01.13.11
Posted in Bankruptcy, Litigation, Real Estate Law, Taxation Law at 08:48 by Administrator
Q. I own a California home, but like many residential properties, the value of my home has declined so much that I now owe much more on it than what it is worth. I have two mortgages on this property, a “first” and a fairly sizable “second” loan. Fortunately, I have access to a modest amount of cash, which I could use as a down payment on a new home. I am considering the purchase of a new house to use as my principal residence, so I can take advantage of the current “buyers’ market” for residential housing. If I purchase a new home, I would consider converting my current home into a rental property. What are the possible legal issues associated with this strategy?
A. Your idea sounds like a good one. It is also an idea many homeowners in your situation are considering. However, there are at least three potential complications associated with the strategy you describe.
Because you are “upside down” with respect to your current home, that is, you owe more against that property than it currently is worth, chances are that the rent it will generate will not be sufficient to pay the mortgages. Thus, it is likely you will have a monthly loss associated with that property, a loss which you will have to cover from other income or assets.
This likelihood of negative cash flows creates the possibility of the first legal issue: eventual foreclosure.
Second, in the event of a foreclosure on your current California home/prospective rental property, you may or may not be exposed to a deficiency judgment with respect to the first loan. A deficiency judgment is a civil judgment for the difference between the amount owed on a property and the amount ultimately obtained for that property at a foreclosure sale.http://earlelaw.com/news_family.html.
Regardless of the status of your first loan, there is a significant likelihood that you may be subject to a deficiency judgment with respect to the second, or junior, loans on this property.
Any California deficiency judgment obtained against you will be valid for 10 years, and can be renewed for additional 10 year periods.
Furthermore, a deficiency judgment can be recorded as a lien against your new home, or against any other interest in real property which you may own, purchase, or acquire. Any lien recorded against a parcel of real property must, of course, be satisfied before that property can be sold.
Third, there are potential tax consequences, relating to the cancellation of debt, which might require that you pay income tax on any deficiency amount related to a foreclosure, even if a deficiency judgment is not obtained.
Whether you are a home/property owner who is in the undesirable position of deciding what to do with a distressed property, or a lender (institutional or private) who owns distressed loans, you would be well-advised to consult with an attorney before embarking on a course of action designed or intended to mitigate your monetary loss.
*Anthony F. Earle, Esquire is a California attorney and real estate broker who maintains a practice in the Silicon Valley area of northern California. He can be reached at: anthony.earle@earlelaw.com. This article is intended for information and educational purposes only, and is not intended to constitute legal advice.
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11.11.10
Posted in Bankruptcy, Business Law, Constitutional and Civil Rights Law, Criminal Law, Family Law, Litigation, Real Estate Law, Trusts and Estates at 12:24 by Administrator
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Four, 15-minute telephone consultations in the areas of:
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Business Law
Constitutional & Civil Rights Law
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Family Law
Real Estate Law
Trust and Estates
Review of basic legal documents during telephone consultations
10 percent discount on legal fees for matters not covered by the LAW Plan
For more information and to subscribe, please visit:
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11.06.10
Posted in Bankruptcy, Real Estate Law at 10:09 by Administrator
Q. I am considering bankruptcy because I have a large amount of credit card debt. I also own a home and am currently working with my mortgage lender to modify the mortgage. How might a mortgage loan modification affect my bankruptcy filing?
A. Generally speaking, your lawyer should attempt to handle your bankruptcy case in a manner which will result in you being relieved of the greatest possible amount of debt. For consumers, this typically is done through the filing of either a Chapter 7 or Chapter 13 bankruptcy petition. The term “Chapter” as used in discussions of bankruptcy, relates to the area or “chapter” of the Bankruptcy Code which provides the legal authority for specific types of bankruptcy relief.
The difference between Chapter 7 proceedings and Chapter 13 proceedings is, in a nutshell, that Chapter 7 proceedings are usually completed within a few short months, with most, if not all, debt being completely discharged. Chapter 13 proceedings, on the other hand, may take three to five years to complete. In Chapter 13 proceedings, the debtor makes reduced monthly payments while the bankruptcy case is pending, with some portion of the total debt ultimately being discharged.
Chapter 7 proceedings are appropriate for debtors who possess few assets and have low income, relative to their debts. Debtors who own real property when seeking to file for bankruptcy generally must proceed under Chapter 13.
Several facts which might affect your bankruptcy case can be inferred from the statement that you are attempting to obtain a mortgage loan modification. First, you own real property, or at least an interest in real property. Second, the current fair market value of your real property might now be less than what is owed on the loan(s) which is secured by that property. Third, you have income.
In this situation, there are at least two questions which should be answered before you proceed with any bankruptcy filing. First, whether your case would qualify for Chapter 7 relief if you did not own a home. Answering this question is a very fact-specific endeavor which almost always will require the assistance of a lawyer. Second, whether it makes economic sense to modify the loan, that is, whether it will be economically beneficial for you to continuing owning the home if the lender(s) agrees to modify the loan. More information on “When Should You ‘Just Walk Away’ (From that House)?” can be obtained free of charge at: http://earlelaw.com/Newsletters-2009/EarleLaw-Newsletter-2009-42.pdf.
Although it is possible to convert a Chapter 13 bankruptcy filing to a Chapter 7 case, doing so will involve additional work and, if you are represented by an attorney, additional attorney fees. Thus, your question was a good first step in the process of preparing to file for bankruptcy.
*Anthony F. Earle, Esquire is a California attorney who practices in the Silicon Valley area of northern California. He can be reached at: anthony.earle@earlelaw.com. This article is intended for information and educational purposes only, and is not intended to constitute legal advice.
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06.05.10
Posted in Bankruptcy, Real Estate Law at 09:04 by Administrator
Many homeowners are “upside-down” on their home mortgages, and are looking for a way out. In some areas of California, homeowners have seen home values drop 50% or more, and are deciding whether to “strategically default”, that is, to walk-away from their home. Although a strategic default may be the best option is some cases, in other cases the homeowner may want to consider a Chapter 13 bankruptcy, which provides a mechanism to “strip” junior liens.
Following is an example of how lien stripping works:
Current fair market value of residence: $500,000.
First mortgage/trust deed: $500,000.
Second mortgage/trust deed: $200,000.
Section 506 of the Bankruptcy Code provides that a lien is a secured claim only to the extent there is value in the asset to which the lien attaches. To the extent that claims exceed the value of the collateral, that portion of the claim is unsecured.
Thus, section 506 confers on the Court the power to redefine debts as either “secured” or “unsecured.” Upon a proper showing, the Court will allow the lien to be stripped from the property. Once the lien is stripped, the debt can be “discharged,” – eliminated – by completing the bankruptcy.
In the above example, the home owner’s debt to the junior lender will be discharged and the lien (mortgage/trust deed) “stripped.” When the home owner thereafter sells the property, the owner need only pay the first position loan, even if the property has appreciated since the close of the home owner’s bankruptcy case.
Whether a lien(s) can be “stripped” from a parcel of real property requires an individualized analysis of a debtor’s entire financial situation. Furthermore, filing for bankruptcy – even where the debtor is statutorily eligible to do so – may not be the best decision in all cases. In any event, debtors should obtain the assistance of an attorney before deciding whether to file for bankruptcy, walk away from a property, or take other action.
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03.18.10
Posted in Bankruptcy at 19:37 by Administrator
Are you overwhelmed with consumer/personal debt? Would you like manageable payments that would enable you to take control of your personal finances, or perhaps even no payments at all so that you can completely start over financially? If so, Earle Law Offices may be able to help.
Earle Law Offices has served clients for years – and continues to serve clients – by assisting with legal matters relating to personal finances, such as small businesses, real estate investments, domestic relations, trusts and estates, and tax controversies.
Unfortunately, given the downturn in the economy, an ever-increasing number of clients have found themselves in need of the protections which are available through the U.S. Bankruptcy Code. In order to serve those clients and meet their need for legal services, Earle Law Offices has added consumer/personal bankruptcy to the repertoire of legal services which we offer.
Please call today to schedule your confidential, attorney-client privileged consultation regarding a personal bankruptcy or other legal matter.
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