1 out of 8 U.S. Homeowners in foreclosure or late on mortgage payments

Reuters is reporting that 1 out of every 8 homeowners (approximately 12% of homeowners) in the United States is late on mortgage payments or in the foreclosure process. That is a staggering statistic. In California, the problem is worse than the nation as a whole, so the number is probably even higher for California. I think we are close to where the bottom for home prices should be (based mostly on income ratios), but due to all of these foreclosures, I think home prices are going to continue to drop to a number lower than what prices should be. For people with cash (and maybe first-time home buyers who can get a loan), that will be an opportune time to buy. Everyone else is in for a difficult ride.

New York Bankruptcy Court: Debtors and Chapter 13 Trustees Should Object to Stale Proofs of Claim

One issue that frequently comes up in bankruptcy cases is the filing of "stale" (i.e., beyond the statute of limitations) claims. What happens is that debt buyers, such as LVNV, purchase a large volume of debt at pennies on the dollar. When a debtor files a Chapter 13 bankruptcy, they attempt to collect on that debt by filing a proof of claim. The debt, however, may be 10 years old and the debt collector could not have pursued the claim in state court. Confronting this issue, a bankruptcy court in the Southern District of New York had the following to say:

C. Debtors and Their Counsel, If They Are Represented, and the Chapter 13 Trustee Should Scrutinize and Object to Stale Claims

In most circumstances it would be enough for the Court to stop with its ruling sustaining the objections and expunging the claims. But these claims and objections highlight a larger problem for this and other bankruptcy courts across the country. Two of the three claims at issue here were filed by LVNV, one of numerous bulk-claims purchasers that regularly file stale claims in bankruptcy courts. As stated in In re Andrews, 394 B.R. at 387, “[t]he phenomena of bulk debt purchasing has proliferated and the uncontrolled practice of filing claims with minimal or no review is a new development that presents a challenge for the bankruptcy system.”

While agreeing that the practice of bulk-claims purchasers filing stale claims is a serious problem, the court rejected the debtor’s argument that the conduct was sanctionable, as had other courts before it. Id. (citing cases). As pointed out in Andrews:

Allowing claims based on unchallenged proofs of claim is efficient
and economical in most cases. However, requiring debtors to file
objections and to raise affirmative defenses to large numbers of stale
claims filed by assignees based on a business model rather than after
careful review and evaluation is both burdensome and expensive.

Id. The solution suggested by the court was rules amendments:

The court will ask the Advisory Committee on Bankruptcy Rules
to consider whether changes should be made to the Federal Rules of
Bankruptcy Procedure and to the Official Bankruptcy Forms to alleviate
the significant burden on individual debtors and on the bankruptcy system
caused by the large number of undocumented, stale claims being filed by
the bulk purchasers of charged-off debts. . . . Finally, because the federal
rule-making process typically takes no less than three years to produce a
new rule, this issue will also be referred, with the consent of the two other
judges of this district, to the Local Rules Committee . . . .

Id. at 389.

Unless and until local or national rules changes are made, it is incumbent on debtors, their counsel, and the Chapter 13 Trustee, carefully to scrutinize proofs of claims to identify and object, if appropriate, to stale claims. The Chapter 13 Trustee clearly has standing under Bankruptcy Code § 1302(b)(3) to object to stale claims. See Overbaugh v. Household Bank N.A. (In re Overbaugh), 559 F.3d 125, 129 (2d Cir. 2009). Particularly in cases with pro se debtors, the Chapter 13 Trustee plays a crucial role and has an important responsibility in assuring that only proper claims are allowed and paid from the debtor’s estate.

In re Hess, --- B.R. ----, 2009 WL 1285296 (Bkrtcy.S.D.N.Y. May 06, 2009).

How Do I Modify My Home Mortgage?

One question I get almost every day is "how do I modify my home mortgage?" This website, Making Home Affordable, is good place to start. It describes the Home Affordable Modification Program and has links to all of the servicers who have signed up under the program. Most of the servicers have some information as to what is needed. Hopefully, this program will provide the necessary motivation for servicers to make reasonable loan modifications.

Mortgage Modification in Chapter 13 Unlikely

Well, it looks like Chapter 13 Mortgage Modification is dead for now. (See House Likely to Pass Housing Bill This Week Without ‘Cramdown’.) This is unfortunate, because getting voluntary modifications from servicers has been well-nigh impossible. The new administration wanted to use a carrot and stick approach to loan modifications. They got the carrot, but no stick. Without the stick, I think loan modifications are going to be increasingly rare--everybody talks about them, but no one has ever seen one. (I have actually seen them, but they are few and far between and I have only seen one that really made sense for the debtor.)