Frankly, I think that this settlement will actually speed up the pace of foreclosures. Many lenders placed foreclosures on hold due to the robo-signing scancal, and were subject to investigations on both the state and federal level. The legal fees that these banks would have paid just to defend these investigations would have cost billons over the next few years. With this settlement, the banks are now essentially going to be free to start foreclosures without having to worry about criminal probes (unless they do something really bad). In my opinion, this settlement was the price of reopening the foreclosure floodgates and protecting many bank officers and directors from criminal prosecution.

      Some of the settlement funds are supposed to be utilized to fund non-profit home retention programs. I only hope that the money works its way down to these organizations in time. As I understand it, the banks have three years to fund the entire settlement. A lot of homes will be lost by then if the the Government does not ensure that these non-profit programs are the first in line to receive the money.

We are also seeking to have the mortgage declared invalid based upon the questionable PMI insurance policy associated with the mortgage. In this case, the bank is charging the homeowner $486 per month for PMI coverage on a mortgage amount of $130,000. The lawsuit will allege that the policy cost is nearly five times the amount that should have been charged and, further, that PHH may have received unlawful compensation from the PMI premiums.  Under Banking Law 6-l and 6-m, the courts have the ability to invalidate high-cost and sub-prime mortgages for actions such as that alleged by the homeowner in this case.

The lawsuit will also seek to prove that “robo-signed” documents may have been presented to the Bankruptcy Court already. Specifically, it appears that a mortgage assignment attached to filed court documents may contain forged signatures on behalf of the prior mortgage holder. The lawsuit will seek to hold the lender in civil contempt.

Other claims under state and federal law will be included in the lawsuit. Fannie Mae will be named as a defendant, as will the issuers of the mortgage insurance policies.  

          However, there are two situations in which debt settlement probably makes sense. First, if a client’s total debt is less than $5,000, then settling directly with creditors on reasonable terms is a smart option.  In general, the client should aim for a settlement of about 50 cents on the dollar. Some creditors will settle for less and some will absolutely refuse to settle for less than 80 cents on the dollar (particularly when the creditor is a debt purchaser rather than the original creditor).

           The second situation in which debt settlement is appropriate is when the client would be forced into a 100% chapter 13 bankruptcy plan (meaning that they would have to pay all creditors in full) either because of excess income or non-exempt assets. Clearly, it will cost the client less money to settle the debts rather to pay all creditors in full. However, this is easier said than done because creditors do not offer good discounts unless the client can make a lump sum payment. So, for example, if you have $20,000 in debt, you are going to need access to several thousand dollars if you want to settle all your debts at once or you are going to have to deal with one creditor at a time as you accumulate money.

          If you do not have a good game plan for settling all the debts within a year or two, then debt settlement may not be a realistic option because your creditors are simply not going to wait much beyond that timeframe to get paid. Eventually, one of the creditors will sue you, obtain a judgment, and then garnish your wages if you are working. If this happens, it is very unlikely that you will be able to save money to fund settlements.  Also, most debts carry such higher interest rates and penalties that a settlement reach two years down the road may not be much less expensive than full payment right away. For example, if you have a credit card balance of $1,000 today with an interest rate of 20%, then in two years, your balance will be $1,400 (plus late fees, over the limit fees, etc.). A 50% settlement will cost you at least $700, and don’t forget about the tax bill you will be getting for the $700 debt cancellation. Add the general stress that you will be under dealing with the debt for two years, and you can see why some clients simply prefer the assurance and peace of mind that comes with a court-supervised chapter 13 plan.

          In our experience, debt settlement works best when you have an outside family member or friend who can loan or gift you the money necessary to pay off settlements quickly as they are reached. We have obtained great results for clients in these circumstances. If you would like advice about debt settlement and whether it is right for you, we encourage you to contact us. All clients receive a free consultation about bankruptcy and non-bankruptcy options that are available to them.

     While many see this as an “obviously” positive trend, we do not necessarily agree. We do not think the drop in filings means that consumers are better off. Rather, we think it is a reflection — at least in part — of consumers taking a less active role in their finances. We are actually receiving the pretty much the same number of calls that we did last year, but the number of people actually filing cases has decreased. Why? It could be that people are so strapped that they cannot come up with the fees to pay the bankruptcy attorney — even fees as affordable as the $750-$900 typically charged by our office. For someone living from check to check, even this seemingly small amount of money can seem overwhelming. I am convinced that many people who need bankruptcy relief don’t file for this reason alone. In fact, if I had to guess, I would say about half of all potential clients fall into this category.

    There is another category of consumer that is no longer filing bankruptcy:   the consumer who has adopted the belief that paying bills may simply does not matter any more. They see the Government handing out endless bailouts to businesses and others, and these people may think that there are (or could be) similar bailouts for them just around the corner. They may also perceive this as an issue of findamental fairness:  Why are homeowners with $750,000 houses in Las Vegas getting financial relief when they can’t get even the slightest help with more important bills such as medical bills and utlilities.  It is certainly a valid question.

     Now, the landscape is very different. The homeowner who is behind on a mortgage by even a few months can seek a loan modification and, very often, reduce the monthly payment and interest rate. It is not easy to accomplish, and there are definitely a lot of con artists (regrettably, even some attorneys) promising results that cannot be delivered. However, in the right case, the homeowner will be approved for a loan modification and can avoid chapter 13 altogether — or perhaps file chapter 7 instead to deal with non-mortgage debt.

     I am amazed that chapter 13 lawyers are still filing bankruptcy cases for clients with obviously terrible mortgages.  The better way to approach the situation is to have the mortgage reviewed by a qualified mortgage modification attorney first. If the mortgage cannot be modified, then chapter 13 may be appropriate but only as a last resort. 

      Homeowners should be made aware that even if they are in an active chapter 13 case or an active foreclosure, they can still be reviewed for both HAMP and traditional mortgage modifications. It is almost never too late for such a review, and we accept referrals from attorneys throughout Western New York of clients that are interested in pursuing loan modification options.

How many properties are affected? Believe it or not, there are about 5,000 properties  targeted by the City of  Buffalo tax foreclosure action, and some homeowners owe less than $1,000 in taxes, water charges, and user fees.  Although many people are able to pay the delinquent taxes as soon as they receive the foreclosure notice, many other people really don’t know where to turn when the foreclosure starts.

Every year, we receive calls from dozens of clients at this time of year looking for advice. Many people don’t really believe that the City is going to sell their property. They figure they can work something out at the last minute. This may be true in some cases, but I can assure you that the City is serious about its tax foreclosure, and if the homeowner doesn’t act, the property will be sold regardless of the amount of debt.

So what should you do if you are facing a tax foreclosure? First of all, don’t panic. If you take the right steps, you can definitely stop the foreclosure. The larger question is whether you should try to negotiate a deal with the City or whether you should seek legal help. In our experience, most people facing tax foreclosure have other debts as well, so they probably need the protection that bankruptcy can give them. A Chapter 13 bankruptcy gives the homeowner up to five years to get caught up on the taxes, while eliminating most other types of debt. Chapter 13 allows the homeowner to keep the property without any lump sum payment.

A homeowner facing foreclosure may also be able to work out a short term payment arrangement with the City of Buffalo, and if the taxes, water bill and use fees total less than $1,000, then seeking a deal with the City may be the best bet. If the tax debt is higher or if you have other bills as well, please contact our office for advice before making any decisions. We have helped hundred of people over the years stop tax foreclosures, and we are always happy to give you our advice (for free) about how best to handle the foreclosure process.

1. We can file an answer to the foreclosure action. There is almost always a defense available. For example, if your mortgage was assigned or transferred, it is possible that the original paperwork was lost. This may not permanently postpone the foreclosure action, but you are entitled to view the original promissory note if it is available. Even if we cannot assert a true legal defense, the court does have the power to grant “equitable relief” such as a  temporary delay in the foreclosure process. The filing of an answer will slow down the foreclosure action by a few months (sometimes longer).

2. We can represent you at the mandatory settlement conference.  Every homeowner is now entitled to a settlement conference with a representative from the mortgage lender. This is an opportunity to discuss repayment options that may be available, including loan modifications. It is important that you have competent legal representation at this conference because it is likely the single best chance you will have to come up with a with an affordable repayment plan.  Our newest staff attorney, Joe DeMarco, actually worked for a foreclosure law firm before joining our office and has siginficant experience in the loan modification and loss mitigation process.

3. We can file a chapter 13 bankruptcy to help you get caught up on the mortgage. If you do not meet the criteria for a loan modification, you can most likely file a chapter 13 bankruptcy to deal with the back mortgage payments. In chapter 13, you will get up to five years to get caught up the mortgage. Chapter 13 will also help you get elminate or consolidate most other debt. This is extremely important to make sure that you are able to stay current on the mortgage in the future. For more information about chapter 13, please download a copy of our bankruptcy guide here 

    Here are a few cases we are working on right now:

1.     Client owns a remainder interest in his parents’ property. Both parents are still alive, and the actuarial value of the remainder interest is about $8,000.  Using the wildcard exemption, this interest is totally exempt. Under the New York exemptions, this would have been a tough chapter 7 case because there is no way to know how much the trustee might settle for. So the client probably would have filed a chapter 13  to ensure that the remainder interest was preserved. 

2.      Client owns vacant land used for hunting. The value of the land is about $10,000, and the client has multiple judgment liens. Under prior law, the client could have filed chapter 7 without worrying too much about the trustee making a claim because the liens exceed the value of the property. However, using the federal exemptions, the client is not only able to protect the property, but also use Section 522 to avoid the judgment liens. He will be exiting the bankruptcy with both his home and land judgment free. The client was more than happy to pay a few hundred dollars extra for the 522 motion.

3.     Client has a manufacturing business with specialized equipment worth about $50,000.  He has IRS and NYS tax debt of about $30,000. After applying the federal exemption, his non-exempt equity is about $10,000. He happens to have significant unsecured debt (mostly student loans), so his chapter 13 case is dealing with the tax debt and paying unsecured creditors five cents on the dollar (the minimum in Buffalo). He is saving about $170 per month in his plan payment because of the federal exemptions.

     These are just a few examples I was thinking about on the way to work today. I will start keeping track of these types of cases so I can post updates.

     The freeze on foreclosures can already be seen in local Chapter 13 filings. For March, there have been only about 75 Chapter 13 filings in the Buffalo Division. In March 2010, there were 153 Chapter 13 filings. This dramatic drop can only be explained by the foreclosure situation. My sources indicate that this situation will not improve for at least 6 month, and the foreclosure numbers will not get back to “normal” for 12-18 months. So we should expect the Chapter 13 numbers to stay down — way down — for a while.

     Is this good news for homeowners? Absolutely not. The best time for a homeowner to file Chapter 13 is when the foreclosure action is just starting. At that point, the homeowner is only a few months behind, and the Chapter 13 plan payment will likely be affordable. If the foreclosure action is stalled for 2 years, the Chapter 13 payment will be much higher — probably far too high for most people. The reprieve will be temporary, and the homeowner will have few options. I think it unlikely that the banks will be looking to modify loans that have been stalled in the foreclosure process for two years.

     The robo-signing problem has been overstated. Yes, there is a lot of lost paperwork out there, but let’s face it: very few homeowners are being asked to pay for a mortgage they did not actually sign. I fear this legal defense will do more harm than good in the long run for people who are behind on their mortgages.