Archive for December, 2014

Deficiency Judgment after Foreclosure

Friday, December 26th, 2014

Foreclosure is a very devastating experience. After your house is sold at auction, you may think the situation is over. That is not necessarilyforeclosure notice true.

You may be pursued by debt collectors attempting to collect the remaining balance on your mortgage. Your bank accounts can be  frozen. Your  wages can be  garnished. Your assets can be seized.

We are increasingly seeing this tactic deployed, especially with mortgages once held by the two government-operated housing finance firms, Freddie Mac and Fannie Mae.

It’s called a deficiency judgment. It’s perfectly legal, even when the default occurred many years ago. If you’re in this situation, you cannot afford to ignore it. An experienced attorney can help you formulate a strategy to fight back.

Although deficiency judgments have been allowed for a long time, they weren’t regularly sought prior to the burst of the housing bubble. Before then, the banks saw deficiency judgments mostly as a lost cause. They were expensive to bring, and when they were initiated, they tended to garner a lot of bad publicity.

There are some financial institutions that still generally don’t pursue deficiency judgment, although they reserve the right to do so.

What changed was that the housing crisis resulted in lenders being burdened with more than $1 trillion in foreclosed loans. This has meant significant losses for these firms. (Not that we have much sympathy for them, considering the primary reason behind most foreclosures had to do with the fact that buyers were lured by lenders into accepting debt they couldn’t actually afford, and lenders made a killing bundling those toxic loans and selling them off to third-party investors – including taxpayers.)

Still, lenders are seeing an opportunity as the economy has begun to stabilize. Many people whose homes were foreclosed have gotten new jobs. Old debts have been paid off. In a few cases, they have even been able to purchase a new home. Lenders want borrowers to pay back what they owe – which is usually tens of thousands if not hundreds of thousands of dollars.

For example, let’s say you took out a $200,000 loan, putting $25,000 down. You defaulted not long after. The bank foreclosed, and sold the house for $125,000 – far less than your loan amount. You never got back your down payment. Still, you could be facing a potential deficiency judgment of $50,000.

Of course, actions like this have the effect of knocking down people who were just beginning to dust themselves off after the economic collapse. Some bank advocates say it’s only right that borrowers should pay what they owe, especially because a fair number of former homeowners made the strategic decision to walk away from properties that were deeply underwater. But this ignores the fact that the banks were highly culpable in this mess to start. Plus, borrowers are often totally unprepared for a deficiency judgment, and it could put them at risk of losing their new home.

If the amount of the deficiency is significant, bankruptcy could be an option to wipe clean those debts. However, that should only be a last resort, as it does major damage to one’s credit.

Many borrowers end up negotiating some kind of repayment plan with the bank for a lesser amount. However, this should always be done in consultation with an experienced attorney, who is familiar with the system and can advocate for the best deal for you.

If you have a foreclosure or bankruptcy issue, consider consulting with Caroline Secor. Carolyn Secor P.A. focuses its practice in the areas of Bankruptcy and Foreclosure Defense in Clearwater, Florida.  For more information, go to our web site
or call (727) 254-1704.

Choose Bankrutpcy or Debt Consolidation?

Thursday, December 18th, 2014

For anybody torn between filing a chapter 13 bankruptcy in Colorado and instead going through a debt consolidation program, I’d highly credit card debtrecommend that you consider the numerous drawbacks of the latter.

Perhaps the primary difference is that only a chapter 13 will invoke the jurisdiction of the Bankruptcy Court, which can mandate that a creditor accept a certain payment plan.

Debt consolidation is tedious in that it requires that you directly negotiate with each creditor to lower the debt owed to each creditor. This is a voluntary payment arrangement which a creditor can walk away from at any time. In other words, unlike with chapter 13, where the creditors will be limited in their actions by the court orders entered by the Bankruptcy Court, debt consolidation offers no requirement that a creditor negotiate a debt or, if the creditor has agreed for the debtor to pay a certain amount of the debt back, the creditor can arbitrarily renege on its agreement.

Some credit card companies will not, under any circumstance, not even accept any debt consolidation payments. In comparison, with chapter 13, the same creditor would likely be prevented from collecting on the debt owed if they refuse to participate in the chapter 13. In other words, the creditor gets nothing and no longer would have the right to pursue you for the debt, if it opts out of the chapter 13 proceeding. With a chapter 13, the discharge order can be enforced against the creditor in court.

Further, with debt consolidation, there is no limit or cap to the amount you’ll be required to pay back to the creditors. Why do debt consolidation instead of a chapter 13 if you’re at the creditors’ mercy by having to pay all of your debt, especially unsecured debt?

By contrast, with chapter 13 bankruptcy, Congress sets forth what you’ll be required to pay back to your creditors, depending on your circumstances. For instance, some chapter 13 payment plans only mandate that you pay back 10% or less of your debt to creditors. The remainder owed will be discharged assuming that you successfully complete the plan. Sure beats paying all of your debt back.

Additionally, from an income tax standpoint, bankruptcy does not trigger any liability on the debt forgiven. For instance, if a lender voluntarily agrees to forgive $200,000 of mortgage debt, the IRS and State Department of Revenue treat such $200,000 as taxable income for the tax year the debt was forgiven. However, bankruptcy (either chapter 7 or 13) fits within an exclusion in the Internal Revenue Code such that you will not incur taxable income on the amount forgiven, even if the lender sends you a Form 1099.

With chapter 13, any creditors which do not abide by the payment plan can be found in contempt of court for knowing violation of the court order. Often, I have clients who still continue to be contacted by creditors in violation of the automatic stay well after the case has been filed. The court can enter sanctions, including attorneys fees, against these same creditors. On the other hand, no such protection exists with debt consolidation plans.

Finally, debt consolidation is almost always more expensive than filing for bankruptcy (under either chapter 7 or chapter 13). The fees charged by debt consolidation companies include the exorbitant amounts of interest and penalties that you continue to pay to creditors, particularly the credit card companies. I cannot tell you how many times a prospective client has come into my office looking to file for bankruptcy after having participated in a debt consolidation programs whereby they continued to pay 25% to over 30% interest, plus penalties, to the debt consolidation companies. Most all of these clients actually owed more after walking about from debt consolidation than before. But, with chapter 13, no further interest and penalties (whether the charges are imposed by the credit card companies, hospitals or the tax authorities) can accrue starting on the date the petition is filed.

Also, debt consolidation companies are not permitted to represent you in court against a creditor.

If you are considering debt consolidation or bankruptcy, perhaps you should consult with Caroline Secor. Carolyn Secor P.A. focuses its practice in the areas of Bankruptcy and Foreclosure Defense in Clearwater, Florida.  For more information, go to our web site
or call (727) 254-1704.