Monthly Archives: May 2010

Mortgage Lender of First Resort

I frequently need to know who actually owns the notes and mortgages connected with my clients’ homes.  So, keeping an eye on who the players are on the National mortgage scene makes a certain amount of sense.

Here is an article from BusinessWeek that makes me reconsider my decision not to subscribe.  I mean, seriously, at $2.49 a month delivered automatically to my Kindle while I sleep — why am I not?  However, I regress.

This article makes two very serious points.  First, FHA is now backing more mortgage loans than Fannie and Freddie combined.  Why?  Simple, lower down payment requirement.  Second, 90% of the current mortgage market is guaranteed by the U.S. Government by way of FHA, Fannie, Freddie (and to a much lesser extent VA and FHLBB).

I can see how this happened.  The takeover of Fannie and Freddie was a reaction to events rather than a carefully planned policy choice, and what to actually do with them is going to be a great big, hairy mess.  Then, there has been enough going on with regulatory changes and policy decisions that making changes to FHA policies would require affirmative political effort.  Not making them is the default.  So, by default the U.S. Government has become the backstop for effectively the entire home mortgage market.  This is an amazing policy decision to be made by accident.


Reflections on a Webinar

Last week I taught a Webinar on the intersection of divorce law and bankruptcy law.  I have taught CLE before, and I have been recorded when teaching CLE before.  Last week, though, was the first time that I have taught a presentation where I was teaching solely to a camera.  Now, there were quite a few people watching live from their computers; and I received 5 or 6 questions by the end of the session.  I couldn’t see any of that, though.  All I could see was the big, blue eye on the camera.  The only other person in the room was the tech who was running the transmission feed and who wrote down the questions as they came in and walked them over to me.  I have to say it was an interesting experience, but not one that I am sure I want to do again.

First of all, I went through my material much faster than I expected.  I think that is a result of having no visual feedback.  I hadn’t realized how much I cue off of the expressions of the audience.  I started wondering afterwards just how fast I had to have been talking.  When I got questions, it was all at once at the end of the segment.  They were written in the Tech’s handwriting who brought them to me.  I had no idea when they were written, who wrote them and they had no facial expression or body language attached.  I’m not sure why that matters, but it does.

I’m all for virtual, and I am all for making things more accessible to people whenever and wherever they are.  I just think that the whole experience would have been better for all concerned if there had been a few real, live students in the room with me.

Oh, I said at the time that I would put the questions and answers up here; and I will — just as soon as I remember to take the questions home with me.


Foreclosure Records

USA Today ran an article on foreclosure statistics. It seems that we have recently set two records.  The first is that for the first time ever 10% of all home owners (according to the article) missed a mortgage payment during a quarter.  The second is that now some 4.6% of all home owners are in foreclosure.  Gee, two records, one article.

What I find difficult to believe about this is that it says both of these percentages are of all home owners — not all home owners with mortgages.  I would believe those numbers if they are all home owners with mortgages, but considering the number of paid for properties around, it would be seriously staggering if those numbers are actually true.


Divorce Debt and bankruptcy — everybody loses but the lawyer

I’ve been getting a lot of calls lately from both prospective clients and other lawyers with questions about how divorce related debt is handled in a Bankruptcy.

Support debt — child support, alimony, anything that is intended in the actual nature of support, regardless of what it is called, is yours for life.  No Bankruptcy court can help you.

Non-support debt, i.e., the credit cards, the medical bills, your own divorce attorneys fees, possibly (but not necessarily) your ex-spouse’s divorce attorneys fees, anything other than support that you are ordered to pay in a divorce decree — this is different.  If you file a Chapter 7 Bankruptcy, you are stuck with this.  If you file a Chapter 13 — not so fast.

Typical scenario, prospective client calls following a nasty divorce.  Decree orders this person to pay tons of credit card debt, and he owes his lawyer a fortune.  (For purposes of this scenario it makes no difference to me how much the other spouse was ordered to pay, how much the other spouse makes, how much the other spouse has or has not suffered.  For one thing the other spouse is not my client.  For another thing, I’m just not that impressed by tales of other people’s poor judgment in things like choosing spouses.)

Here is what I tell the prospective client.  You can file a Chapter 13 Bankruptcy.  You will pay me several thousands in attorneys fees.  You will pay the Trustee a not inconsiderable amount to administer your case.  You will pay your mortgage, car, any recent taxes and any support debt that you owe over a period of five years.  You will pay some additional amount, probably a small amount and almost certainly a lot less than all, of the rest of your debt — what you were ordered to pay in the divorce decree and whatever else you’ve got lying around.  I can’t predict how much of that you will have to pay, but it is generally a lot less than all.  Oh, and it will be paid without interest.  At the end of the five years, you will get a discharge.  Your ex-spouse will not.  Any creditors to whom your ex-spouse is also liable will then be able to try to collect money from the ex-spouse.  Not only can they try to get the remainder of the principle balance, but the interest you didn’t have to pay during your Bankruptcy.

In other words, you two fought for years over this debt.  You paid attorneys thousands of dollars.  You are going to pay me thousands more — and you will both still get the bill.

Now, wouldn’t it just have been better to have both filed for Bankruptcy before the Decree?  Not had all that debt to argue about and then agreed to pay the money it would have taken to fund a Chapter 13 plan and added it to your kids’ college funds?


Mortgage Mods and Foreclosures

A man called me this morning who had just been served with a foreclosure Petition.  He says that he has a mortgage modification agreement negotiated with Wells Fargo.  So, they sued him anyway.  Frankly, he may be right — and he may not be.  He wanted to know what he should do about filing an answer to the foreclosure.  I told him that the first thing he needed to do was send a letter to his Congressmen.  He didn’t know who they were.

I did explain to him how to file an Answer and told him twice that he needed to file it with the Court, and that meant take it to the Court Clerk’s office and then send a copy to the foreclosure attorneys.

Still, is it any wonder that we get the legislative responses that we do out of Washington when the people who call my office don’t even know who their Congressional representatives are?


First Meetings of Creditors — the Stories

If you have a 341 hearing coming up, talk to your lawyer.  If your lawyer tells you that you have nothing to worry about, then take a book.  Otherwise, you will leave shaking your head over stories like this one:

Some time ago the first debtor on the docket (not my client THANK GOD) testified under oath that he owed mid 3 digits ($30,000 or MORE) in child support to each of three women (yep, that actually did add up to a total of 6 digits).  The Trustee, of course, needed the Mother’s names and addresses to send a kind of special notice to that goes to child support creditors.  The debtor didn’t know any of the Mothers’ addresses.  He wasn’t sure which city any of the three women lived in (with his children).  Although, he did know which Counties they each lived in, because DHS was collecting child support, or trying to, and they are organized into County offices.  Oh, did I mention that he wasn’t sure about one child’s name?  The really scary part was that his current girlfriend was there with him.

He didn’t have a good time.  My clients were in and out in about 3 minutes.  Well, three minutes after we sat through an hour plus long docket.  We were dead last.


Sheriff Sale Bidding Chaos

In Oklahoma the Sheriff’s Sale is one of the last stages in the foreclosure process.  You will find a general description of the entire Oklahoma foreclosure process on my web site’s foreclosure page.  The way Sheriff Sales work, bidding opens at 2/3 of appraised value.  Then, the bidding begins.  The mortgage company will generally have a representative there to bid on the property.  The mortgage company will be bidding with its judgment.  What that means is that as long as they don’t bid more than they are owed on the property (including sales costs, attorneys fees, court costs, etc.), then they don’t pay cash for the property.  They just exchange that much of their judgment.

So, if the mortgage company is owed a total of $95,000 on a property and buys it at Sheriff Sale for $80,000.  Then, at least in theory, the mortgage company can continue to seek the difference (called a deficiency) from the home owner or anyone else liable on the note and mortgage like a guarantor.  If the mortgage company bids $95,000, then they can’t collect any more from the home owners; because they aren’t owed any more.  What you won’t see is the mortgage company bidding more than $95,000, because then they would have to add cash to their judgment amount.  Any other bidder who wins the property must pay cash.

I just checked the Sheriff’s Sale results for Cleveland County, Oklahoma.  Twenty-two properties were sold.  Of those, twenty were bought by the mortgage company; and two were bought by a 3rd party.  Of the twenty bought by the mortgage company 11 of them were bid up to more than the appraised value for the property — in some cases a lot more.  One property sold to the mortgage company for $139,007 credit against its judgment.  The property was appraised for $95,000.

Bidding, like at all auctions, goes up in increments.  So the bidding for the property appraised for $95,000 would have started at $62,700 (2/3 of $95,000).  It would then be bid up in some kind of increments until only one bidder was left.  In most cases that last bidder was the mortgage company.  So, the mortgage company was going beyond appraised value in order to outbid people who would have paid them cash for the properties.  What is wrong with this picture?


First Meetings of Creditors — the Questions

The First Meeting of Creditors, or 341 hearing, exists so that the Trustee assigned to administer the case  can make sure he understands the schedules, identify any non-exempt assets he needs to administer and ask the Debtor any questions he needs answered.  Also, any creditors who need to know something (like car lenders who want to know if the Debtor is going to keep a car and verify that it is insured) or someone who believes he has been defrauded and needs a chance to ask a few questions to decide whether or not to pursue an objection to discharge have the right to ask questions as well.  These are the people for whom this hearing exists, but for most clients, it is a non-event.

Once you have been sworn in, you will take a seat to the Trustee’s left, and your lawyer will stand opposite you behind a podium.  Your lawyer will then begin asking you incredibly difficult questions — like your Name.  (You might want to study.)  Your lawyer should go over with you exactly what he will ask before the hearing, but the questions don’t generally get much harder than that first one.

Then, the Trustee has the right to ask you questions if he wants to.   He may ask some basic questions to make sure that he understands everything.  Again, not really much harder than that, “Please state your full name for the record” bit; and your lawyer should give you a pretty good idea of what kinds of things about your case will catch the Trustee’s eye.

After that, any creditors present have the right to ask you questions and so does the U.S. Trustee’s office if they want to.  The U.S. Trustee’s office is generally interested in asking questions about the Means Test, any budget entries that look excessive or anything that might smell like fraud or abuse.

It is that whole idea that their creditors are going to ask them questions that I think really scares my clients.  Look at it this way.   No one is going to pay a representative to drive to the Courthouse and cool his heels through the first part of the docket without a good reason.   Car lenders may want to know if you are going to keep the car and if it is insured.  That makes sense.  They need to know that.

For most of my clients from the time their case is called by the Trustee until they are heading out the door is less than five minutes.

Now, there are exceptions.  Business cases or other cases with significant assets and large  dollar figures involved will take more time.  For one thing, they are more complicated and there is more to understand.  For another, the bigger the dollar figures and the more things going on the greater the opportunity to conceal funds or otherwise commit fraud.

Of course, people who kind of, sort of, forgot to tell their lawyers about the rent house they own in another County or oil and gas rights in Texas  are generally in for an unpleasant surprise.  People who filed Bankruptcy leaving a number of people feeling like they were defrauded or just a ticked off ex-spouse will frequently prefer a root canal without anesthesia.  Clients whose lawyers either didn’t do their jobs or didn’t know their jobs are generally not in for a brief or pleasant time.  Anyone who thought that not mentioning something to his lawyer was a good idea is in for an eduction.  These are generally people for whom the 341 is not pleasant.

That last paragraph was a little smug and isn’t completely true.  There can be plenty of good, honest people who are well represented whose 341’s aren’t fun.  Construction contractors who left a bunch of houses unfinished and bills unpaid will frequently find homeowners showing up to either lay the groundwork for an objection to discharge or just to regain a pound of flesh.  Ex-spouses can be unpleasant additions to a 341 room.

Ask your lawyer if anyone is likely to show up on your case.  Basically, non-institutional creditors (normal people instead of Capital One) are likely to show up just because they got something in the mail and don’t know that they don’t have to.

If your lawyer tells you that you have nothing to worry about, then take a book.  Otherwise, you will leave shaking your head over some poor sod who went before you and didn’t have a good day.  I will post a few of those stories another time.


First Meetings of Creditors — the Background

For most of my clients the First Meeting of Creditors (known familiarly as the 341 hearing) is the only time they have to go to the Bankruptcy Court.   I warn them that it is likely to be the biggest non-event they have ever lost sleep over.  That doesn’t help.  They are almost always  scared to death.

I have to confess that I understand.  Some twenty years ago when  I was a baby lawyer (maybe even still in law school),  I was sent to a Chapter 11 341 to observe.  I was not to ask questions.  I was not to enter an appearance.  I was to observe, take notes and report back.

I was scared to death.  I try to remember this when I look at my clients in the hallway of the courthouse shaking in their shoes.  So, just for the record, this is what a consumer debtor in the Western District of Oklahoma has to look forward to.

First,  airport level security at the door of the Courthouse, and don’t even think about bringing your cell phone into the building with you.  Second, a  crowded room filled with other people who have filed for Bankruptcy, their lawyers and a few creditor representatives.  Third, (unless you are at the top of the docket) — boredom.   Bring a book.

When your case is called you and your attorney will go to the front of the room.  The first thing you will do is give to the Trustee presiding over the docket (no, he is not a Judge) your Government issued photo ID (like a driver’s license) and proof of your full Social Security Number.  He will then verify that you are in fact who you claim to be.  You see how difficult this is?  (Believe it or not identity theft does occasionally turn up in the Bankruptcy system.)

Then, you will give to the Trustee, or the Trustee’s assistant, the documents you were told to bring to the meeting.  Generally, in this District those documents are:

  • Car Titles to all vehicles in which you have an interest;
  • Current month’s pay stubs;
  • Three months’ bank statements for all accounts (the one showing the date the bankruptcy was filed and the two before that).

Your Attorney should have already provided your two most recent tax returns to the Trustee’s office.

Then, of course, you proceed to the purpose of the meeting — the questions.  This post was getting far too long, so those will be covered in a separate post.