Mitchell & Culp » Featured Articles

Beware Foreclosure Scams Part 2

Heather Culp — Wed, 09 Jun 2010 11:47:09 +0000

Part 1 of this series advised of free consumer protection resources for homeowners in foreclosure who receive offers to purchase their homes before the foreclosure process finalizes.

THESE OFFERS ARE USUALLY SCAMS.

Go into foreclosure and get sued at the same time?

Why are these presumably well-meaning offers usually scams? In general terms, if you enter into a contract to sell a home without the ability to convey title at closing (the reasons for which may vary), the would-be buyers could sue you to recover damages for failing to close the deal. In that case, you’ll have a foreclosure on your hands along with a judgment in court and, perhaps a hefty legal bill.

Reasons you may be unable to convey good title:

The foreclosure takes place before the sale can be concluded — you no longer own the house
The amount they offer does not satisfy the total owed on the house
- liens (including tax liens)
- penalties accrued by the mortgage company for being in arrears
- assessments by homeowners association

Our advice to homeowners who cannot afford their homes is to seek good legal advice, such as that obtained in a bankruptcy consultation. Bankruptcy may not be the answer, but it is certainly an option to consider along with others.

Get the facts on your legal rights and protections before making an emotional decision.

Beware Foreclosure Scams Part 1

Heather Culp — Mon, 07 Jun 2010 11:33:17 +0000

The past few years have showed us that owners of homes in foreclosure may face a variety of potential pitfalls.

So-called real estate investors

One such pitfall is a foreclosure scam. These often take the form of solicitations from so-called real estate investors who would like to purchase the homes before the foreclosure process finalizes.

The solicitations often occur by direct targeted mail, roadside signs, TV ads, and the Internet. They often appeal to distressed homeowners’ hopes of avoiding the blemish of “foreclosure” on their credit reports and may even falsely promise a deal that would keep the homeowner in possession of, or with legal title to, the house.

Usually these letters are scams and could actually bring you more sorrow than help. There are good, free resources available to distressed homeowners on the topic of foreclosure scams:

Avoid foreclosure frauds and scams with these tips

NC Office of the Attorney General tips

Office of Thrift Supervision tips

Office of the Comptroller of the Currency tips

If it sounds too good to be true, it probably is. Get the facts. If in doubt, contact a qualified legal advisor. Part 2 of this series talks about how these scams work.

The Dark Side of Bank of America’s Mortgage-Principal Forgiveness Program

Heather Culp — Thu, 25 Mar 2010 15:24:29 +0000

What a great news day for Bank of America when it announced it would offer mortgage-principal forgiveness worth about $3 billion to 45,000 borrowers. The jury is (literally) out on whether it will be an equally good day for homeowners who can’t pay their debts.

Why it’s too soon for troubled homeowners to rejoice

When people can’t make their mortgage PAYMENT a reduction in principal doesn’t do them any good. I see nothing in this program about reduction in monthly payments.

Bank of America has a poor track record following through with promises. Last month the bank was sued in federal court by 10 troubled borrowers who were offered a loan modification and promised written agreements would arrive by mail “within weeks,” according to court documents filed by lawyers from the Legal Aid Society of Southwest Ohio. According to the Charlotte Business Journal, ”No one has received the documents or had their mortgage payments reduced, the filing says. They have called to follow up and received no help. One woman has received notice the bank has begun foreclosure proceedings on her home.”

Perhaps most important for homeowners considering ANY negotiation with creditors is the matter of taxes. My law partner, Rick Mitchell, and I have written about debt forgiveness income extensively. Here it is in the simplest of terms.

Unless you file for bankruptcy protection, any time you sell or surrender your home for less than the balance due on the mortgage(s) there is a price to pay. That price is something called “debt forgiveness income.”

Whether debt forgiveness income is triggered is a legal and accounting question that depends completely on the facts of the case.

Even if there is no debt forgiveness income resulting from a mortgage modification, and thus no tax consequence, 95%+ of our clients who cannot pay their mortgage as it becomes due have substantial other debts that they also cannot pay as they become due. This may be tens of thousands of dollars in credit card debt; medical debt; tax debt; business debt; or other debt.

If mortgage modification will still leave you with debts that you are unable to pay, then mortgage modification is not the answer to all of your problems.

If you cannot pay your mortgage, you probably can’t fully pay your other debts. Bankruptcy may or may not be the best solution. Only a consultation with a qualified advisor will answer that question.

Bankruptcy and Divorce

Heather Culp — Tue, 02 Feb 2010 16:11:34 +0000

I frequently tell new bankruptcy clients — often college-educated, middle- to upper-middle class people who never dreamed they’d be in this position — that bankruptcy is the new divorce. Long ago, divorce was extremely rare and resulted in a social stigma. No one marries planning to divorce; we make the best decision we can, with the information we have, and plan for a long and happy marriage.

But, sometimes, despite our best efforts and intentions, divorce does happen, and it may be the only way out of an unbearable situation. These days, divorce is commonplace, and most people understand that when a friend, family member or colleague goes through a divorce, they’ve done the best they could to make the marriage work.

Likewise, in this disastrous economy, bankruptcy is more and more commonplace and shouldn’t be a source of shame or humiliation. We all make financial decisions throughout our lives, and we do so generally with the best of intentions, thinking that those decisions and the related obligations will work out for the best. And sometimes, our financial circumstances deteriorate to the point that a bankruptcy is the only way to move out from under debts and move on.

So what about bankruptcy AND divorce?

Once the decision is made to separate or divorce, the marital relationship should be viewed as a business transaction that includes the untangling and allocation of the couple’s assets and liabilities. Our discussions with clients who are contemplating a separation or divorce, or have already separated or divorced, may include these considerations.

Married couples can file for bankruptcy, even if they are separated

Advantages to a joint filing include that there is one filing fee, not two, because the couple can file a joint petition instead of two separate petitions. The filing fee goes to the bankruptcy court; as of this writing, the filing fee for a Chapter 7 petition is $299.00. Generally there is a savings on the attorney’s fee as well, because the attorney attends one meeting of creditors, not two; files one petition, not two; etc. Further, there is a certainty to what debts are discharged (meaning, wiped out) in the bankruptcy, and what, if any, are not.

However, a joint filing may be impossible where estranged spouses are unable or unwilling to communicate, or where there is an actual conflict of interest that cannot be resolved in order to allow one attorney to represent both spouses in a bankruptcy.

Further, household income and expenses are a factor in bankruptcy planning; if the household income, including both spouses, is too high such the couple is disqualified from a Chapter 7 bankruptcy but must instead file a Chapter 13 involving monthly payments, then it may be preferable to delay until the spouses are in different households. And one can easily imagine that it’s simply untenable for estranged spouses to endure a Chapter 13 bankruptcy, in which monthly payments are made to the bankruptcy trustee for a period of five years.

Obviously, an experienced bankruptcy attorney can help weigh these factors to determine what’s best in any set of circumstances.

Domestic support obligations are not dischargeable in a Chapter 7 bankruptcy

They will survive the bankruptcy filing. Domestic support obligations include — but are not limited to — spousal maintenance (or alimony), child support, equitable distribution, indemnity provisions relating to marital debts, guardian ad litem fees, and some attorney’s fee awards in the context of a domestic case. However, equitable distribution and property settlements may be dischargeable for less than full value in a Chapter 13 case. Again, this is a complicated area, and one that ought to be explored with a competent bankruptcy attorney.

Where there are joint marital debts, the parties may agree (or the divorce court may order) that one spouse will assume responsibility for payment of certain debts. Common examples are provisions in which one spouse shall “hold the other harmless from,” or “indemnify against,” credit card debts, the mortgage(s) on the marital residence, etc. While these provisions are enforceable by one spouse against the other, they are not binding on the original creditor. For example, John and Jane had a joint Visa account, and the divorce settlement requires John to pay the debt in full, and to hold Jane harmless on that debt. If John stops paying the debt, then Visa can try to collect from Jane, including obtaining a judgment against her for the full amount. Visa doesn’t care whether John pays or not. Where there is significant marital debt without a great ability to pay it, bankruptcy — eliminating the Visa debt altogether — is something to consider as part of the divorce plans.

Divorce planning should consider debt and property issues

Section 541(a)(1) of the Bankruptcy Code provides, among other things, that property of the debtor’s bankruptcy estate includes any interest in property that could have been property of the estate as of the date of the filing of the bankruptcy petition, when the debtor acquires or becomes entitled to acquire such property within 180 days from the date of filing as a result of a property settlement agreement with the debtor’s spouse, or any interlocutory or final divorce decree.

In other words, if the debtor receives or becomes entitled to receive property as a result of a property settlement agreement with the spouse, within six months of the filing, then the bankruptcy trustee can and likely will use those proceeds to pay creditors.

In the past year, we’ve had to explain to more than one recently divorced person that bankruptcy is no longer an option, even though they are saddled with debt that would be dischargeable, because they wouldn’t want to give up their share of the marital property as part of the filing. Consideration of debt and property issues as part of divorce planning can be critical.

All too often money problems lead to divorce, and visa versa. Be sure to include a competent bankruptcy attorney on your legal team alongside your family law counsel.

NC Foreclosures

Heather Culp — Thu, 17 Dec 2009 12:45:30 +0000

A recent Wall Street Journal article quoted figures estimating that 23% of homes have mortgage balances greater than the value of their homes — a condition referred to as being “under water” in your home.

Mortgage troubles are not limited to the unemployed. About 588,000 borrowers defaulted on mortgages last year even though they could afford to pay — more than double the number in 2007, according to a study by Experian and consulting firm Oliver Wyman. “The American consumer has had a long-held taboo against walking away from the home, and this crisis seems to be eroding that,” the study said.

Bringing it home to North Carolina

The highest rates of foreclosure in North Carolina are in the urban (Wake, Guilford, Mecklenburg) and surrounding counties (Union County in particular), and in the mountains (Caldwell County, etc.), where investment property was marketed like this: “Buy a new lot or spec house as an investment, on an interest free, 100% financing, and we’ll guarantee you a buyer within 2 years, at a profit to you.” That all assumed that property values would continue to increase, and that didn’t happen.

For more insight on dealing with a possible foreclosure or distressed property, see our three-part series:

Part One: Covered the foreclosure process and defined some basic real estate terms related to distressed sales.

Part Two: Questions and Answers on preventing foreclosure, negotiating with a mortgage company, and what to do about an adjustable rate mortgage that will soon reset.

Part Three: Questions and Answers on short sales and sifting through the confusing offers from those who want to help distressed homeowners.

I do know that the highest rates of foreclosure are in the urban (Wake, Guilford, Meck) and surrounding counties (Union Co in particular), and in the mountains (Caldwell County, etc.), where investment property was marketed …. buy a new lot or spec house as an investment, on an interest free, 100% financing basis, and we’ll guarantee you a buyer within 2 years, at a profit to you. That all assumed that property values would continue to increase, and that didn’t happen.

Primer for Distressed Homeowners: Part 1 of 3

Heather Culp — Mon, 30 Nov 2009 21:31:56 +0000

With the jobless recovery hitting the Charlotte region particularly hard, we’re getting a steady stream of calls asking for help preventing home foreclosures, forced sales and sheriff’s sales, and facilitating short sales.

The general news press has gotten sloppy in the language it uses for distressed real estate, so let’s start there:

Forced sale is not used often, but when it is it would include a sheriff’s sale or a foreclosure sale.
Foreclosure is the process by which the lender repossesses real property upon the borrower’s default.
Short sale, though, is a consensual deal between the lender and the borrower in which the lender agrees to take less than what’s owed; a short sale is not a forced sale in the strictly legal sense of the word.

The foreclosure process, step by step

The foreclosure process is straightforward. It begins when the lender files a lawsuit in the state court in the county in which the property is located, giving notice to anyone legally responsible for the debt — borrowers, co-signers, guarantors — and upon at least ten days’ notice to the responsible parties, a hearing is held at the courthouse.

A deputy clerk, an assistant clerk, or the clerk of court presides over the hearing; the lender must show only four elements: (1) that there is a valid debt secured by the property, (2) that the borrower is in default on that debt, (3) that there is a power of sale in the agreements between the borrower and the lender, and (4) that the responsible parties had ten days’ notice or more prior to the hearing. This can all be shown by affidavit and usually is — in other words, there is no live testimony. As part of the power of sale clause, the lender hires a “trustee” or “substitute trustee” — a neutral party — to foreclose on the property. The trustee/substitute trustee attends this hearing and provides the proof of these four elements. The clerk has no authority to consider anything other than these four elements; if they are met, then the clerk shall enter an order of sale, allowing the property to be auctioned on the courthouse steps. It is generally pointless for borrowers to attend these hearings and try to delay the process.

If a borrower believes he has equitable grounds to stay the foreclosure, then he has the right to file a lawsuit in the county’s superior court, asking that a temporary restraining order, preliminary injunction, and/or permanent injunction be issued to stop the foreclosure. These lawsuits are expensive and generally a long shot. In the absence of either a successful superior court suit or a workout between the borrower and the bank, the property will be auctioned on the courthouse steps about 25-30 days after the hearing. The bank usually places a credit bid at the sale — buying the property back for something short of the full amount of the debt. Anyone can bid, but live bidders are relatively rare.

There is a ten-day “upset bid” period following the sale, in which anyone can file a bid on the property that exceeds the sale price by the greater of 5% or $750.00. The filing of any upset bid triggers a new ten-day upset bid period, until the period passes with no new filed bids. Once the ten-day upset bid period expires, the sale is final; the trustee/substitute trustee signs a “trustee’s deed” giving the property to the winner of the sale, and files documents related to the sale.

The relationship between foreclosure and bankruptcy protection

A bankruptcy filing by a borrower stops a foreclosure proceeding until such time as the lender obtains from the bankruptcy court an order giving it relief from the automatic stay of all creditor activity.

Generally speaking, a Chapter 13 debtor can propose a plan that provides for payment in full of pre-bankruptcy mortgage arrearage, and at the same time keep current on post-bankruptcy payments, and keep the house. Falling behind on either aspect will likely lead to the lender getting relief from stay and then having the right to re-start the foreclosure process.

Also speaking generally, a Chapter 7 debtor can’t do anything to stop the mortgage company from getting relief from stay and thus restarting the foreclosure process, unless the debtor is able to do what he couldn’t do prior to the institution of the foreclosure — do a mortgage modification with the lender; refinance; or otherwise come up with a large lump sum to get current on the mortgage and then keep current with the monthly payments.

I just can’t have my credit ruined by a bankruptcy!

People often tell me that “I just can’t have my credit ruined by a bankruptcy!” and these people have a pending foreclosure, are in default on several credit card obligations, and are past due on other debts. While a foreclosure is probably less prejudicial to your creditworthiness than a bankruptcy, the reality is neither is good and a bankruptcy may be the only way to get a fresh start.

Another consideration in favor of bankruptcy: foreclosures are governed by state law and the practice and procedure varies wildly from state to state while bankruptcy is federally regulated. If you own real property in more than one state, consult with a bankruptcy attorney to see if the bankruptcy process may produce a less expensive outcome. Remember this summer’s talk about GM and Chrysler entering an “orderly bankruptcy?” Bankruptcy is indeed an orderly process.

In Part 2 of 3: Questions and Answers on preventing foreclosure, negotiating with a mortgage company, and what to do about an adjustable rate mortgage that will soon reset.

In Part 3 of 3: Questions and Answers on short sales and sifting through the confusing offers from those who want to help distressed homeowners.

I don’t want to file, but should I?

Richard Mitchell — Wed, 05 Aug 2009 01:10:30 +0000

Some people are not good candidates for bankruptcy, including:

Those with too many non-exempt assets; for them, we develop asset planning & protection strategies
Those who cannot afford to file bankruptcy
Those with no income or who have so few non-exempt assets that they are essentially “judgment proof”
Those with finances so complicated by trusts and tax shelters that a bankruptcy trustee could easily liquidate them. Again, these people are candidates for asset planning & protection services

Help is what we're here for

Bankruptcy counseling

Many people we see in our offices want us to handle negotiations with credit card companies or provide them with credit card counseling. Most often these individuals need bankruptcy protection, not creditor negotiation or credit card counseling. You may be the exception, so contact our office for an initial consultation.

Some people file a bankruptcy case to distance themselves from a financial situation that was brought on by loss of a job, forced early retirement, loss of a small business, or reduction in work hours. We often see that these folks are under emotional distress or depression from their employment situation and simply want to free themselves from the additional pressures of debt, if legally allowed. They feel they can focus on their mental health and rebuilding their professional lives more productively when creditors aren’t calling incessantly.

Some people may find that a bankruptcy is worth filing even if they do lose some of their assets.

People who have had their wages garnished can potentially recover some of the wages already garnished through a bankruptcy filing.

As you see, the decision is highly a personal one.

Bankruptcy checklist (not legal advice)

Here’s a checklist to consider before calling our office. If several of these apply in your situation, bankruptcy is a viable consideration:

Your wages have been garnished or your bank account has been attached
Most of your debts are unsecured debts like credit card bills, hospital or doctor’s bills, etc.
Your total debt, not including your car or house loan, is more than you could pay, even over five or more years
Collection agencies are calling you at home and/or at work
Your payments are more than 30 days behind on more than one bill
There are lawsuits pending against you
You have high medical bills not covered by insurance
You owe income taxes that you are currently unable to pay
You have few assets
You have little or no savings
You have had property repossessed (such as a vehicle)

Call our office to set an appointment.

Together, we will determine the best strategy for legally handling your financial troubles.

Asset Protection Basics

Heather Culp — Wed, 15 Jul 2009 16:39:36 +0000

Many people want to come in and talk about asset protection are surprised to learn that they have no assets to protect. “How can this be? “I own a car and a house!”

Asset protection comes in to play if you own non-exempt property — property that creditors can reach; or if you anticipate that you may have non-exempt property in the future.

Learn by example

North Carolina residents are allowed, for example, a $3500 exemption in any automobile. If you own a car free and clear of liens that is worth more than $3500, then you may have cause for concern. However, if you are making payments on a car, then you probably have no equity whatsoever. So, the fellow driving the 2001 Hyundai that’s owned free and clear may actually have an asset worth protecting, but the fellow driving the flashy 2008 BMW may not. Appearances are deceiving.

We had a client in this month who has no non-exempt property whatsoever, but is in serious debt. His elderly father will leave him a substantial inheritance when he dies. This is a fellow that needs to be concerned about asset planning – get rid of the debts today and protect what may come in the future.

How we help

For people who have genuine reasons to hire us for asset planning and protection, we provide these basic functions:

Help clients determine what he or she is personally liable for (just because you’re married doesn’t mean you owe all of your spouse’s debts; just because your company fails doesn’t mean you owe every single debt)
Help clients determine what are his or her assets, and then what is exempt, what is not exempt
Analyzing present and future income
Advising clients how to protect assets and income from creditors as much as possible

We are legal specialists in the area of financial distress. Sometimes our work in asset planning and protection uncovers the need for estate planning, which we will refer clients to another firm to execute professionally. We do not set up trusts, but, if appropriate, we can again refer clients. Most of the trusts we see that are set up for purposes of evading creditors are completely worthless.

In Financial Distress?

Heather Culp — Thu, 25 Jun 2009 17:15:10 +0000

We help clients facing these financial difficulties:

Foreclosures, wage garnishments, creditor harassment and repossessions
Creditor negotiation (including credit card companies) to lower debt and avoid bankruptcy
Restructuring, liquidating and winding down troubled operations
Negotiate unpaid taxes with local, state and federal agencies
Asset planning and protection after a harmful turn of business affairs
We regularly advise clients on legal matters that affect their personal and business finances, working to minimize our clients’ risks and legal exposure.

Don’t believe everything you see on TV or read online

Call Mitchell & Culp today for an appointment. Bring to the appointment a simple list of creditors (not a stack of bills, not a credit report) itemizing each debt, the approximate amount owed, to whom it’s owed. Indicate on the list who’s responsible for each debt (Husband, Wife, or Joint).

If you hire us, you’ll pay for that initial appointment. If you don’t hire us, you pay nothing. You have nothing to lose so give us a call today and get the facts for your situation.

What you read on the Internet, hear from friends and family, see in advertisements from “tax repair” services, “credit repair” services, “debt consolidation” services and the like is often (at best) misleading or misinformed, and (at worst) downright criminal.