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Real Estate Default Symposium Bankruptcy Basics Plus Session 102 - 2012 © 2012 Default Attorney Group www.defaultattorneygroup.org.

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Presentation on theme: "Real Estate Default Symposium Bankruptcy Basics Plus Session 102 - 2012 © 2012 Default Attorney Group www.defaultattorneygroup.org."— Presentation transcript:

1 Real Estate Default Symposium Bankruptcy Basics Plus Session © 2012 Default Attorney Group

2 Proofs of Claim – New Rule o Chapter 13 Issues Plan Objections Claim Objections Payment Changes Motions to Determine Mortgage Status Lien Avoidance Loss Mitigation Communications with Bankruptcy Debtors Serial Filers What We’ll Cover Today

3 New Proof of Claim Forms New Rule © 2012 Default Attorney Group

4 New POC Forms  Nearly a Two year Process – Revisions to all Federal Rules  7 Step Process – We have Passed Step 6, Supreme Court Approval.  Unless Congress Steps in, these will go into effect December 2011

5 New POC Forms  Rule 3001 was amended – primarily relates to Credit Card Claims  The Bigger Change for us is Rule The Rule’s Major Changes ○ Uniform Statement of Prepetition Charges and Arrearages (“Attachment A” or “Mortgage POC Attachment”). ○ Notice of Payment Change (“Supplement 1”) ○ Notice of Post-Petition Fees, Expenses or Charges (“Supplement 2”)

6 The POC Form Revised  New B10 is Very Similar to the Old One Now asks for creditor’s address Asks if interest is fixed or variable More emphasis on Redaction of Exhibits More detail on who is signing and what is the basis for their authority

7 Attachment A  Yes, More Detail is Required in the POC  BUT, this should be Uniform in all Districts  The new Form has a detailed breakdown of all Prepetition Arrearages, Charges, Fees and Expenses as of the Petition Date  REQUIRES attachment of an Escrow Statement as of the Petition Date if it is an escrowed loan

8 Chapter 13 Issues © 2012 Default Attorney Group

9 Chapter 13: Plan Objections  Some trustees pay by claim, others per plan Timely object if plan does not provide full payment of pre and post-petition claims Confirm treatment of pre-petition and post- petition taxes Contested matter 9

10 Chapter 13: Plan Objections  Chapter 13 Plan provides how creditors are to be paid, amount and when “Inside” v. “outside” payments “Fixed” v. “pro rata” payments Priority of inside payments ○ Trustee fees ○ Debtor’s attorney fees ○ Secured claims (fixed) ○ Secured claims (pro rata) ○ Priority claims ○ Unsecured claims (pro rata) 10

11 Chapter 13: Plan Objections  Priority of inside payments Trustee fees Debtor’s attorney fees Secured claims (fixed) Secured claims (pro rata) Priority claims Unsecured claims (pro rata) 11

12 Chapter 13: Plan Objections  Funding of Chapter 13 Plan Debtor’s “disposable net income” ○ Ransom v. FIA Card Services, 562 U.S. ____ (2011) Debtor cannot claim expenses he does not have. (Car Expense) Wage order v. direct payments Payments by debtor to trustee or direct to creditors begin 30 days after petition Payments by trustee begin on first disbursement date after plan confirmation (date absent adequate protection order) 12

13 Chapter 13: Claim Objections  Contested Matters  Late Filed Claims Deadline: 90 days after date FIRST set for creditors’ meeting Many courts require motion to extend time prior to expiration of 90 days 13

14 Payment Changes – New Rule  Effective December 1, 2011 Rule goes into effect for Mortgage Payment Changes (see book)  This rule applies in a Chapter 13 case to claims secured by Debtor’s Principal Residence and provided for under §1322(b) (5)  Requires that the holder of the claim shall file and serve on the debtor, the debtor’s counsle and the trustee, a notice of any change in the payment amount, including: 14

15 Payment Changes – New Rule – Any change that results from an interest rate or escrow account adjustment – No later than 21 days before a payment in nthe new amount is due – Note: the current local rul in the Southern District of Texas requires 45 days notice – this will be supplanted by the new national rule 15

16 Notice of Fees, Expenses & Charges The holder of the claim shall file and serve on the Debtor, Debtor’s counsel, and the Trustee a notice itemizing all fees, expenses, or charges (1) that were incurred in connection with the claim after the bankruptcy case was filed and (2) that the holder asserts are recoverable against the debtor or against the debtor’s principle residence The notice shall be served within 180 days after the date on which the fees, expenses or charges are incurred 16

17  Notice must be filed using the Official Form, and filed as a supplement to the holder’s proof of claim See form in back of this workbook Form and Content of Payment Change 17

18 Determination of Fees and Charges  On motion of the Debtor or Trustee filed within one year after serve of a notice under this rule, the court shall, after notice and hearing, determine whether payment of any claimed fee, expense or charge is – required by the underlying agreement (i.e, note and deed of trust) and – applicable non-bankruptcy law to cure a default or maintain payments in accordance with § 1322(b)(5) of the Code

19 Notice of Final Cure Payment  Within 30 days after the Debtor completes all payments under the plan, the Trustee shall file and serve on the holder of the claim, the Debtor, and the Debtor’s Counsel a notice stating that the Debtor has paid in full the amount required to cure any default on the claim.  The notice shall also inform the holder of its obligation to file and serve a response. If the Debtor contends that final cure payment has been made and all plan payments have been completed, and the trustee does not timely file and serve the notice, the Debtor may file and serve it.

20 Response to Notice of Final Cure Payment  Within 21 days after service of the notice of final cure payment, the holder shall file and serve on the Debtor, Debtor’s Counsel, and the Trustee a statement indicating (1) whether it agrees that the Debtor has paid in full the amount required to cure the default on the claim and (2) whether the Debtor is otherwise current on all payments consistent with § 1322(b)(5) of the Code.  The statement shall itemize the required cure or post-petition amounts, if any, that the holder contends remain unpaid as of the date of the statement. The statement shall be filed as a supplement to the holder’s proof of claim.

21 Determination of Final Cure and Payment  On Motion of the Debtor or Trustee filed within 21 days after service of the statement described above, the Court shall, after notice and hearing, determine whether the debtor has cured the default and paid all required post-petition amounts.  If the holder of the claim fails to provide any information required by this rule, the Court may, after notice and hearing, take either or both the following actions:

22 Failure to Notify (1) preclude the holder from presenting the omitted information, in any form, as evidence in any contested matter or adversary proceeding in the case, unless the court determines that the failure was substantially justified or harmless; or (2) award other appropriate relief, including reasonable expenses and attorneys fees caused by the failure.

23 Motion to Deem © 2012 Default Attorney Group

24 Motions to Deem Mortgages Current/Determine Pay Status  Filed annually and prior to discharge  By Trustee or Debtor  Failure to timely object = bound by order “deeming current”  Attempt to collect additional escrow advances or post petition fees can be deemed stay violation  This is your opportunity to obtain approval of contractually permissible charges not otherwise sanctioned by court order as well as clearly outline what post-petition charges are due

25 Practice Tips Do Not Ignore a Motion to Deem Current  This is a Legal Pleading that needs to be addressed by counsel  Not merely a “notice”  Upon Receipt of this Motion Review the post petition payment history Review the Trustee’s payment history Make sure they reconcile If the Motion is Not Accurate, you must have your counsel file a response in opposition, and supply a post petition accounting Failure to do so will render the loan “deemed current”

26 Chapter 13-Motions to Determine Mortgage Status/Deem Current  Filed annually / prior to discharge  By Trustee, Debtor  Failure to timely object = bound Beware of negative notice provisions  Most common reasons for filing: escrow advances; failure to treat pre petition taxes in Proof of Claim 26

27 Chapter 13: Escrow Advances  To ensure recoverability of post-petition escrow advances after discharge Give prior notice to the debtor, the debtor's attorney and the Chapter 13 trustee BEFORE the advances are made ○ Allows objections to intended action Obtain court approval 27

28 Chapter 13: Escrow Advances  Prior to advancement file: Motion for Stay Relief (negotiate order for reimbursement in direct payments, by plan amendment or validating a pass through after discharge) Administrative Expense POC and Motion and Order for Approval of Same 28

29 Chapter 13: Escrow Advances  After advancement file: Rule 2016 application for approval of fees and secure court order retroactively validating the advances Administrative Expense POC and Motion and Order for Retroactive Approval of Same Motion for Retroactive Stay Relief Motion to dismiss the bankruptcy for failure to timely pay post-petition obligations 29

30 Chapter 13: Lien Avoidance & Cram Downs © 2012 Default Attorney Group

31 Chapter 13: Lien Avoidance Applicable Statute: 11 U.S.C. § 506 Overview :  Debtor can avoid a junior mortgage on real estate if there is no equity in property to which lien can attach  If there is one dollar equity in the property, debtor must pay debt in full  Debt treated as unsecured for purposes of bankruptcy

32 Chapter 13: Lien Avoidance How Accomplished :  Local rules determine whether this can be accomplished within plan or a separate motion or adversary proceeding Conditions/Limitations:  Debtor must complete plan and receive discharge  Lien remains valid in the event the case is converted to chapter 7  Junior lienholder’s lien attaches to excess proceeds in the event senior lienholder forecloses prior to completion of plan 32

33 Chapter 13: Cramdown Applicable Statute: 11 U.S.C. § 506 Overview :  Debtor retains collateral and pays only “secured portion” (i.e., fair market value of collateral) of the creditor’s claim  The balance of the indebtedness that exceeds the fair market value of the collateral is treated as unsecured 33

34 Chapter 13: Cramdown Conditions:  Debtor must complete plan and receive discharge  Lien remains valid in the event the case is converted to chapter 7  Payments on secured portion of claim must be in equal monthly amounts (i.e., debtor cannot propose to make adequate protection payments and then payoff balance of claim through balloon payment at the end of plan) – See 11 U.S.C. § 1325(a)(5)(B)(iii)(I)  Debtor must payoff secured claim within term of the plan Applicable Statute: 11 U.S.C. §

35 Chapter 13: Cramdown 35 Limitations :  Does not apply in chapter 7 cases  Does not apply if collateral is the debtor’s principal residence - See 11 U.S.C. §§ 1322(b)(2) Other Issues:  Time of determining value of collateral (petition date, date of plan confirmation, date of valuation motion/complaint)  Time of determining whether property constitutes debtor’s principal residence (petition date, date of plan confirmation, or loan origination)

36 Loss Mitigation © 2012 Default Attorney Group

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38 Loss Mitigation  Impediments Debtor’s attorney has no financial incentive to participate in pre-petition loss mitigation Mandated pre-petition consumer credit counseling not an effective loss mitigation tool Loss Mitigation thwarted by immediate need to file bankruptcy to stay foreclosure, repossession and litigation mitigation 38

39 Loss Mitigation  Opportunities – Creditor’s Meeting – Proof of claim and confirmation processes – Motions for stay relief – Motion To Adjust Payment – Motion to Determine Mortgage Status or Deem Current – Some states have established Loss Mit Program (NY & RI) 39

40 Loss Mitigation  Highlights of states with Loss Mit Program Debtor opts into Program via Ch. 13 Plan Can not file MFR if in Program unless Program completed or Court Order Strict guidelines for Debtor and Secured Creditor Creditor may object if Program not appropriate or debtor not cooperating Final Report or Order Terminating Loss Mit must be entered 40

41 Loss Mitigation  Court approval recommended Sanchez v Ameriquest Mortgage Co., 272 B.R. 289 (Bankr. S.D. Tex. 2007) Post confirmation offer and acceptance of forbearance agreement after stay termination without court approval held an impermissible plan modification in violation of 11 U.S.C. Sec

42 Loss Mitigation  Interplay with HAMP and other loss mit programs undetermined  Stay relief recommended prior to loss mit discussions unless Court has an established Loss Mit Program 42

43 Loss Mitigation  Chapter 13 Direct Pay – Negotiate trial payments with debtor with notice to debtor’s attorney and Trustee – After trial period successfully completed, obtain court approval of modification ensures recoverability of securitized advances, deferred payments, post-petition contractually permitted advances 43

44 Communications with Bankruptcy Debtors © 2012 Default Attorney Group

45 Communications with Bankruptcy Debtors Governing laws:  Federal Fair Debt Collection Practices Act (FDCPA) [15 U.S.C. § 1692 et seq.]  State Debt Collection Practices Acts  United States Bankruptcy Code [11 U.S.C. § 101 et seq.] 45

46 Restrictions on Communications  Automatic stays in bankruptcy Against property [11 U.S.C. § 362] Against co-debtors [11 U.S.C. § 1301]  Bankruptcy Discharge Injunction [11 U.S.C. §§ 727, 1328] 46

47 Restrictions on Communications  Who (FDCPA) Consumer Consumer ’ s Attorney/ As Authorized Court Order Credit Reporting Agency  Mandatory Disclosures (FDCPA) Debt Validation Notice Mini-Miranda Warning 47

48 FDCPA Required Disclosures 48 Debt Validation Notice Permissible Communications Mini Miranda Warning

49 FDCPA Debt Validation Notice Initial Communication: UNLESS WITHIN THIRTY (30) DAYS AFTER RECEIPTOF THIS NOTICE YOU DISPUTE THE VALIDITY OF THE DEBT ORANY PORTION THEREOF, AND NOTIFY THE UNDERSIGNED OF SUCH DISPUTE, THE DEBT WILL BE PRESUMED TO BE VALID. IF WITHIN SUCH TIME PERIOD YOU DISPUTE THE DEBT, ORANY PORTION THEREOF, UPON REQUEST THE UNDERSIGNED WILL FURNISH YOU WITH VERIFICATION OF THE DEBT. UPON YOUR WRITTEN REQUEST WITHIN SUCH THIRTY-DAY TIME PERIOD, THE UNDERSIGNED WILL FURNISH YOU WITH THE NAME AND ADDRESS OF THE ORIGINAL CREDITOR, IF DIFFERENT FROM THE CURRENT CREDITOR. 49

50 Mini-Miranda Warning Identification as Debt Collector Subsequent Communications: THIS COMMUNICATION IS AN ATTEMPT TO COLLECT A (CONSUMER) DEBT, AND ANY INFORMATION OBTAINED WILL BE USED FOR THAT PURPOSE 50

51 Mini-Miranda Warning Identification as Debt Collector Subsequent Communications: THIS COMMUNICATION IS AN ATTEMPT TO COLLECT A (CONSUMER) DEBT, AND ANY INFORMATION OBTAINED WILL BE USED FOR THAT PURPOSE 51

52 FDCPA Standard of Review LEAST SOPHISTICATED CONSUMER “ one not having the astuteness or even the sophistication of an average, everyday common consumer”* *Foti v. NCO Fin. Sys., Inc., No. 04-V-707 (KMK) 2006 WL (S.D.N.Y. Mar. 25, 2006 (“Foti”) 52

53 The Big Chill? Do consumer protection statutes chill attempts to communicate with borrowers? 53 “ Whenever a servicer contacts a borrower, they have to begin every discussion with the Mini Miranda warning. When you’re having trouble reaching troubled borrowers already and you’re ready to offer a range of workout solutions, this phrase is seen by some as a dead weight around the neck of workouts.” Vicki Vidal, Senior Director of Loan Administration for the Governmental Affairs Committee for Mortgage Bankers Association

54 Communications with Bankruptcy Debtors  Before Stay Termination or Discharge debtor in care of bankruptcy attorney with copy to the bankruptcy trustee  After Discharge debtor and the debtor’s attorney (until instructed to the contrary) 54

55 Communications with Bankruptcy Debtors  Use passive third party tense NOT “you" are in default” or need to satisfy the terms of the contract or “you" will be responsible for collection costs Instead say, the “loan” is in default due to non- payment”  Emphasize not trying to collect a debt, rather exercising lien rights only as to the collateral 55

56 Communications with Bankruptcy Debtors  “ No Demand - Demand Letter” Sorry, but state law requires that we make this demand Completely ignore this - but pay immediately or we will foreclose on your home 56

57 Communications with Bankruptcy Debtors  Include a disclaimer in all written communications : “This letter is not being sent in violation of the discharge injunction, but rather is an attempt to comply with requisite notice requirements under the loan documents and applicable law.” 57

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59 © 2012 Default Attorney Group Thank you for your time. Questions?


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