Kevin's Corner
Practice Management Tip on Weapons that Remain in Mortgage Battle
"Too often, we find ourselves in the position of having little or no leverage where home mortgage claims are involved. Unless, and until, the proposed amendment to the Bankruptcy Code is enacted, bankruptcy courts have no power to revise the terms of our clients' home mortgage loans—and saving the home is one of the primary concerns of many Chapter 13 clients.
"It's important to remember, though, that revising the terms of the loan isn't the only way to protect your client's interests. Mortgage lenders and servicers, like so many in the consumer credit industry, have been playing fast and loose with accounts. That's bad news for our clients when they're dealing directly with those creditors, but it can be good news in bankruptcy court.
"Scour the records, and you may be surprised at what you find. For example:
- Sloppy documentation as accounts are sliced, diced, shifted and traded may mean that the creditor staking a claim in your case can't document his interest.
- Most mortgage claims include unauthorized fees, many of which are facially outrageous.
- A single letter or telephone call can open the door to an adversary proceeding.
"Judges in at least five states have said that lost note affidavits won't cut it, and at least one state's attorney general has tackled the issue. Don't assume that because mortgage holders have gotten away with fudging the records in the past, it's not worth challenging now. Once you've found the chink in the mortgage holder's armor—and given the state of the mortgage servicing industry today, there is virtually always a chink—you can pry open the door to settlement negotiations that may win your clients benefits the bankruptcy court can't offer directly."
- Kevin Chern
President, Start Fresh Today
Bankruptcy Legislation Updates
In order to curb abusive credit card practices, U.S. federal regulators are set to adopt stringent restrictions to make it more difficult for credit card companies to raise interest rates on existing customers. The new standards will apply to over 16,000 companies and will represent the largest change to the industry in a generation.
SFT Product Features
Learn more about what Start Fresh Today's products can do for you and your clients.
Free Product Demos: To schedule a free demo of our products, simply fill out our Demo Request Form and choose a time from our schedule of sessions that works best for you.
Prepay Functionality Program: Save yourself some time by purchasing a set amount of our products in advance each month. Get started with this quick and easy form or by contacting Rori Endick at 954-377-9051.
New Attorney Referrals: Learn how you can receive five free debtor education courses by using our new attorney referral program. For more information contact Rori Endick at 954-377-9051.
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Bankruptcy Article of the Week
Bankruptcy Bill Back on the Table as Foreclosures Continue to Mount
Since the fall of 2007, Sen. Dick Durbin (D-Ill), U.S. Rep. Brad Miller (D-NC) and others have been pushing for a simple change to the U.S. Bankruptcy Code—a change that will do little more than correct what most of us already see as an anomaly and may help to stem the tide of home mortgage foreclosures across the country.
The bill, which is a mere three pages long, would make certain voluntary provisions of the Emergency Economic Stabilization Act of 2008 mandatory, but it is aimed primarily at revising bankruptcy law to allow bankruptcy courts to modify claims secured by the debtor's principal residence. In other words, bankruptcy courts will rewrite home loans in the same manner that the courts already rewrite automobile and other secured loans, including real property mortgages secured by property other than the debtor's principal residence.
We know all too well the number of prospective – or actual – Chapter 13 filers who set out to save their homes but simply can't manage the payments mandated by the current limitations on the bankruptcy courts' discretion. It appears that borrowers participating in voluntary modification programs are facing the same problem: Statistics released last week by the Office of the Comptroller of the Currency show that more than half of modified loans were back in default within six months. While there is disagreement as to the reasons for the failure rate, it is clear that something more is required.
In addition, we can expect the number of foreclosures to increase dramatically if recent predictions by Credit Suisse are on target. Credit Suisse is predicting that 8.1 million homes will go into foreclosure over the next four years. That's 16 percent of U.S. home mortgages, and a dramatic increase compared with the same company's projections just eight months ago. Credit Suisse further predicts that if home values continue to decline, an increasing number of U.S. homeowners will simply walk away from their investments.
Nonetheless, lenders remain strongly opposed to Durbin's proposed revision. The Mortgage Bankers Association has fought passage of the bill every time it's been introduced, and even has a "Stop the Bankruptcy Cramdown Resource Center" on its Web site. The Resource Center includes a calculator for each state, showing the impact of the increase in interest rates mortgage lenders would be "forced" to require if bankruptcy courts were granted this authority.
Despite the opposition, the outlook for passage of the bill is brighter than it has been before. Durbin and Miller announced last week that the rising rate of foreclosures in the United States would be their top priority in January, and the new balance in the legislature should provide additional support for their efforts.
The legislators estimate that about one-third of families facing foreclosure could be helped directly by the bankruptcy courts—that's potentially more than 2.5 million families over the next four years. But the benefits might also extend to families not filing for bankruptcy protection, since awareness of the ability of the bankruptcy courts to make these modifications might create an incentive for banks to negotiate with homebuyers directly, perhaps before the delinquency has reached the crisis point.
The Numbers Game on Consumer Bankruptcy Filings
Here's some of the latest bankruptcy-related figures to be aware of:
- Bankruptcy filings for U.S. consumers increased by 39.2 percent in November for the same period one year ago.
- November consumer filings totaled 99,925. This represents a slight decrease from the October filings which numbered 106,266.
- Even with the slight decrease in U.S. consumer bankruptcy filings, we are still poised to see almost 1.1 million new cases filed prior to the end of this year. This number represents the highest figure in filings since Congress adopted new bankruptcy laws in 2005.
On the Bankruptcy Calendar
Some bankruptcy-related events to keep in mind for the upcoming months include:
- Northeast Consumer Winter Forum, Boston, Mass., January 19, 2009;
- Rocky Mountain Bankruptcy Conference, Denver, Colo., January 22-23, 2009;
- Atlanta Consumer Bankruptcy Skills Training, Atlanta, Ga., January 28 & June 4, 2009;
- 17th Annual Convention, Chicago, Ill., May 29-31, 2009.
