My friend Peter Orville writes about the procedure for selling a home in a pending Chapter 13.  Peter practices in upstate New York.  He details what you have to do, if you live in upstate New York, to sell your home during Chapter 13.

The most frustrating part of writing about bankruptcy for a national audience is the degree to which Chapter 13 practice differs across the nation. H***, it varies across the San Francisco Bay, where I practice.  I have Chapter 13 cases before three different trustees in three different divisions within the same district, and each has different procedures.

I interact with lots of clients who have found me on the internet doing “research” about bankruptcy.  It’s all too easy to assume that the procedures in upstate New York describe how your case is handled whereever you live.  It isn’t (necessarily) so.

Which is why I uniformly recommend that individuals engage an experienced bankruptcy lawyer to do a Chapter 13 case.  There are simply too many variations, unwritten rules, and local assumptions to master to make representing yourself a feasible alternative.

Pundits discussing the turmoil in the financial markets keep coming back to the need for “housing to recover” before we get stability among financial institutions.  No one is discussing what the measure of “recovery” is.

In the California Bay Area, where I practice, the median price of housing has fallen on average 25%.  If recovery means a return to those peak values, I dispute that such would be “recovery”.  Mortgage lending, without standards and without the institutional restraint of having to live with the loan you made, created the artificial high in home values.  When everyone who could fog a mirror or wield a pen was a candidate for homeownership because some heedless institution would make a loan, the supply of homes was inadequate for the number of prospective buyers.  The relentless upward march of prices created a “buy now before it’s more expensive” atmosphere.

Those who bewail the drop in home prices don’t discuss how real that “lost” value ever was.

So, I don’t yearn for a return to that housing market.  I hope for a return to the availability of mortgage money to people who might actually be able to repay the loan on its terms, not tranactions dependent on a further refinancing or sale of appreciated property.

There is a substantial likelihood that any California home mortgage refinance transaction during the last three boom years contains flaws that allow the borrower to rescind the transaction.  But rights under Truth in Lending expire three years from the date of the loan.

If you borrowed money to refinance your home or took out a home equity line of credit, violations of TILA allow you to unwind the transaction.   Everything you paid to get the loan and everything you paid to the lender since then is a credit against the principle amount of the loan.

The right to rescind contemplates that the borrower then tender to the lender the difference between the original loan and all the credits the borrower is entitled to.  Historically, that tender was achieved by refinancing with a new loan.  Alternatively, borrowers are negotiating with lenders to modify the defective loan to one for a smaller amount, presumably on better terms.

The power of Truth in Lending is that it is a strict liability statute:  the borrower doesn’t have to prove they were deceived or that they were damaged.  They need prove only that the law was broken.  The borrower is entitled to their attorneys fees for making this happen.

Powerful, huh?  But the opportunity only lasts for three years from the date of the loan.  Get your loan documents reviewed to see if you have rights under Truth in Lending.

T

I’ve been pondering:  what do I have to do to become too big to fail?  Why does rampant stupidity in the lending business qualify one for a government bail out?  Are any of the very expensive management types who brought us this financial melt down going to lose anything in the process?

Inquiring minds want to know….

I had a refreshing meeting with a client this week in which she had reached acceptance of the need and utility of filing bankruptcy.  Surprisingly, she came to that understanding as the result of meeting with an honest debt management company.  Her counselor at the debt management company suggested that she really didn’t make enough money to make repayment of her debt realistic.

Brett Weiss reported on the experiences of a Chapter 13 debtor conducting a new business after failure of his restaurant business.  A Charlotte NC bankruptcy attorney sees bankruptcy as a way to catch those who are falling.

Lehman Brothers, a long established investment bank, resorted this week to bankruptcy to conduct an orderly liquidation.

Consumers anguished about the thought of filing bankruptcy should look around them and realize that bankruptcy is not a mark of shame, but rather a rational approach to difficult financial situations.

If the situation is impossible, don’t let false pride keep you from a solution and a fresh start.

People whose residence changes on the eve of the November election need to know the rules about eligibility to vote:

4 TIPS:  VOTING RIGHTS FOR HOME FORECLOSURE VICTIMS

NoVoterLeftBehind.net is emphasizing four things every American going through foreclosure needs to know about their vote:

* Voting is an inalienable right that you can’t lose due an inability to meet mortgage payments.  If any one tries to tell you don’t different, don’t listen to him or her!

* If you are in the foreclosure process - but still living in your home - you still vote where you live.  The foreclosure process itself does not bear on your right to vote or where you exercise that right.

* If you are forced to move due to foreclosure before the voting registration deadline, you should re-register at your new home location. Go to http://novoterleftbehind.net/knowrules.cfm to find your states rules on voter registration.

* If you move due to foreclosure after the voting registration deadline —  but before the election — go to vote where you were last registered to vote.  Keep in mind the following:  You have the right to vote by signing an affirmation (or similar form) if your right to vote is challenged for any reason; and if your name isn’t on the registered voter list, you have the right to vote by provisional ballot.

ABOUT NOVOTERLEFTBEHIND.NET

While it’s hard to consider the bigger issues when your personal situation is in turmoil, it is important.  How will things change for the better if we don’t exercise the right to vote.

The seller in a recent short sale just learned that all the effort to achieve that sale had not protected her from a lawsuit by the junior lien holder on the property.  The holder of the second deed of trust, who consented to the sale for less than it was owed, now wanted her to pay the shortfall.  And thus the call to a bankruptcy attorney, after all.

I talked to the realtor who arranged the sale:  did she negotiate for a release from the second in connection with the sale?  did the seller understand before the transaction that the junior lien holder retained their rights against the seller?  what was the benefit to the seller from the short sale?

I suspect that the answers, had I gotten any, would have been no;  no; and none.  But the realtor got a commission.

Part of what is going on in a short sale is exploitation of the idea that a foreclosure is the financial end of the world, a fate to be avoided at all costs.  That idea is fed, of course, by lenders and realtors.

In my view, if you can’t sell a property for an amount equal to what’s owed, you can choose between a foreclosure, which satisfies the first deed of trust but probably not the second deed of trust, or a bankruptcy which releases the borrower from any liability for either loan, and whatever other debts they may have as well.

In today’s real estate downturn, I frequently tell clients that the only return that they will get from their property is the opportunity to live in it, payment free, for the 6-10 months or more until a foreclosure can be completed.  Negotiate a short sale, and you need to move out immediately and begin paying rent.  Do you suppose the realtor in my scenario counseled the home owner on that option?

The flat prohibition on attorneys advising clients to incur new debt in contemplation of bankruptcy is unconstitutional, says the 8th Circuit Court of Appeals.  Thank you.

Hostility to bankruptcy lawyers (and debtors) permeates the “new” bankruptcy law.  This particular provision required lawyers to identify themselves as “debt relief agents” in advertising and tried to prevent lawyers from pointing out ways in which a new loan or resort to credit might benefit the client in legitimate ways.

I’m now free to tell the client openly that if you have no loan on your car, under the present BAP decision on the application of the means test, you lose the “ownership allowance” expense.  That allowance in California is $489 a month.  If you have a loan secured by the car, you get the allowance, regardless of the balance owed on the car.

I have long wanted to tell my clients that it makes sense to borrow against your car for any purpose in order to get the benefit of the ownership allowance.  Borrow to pay for your bankruptcy, borrow to put money in an IRA, or to get health insurance, or your car tuned up.  Whether the loan originated in the purchase of the vehicle or for some other purpose, the existence of the lien entitles one to the allowance according to the 9th Circuit BAP.

Often, my clients are driving junker cars. Some have respectable credit scores, although their balance sheets are a mess.  A replacement vehicle  will give them reliable transportation going forward.  Yet Congress wanted to limit my ability to discuss the range of options with my client.  Somehow, Congress seems to have a slippery hold on the truths found in the First Amendment.

The good news about old debt is that, after four years from the breach of a contract, the debt is unenforceable.  The bad news is that a creditor is not barred from trying to slip one past the snoozing consumer.

Zombie debt, old accounts sold and resold to debt buyers, is drawing increasing attention in the media. I warn my bankruptcy clients that despite the discharge in bankruptcy, they will undoubtedly be hounded by some debt buyer who bought their account without knowledge of their bankruptcy.

I see an easy fix in California.  Now, the statute of limitations is an affirmative defense.  It must be raised by the defendant in a collection action in their answer to a complaint.  Thus the collector is free to seek collection of ancient debt, and the burden to assert the statute of limitations falls to the debtor.  A debtor who fails to answer the complaint forfeits the protection of the statute of limitations.  And certainly, most of these suits are disposed of by default, no answer being filed.

What if we reversed the burden on the statutue of limitations, and the plaintiff had to plead and prove that the debt is not barred by time? Then debt collectors could not prevail over the unsophisticated or impecunious consumer who failed to assert his rights.  Worth thinking about.