Vicki Elmer at the New York Times has written about getting a mortgage after filing for bankruptcy (here). The bottom line is that bankruptcy isn’t the end of the world. Indeed, for many, bankruptcy provides a much needed fresh start, putting people on sounder financial footing and allowing them to rebuild their credit. It is even possible to get a mortgage.
Turnover Amicus Brief
NACBA has filed an amicus brief on the issue of whether a creditor must return collateral that was repossessed before bankruptcy once the creditor learns of the bankruptcy filing. Weber v. SEFCU, No. 12-1632 (2d Cir.). NACBA argues that Section 542(a) imposes an affirmative duty on a creditor in possession of collateral to turn it over to the bankruptcy estate and that failure to do so is an unlawful “exercise of control over the property” and a violation of the automatic stay under Section 362(a) meriting sanctions.
Thanks to Ray DiGuiseppe for writing NACBA’s brief.
Automatic Stay within One Year of Dismissal of Previous Bankruptcy
NCBRC’s Tara Twomey assisted in writing the debtor’s brief in the case of St. Anne’s Credit Union v. Ackell, No. 12-10720 (D. Mass.), arguing that when a debtor files a bankruptcy petition within one year of a dismissal of a previous bankruptcy case, the plain language of Section 362(c)(3)(A) provides that the automatic stay lapses after 30 days only as to the debtor and not as to the property of the estate.
Expert Testimony by NCLC Results in Debtor Victory Against Mortgage Servicer
In a victory for consumer debtors, the Bankruptcy Court for the Eastern District of Kentucky disallowed Ocwen’s proof of claim for late fees and charges, and awarded judgment, including punitive damages for $25,000.00, in favor of the debtor due to Ocwen’s “gross recklessness” in accounting and servicing her mortgage. In re Tolliver, No. 09-21742, Adv. Proc. No. 09-2076 (Bankr. E.D. Ky. July 19, 2012).
In reaching its decision, the court held Ocwen’s feet to the fire, demanding an adequate explanation of Ocwen’s convoluted and contradictory accounting records. After finding Ocwen’s explanations just as slippery and unreliable as the records themselves, the court turned to the expert testimony of Margot Saunders from the National Consumer Rights Center. She sifted through the dust heap and offered the only reliable evidence as to the history of the loan, revealing a litany of mismanagement, including collecting “unsubstantiated interest arrearage balance,” and “systematically assessing late charges, fees and costs in complete disregard of the terms of the [loan documents.]” Ocwen’s attempt to justify the charges with evidence of forbearance agreements was roundly rejected. The court found the debtor had been “bullied” into signing those agreements by repeated false representations that the debtor was in default and that foreclosure was imminent, even though she had completely paid off the underlying loan. Ocwen’s outrageous conduct was found to violate state common law, including breach of contract, breach of implied covenant of good faith, and fraud.
Report on Student Loan Discharge in Bankruptcy
The Consumer Financial Protection Bureau and the Department of Education have released a report on private student loans, found at HERE.
The report finds that the 2005 BAPCPA law restricting bankruptcy protection for student loans coincided with rapid growth in questionable lending practices, compounding the risk to student borrowers. Although the restriction on bankruptcy discharge applies to all student loans, private student loans generally lack the intrinsic flexibility that permits federal student loan debtors to adjust their repayment based on income. The report finds little to no evidence that restricting bankruptcy rights improved either loan prices or access to credit. The report noted that the bankruptcy process itself, with its bad faith considerations, means testing, and attorney accountability, all protect against the use of bankruptcy to unfairly defeat private student loan creditors.
Both the CFPB and the Education Department recommend in the report that Congress revisit the 2005 law restricting bankruptcy protection for private student loans, stating:
“As noted in the report, several bodies were unable to find any systematic abuse of the bankruptcy code in seeking student loan discharges. Additionally, we were unable to find strong evidence that the 2005 changes to the bankruptcy code caused prices to decline or access to credit to increase significantly. If Congress concludes that the 2005 changes did not meet their overall policy goals, it would be prudent to consider modifying the code in light of the impact on young borrowers in challenging labor market conditions.”
Mortgage Plan Settlement Agreement
News of a settlement between forty-nine state attorneys general (Oklahoma did not join the settlement), the federal government, and five leading mortgage lenders was released on Thursday, February 9. The settlement purports to resolve the investigation of lenders for the pervasive practice of “robo-signing” foreclosure-related documents. The deal, which will not be final until it receives court approval, promises approximately $25 billion in relief for distressed borrowers as well as funds to state and federal governments. The agreement is expected to benefit millions of homeowners by reducing the loan principal for delinquent borrowers, or refinancing loans for non-delinquent borrowers whose homes are underwater. The agreement also provides for compensation to victims of foreclosure abuses. The settling banks include: Ally/GMAC, Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo. Although the final agreement is not yet available, a summary of its contents can be found here [Read more…] about Mortgage Plan Settlement Agreement
Shared Responsibility, Shared Risk
NCBRC Project Director, Tara Twomey, and co-author, Prof. Katie Porter, have written a chapter in the newly released book Shared Responsibility, Shared Risk: Government, Markets and Social Policy in the Twenty-First Century (Jacob S. Hacker and Ann O’Leary eds., Oxford University Press 2012). The chapter, “Risk Allocation in Home Ownership,” focuses on how changes in mortgage contract terms increased home ownership risks for families. After discussing how recent decades of mortgage product innovation both increased the risk of home ownership and shifted more of that risk to borrowers, the chapter offers three core principles to guide the future regulation of mortgages. “First government should collect comprehensive reliable data on mortgage products and should monitor the way in which those products allocate the risks between borrowers and lenders. Second, any effort to rebalance the risks inherent in the mortgage process must consider consumers’ limited abilities to evaluate complex financial products. Third, any successful regulation of mortgage products requires the development and deployment of effective enforcement tools for consumer protection laws.”
Supreme Court Denies Cert. in Baud v. Carroll
Today the Supreme Court denied certiorari in the case of Baud v. Carroll, which raised the issue of the appropriate applicable commitment period for an above-median income debtor with no “projected disposable income.” The Sixth Circuit Court of Appeals held below that above-median income debtors with no projected disposable income must propose five year plans if the trustee or unsecured creditor objects to a shorter plan period. See 634 F.3d 327 (6th Cir. 2011). Attention will now turn to Flores v. Danielson, No. 11-55452 (9th Cir.), where the Ninth Circuit will consider whether the Supreme Court’s ruling in Hamilton v. Lanning, 130 S.Ct.2464 (2010), abrogated the Ninth’s Circuit prior ruling on the applicable commitment period in Kagenveama v. Maney, 541 F.3d 868 (9th Cir. 2008).
The End of Mortgage Securitization?
This newly released paper suggests that the use of MERS to electronically transfer mortgages introduces significant vulnerability into the securitization process by threatening the bankruptcy remoteness between loan originator and trust.
Click here for the paper.