Tennessee Bankruptcy Lawyer Blog

As more information about the recovery efforts following the 2010 flood become available, we will try to post the information on this blog. In this morning's Tennessean, there is an article with the address for each of the FEMA Disaster Recovery Centers that has been opened in Middle Tennessee. Specifically, centers have been opened in Cheatham County, Davidson County, Hickman County, Williamson County, and Wilson County and the addresses are:

Cheatham County: City Hall, 308 U.S. 70 in Pegram
Davidson County: 100 Oaks Mall, 719 Thompson Lane in Nashville
Hickman County: Centerville Church of Christ, 138 N. Central Ave. in Centerville
Williamson County: City Hall, 109 Third Ave. S. in Franklin
Wilson County: 350 Outlets Mall in Lebanon (opening soon)

In addition, a recovery center specifically for businesses that have been affected has opened on the campus of Tennessee State University.

You can also contact FEMA at 1- 800-621-FEMA or www.disasterassistance.gov.

We are already getting a number of calls from clients and potential clients regarding the possibility of foreclosure if they do not make payments on their homes that have been damaged by the recent floods in the Middle Tennessee area. The U.S. Department of Housing and Urban Development ("HUD") announced that there will be a 90-day moratorium on foreclosures of FHA mortgages. As a result, If you have an FHA mortgage that is already in the foreclosure process, you have been given a 90-day grace period on those foreclosure proceedings.

However, I do no believe that the moratorium will prevent a foreclosure after this moratorium. As a result, if you have the ability to make your mortgage payments, it is likely in your best interest to make the payments. At some point in the future (maybe longer than 90 days if the moratorium is extended), foreclosure proceedings will be allowed to begin again. However, if you are already facing foreclosure on an FHA mortgage, you need to use this 90-day period to seek help. If your home was damaged by the flood, FEMA, as well as other federal and state agencies, are offering some limited help. If you have an FHA loan but your home was not damaged by the flood, you need to have a plan for dealing with the foreclosure at the end of the 90-day moratorium.

If you do not have an FHA mortgage, the moratorium does not directly affect you. However, you may be able to get assistance from the lender to delay any foreclosure proceedings by calling and talking to the lender. Hopefully, the lender will be open to this.

We encourage anyone facing foreclosure to explore any and all of the assistance that has been made available as a result of the disaster that has affected our area. However, if you are still facing foreclosure after all of your other options are exhausted, please contact us if we can be of help.

There is already an abundance of information flowing on the internet and elsewhere about the flooding and the potential for federal assistance to the victims of the Middle Tennessee flood. However, finding specific information about what types of assistance may be available, whether or not certain damage will be covered by homeowners' insurance, and many other questions is a bit harder to find. As a result, the following information is intended for those Tennesseans who have been affected by the flooding in Middle Tennessee, particularly those in Nashville, Williamson County, Rutherford County, and Maury County.

First, the Daily News Journal out of Rutherford County has an article posted regarding the issue of whether normal homeowners' insurance will cover the flood damage. In general, the typical homeowners' insurance policy does NOT cover flood damage. However, there are some cases in which coverage might be available. As happened following Hurricane Katrina, there is likely to be a LOT of denied homeowners' insurance claims. Most of the damage claims will be correctly denied because flood insurance is what covers flood damage, and most Middle Tennesseans do not have flood insurance. I have already heard a rumor that only 400 Davidson County properties had flood insurance, so I would assume the vast majority of you do not have it. But rising water was not the only source of damage to many properties. The rain itself (particularly if flooding in a house was caused specifically by roof damage) would likely be covered. In some cases, flooding as a result of burst pipes might be covered. Accordingly, do not give up hope right away. Your claim may be denied, but you need to appeal the decision and see if there are other causes (ie., other than just rising water, which generally isn't covered).

Continue reading "Information Regarding Flooding in Tennessee" »

I almost hate writing anything about the mortgage modification programs anymore, but I continue to get calls from Tennessee homeowners asking what to do after their loan modifications fall apart. In yesterday's New York Times, there is another report on the failings of the HAMP. The previous reports have focused on the shockingly small number of mortgages that have actually been permanently modified. However, the New York Times article is now reporting that the number of mortgages that are defaulting after receiving a modification nearly doubled in March. That's right, even those homeowners who receive a modification are defaulting on the new payments at an alarming rate.

What does this tell us? Probably a lot of things. But from the information I am getting from my clients, it tells me that most of the modifications (even if you get one) are not sufficient to fix the homeowners' problem. In several cases, my clients have indicated that the amount of reduction they were offered under the modification was less than a 10% reduction in the monthly payment. However, the article also states that those homeowners who received a new monthly payment of at least 20% less than their prior payment still defaulted at a rate of about 40%. For most homeowners who are already facing foreclosure or bankruptcy, dropping the mortgage payment by only 10-20% isn't enough.

So what should you be doing if you need a modification? First, at least try the modification process. However, just be prepared for some frustration because the process is not easy. Second, be prepared for some mortgage companies to tell you not to make mortgage payments during the initial stages of the process. If that happens, make sure you do not spend that money on other things. Many people end up in a worse position because they don't make any payments during the process and don't have the money to make those payments when the process falls apart. Third, and most importantly, get everything in writing (including a statement that the mortgage company will not foreclose on your house during the modification process).

I continue to hear radio commercials and internet ads for "debt assistance programs" that say there is a federal credit card bailout and that "you have a right" to reduce the amount you owe on your credit cards. I have yet to find the so-called federal credit card bailout. What I have found is more concerns than answers.

If you Google "debt assistance programs," you will come across numerous websites offering to help you reduce your credit card debt. If you also add the search term "expires" to the Google search, you will also notice that there are different dates of expiration on these programs. One website said the program expires on 2/12/2010, while another website with identical graphics said the program expires on 4/15/2010. It appears to me that these "expiration dates" are nothing more than marketing ploys to get you to call sooner rather than later.

There are some legitimate debt counseling services out there. However, my experience is that most don't work and, in many cases, my clients have spent huge amounts of money (usually in the thousands of dollars) in fees with these services. Even after that, most never see any reduction in the amounts owed on their credit cards. In fact, most people end up in a worse position.

If you are looking for help on reducing your debt, spend some time budgeting and getting help from debt counseling. Don't rely on someone else to pay your debts for a large fee, particularly if they charge a large upfront fee. You are just as capable of negotiating with your credit card companies as any of these services. If you are in real trouble, though, it's probably time to start talking with a bankruptcy attorney. Most of us will provide a free consultation to help you determine if bankruptcy is the right course of action.

The Tennessean is reporting today that Bank of America is pledging to help certain struggling homeowners avoid foreclosure. However, whether or not this help will be available to many Tennessee homeowners is yet to be determined because the BoA offer is very limited. The New York Times is also reporting on a new BoA initiative, which appears to be the same program. Unfortunately, there are significant differences in the information in the two articles.

According to the Tennessean, the BoA program is limited to those homeowners who (1) owe at least 20% more than the current value of their homes, (2) have a subprime or "exotic adjustable rate" mortgage, and (3) are at least two months behind on their mortgage payments. But according to the New York Times, the BoA program is by invitation only and BoA is only inviting borrowers who received subprime or other "high risk" loans from Countrywide. The New York Times also reports that BoA's terms of the offer is significantly more limited than what is reported in the Tennessean article.

Regardless of which report is correct, if you qualify, the BoA offer is significant. It appears they are offering to reduce the principal balance owed on the mortgage by as much as 30%. So far, most of the mortgage modifications that have occurred have only reduced interest rates or extended payments. But under the BoA offer, a homeowner could actually owe less on the mortgage balance (at least at some point). That's great news for BoA customers that qualify.

However, many Tennessee homeowners have not seen the 20% or more drop in their home values that the Tennessean reports is part of BoA's criteria for the offer. As a result, I am not sure how many Tennesseans will qualify for this offer. More importantly, mortgage modifications have (at least in many cases) been more of a nightmare than a blessing. The fact that BoA is making the offer is wonderful, but if you qualify and start working on a modification with BoA, make sure that BoA also stops any foreclosure proceedings during the negotiation process.

My practice is based in Williamson County, so it came as no surprise to me to see this article in the Tennessean. The article focuses on Fairview in western Williamson County and states that foreclosures are lower than in other mid-state areas, such as Antioch, LaVergne, and North Nashville. However, although the actual foreclosure rates are lower, it appears that the percentage of homeowners who are more than 90 days behind on mortgage payments is about the same as those areas that have been harder hit by foreclosures.

What does that say for Williamson County in the near future? Are we going to see a big increase in foreclosures in Williamson County? I don't know. But, if you are one of those who has fallen behind on the mortgage payments, please read my entries on this issue here and here.

Although most of my Tennessee bankruptcy clients tell me they are not terribly concerned about their credit ratings, most of them eventually get around to asking about how the bankruptcy will affect their credit scores. This question is particularly important when it comes to issues related to renting apartments or replacing a vehicle in the first year or two after filing.

One of my clients asked in the very first meeting if it would be possible to rent an apartment if she had to move shortly after filing bankruptcy. Her job situation made the possibility of having to move a significant issue. However, she had been told by a local real estate agent that the bankruptcy would make getting a new apartment almost impossible. However, that agent must have missed this recent article in the Tennessean.

This article highlights an issue that I think most people overlook when talking about post-bankruptcy credit. That issue is that I don't think the old rules apply any more. The old addage was that, within a couple of years after bankruptcy (assuming you paid all your expenses on time post-bankruptcy), you would be able to get a mortgage. In fact, just a year or two ago, you could get a new credit card fairly easily right after the bankruptcy discharge. However, in today's tight credit market, I really don't think those "rules of thumb" apply anymore. Who really knows what mortgage lenders will be doing in a year or two from now? Who knows how credit card companies will judge credit histories in a year or two? Right now, it doesn't look good, but things could be vastly different in a couple of years.

On the other hand, the Tennessean article points out that there may still be some good news for bankruptcy filers. According to the article, the number of renters is actually dropping. Although it might seem that with many people losing their homes to foreclosure that there would be more renters, not less, the fact is that people are moving back in with their parents, finding roommates, or doing other things that are actually reducing the number of renters. As a result, filing for bankruptcy may not be that big of a problem if you are looking to rent.

The main point is that worrying about your credit rating should be secondary to fixing your debt problem. Having a strong balance sheet (ie: debt to income) may make things better for you a year or two down the road. But I don't think anyone can tell us with an certainty what effect filing bankruptcy will have on your ability to get credit post-bankruptcy. Rather than concern yourself with the credit score, focus on fixing the problem.

Divorces have some awful consequences for both parties, but one issue that is becoming all to familiar in my bankruptcy practice is having an ex-spouse file for bankruptcy before refinancing the marital home. The typical situation looks like this:

• a couple divorces with one ex-spouse keeping the home, but both parties' names are on the mortgage;
• the ex-spouse moving out of the home quit claim deeds his or her ownership in the home to the other ex-spouse;
• the ex-spouse keeping the home promises (either in the MDA or otherwise) to refinance the house;
• the ex-spouse doesn't refinance or is unable to refinance;
• the ex-spouse runs into financial trouble (i.e., late mortgage payments, job loss, etc.); and
• the ex-spouse ends up filing for bankruptcy.

After all that, the ex-spouse who moved out of the house has the missed mortgage payments show up on his or her credit report or, worse, the ex-spouse who kept the house turns it over to the mortgage company during the bankruptcy. The worst part is that the innocent ex-spouse not longer has any ownership interest in the house, thanks to the quit claim deed.

However do you avoid this? First, don't sign a quit claim deed until the mortgage is refinanced. Your divorce attorney should be able to put this provision into the divorce decree. Second, make sure there is a deadline for the ex-spouse to refinance. If the ex-spouse cannot refinance, maybe you require the house to be sold (obviously, this might be a problem if your children still need to live in this house). Regardless of how this happens, you do not want to be facing credit problems (or worse, your own bankruptcy to avoid being on the hook for the mortgage) if your ex-spouse doesn't or can't refinance the mortgage. That quit claim deed only waives your ownership in the house. It does NOT mean that you are no longer liable for the mortgage. Sure, the divorce decree may say your ex-spouse will be solely responsible for the mortgage, but the mortgage company is not required to let you off the hook. Just make sure your name gets off the mortgage as soon as possible.

A report from the credit bureau TransUnion says that the number of homeowners who have fallen behind by at least 60 days increased for the 12th straight quarter in the 4th quarter of 2009. The percentage of homeowners who were 60 or more days behind on mortgage payments was 6.89%, up from 4.58% for the 4th quarter of 2008. That is a 50% increase from 2008 to 2009. So, the question is, what are these people going to do?

Obviously, if the late mortgage payments were caused by some short-term bump in the road and they have the ability to catch up the payments, that is the best alternative. But most people do not get 60 days behind on the mortgage unless there is a major problem. If that major problem has resulted in becoming 60 or more days late, they need to be looking into bankruptcy quickly. If they want to save the home, their options have become limited by waiting so long. To catch up the past due amount and still keep the home, they will likely need to file a Chapter 13 and include the past due amounts in their Chapter 13 payment plans. But this also assumes that they can still afford the home.

If they cannot afford the home or are already looking to move, Chapter 7 may still be the best option. To keep the home under a Chapter 7, they must be current on the mortgage. So, waiting until they are 60 or more days late probably prevents them from saving the house through Chapter 7. However, the Chapter 7 can eliminate any deficiency judgment if the home is foreclosed (and it will be foreclosed if the mortgage isn't caught up soon). That would allow these homeowners to walk away from the home without having to pay the mortgage payments or any deficiency judgment. The biggest issue, though, is making sure the bankruptcy is filed before the foreclosure happens.

I have written before on not waiting too long to start the process. Being a bankruptcy attorney in Tennessee, I continue to see clients who have simply waited too long and this new report just confirms that. If you are falling behind on your mortgage, you need to start making decisions on what to do about it. Just hoping that things will get better may eliminate your options, particularly if you are trying to keep the house.

As a bankruptcy attorney in Tennessee, I find that clients who come into my office have typically waited longer than they should have to make that first call. Maybe this is the same everywhere, but I find that most of my clients have a deep-seated adversion to filing for bankruptcy. As a result, they simply delay talking to an attorney until they think there are no other options. I am glad that my clients think of bankruptcy as a "last resort," but I certainly wished they had called earlier so that we would have more options available to help them.

The biggest issue I see is that clients often have tried to juggle all of their debts for as long as possible, instead of focusing on the most important debts. If a client is going to try to keep the house and cars, keeping those payments current is more important than making payments to credit cards and other unsecured debts. If a client waits until he or she is already behind on the house and/or car payments, that limits my ability to help.
Here's what I would suggest you do before calling a bankruptcy attorney. If these steps do not work quickly, it may be time to make the call.

Work on Your Budget. Everyone hates the idea of using a budget. However, if you have a shortfall in your budget every month, you must figure out exactly where each dollar is going. There are a lot of great budgeting books out there, so start trying to figure out if there are ways to cut your monthly spending that you haven't considered. If you haven't lived on a strict budget before, you likely have some "leaks" in your budget that could be reduced.

Cut Spending on Unnecessary Items. Everyone has a different idea of what is "necessary." However, if you are facing bankruptcy (or even thinking about it), you need to consider whether you can do without all those cable channels, that expensive coffee, or eating out at lunch every day. Groceries and eating out are generally areas where some cuts can be made. If you haven't used grocery coupons, find someone to teach you how to do it the right way. Some people have cut their grocery bills by more than 50% just by using coupons. If you are stopping for breakfast and/or lunch everyday (even at a fast food place), you can probably cut out $25-50 per month just by eating at home or taking a lunch. Look for other small items, like trips to the vending machine, that can be reduced or eliminated. Everything you can do to cut expenses can help.

Keep You Mortgage Payments Up to Date. If you are planning on keeping your home after filing for bankruptcy, keeping your mortgage payments current will give you more options. If you are already behind on the mortgage, you can catch up those missed payments in a Chapter 13 bankruptcy. However, if you want to file Chapter 7 and want to keep the house, you need to be current on the mortgage.

If you have done everything to cut expenses and are still falling behind (particularly on your mortgage), you need to call a bankruptcy attorney sooner rather than later.

I think most people like to know what to expect when they first contact a bankruptcy attorney. So, I thought I would just lay it out here.

1. Initial Contact with the Attorney. Obviously, the first step is actually contacting the attorney. Just call the attorney's office (hopefully, you'll be able to speak to the attorney on that call or a return call from the attorney). The attorney will ask some questions, get familiar with you and your situation, and likely discuss fees, expenses, and timelines. Don't be surprised if the attorney wants to know more about your situation before quoting any fees. Those fees may differ based on your circumstances.

Continue reading "What Happens When I Engage a Bankrupcty Attorney?" »

I have written several times about the problems with the federal foreclosure relief program (called HAMP), but the bad news just continues to be reported. Today, two separate reports discussed the difficulties many homeowners are facing when trying to get a mortgage modification.

On MSNBC's website, there is a long report documenting the backlogs, communications problems, and failures to follow the HAMP guidelines that plague the program. The report explains that the different departments within loan servicing companies that handle the loan modification and foreclosures often do not communicate with each other and, as a result, the loan modification efforts do not necessarily stop the foreclosure process. Even Homeowners who believe they are working with the servicer on a loan modification are getting foreclosure notices on a frequent basis.

Bob Sullivan's blog post , also on MSNBC's website this morning, takes the explanations to a more personal level. It describes the experience of a couple from Pennsylvania who, despite doing everything asked of them in their trial loan modification, received a foreclosure notice. While this report is not unusual, the story itself highlights a problem that has received very little attention. The couple obtained a trial loan modification that reduced their mortgage payment by $2,000 per month. They made the payments for the 3-month trial period, but then had to work through all of the paperwork red tape for another 7 months. At that point, the couple received a foreclosure notice that indicated that their loan balance was then $20,000 more (thanks to the $2,000 per month reduction in payments, plus penalties and fees) than it had been at the beginning of the trial modification period. During their 10-month ordeal, the mortgage company reported to the credit rating agencies that the couple had made only partial mortgage payments, which caused a massive drop in their credit scores. The credit score drop caused their credit card interest rates to skyrocket, so they had a new problem on their hands.

If you live in Tennessee and are facing these kinds of problems, we may be able to help. As the stories about the problems with HAMP point out, you need to be diligent in working with your mortgage company to make sure both the loan modification and foreclosure departments are working together.

Stacy Johnson, of Money Talks News, posted a great article on bankruptcy on MSN Money Central. He told the story of one bankruptcy filer and the issues that led him to bankruptcy. Stacy also does a great job of explaining the benefits and pitfalls of filing bankruptcy.

As explained in the article, not everyone who is having trouble paying the bills should file for bankruptcy. But, if you are in real financial trouble, the worst thing you can do is waste too much time before finding out about all of your options. I encourage you to read his article.

CNN reported today that the number of mortgage loan modifications, and particularly the number of permanent loan modifications, increased significantly in December. Despite the fact that the number of permanent modifications since the HAMP began more than doubled in December alone, the all number of permanent modifications is still at only 7.4% of all modifications that have been started. In addition, more than half of all people who are granted trial modifications end up being denied permanent modifications. In addition, foreclosures still outpace the number of loan modifications.

Even the best of the loan servicers that participate in the HAMP has only placed 47% of its eligible borrowers into trial modifications. The worst of the loan servicers has placed only 19% into trial modifications. If the percentages continue at the current trend, more than half of those borrowers in the trial modifications will not receive permanent modifications. As a result, the current percentages for permanent modifications are alarming. Of the largest mortgage loan servicers in the country, the percentage of eligible borrowers who have received permanent modifications ranges from 2.41% to as little as 1.68%.

If you are eligible for loan modification under the HAMP, you must be diligent in keeping in touch with your loan servicer, completing all of the paperwork required by the servicer, and staying on top of the process to ensure that the servicer follows through. But, as I have mentioned in earlier posts, you need to make sure you can afford the modified payments. If not, the modification may only be delaying the bigger problem of foreclosure.