I always encourage my clients to review their credit report approximately 6 months after bankruptcy, to make sure their discharged debts are accurately reported. You can review your credit report for free at www.annualcreditreport.com every 12 months. You can also request a credit report from all 3 credit reporting agencies: Experian, Equifax, and TransUnion.

In fact you should make sure:

1.       That your bankruptcy is reported and that the correct dates and Chapter are reflected in the credit report.

2.       That all debts discharged are reported as “included in bankruptcy.”

3.       That all debts included I bankruptcy are reported a “0 balance due.”

Beware of “Credit Repair” services. They are a waste of money and time! You can dispute inaccurate entries on your own, and disputing accurate entries is both illegal and futile, as those entries will eventually reappear on your credit report.

Please contact our office at (213)382-2926 if you are thinking of bankruptcy. All my clients can obtain additional help after bankruptcy disputing inaccurate information on their credit report in order to have the best credit score possible.

If you are one of the millions of Americans with debt, you may also be one of the many that is behind on your debt. As a result, you may be getting collection calls. Those calls are far from pleasant conversation.  Some are downright hostile. I have heard outrageous stories from clients. Despite how strong of a person you may be, these calls can wear you down and cause you to make decisions you may not be happy with. When you are stressed and under pressure, it is hard to think clearly.

While I don’t recommend avoiding your problems altogether, I don’t think speaking to the hostile collection people will resolve anything. You are not obligated to answer the phone, so why would you pick up the phone, if you don’t have the money to pay and the conversation will not resolve anything. I guaranty that the person on the other end is not going to help, but they may make you feel worse.

Instead, take the time and consider your options. Call (213)382-2926 for your free consultation, to calmly discuss your options and gain some perspective.

If your property is underwater, not only did you probably reach out for help and examine your options, but you probably also received a lot of unsolicited offers from real estate agents and other “foreclosure consultants” who want to “help” you.

When they talk up all the benefits of a short-sale, they probably mention all these things:

Myth 1: You will be able to avoid personal liability for deficiency (roughly the amount you owe minus what the lender will receive for your house), that you would have if you just walk away and allow the lender to foreclose.

Myth 2: The person helping you with the short sale knows what he/she is doing and will protect you.

Myth 3: If you go through a foreclosure or bankruptcy, you will never be able to buy a house again.
Until recently, I naively believed that while short sales mostly benefited the real estate agent receiving commission, in most cases they didn’t “hurt” the seller (underwater homeowner). I believed that short sales were a waste of time for most, and better options were available, but that they didn’t make the situation worse. I was wrong!

True story:

A couple walks into my office with a horribly botched short sale. If the short sale was a haircut, it would be the equivalent of the horrid short haircut plus bangs I got in high school which looked awful with my insanely curly hair and round face. I cried for months…ok, back to what I was saying, when I heard this couple’s story, I couldn’t believe what I was hearing.

They had one deed of trust (mortgage) on their residence. The home was underwater. They were talked into a short sale. The real estate agent that handled this couple’s short sale failed to obtain release of personal liability. A few months after the couple thought this nightmare was behind them, they began receiving collection calls for the deficiency amount of the loan.

The short sale put this couple in a worse position than they would have been if they just moved out and allowed the foreclosure to proceed. They would not be liable for the deficiency if the lender just chose to foreclose.

A little real estate law background to explain why: Traditionally, when people speak about the “mortgage,” they are referring to a loan which is a combination of two things: a promissory note (“Note”) outlining the personal contractual obligations of the borrower and a deed of trust that secures the lender’s interest by attaching as a lien to the property.

In CA, most foreclosures proceed as “non-judicial” foreclosures. The power to sell is in the Deed of Trust. As such, foreclosures don’t go through the court. Because this leaves the borrowers less protected than a “judicial” foreclosure (where a judge would review the foreclosure), the borrowers get certain protections.

CA Code of Civil Procedure 580b provides that no deficiency judgment will apply if the loan was a “purchase money” loan for a “dwelling” (residence) occupied by the purchaser.

In addition, CA Code of Civil Procedure 580d provides that no deficiency judgment will apply when a lender forecloses non-judicially. Because it is likely that the first deed of trust holder will do the foreclosing, it is a section that doesn’t really apply to second mortgage/deed of trust holders. However, in some ways this section is wider in application, because it applies to all real property, not just the borrower’s “dwelling.” In other words, this section covers investment properties and commercial properties.

In this couple’s case, they only had one loan, but it was a refinance of their original purchase money loan (a loan borrowed to pay for the purchase of the home), and therefore there would be no deficiency, despite the fact that the home would be sold for a lower price at a foreclosure, because of 580d! That is if the home was foreclosed upon instead of sold in a short sale.

What happened to the couple and Myth 2:

In this couple’s case, because the lender didn’t proceed through a “non-judicial” foreclosure, but rather agreed to a short sale, there is potential personal liability for the deficiency. Section 580d no longer applies. While the deficiency issue could have been avoided if the real estate agent who negotiated this short sale for the couple made sure that the lender released both the lien interest as well as the underlying personal liability of the buyer, the real estate agent didn’t obtain those terms and the bank only agreed to “release its lien interest.” The real estate agent that botched this short sale proceeded to collect a commission of approximately $10,000, while the couple went on to have numerous sleepless nights thinking about what will happen with these collection calls they were now enduring.

I would argue that the borrower didn’t receive any “benefit of the bargain” from the short sale and that if no money was taken out during a refinance, it was in essence a “purchase money” loan entitled to protection under 580b. However, while I think these are valid arguments, it is frustrating to think that this couple would not be in this situation if they never proceeded with the short sale or if the real estate agent was not negligent in negotiating this short sale.

SB 931 and real estate agents everywhere are celebrating: Recently CA legislature passed SB 931 (codified as CA Code of Civil Procedure 580e) and it provides that if the lender in first position approves a short sale in writing, that lender may not pursue a deficiency against the seller/borrower. Note, this law is not retroactive and will apply to short sales after January 1, 2011. This section will also not protect borrowers/sellers where fraud is an issue. This applies to the initial purchase money loan as well as a first position refinance loan.

Frankly, I am a little surprised that this SB 931 was necessary at all. I do not understand what any borrower/seller would get from agreeing to a short sale if personal liability on the first position loan is not extinguished. In essence, the seller/borrower could walk away from the house and the house would be sold in a “non-judicial” foreclosure, after which the lender in first position would not be able to collect a deficiency because of 580d. However, if prior to SB 931, a short seller didn’t get release of personal liability as part of the short sale agreement, the person with a refinanced first loan (arguably “non-purchase money” loan, though this is a topic in itself) would potentially be opened up to deficiency liability, because the lender would not be exercising “non-judicial” foreclosure rights, but rather contractually agreeing to a sale.

It is my position that SB 931 came about as a result of negligent practice by “short sale” agents that fail to protect the borrower/seller and push people into short sales in order to receive commission. Now these agents are celebrating something that should never have been an issue to begin with.

As for Myth 3 – please see a previous blog I posted: about financing a house after bankruptcy.

In conclusion, do be careful before agreeing to do a short sale and make sure it is the right thing for YOU, not just the real estate agent and the lender.

Keep Your Home California (KYHC) is designed to help low/moderate income families stay in their homes. In fact, the US Treasury Department approved $2 billion in federal funds for California families that are struggling to pay their mortgage.

It sounds like a well-intentioned idea. However, as many people know, getting actual help with mortgage problems is not easy. Qualifying for any government program doesn’t seem to be a walk in the park either.

Because the program is very new, it is hard for me to have any sort of “expert” opinion on the matter. However, on its face, the program has many requirements families must meet. These requirements would effectively disqualify most of my current clients for one reason or another.

I am a realist and I understand that while $2 billion is a significant sum of money, the program had to have limits in order to both preserve the funding for people that need it most, but also to provide some non-discretionary ways to measure who would qualify. While the people that designed the program understand that many will not qualify, they are not willing to expand the program to a case-by-case basis. However, if there is money remaining they will consider petitioning to allow help for additional homeowners who don’t qualify for the program as it stands now.

Let’s go through some of the requirements:

• Low/moderate income (in Los Angeles County – $ 75,600)
• A financial hardship – change in circumstances, like loss of job or death/illness
• Property must be in CA
• Can only own 1 property
• Your mortgage must have been originated on or before January 1, 2009
• Your mortgage cannot exceed $ 729,750
• A cash-out refinance of Home Equity Line of Credit is not allowed.

It is also my understanding that there is a limit on the amount of arrearage that they are willing to work with and that limit is around $15,000.

The biggest hurdle is that your mortgage servicer needs to agree to participate in the program.
Right now only the following servicers have agreed to participate in the program: http://www.keepyourhomecalifornia.org/participating.htm

It’s easy to talk about all the reasons why this program will not be effective and how many “deserving” people will be left out of the program. However, I support any program that is not ran by scummy (yes, a legal term) mortgage modification people who ask for money up-front or even well-intentioned, but poorly informed people that promise to help without having the proper qualifications.

This program has clear guidelines. People that will be answering the phone are not profiting from your misfortune. To me, that alone is reason enough to not criticize the program and be on the lookout for people that can potentially benefit from it.

To get detailed information on Keep Your Home California, go to www.keepyourhomecalifornia.org

If you have other debts and/or don’t qualify for any mortgage modification programs, call me to discuss if bankruptcy may be a good option for you.

I have a client that paid me not a small amount of money to file her Chapter 13 bankruptcy case. She heard about me from her trusted family friend that has previously retained me for a bankruptcy. We filed her Chapter 13 case and stopped a foreclosure on her property. Prior to filing her case, she has not paid her mortgage and taxes for more than a year. After the filing of her case, I prepared a one-page list of written instructions on how to make 1 monthly payment to the Chapter 13 Trustee (to catch up on back mortgage payments) and 1 monthly payment to the mortgage servicer for the current monthly mortgage payment. I put the address where each payment should be mailed and the amount, date, how it should be tendered (by cashier’s check or money order). I told her to use the Mailing Certificate, both in order to have proof for the Court and to have a record of the payment for herself. Note, we have discussed her ability to pay at length and the need to begin required payments right after the case is filed.

Assuming she has the money, it shouldn’t be a problem to just follow these instructions, right? Wrong! She calls me a month after the meeting, outraged that I instructed her to pay her current mortgage payment when “people told her she didn’t have to while in bankruptcy.” When I asked her what “people.” She already knew what was coming next.

There are a lot of people out there, some with well meaning, but wrong advice. Some people that plainly like to misinform people for whatever reason. Some people that just like to hear themselves talk. Some people that went through a similar situation, that was nonetheless different, but think they are now experts. I don’t know which people my client received this awful advice from. I am very sure those people have not spent numerous hours examining this client’s case, her goals and her legal options. I have. I also know that if she wants to keep this house and not have her bankruptcy case dismissed, she needs to pay the monthly mortgage payment AS I INSTRUCTED.

I am not delusional about my knowledge. I would not attempt to give you medical, fashion, cooking, or love advice. I certainly would not write out instructions and charge you.

I help people file for bankruptcy. I have successfully filed over 100 cases on my own. When I give you repeated instructions on what to do in your bankruptcy case and tell you that if you don’t do these things, your case will be dismissed, please believe me. My one goal is to have your case succeed and to have you benefit from my legal advice. It’s not altruistic. It is just my job and if I do a good job and you are happy, you will refer more people to me.

Photo via Flickr by: hellojenuine