Sunday, August 2, 2015

"Lien Stripping" - Still Available in Chapter 13

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"Lien stripping" of underwater mortgages or other junior lien is still available under chapter 13 bankruptcy.  The much publicized U.S. Supreme Court ruling in the Bank of America cases only held that lien stripping cannot be done in chapter 7 bankrupty cases.

In order to "strip" (ie. avoid) a second priority mortgage or other junior lien, they must generally be wholly underwater unless the obligation's had already ballooned.

The lien stripping is accomplished with the appropriate provision in the chapter 13 debtor's proposed chapter 13 plan. The applicable valuation and avoidance motion are also filed.

Saturday, August 1, 2015

Florida Mortgage Foreclosure - Assignment of Promissory Note Without the Mortgage

It is generally the rule in Florida that the transfer of a mortgage note transfers with it the related mortgage. The mortgage note is regarded as the principal item with the mortgage being regarded as a mere accessory. Hence the adage "the mortgage follows the note."

The Restatement (Third) of Property provides in  Mortgages section 5.4(a) (1997) that "[a] transfer of an obligation secured by a mortgage also transfers the mortgage unless the parties to the transfer agree otherwise."  Florida law is apparently in accordance with the Restatement. The stated objective of the Restatement is to avoid economic waste to the lender and a windfall to the borrower if the note and mortgage are split rendering the mortgage note as a practical matter unsecured. The Restatement cites the United States Supreme Court decision in Carpenter v. Longan, 83 U.S. 271 (1827) which held that "[a]ll the authorities agree that the debt is the principal thing and the mortgage an accessory."

The Restatement's exception provides that a transfer of a mortgage note is possible without the transfer of the mortgage if the parties so agree, but the effect of such a transfer would be to make it impossible to foreclose the mortgage unless the transferor of the mortgage note is made the assignee's agent or trustee with authority to foreclose on the behalf of the assignee of the mortgage note.

Assignment of the Mortgage

The opposite situation is presented if a mortgage is transferred without the transfer of the mortgage note. The apparent rule in Florida is that an assignment of a mortgage without an assignment of the related mortgage note is deemed a nullity and creates no right in the assignee because a mortgage is a mere lien incidental to the obligation it secures. 37 Fla. Jur. 2nd, Mortgages, Section 511. See e.g., Sobel v. Mutual Development, Inc., 313 So.2d 77 (Fla. 1st DCA 1975). Vance v. Fields, 172 So.2d 613 (Fla. 1st DCA 1965).

Exemption of Annuities in Florida

Florida law provides for a certain exemption for annuities. Florida Statute section 222.14 provides that "the proceeds of annuity contracts issued to citizens or residents of the state,  upon whatever form, shall not in any case be liable to attachment, garnishment ... or legal process in favor of any creditor ... of the person who is the beneficiary of such annuity contract, unless the  ... annuity contract was effected for the benefit of such creditor.

One requirement is that the annuity must be issued to a "citizen" or "resident" of Florida. Sometimes there is a question of whether the item in question constitutes an "annuity" and whether the involved person is a "beneficiary" within the meaning of the statute. 

Friday, July 31, 2015

Chapter 13 Bankruptcy Plan

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In chapter 13 bankruptcy, only the chapter 13 debtor is allowed to file a chapter 13 plan. That is, creditors are not allowed to propose a plan as they are in chapter 11.

Chapter 13 plans generally are designed to adjust payment of debts under a flexible repayment plan. Usually these payments are made from future wages or income. There are some mandatory provisions for a chapter 13 plan, but most are permissive.

A chapter 13 plan is usually three to five years in length. Not all secured creditors - such as an up-to-date car loan - are required to be paid as part of the chapter 13 plan. Priority claims, such as child support and alimony arrearages, may be paid through the plan. Defaults in mortgage payments may be cured in a chapter 13 plan.

Wednesday, July 29, 2015

Choice of Law in a Bankruptcy Case

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When a person files for bankruptcy in Florida and owes a gambling debt in Nevada, which state's law apply in determining the various issues about the claim for gambling debt? In the bankruptcy case there may be issues as to the allowability of the claim or whether the claim should be dischargeable or nondischargeable?  A 2006 Florida bankruptcy ruling dealt with this issue.

The Bankruptcy Court reviewed that normally a federal court hearing a matter pursuant to diversity jurisdiction must apply the law of the state in which it sits, but that such rule does not apply to a bankruptcy court as it is not sitting as a federal court with jurisdiction based on diversity. The bankruptcy court reviewed that the choice of which state's law applies should in part be based on which state's law more logically relates to the claim and the "significant relationship" test.