Posted by Dave Lima on Fri, Jul 04, 2008 @ 10:26 AM
Last week I met an attorney I had been introduced to for lunch. I knew little about his Massachusetts personal injury practice and wanted to learn more. I hoped he wanted to learn about my diverse law practice. During lunch he noted that the real estate market is rather slow and my Massachusetts real estate law practice must be off. I acknowledged that was true for the real estate practice, but that in these difficult economic times my Massachusetts bankruptcy law and Massachusetts divorce law practices are busy.
Often, domestic discord rises as money pressures increase. This can be an even larger problem if one spouse has lost employment and the other feels they are unfairly carrying the entire burden of supporting the family. Finance issues are often at the heart of a divorce case. The personal injury attorney acknowledged how bad times can lead to an increase in the divorce rate, but then continued on to say that bad times shouldn't necessarily lead to an increase in bankruptcy filings. I was absolutely flabbergasted and asked how he could say that. He explained that people should live frugally as he had growing up. He said his family was careful about money in the fear that someday there might not be any, and that staying in financial control meant there would never be a bankruptcy filing. He then commented that bankruptcy was for those people who were irresponsible in managing their debt by allowing credit cards to support extravagant life styles. I was incredulous.
I explained to my colleague that the bankruptcy clients I had helped came to me down many different paths, and that rarely was that path the irresponsibility of living extravagant lives off of credit cards. I was compelled to tell him about the elderly couple from Orange, MA who were forced into bankruptcy when the gentleman became terminally ill, there was no medical insurance and there were plenty of medical bills. Then, I thought of the hardworking mill worker and realtor who went through a divorce and now had their same respective incomes but two households to support. The debt became overwhelming and they filed Chapter 7 bankruptcy. I also told him of the couple who came to Framingham, MA from Brazil seeking the American Dream. Both husband and wife worked several jobs and they bought a home. They were proud of their accomplishment and that they were living the dream. They had trusted an unscrupulous lender to take care of placing their mortgage. The lender had given them two loans, both interest-only with low initial rates and payments. These loans would adjust in a year in rate and payment, but by then they were told there would be a refinance of the mortgages to a fixed rate loan. When the couple balked, the lender assured them "we do this every day, trust us, it works." With the declining market there was no refinance of the mortgage, only an inability to pay increased mortgage payments, inevitable foreclosure and the need to seek debt relief by filing bankruptcy. Finally, I told him of the newly graduated college student. She had received very little aid for her school tuition and expenses, other than many student loans. Her parents took the view that they paid for their education and she needed to pay for hers. Despite a new, good paying job she found it difficult to pay the large student loan payment and pay her living expenses. She started to supplement her budget by paying for food and essentials with credit cards. Soon it was to late to turn back, and Chapter 7 bankruptcy was her only option.
After I had finished recounting these sad stories, my colleague acknowledged that bankruptcy was there to help good people who had bad things happen to them. I told him that I was glad he could see that. I asked him about his parents, who instilled his value for fiscal responsibility. He told me they lived in Massachusetts and were retired living on social security. I expressed my best wishes for them. I didn't want to tell him about the heartache I foresee for our senior citizens and others on fixed incomes this winter when the fill-up of an oil tank is likely to cost $1,250 and the heating season at least $5,000.
Posted by Dave Lima on Thu, Jul 03, 2008 @ 02:02 PM
Over the past year, I've encountered a good number of clients who had bankruptcy cases that would have had no issues, until they decided to unilaterally take financial action without the advice and consent of a Massachusetts bankruptcy attorney. In taking their unilateral action they often badly damaged or substantially delayed their potential Chapter 7 or Chapter 13 bankruptcy filing. I want to describe some of these cases in this post with the hope that future clients will not make the same mistakes.
When an individual is experiencing debt problems they often transfer assets from their name to a relative. They mistakenly believe they are removing the asset from the reach of creditors. I've had clients who deeded their interests in real estate, or transferred their motor vehicle title to relatives without payment of fair market value being received for the transfers. These transfers must be disclosed on the bankruptcy petition and the trustee can seek return of the property to the bankruptcy estate. Never make these transfers prior to filing a bankruptcy case.
Similarly, many clients have struggled with their budget and have borrowed money from family members. The payments to family members whether for loans or gifts made in the last year must be disclosed in the bankruptcy filing. The Trustee can pursue reimbursement of these monies. Plan accordingly when timing your bankruptcy filing.
Sometimes potential clients have taken money from their 401(k) and other retirement assets to live on, and pay unsecured creditors who would have been discharged. They are postponing a filing. This disbursement usually does not create a problem in filing the case (although it might). Primarily, it is unfortunate that the retirement account money could have been protected and retained by the client if the bankruptcy had been filed prior to the distribution. The funds lost could have been saved.
Never run debt, including credit cards up immediately prior to filing. When you borrow money, even by buying with a credit card, and don't intend to pay it back, that is fraud. That type of debt may not end up being discharged. Certainly, luxury items worth more than $500 purchased 90 days prior to filing and cash advances of $750 or more taken 70 days before filing are presumed not dischargeable.
Some clients have payed off secured debt believing that they are improving their monthly budget. Secured debt may have a positive impact on the Means Test being passed and the client being able to file a Chapter 7 case. Also, by paying off secured debt the client might increase equity in the asset beyond the amount which can be protected. Before paying of secured debt items consult a Massachusetts bankruptcy attorney.
Finally, don't transfer balances from one credit card to another. This may result in a situation where some of the credit card debt is not discharged in bankruptcy
For people experiencing difficulties with debt and who might need to seek debt relief, it's always wise the seek a bankruptcy consultation with an attorney before taking action with your financial affairs on your own.
Posted by Dave Lima on Thu, Jul 03, 2008 @ 08:51 AM
A client visited my office yesterday to discuss filing a MA bankruptcy case. He had no savings and very little money in his checking account. The client had a 401k with over $25,000. He had numerous credit card bills with balances totaling over $40,000 with regular monthly payments over$1,000. He had a wife and child and income of less than $50,000. This client was a perfect example of someone who should file Chapter 7 bankruptcy. His concern was how he could pay me to file the case. I had a few suggestions.
The obvious answer is to stop paying the credit cards entirely and take any saved money to apply to paying the bankruptcy attorney. In my client's case, we looked at his credit card situation and discussed each obligation separately. I was able to advise him he could stop paying all of them immediately without harming his Massachusetts bankruptcy case.
Another option often open to people is their income tax refunds, and now their stimulus checks. If these payments haven't been received they can be targeted for use in paying for the bankruptcy filing.
Never take money from a credit card to pay for the bankruptcy. And no, you can't charge the bankruptcy! If you have supportive family or friends they can be a source of funds.
I rarely advocate taking money from retirement accounts, but it may be appropriate to do so only to file a bankruptcy case, especially where the filing is needed to stop a foreclosure on a home. This source of funds should be a matter of last resort.
In any event, always look at the big picture - what little you are paying to obtain such a huge debt relief.
Posted by Dave Lima on Wed, Jul 02, 2008 @ 10:13 PM
Purchasers of Massachusetts real estate which is improved by a one to four family home they will occupy and which is financed with a purchase money mortgage are entitled to a Certification of the real estate title by the lender's attorney. Massachusetts General Laws, Chapter 93, Section 70 requires the lender's attorney to examine the property title records for a period of fifty years. The Massachusetts real estate attorney must then provide the purchaser with a Certification that the purchaser holds "good and sufficient record title to the mortgaged premises free from all encumbrances" except only those matters which are listed in the Certification. Any such exception must be specifically enumerated. Broad and general exceptions, such as "all easements of record" are not acceptable. The MA real estate lawyer must also make a certification to the lender that its mortgage is a "good and sufficient record first mortgage" to the property.
If you have a real estate title problem which surfaces after you've closed, you may have recourse against the attorney who certified your title. The certifying attorney remains liable to the purchaser in the amount paid for the property as long as they own the property. The attorney remains liable to the mortgage holder in the original amount of the mortgage for the life of the loan. The Certification provides buyers and lenders with a remedy against a negligent attorney.
Of course, attorneys retire, become disabled, die, or if lucky, retire to a tropical island. If that happens, your Certification may not be worth much. Always strongly consider the purchase of an Owner's Title Insurance Policy. The cost is reasonably discounted because the lender is always requiring a Lender's Policy that the buyer is paying for, and insurers will allow for a reduced rate to the buyer. After all, the purchase is likely to be your most major investment, and the insurance premium is a one time charge.
Posted by Dave Lima on Wed, Jul 02, 2008 @ 09:39 PM
Many people often visit their physician annually for a checkup. These visits are preventative and help disclose health issues early when they can often be most easily treated. We do the same for our oral health when we visit the dentist for cleaning and checkups. But our annual reviews don't end with our body. We often take our motor vehicles for quarterly oil changes and periodic tuneups and servicing. And don't forget finances. We often see our bookkeeper or accountant at least annually. Most people also make at least an annual call on their financial planner. But how many of you have made it a point to check on the health of your Massachusetts real estate title?
As a Massachusetts real estate lawyer, I represent many lenders, buyers and sellers in real estate closing transactions. When I represent a buyer and lender, I must review the status of the real estate record title found at the registry of deeds and registry of probate. My job is to determine that the buyer will acquire a piece of real estate that is free from defects of title, and that the lender's mortgage will not be subject to any real estate title problems. When I represent a seller, I might be contacted by the buyer's or lender's attorney in regard to a title problem they have found in their search of the records. As the seller's real estate attorney, I then have to correct the problem. Very often, there is very little time to do this prior to the scheduled closing date. In these circumstances, real estate closings are often delayed or perhaps fall apart.
There are many common issues that I have encountered in representing either side of the transaction. Perhaps the most common is an undischarged mortgage. Somewhere in the chain of owners there is a mortgage which may have been paid off, but which has never been discharged (released) on the record. This is a serious issue if the problem is from prior owners, as the current owner won't have any information about the pay-off. Hopefully, the current owner purchased a Massachusetts Owner's Title Insurance Policy and the title company will take care of the problem. If not, the owner bears the burden and cost to clear the matter. Even if the problem mortgage is with a current owner, the matter may not be easy to clear. If the problem is from an older mortgage the bank may now be out of business. A successor must be located. Sometimes these chains of successor banks will pass through many failures, name changes and mergers.
There are other problems which I have found in titles over the years. Improperly completed probates, interests of a part-owner that never was conveyed to the successor, wrong parties signing the deed, and descriptions of the property which are inaccurate and insufficient. The list goes on and on.
So, if you own real estate and might refinance it or sell it, why not see your Massachusetts real estate lawyer for a checkup today. You can have a current or two owner search completed. If there are issues, they can be remedied now when there is plenty of time to act. A correction that can be made at leisure might also be less expensive to make than the same matter attempted in a rush in short time.
Posted by Dave Lima on Sun, Jun 15, 2008 @ 02:13 PM
Mark Twain once traveled to Europe where he learned that his obituary had been published in the New York Journal. Twain responded by saying that "reports of my death are greatly exaggerated." After the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) was signed into law by President Bush an impression developed among the general public that Chapter 7 Bankruptcy was dead. The credit industry encouraged the perception that individuals would no longer be able to discharge their debts, but instead would have to repay at least a portion of them in Chapter 13 cases pursuant to a plan. I am happy to report that reports of the death of Chapter 7 bankruptcy are greatly exaggerated.
In the several months preceding October 17, 2008, when BAPCPA became effective, Chapter 7 bankruptcy filings rose dramatically. Individuals rushed to file their cases under the pre-BAPCPA law. Their fear was they would not be eligible to file under BAPCPA. They also did not wish to be subject to numerous new burdens imposed by the new law, or the increased expense of filing which would surely accompany the implementation of the law. Lundquist Consulting Inc., a California financial research firm that tracks bankruptcy data from the nation's courts reported 479,430 cases were filed in the week before the October 17 implementation date! In the month after the new bankruptcy law took effect, the number of Americans filing for protection from their creditors slowed to a trickle, running at one-tenth the normal number of filings. Lundquist Consulting reported 3,600 cases were filed in the first month following implementation of BAPCPA. In a normal pre-BAPCPA week, about 30,000 cases were filed.
BAPCPA introduced numerous changes in how individuals file bankruptcy cases and in the procedures to be followed. Elimination of Chapter 7 liquidation was not a change in the new law.
A few of BAPCPA's major changes to the law are:
Credit Counseling is required before an individual can file a Chapter 7 or Chapter 13 bankruptcy case. The debtor must complete a course on the phone or on-line provided by a vendor approved by the United States Trustee. The course takes approximately 45 to 90 minutes to complete. The course must be taken before the petition is filed, but no more than 180 days prior to filing. A second course, in Financial Management, must be taken before a discharge will issue.
Debtors must now provide copies of federal tax returns from the last year filed to the Trustee. Returns from previous years must be filed. Copies of pay-stubs or reports for the 60 days preceding the filing must also be given to the Trustee.
The time between filing Chapter 7 bankruptcy cases was changed from six years to eight. Filing a case any earlier will result in no discharge.
Homestead exemptions were capped by BAPCPA at $125,000, unless the debtor has owned the property for more than1215 days in which case the state's homestead exemption amount will apply without limitation. The Massachusetts Homestead limit is $500,000.00.
A debtor must live in a state for the 730 days prior to filing bankruptcy to be entitled to claim that states exemptions. The state the debtor was domiciled in the most in the period from 730 days to 910 days ago is the state whose exemptions can be used.
Cash advances totaling more than $750 on a credit card within 70 days of filing are presumed to be non-dischargeable. In addition, charges of luxury goods or services totaling more than $500.00 on a credit card within 90 days of filing are presumed non-dischargeable.
A Median Income/Means Test is implemented to determine eligibility for filing a Chapter 7 case. The Median Income Test allows debtor's whose Current Monthly Income (CMI) is less than their state's median income for their household size, to file Chapter 7 bankruptcy. CMI is the average gross monthly income for the preceding six calendar months before filing. For example, a June 16 filing would use income from December 1 to May 31. CMI includes income from all sources except Social Security and most likely unemployment. The test has nothing to do with what the debtor is actually earning. The debtor might be unemployed and earning zero at filing, but his CMI could be very high if he were employed the preceding six months. In Massachusetts the median income for a household of one is $51,176.00, for a household of two is $61,293.00, for a household of three is $75,801 and a household of four is $89,347.00. Implementation of this means test is what the credit industry believed would create a reduction in Chapter 7 bankruptcy filings. If the debtor's income exceeds the median income for his state and family size, the debtor must perform a Means Test to determine his disposable net income (DNI). Allowable expenses (most of which are from the IRS Collection Standards) are subtracted from CMI. If the resulting DNI is less than $100.00, the debtor can file Chapter 7 bankruptcy. If DNI exceeds $166.66, the debtor probably cannot file a Chapter 7 case. DNI between these to amounts will allow a Chapter 7 filing if the DNI amount is less than 25% of non-priority unsecured debt. If a debtor fails both the Median Income and Means Tests, there is a presumption that the filing of a Chapter 7 case is an abuse.
In my experience as a Massachusetts bankruptcy law lawyer over the last three years, the majority of clients that could have filed their Chapter case under pre-BAPCPA law can still file them under post-BAPCPA.
Posted by Dave Lima on Sat, Jun 14, 2008 @ 12:09 PM
Buying a new home has always been a fun and yet stressful process. The recent downturn in the market and increase of inventory have provided many opportunities for buyers to find their dream property. Unfortunately, many buyers now face new hurdles. Patricia (Patti) Lima, a realtor with Century 21 Commonwealth believes many buyers can find their dream property "but they often have to be patient and resilient. Sometimes, the property might be a ‘short-sale property', one being sold for less than the money the seller owes their lender. Those transactions are like a roller coaster. Things can move fast, slow, fast slow, fast. The buyer must have the fortitude to go for the ride. Buyers must have a good realtor to assure their offer is appropriate in the current market, and that the property will appraise for the purchase price or more. Finally, a good loan officer is essential. Available loan programs are changing every day. It's important to have someone that's competent discussing appropriate and available programs, in addition to rates."
Marco Scioletti, Senior Loan Officer for Loansnap.com agrees, that while opportunities abound in the market, "the right loan program for the buyer must be carefully selected. Programs which existed yesterday may not be available today. Popular programs that still exist, like no-document mortgage loans, now have higher rates and require more equity in the property. The guidance of a loan officer experienced in this market is essential."
Considering the purchase of a new home is the biggest investment one will make, I have to agree with Patti and Marco. Professional advise and guidance in each step of the real estate purchase process is essential to avoid traps for the unwary and a major loss of investment.
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Posted by Dave Lima on Mon, Jun 09, 2008 @ 05:47 PM
In 2005, Congress passed the "Bankruptcy Abuse Prevention Act" otherwise known by the acronym "BAPCPA". Under BAPCPA, Massachusetts debtors have three options allowed by federal law in regard to their car loans. The first is to surrender their automobile. Returning the vehicle to the lender relieves the debtor of any further responsibility for the debt after the debtor's discharge issues. For many people this is not an option. Most people need their vehicle for transportation to and from work, and to manage normal household errands. A second allowed option is to reaffirm the car loan. Reaffirming a loan requires signing a document called a Reaffirmation Agreement. Reaffirmation Agreements make the debtor permanently liable for the car loan. The bankruptcy discharge will offer no protection from collection on the reaffirmed loan. Therefore, if payments become unmanageable, or the debtor chooses no longer to pay the loan for any other reason, the lender may repossess the vehicle and then sue for the balance still owed. Because Reaffirmation Agreements impose a burden on the debtor's fresh start in bankruptcy they require approval of the Court. A third option is to redeem the vehicle, which is to pay the lender the value of the collateral. This option is rarely realistic.
Another option, called retain and pay, would allow debtors to keep the car and simply keep making their payments. If the payments remain current, then the debtor can keep the car without the onerous liability afforded by the Reaffirmation Agreement. Under this choice, if the debtor fell behind in payments on the car loan and the vehicle was repossessed, the debtor would not be personally liable for any deficiency. Retain and pay is not an option recognized in the First Circuit of which Massachusetts is a part. If retain and pay is claimed, a creditor may challege it.
Fortunately, Massachusetts residents may have a trump card to help with this conundrum. Massachusetts General Laws, Chapter 255B, Section 20A seemingly prohibits repossession of motor vehicles for a non-monetary default. For Massachusetts debtors current in their payments, this law may provide an avenue to keep their vehicle by keeping their payments current without reaffirming the loan. While a creditor might obtain relief from the bankruptcy stay to repossess such a vehicle, state law would then seem to bar that repossession. Coupled with the Massachusetts Consumer Protection Statute, Massachusetts General Laws Chapter 93A, this statute can be a tremendous asset to the debtor. The debtor's argument under the statute is the vehicle is worth the same today whether or not a bankruptcy case was filed. The filing did not diminish the vehicle's value, the payments are current and therefore no repossession can occur.
Posted by Dave Lima on Mon, Jun 02, 2008 @ 05:39 PM
It's my pleasure to introduce this Guest Blog Post by Gabe Amey, Branch Manager of HomeLoan Financial. His website is HawaiiVAloans.com which offers a wealth of information.
What Happened To 100% Financing by Gabe Amey
It looks like the saying "All good things must come to an end" can now be applied to no down payment mortgage loans. If you look back at just one year ago, 100% financing was a main staple in the product line of mortgage brokers and loan officers around the country. As long as you had a decent credit score and money for closing costs (in some cases you didn't even need to verify income) - you had a good shot at getting a loan without having to pay a down payment.
Fast forward to today - finding 100% financing to purchase a home is as hard to find as the rare Pinta Island Tortoise. With the current national housing slump affecting home values, lenders have scaled back on their willingness to finance properties without a down payment.
The biggest deterrent to 100% financing hasn't actually been the lenders themselves, but the private mortgage insurance (PMI) companies that insure these lenders of losses occurred when a loan is in default.
Normally, when a home buyer does not put at least a 20% down payment, lenders require them to pay for mortgage insurance - which could increase the home buyer's monthly payment about $200 - $350 per month. If for some reason the homeowner defaults on their mortgage, the lender is forced to foreclose and the PMI company steps in to insure the lender for any losses occurred during this process up to a certain percentage of the loan.
In the last few months, the major PMI companies as a whole have basically stopped insuring home buyers that don't have a down payment. Below is a list of the seven major PMI companies and their maximum loan-to-value (LTV) that they will insure (as of 6/1/08):
As you can see, at the very minimum, a home buyer will need to put a 3% down payment (sometimes 5% depending on the PMI company) in order to get insured. In some cases, there are lenders willing to do 100% financing, but still require mortgage insurance. Without mortgage insurance for 100% financing, this product line is basically useless.
Exceptions
There is still one loan program that allows for 100% financing without having to get mortgage insurance - VA loans. VA loans are a government backed loan program only available to Veterans and current military personnel who are eligible. Since these loans are insured by the VA Department, the lender does not require the home buyer to purchase any additional mortgage insurance for VA loans. There are many VA loan benefits - and the ability to purchase a home without a down payment is definitely a big one.
Posted by Dave Lima on Thu, May 15, 2008 @ 04:08 PM
Being a lawyer means working in one of the oldest professions known to man. Lawyers as a profession have always been resistant to accepting and implementing modern business practices. The last frontier to be accepted by the law profession was advertising. Today, you'll find lawyer ads in the print media, whether the yellow pages or newspapers and magazines, on the radio and on television. That's a relatively new phenomena and was unheard of prior to 1977. Indeed, the first Canon of Ethics written by the American Bar Association condemned all advertisement and solicitation by attorneys. In 1977, the United States Supreme Court decided the case of Bates vs. Arizona State Bar. The Court ruled that advertising by lawyers is partially protected by the First Amendment. The Supreme Court rejected the argument by the Arizona Bar that advertising adversely affected professionalism and that attorney advertising was "inherently misleading." The Court did indicate certain regulations are permissible, such as reasonable time, place, and manner restrictions and bans on false or misleading advertising. After Bates, competition and free market forces caused most law firms to pursue advertising marketing plans.
The next frontiers the Bar must accept and utilize as necessary business tools are On-line Marketing and Business Networking. Increasingly, the old methods of advertising are failing. How often do you reach for that Yellow Page Book these days? If you're like most people you don't. Instead you go on-line and do a Google search for what you're looking for in a product or service. It has become imperative that all businesses have a strong on-line presence that can be located. It is not enough to build a website that has a great looking appearance but no substantive content, and which cannot be found. It is essential that a website not only look good, but that it have quality content and be optimized to be found. This applies to all business, lawyers included. This web presence must be supplemented by business networking.
Peter Caputa of PC4Media has brought me into this new and foreign world. Peter has assisted me to "get out there" and meet people who can help me use these new-to-me tools to improve and grow my business. I've learned there are many assets available to lawyers to increase exposure to the market and obtain new clients. He's also introduced me to Hubspot, which he and Linda Sevier utilize to optimize a web page to increase the likelihood it will be found by potential business customers. They can use tools like key word optimization, link building, content creation via a blog and or newsletter, and in some cases video. The dramatic impact video can have in a website is compellingly presented by Catie Foertsch.
A web presence is only part of the effort needed to market your firm at this time. Networking online and in person is a necessity. On May 20, 2008, Michael Langford of Next Level Executives will present "Integrating Your Offline and Online Networking Efforts" in Westborough, MA. It's a presentation I won't miss. Next Level sponsors numerous opportunities to conquer the networking world and build your business.
As a lawyer, I may have been slow to pursue these tools to grow my business. I now see these tools as essential to survival. I'd encourage all lawyers to join me in this new to our profession marketing.