July 1, 2009
Modifying Mortgage Loans?
Months ago, there was hope
that Washington would provide a change in bankruptcy law to allow the modification of some mortgages in bankruptcy to make
mortgages more affordable. That didn't happen. But is it possible to ever modify a mortgage loan?
For
many clients, I recommend visiting the IowaMortgageHelp.com website for up-to-date information about negotiating with mortgage
lenders. But if they can't help, then sometimes it is possible to modify a mortgage in a Chapter 13 bankruptcy.
Chapter 13 is a bankruptcy in which the debtor makes payments through a bankruptcy trustee for three to five years.
If you owe more on your mortgages than your house is worth, you may be able to reduce the total mortgage debt down to the
amount of the current value of your home. Each case is different, so talk to your bankruptcy lawyer to see if this
is possible for you.
May 25, 2008 How Attorneys Decide What to Charge
Attorneys make assumptions about what potential clients want. Some attorneys assume that clients are
mostly motivated by price. While that certainly is an important issue for people already having financial troubles,
what clients most want, and need, is good representation. That means personal attention from the lawyer and the lawyer's
experienced, helpful staff.
Attorneys who engage in discount pricing are usually doing no favor for their clients
or themselves. They assume that all potential clients will decide who to hire based on price alone. Because
of this belief, these attorneys decide to do one of two things: either make bankruptcy a small (and less profitable) part
of their larger practices, or build a volume bankruptcy practice. No client should want to hire an attorney who
does few bankruptcies and who sees that aspect of the practice as less profitable. Volume practices, meanwhile, are
only viable in large metropolitan areas, and it is a fact that a low fee necessarily means a brief amount of "face
time" with the attorney.
Higher priced attorneys, on the other hand, should not be assumed to be better. Someone
considering hiring an attorney should, if possible, choose a lawyer based on reputation. Family, friends, and trusted
attorneys are good sources of information. And there is nothing wrong with meeting with more than one attorney for
free consultations. Meeting more than one attorney will allow the client to pick an attorney who they trust to give
the best representation possible.
I think bankruptcy representation is very reasonably priced compared to other services. Divorce
and other family law matters, criminal representation, and other common services usually cost considerably more than a bankruptcy,
and with much less predictable results.
May 25, 2008
Zombie Debt
Zombie debt
is debt that is discharged in bankruptcy, or otherwise unenforceable, but refuses to die. This has become an increasingly
common problem. The constant buying and selling of debts on a volume basis means that debt buyers (debt collectors)
don't check or don't care that the debt isn't enforceable. Several years ago I had someone visit me with a problem. There
was a credit card he last paid on about fifteen years before. Now he was being called by a collector from Florida. I called
the collector, explained that Iowa has a 10 year statute of limitations on contractual debts, and he told me "surely,
counselor, you're not telling me that just because your client isn't legally responsible to pay this debt, that he isn't
morally responsible to pay it." I laughed. People don't come to lawyers for lessons on morals, and debt collectors
are in no position to lecture on personal ethics.
Sometimes, zombie debt can be truly and permanently killed by a
simple call or letter from a lawyer. Sometimes, however, it takes lawsuits or repeated disputes to the
major credit bureaus to protect your credit. This is a sad fact of life -- illegal conduct by creditors and debt collectors
is common, and there is no easy way to combat it.
May 25, 2008
Real Estate Title Problem After Bankruptcy
Here's one of the more annoying problems for people who successfully
completed their bankruptcy cases and the lawyers who represented them. Here's how it usually starts for me. "Hi,
I'm Bob Smith, and you probably don't remember me but you did a bankruptcy case for me about 4 years ago, and I'm being
told that there was something not done in the bankruptcy and now I can't sell/refinance my home." I look up Bob's
information, and tell him what someone should have told him instead of saying I didn't do a good job. The issue is complicated,
however, and takes time to explain.
When someone files for bankruptcy, he or
she is discharging his or her personal obligation to pay the debt.
There is no effect on liens, like mortgages and auto loan security interests. Sometimes, people
have been sued and had court judgments entered against them before the bankruptcy is filed. In that case, under Iowa law
there is a judgment lien against any real estate the debtor owns
or has any partial interest in (such as being the spouse of someone who owns
real estate) in the county where the judgment is filed. Bankruptcy doesn't get rid of a judgment lien
unless a motion to avoid the judgment lien is filed in the bankruptcy case.
If there
are judgment liens, then we routinely file motions to avoid those liens.
The problem arises when the debtor did not own any real estate when the bankruptcy was
filed, but later buys real estate or gets married to someone who owns real estate. During the bankruptcy, we can't file
a motion because there is no lien to avoid since there is no real estate.
The first time the debtor or the spouse tries to sell or refinance,
the title examiner discovers there is a court judgment, and it appears to be a lien against the
real estate. The title examiner does not know there was a bankruptcy case which discharged the debt. Iowa law clearly states that the judgment
is not a lien against property acquired after the judgment debt was discharged in bankruptcy.
This is inconvenient for clients, since the issue
usually is first raised at a real estate closing or immediately before. It is embarrassing, and
I can understand how someone feels when this arises, such as when a new spouse is told the client's bankruptcy is messing
up the spouse's real estate transaction. Unfortunately, there appears to be no way around this problem, other than for me
to write to various persons explaining the issue and citing the law. We just have to deal with it when it arises.
This may be a problem only in Iowa, since Iowa is the only state which
actually requires real title examinations to make sure that there are no
title problems with real estate. But that is another issue I don't intend to get into.
April 20, 2008
Negotiating with Mortgage Lenders
Consumer
bankruptcy attorneys have known for some time that negotiating with mortgage
lenders, their servicing agents, and their attorneys is hard and has been getting harder. Getting
payoff balances, cure balances, or any kind of numbers is frustrating, to say the least. For
a discussion of the problems in negotiating with mortgage lenders, go here:
www.creditslips.org/creditslips/2008/04/negotiating-wit.html.
This should be a wake-up call for anyone hoping that
they can work it out on their own with their lender. Certainly, homeowners should be burning up
the phones until they get what they want, but frequently, I see people who put all their hopes in
getting a deal on the phone, and wait too long and let the mortgage foreclosure
go too far to recover in bankruptcy.
