Friday, May 23, 2008
Chapter 11 Bad Faith Filing
Phoenix Piccadilly, Ltd., _________ (11th Cir.1988) - prospect of successful reorganization does not as matter of law override finding of bad faith on part of chapter 11 debtor.
Waiver of Anti-Modification in Chapter 11 Plan
In re Arns, 2007 WL 2255120 (Bkrtcy.N.D.Ill.) waiver of anti-modification of mortgage. See In re Dominique, 2007 WL 1430686 (Bankr.S.D.Fla. May 14, 2007).
Thursday, May 22, 2008
Affidavits
affidavits on personal knowledge d. based on information and belief
set forth with particularity the facts admissible in evidence
if sworn, the affiant can competently testify to the facts recited therein.
set forth with particularity the facts admissible in evidence
if sworn, the affiant can competently testify to the facts recited therein.
Use Federal Exemptions if State Does Not Allow Non-resident to Use Exemptions
In re Nickerson, _____________ (Bkrtcy. WD Mo. 2007) - 180 day period is Kansas, issue whether debtor can use Kansas if not resident in Kansas, some states allow non-residents to use their exemptions, also savings provision in 522, Kansas does not allow non-resident to use exemptions, use federal exemptions
Deduction of Amounts to Pay 401(k) Loan
In re Lawoski, (8th Cir. BAP Ark) - only deduct actual amounts
Spanish Suspension Proceeding as "Foreign Proceeding"
In re Oversight and Control Comm'n of Avanzit, SA 2008 WL 1758810 (Bkrtcy.S.D.N.Y)
Friday, May 16, 2008
Jefferson County and City of Vallejo Consider Chapter 9 Municipal Bankruptcy
It was reported this week that Jefferson County, Alabama reached a two week extension with its Wall Street bankers to avoid a default on its outstanding debt of $4.6 billion. Jefferson County is reported to be one of the most indebted municipalities in the United States due to its expensive overhaul of its sewage system. It has been reported that the county could face chapter 9 municipal bankruptcy.
Earlier this month it was reported that the City Council of Vallejo California voted to file for chapter 9 municipal bankruptcy due to unaffordable labor contracts and unfunded pension liabilities. Its reported that the Chapter 9 bankruptcy filing is expected any day. Vallejo was once a prosperous city of 117,000 and is facing police, fire and staffing costs in excess its ability to pay. Today's Daily Business Review reports that the case has become a national bellwether [sic] for financially shaky local governments considering the pitfalls of filing Chapter er9 municipal bankruptcy."
The city reportedly faces a $16 million deficit for the upcoming fiscal year due to a decrease in tax revenues as property values have fallen. Vallejo has a population of 117,000 people.
An example of a recent municipal chapter 9 bankruptcy case was that filed in December, 2001 by the City of Desert Hot Springs California in the Bankruptcy Court of the Central District of California. The city of about 17,000 people was $8 million in debt including $6 million owed on a Fair Housing Act lawsuit. Another notable municipal bankruptcy was that of Bridgeport, Connecticut in 1991. The largest municipal bankruptcy filed to date was that of Orange County, California which filed for chapter 9 bankruptcy in 1994. In 1975 New York City teetered on the edge of filed for bankruptcy and appealed to the federal government for a bailout. In the end, New York City with assistance from Washington, including the creation of the Municipal Assistance Corporation, was able to avoid bankruptcy.
The Daily Business Review also reports that "San Diego, the nation's eight largest city, has been on the brink of a financial abyss for several years."
The first municipal bankruptcy legislation was enacted in 1934 during the Great Depression. A revised Municipal Bankruptcy Act was enacted in 1937 which has been amended several times. Under chapter 9 bankruptcy, the municipality is protected from its creditor while it negotiates a plan to adjust its debts. There is no provision in chapter 9 for the liquidation of the assets of a municipality.
A "municipality" that may file for relief under chapter 9 is defined in the bankruptcy code as a "political subdivision or public agency or instrumentality of a State." This definition is broad enough to include cities, counties, townships, school districts, public improvement districts, bridge authorities, highway authorities, and gas authorities. In order to be eligible to file for chapter 9 the municipality must be "insolvent" as defined in the bankruptcy code. An interesting distinction in chapter 9 is that the clerk of the court does not assign the case to a particular judge. Instead the chief judge of the circuit's court of appeals designates the bankruptcy judge to conduct the case. The Bankruptcy Code allows objections to the chapter 9 petition and the court may dismiss the petition if it determines it was not filed in good faith.
The bankruptcy court's powers over the operations and revenue of the municipality are limited under the bankruptcy code. These restrictions avoid the possibility that the court may substitute its control over the governmental affairs for that of the elected officials.
Earlier this month it was reported that the City Council of Vallejo California voted to file for chapter 9 municipal bankruptcy due to unaffordable labor contracts and unfunded pension liabilities. Its reported that the Chapter 9 bankruptcy filing is expected any day. Vallejo was once a prosperous city of 117,000 and is facing police, fire and staffing costs in excess its ability to pay. Today's Daily Business Review reports that the case has become a national bellwether [sic] for financially shaky local governments considering the pitfalls of filing Chapter er9 municipal bankruptcy."
The city reportedly faces a $16 million deficit for the upcoming fiscal year due to a decrease in tax revenues as property values have fallen. Vallejo has a population of 117,000 people.
An example of a recent municipal chapter 9 bankruptcy case was that filed in December, 2001 by the City of Desert Hot Springs California in the Bankruptcy Court of the Central District of California. The city of about 17,000 people was $8 million in debt including $6 million owed on a Fair Housing Act lawsuit. Another notable municipal bankruptcy was that of Bridgeport, Connecticut in 1991. The largest municipal bankruptcy filed to date was that of Orange County, California which filed for chapter 9 bankruptcy in 1994. In 1975 New York City teetered on the edge of filed for bankruptcy and appealed to the federal government for a bailout. In the end, New York City with assistance from Washington, including the creation of the Municipal Assistance Corporation, was able to avoid bankruptcy.
The Daily Business Review also reports that "San Diego, the nation's eight largest city, has been on the brink of a financial abyss for several years."
The first municipal bankruptcy legislation was enacted in 1934 during the Great Depression. A revised Municipal Bankruptcy Act was enacted in 1937 which has been amended several times. Under chapter 9 bankruptcy, the municipality is protected from its creditor while it negotiates a plan to adjust its debts. There is no provision in chapter 9 for the liquidation of the assets of a municipality.
A "municipality" that may file for relief under chapter 9 is defined in the bankruptcy code as a "political subdivision or public agency or instrumentality of a State." This definition is broad enough to include cities, counties, townships, school districts, public improvement districts, bridge authorities, highway authorities, and gas authorities. In order to be eligible to file for chapter 9 the municipality must be "insolvent" as defined in the bankruptcy code. An interesting distinction in chapter 9 is that the clerk of the court does not assign the case to a particular judge. Instead the chief judge of the circuit's court of appeals designates the bankruptcy judge to conduct the case. The Bankruptcy Code allows objections to the chapter 9 petition and the court may dismiss the petition if it determines it was not filed in good faith.
The bankruptcy court's powers over the operations and revenue of the municipality are limited under the bankruptcy code. These restrictions avoid the possibility that the court may substitute its control over the governmental affairs for that of the elected officials.
Thursday, May 15, 2008
Extraterritorial Application of 180 day Period State, Domicile
In re Bingham, 2008 WL 186277 (Bkrtcy.D.Kan.), sold Texas home and purchased home in Missouri and arrived on about June 25, 2004. One March 30, 2006 sold Missouri home and moved to Kansas. On May 31, 2006 purchased home in Kansas. Filed chapter 7 on October 2, 2006.
Not clear whether spent majority of time in Texas or Missouri during the 180 day period. Domicile is physical presence with intent to remain permanently. Factors.
If Texas exemptions apply, apparently Texas homestead exemption does not apply extraterritorially. Would need to use federal homestead exemption. Section requires state's exemptions law be applied not state's exemptions. Distinction between exemptions and exemption law. Exemption law include's state's prohibitions against extraterritorial effect.
Missouri statutes and case law are silent on issue of extraterritoriality.
Not clear whether spent majority of time in Texas or Missouri during the 180 day period. Domicile is physical presence with intent to remain permanently. Factors.
If Texas exemptions apply, apparently Texas homestead exemption does not apply extraterritorially. Would need to use federal homestead exemption. Section requires state's exemptions law be applied not state's exemptions. Distinction between exemptions and exemption law. Exemption law include's state's prohibitions against extraterritorial effect.
Missouri statutes and case law are silent on issue of extraterritoriality.
Sunday, May 11, 2008
Statutory Personal Property Exemption
In re Franzese, 383 BR 197 (Bkrtcy. M.D. Fla. 2008) - if use tenants by entireties no eligible for 4,000 exemption
Tuesday, May 6, 2008
Loan Modifications May Be More Difficult Due to Securitization
As is well known, many home mortgages were sold and packaged into securitizied pass-through vehicles, usually trusts, known as REMICs (Real Estate Mortgage Investment Conduits) which in turn sold certificates to investors around the world. Although securitization presented borrowers with new financing opportunities, it brought with it a set of restrictions due to the Internal Revenue Code requirements that make it difficult for mortgage servicers and their trusts to modify mortgages if the homeowner falls into financial difficulties.
REMICs are tax-preferred entities that hold the securitized mortgages for the investor certificate-holders. The REMIC provisions are contained in Part IV of subchapter M of Chapter 1 of the Internal Revenue Code (sections 860A-860G). The REMIC provisions provide for a pass-through entity that issues multiple classes of interests representing undivided ownership interests in pools of residential and commercial mortgage loans. The certificates are of different levels of investment risk. The income from the mortgage loans in the REMIC is taxed to the holders of the interest in the REMIC.
In order to maintain its tax-preferred status, a REMIC must meet certain requirements of the Internal Revenue Code. REMICs, which are generally trusts, are typically not subject to federal income taxation. If REMICs engage in certain activities they may lose their status as a REMIC and may in some instances be subject to taxation, such as a 100% prohibited transaction tax.
After securitization, the REMIC's master servicer is responsible for collecting payments from the homeowners. The master servicer's responsbilities and authority are provided for a pooling and servicing agreement ("PSA") between the trustee of the REMIC and the master servicer. PSAs provide that the master servicer not take any action that will result in the loss of the REMIC's tax-preferred status. As a result, any request by a borrower for a modification of a mortgage held by a REMIC must be considered in view of the continued preferred tax status of the REMIC. A modification that may be otherwise desirable may be denied due to a necessity of maintaining REMIC tax-preferred status.
The IRS recently released proposed regulations that would expand the circumstances under which modifications of mortgage loans held by REMICs would be permitted.
REMICs are tax-preferred entities that hold the securitized mortgages for the investor certificate-holders. The REMIC provisions are contained in Part IV of subchapter M of Chapter 1 of the Internal Revenue Code (sections 860A-860G). The REMIC provisions provide for a pass-through entity that issues multiple classes of interests representing undivided ownership interests in pools of residential and commercial mortgage loans. The certificates are of different levels of investment risk. The income from the mortgage loans in the REMIC is taxed to the holders of the interest in the REMIC.
In order to maintain its tax-preferred status, a REMIC must meet certain requirements of the Internal Revenue Code. REMICs, which are generally trusts, are typically not subject to federal income taxation. If REMICs engage in certain activities they may lose their status as a REMIC and may in some instances be subject to taxation, such as a 100% prohibited transaction tax.
After securitization, the REMIC's master servicer is responsible for collecting payments from the homeowners. The master servicer's responsbilities and authority are provided for a pooling and servicing agreement ("PSA") between the trustee of the REMIC and the master servicer. PSAs provide that the master servicer not take any action that will result in the loss of the REMIC's tax-preferred status. As a result, any request by a borrower for a modification of a mortgage held by a REMIC must be considered in view of the continued preferred tax status of the REMIC. A modification that may be otherwise desirable may be denied due to a necessity of maintaining REMIC tax-preferred status.
The IRS recently released proposed regulations that would expand the circumstances under which modifications of mortgage loans held by REMICs would be permitted.
Sunday, May 4, 2008
Does Your Mortgage Company Really Own Your Mortgage?
One of the major issues in the foreclosure arena today is whether the foreclosing mortgage company really owns the mortgage. In many states, the foreclosure action may be pursued by the mortgage loan servicing company or the actual purported holder of the mortgage. Since many mortgages have been sold to securitized trusts and the paperwork is often in disarray, there is often a question of who actually holds the mortgage note.
Very often a review of the public records does not reflect that the purported mortgage company actually was assigned the mortgage note. Often the mortgage note has been indorsed "in blank", that is transferred to the bearer or holder of the note. Often the assignment of the mortgage lien does not exist or has not been recorded in the public records.
Many courts around the country have recently dismissed foreclosure action due to failure of mortgage companies to properly prove that they hold the mortgage note and mortgage. One should note though, that usually the dismissals are "without prejudice" which means that the foreclosures may be refiled once the mortgage company gets their paperwork in order.
Mortgage Securitization Glossary
Asset-Backed Security (ABS) - securities backed by specific assets, payments on which derived from cash flows of underlying assets, such as auto loans, credit card receivables, home equity loans, and student loans.
Bankruptcy Remote Structure- technique used to isolate assets or loans from the bankruptcy risk of the company financing or selling them. For example, a loan originator may transfer its loans to a special purpose entity (SPE) which which issue securities backed by the loans. The transfer of the loans to the SPE is designed to be a "true sale" to place them outside of the originator's bankruptcy estate if it end up in bankruptcy.
Collateralized Mortgage Obligation(CMO) - series of securities created by dividing the cash flows from a pool of mortgage loans into various serially maturing tranches of securities.
Conforming Mortgage Loan - a mortgage loan that satisfies the guidelines of Fannie Mae or Freddie Mac. Generally are of prime quality and below the threshold amount set each year by the federal government.
Credit Enhancement - techniques used to improve the credit quality of a security to obtain a high rating. Securitizations use credit enhancement to obtain AAA ratings for their senior classes of securities. One technique is overcollateralization, the par amount of securities issued is less than the total amount of the underlying assets being securitized. Another is a guarantee by a bond insurer.
Credit Rating - an evaluation of the credit quality of a security generally expressed with symbols such as "AAA" or Aaa". The best known are Moody's, S&P, and Fitch.
Mortgage Backed Security (MBS) - securities backed by a pool of mortgage loans. Payments on the MBSs are derived from the cash flows produced by the underlying mortgage loans.
Negative Amortization - a loan where the principal balance increases over time as the monthly payment is not sufficient to fully cover the accrued interest.
Originator - originators of mortgage loans that sell them to other companies that pool them into securities.
REMIC - Real Estate Mortgage Investment Conduit, a tax classification applicable to CMOs under the Internal Revenue Code
Retained Interest - the most subordinated claim in a pool of securitized assets, generally retained by the sponsor of the securitization.
Securitization - financing tool in which a company raises money by issuing securities backed by specific assets such as mortgage or car loans. The cash flow from the underlying assets is the source of the funds for the issuer to make payments on the securities.
Servicer - an entity that collects payments on securitized assets such as mortgages and administers securitization transactions. Various types of servicers are the primary servicer, the master servicer, the sub-servicer, and the special servicer.
Special Purpose Vehicle - an entity formed to hold the assets being securitized.
Subprime Borrowers - borrowers with credit histories with significant delinquencies, defaults, or bankruptcies. Distinguished from "prime-quality" borrowers.
Tranche - from the French meaning "slice", refers to one of the various classes of securities issued in securitization.
Bankruptcy Remote Structure- technique used to isolate assets or loans from the bankruptcy risk of the company financing or selling them. For example, a loan originator may transfer its loans to a special purpose entity (SPE) which which issue securities backed by the loans. The transfer of the loans to the SPE is designed to be a "true sale" to place them outside of the originator's bankruptcy estate if it end up in bankruptcy.
Collateralized Mortgage Obligation(CMO) - series of securities created by dividing the cash flows from a pool of mortgage loans into various serially maturing tranches of securities.
Conforming Mortgage Loan - a mortgage loan that satisfies the guidelines of Fannie Mae or Freddie Mac. Generally are of prime quality and below the threshold amount set each year by the federal government.
Credit Enhancement - techniques used to improve the credit quality of a security to obtain a high rating. Securitizations use credit enhancement to obtain AAA ratings for their senior classes of securities. One technique is overcollateralization, the par amount of securities issued is less than the total amount of the underlying assets being securitized. Another is a guarantee by a bond insurer.
Credit Rating - an evaluation of the credit quality of a security generally expressed with symbols such as "AAA" or Aaa". The best known are Moody's, S&P, and Fitch.
Mortgage Backed Security (MBS) - securities backed by a pool of mortgage loans. Payments on the MBSs are derived from the cash flows produced by the underlying mortgage loans.
Negative Amortization - a loan where the principal balance increases over time as the monthly payment is not sufficient to fully cover the accrued interest.
Originator - originators of mortgage loans that sell them to other companies that pool them into securities.
REMIC - Real Estate Mortgage Investment Conduit, a tax classification applicable to CMOs under the Internal Revenue Code
Retained Interest - the most subordinated claim in a pool of securitized assets, generally retained by the sponsor of the securitization.
Securitization - financing tool in which a company raises money by issuing securities backed by specific assets such as mortgage or car loans. The cash flow from the underlying assets is the source of the funds for the issuer to make payments on the securities.
Servicer - an entity that collects payments on securitized assets such as mortgages and administers securitization transactions. Various types of servicers are the primary servicer, the master servicer, the sub-servicer, and the special servicer.
Special Purpose Vehicle - an entity formed to hold the assets being securitized.
Subprime Borrowers - borrowers with credit histories with significant delinquencies, defaults, or bankruptcies. Distinguished from "prime-quality" borrowers.
Tranche - from the French meaning "slice", refers to one of the various classes of securities issued in securitization.
Friday, May 2, 2008
Who is Who in Mortgage Securitization
Seller - usually the first entity that sells a portfolio of mortgage loans to the Depositor. Often the Seller originated the mortgage loans or buys them from other originators.
Depositor - a "special purpose entity" established to buy portfolios of mortgage and sells them into trusts. It sells the bonds or certificates (securities) issues to investment bank underwriters. The special purpose entity is a "bankruptcy-remote" entity.
Underwriter - when the trust purchases a mortgage loan pool from the Depositor, it issues bonds or certificates representing ownership interests in the trust to the Depositor. The Depositor sells these securities to the investment bank Underwriters who then sell them to investors.
Trust - holds the mortgage loan portfolio. Its issues the bonds or certificates that are sold by the investment bank Underwriters to investors.
Trustee - the person appointed to administer the trust. It holds the loans in his capacity as trustee on behalf of the trust.
Master Servicer - oversees the mortgage sub-servicers and accounts for the remittance payments to the Trustee or directly to the investors. Often the Originator will retain the servicing rights after securitization.
Servicer - a sub-servicer appointed by the Master Servicer. Popular servicers include Litton Loan Servicing, Select Portfolio Servicing, and America's Servicing Company.
Certificate or Bond Insurer - issue credit enhancement, such as a surety bond, for the pools of mortgages to enhance their credit rating. This lowers the cost of securitization and the return demanded by the investors in the bonds or certificates sold to the investors.
Rating Agencies - agencies such as Standard and Poor's, Moody's, or Fitch that assess the leval of risk posed by various tranches of bond or certificates sold to investors.
Depositor - a "special purpose entity" established to buy portfolios of mortgage and sells them into trusts. It sells the bonds or certificates (securities) issues to investment bank underwriters. The special purpose entity is a "bankruptcy-remote" entity.
Underwriter - when the trust purchases a mortgage loan pool from the Depositor, it issues bonds or certificates representing ownership interests in the trust to the Depositor. The Depositor sells these securities to the investment bank Underwriters who then sell them to investors.
Trust - holds the mortgage loan portfolio. Its issues the bonds or certificates that are sold by the investment bank Underwriters to investors.
Trustee - the person appointed to administer the trust. It holds the loans in his capacity as trustee on behalf of the trust.
Master Servicer - oversees the mortgage sub-servicers and accounts for the remittance payments to the Trustee or directly to the investors. Often the Originator will retain the servicing rights after securitization.
Servicer - a sub-servicer appointed by the Master Servicer. Popular servicers include Litton Loan Servicing, Select Portfolio Servicing, and America's Servicing Company.
Certificate or Bond Insurer - issue credit enhancement, such as a surety bond, for the pools of mortgages to enhance their credit rating. This lowers the cost of securitization and the return demanded by the investors in the bonds or certificates sold to the investors.
Rating Agencies - agencies such as Standard and Poor's, Moody's, or Fitch that assess the leval of risk posed by various tranches of bond or certificates sold to investors.
Subscribe to:
Posts (Atom)