When Not to File Bankruptcy - 13 More Examples

13 More Examples of Situations When You Should Not File Bankruptcy.

Supreme Court to consider lien stipping

The Supreme Court has granted Bank of America's writ of certiori to consider lien striping of underwater mortgage in chapter 7.

Chapter 13 plan payments

How much you are required to pay to your creditors under a chapter 13 plan is dependent on a number of factors

New 3rd DCA decision on mortgage foreclosure statute of limitations

Florida Court of Appeals: Mortgage Foreclosures, Statute of Limitations, Statute of Repose, and Foreclosure Dismissals With or Without Prejudice

Florida Exemption of Wages

Florida statutes partially exempts wages earned by the head of a family in Florida

Friday, December 19, 2014

Foreclosure Action Barred - But Mortgage Lien Remains

On December 17, 2014, the Florida Third District Court of Appeals issued its decision addressing very important mortgage foreclosure issues in the case of Deutsche Bank Trust Company Americas, etc. v. Harry Beauvais, et al., Case No. 3D14-575.   This case involved a second foreclosure action after the first foreclosure action had been dismissed without prejudice. In this case, the Court held - on the specific facts of this case - that the enforcement of the mortgage note was barred by the statute of limitations but that the mortgage lien remained valid as its continued validity is governed by a different statute - the statute of repose. Ironically, the enforcement of the mortgage note would not have been barred by the statute of limitations if the first foreclosure action had been dismissed with prejudice. 

Enforcement of Mortgage Note Barred - Previous Dismissal Without Prejudice

In this case, the five year statute of limitations had run before the mortgage lender filed the second foreclosure case. The Court held that the dismissal of the first foreclosure case without prejudice (not being a decision on the merits of the case) left the mortgage note in its state of being accelerated with the statute of limitations continuing to run. Since the five years had passed, the mortgage note could not be enforced in the second foreclosure action.

Dismissal With Prejudice Effects De-Acceleration

In contrast, the Court stated that a dismissal of a foreclosure action with prejudice constitutes a "decision on the merits" which effects a effects a de-acceleration of the mortgage note and the reinstitution of the installment payment provisions.  In this case, had the first foreclosure case been dismissed with prejudice,  the second foreclosure would not have been barred.

Mortgage Lien Remains Valid

The lower court's ruling that the mortgage lien was null and void was reversed. The Court explained that the lack of ability to enforce the mortgage promissory note does not render the mortgage lien invalid as its validity is governed, not by the statute of limitations, but by the statute of repose set forth in section  95.281. 

This statute of repose provides, in general,  that a mortgage lien terminates 5 years after the maturity date of the mortgage note if such date is ascertainable from the record of the recorded mortgage. The statute further provides a the period of 20 years from the date of the mortgage note if the final date of the mortgage is ascertainable from the recorded mortgage.  The statute also provides certain exceptions if there is re-recording or further recording. 

Mortgage Lien Covenants and Foreclosure

In this case, the continuing valid mortgage lien document would face the issue of foreclosure. Recent commentators have reviewed that a mortgage instrument itself (aside from the mortgage note) contains covenants, such as a a duty to keep the real property insured and for the homeowner to pay the property taxes.  The commentators submitted that the default of such covenants could form the basis for a foreclosure action. Hence, the homeowner does face foreclose based on a default on such mortgage covenants - even though enforcement of the mortgage promissory note was barred.


CTS v. Waldburger, et al., US Supreme Court, Case NO. 13-339, Decided June 9, 2014 (Distinction between statute of limitations and statute of repose, equitable tolling)

Tuesday, December 16, 2014

Supreme Court Grants Certiorari on Chapter 13 Bankruptcy Appeal Issue

Last week, the United States Supreme Court granted the writ of certiori in the case of Bullard v. Hyde
appeal bankruptcy order chapter 13
Park Savings Bank. The case presents the issue of whether an order denying confirmation of a chapter 13 plan of reorganization is a "final judgment" and therefore appealable.

Case Below - BAP and First Circuit 

In the case below, the chapter 13 debtor appealed the bankruptcy court's order first to the First Circuit's Bankruptcy Appellate Panel (BAP) under both 28 U.S.C. § 158(a)(1) [as to a "final order"] and (a)(3) [with leave of court for an interlocutory order].  The BAP agreed to hear the appeal under (a)(3) as an interlocutory appeal and upheld the Bankruptcy Court's order denying confirmation of the chapter 13 plan. 

The debtor next filed a notice of appeal to the First Circuit and also requested that the BAP certify the matter for a direct appeal to the First Circuit pursuant to 28 U.S.C. § 158(d)(2).  The BAP denied the motion for a direct appeal and the First Circuit issued an order to show cause why the appeal should not be dismissed on the basis the BAP's order affirming the Bankruptcy Court's order was not a final order as required by 28 U.S.C. § 158(d)(1). The Court noted that it had previously held that a BAP's order could not be a final order unless the underlying bankruptcy court order was a final order. 

The First Circuit, dismissed the appeal for lack of statutory jurisdiction pursuant to 28 U.S.C. § 158(d)(1) based on its holding that an order denying confirmation of a chapter 13 plan is not a final order. The First Circuit explained that the issue presented was an issue of statutory jurisdiction and not an Article III Constitutional issue. 

Circuit Split

In its decision, the First Circuit noted that the Sixth, Second, Eighth, Ninth, and Tenth Circuits previously that an order denying confirmation is not final if the bankruptcy case has not been dismissed and the debtor remains free to propose another plan.  On the other hand, it noted that the Fourth, Third, and Fifth Circuit held otherwise - that such an order can be final even if the underlying bankruptcy case has not been dismissed.


Final Analysis: Determining Appealability of a Judgment or Order

Wednesday, November 26, 2014

Mortgage Debt Relief Act of 2007 Expired January 1, 2014

Unless the Mortgage Debt Relief Act of 2007 is extended, distressed homeowner’s face the risk of the imposition of income taxes on the discharged mortgage debt upon a short sale, short refinance or foreclosure.  The lack of the extension of this provision has resulted in the decline in the number of short sale.
The debt forgiven by the mortgage lender as part of a short sale, short refinance,  or foreclosure, could result in “cancellation of indebtedness” income.  There are though various exceptions to the application of this rule so as to avoid income taxation, such as a.  if you are insolvent, b. the debt is discharged in bankruptcy, and c. by the application of the Mortgage Debt Relief Act of 2007.  The Mortgage Debt Relief Act of 2007 generally allowed taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, debt forgiveness in connection with a foreclosure, and debt forgiven in a short sale qualified for this relief.
But the Mortgage Debt Relief Act of 2007 expired January 1, 2014 due to Congressional inaction.  This means that a personal would only be able to rely on the other exceptions to avoid cancellation of indebtedness income.
Homeowner’s only way to avoid the imposition of income tax may be the discharge of the debt in bankruptcy, if the other exceptions to not apply.
It was reported by the Urban Institute that about 2 million homeowners are at the risk of incurring discharge of indebtedness income taxation and be on the hook for $5.4 billion in extra taxes if Congress fails to renew the Mortgage Debt Relief Act of 2007.  The Washington Post reports that Congress in unlikely to address this matter until after the November elections.