BANKRUPTCY PROPOSED NEW RULE

NEW PROPOSED BANKRUPTCY RULES moving ever forward.

The first bankruptcy proposed new rule is to shorten the Proof of Claim (POC) filing from 120 days to 60 days after the date of bankruptcy filing.   Remember, no POC means no money for the creditor.  This change would severely hamper creditors ability to manage the debt.  60 days is a short time frame to receive notice, process the notice, hire an attorney, if necessary, obtain current balances owed, obtain complete documentation, prepare the POC, and file the POC.  On top of all of this, the bankruptcy proposed new rule wants to change the form which will require a payment history on the loan or indebtedness back to the first date of the current default.  Such detail will delay the preparation time.   But there can be no delay when you have only 60 days.  Remember that the POC is signed subject to penalties of perjury.  The creditor makes an affirmative representation that the figures are true and accurate.  So rushing to meet the 60 day time frame and filing an incomplete form may subject the creditor to such penalties.    Creditors need to gear up as this proposal should go into effect this December.

The second proposal was to create a national Chapter 13 plan.  This would have eased the necessity of creditors who do business throughout the country from continuing to learn countless variations in plans. Would this bring clarity nationwide and sacrifice specific needs in each District?  Like ever thing else in the world a compromise proposal was discussed allowing each jurisdiction to either accept the national form or opt out and establish its own district plan.

Bottom line is that nothing was agreed on. Stay tuned.

LIMIT YOUR BUSINESS LIABILITY

Limit Your Business Liability is easy if you have the right contract.  Just ask Cord Moving & Storage who has limited its liability when moving a customer’s goods. Cord Moving has successfully reduced its business liability by inserting a clause in its contract that does not require Cord Moving to replace the item damaged.  Recently, the Missouri Court of Appeals in National Information Solutions, Inc. v. Cord Moving & Storage Company upheld the provision because it was in “bold face type large than the rest of the contract”.  It must be “clear, unequivocal, conspicuous and include the word ‘negligence’ or its equivalent”.  It also does help that in the Cord Moving case the other party was also a commercial company, a so called “sophisticated business entity”,  and presumed to have the ability to negotiate terms in the agreement and thus knowledgeable in how to limit its business liability.

DEATH OF HOMEOWNER- WHAT NOW?

DEATH OF HOMEOWNER- WHAT NOW?  When a homeowner dies, the lender must offer an arrangement whereby survivors of the deceased are allowed to continue making mortgage payments, thus enabling them to either keep and/or continue to occupy the home.  The lender must also offer to evaluate the heirs or those who have a legal interest in the home for an assumption of the loan or alternatively must offer loss mitigation measures.

The Consumer Financial Protection Bureau (CFPB) has rules about how the lender communicates with family members after a homeowner dies, how lenders treat homeowners who have filed bankruptcy or invoked certain protections under the Fair Debt Collections Practices Act (FDCPA).

Lenders are also mandated to attempt to contact the homeowner (mail, phone, email) each time the homeowner misses a payment and to provide information that can help them get caught up.  

Under the FDCPA and bankruptcy laws, delinquent homeowners can inform lenders to stop communication with them. However, under the CFPB’s rules certain notices and communications are still required.  For example, should a homeowner who declared bankruptcy and requested the lender to stop communication with him now request information about loss mitigation, then the lender must provide the information.

When lenders better understand the rules they have to follow, it is better for homeowners.

HOME RETENTION STRATEGIES- THE NEW NORMAL

Lenders now find themselves continuously offering home retention strategies as the new normal.  The new way lenders handle problem loans has been startling partly due to new  loan servicing regulations.

Now that home values are rising again, homeowners are less likely to hand over the keys to the house, less likely to accept a deed in lieu of foreclosure and less likely to do a short sale.   For homes acquired with investment in mind, creative loan modifications appeal to long-term preferences to ride out the storm.

Before the mortgage crisis the process was simple when dealing with delinquent loans.  A notice of default was sent out and the system went on autopilot until the foreclosure process was complete.

Once the crisis hit, lenders were completely overwhelmed.  The deluge of volume combined with new state and federal regulations aimed at protecting homeowners were too much for lenders.   As a result a new way of thinking about default servicing arose.  Lenders now find themselves continuously offering home retention solutions as the new normal.   The home retention new normal is creative and flexible.   Once the notion of forgiving principal was unacceptable, today the concept is all about minimizing losses.

Home retention is also fueled by non-monetary motivations involving the impact to the family.  The neighborhood relationships, the local schools, the youth sports and the difficulty in replacing the home experience all come into play with psychological equity.

Option #1:           The new 12/24 flexible modification is very popular where the homeowner remains responsible on the loan for the entire balance but is forgiven for an agreed upon amount if payments are kept current for 12 months and another increment is forgiven after 24 months. This plan is preserving homeownership for thousands of families and keeping houses out of the hands of the banks.

Option #2:           The “short refi” is equivalent to a preemptive strike where lenders seek out seriously delinquent homeowners before formal default occurs.  The “ short refi” involves shortages in principal and interest that may or may not be made up over time.  These plans require a short amount of time to accomplish and involve lower long term losses for the lender.  These plans are not currently offered on government sponsored enterprise (GSE) loans, like Fannie Mae or Freddie Mac.

Option #3:           Structured settlements are especially interesting to older homeowners who want a debt-free home.  The homeowner will need to offer assets with cash value, such as personal property, 401k and other retirement accounts, life insurance policies that can pay a predetermined amount the lender will accept for payment in full on the loan.

The home retention new normal also includes other home retention strategies for conventional and FHA loans. Contacting the lender rather than for the homeowner sticking his head in the sand is the best option.

Congress Turns up the Heat on Debt Collectors

Medical and student loans now surpass other consumer debts.  Collectors are violating the Fair Debt Collection Practices Act (FDCPA) by threatening physical harm, threatening to dig up their dead children, calling repeatedly and attempting to collect on debts the collectors know are not collectable.  The Consumer Financial Protection Bureau(CFPB) and the Federal Trade Commission (FTC) are cracking down on companies who engage in overly aggressive debt collection practices and are reaching out to consumers to educate them about the law.  This crackdown lead to the largest civil penalty ever obtained by the FTC.  Expert Global Solutions, the nation’s largest debt collector paid $3.2 MILLION for violating the FDCPA.  However, federal officials are calling for new stricter laws on how debts are bought and sold between companies. Debt collectors often buy old debts in bulk.  They do not have the ability to obtain the data needed to accurately verify information about the debtor or underlying loan. Congress wants increased regulation that would:

require debt collectors to have possession of the documentation before issuing the first debt collection notice.

require information about previous debt collection attempts.

Prohibit the collection of unverifiable debts.