Bar News - July 13, 2012
Federal Practice & Bankruptcy: Should I File? Foreclosure Prevention Alternatives
By: Cory Mattocks and Jeremy Miller
In this new era overwhelmed with distressed properties complete with frantic and stressed homeowners, perhaps the best service we can provide to our clients is to take the time to analyze whether bankruptcy is truly the best tool in the shed when it comes to saving their home.
Bankruptcy is one of the greatest tools we have to help the homeowner remain a homeowner, but more frequently than not, bankruptcy alone will not solve the root problem. In a seemingly never-ending stream of potential clients facing mortgage issues, a common thread has woven its way to the surface: many of these potential clients have no other credit issues and/or are not facing any other overwhelming or unmanageable debt. The immediate solution of advising bankruptcy for the client ensures that they will not lose their home to an impending foreclosure sale; however, it is a solution that could potentially only prolong the inevitable, unless we stop to examine the actual reason they are looking to us for help. Setting the client on a path towards repaying arrearages, all of which include excess fees and charges, on a potentially toxic, or at the very least sub-prime note only further encumbers their finances, and even at the completion of their plan, they still might be subject to interest rate spikes that send them spiralling right back into default. Unless the root cause is identified and, in turn, rectified, this is a potentially never-ending series of repetition because bankruptcy alone does not solve the core issues found in these notes that are plaguing our potential clients. While there are non-conforming provisions in Chapter 13 plans that allow for possible modifications to be worked out during the pending bankruptcy, the client is often left to deal with the bank on their own while we continue to push forward with the bankruptcy case.
While in no way advancing that bankruptcy is not a great tool and possibly the best option for many, is it such a strong tool for our clients why not keep it in the toolbox until we have worn out our other tools, in essence saving the best for last?
Staying mindful of the potential for a climate change in this arena due to the SAFE Act attorney exemption finally coming to light, there have been and continue to be many options for assisting distressed homeowners retain their homes. The National Mortgage Settlement (http://nationalmortgagesettlement.com/) has created new avenues in which to access relief for homeowners. Admittedly it can be a slow moving, often stagnant, and frustrating process, but results can be achieved. Modification and/or Settlement offers have eventually come down in cases that were dead in the water; cases having legitimately gone through all previous discussed processes. These offers have included principal reductions of over $100,000.00. The biggest key to obtaining these results is getting the clients past the impending foreclosure and getting them the time they need to be qualified for the programs.
Consistent improperly-done coding or failure to remove said bankruptcy codes serves to only further exacerbate the ability to enter into loss mitigation programs, which in turn renders any of your calls made to the banks’ bankruptcy department futile. Getting the client the time they need in order to take advantage of government programs is often impeded by communication restrictions with bankruptcy departments. We’d be doing a great service to our clients by remedying these issues.
Recently the most successful approach gaining the time the panicked clients need has been to be proactive in seeking out creative strategies that postpone the impending sale and leaving many other legal options still on the table for future use. It may be a simple as actively communicating with foreclosure counsel or (assuming the bank doesn’t lose your third=party authorization!) directly with the bank representatives. I have lost count of the number of times, after being directed to contact the bank by foreclosure counsel, postponements have been achieved through correspondence and/or verbal assertions. Once you have the extra time you can do a great service for your clients. Although these tasks can be time-consuming, they are key steps in executing great service to the client, all the while keeping some of your other legal tools in the box for later use if needed.
Now assuming that you have exhausted all avenues and may feel defeated, there is still value in what has been accomplished for the client and the effort that has been put forth in their case. While the current result may not what you were striving to achieve, you have created new opportunities for the case with the current information and the extensive knowledge of what your client is facing in their mortgage and debt-related difficulties and are therefore better equipped to advocate, and oh by the way remember that tool you left in the toolbox, bankruptcy is still lying there in wait, ready to save the day if necessary.
Jeremy Miller and Cory Mattocks are attorneys at J. Miller & Associates in Concord.