taxes, property insurance, and/or property assessments. Areas of Note in Reverse Mortgage Foreclosures in North Carolina I have found that a fair number of reverse mortgage foreclosures are filed because of simple oversight. For example, reverse mortgage lenders send out a notice once a year asking the borrower to certify that the property is still being used as a primary residence. If this form is not completed and sent back to the lender, a default notice may be mailed for failure to occupy the property as the primary residence. The borrower may be living in the home and still get a notice that the loan is in default. Other common issues arise regarding property taxes and payment of insurance premiums. In many cases, these payments have been made but the lender is not aware. Good record keeping can help the borrower in many of these situations. Even though there are more ways for a reverse mortgage to be declared in default, North Carolina does offer the borrower some protection not offered in a typical residential foreclosure. One such example of this is found in North Carolina General Statute 53-268. This statute requires a lender to provide at least ninety (90) days’ notice to a borrower before initiating a foreclosure. The traditional mortgage foreclosure brought under Chapter 45 of the North Carolina general statutes permits half that time. In addition to any requirements under state law, a large percentage of reverse mortgages are backed, owned, or controlled by investors that require additional steps to be taken by a lender before foreclosing on a reverse mortgage. If you are a senior and find yourself in the unfortunate situation of defending against a foreclosure of a reverse mortgage, it is important to seek the advice of an attorney that understands these issues to make sure your rights are protected. The highly skilled and experienced team of attorneys at McGrath & Spielberger, PLLC are here to help when you need legal assistance. If you are facing a reverse mortgage foreclosure or have been sent a notice of default for a reverse mortgage, please complete our confidential client intake form today.
Natonstar Mortgage LLC, v. MacPherson In Nationstar Mortgage LLC v. MacPherson, 2017 NY Slip Op 27120 (Sup. Ct. Suff. Co. April 3, 2017) the court examined whether a Statute of Limitations defense barred further foreclosure proceedings based on the plaintiff*s filing of an earlier foreclosure complaint more than 6-years prior to the institution of the current foreclosure complaint. The Court held it was not! The MacPherson*s borrowed $1,495,000 from Nationstar Mortgage, LLC on July 25, 2006. Defendants defaulted on July 1, 2007. Plaintiff*s predecessor, Aurora Loan Servicing, LLC commenced foreclosure proceedings on Oct. 30, 2007. That matter concluded through failure of the bank to prosecute the action. That case began more than 6-years before the new foreclosure was started. On Sep. 17, 2014, the bank, via Nationstar Mortgage, LLC, filed a new foreclosure action. Defendant answered, asserting various defenses and counterclaims, including a statute of limitations defense. Among the affirmative defenses, defendants challenged plaintiff*s lacked standing (2nd Affirmative Defense). Additionally, although the mortgage instrument provided that Defendants could cure a default and reinstate the loan at any time by paying the accrued arrears, they advanced a statute of limitations defense under CPLR Sec. 213 (3rd Affirmative Defenses). The Court ultimately decided that the statute of limitations was not actionable because of the fact that acceleration of the debt was neither automatic upon the filing of a foreclosure complaint, nor unequivocal, given the unusual scope of rights granted to defendants under the mortgage instrument in question. Essentially, the court reasoned that because the *lender*s right to accelerate* was expressly made subject to the borrower*s right, per paragraph 19 of the mortgage, to cure the default, have the mortgage reinstated and resume making payments, it was not really an acceleration. The ability to resume making monthly payments by curing the defaults was a right conferred to borrower * so the acceleration of the mortgage was therefore not *unequivocal* as required under Albertina. Defendant*s Standing Arguments As has been the trend in recent years, the Court gave short shrift to defendant*s standing challenges, stating in essence that *the attachment of a duly indorsed mortgage note to [plaintiff*s] complaint or to the certificate of merit required by CPLR 3012-b, coupled with an affidavit in which it alleges that it had possession of the note prior to the commencement of the action, has been held to constitute due proof of the note prior to the commencement of the action and thus its standing to prosecute its claim for foreclosure and sale.* Nationstar Mtge., LLC v. Catizone, 217 AD3d 1151 (2005). "Either a written assignment of the underlying note or the physical delivery of the note to the plaintiff, prior to the commencement of the action, is sufficient to transfer the obligation.* See Emigrant Bank v. Larizza 123 Ad3d 904, 905 (2nd Dept 2015); Wells Fargo Bank, N.A. v. Parker, 125 AD3d 848 (2d Dept 2015); U.S. Bank N.A. v. Guy, 125 AD3d 845 (2015). The court went on: *The plaintiff may also establish its standing by demonstrating that it Continued... it is the holder of the mortgage note within the contemplation of the Uniform Commercial Code. Holder status is established where the plaintiff possesses a note that, on its face or by allonge, contains an endorsement in blank or bears a special endorsement payable to the order of the plaintiff. See UCC 1-201, 3-202, 3-204; Hartford Acc. & Indem. Co. v. American Express Co., 74 NY2d 153, 159 (1989). A "holder" is "the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession." UCC 1-201 [b] . Notably, "the holder of an instrument whether or not he is the owner may .*.*. enforce payment in his own name." UCC 3-301; Wells Fargo Bank, NA v. Ostiguy, 127 AD3d 1375 (3d Dept 2015). "*'Bearer' means a person in possession of a negotiable instrument." UCC 1-201 [b] , and where the note is indorsed in blank, it may be negotiated by delivery alone. See UCC 3-202 ; 3-204 ). "An indorsement in blank specifies no particular indorsee and may consist of a mere signature" and "[a]n instrument payable to order and indorsed in blank becomes payable to bearer and may be negotiated by delivery alone until specially indorsed.* UCC 3-204 . JPMorgan Chase Bank, N.A. v. Weinberger, 142 AD3d 643, 645 (2016), supra [internal quotation marks omitted]).* Thus, the Court concluded that plaintiff had established standing to the Court*s satisfaction. Defendant*s Statute of Limitations Arguments "Once a mortgage debt is accelerated, 'the borrowers' right and obligation to make monthly installments ceased and all sums [become] immediately due and payable,' and the six-year Statute of Limitations begins to run on the entire mortgage debt." EMC Mtge. Corp. v. Patella, 279 AD2d at 605, citing Federal Natl. Mtge. Assn. v. Mebane, 208 AD2d 892 (2d Dept 1994). Notice to the borrower to accelerate the entire amount of the mortgage debt must be "clear and unequivocal." Sarva v. Chakravorty, 34 AD3d 438, 439 (2d Dept 2006). The Court further noted that: *The rules stated above emanate from the seminal mortgage acceleration case of Albertina Realty Co. v. Rosbro Realty Corp., 258 NY 472 (1932). Therein, the lender filed a foreclosure action after the borrower failed to make a timely installment payment. The borrower tendered the late payment three days after the action was filed but prior to service of the pleadings. The lender refused payment arguing that the complaint had accelerated the entire debt. The mortgage contained a strict statutory acceleration clause found in Real Property Law **258, schedule M. Id. at 474. The Court of Appeals agreed and held that the lender had elected to exercise its right to accelerate. The Court described the acceleration clause as "a fair and legal contract which the parties to the mortgage had a right to enter into." Id. at 475. Importantly, the Court noted that "[t]he agreement does not provide what the holder of the mortgage must do to evidence its election to declare the whole amount due. Such a provision could have been embodied in the contract if the parties had so desired." Id. at 475-476. Continued... Since that time, numerous cases have relied upon the holding in Albertina, that the commencement of a prior foreclosure action starts the running of the statute of limitations. See Clayton Natl. v. Guldi, 307 AD2d 982 (2d Dept 2003); Federal Natl. Mtge. Assn. v. Mebane, 208 AD2d 892 (1994); See also U.S. Bank N.A. v. Martin, 144 AD3d 891 (2d Dept 2016); PSP-NC, LLC v. Raudkivi, 138 AD3d 709 (2d Dept 2016). However, as noted in Albertina, "[t]he parties to the mortgage in question were not limited to the use of the form of acceleration clause contained in the mortgage in question." Albertina at 476. In the instant case, the parties did not choose to use the statutory form of acceleration set forth in Real Property Law **258, schedule M or N. cf. Charter One Bank, FSB v. Leone, 45 AD3d 958 (3d Dept 2007).* Justice Whelan then took a close look at the acceleration provisions of the mortgage: "22. Lender's Rights If Borrower Fails to Keep Promises and Agreements. Except as provided in Section 18 of this Security Instrument, if all of the conditions stated in subsections (a), (b) and (c) of this Section 22 are met, Lender may required that I pay immediately the entire amount then remaining unpaid under the Note and under this Security Instrument. Lender may do this without making any further demand for payment. This requirement is called 'Immediate Payment in Full.' "If Lender requires Immediate Payment in Full, Lender may bring a lawsuit to take away all of my remaining rights in the Property and have the property sold. At this sale Lender or another Person may acquire the Property. This is known as 'Foreclosure of Sale.' In any lawsuit for Foreclosure and Sale, Lender will have the right to collect all costs and disbursements and additional allowances allowed by Applicable Law and will have the right to add all reasonable attorneys' fees to the amount I owe Lender, which fees shall become part of the Sums Secured. "Lender may require immediate Payment in Full under this Section 22 only if all of the following conditions are met: "(a) I fail to keep any promise or agreement made in this Security Instrument or the Note, including, but not limited to, the promises to pay the Sums Secured when due, or if another default occurs under this Security Instrument; "(b) Lender sends to me, in the manner described in Section 15 of this Security Instrument, a notice that states: "(1) The promise or agreement that I failed to keep or the default that has occurred; "(2) The action that I must take to correct that default; "(3) The date by which I must correct the default. That date will be at least 30 days from the date on which the notice was given; "(4) That if I do not correct the default by the date stated in the notice, Lender may require immediate Payment in Full and Lender or another Person may acquire the Property by the means of Foreclosure and Sale; "(5) That if I meet the conditions stated in Section 19 of this Security Instrument, I will have the right to have Lender's enforcement of this Security Instrument stopped and to have the Note and this Security Instrument remain fully effective as if Immediate Payment in Full had never been required; and Continued.... and "(6) That I have the right in any lawsuit for Foreclosure and Sale to argue that I did keep my promises and agreements under the Note and under this Security Instrument, and to present any other defenses that I may have; and "(c) I do not correct the default stated in the notice from lender by the date stated in that notice.*.*. . "19. Borrower's Right to Have Lender's Enforcement of this Security Instrument Discontinued. Even if Lender has required Immediate Payment in Full, I may have the right to have enforcement of this Security Instrument stopped. I will have this right at any time before the earliest of: (a) five days before sale of this property under any power of sale granted by this Security Instrument; (b) another period as Applicable law might specify for the termination of my right to have enforcement of the Loan stopped; or (c) a judgment has been entered enforcing this Security Instrument. In order to have this right, I will meet the following conditions: "(a) I pay to Lender the full amount that then would be due under this Security Instrument and the Note as if Immediate Payment in full had never been required; "(b) I correct my failure to keep any of my other promises or agreements made in this Security Instrument; "(c) I pay all of Lender's reasonable expenses in enforcing this Security Instrument including, for example, reasonable attorneys' fees, property inspection and valuation fees, and other fees incurred for the purpose of protecting lender's interest in the Property and rights under this Security Instrument; and "(d) I do what Lender reasonably requires to assure that lender's interest in the Property and rights under this Security Instrument and my obligations under the Note and under this Security Instrument continue unchanged. "Lender may require that I pay the sums and expenses mentioned in (a) through (d) in one or more of the following forms, as selected by Lender: (a) cash; (b) money order; (c) certified check, bank check, treasurer's check or cashier's check drawn upon an institution whose deposits are insured by a federal agency, instrumentality or entity; or (d) Electronic Funds Transfer. "If I fulfill all of the conditions in this Section 19, then this Security Instrument will remain in full effect as if Immediate Payment in Full had never been required. However, I will not have the right to have Lender's enforcement of this Security Instrument discontinued if Lender has required Immediate Payment in Full under Section 18 of this Security Instrument." (Emphasis added.) Here, the lender bargained away its right to demand payment in full simply upon a default in an installment payment or the commencement of an action and has afforded the borrower greater protections than that set forth in the statutory form of an acceleration clause under Real Property Law **258 or under the holding in Albertina. As set forth by the Court of Appeals in W.W.W. Assoc. v. Giancontieri, 77 NY2d 157, 162 (1990), "[a] familiar and eminently sensible proposition of law is that, when parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms." Continued... As with any other contractual option, the holder of an option may be required to exercise an option to accelerate the maturity of a loan in accordance with the terms of the mortgage. Wells Fargo Bank, N.A. v. Burke, 94 AD3d at 983. "A party who executes a contract is presumed to know its contents and to assent to them." Nerey v. Greenpoint Mtge. Funding, Inc., 144 AD3d 646, 648 (2d Dept 2016).* Thus, Justice Whelan concluded that the specific mortgage instrument in question did not lead the Court to conclude that the prior action was the kind of clear and unequivocal acceleration needed to trigger the applicable 6-year statute of limitations and to bar a subsequent mortgage foreclosure action. As a slight consolation, the Court limited recovery on the mortgage note to those installments accruing after Sep. 17, 2008, the 6-years preceding institution of the instant action.
What's Happening Lender loan modifications could become serious again - provided the mortgage is owned by Goldman Sachs. Recently reported in the Wall Street Journal, Goldman has been put in a unique position of profiting by giving loan modifications. By both complying with the outline of the 2016 government settlement that requires that it provide $1.8 billion in consumer relief, such as loan modifications, and by making those loan modifications, it has planned to profit handsomely. REQUIRED RELIEF FOR DELINQUENT BORROWERS Under the government settlement, which required Goldman to pay a fine, the mortgage modifications could be re-valued (as a performing loan) and then a credit taken by Goldman against the payment of the settlement fine. For example, in 2016 Goldman modified 100 loans and sought a credit against the fine for $2 million. That's $20,000 per loan in breaks for borrowers. The profit aspect comes from the cost difference between what Goldman acquired the mortgage for and what the modified loan is now worth. BONUS PROFIT How? First of all, Goldman had no inventory of residential mortgages since they sold their inventory to investors during the heyday of the mortgage run up. So to be able to provide benefits to borrowers, Goldman has to acquire mortgages. According to the article, Goldman Sachs has spent as of the 1st quarter of 2017 $4.5 billion purchasing delinquent mortgages from Fannie Mae, and more from other private investors as well as Freddie Mac. Once it owns the delinquent mortgage, rather than foreclose it, Goldman tries to modify the mortgage with the borrower - provided the borrower shows an ability to make timely payments on the modified mortgage to "season" the mortgage with a good payment history. And it makes money doing it. If for example there is a mortgage with a face amount of $200,000 that is 4 years delinquent, Goldman may pay $150,000 for that mortgage. Goldman then modifies the mortgage by forgiving the delinquent mortgage unpaid interest and maybe reducing the debt to $180,000. The borrower starts paying the new payment and the loan is now valued at $180,000 principal and an interest stream of say 4%, resulting in a real value of $190,000. This is a $40,000 gain for Goldman - or 26% profit. According to the article, after the modified mortgage is seasoned, Goldman then re-sells the modified mortgage to investors - at a profit of usually 5 to 15% on the purchase price. Or Goldman can just keep the modified mortgage and then keep the loan on its books at the increased value. QUALIFY FOR A LOAN MODIFICATION One of the issues of course is that loans to be modified can only be successful if the borrower pays consistently for a period of time - the period of time can vary and the longer the modified loan is seasons the higher the premium a new investor will pay for the modified mortgage. The good news for delinquent borrowers is that if their loan is now acquired by Goldman Sachs, and if the borrower is financially able to pay a modified mortgage payment, there is a good chance of a nice modification. The borrower needs to determine who the owner of the mortgage is. Goldman is not using its name as the owner of the mortgages. Instead they use a company called MTGLQ Investors LP, as reported in the Wall Street Journal article. So borrowers should look for this name as the owner of the mortgage on their home. WHO IS MTGLQ INVESTORS LP? Once the mortgage is identified as owned by MTGLQ Investors LP (which is short for mortgage liquidation), the borrower should be sure to apply for a loan modification. Goldman is incentivized to make the modification. The only unknown variable is the amount the loan will be modified and what the terms of the modification will be (such as interest rate reduction, loan principal amount reduction, extension of term of loan). You may be able to get this information by making a Qualified Written Request. Good Luck!
How the Sausage is Made The rise of short sale transactions has brought a portion of the IRS code to the forefront of many taxpayers' minds. In what seems like kicking a person when they are down, a person who has a debt cancelled generally owes tax on that "gift", causing an unexpected tax bill for thousands of people each year. This is commonly known as Cancellation of Debt Income and it must be included in a taxpayer's gross income. Any creditor who cancels a debt of $600.00 or more must report this through IRS Form 1099-C. Short sellers who did not receive good legal advice have been surprised the January following their short sale to receive a 1099-C stating they received taxable "income" of $40,000, $80,000 or in some cases $200,000. For someone in the 15% tax bracket a $60,000 debt forgiveness could have triggered a $9,000 tax liability. Most people I know who do a short sale do not have $9,000 laying around or they would not be a short sale client! The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualify for this relief. This provision applies to debt forgiven in calendar years 2007 through 2014. It was later extended for 2015 and through the 2016 Omnibus Appropriations Bill passed December 18, 2015 the exemption was extended for 2016 and 2017. What is the Law IRS 26 U.S. Code ? 108 - Income from discharge of indebtedness (a) Exclusion from gross income (1) In general Gross income does not include any amount which (but for this subsection) would be includible in gross income by reason of the discharge (in whole or in part) of indebtedness of the taxpayer if-- (A) the discharge occurs in a title 11 case, (B) the discharge occurs when the taxpayer is insolvent, (C) the indebtedness discharged is qualified farm indebtedness, (D) in the case of a taxpayer other than a C corporation, the indebtedness discharged is qualified real property business indebtedness, or (E) the indebtedness discharged is qualified principal residence indebtedness which is discharged before January 1, 2015. 2016 Omnibus Bill H.R. 2029 Enacted December 18, 2015 (p.824-825) SEC. 151. EXTENSION AND MODIFICATION OF EXCLUSION FROM GROSS INCOME OF DISCHARGE OF QUALIFIED PRINCIPAL RESIDENCE INDEBTEDNESS. (a) EXTENSION. - Section 108(a)(1)(E) is amended by striking ''January 1, 2015'' and inserting ''January 1, 2017''. (b) MODIFICATION. - Section 108(a)(1)(E), as amended by subsection (a), is amended by striking ''discharged before'' and all that follows and inserting ''discharged-- ''(i) before January 1, 2017, or ''(ii) subject to an arrangement that is entered into and evidenced in writing before January 1, 2017.''. (c) EFFECTIVE DATES. - (1) EXTENSION. - The amendment made by subsection (a) shall apply to discharges of indebtedness after December 31,2014. (2) MODIFICATION. - The amendment made by subsection (b) shall apply to discharges of indebtedness after December
There are several different chapters of bankruptcy for consumers and businesses. Learn if bankruptcy is the right solution for managing your debt.
1. GET WHAT YOU PAY FOR AND DON'T SETTLE FOR LESS Your lawyer should spend time with you. It is lawyer's job to know your debts and know about your income and expenses. At some law firms the majority of the work is done by paralegals with only a few minutes with a lawyer. 1. GET WHAT YOU PAY FOR AND DON'T SETTLE FOR LESS, Continued You should have an experienced lawyer who analyzes your situation and lays out the options available to you. This way, you are the one who makes an informed decision. With proper legal advice, you can best decide to file a Chapter 7 or a Chapter 13 or not file anything. The best decision is with full information with guidance of a lawyer. A good and experienced bankruptcy lawyer lays out options and gives advice and does not merely sell to close a dealt. 1. GET WHAT YOU PAY FOR AND DON'T SETTLE FOR LESS, Continued You should expect a lawyer to prepare the petition and all schedules and then review it with you. Putting together the paperwork takes legal knowledge to know what parts are important and make sure nothing is missed. 1. GET WHAT YOU PAY FOR AND DON'T SETTLE FOR LESS, Continued Your consultation should be free or very low cost; it should be confidential. Options should be explained so you can make an informed decision. Do pay money until you have decided to actually file a case. Chapter 7 You should know and agree to the actual fee and costs before signing documents. The lawyer's fee is a flat fee plus court costs. Generally the agreement provides for a small down payment to actually file the Chapter 7. If a lawyer wants the full fee paid before filing remember creditors can come after you while you are raising the money to pay the lawyer. After the case is filed your lawyer should follow up with creditors and take action if a creditor harasses you. Chapter 13 Most of the items above are the same for a Chapter 13. But, there is a lot of additional work since you are going through a multi-year payment plan. You want to be sure you have a lawyer that will be with you from the start of the case until it over. 2. A TRUE BANKRUPCY "EXPERT Although the rules governing lawyers prohibit Bankruptcy lawyers from calling him/herself experts, you want someone who concentrates on Bankruptcy law. You want to know that your lawyer knows all aspects of Bankruptcy Code and how long has the firm been helping people with financial problems. 2. A TRUE BANKRUPTCY "EXPERT, continued Avoid lawyers who will only file Chapter 7 cases. You want all options explained to you so you can intelligently choose whether to file a Chapter 7, Chapter 13, or no case at all? Avoid lawyers that only file bankruptcy cases as a portion of their business. They may know how to handle an easy case, but they won't know the ins and outs of the whole process. 3. UP TO DATE ON CHANGES IN THE BANKRUPTCY LAW. There are constant changes and new interpretations of the law. The interpretations come from local Bankruptcy judges to the Appellate courts and even to the United States Supreme Court. They also come from Congress when they can actually get something passed. 3. UP TO DATE ON CHANGES IN THE BANKRUPTCY LAW., Continued You want a lawyer who reads and reviews new decisions and attends Continuing Legal Education classes in the fields on Bankruptcy and Consumer. A good sign is that the lawyer is a member AVVO.com and a member of the National Association of Consumer Bankruptcy Attornesy (NACBA). 4. DON'T GET RUN THROUGH A BANKRUPTCY MILL There are firms that churn and burn cases with little regard to a client's specific need. Unfortunately it is "Buyer Beware." If your initial consultation is handled by a paralegal and the lawyer only meets with you for 10 minutes, you are probably at a mill. During the course of a Chapter 7 or Chapter 13 if you have questions or problems will you are able to discuss this with a lawyer? 5. COMFORTABLE RELATIONSHIP You must be comfortable with your lawyer. Does the lawyer care about you and care about what is best for you, or does he/she just cares about getting you sign the contract? A Chapter 7 case generally lasts 4 to 5 months. But a Chapter 13 case generally lasts 3 to 5 years. Will your lawyer be there with you through the entire case and after?
Does the Lien Exist? The Florida statute of repose deals with how long a mortgage lien exists. This week we received a release of a mortgage lien that had expired - after we threatened to sue the lender for slander of title. This is not an isolated situation. The expiration of a mortgage lien happens all the time and typically neither the lender nor the borrower realizes it Case Example In this case the promissory note and mortgage were signed on July 1, 2007 and the mortgage and note said the loan was due in 1 year, so let's call it July 1, 2008. The mortgage was on property not owned by the borrower, but by someone willing to use their real estate for collateral for the promissory note. Just a few payments were made and then payments stopped. In August 2014 the borrower and the lender signed an extension agreement for the note and mortgage. It should be noted that the mortgagor, who was not the borrower, did not sign the extension agreement. The Problem The problem is that the mortgage lien expired by operation of law (not by some device the real estate owner had to affirmatively do). When I say it expired - it ceased to exist. After the lien ceased to exist, the lien that no longer existed could not be extended. Instead it would have to be a new lien, and it would have to be signed by the real property owner, not just the signor of the promissory note. Statute of Repose In our case the lien ceased to exist on July 2, 2014, which is the one year plus the 5 years under the Florida statute of repose (Florida Statute 95.281). Although the extension could have been used if filed before the expiration of the lien, in this case it was not and therefore it was ineffective to revive the already expired mortgage. The extension was effective to extend the term of the promissory note however. In our case the extension did not affect our clients since they were not the borrower in the promissory note. End Result The end result was had the lender not recorded the extension agreement, the mortgage would have been legally of no further effect and a quiet title case may not have been necessary. Here, because of the recording of the extension agreement mentioning the legal description of the mortgage, the title became "slandered" or clouded and it had to be cleared with a quiet title action with a claim of slander of title. In a slander of title case, the winning party gets attorney fees. You can read about the difference between the statute of repose and the statute of limitations in my article explaining the concept of eliminating your mortgage in QUIET TITLE TO ELIMINATE YOUR MORTGAGE - FLORIDA STATUS. See links at the end of this article. Stay Alert for Opportunities This type of situation happens most often with private loans - not institutional bank loans. That being said, short term loans from banks seem to also fall into this expired position every so often. You need to be able to recognize when this type of situation may be ripe for some action by the property owner - and lenders need to be vigilant to not let their collateral slip away by inaction.
Personal Liability Most people will obtain a short sale approval that relieves them of any outstanding balance, this is sometimes called a deficiency waiver--this waives your personal liability to repay the bank for the shortage, but it does trigger tax implication. If the bank will not relieve you from personal liability, it does not trigger a tax implication and credit liability varies person to person. Tax Liability If the bank waives personal liability or the remaining ("deficiency") balance, it triggers a tax liability question. Most people qualify for a tax shield under the insolvency portion of the tax code and do not pay any taxes on a short sale. A homeowner's tax shield has been used in the past, but there is not one active now, although it could be reinstated retroactively and was done this way for 2014 in 2015. As always, on tax implications, please consult with your tax accountant or attorney. Credit Liability If your deficiency is waived, the Short Sale lender will report that the loan was paid off less than the full balance or that the loan was settled. In 2015, this means you will not qualify for traditional financing to buy another home for 3-4 years after closing, although some lenders have programs where you qualify immediately or sooner after closing on a short sale. f the deficiency was not waived, then the loan will remain open--if you do not pay on the open balance, it could turn into a collection on your account. Seller Incentive Sometimes, but not always, and at the Short Sale Lenders choice, sellers are given a seller incentive or cash at close, it varies from 750.00 to as much as 40,000.00, average is between 3,000.00 and 10,000.00. If you have liens or judgments against you personally, sometimes the bank allows the incentive to be applied towards these. If you do have judgments or liens that exceed the cost of the incentive, it may be possible to close if you waive the incentive or were not awarded an incentive. Other considerations Prior to issuance of the approval letter, you need to know where will you live immediately after the short sale has closed (you will have 15-40 days from short sale approval issuance and closing to move out) and then can you stay there while credit repairs? Do you have money set aside to pay for expenses the bank will not cover, like water bills, assessments, etc., or will bank or buyer reconsider and pay it? Also, make sure to monitor your credit to make sure that the short sale was reported properly, you should see a change in reporting in 3 to 6 months or sooner.
In a Chapter 20 bankruptcy, you file Chapter 7 first, and then Chapter 13. Some debtors have financial problems that are not completely solved by either a Chapter 7 or Chapter 13 bankruptcy. In certain situations, filing a Chapter 13 bankruptcy immediately after completing a Chapter 7 bankruptcy, informally referred to as "Chapter 20," might provide more relief than filing a Chapter 7 or Chapter 13 alone. This article discusses some of the pros and cons of filing Chapter 7 and Chapter 13 bankruptcy, how Chapter 20 bankruptcy works, and how a Chapter 20 can help in certain situations. Pros and Cons of Only Filing for Chapter 7 Bankruptcy Chapter 7 bankruptcy has its benefits and detriments. If you qualify to file a Chapter 7 and don't have non-exempt assets that you want to keep, the benefits are obvious. Under Chapter 7: o you receive your discharge quickly, o you discharge unsecured debts without tying up your income for the next three to five years, and o there are no debt limits to qualify. However, there are some things Chapter 7 bankruptcy cannot do. Under Chapter 7: o you can't force creditors to allow you to cure a mortgage or car loan arrearage over time o you can't force creditors to give you extra time to pay non-dischargeable debts, and o you can't strip unsecured second mortgages. Pros and Cons of Only Filing for Chapter 13 Bankruptcy Under a Chapter 13, you benefit because you can: o force creditors to allow you to cure a mortgage or car loan arrearage over time o force creditors to give you extra time to pay non-dischargeable debts, and o strip unsecured second mortgages. The detriments of a Chapter 13 are that: o you do not receive your discharge quickly o you commit to a plan that ties up your income for three to five years, and o you are not eligible if you exceed the debt limits. How a Chapter 20 Bankruptcy Works Chapter 20 generally refers to a situation where a Chapter 13 is filed right after your Chapter 7 is completed. Some courts even allow the Chapter 13 to be filed after the Chapter 7 discharge is granted but before the case is closed. When you file a Chapter 13 after a Chapter 7 without waiting four years, you cannot receive a discharge in the Chapter 13 but there are other benefits that might fit your situation. When Is a Chapter 20 Helpful? You need the extra time but have too much debt. If you need the extra time to cure an arrearage on a mortgage or car loan but your overall debt exceeds the debt limits under Chapter 13, filing a Chapter 7 first might help. By filing the Chapter 7, you can reduce your overall debt. Then, with your debt load reduced, you may be able to qualify for Chapter 13. Although you won't be able to get a second discharge in the Chapter 13, the second bankruptcy filing will give you extra time to cure the arrearage on your mortgage or car loan or to pay down debts that were not eligible for discharge under the Chapter 7, such as tax debt. You need to have more money available to apply to an arrearage or non-dischargeable debt. By filing a Chapter 7 first, you may be able to reduce your unsecured debt so that more of your income is available to pay the arrearage or non-dischargeable debt. This can allow you to: o reduce the length of your Chapter 13 plan period o cure a higher arrearage amount, or o pay larger tax debts through the plan. You want to utilize lien stripping. Some courts allow you to strip off completely unsecured second mortgages through Chapter 13 bankruptcy. The bankruptcy courts are not all in agreement on this so it would be best to check with an experienced bankruptcy lawyer in your area if this is your purpose for following a Chapter 7 with a Chapter 13