The "Rocket Docket" or Expedited Foreclosure in Florida

Governor Rick Scott recently signed into law a bill that will speed up foreclosure cases in Florida. Consumer rights groups says this is a blow to homeowners. Economist types say it is good for getting all of the delinquent homes out of the courts. This article does not take a position in either way, but merely explains how the new law affects homeowners.


Prior to the passing of the law, which, by the way, goes into effect immediately, a bank would file a foreclosure complaint and serve it on the homeowner. The homeowner would then have 20 days to respond. Usually, the homeowner would ask for an extension of time to respond to the complaint, maybe another 20 days. Foreclosure defense firms would then file a motion to dismiss the complaint for some technical reason. The motion to dismiss would likely get denied, but there would be additional time to answer the complaint. Once an answer was filed, the bank would usually file a motion for summary judgment. Due to the numerous foreclosure cases pending in the system, a motion for summary judgment would not be heard for at least 90 days, sometimes much longer. When the motion for summary judgment would be brought up for hearing, the motion is normally granted and the court would set a sale date. Although the sale dates should be set within 25 days of the hearing, the courts routinely granted 90 day sale dates. Ten days after the sale date is the usual date when the homeowners' rights to the home are extinguished.


(Foreclosure defense attorneys often try to find ways to extend these times. The average foreclosure in Florida takes 853 days from the initial default to the foreclosure sale.)


The new law seeks to expedite the process significantly. However, there remain certain requirements that protect the homeowner. In many cases, the foreclosures were delayed because the banks could not establish a chain of title showing that they actually held the promissory note and mortgage. The new law requires that the foreclosure complaint clearly state facts to show that the bank is the holder of the note and mortgage at the time the complaint is filed. This may result in a delay in bringing the action.


Under the new law, once the complaint if filed, the bank, or even a homeowner's association, may file a request for the Court to enter an order to show cause for the entry of a foreclosure judgment. This hearing can be set as early as 45 days after the complaint has been served on the homeowner. If the homeowner does not present a viable defense, the Court can set a sale date at the hearing. At the new law's fastest application, a homeowner can be out of the home within 70 days of the date they are served with a complaint.


This certainly is a lot faster than the Courts have been proceeding. In reality, it is unlikely that the Courts will be able to move the cases this quickly. But, a homeowner should no longer think that when served with a complaint it will take months, if not years, before the house is foreclosed.

Strategic Default? Is it Really the Best Alternative?

I am sure that you have seen in the news about people giving up their homes as a "stretegic default". You may also be aware that people who lose their principal residence in foreclosure will not be responsible for taxes for the normally taxable event of a "loss forgiveness". When contemplating a "strategic default" homeowners can presently afford the home in which they are living but decide not to pay. They take the money that would be used for a mortgage payment and choose to put the money somewhere else that would be protected by the laws of the state. In Florida, that could include retirement plans, trusts, life insurance policies, or even another home. They may be protecting the assets but they may not be protecting themselves from personal liability. Eventually, the home will be foreclosed (probably more than a year in Florida from time of default to foreclosure sale). I will use the example of a $250,000 mortgage on a home that is now worth $125,000. Once it is foreclosed, the mortgage company will potentially have a "deficiency" of $125,000. If the foreclosure was completed prior to December 31, 2012 (this may again be extended by the new Congress), the deficiency balance, or loss forgiveness will not be taxable. However, this does not mean that the bank (or, the subsequent owner of the note) will not be able to pursue the homeowner for the balance. In a stretegic default, the homeowner would have been able to live "rent free" for at least 12 months. Assuming a mortgage payment of $2,000, they would have been able to save $24,000.00. But, after the foreclosure, they would still have a potential debt of $125,000.00. It is important to be aware that the bank will have five years (in Florida) from the sale date to pursue the $125,000 plus interest and cost. It is the fear of many bankruptcy attorneys that clients will choose to walk away from their home, forget about the potential liability and five years later be faced with a lawsuit. There are better options. Homeowners can choose between a "short sale" or "Deed in lieu of foreclosure". With a short sale, the homeowner puts the home up for sale at the market rate. The property must be advertised as a short sale and state that it is subject to the bank's approval. Once a buyer is found, the contract is presented to the bank for approval. There are a lot of internal unknown reasons for a bank to consider a short sale. The bank will not approve a short sale if the property is not being sold for "market value". Why they would reject a short sale is a mystery. As part of the short sale, the bank may require the financial records of the homeowner. A deed in lieu of foreclosure merely means that the homeonwer is giving the property back to the bank without the bank having to go through the foreclosure process. A Deed in lieu of foreclosure is usually unavailable if there is a second mortgage on the property. If there is a second mortgage, the second mortgage holder will have to approve the transfer as well. (If the first mortgage and second mortgage are held by the same bank, it does not mean it will be approved.) A bank will not likely accept a deed in lieu unless the homeonwer has taken efforts for at least six months to market the property. Many times the bank will forgive the deficiency indebtedness in the situation of a short sale or deed in lieu. But, it may be subject to the bank's review of the homeowner's financial records. If you have any question, please contact me at brian@bkmbankruptcy.com.

BANKS SLOWING FORECLOSURE PROCESS

You may have recently heard that the banks are temporarily halting their foreclosures. What does this mean and why are they doing it?

When banks like Countrywide went under, the mortgages and promissory notes were "mis-placed". The assets of Countrywide were sold to other banks. When they sold the assets, the mortgages were supposed to go with them. In the rush to get the assets transferred, especially the mortgages (after all, your payments had to go to someone) the banks got sloppy with the paperwork. What the banks got was your electronic information, but not the actual papers.

Then homeowners got in financial trouble and could not pay the debt. The banks stopped receiving payments so they had to foreclose. The problem is, to foreclose in Florida (and most other states), you actually must have the note and mortgage. In a rush to foreclose, the banks hurriedly stamped the notes or tried less honest approaches to foreclosing the property. Although attorneys challenged the ownership of the mortgages, it wasn't until the banks' law firms started getting into trouble that the banks decided to take a deep breathe and review the paperwork.

This leaves mortgages in a state of flux. The question is, who owns the note and mortgage? There are many attorneys out there making a living off homeowners during this process. Some might even be saying that you may never have to pay for your home. This falls under the "too good to be true" category. If you want to eventually give up your home, then stay in it, fight the good fight and stay as long as you can and leave at the end of the process.

I am afraid many homeowners will buy into the chance that they will own their house without having to pay for it. Then, one day, after not having paid the mortgage for two years, they will be shocked when their home is sold in a foreclosure sale.

Debt Negotiation

There must be a lot of money to be made in debt negotiation. Just listen to all the advertising. Do you think they are out there for your benefit? They are trying to make money off you. It has gotten so bad that Attorney General's throughout the country are shutting the worst offenders down.

Here is my perception of how they work. First, your creditors will not negotiate with you when you are current with your payments. So, you must start missing payments. The reality is, you have to miss about six payments before you can get to someone with authority to settle the case. While you have missed six payments, late fees and interest accumulate. Thus, your debt becomes higher.

If you are using a debt negotiation company, they will likely charge you a monthly fee. At the same time you will start to put money away. After six months, when creditors are starting to talk to you, or the negotiator, a lump sum settlement amount will be negotiated. While it may seem like 50% of the amount owed, in reality it is probably closer to 75% or 80% of what it was 6 months earlier considering the new late fees and interest that has accumulated. And, you have ruined your credit.

A better approach may be to make minimum payments on certain debts each month while dedicating extra money to the lesser of your credit cards. Eventually, you will pay off that creditor. When that creditor is paid off, you move on to the next creditor until you are debt free.

Of course, this is much easier said than done, and takes a lot of discipline. But, the reward is worth the sacrifice.

What About My Credit Score?

It seems that many Americans are more concerned with their credit score than their net worth. I have many clients that have $50,000 or more in credit card bills that are more worried about how bankruptcy will affect their credit score than they are with getting rid of the debt. Each month they are paying $1,000.00 per month or more to pay off credit cards. They are killing themselves with worry and stress to pay this debt. They aren't working for retirement or a financial future but instead are working to pay debts.

As I have stated before, I think bankruptcy should be a last resort. There should be a plan to get out of debt before resorting to bankruptcy. But, if it is impossible to pay off the debt due to income limitations or illness, bankruptcy is a very good financial option. It is certainly better than being a slave to your debt.

How will bankruptcy affect your credit score? It will affect it between 100 and 200 points. Now, we've got that out of the way, what does it mean? Bankruptcy stays on your credit report for 7-10 years. However, once you obtain your discharge in bankruptcy, you can begin to rebuild your credit.

As you make each car payment and each mortgage payment, you are rebuilding your score. When looking at your credit score, examiners will see higher income and low debt levels (debt to income ratio) because you have just discharged your debt in bankruptcy.

While rebuilding your credit score will take time, rebuilding your life will be easier.

BEWARE OF TRANSFER OF PROPERTY

I always thought this was an obvious point, but after having many clients ask me, "what if I give the property to my (insert family member)", I think this issue should be addressed.

When one files bankruptcy, they have a duty to disclose their entire financial picture, including any transfers they have made over the past two years. The failure to knowingly list a transfer may result in the denial of the debtor's discharge, meaning that there was no reason to file bankruptcy. Or worse, the Debtor could be subject to criminal prosecution for bankruptcy fraud.

Sometimes a potential client may have an asset that is not subject to being exempt (that is, untouchable by the trustee). Sometimes it is a car. After going through the scenario of either losing the car in a chapter 7 or paying for the car in a chapter 13, I often get the question, "what if I transfer the car to my brother?" One is free to make the transfer, but the transfer must be disclosed in the bankruptcy.

If the transfer was done without consideration, that is, the person who the property was transferred to gave nothing in return, the bankruptcy trustee can recover the property. The bankruptcy laws give a lot of authority to the trustee. The trustee in a bankruptcy case has a duty to investigate a debtor's financial affairs. Within that investigation is the examination of any transfers from the debtor to anyone else. The Trustee can apply the law of the state and look back four years in Florida.

Even if the transfer was done with no intent to hide the asset and was given as a repayment of a debt, the Trustee could still seek recovery of the asset. Transfers to family members within one year of the filing of the bankruptcy, even if it is for the repayment of a debt, can be avoided by the Trustee as a "preference".

The rationale for these recoveries is to put all creditors on equal footing. The court does not distinguish American Express from Aunt Millie.

HOME LOAN MODIFICATIONS

Maybe as a result of the market, or because of the bailout, there has been a lot of success with loan modifications. Some banks are more willing to work with you than others. You have to be patient with the results. In what seems like a good gesture on their part, the bank may initially allow you to miss a few payments if you come up with a significant down payment towards your past due amount. This will not be the best offer the bank can make. Nor will it likely be in your best interest to take what they offer.

There are various companies offering to assist with the modification. Some of these companies have good success. Others really do not do much for you. If you are going to try to do a loan modification, make sure you use a reputable company.

When seeking to modify, you will need to provide:

hardship letter
tax returns for 2008 and 2007
a month of paystubs
bank statements
original loan closing statements
list of income and expenses

Modification should be an option that you should examine thoroughly. It could lead to a good result for you.

SHOULD I STAY OR SHOULD I GO?

With the depreciated real estate market, many of my clients wonder if they should continue to pay for a home they can barely afford. Of course, I can't make this business decision for you, but here are some alternatives for you to consider.

ALWAYS CONSULT AN ATTORNEY OR ACCOUNTANT BEFORE MAKING THESE TYPES OF DECISIONS.

1. Stay in the home if you can afford it. Take a hard look at the realities of the numbers. Can you find a new place to live for a lot cheaper? Or, will it be marginally cheaper. Sure, your house is worth less than you owe. But, if you can afford it, stay there. The market has to move up sometime, doesn't it?

2. Try a short sale. To do a short sale, your mortgage company has to agree to the sales price. This can be difficult, if not impossible, if there is a second mortgage. The second mortgage company has to agree to take a very low price, or even nothing at all. Sometimes the second mortgage company will agree to the short sale if the buyer agrees to sign a new promissory note to repay the debt. DON'T DO IT.

3. Deed in Lieu of Foreclosure. This means you give the bank the house instead of them foreclosing on the home. The reality is, banks don't want your home. They are in the business of money, not real estate. They would rather a short sale. Sometimes they will agree to this. But, this cannot be done if there is a second mortgage on the home.

[Note as to numbers 2 and 3: banks are sometimes requiring proof of hardship to accept either a short sale or a deed in lieu of foreclosure. If you are an investor, you may not be able to do either. It is easier to do if it is your primary residence]

4. File Chapter 13 Bankruptcy. Bankruptcy can be used as a tool to strip off a second mortgage. The second mortgage has to be completely unsecured. That is, if the property is worth $200,000, the first mortgage has to be more than $200,000 to "strip" the second mortgage.

Bankruptcy can also be used to catch up on your mortgage. Instead of coming up with a lump sum payment to catch up on payments, bankruptcy can be used to pay the arrearage over time.

5. Modification of mortgage. Banks are trying to make deals to redo the loans. I have yet to see a mortgage amount be reduced in principal. So, if you owe $275,000, you will continue to owe that amount, but the bank may offer a lower interest rate. At the end of the day, you still have to be able to afford the payment.

6. Just walk away from the home. Many people are choosing to walk away from their homes. The ramifications for this action are yet to be brought to light. Many attorneys wonder what will happen 5 years from now. Although the mortgage companies are not trying to collect on the notes for the homes, there is a fear that 4-5 years from now, the notes will be sold to debt buyers who will try to sue you later.

7. Obama to the rescue? The President Elect promises changes. But, will he be able to do it fast enough. One possible change expected to be proposed is allowing bankruptcy judges to value homes at their present values. Great news for me as a bankruptcy attorney, and great news for someone whose home value has plummeted. Under the hoped for legislation, a home owner who owns a home worth $175,000 but owes $300,000 could go to a bankruptcy court and have the judge rewrite the loan for $175,000. It's hard for me to get my head around the machinations of this, so I am doubtful whether it can work. But, we can hope.

As always, the above information should not be relied on to make a decision. Consult an attorney.

BEWARE OF FORECLOSURE HELP

I am a bankruptcy lawyer, having practiced for 18 years. With the foreclosures on the rise, I have seen various schemes to take advantage of those who are being foreclosed. There are even lawyers taking advantage of these people. I recently had a client who was charged $3,000.00 by someone who would help them "workout" of the foreclosure. The same client also retained an attorney who was charging $350.00 per month for each month that the home was not foreclosed. The sad thing is that these people did nothing for my client.

Looking first at the "foreclosure speacialists". These people charge anywhere from $1250 to $3,000 to assist you with modifying your mortgage. These people have no special knowledge and are doing nothing that you can't do for yourself. They tell you to put aside some money each month, "above your mortgage amount" while they are working on the modification. The way they work out a modification - they fill out a form that the mortgage company gives them. Do you know what information they use to fill out the form? Information you give them. You can fill out the same form. The trick with the modification is to give the mortgage company the information that they ask for. Try to keep in communication. The frustrating part for you is trying to get the right person to talk to with the mortgage company. But, mortgage companies are starting to be more responsive to your inquiries. Or, they should be.

Attorneys are also taking advantage of your situation. There are legitimate charges to assist with foreclosure defense, but when an attorney charges $350 for each month that you stay in the house, they are taking advantage of the current court workload. These attorneys are doing nothing to forestall the foreclosure. Rather, courts are taking a long time to process all the foreclosure cases. When contacting an attorney, it should cost no more than $1000.00 to file an answer in your case, appear at any hearings, and communicate with opposing counsel. When an attorney charges you a certain amount per month, run away.

How Does Bailout Help You?

As you are well aware, Congress passed a "Bailout Plan" on October 3, 2008. A portion of that bill will help homeowners who are behind on their mortgage. It appears the relief will be limited to "troubled loans controlled" by the government. As of the date of the bill, troubled loans controlled by the government are Fannie Mae and Freddie Mac loans. If your loan is a loan generated by Fannie Mae of Freddie Mac, the government will likely be handling your loan, if you are behind.

What does this all mean? The government will likely be more helpful in trying to workout a payment arrangement. What concerns me is that rarely does government move quickly. That could work to your advantage if you have no interest in keeping your home. It may be frustrating if you are trying to keep your home and workout a new arrangement.

The Bailout Plan will not help those people whose loans are current.

As we get more details about the Bailout Plan, we will update this blog.

What to Expect Once Bankruptcy is Filed

In a Chapter 7 bankruptcy, a Trustee is appointed. The Trustee has a duty to investigate the financial dealings of the debtor. This includes looking for assets, examining transfers, and objecting to exemptions. The Trustee is attempting to collect whatever assets that he or she can find and distribute any funds to the creditors.

The Trustee looks for assets such as cars, bank accounts, transfers to others, including family to see if any money can be recovered for the benefit of creditors.

The Trustee's first examines the debtor's schedules to see what the debtor has disclosed. The trustee will be looking at the listed assets, the creditors that have been paid and the transfers that are disclosed. The trustee will then receive the debtor's bank statements for a period of at least three months before the filing and the debtor's tax return for the previous year.

A tax return is very revealing. It includes interest income and income from other sources. The Trustee will look closely at the returns for anything revealing potential assets.

Debtors should also be aware that the Trustee will be looking for tax refunds. If you always get a tax refund, you should be careful as to when you file bankruptcy.

About 30 days after filing bankruptcy the debtor will attend a meeting of creditors. Creditors generally do not attend these meetings. Rather, the trustee asks a few questions, such as:

why did you file bankruptcy;
did you list all your assets;
have you transferred any assets to anyone in the last 2-4 years;
does anyone owe you money;
have you refinanced your property within the last year;
if so, what did you do with the money.

and other similar questions. The meeting usually takes no more than 10 minutes.

After the meeting of creditors, there is a 60 day period for a creditor, or the trustee to object to the entry of your discharge. As long as you provide all requested documentation to the trustee, the trustee will not normally object to the discharge. Creditors generally object to the discharge unless the debtor took money or bought high priced items with credit cards right before bankruptcy.

Assuming no creditors or the trustee file any objections to the discharge being entered, the debtors discharge will be entered 60 days after the meeting of creditors. The discharge means that the debtor is no longer legally obligated to pay the debts.

Christians Facing Bankruptcy

I have heard many ministers tell their faithful that bankruptcy is a sin and should be avoided. Christians are assured by the bible that God will provide. Perhaps what ministers are saying to their members is that before you consider bankruptcy as an option, look closely at your lifestyle.

Do you own a home that is more than you need? Are you sending your children to the "best" schools? Are you driving a car you can not afford?

After you have taken a hard look at your budget, you may find in these difficult times that you still cannot make ends meet. Or, overwhelming medical bills make it impossible for you to pay debts. Let's face the reality that creditors do not care whether you are a Christian, they only want their money. And, they are relentless pursuers.

When someone not in debt tells someone who is in debt, "God will provide", I am reminded of the story where a man being consumed by a flood tells different rescuers that he was waiting for God to save him. After dying, he asks God why He didn't save him. God responds that He provided rescuers to save him.

Likewise, God through our founding fathers, provides bankruptcy protection for relief from the harassing creditors. There are two forms of bankruptcy that can be used. If you have some money, and want to dedicate payments to creditors, you can use a Chapter 13 and pay what you can afford to pay creditors and not pay what creditors are demanding that you pay them. If you cannot afford to pay anything, Chapter 7 can be used to get rid of your debts.

See What Chapter is Right for Me for further guidance.

God commanded His people to forgive debts every seven years. Likewise, Congress allows you to file bankruptcy every eight years. I am not suggesting that you use bankruptcy every eight years. Rather, I am pointing out that as God commanded in the Hebrew Scriptures, He also allows through the bankruptcy code.

Another point I like to make to my clients that are struggling with the dilemma of bankruptcy is that bankruptcy is the perfect opportunity to witness. A discharge in bankruptcy does not prevent you from later paying your debts. Thus, you can choose to repay a creditor and tell them, "You didn't believe me when I said I would pay my debts to you. Despite the fact that I have no legal obligation to pay you, I am voluntarily paying this debt back."

Which Bankruptcy Works For Me?

For most Americans, there are two applicable chapters in bankruptcy, chapter 7 and chapter 13. The determination of filing either a chapter 7 or chapter 13 is made first, by the consumer's needs and second, by the amount of assets or amount of income. As part of the changes made to the bankruptcy laws in 2005, Congress implemented a "means test". This "test" starts with a six month average income and deducts expenses. The result of the average income less expenses is usually determinative of the chapter one files.

Reasons for Filing Chapter 13

Aside from the means test calculation, taxes, saving one's home, and keeping assets are the most common reasons to file chapter 13. Chapter 13 allows a consumer to pay tax liabilities over time without penalties and interest. One can also catch up on mortgage payments in a chapter 13. If a consumer has assets he or she wants to keep, but can't afford to payoff all the debt, payments can be made to the extent of the value of the assets.

Chapter 13 can be complicated. An attorney should be used to navigate through this bankruptcy.

Chapter 7

Chapter 7 is effectively a liquidation. Someone filing under this chapter figuratively comes to the court and says, "here's all my stuff, here are my debts, and here's my income. I don't have any assets to pay my debts and I don't have enough income to pay off what I owe."

In both chapter 13 and chapter 7, a trustee is appointed. The chapter 7 trustee is charged with the responsibility of collecting assets, investigating transfers, if any, and scrutinizing financial records to determine the truthfulness of the bankruptcy papers.

Although it is preferable to proceed under chapter 7 because of the quickness of completing the case, it can also be more stressful for the consumer if any potential issues exist.

Which One is Best For You?

You will have to seek an attorney to thoroughly answer your question. But, you first need to determine if you have any assets above your allowed exemptions. When you file bankruptcy, all of your property becomes "property of the bankruptcy estate". Congress allows certain exemptions, that is property that will be excluded from the bankruptcy estate. In Florida, these items include your home (with some exceptions), $1,000 per person personal property (at garage sale value), $1,000 per person in a vehicle (Yes, Florida legislators believe you only need a car worth $1,000), retirement plans (including IRAs, pensions, etc) and a few more items.

After looking at your assets, you next need to consider your income to determine if it exceeds the median income for someone in your area. The median income for a family of 4 in Florida is $66,876. If your income exceeds this amount, you will need to look at the "means test" to determine whether you can filed Chapter 7.

If you do not have any assets above your exemptions; you are current with your mortgage, or you are not current and want to give up your home; you do not owe the IRS a more than a couple thousand dollars; and your income is below the median income, you should be able to file a chapter 7 bankruptcy. There may be other issues, so you should not consider this statement a final determination of your situation.

The following circumstances are some reasons you should consider Chapter13:

If circumstances caused you to get behind on the mortgage, but you can now afford the mortgage payment if you did not have to pay your credit card bills.

If you have assets above your exemptions that you would like to keep.

If you have recent IRS obligations that you could afford to pay over time.

Income level is above the median income and you have a positive number after "means test" is performed.

There are other reasons to file a chapter 13 bankruptcy that may benefit you. But, it depends on your specific circumstances.

The "New" Bankruptcy Laws

In 2005, Congress changed the U.S. Bankruptcy laws. The press and experts declared that bankruptcy was "harder" now. In truth, the law is not harder for most Americans. Rather, the biggest change was the implementation of the "means test".

The means test takes into consideration the consumer's income, less any allowed expenses. If one's income is under the median income for those in the area, the "means test" is not applied. If the income is over the median income, the calculations must be done to determine if the consumer is eligible for a Chapter 7 versus making some payment in Chapter 13.

Even if one makes more than the median income in his or her area, Chapter 7 could be filed. It is best to consult an attorney to assist in making a decision as to which chapter is best.

Get more information about bankruptcy at the soon to be posted "Bankruptcy Facts" and "Which chapter is best for me".