Grossbart on Bankruptcy Law

Telephone Consumer Protection Act (TCPA) Class Action Settlement against Debt Collection Agency

The TCPA protects consumers from receiving unauthorized automated dialer telephone calls to their cell phone. In the case Adams., v. Alliance One Receivables Management, Inc., a settlement was reached between $1 and $9 million depending on the size of the class. Who said consumer protection attorneys can't do good and also get paid?

EARLY MEDIATION IN FORECLOSURE COMING IN 2012

The Maryland General Assembly recently passed legislation to further help homeowners avoid foreclosure through mediation.  Two years ago Maryland passed a law allowing homeowners to request mediation by the state’s Office of Administrative Hearings after a foreclosure case had been filed against their property.  Under legislation passed this year, homeowners could ask for mediation before their problems reached the foreclosure stage if the lender or loan servicer agrees to the mediation.  The law is currently on Governor O’Malley’s desk waiting for his signature. Once signed into law the early mediation option will go into effect in October, 2012.  We, Robert Grossbart and David Portney, at Grossbart, Portney and Rosenberg, P.A. have extensive experience in analyzing situations that concern homes that are behind on their mortgage payments.  We know the questions to ask and the documents that need to be reviewed.  Our goal is to analyze all relevant documents to determine the appropriate defense for the homeowner to keep their home out of foreclosure.  Anne Balcer Norton, deputy commissioner of the Office of the Commissioner of Financial Regulation has said that “Most homeowners aren’t represented in mediation.”  Her office is attempting to develop a check list to help homeowners understand their rights.  We believe that most homeowners need legal assistance in going through the mediation process at any stage and encourage all homeowners to contact our office before attending a mediation hearing.  

 

REDUCING THE BALANCE ON FIRST MORTGAGES

In the past six months we have seen some improvement in the economy.  Unemployment is trending downward and economic growth, while not robust, is rising.  However, the housing sector remains weak.  With 11 million Americans still underwater on their mortgages, some housing experts think it is time for a more dynamic solution.  The idea of reducing the principal (the balance due on your mortgage) on the loans of underwater homeowners used to be considered radical.  We are seeing more and more written about the reduction of principal especially since the approval of the Attorneys General settlement with five major banks.  But, to date, the country’s biggest mortgage holders, Fannie Mae and Freddie Mac, have been reluctant in accepting such a proposal.  The Federal Housing Finance Agency will decide in late April, 2012 whether to allow Fannie and Freddie to write down the balances of borrowers who owe more than their homes are worth.  Some housing experts see principal reduction as a good way to deal with the foreclosure problem but many more still fear that allowing principal reduction will open a new wave of defaults, where homeowners decide to stop paying their mortgages in order to benefit from principal reduction programs.  This is what is known as “A Moral Hazard”.  On the other hand failing to reduce principal for qualifying homeowners may create another moral hazard because every time a home goes into foreclosure the neighboring homes decline in value. 

The discussion above leaves out the giant elephant in the room namely the issue of second mortgages.  The principal reduction that is being discussed is for first mortgages only.  Many homeowners are very far behind on their second mortgages sometimes called Home Equity Lines of Credit.  Even if the first mortgage is modified to reduce the principal on the first mortgage many homeowners may still be in a position of jeopardy because they have defaulted on their second mortgage.  In a Chapter 13 Bankruptcy the Court does not have the power to modify a first mortgage but can “strip off” a second mortgage if the house is worth less than the amount owed on the first mortgage.  The second mortgage is then treated as unsecured debt and can, in large part, be discharged in a successful Chapter 13 Bankruptcy leaving the homeowner with only one mortgage.

Please be advised that the information above is general in nature and should not be considered a substitute for personal legal advice which will take into consideration all relevant information relating to your individual situation.  While Grossbart, Portney and Rosenberg, P.A. would like to hear from you, we cannot represent you until we know that any proposed representation would be appropriate and would not create any conflict of interest.  We thank you for browsing our Website, www.mdbankruptcylaw.com, but we need to be careful not to create any attorney-client relationship without first having a face to face consultation.  You should not act or rely upon the above information without seeking professional counsel.

 

INCOME TAX RETURNS AND BANKRUPTCY

When an individual or married couple files a chapter 7 or chapter 13 bankruptcy it is required that copies of income tax returns for the previous 3-4 years be submitted to the bankruptcy trustee.  The bankruptcy petition will not be allowed to move forward unless all income tax returns that were ever required to be filed have been filed.  Tax refunds may be exempted (that means you may be able to keep them) in a chapter 7 bankruptcy case in full or in part depending on the other assets owned by the debtor(s).  In a chapter 13 bankruptcy tax refunds are considered part of the bankruptcy estate and must be dedicated to the plan payment in some fashion so that the unsecured creditors receive as high a percentage as possible. 

Consequently, as bankruptcy attorneys, we routinely review both federal and state income tax returns on a regular basis.  We often see income tax returns with large refunds.  When looking closely at the returns we frequently find mistakes concerning deductible items and sometimes find outright fabrications such as expenses for a business that does not exist, a husband and wife who live in the same house both filing as head of household, etc.  If a tax preparer promises unusually high refunds without asking to see proper documentation for deductions and credits, don’t be fooled.  You’re legally responsible for the information on your income tax returns no matter what a preparer tells you, so make sure to look over your return before it is sent to the IRS or Comptroller of the State.  If the IRS and State determine that you received a refund based upon fraud you’ll be required to repay that money plus possible penalties.

            This year all paid preparers are required to have a Preparer Tax Identification Number (PTIN) so customers can verify that they are legitimate.  Ask preparers to show their PTIN before signing up for help, and be wary if your preparer doesn’t put a PTIN on your return when submitting it to the IRS and State.

 

STUDENT LOANS

Since the economic crisis took full effect in 2008 consumer debtors have made great strides in paying down their unsecured credit card debt from a high of $917 billion to a current total credit card debt of $693 billion.  However, as a result of the ease with which student loans have been made available the latest balance owed is now larger than the total amount owed on credit cards.  The current outstanding student loan balance has risen to $870 billion which is even higher that what consumers owe in car loans ($730 billion).   It is not completely clear what the implications of this growing debt will be as student loans approach the $1 trillion mark this year.  However, it does not take a rocket scientist to realize that high student debt coupled with a weak job market, especially for younger workers, has the potential to add pressure to an economy that is already having difficulties. 

If you have more than one student loan you may want to consider consolidating your loans to help lower your monthly payment.  There are few options available to achieve this which depend largely on whether your loans are federal or private.  If federal visit the Department of Education’s loan consolidation site for details.  If your loans are private your options are more limited.  You have nothing to lose by calling your lenders, explaining your situation, and, well, begging for mercy.  Some may be willing to restructure your loans or provide for a period of interest only payments or some other temporary reprieve. 

For the most part student loans are non-dischargeable in a Chapter 7 or Chapter 13 bankruptcy. In other words even after a bankruptcy has been filed and completed student loans will still have to be paid.   The one exception is a motion filed for a Hardship Discharge. In order to qualify for such a discharge you must be able to demonstrate, based on current income and expenses, that you cannot maintain a “minimal” standard of living if forced to pay back student loans.  Additionally you must show that circumstances exist, for example a catastrophic medical condition, which will continue to exist and you will not be able to maintain a minimal standard of living for the foreseeable future.  Finally, you must show that you have made a good faith effort to repay your loans before you found yourself in a position of hardship. Even if you do not qualify for a hardship discharge a bankruptcy may help your situation because you will be able to discharge other debts thereby freeing up income that can be used to pay student loans.

Please be advised that the information above is general in nature and should not be considered a substitute for personal legal advice which will take into consideration all relevant information relating to your individual situation.

 

ATTORNEY GENERAL FORECLOSURE SETTLEMENT

Federal and State officials announced a settlement of more than $25 billion with five of the nation’s banks today concerning the banks’ defective and fraudulent foreclosure practices.  The settlement attempts, albeit in a limited manner, to help negatively affected borrowers by reducing the amount they owe on their mortgages, and/or lowering interest rates, and/or paying money to homeowners whose homes have already been lost to foreclosure.  Will this settlement help the troubled housing market in Maryland?  Maybe.  Given the failure of past government programs to help solve homeowners’ problems, most notably the Home Affordable Modification Program (HAMP) coupled with the banks’ past reliance on workers with minimal qualifications or work experience we will just have to wait and see just how effective or ineffective the results will be.  If you have a mortgage with one of the five banks currently signed on to the settlement you may call one of the following toll-free numbers:  Ally/GMAC 800-766-4622; Bank of America 877-488-7814; Citi 866-272-4749; JPMorgan Chase 866-372-6901; Wells Fargo: 800-2883212.Visit a new government website at http://www.nationalmortgagesettlement.com/. Maryland Attorney General Gansler is setting up a call center staffed by 10 people who can be reached at 888-743-0023.  Let’s hope that all 40,000 homeowners that Mr. Gansler estimates are eligible for the program do not call at the same time.  More about this settlement later in another blog as the program’s success and/or failure evolves.

 

Force-placed insurance - mortgage industrys dirty litle secret

Gretchen Morgenson's January 22, 2012 article in the New York Times titled "Hazard Insurance With Its Own Perils", shines a light on this overlooked major profit center of the mortgage industry. Morgenson points out this is a 6 billion a year business.

How does it work?  Lenders require homeowners to purchase hazard insurance. Force-placed insurance oppurtunities arise for the lender when either (1) a homeowner in financial difficulty allows their hazard insurance to lapse if not escrowed or (2) if paid through escrow the homeowner allows the mortgage to lapse. Now the servicer buys force-placed insurance. This insurance is typically three times the price of a standard hazard policy without the same benefits. Force-placed insurance does not provide the homeowner either liabilty or personal content insurance (just fire insurance). Force-placed insurance only protects the lender but the homeowner pays. Force-placed insurance is added to escrow and causes the monthly payment to increase accordingly. One can easily see the likelihood of a homeowner defaulting on their mortgage due to the increased monthly cost leading to a foreclosure.

Morgenson also points out that many times the mortgage servicers and the insurers are affiliated. Do I hear the word conflict?

Harrisburg PA Files Petition of Bankruptcy

The City Council of Harrisburg, Pennsylvania took the extraordinary action of filing for chapter 9 bankruptcy on October 12, 2011 “by fax”. Harrisburg Mayor Linda D. Thompson shortly thereafter filed papers that requested an emergency hearing to seek dismissal of the bankruptcy case, saying the filing approved by four city council members was “unauthorized.” The petition stated the city is “in imminent jeopardy through six pending legal actions by creditors” that are related with the city’s failed trash incinerator project.  Chapter 9 allows municipalities to restructure their debt like a chapter 11 but differs in one major aspect in that a bankruptcy judge can’t appoint a trustee to administer the municipality. 

 

Robo signing is not just a foreclosure problem!

Robo signing is when the signor of an affidavit swears what is in the affidavit is true without reading or having personal knowledge of what they are signing (also not reading the affidavit). We have all read for over one year how this practice has been rampant in the foreclosure world. Apparently this practice is also true in debt collection cases. More often when a debt is not paid, it is sold to a debt buyer for a fraction of the debt’s face value. The business model for the debt buyer apparently does not include satisfying the legal requirement of also obtaining personal knowledge of the debts' history so they can file and win a collection case. Word to consumers – challenge the affidavit.  

 

FALLING BEHIND ON MORTGAGE

One of the great mysteries regarding a consumer’s ability to borrow money is what effect your financial difficulties have on your credit score.  Our client’s often ask what effect a short sale, a foreclosure or a bankruptcy will have on their credit scores and their ability to rent a home, buy a car, or purchase another house.  Noted financial reporter for the Baltimore Sun, Eileen Ambrose, wrote a very interesting article that was issued in the May 2, 2011 edition.  As she stated lenders use credit scores to decide whether to extend credit and under what terms.  FICO (Fair Isaac Company) is the most widely used credit scoring agency. FICO scores range from 300 to 850.  FICO looked at how long it takes for a credit score to recover for a consumer with a 680, 720 or 780 score.  For a 680 score the recovery time for a short sale is 3 years, for a foreclosure 3 years and for a bankruptcy 5 years.  FICO found that for consumers with higher scores the recovery time is even longer.  For 720 and 780 scores the recovery time for a short sale is 7 years, for a foreclosure 7 years and for a bankruptcy 7-10 years.