Mitchell & Culp » Recent News

Reference Materials for Home Affordable Modification Program (HAMP)

Heather Culp — Thu, 29 Jul 2010 11:52:24 +0000

Although the Home Affordable Modification Program (HAMP) has been widely reported as under-serving those in need, and hat has been our clients’ experience here, if you are considering filing for bankruptcy protection or have already done so, and you have also applied for HAMP, this guide explains policies and procedures related to borrower outreach and communication.

Chapter 13 must be considered for HAMP upon request

According to the American Bankruptcy Institute, “These guidelines, originally proposed in March, greatly increase the attractiveness of chapter 13 as a platform to obtain a mortgage modification under HAMP. Under the new provisions, homeowners in chapter 13 are required to be considered for HAMP upon request. The chapter 13 plan may provide for modified payments at 31 percent of gross income, thus allowing chapter 13 debtors a means to reduce their mortgage to an affordable level.”

We’ve written at great length about mortgage modifications. Mortgage companies and other creditors have legal counsel and you should also.

If you are experiencing financial difficulty, consult a qualified legal professional before taking any action.

Expose on Debt Settlement Company

Heather Culp — Tue, 27 Jul 2010 11:24:18 +0000

We’ve written extensively about the perils of using debt settlement companies here. Before dealing with one of these organizations, do your research.

Financial Strategies to Employ Until the Economy Improves

Heather Culp — Tue, 20 Jul 2010 12:02:41 +0000

The latest report from RealtyTrac concerning foreclosures says, “The roller coaster pattern of foreclosure activity over the past 12 months demonstrates that while the foreclosure problem is being managed on the surface, a massive number of distressed properties and underwater loans continues to sit just below the surface, threatening the fragile stability of the housing market.”

Based on these numbers, commentators on NPR theorized that it will be the end of 2013 before the foreclosure/REO/inventory problems are worked through, and the housing market can begin to recover.

Bankruptcy counseling/asset planning & protection session for strategies

This means that those in precarious financial health should consider a bankruptcy counseling session, whether they intend to file for bankruptcy protection of fight to prevent such a filing. Here’s why:

If you intend to sell your home to take the equity and pay off debts or live on it while you wait for the economy to improve
- You’ll be competing for buyers who expect to name their (low) price for your property
- You most probably will not get the price you hoped for
- You’ll most likely have to wait over 100 days to get a “ratified” contract
If you, like many Americans, feel your employment prospects are fragile, a bankruptcy attorney can help you develop asset planning and protection strategies to employ until the economy returns to better footing (perhaps in 2013). Asset planning refers to either placing assets beyond the reach of creditors, or making the process of reaching assets so difficult for creditors that it will deter collection efforts, or some combination of the two.
- If you consult with an attorney or planning professional before you have significant debt, or while you’re solvent, assets can be moved without concern.
- Unfortunately, we usually see clients when they have incurred significant debt – usually either from business obligations or questionable investments.
If you’ve guaranteed business loans or co-signed debts for others, the strength of the overall economy will bear on whether you can renew loans or how quickly loans will be called when payments are missed. An independent professional can help you assess your risks and help you develop strategies.
The collapse in the real estate market has also created another roadblock to obtaining a small business loan, since many business owners depend on the value of their real estate as collateral for loans.

For more information on bankruptcy counseling, asset planning and protection, or small business loan guarantees search our site.

Small Business Owners, Plan to Stay OUT of Bankruptcy

Richard Mitchell — Wed, 07 Jul 2010 11:43:34 +0000

A recent column in Business Week about small business lending examined the role of the personal guarantee. “Given that most business loans are unsecured, a lender has little recourse, when a loan goes sour, beyond the personal guarantee of principals. And if the principals backing a loan are broke, a personal guarantee is virtually useless.”

The article went on to tell prospective borrowers what to expect: “Even with a blemish-free credit report and high FICO score, borrowers seeking $50,000 or more may be asked to supply up to three years of personal and business tax returns for income verification. This is in addition to financial pro formas and personal guarantees that lenders will otherwise require. Banks want to know that you have the personal resources to backstop unsecured loans.”

Plan your work and work your plan

Too often business people jump through hoops set before them by lenders without taking the exercises seriously from a business planning perspective. I often see a business owner in trouble about two or three years after startup when the SBA loans can’t be serviced. When I start talking to these business owners it amazes me that most don’t know their break-even point.

A business plan helps instill discipline. A business plan also gets business owners out in their businesses taking action instead of sitting behind their desks fretting.

Don’t just take my word for it

Here’s an article on formulating a business plan that claims that those who go through the process of developing a plan are more likely to obtain a loan or investment capital, make a major purchase, grow the company and grow.

The Power of the Automatic Stay

Heather Culp — Fri, 02 Jul 2010 01:44:17 +0000

Firethorne Country Club filed for Chapter 11 in March. In a prime example of the power of the automatic stay, the club’s owners bought some time to reorganize before a creditor could seize operations. A 2 p.m. hearing in federal court on was canceled after Firethorne’s owner’s filed the bankruptcy petition just after 1 p.m.

How the automatic stay works

The automatic stay applies to most creditors and is a statutory injunction that stops harassing telephone calls, lawsuits, foreclosures, garnishments, repossessions and all collection activities, the moment your bankruptcy petition is filed with the bankruptcy court. It places you and your property under the protection of the bankruptcy court and allows time and space for an orderly administration of the bankruptcy estate by a bankruptcy trustee.

The injunction takes effect against your creditors without you or your attorney appearing in court, filing a motion or waiting for an order from the bankruptcy court.
Read more: Firethorne Country Club files bankruptcy – Charlotte Business Journal

Personal Loan Guarantees for Business

Richard Mitchell — Thu, 24 Jun 2010 16:56:29 +0000

After forty years of helping small business owners with their financial difficulties, I wish more of them understood how the personal guarantee can send them into bankruptcy. It’s difficult for self-employed people and small business owners to get capital, and the lack of capital is a big part of the reason business owners file for bankruptcy when their businesses stumble or fall — a vicious cycle for sure.

With the whole economy in upset, few small businesses can get credit and those who do usually succeed in getting a loan because one of the owners has signed a personal guarantee.

Ask yourself these questions

I ran across an article in Inc. magazine earlier this year that I wish all my small business clients had read it before they signed personal guarantees:

Before filling it out, first ask yourself: Would it possible for me to follow through on this promise without greatly affecting my personal life?
“If you’re going to start a business, you’ve got to be willing to lose some money,” Short says. “But don’t lose your entire future, your house and your children’s college education by pledging too much.”
The second question you should ask yourself is: Is this a worthwhile investment? Remember: this business may be your baby, but it is still a business, and decisions made regarding it need to be level-headed and fiscally sound.
“You have to separate emotion from objectivity,” says Chuck Matthews, the executive director of the center for entrepreneurship, education and research at the University of Cincinnati. “The minute you get emotional about it, you’re going to make a bad decision.”

What happens when your business stumbles or falls

The very first thing a client must do when sitting down with me or any attorney is list business liabilities that the owner has personally guaranteed. Small business owners frequently make the mistake of putting everything in the business name but backing everything with a personal guarantee, making it very difficult to split the client from the business.

This fusion of business and personal entities shows up in the language clients use. They say “I did this” instead of “the company did that.” I call this the “I factor.” People with a high I factor have a difficult time making the right business decisions. A business is a business. It exists to pay its owners, not the other way around.

My law partner, Heather Culp, wrote about small business owner “separation issues” last year — a worthwhile read.

If you have signed a personal guarantee for a business loan that you are struggling to pay, seek competent legal counsel immediately. A bankruptcy counseling session can help you understand your legal position.

First “Flipping,” Now “Flopping”

Heather Culp — Mon, 21 Jun 2010 12:02:13 +0000

Bloomberg Business Week published an article on a new scheme for profiting in the real estate market during a time of unprecedented foreclosures. Back during the boom, people “flipped” houses by buying low and selling high. During the bust, that same premise is being used to “flop” houses through the use of short sales.

In flopping, investors or home buyers hire brokers to assess a home for less than its market value and convince banks to accept a sale at that level. The buyer conceals from the lender that he has lined up a higher offer and then quickly resells the property for a profit. Someone interviewed in the article observed that investors often use real estate broker opinions, which may rely on drive-by inspections instead of full appraisals, to persuade lenders to sell at a low price.

Let’s not forget the impact of a short sale on the original owner

What the article failed to address was the impact of a short sale on the original homeowner. My partner, Rick Mitchell, and I have written extensively on short sales here. They are usually in the best interests of everyone but the seller for a number of reasons, most notably, debt forgiveness income.

The government, through its Home Affordable Foreclosure Alternatives Program, that month began offering as much as $1,500 to servicers, $2,000 to investors and $3,000 to homeowners who close short sales. The Bloomberg Business Week article quoted data from the National Association of Realtors that 12 percent of existing home sales, or almost 622,000 houses, were short sales in the 12 months through April.

If you are struggling to pay your bills and considering alternatives to bankruptcy, call a qualified bankruptcy practitioner for an expert opinion. Bankruptcy lawyers know how to avoid filing for bankruptcy.

Until Health Care Reform Takes Effect

Heather Culp — Mon, 14 Jun 2010 11:31:02 +0000

While a large number of bankruptcies include medical expenses, there is no such thing as a “medical bankruptcy.” Thankfully, health insurance reform will push fewer clients over the financial edge.

While the full bill won’t be enacted for four more years, several changes are now in effect:

More services will be paid in full, regardless of deductibles and copays
The lifetime benefit “cap” is a thing of history
Your children can remain on your policy (if you have one) until age 26
Children with pre-existing conditions cannot be denied coverage (but it’s unclear whether they can be charged a higher premium)
85% of insurance company revenues must go into paying for health care, otherwise the company can be required to give you a rebate

If you have difficulty paying your bills, medical or otherwise, consult with an attorney well versed in bankruptcy and debtor law.

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.