Loan Modification and Bankruptcy Basics Powerpoint Slideshow 2009 NCVAA

4 th ANNUAL CONFERENCE | OCTOBER 16-17, 2009 | HUNTINGTON BEACH, CA LOAN MODIFICATION & BANKRUPTCY BASICS PANEL 9:00 am – 10:30 am

WELCOME TO THE LOAN MODIFICATION AND BANKRUPTCY BASICS PANEL PANELISTS: DAMIAN NASSIRI | CUONG M. NGUYEN LYNDA T. BUI | ANN N. NGUYEN MODERATORS: DUYEN NGUYEN | MINH HOANG

PRE-FORECLOSURE TIMELINE
LOAN SERVICER ACTION
Borrower default
Mail breach letter
Breach expires (referral to foreclosure)
Attempt to contact borrower to discuss financial situation and options to avoid foreclosure
- Only applies to loans made 1/1/03 – 12/31/07 and only for owner-occupied residences
DAYS
0
30
90
STATUTE
Civ. Code § 2923.5(a)(2)
Civ. Code § 2923.5(i)

PRE-FORECLOSURE TIMELINE ( CONTINUED… )
LOAN SERVICER ACTION
Contact made:
- Advise borrower of right to request a subsequent meeting, which must be scheduled within 14 days if requested
- Provide borrower with HUD toll-free phone number to find a HUD-certified housing counseling agency
Or unable to contact  due diligence:
- Mail borrower HUD toll-free phone number to find a HUD-certified housing counseling agency
- Attempt to contact 3 times at different hours on different days, unless all numbers on file are disconnected
Trustee records Notice of Default
DAYS
-30 (90)
-0 (120)
STATUTE
Civ. Code § 2923.5(a)(2)
Civ. Code § 2923.5(a)(2)
Civ. Code § 2923.5(g)(1)
Civ. Code § 2923.5(g)(2)(A)
Civ. Code § 2923.5(g)(2)(C)
Civ. Code § 2923.5(a)(1)

FORECLOSURE TIMELINE
TRUSTEE ACTION
Record Notice of Default
(include Declaration that contact was made with borrower to discuss options, or due diligence attempts, or borrower has surrendered property)
Mail Notice of Default to borrower
Mail Notice of Default to borrower’s successors in interest , and junior recorded interests
Servicer to attempt loan modification if:
(1) Loan recorded 1/1/03 – 1/1/08
(2) First mortgage
(3) Borrower occupied property as principal residence at time of delinquency
(4) Notice of Default recorded
Unless Servicer obtains exemption
(http://www.corp.ca.gov/FSD/CFP/pdf/ExemptList.pdf)
DAYS
0
10
30
90
STATUTE
Civ. Code § 2924(a)(1)
Civ. Code § 2923.5(b)
Civ. Code § 2924b(b)(1)
Civ. Code § 2924b(c)(1)
Civ. Code § 2923.52(a)
Civ. Code § 2923.52(b)
Civ. Code § 2923.53

FORECLOSURE TIMELINE ( CONTINUED … )
TRUSTEE ACTION
Record Notice of Trustee’s Sale
(if NOD recorded before statute enacted, incl. Declaration contact was made with borrower, or list efforts made to contact borrower)
Mail Notice of Trustee’s Sale to borrower
Mail Notice of Trustee’s Sale to borrower’s successors in interest and junior recorded interests
Post and publish Notice of Trustee’s Sale
Last day to reinstate loan
Trustee’s sale
DAYS
180
-20 (180)
-5 (195)
-0 (200)
STATUTE
Civ. Code § 2924(a)(3)
Civ. Code § 2923.5(c)
Civ. Code § 2924b(b)(2)
Civ. Code § 2924b(c)(3)
Civ. Code § 2924f(b)(1)
Civ. Code § 2924c(e)

FORECLOSURE LEGISLATION PROPOSAL AB 1588: MONITORED MORTGAGE WORKOUT PROGRAM
INTRODUCED 9/9/09
NOD must contain notice of borrower’s right to elect to participate in MMW Program
Program to be administered by the Cal. Housing Finance Authority (CHFA)
Borrower must communicate to CHFA and Trustee his election to participate in MMW within 30 days of receiving NOD
If borrower elects to participate, a “Monitor” is appointed to oversee the loan modification process
Once MMW is elected, foreclosure must be stayed until MMW is completed
The Monitor shall assist the parties in assessing affordability of any loan modification and its NPV versus foreclosure
If the parties cannot agree, the Monitor shall prepare a reasonable loan modification proposal that satisfies HAMP guidelines, if feasible
If the Trustee rejects the proposal or acts in bad faith as determined by the Monitor, the borrower can enforce the Monitor’s proposed loan modification in expedited court action
If the borrower rejects the proposal or acts in bad faith as determined by the Monitor, foreclosure may resume
The Monitor is paid up to $750 by the Trustee; if loan is modified, the borrower reimburses ½
Borrower must establish a trust account and deposit 60% of monthly mortgage payments
“ Trustee” means lender, mortgagee, trustee, beneficiary, or authorized agent that recorded NOD
Cf. Nevada Foreclosure Mediation Program

FORECLOSURE STATISTICS ( REALTYTRAC ) CALIFORNIA RATE MAP FORECLOSURE ACTIVITY BY MONTH FORECLOSURE ACTIVITY BY COUNTY FORECLOSURE ACTIVITY & HOME PRICE INDEX
459,698 FORECLOSED HOMES
92,326 IN AUGUST 2009
1 IN 27,844 HOMES
6-MONTH TREND: DECLINE
STATE FORECLOSURE
RATE RANKING
NEVADA
FLORIDA
CALIFORNIA
ARIZONA
MICHIGAN

BORROWER FACES FINANCIAL CRISIS, WHAT ARE THEIR OPTIONS TO HELP SAVE THEIR HOME?
Refinance
Short sale
Deed in lieu
Predatory lending litigation
Loan modification
Bankruptcy

OVERVIEW OF LEGAL CLAIMS AGAINST LENDERS, BROKERS, AND TRUSTEES
Truth In Lending Act (“TILA”) Violations
Homeownership Equity Protection Act (“HOEPA”)
Real Estate Settlement Procedures Act (“RESPA”)
California Civil Code § 2923.5 and 2923.6
California Civil Code § 2923.52
Business and Professions Code § 17200, 17500
Violations of Foreclosure Procedure; CC § 2932.5 and Cal. Commercial Code § 3301, et. seq.
California Translation Act (Civil Code § 1632)
Welfare & Institutions Code § 15610.30
UDAP, Fraud, Breach of Fiduciary Duty, ect.

TRUTH IN LENDING ACT (“TILA”)
TILA is primarily a Federal Disclosure statute: 15 USC § 1601, promulgated by Regulation Z, 12 CFR § 226.2
TILA’s purpose is to assure a meaningful disclosure of credit terms so that the borrowers will be able to compare more readily the various credit terms available to them and avoid the uninformed use of credit and to protect the consumer against inaccurate and unfair credit billing. 12 C.F.R. § 226.1.
Requires the originating lender to make disclosures that are “ Clear and Conspicuous ” and accurately reflect the legal obligation on the loan. 12 C.F.R. § 226.17(c)(1)

TILA RESCISSION – COVERED LOANS
TILA rescission applies:
Refinances secured by a principal dwelling - includes Second Mortgages and Home Equity Lines of Credit but does not apply to purchases .
Three Year Statute of Limitations
Must Be Refinanced as Owner Occupied
Rescission applies to Assignees.
Assignee Liability for Disclosure Violations if Violations are “Apparent on the Face” of the loan documents

TILA RESCISSION FOR MATERIAL DISCLOSURE VIOLATIONS
TILA violations extend the right to rescind from
3 days to 3 years .
Most common violation is “ Right To Cancel ” Notice. APR & Finance Charge violations less common.
All closing costs and all interest paid to date on the loan are returned to the borrower
Money is “returned” to borrower through Principal Reduction . Statutory and attorneys fees available.

The TILA, at 15 U.S.C. § 1635(a) as implemented under Regulation Z § 226.23 (b) , requires that each borrower receive two (2) copies of the right to cancel notice at closing
The notice is required to clearly and conspicuously disclose, among other things, the date the rescission period expires ( Regulation Z § 226.23(b)(1)(i-v) ).
A signed Acknowledgment creates only a rebuttable presumption . 15 U.S.C. § 1635(c)
TILA AND THE 3 DAY RIGHT TO CANCEL NOTICE

WITH TILA, “HYPERTECHNICALITY REIGNS” ¹
Providing a defective right to cancel, or not providing a right to cancel at all is a defect which has been held to give rise to an extended rescission period by the 9th Circuit Court of Appeals. Semar vl Platte Valley Fed. Sav. & Loan Ass’n , 791 F.2d 699 (9th Cir. 1986).
The client has 3 years from close of escrow to exercise the rescission right.
¹Hamm v. Ameriquest, ~F.3d~, 2007 WL 3010973 (7 th Cir. Oct. 17, 2007)

TILA PROBLEMS FOR BORROWERS
Borrower required to Refinance and Payoff Old Loan at reduced principal (“ tender ”)
Few if any borrowers can tender due drop in FMV, unless they have equity.
Judges have equitable discretion to modify rescission process, but few have.
More TILA rescission cases being dismissed due to inability to tender.

OPTION ARMS AND TILA STATUTORY DAMAGES
Under TILA, a plaintiff is entitled to statutory damages, attorneys fees, and costs for a lender’s failure to comply with its provisions, including the material disclosures. See 15 USC § 1640(e).
Disclosures must be “ Clear and Conspicuous ” and accurately reflect the legal obligation on the loan. 12 C.F.R. § 226.17(c)(1)

OPTION ARMS – PAYMENT SCHEDULE AND TEASER RATE
The Payment Schedule should reflect all components of the finance charge…and in a variable rate transaction with…a discounted or premium rate, disclosure should not be based on the initial terms .” 12 C.F.R. § Pt. 226, Supp I, ¶¶ 17(c)(1)-8, 18(g)-1.
“ A Payment Schedule which bases several years of payments on the initial low interest rate, does not reflect clearly the legal obligation evidenced by the Note”. See Amparan v. Plaza Home Mortgage, Inc., 2008 WL 5245497.

OPTION ARMS – PAYMENT SCHEDULE AND TEASER RATE ( CONTINUED… )
The initial “teaser rate” is usually only applicable for one month, yet the entire Payment Schedule in the TILD is typically calculated based on the teaser rate .
“ Where negative amortization is a certainty, TILA requires disclosure of that fact .” See Mincey v. World Savings Bank , FSB (DSC Aug. 15, 2008)
“ T he average borrower reasonably believed that the teaser rate was a fixed rate and that neg am was only a possibility rather than a certainty.” See Monoco v. Bear Stearns, 554 F.Supp.2d 1034

OPTION ARM – NEGATIVE AMORTIZATION
A lender is required to disclose “[a]ny rules relating to changes in the index. Interest rate, payment limitations, negative amortization , and interest rate carryover”. 12 C.F.R. § 226.19(b)(2)(viii).
A note with only one reference to negative amortization as a possibility has been found to state a claim for a TILA violation. See Amparan .
Disclosing the possibility of neg am is misleading when the reality is that it will occur. Placentia v. Lending 1 st Mortgage , 2008 WL 1902698.

OPTION ARM – EQUITABLE TOLLING AND STATUTORY DAMAGES
1 year SOL, however,
The Ninth Circuit has held that TILA’s one year statute of limitations period is subject to equitable tolling until the borrower discovers or had reasonable opportunity to discover the fraud or nondisclosure that form the TILA action. ( King v. California (9th Cir. 1986) 784F.2d910,915)
See Ralston v. Mortgage Investors Group, Inc. , 2009 WL 688858. Equitable Tolling sufficiently alleged for Option ARM. (loan docs did not clearly disclose teaser rate would increase, etc.)

2923.5 DECLARATION DEFICIENCIES
TRO granted when:
Homeowner’s Declaration persuasive if testify to actual facts in contravention of lender’s declaration
2923.5 declaration did not state the date the declaration was signed,
Who signed the declaration,
Where the declaration was signed,
That it was signed under penalty of perjury, (CCP 2015.5)
That it was signed by the beneficiary or an authorized agent of the beneficiary,
That the declarant had personal knowledge,
Additionally, the declaration did not state "actual facts," it only stated legal conclusions such as statute was satisfied, all requirements were met, etc.

CALIFORNIA CIVIL CODE § 2923.6
§ 2923.6: Servicers act in the best interest of “all parties” if they offer a loan modification in which the “ anticipated recovery ” under loan modification exceeds the anticipated recovery through foreclosure.
Roadblocks: Loan Mods not mandatory; Lenders will argue no private right of action .
May support B&P § 17200

CALIFORNIA CIVIL CODE § 2923.5 LEGISLATIVE HISTORY
Unnecessary foreclosures can and should be avoided
“ It is essential to the economic health of California for the state to ameliorate the deleterious effects on the state economy and local economies and the California housing market that will result from the continued foreclosures…
These changes in accessing the state's foreclosure process are essential to ensure that the process does not exacerbate the current crisis by adding more foreclosures to the glut of foreclosed properties already on the market when a foreclosure could have been avoided. See Sections 1(d) of Stats.2008, c. 69 (S.B.1137) (emphasis added)

MORE LEGISLATIVE HISTORY
“ This act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the Constitution”. See Sections 10(a) of Stats.2008, c. 69 (S.B.1137). (emphasis added)
This act is necessary to avoid unnecessary foreclosures of residential properties and thereby provide stability to California's statewide and regional economies and housing market

CALIFORNIA TRANSLACTION ACT (CIVIL CODE § 1632)
If loan is negotiated in Spanish, Loan documents must be provided in Spanish.
Loan is subject to rescission and damages.
Lender can defeat this claim if loan documents were translated at closing; however, the “translator” cannot have been an employee of the broker/lender.
Also applies to Chinese, Tagalog, Vietnamese and Korean.
Same “Tender” Issues…..

FORECLOSURE PROCEDURAL ISSUES: STANDING
California Civil Code § 2932.5 - Power of sale under Deed of Trust can only vest in an entity that is “ entitled to money payments” under Note
Power of Sale can only be exercised by the assignee if the assignment is duly acknowledged and recorded .
Foreclosing entity must be a beneficiary under the NOTE (or an agent).
Assignment of deed alone is insufficient: See Carpenter v. Longan , 83 U.S. 271, 274, 21 L. Ed. 313 (1872).

MERS ISSUES
MERS is a product of the mortgage industry , designed to facilitate and to keep hidden the transfer of mortgages on the secondary mortgage market and save lenders the cost of filing assignments.
MERS is not a mortgage lender , nor does it ever own or have any beneficial interest in the note or mortgage. See, e.g., Merscorp, Inc. v. Romaine , 295 A.D.2d 431, 743 N.Y.S.2d 562, 2002 N.Y. Slip Op. 0475.
Argue that there is “No evidence of record that establishes that MERS either held the promissory note or was given the authority by [the originating lender] to assign the note.”

MERS ISSUES ( CONTINUED… )
Argue: MERS cannot assign the promissory note or the deed of trust.
Argue: NOD and NOTS void if issued by MERS.
MERS should not be allowed to proceed with foreclosures because they do not have ownership of the debt. LaSalle Bank v. Lamy, 2006 N.Y. Misc. LEXIS 2127
Argue: Public Policy: Unfair to homeowners:
MERS hides public mortgage loan ownership information from the borrower and the public by keeping it in a secret and inaccessible place when it is should be publicly recorded.

TRO’S AND PRELIMINARY INJUNCTIONS
File case.
Then file Ex Parte Application for Temporary Restraining Order.
Client Declaration & Declaration re Notice
Attachments: NOD, NOTS, proposed modification, supporting income docs.
Outcome depends on the Judge: State Court Judges in affected areas more sympathetic; Federal Judges less so.
A bond may or may not be required. ($10k-$20k)

TRO’S AND OPTION ARMS
Preliminary Injunction Granted where: “[ F]ailure to disclose that the payment cap associated with the Option ARM loan sold to Plaintiff would certainly cause negative amortization to occur ” violated C.F.R. § 226.19. Avila v. Stearns Lending, Inc. (C.D.Cal.April 7,2008) No. CV 08-0419-AG, 2008 WL 1378231.
For “ serious TILA violations ”, a court may grant a preliminary injunction restraining the foreclosure sale even if the borrower does not demonstrate the ability to make full restitution in one lump sum on an award of rescission. Avila v. Stearns Lending, Inc . (CD Cal 2008) 2008 US Dist Lexis 31813.

TARP & HAMP
The Emergency Economic Stabilization Act of 2008 (EESA).
Signed into law on October 3, 2008
The United States Treasury has instituted a number of programs, including:
The "Making Homes Affordable" Act (“HAMP”),
Capital Purchase Program, and
Capital Assistance Program, among others.
For complete list see: http://www.financialstability.gov/roadtostability/programs.htm .

HOME AFFORDABLE MODIFICATION PLAN (“HAMP”) – REQUIRED PARTICIPATION
Pursuant to the plans, and the authority provided by H.R. 1424 Title I Sec. 109-110, the United States Treasury has ordered as follows:
Mortgage Foreclosure Mitigation: All recipients of capital investments under the Financial Stability Plan will be required to commit to participate in mortgage modification program.
http://www.financialstability.gov/about/transparencyaccountability.html

HAMP & TARP ( CONTINUED… )
Pursuant to the United States Department of the Treasury Section 105(a) Troubled Asset Relief Program (TARP) Report to Congress for the Period April 1, 2009 to April 30, 2009
If the Lender has received TARP funds from the U.S. Government in purchases of troubled assets, loan modification should be considered .
See http://www.financialstability.gov/docs/105CongressionalReports/105aReport_042009.pdf
M ost Common TARP recipient Banks: Wells Fargo, US Bank, GMAC, Bank of America (Countrywide), Chase (Wamu)

HAMP & LOAN SERVICERS
Servicers: Many Mortgage Servicers have committed to the Home Affordable Modification program through a formal written “ Participation Agreement ” with the United States of America.
See Residential Mortgage Servicers listed on Hope Now Alliance website. http://makinghomeaffordable.gov/contact_servicer.html
As a recipient of TARP funds , and pursuant to the Participation Agreement , the Servicer is subject to the U.S. Treasury's modification program guidelines for the Making Home Affordable Program.
Therefore, a loan modification should be offered to the eligible borrower

HAMP & FORECLOSURE SUSPENSION
US Treasury guidelines clearly require "[A]ny foreclosure action…be temporarily suspended during the trial period, or while borrowers are considered for alternative foreclosure prevention options.
In the event that the Home Affordable Modification or alternative foreclosure options fail, the foreclosure action may be resumed.”
Now available for seconds (2MP)
HAMP FAQ’S - SUPPLEMENTAL DIRECTIVE 09-01 (7/22/09)
“ Foreclosure actions…including initiation of new foreclosure actions, MUST be postponed for all borrowers who meet the minimum HAMP eligibility criteria. (FAQ #3)
Servicers MUST apply the specified modification steps until the borrower’s monthly mortgage payment ratio is reduced as close as possible to 31 percent . (FAQ #4) (emphasis added)

HAMP QUALIFICATION PROCESS
The guidelines further require, in summary:
A) A screening for borrowers who write to their lender for assistance even if not in default;
B) A Net Present Value (NPV) analysis , which, if positive, requires the offering of the Making Homes Affordable (HMA) Modification;
C) If the NPV analysis does not qualify for the MHA program, the lender must seek alternative foreclosure prevention including alternative modification programs, deed-in-lieu, and short sales ; and
D) Borrowers in litigation can qualify for a modification without waiving legal rights in such litigation.s

HAMP ELIGIBILITY
Home must be applicant’s primary residence.
Amount owed on first mortgage must be equal or $729,750.
A homeowner must be “having trouble” paying their mortgage - delinquent (missed two payments) or default is “imminent”.
The mortgage was originated before January 1, 2009
The payment is more than 31% of the homeowner’s gross monthly income.

HAMP MODIFICATION CRITERIA
The plan requires, in pertinent part, the following steps:
Request the monthly gross income of the mortgagee
Capitalize the arrearage
Target a front-end DTI (debt-to-income) of 31%
Reduce the interest rate to a minimum of 2% reach the DTI target.
Extend the term of the loan up to 40 years to reach the DTI
Forbear principal to reach the DTI

FORECLOSURE & LOAN MODIFICATION LITIGATION: Pantoja v. Countrywide
PANTOJA V. COUNTRYWIDE HOME LOANS, INC., ET AL. , --- F.Supp.2d ---, 2009 WL 2423703 (N.D.Cal. 7/9/09)
ALLEGATIONS:
Wrongful foreclosure since NOD failed to properly identify beneficiary, violates CC § 2924c(b)(1)
Wrongful foreclosure for failure to produce or prove possession of original promissory note
Violation of intent and purpose of TARP, by using TARP funds for own enrichment
Violation of CC § 2923.6 for failure to modify loan
HOLDINGS (Motion to Dismiss):
Standing to bring action to set aside foreclosure sale for irregularities in sale notice or procedure requires borrower demonstrate a valid and viable offer to pay back the loaned amount minus interest and finance charges, unless inequitable. (“Tender Rule”)
No claim for deficient foreclosure notice if borrower suffers no prejudice
No private right of action against TARP fund recipients, only against Secretary of Treasury for acts by the Secretary
California law does not require production or possession of original promissory note in order to proceed with nonjudicial foreclosure
No private right of action under CC § 2923.6, only for servicer or investor in a loan pool; no duty to modify loan
MERS has right to foreclose under CC § 2924 given borrower granted MERS such right in his contract

HAMP LITIGATION: Williams v. Geithner
WILLIAMS, ET AL. V. GEITHNER, ET AL. , U.S. District Court, Minnesota, Class Action filed 7/28/09, Case No. 0:09-cv-01959-ADM-JJG
Filed by Housing Preservation Project attorneys – www.hppinc.org
Borrowers’ circumstances: GSE and non-GSE loans, should have qualified for HAMP but denied without reason or ability to appeal, or just ignored
Johnson Sendolo’s story:
Lost job, defaulted, got a new job paying less
Denied a HAMP modification without specific reason, only list of possible reasons, and did not contain evaluation of his other options, if any
Nicole Williams’ story:
Lost job, defaulted, got a new job
Servicer offered temporary loan modification but not HAMP modification (more than 31%)
Carey Koppenberg’s story:
Husband died, loss of his income, defaulted
Sent in HAMP application, home was foreclosed on prior to any HAMP determination made
Carrie Strohmayer’s story:
Divorce, loss of husband’s income, defaulted
Denied HAMP modification orally, no written denial, because DTI ratio was too high (FNMA loan)
Complaint: No written denial requirement, no specific reasons for denial, NPV formula or application, and no opportunity for appeal  borrowers denied Fifth Amendment procedural due process. HAMP is an entitlement program; its benefits cannot be administered arbitrarily and without procedural due process. All foreclosures should be stopped until proper procedures are put in place.

CA AG SETTLEMENT WITH COUNTRYWIDE
On October 20, 2008, CFC entered into a Stipulated Judgment and Injunction (“Settlement”), in which CFC confirmed it expected to provide up to $8.68 billion of home loan and foreclosure relief nationally , including $3.5 billion to California borrowers .
Pursuant to the Settlement, “Eligible Borrowers” with “Qualifying Mortgages” are to be considered for a loan modification in accordance with the “Affordability Equation”.

COUNTRYWIDE SETTLEMENT – “QUALIFYING MORTGAGES”
Pursuant to paragraph 3(P) and 3(FF) of the Settlement, a “ Qualifying Mortgage ” is one in which:
the first payment date was on or before December 31, 2007 ,
is secured by an owner-occupied 1-4 unit residential property and is serviced by a CFC Servicer.
Further, the loan is a Subprime 2, 3, 5, 7, or 10 Hybrid ARM or Pay Option ARM .
Plaintiff is either a Delinquent Borrower or Seriously Delinquent Borrower with a Loan To Value (“LTV”) is 75% or more . In addition, the plaintiff has not acted with intentional nonperformance.

CFC SETTLEMENT AND HYBRID ARMS
Pursuant to Section 6.3.3(a), Qualifying Mortgages that are Subprime Hybrid ARMs will be eligible for:
An unsolicited restoration of the introductory rate for five years, without new loan documentation or an evaluation of the Eligible Borrower's current income.
A streamlined, fully-amortizing loan modification subject to the Affordability Equation.

CFC SETTLEMENT AND OPTION ARMS
A streamlined loan modification subject to the Affordability Equation consisting of:
(a) elimination of the negative amortization feature ;
(b) optional ten-year interest-only period on the loan;
(c) reduction of the interest rate to a rate no lower than the Interest Rate Floor, with an Annual Increase subject to an interest rate cap of 7%; and
(d) if the Eligible Borrower owns only one residential property and the LTV is 95% or higher, a write down of the principal balance of the Qualifying Mortgage (written down to achieve an LTV of 95%)

CFC SETTLEMENT AND FORECLOSURE SUSPENSION
The foreclosure process for a Qualifying Mortgage of an Eligible Borrower will not be initiated or advanced for the period necessary to determine such Eligible Borrower’s interest in retaining ownership and ability to afford the revised mortgage terms, as well as the investor’s willingness to accept a loan modification.

ETHICAL ISSUES
Foreclosure Consultants and CC 2924
State Bar Ethics Alert
“ Operation Loan Lies,” a nationwide sweep of sham loan modification consultants.
SB 94/AB764 – no advance fees for “loan modification”
Fee Splitting with Non Attorneys
Failing To Perform
Solicitation

PLEASE SAVE QUESTIONS FOR THE END CONTACT: DAMIAN NASSIRI HOWARD | NASSIRI, PC (800) 872-5925 [email_address] CUONG NGUYEN PITE DUNCAN, LLP (619) 326-2400 [email_address]

BANKRUPTCY BASICS
LYNDA T. BUI
Bankruptcy and Commercial Litigation
Shulman Hodges &
Bastian LLP
Foothill Ranch, CA
www.shbllp.com
ANN N. NGUYEN
Debtor and Creditor Bankruptcy Attorney
Law Office of Ann N. Nguyen
San Francisco/Oakland/
San Jose Bay Area
www.AnnLawyer.com

GOAL OF BANKRUPTCY
A fresh start!

UNITED STATES BANKRUPTCY COURT
Bankruptcy is filed in federal court, not state court

PROS AND CONS OF BANKRUPTCY
PROS:
Could wipe out debt
Catch up with behind payments
Could keep all/most of property
Could strip amount owed down to current value (redeem car/ avoid 2 nd lien on house)
Stop creditors from debt collection (foreclosure/communication/
lawsuit)
CONS:
Stays on credit report for up to 10 years
Bad credit
Non-discharge
Assets could be taken

BANRUPTCY CHAPTERS
Helping your clients select the right chapter is your ethical obligation
Chapter 7
Chapter 11
Chapter 13

ETHICAL OBLIGATIONS: WHAT CLIENTS MUST KNOW
BK is a serious event
Petition and schedules are signed under oath and penalty of perjury (should not be taken lightly)
Do not transfer property > non disclosure of assets> Bankruptcy fraud
Sloppiness, inconsideration
Severe Consequences:
Criminal prosecution (fines and/or imprisonment for up to 5 years)
discharge

ETHICAL DUTY
Whether to file
What Chapter to file
What exemptions to claim
Depends on:
situation
assets/obligation
MEET YOUR CLIENT, CONSULT THEM

BANKRUPTCY: AUTOMATIC STAY
When you file bankruptcy, the court automatically (you do not have to ask for it) issues an order that prevents most creditors from collecting debt against you or your property (with some exceptions to this).
If your home is being foreclosed and the sale has not taken place, bankruptcy may stop this.
If your car is about to become repossessed , this automatic stay may stop them from taking your car
The automatic stay does not apply filed for bankruptcy and your case was dismissed in the past year (however, your attorney may be able to help with this)
The automatic stay lasts until: the court confirms your chapter 13 plan (if you filed Chapter 13), your case is discharged (in a chapter 7), your case is dismissed, a creditor is granted a motion for relief from the automatic stay.

DEBTS IN BANKRUPTCY
Bankruptcy Debts That Can Be Discharged:
most credit card debts
most medical bills
most court judgments
most loans
Bankruptcy Debts That Are Not Discharged:
Debts you don't list in your bankruptcy forms (subject to some exceptions in a Chapter 7 case) (11 USC 523, 727)
Back child support and alimony
Court imposed fines and restitution
Student loans (with a exception which is extremely difficult to get in most cases)
Recent back taxes (taxes for years you did not file a return)
Judgments arising out of willful or malicious conduct (personal injury or drunk driving)
Debts where a creditor files a motion in court to prove that the certain debt should not be discharged (fraudulent actions or recent credit card charges for luxuries (which are presumably fraudulent if incurred within the last 90 days))

CHAPTER 7 VS. CHAPTER 13
CHAPTER 7: LIQUIDATION
Allows you to wipe out many debts
You must give up any property you own that is not protected by exemption laws (the law allows you to keep certain property up to a certain amount)
Governed by state law
CHAPTER 13: REPAYMENT PLAN
You agree to repay all or a portion of your debts over time under the supervision of the bankruptcy court (3 or 5 year payment plan)
Allows you to keep your property while using your income to repay some or all of your debts
You can keep control your property regardless of value
BUT you will have to repay unsecured creditors the value of the property you would lose if you filed for Chapter 7 bankruptcy
After you complete your payment plan, your remaining debt (subject to some exceptions) are discharged
For example: You owe $250,000 in credit card debt, during the plan you paid back $50,000 of the credit card debt, once you complete your plan, the remaining $200,000 credit card debt is wiped out (aka discharged)

CHAPTER 7 VS. CHAPTER 13 ( CONTINUED… )
CHAPTER 7: LIQUIDATION
Emerge from bankruptcy without having to pay any of the discharged debt
CHAPTER 13: REPAYMENT PLAN
Allows debtor to catch up with past due payments (home mortgage, car)
Pay taxes without interest over a period of time (non dischargeable in a Chapter 7)

CHAPTER 7 VS. CHAPTER 13 ( CONTINUED… )
CHAPTER 7 ISSUES
Qualification:
Means test (low enough income?)
Exemptions
Can they keep all of their property?
Depends on state law
Fraudulent conveyance
Have they transferred any property recently? (cash to parents, sold cars, took their name off property, etc)
Preference transfer
CHAPTER 13 ISSUES
Debt limit:
Do they owe too much debt?
Motion to value and avoid lien (lien stripping)

DENIAL OF DISCHARGE
Fraudulent transfers
Making false statements
Hiding assets
Disobeying court orders
THIS MAY BE A FEDERAL CRIME!

NON-DISCHARGEABLE DEBTS
Student loans
Fraud (obtaining loans through false statements, incurring charges with false intent/ability to pay)
Alimony/ child support
Federal tax

COMMON EXEMPTIONS
Equity in home
Equity in car
Tools of trade

EXEMPTIONS
SYSTEM 1
(CCP § 703)
SYSTEM 2
(CCP § 704)

WILDCARD EXEMPTION
SYSTEM 1
(CCP § 703)
Can apply up to $21,825 that debtor or dependent use as residence, or in personal property.
SYSTEM 2
(CCP § 704)
None

RESIDENCE/HOMESTEAD EXEMPTION
SYSTEM 1 (CCP § 702)
None
SYSTEM 2 (CCP § 704)
(1) $50,000 is single debtor
(2) $75,000 if debtor is family unit.
(3) $150,000 if debtor or spouse is at least 65 years old, disabled, or if annual income is less than $15,000 or $20,000 if married.
“ Declared homestead”
“ Automatic homestead”

IN ORDER TO KEEP A CAR OR HOUSE
Debtor needs to continue to make payments in order to keep the property
Example:
Debtor wants to keep home
Exempt the equity in home if any
Continue to make payments on home
If Debtor is behind, debtor may want to file a Chapter 13 and pay arrears over a 3-5 year period

BANKRUPTCY PRACTITIONER PITFALLS
Client says they have no property but…
They are on the grant deed on their mother's home
Joint savings accounts with family members
Just transferred their home to a brother
Had their family member file a lien on their property
Checking account shows they have more income than they actually have
Their bank statements shows numerous transfers of funds

ETHICAL OBLIGATIONS
Double check the numbers
Tax returns
Pay stubs
Grant deeds
Insurance documents
Bank statements
Use appropriate fair market value numbers
Zillow.com
Appraiser
Asset search

WATCH OUT FOR TRUSTEE’S AVOIDANCE POWERS:
Preferential Transfer (11 U.S.C. §§ 547, 550)
Fraudulent Transfer (11 U.S.C. §§ 544, 548, 550)
Post-Petition Transfers (11 U.S.C. §§ 549, 550)

HAVE QUESTIONS?

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Loan Modification and Bankruptcy Basics Powerpoint Slideshow 2009 NCVAA

by Law Office of Ann N. Nguyen on Oct 31, 2009

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Loan Modification and Bankruptcy Basics Powerpoint Slideshow 2009 NCVAA — Presentation Transcript