Chapter 7 and 13 Bankruptcy Blog

I had two attorneys this week send us bankruptcy cases where they wanted to propose a Cram Down on the FIRST mortgage and a Strip Down of the SECOND because the house was underwater. Unfortunately, both of the bankruptcy clients were not eligible for a cram down. I had to call both attorneys and let them know. They were shocked and were not aware that pre-qualification was necessary to propose a mortgage cram down and strip. This is when I decided to write this article to help other attorneys and their law firms. Read the rest of this entry »

– a perspective for the Chapter 7 and 13 bankruptcy professional

On February 25, 2010, President Obama proposed a bill that would prohibit foreclosures on home loans unless they have been screened and rejected by the governments Home Affordable Modification Program, also known as HAMP.

At the present time, companies have the ability to proceed with foreclosure actions against homeowners, even though they have registered with HAMP.  However, the proposed changes would prohibit lenders from initiating new foreclosure actions before loan screening by HAMP and would require lenders to halt existing proceedings for borrowers once they are in a trial repayment plan.

DOES THIS INCLUDE ALL HOME LOANS?

No.  Only home loans that are owned by Fannie Mae and Freddie Mac are eligible for this preferential treatment.  However, President Obama has asked the major banks to grant more loans to American citizens since it was all of us who donated the billions of dollars to save the banks less than 2 years ago; but that is a separate story.

HOW DO YOU KNOW IF A HOME LOAN IS OWNED BY FANNIE MAE OR FREDDIE MAC?

At the present time, if a mortgage loan is owned by Fannie Mae or Freddie Mac, the borrower may be eligible for a Home Affordable Refinance to take advantage of lower interest rates.  To find out if a loan is owned by Fannie Mae or Freddie Mac, visit: http://www.makinghomeaffordable.gov/loan_lookup.html

Additional eligibility requirements are provided at: http://www.homeloanlearningcenter.com/files/HAMPEligibilityRequirements.pdf

SUGGESTIONS FOR USE OF THIS INFORMATION WHEN PREPARING BANKRUPTCY PETITIONS

Bookmark the http://www.makinghomeaffordable.gov/loan_lookup.html website.  Make sure you add this to the links you use for online searches.  That way, when you start a new petition where the debtors are homeowners, you should automatically run the property address through both Fannie Mae and Freddie Mac to see if the home loan is owned by these two entities.  If so, alert your attorney to this at once by providing him or her with the Eligibility Requirements document referred to above.

The debtor may be eligible for a loan modification which may prove more advantageous than using the cram down or strip down method.  Because every bankruptcy petition is unique and different, you need to have a wide variety of options and resources available to you so that the attorney can utilize the best and appropriate action that is in the best interest of the debtor.

REFERENCE:

Direct link to Bloomberg news article: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ahuuwBS8KYq8

Dear Victoria Ring:

Thanks for all you do.  And I appreciate the information you provide to us.  I just wanted to add that I currently work for a major bank.  I work with borrowers with defaulted business loans.  And let me tell you that on a lot of the deals we have, I have seen quite a few attorneys propose cram downs.  And a lot of our mortgages have been stripped off because there is no equity in the home.

One of the things we talk about all of the time is why many other attorneys are not doing this.  It is a great tool for the consumer.  No additional litigation is involved.  Once an attorney files the motion during the proceeding, it is up to the trustee.  We do not file responses to these requests.  Especially if there is no equity in the home.  And banks and mortgage lenders know that the bankruptcy court favors the debtor.  We have never been successful in blocking these.  You have to remember the cost that the banks incur in pursuing foreclosure or trying to liquidate the collateral.  We weigh the costs.  Banks make no money on homes they have to take back.  You may find that you will get more with negotiating with the lender too.  The attorney for the debtor is in a greater position than attorneys for the banks.

We knew that most of the mortgages we took at loan inception were abundance of caution.  And unfortunately, many people are filing for bankruptcy and having their debts discharged.  But if they do not do anything to release the liens on their home, then they still end up paying when there is equity in the future or if they want to sell their home.  As long as the lien stays on the home, you are basically giving the banks a long term investment.

I can tell you that many of our borrowers who filed for bankruptcy and were discharged are stunned when they see our lien is still on their home.  And the only way we will release it is if they give us all of the available equity in their house.  I just had a deal where the borrowers had filed for bankruptcy several years ago.  Unfortunately, the attorney did not contest our lien or ask that it be removed.  If the attorney had done this or at least proposed a settlement, we would not be in the great position we are now.  As opposed to getting $25,000 several years ago, we are now looking at almost $80,000.  The owners are senior citizens.  If they ever decide to sell their home, they will have to deal with the fact that we will be getting the bulk of the proceeds.  I believe they assumed when they reaffirmed the first mortgage, that ours was released.  And that was not the case.

From what we have seen, many trustees and bankruptcy judges side with the debtor in these cases.  We do everything we can by filing a proof of claim.  But at the end of the day, if there is no equity available at the time of filing (or equity of sizable value), we anticipate having our mortgage stripped and being put in the category of unsecured creditor.  That is why I am happy to see you offering this training to VBAs and attorneys.  Proposing this makes you a much added value to your clients.    So, for all of the attorneys who fear the drawn out litigation with mortgage lenders and banks, there is no need to worry.  You have to remember that banks have to pay outside attorneys.  And I can tell you that we just as soon not have to pay attorney fees fighting for properties that have little value.  I would tell them to do what is best for the consumer.  They are hiring you for your help.  So I implore them to pursue every avenue possible.

Crystal Brooks Email:  clbrooks67@comcast.net

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The following questions and answers were submitted to 713Training.Com either at a teleconference or by email during this past week. The answers are provided by Victoria Ring who is not an attorney.  Therefore, the information provided in this material is for training purposes only and no whole or part should be regarded as legal advice.

QUESTION

How successful have the attorneys you work for been in confirmation of a proposed strip down?

ANSWER

An attorney I work for as a virtual assistant in Victorville CA has been successful in the confirmation of two Chapter 13s where a strip down of the second mortgage was proposed.  As soon as the attorney provided me with this information I quickly developed training materials to teach other attorneys how it was done.

Additionally, the Central District of California Bankruptcy Court began offering classes to teach attorneys how to be successful in proposing strip downs.  This fact alone confirms the information I have been blessed to be privy to.

QUESTION

How successful have the attorneys you work for been in confirmation of a proposed cram down?

ANSWER

I have personally worked on only one case where an attorney in Ohio was successful in getting a cram down of the primary residence confirmed.  The mortgage company was Washington Mutual and the attorney filed the case during the same time they were transitioning.

However, I have talked to attorneys in Texas, Florida and Missouri who have discussed cases with me where they have been successful in negotiating cram downs and saving their clients money.

Again, as soon as I learn about something that can benefit the debtors I tell you about it through my articles and training products.  However, I cannot guarantee that all cram downs and strips downs will be successful.  That would be impossible and illogical for me to even try and attempt.

QUESTION

If a strip down of a mortgage is confirmed, what will be the outcome at the end of the 3 or 5 year Chapter 13 plan period?

ANSWER

No one knows.  The law could change at any minute or change 100 times between now and then.  I believe this question would even be unpredictable by President Obama at this time.

QUESTION

I am an attorney and I feel very uneasy about proposing a cram down or a strip down.  I am afraid that it would cause additional litigation with the mortgage company and perhaps cost me more than I charged the client for the petition.  Do you have any suggestions to ease my fear?

ANSWER

There are a couple of good choices available to you that you may want to consider:

1.  If you propose a cram down or a strip down and the mortgage company files an Objection, this would open door for negotiation to still save the debtors a great deal of money.  Once a number was reached, the attorney would charge the client for this negotiation and enter into an Agreed Order with the mortgage company.

2.  If you propose a cram down or a strip down and the mortgage company files an Objection, you can simply change the figures on Schedule A and file an Amendment if you are too timid to negotiate on the debtors behalf.

Remember, all creditors must file a Proof of Claim.  Most attorneys I have worked with who propose cram downs and strip downs will monitor the case on PACER and look for any Proof of Claim filed by a mortgage company.  They compare the claim amount stated by the mortgage company with the cram down amount proposed in the Chapter 13 Plan.  At this stage, the attorney contacts the attorney for the mortgage company and begins the negotiation process to come to an Agreed Order.

QUESTION

Can I propose a cram down or a strip down for every client?

ANSWER

Not at this time.  From the teleconferences I have listened to, taught by judges and attorneys; cram downs and strips downs are only approved in HARDSHIP cases until the Senate passes the proposed Bill.  In other words, if a debtor can afford to pay back more than the first mortgage, a strip down is then paid back as UNSECURED.  If the debtors income is considered hardship and they file a Chapter 13 (demonstrating their ability to at least try and pay back all they can afford) cram downs and strip downs are often normally confirmed.

QUESTION

Can you guarantee that my proposed cram down and strip down will work?

ANSWER

Of course not.  No one can.  The goal here is to TAKE A CHANCE to help keep homeowners in their homes.  A cram down or a strip down may or may not work at this period in time.  It is a chance you take.  If you do not want to take the chance, and are not willing to take that extra step of CARE for your clients, then do not propose a cram down or a strip down and call it a day!!

QUESTION

I am a publisher for the creditor side of bankruptcy. I heard that you are teaching debtor attorneys how to reduce mortgages.  Could I interview your attorneys for my book?

ANSWER

I will tell you the same thing I told this person:  Proposing cram downs and strip downs are something that attorneys must TAKE A CHANCE in proposing.  I am NOT an attorney.  I am a paralegal training instructor; which means that I would never tell people that cram downs and strip downs work in every case and without any snags or problems.  The information I am teaching at this time will change at any minute.  The Bill is currently before the Senate; therefore, we only have a SMALL WINDOW of time to use these training methods and they will become obsolete.  Publishing this information in a book is worthless because it will be out-of-date before the book is printed.

SUMMARY

Please STOP taking my drive to KEEP CONSUMERS IN THEIR HOMES and turning this into a she-said, he-said scenario.  I realize that the legal world does this almost spontaneously (which is why I chose to leave the confines of a back-biting office staff environment long ago.)  But I wrote this article to help attorneys to stop thinking about all the bad things that can happen and TRY to help your clients.  Even if you should fail with some cases and excel in others, at least you know you did your best and provided your clients with the best possible service you can.

I wish all of you a beautiful Christmas holiday and peace of mind.

Victoria Ring Certified Paralegal and Training Instructor