April 2009 Post Archive

April 27, 2009

Lenders Must Prove Standing to Be Granted Relief from the Automatic Stay

Loans and mortgages are often sold and resold on the market. This can be confusing to a borrower who takes out a loan from one lender, just to end up having to make their mortgage payments to a different lending institution or loan servicer.

In bankruptcy, when a lender wants to be able to proceed with a home foreclosure in spite of the bankruptcy filing, it must file a motion for relief from the Automatic Stay and be granted such relief. Often, such motions are filed in the name of “Mortgage Electronic Registration Systems, Inc. (MERS) as nominee for [fill in the blank] Bank.” Debtors are often puzzled by this and contend that they don’t have a mortgage with MERS and don’t know who MERS is. (MERS is a company that acts as nominee in the county land records for the lender and servicer. One of its goals is to streamline the mortgage process by using electronic commerce to eliminate paper.) Lately, courts are scrutinizing such parties as MERS, and are requiring them to prove that they (or the lender that nominated them) have standing to be granted relief from the Automatic Stay.

In one such case, the court found that MERS did not have standing to seek relief from the Automatic Stay because it had not proven that it represented a party in interest who had standing to be granted such relief. See In re Sheridan, Darrell R. and Sherry A., 19 CBN 569 (Bankr. D. Idaho 2009).

This case is notable because it gives debtors and their attorneys another tool in their arsenal to prevent a lender from lifting the Automatic Stay. Debtors and their attorneys should carefully scrutinize any party who has filed a motion to lift the Stay, and bring it to the Court’s attention that such a party may not have standing to seek such relief.

April 20, 2009

Stripping Off Your Second Lien on Your Primary Residence in a Chapter 13

Due to the falling value of real estate, many borrowers today are “upside down” on their home mortgages and could greatly benefit from wiping out their junior liens. In certain cases, bankruptcy can accomplish that. Although section 1322(b)(2) of the Bankruptcy Code is clear that debtors cannot modify any secured loans which are secured by the debtor’s principal residence during their Chapter 13 bankruptcy, courts have found that this section of the Code does not apply when a loan becomes wholly unsecured, such as by the value of the home decreasing due to the market. In the Ninth Circuit (which includes California and Idaho, among others), courts allow such unsecured liens to be “stripped off”. Zimmer v. PSB Lending Corp. (In re Zimmer), 313 F.3d 1220 (9th Cir. 2002). In order to benefit from this lien stripping, however, the debtor must complete all their Chapter 13 plan payments (which could take 3 to 5 years), and the debtor must receive a discharge. The stripped lien is treated the same as the other unsecured debt in the Chapter 13 and is usually paid pennies on the dollar.

April 13, 2009

Mortgage Debt Elimination Scams on the Rise

With the economy in the tank, scammers are on the rise and are targeting people who are in dire financial situations. Mortgage scams are reportedly up almost 400 percent from five years ago. The FBI advises that borrowers who are behind in their mortgages and having financial troubles to be mindful of the following:
• Be aware of e-mails or web-based advertisement that promote the elimination of mortgage loans and credit card and other debts while requesting an up-front fee to prepare documents to satisfy the debt. The documents are typically entitled Declaration of Voidance, Bond for Discharge of Debt, Bill of Exchange, Due Bill, Redemption Certificate, or other similar variations. These documents do not achieve what they claim.
• Remember, there is no magic cure-all to relieve you of debts you have incurred.
• Borrowers may end up paying thousands of dollars in fees without the elimination or reduction of any debt.