Well it depends on who you ask. Do you remember what the President said way back when he announced the HAMP program and the other Government programs to modify mortgage loans on behalf of weary homeowners unable to pay their mortgage payments? The President said he hoped to help 6-8 million people modify their mortgages down to affordable monthly payments and have them keep their homes. After over a year since these programs have been put in place, only 398,000 modifications have become permanent!! A far cry from the 6-8 million people that were supposed to be helped under the Obama Plan! Currently there are approximately 367,000 active HAMP Trials pending, however, only 235,000 new trials were started over the last 5 months. All of these numbers are well below those contemplated by the White House. In my own practice, a successful modification is the exception not the norm. I often hear horror stories from my clients about how they have sent the same documents over and over, just to be told that they were never received. Bottom line, HAMP will never accomplish what it was set out to do. Unfortunately, it is middle class America that has to pay the price, again.

With the onslaught of foreclosures currently in the pipe line, homeowners are pursuing many avenues in an attempt to limit the damage of a foreclosure that will be caused to their credit, their pocket books, and their lives. Even millionaires are strategically walking away from their homes When loans aren't being modified, when defaults occur after a modification, or when no one will buy your home for what it is worth, many homeowners are seeking to "short sell" their homes to avoid a foreclosure sale. There are, however, risks that need to be brought to your attention

What is a "short sale" anyway? A "short sale" is when a homeowner sells their home for less than what is owed on the outstanding mortgage balances. In order to effectively and properly "short sell" a home, the bank holding the mortgage rights must agree to accept an amount less than what is owed. The agreement by the bank to accept less than what is owed, however, is fraught with peril and uncertainty. Typically, agreements entered into between banks and homeowners regarding short sales are often times silent as to the treatment of the deficiency balance that will exist after a short sale. For example: if a homeowner owes $100,000 on their mortgage, but through a short sale agreement the bank is willing to accept only $80,000 from the short sale, then a deficiency balance of $20,000 owed to the bank will arise. Short sale agreements are typically silent to the treatment of the remaining deficiency balance.

There are usually two treatments of the deficiency balance banks have been employing. The first, banks agree to forgive and release the deficiency balance, which absent a bankruptcy filing, is considered forgiveness of debt income. Upon completion of the short sale, the short selling homeowner is issued a miscellaneous 1099 for the amount of the deficiency that has been forgiven by the bank. In our example, the ex-homeowner will now be responsible to report on his current tax year's tax returns the amount of the forgiveness, $20,000 of gross income. The second, banks can also retain the right to pursue the ex-homeowner for the deficiency balance that arises after a short sale. Banks can sue and garnish wages, bank accounts and other property in satisfaction of the deficiency balance. These balances can also be sold to collection companies for pennies on the dollar, while the ex-homeowner still remains liable for the entire deficiency balance.

The only parties that usually win in a short sale scenario is the buyer, whom typically buys the home for less than market value, and the realtor, whom still gets paid their commission for the sale.

The ex-homeowner is usually left with the resulting fall out; forgiveness of debt income or liability for the deficiency balance.

Many times a person can file a Bankruptcy to eliminate the forgiveness of debt income issue and/or any deficiency balance that may result after the sale. This avenue is often the best course for a person in this situation as the bankruptcy not only replaces the foreclosure notation on a person's credit report to one of a discharge status, but also eliminates the possibility of being sued for the deficiency balance. To learn more, contact Antonio Aquia at 410-234-0100.

Bankruptcy Debtors scored a big win last week when the Ninth Circuit Bankruptcy

Appellate Panel held that Wells Fargo's national policy of placing an administrative freeze on Debtors' bank accounts when they file a bankruptcy petition violates the automatic stay by exercising control over property of the Debtor's bankruptcy estate in violation of Bankruptcy Code section 362(a)(3).

The automatic stay is a protection that activates upon the fling of a bankruptcy petition. Once a bankruptcy petition is filed, no person or entity can take any action against the Debtor to recover money, property, wages, bank accounts, conduct foreclosures or repossessions, or conduct any other collection activity against the Debtor without first receiving bankruptcy Court permission to do so. This permission, however, typically applies only to certain creditors such as mortgage or car loan companies. Even then, the lender can only seek recovery of the property at issue and cannot seek repayment for whatever loss occurs.

What happened in this case was that Wells Fargo would discover that one of their account holders filed a bankruptcy case. Once they were aware that one of their customers had filed a bankruptcy case, Wells Fargo's bank branches including Wachovia (remember, Wells Fargo bought Wachovia after the meltdown) would freeze their customers' bank accounts and would not release any funds to their customers until the bankruptcy trustee abandoned his interest in the bank accounts. What is seemingly illogical, however, is the fact that even in the situation where Debtors' bank accounts were exempt and not part of the bankruptcy estate, Wells still refused to release the accounts pending bankruptcy trustee approval. This abandonment typically takes months to accomplish. As a result, Debtors on fixed income, such as Social Security, Civil Service Pensions, etc.., that also had their income direct deposited, lost access to their funds for a significant amount of time, long enough to fall behind on their rent or electric bill. But beware that the control exercised over these bank accounts by Wells Fargo did not apply in the situation where Wells retained a right to set-off, meaning bank account funds could be seized to set off a debt that was owed by the Debtor to their particular banking institution, even though the Debtor did file bankruptcy (that's why it's always a good idea to close a bank account before filing, if you owe money to the bank where your funds reside). In the case decided by the 9^th Circuit Court of Appeals, the Debtors had owed Wells no money whatsoever. But Wells still exercised control and dominion over the bank accounts. The Court ruled that this was illegal!

The 9^th Circuit Court of Appeals was blistering in its opinion: "Wells Fargo asserts it did not exercise control over property of the estate. We disagree. Wells Fargo could have paid the account funds to the trustee; it did not. Wells Fargo could have released the account funds claimed exempt to the [debtors] when demand was made; it did not. Wells Fargo could have sought direction from the bankruptcy court, by way of a motion for relief from stay or otherwise, regarding the account funds; it did not. Instead, it chose to hold the funds until a demand was made for payment that it alone deemed appropriate. If that is not exercising control over the funds, we don't know what is." The Decision came from a three Judge Panel called the Bankruptcy Appellate Panel.

Bankruptcy Appellate Panels (BAP) are three judge panels of the United States bankruptcy courts who are appointed to hear appeals of bankruptcy court decisions under the supervision of the United States Courts of Appeals. BAP's were established under the Bankruptcy Reform Acts of 1978 and 1994. 28 U.S.C. §§158 sets forth the jurisdiction for appeals of bankruptcy decisions and authorizes the establishment of BAP's upon the order of the Circuit Judicial Councils. Not every Circuit has a BAP. But in each of the Judicial Circuits the BAP's have its own local rules of practice, in addition to the Federal Rules of Bankruptcy Procedure and the Federal Rules of Appellate Procedure. BAP Judges continue to serve as active bankruptcy judges in addition to their duties on the appellate panel. So far in the United States only the First, Sixth, Eighth, Ninth and Tenth Circuits have established these Panels'.

For those of you interested the case is called In re Mwangi, Case No. 09-1408 (9th Cir. B.A.P., June 30, 2010)

Debt Relief Agencies - Bankruptcy attorneys are included in the definition "debt relief agency" and are prohibited from advising clients to incur more debt when the "impelling reason" for the advice is to "load up" on debt then discharge it through the bankruptcy proceeding. Being debt relief agents, the imposition of the Code's advertising disclosure is reasonable related to the government's interest in preventing consumer deception and fraud and, therefore, Constitutional

Opinion By: Sotomayor (joined by Roberts, Stevens, Kennedy, Ginsburg, Greyer and Alito)

(Scalia joined except for n. 3 and Thomas joined except for Part III-C.Scalia and Thomas filed opinions concurring in part and concurring in the judgment)

The Plaintiffs in this litigation, the law firm of Milavretz, Gallop & Milavetz, P.A.; the firm's president, Robert J. Milavetz; a bankruptcy attorney at the firm, Barbara Nilva Nevin, and two of the firm's clients, filed a preenforcement suit in Federal District Court seeking declaratory Relief with respect to the Bankruptcy Abuse Prevention and Consumer Protection Act's ("BAPCPA") debt relief agency provisions. Plaintiff's asked the Court to rule that these debt relief provisions do not apply to attorneys practicing bankruptcy law. At the District Court level, the Court agreed that the definition of debt relief agent did not include attorneys.

The Court of Appeals for the Eight Circuit affirmed in part and reversed in part. The Court relying upon the Act's plain language unanimously rejected the District Court's ruling that attorneys are not debt relief agents. The Court of Appeals also disagreed that § 528 was unconstitutional concluding that the disclosures are intended to prevent consumer deception and are reasonable related to that interest. The Court did agree that §526 (a)(4) was overly broad, prohibiting a debt relief agent from advising an assisted person to incur any additional debt when that assisted person is contemplating bankruptcy. The majority of the Court held that § 526(a)(4) could not withstand either Strict or intermediate scrutiny

The Supreme Court granted certiorari affirmed in part, reversed in part, and remanded.

The Court agreed that with the Eight Circuit that the definition of debt relief agents under § 101(12A) includes attorneys that provide bankruptcy assistance to assisted persons. The Supreme Court disagreed with the Eight Circuit that §526(a)(4) was substantially overbroad in restricting content-based attorney-client communications. The Court held that the only advice prohibited by the statute is advice to incur more debt "because the debtor is filing in bankruptcy." The Court stated that the type of advice that would be prohibited would be advice to "load up" on debt with the expectation of discharging the debt in a bankruptcy. The Court did add that advice to refinance at a lower mortgage interest rate or by a reliable car would be permissible because the promise of enhanced financial prospects is the "impelling reason". Lastly, the Court held that § 528, requiring attorneys that qualify as debt relief agents identify themselves as such in their advertisements was reasonably related to the government's interest in preventing consumer deception and not a violation of an attorney's First Amendment interest in not providing the required information. Any restriction on this type of commercial speech is minimal.

In 2005, the Bankruptcy Code was overhauled by Congress in what is known as the Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA"). BAPCPA brought with it many changes, aiming to make it more difficult for people to eliminate debt entirely in a Chapter 7 case and forcing many debtors to pay back a portion of their debt in a Chapter 13 reorganization. One of the biggest changes BAPCPA brought about was the inclusion of form B22, more commonly known as the "means test". This form was intended by Congress to be used to determine how much a person can afford to pay back their creditors. Specifically, the means test form is a backwards looking document that calculates the amount of gross income a debtor has earned in the six months prior to the filing date of the case and applies Internal Revenue Service expense standards to that income to determine the amount per month a particular Chapter 13 debtor should be able to afford to pay back their creditors. This form takes into account no consideration of the debtor's current financial situation or actual ability to pay as reflected in debtor's schedule I & J budget. The B22 form calculation of the debtor's ability to pay back creditors is more commonly known as the debtor's projected disposeable income. Immediately, anyone can see that this could be a problem in several circumstances such as in the circumstance of a debtor receiving less income than what they were receiving in the preceding six months, typically due to a job change/loss, retirement, sickness, or other economic reasons. This effect could preclude many people, needing the refuge of a Chapter 13 Bankruptcy case without an option to file, due to the inability to afford the payment as calculated in the means test.

Bankruptcy and Appellate Courts all across the country are split as to which should control, the B22 form or debtor's actual budget. The Eight and Tenth Circuit Appeals Courts have both held that the debtor's actual budget controls, while the Ninth Circuit Appeals Court dictated that the B22 form controls the debtor's projected disposeable income calculation. In Utah, two judges from the same judicial district have written exactly opposite opinions, one holding that the B22 form controls the amount of the payment the debtor must pay, while the other holding that the debtor's actual income and expenses control. In Maryland, the case of In re Watson mandates that the B22 form controls unless there has been a substantial change in circumstances deemed sufficient enough to allow the debtor to then refer to their actual budget. Because of this wide split in opinions not only at the Bankruptcy Court level, but more importantly at the Circuit Court level, on November 2, 2009, the Supreme Court of the United States granted certiorari in the case of Hamilton, Chapter 13 Trustee v. Lanning.

The specific question on appeal to the Supreme Court is, "whether in calculating the debtor's 'projected disposeable income during the plan period, the bankruptcy court may consider evidence suggesting that the debtor's income or expenses during that period are likely to be different from her income or expenses during the pre-filing period." The Chapter 13 Trustee's position, that the B22 form should control, however, is in direct contradiction of the accompanying legal brief filed by the Solicitor General of the United States. The United States argues that there are circumstances when the B22 form cannot be relied upon and in those circumstances, debtor's actual budget must control.

As a debtor's counsel's law firm, we at Belsky, Weinberg, & Horowitz, LLC, are hoping that a reasoned realistic approach to this issue is implemented, thus preserving the refuge of Chapter 13 to many in this Country that so desperately need it during these tough economic times. Oral argument has not yet been scheduled. Stay tuned for further developments as they occur.

In 2005, the Bankruptcy Code was overhauled by Congress in what is known as the Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA"). BAPCPA brought with it many changes, aiming to make it more difficult for people to eliminate debt entirely in a Chapter 7 case and forcing many debtors to pay back a portion of their debt in a Chapter 13 reorganization. One of the big changes BAPCPA brought about was the classification that attorneys offering bankruptcy assistance for a fee be considered "Debt Relief Agencies". In the case of Milavetz v. United States, The Supreme Court has held that Attorneys who provide bankruptcy assistance are in fact debt relief agencies. As a result of this classification, bankruptcy attorneys are required to disclose in their advertising that they are a debt relief agency helping people to file bankruptcy under the bankruptcy code. In addition, this classification also restricts the ability of a debt relief agent to advise their clients to incur more debt in contemplation of filing bankruptcy. The Supreme Court has held that in practice, the type of advice that is restricted in bankruptcy will generally consist of advice to "load up" on debt with the expectation of obtaining its discharge through the bankruptcy.

There are times when a client, prior to filing bankruptcy, is in need of a new vehicle. Generally, advice to a client to purchase a new vehicle before filing, with the intent of keeping the vehicle for transport and household reasons, would not be considered illegal under the Supreme Court's decision.

This decision gives relief to countless bankruptcy attorneys that advising a debtor to incur debt prior to filing is legal, so long as there is a legitimate and valid basis for the advice.

All the reports in the media regarding the foreclosure crisis have centered around the fall in house values and continued unemployment. There is, however, another looming crisis out there no one is talking about yet, except for Credit Suisse. There are millions of loans out there known as "Option Arms" or adjustable rate mortgages. After a set time period (typically a couple of years), the interest rates on these underlying mortgage products reset or recast and adjust to the prevailing prime-rate plus several percentage points based upon the specific mortgage terms. Most of these resets are expected to occur between 2010-2012 where nearly $1 trillion worth of these Arm's will readjust during this period.

While interest rates are remaining low and inflation remains subdued, many mortgagors that pay these Arms have not refinanced to a fixed rate mortgage product because they are taking advantage of the lower rates that now exist. Lower rates of course means lower monthly mortgage payments.

The fear, however, is that interest rates will begin to tick up before mortgagors are able to refinance to a fixed rate mortgage product and homeowners in this predicament will no longer be able to afford their monthly payments. Even those homeowners intending to refinance may no longer be able to because of the loss of home equity and income. Once these resets occur, it will be like 2007 all over again.

Batten down the hatches as round 2 is coming!

Sales of new homes unexpectedly fell last month (January), even though economists thought sales would increase. This is yet another sign that the home purchase tax credit is not reigniting demand. These numbers also give credence to the notion that the economic recovery is still in its early stages. What is robbing demand for new homes is a new wave of foreclosures that is flooding the market with supply. Simple economic theory holds that when supply is increased, prices fall. This fact, coupled with the decrease in demand caused by job loss, hard to find credit, and low consumer confidence all translates to a long arduous recovery in the housing market. The decrease in demand and increase in supply also equates to a decrease in the average selling prices of homes nationwide.

It will take several years for the housing market to finally correct itself. Record default rates continue and will impose a giant hurdle for any housing market recovery. As mortgage default rates increase, so do foreclosure rates, so do supply rates, and so does the decline of the average selling prices for homes. This year alone, RealtyTrac, Inc., estimates that over 3 million homes will be repossessed by banks. Borrowers suffering from job loss, depreciation in the value of their homes, and an inability to sell, will add to those foreclosure numbers. Based upon the statistics, expect to see further decline in new home sales and a continued decrease in home sale prices.

Right now is a good time to buy, but a bad time to sell. Keep in mind, however, depending upon which section of the U.S. you find yourself, changes in demand or supply may vary. For example, in Maryland home markets situated near U.S. Military installations will see a spike in demand for housing as the Military completes its base realignment initiative (BRAC). In those markets, sale prices will remain stable or increase as military personnel stream into Maryland in search of housing.

Nationwide, however, the situation looks bleak. A recovery in the job market and a dwindling of the foreclosure supply must occur before we see a rebound in the housing market. By my estimates, it will take another 3 to 5 years before a sense of normalcy returns to the housing market.

With the onslaught of foreclosures currently in the pipe line, homeowners are pursuing many avenues in an attempt to limit the damage of a foreclosure that will be caused to their credit, their pocket books, and their lives. When loans aren't being modified, when defaults occur after a modification, or when no one will buy your home for what it is worth, many homeowners are seeking to "short sell" their homes to avoid a foreclosure sale. What is a "short sale" anyway? A "short sale" is when a homeowner sells their home for less than what is owed on the outstanding mortgage balances. In order to effectively and properly "short sell" a home, the bank holding the mortgage rights must agree to accept an amount less than what is owed. The agreement by the bank to accept less than what is owed, however, is fraught with peril and uncertainty. Typically, agreements entered into between banks and homeowners regarding short sales are often times silent as to the treatment of the deficiency balance that will exist after a short sale. For example: if a homeowner owes $100,000 on their mortgage, but through a short sale agreement the bank is willing to accept only $80,000 from the short sale, then a deficiency balance of $20,000 owed to the bank will arise. Short sale agreements are typically silent to the treatment of the remaining deficiency balance.

There are usually two treatments of the deficiency balance banks have been employing. The first, banks agree to forgive and release the deficiency balance, which absent a bankruptcy filing, is considered forgiveness of debt income. Upon completion of the short sale, the short selling homeowner is issued a miscellaneous 1099 for the amount of the deficiency that has been forgiven by the bank. In our example, the ex-homeowner will now be responsible to report on his current tax year's tax returns the amount of the forgiveness, $20,000 of gross income. The second, banks can also retain the right to pursue the ex-homeowner for the deficiency balance that arises after a short sale. Banks can sue and garnish wages, bank accounts and other property in satisfaction of the deficiency balance. These balances can also be sold to collection companies for pennies on the dollar, while the ex-homeowner still remains liable for the entire deficiency balance.

The only parties that usually win in a short sale scenario is the buyer, whom typically buys the home for less than market value, and the realtor, whom still gets paid their commission for the sale.

The ex-homeowner is usually left with the resulting fall out; forgiveness of debt income or liability for the deficiency balance.

Many times a person can file a Bankruptcy to eliminate the forgiveness of debt income issue and/or any deficiency balance that may result after the sale. This avenue is often the best course for a person in this situation as the bankruptcy not only replaces the foreclosure notation on a person's credit report to one of a discharge status, but also eliminates the possibility of being sued for the deficiency balance. To learn more, contact Antonio Aquia at 410-234-0100.

Although statistics suggest that worst of the foreclosure crisis has hit its peak, there exist certain trends that show other distresses will persist for years. In the State of Maryland in 2009, one in every 54 homes were in some stage of foreclosure totaling 43,248 units. In 2008 a little less, 32,347 home were on the bloc. Although this represents a significant 33.7 % spike in totals, the rate of increase is actually slowing, according to the Daily Record Business Writer. Maryland followed the national trends with a vast majority of foreclosure sales hitting the market in 2007 and 2008.

More alarmingly, however, month-to-month increase in foreclosures, 6,370 in November to 6,768 in December, reveal a trend that these defaults reflect households where breadwinners have lost their jobs. These defaults have already jumped by one third!

These trends are alarming because the loans now in default are A paper loans, typically with fixed interest rates, being paid by responsible borrowers whom have unfortunately lost employment.

Unless employment improves soon, the housing market recovery will be short to take a very long while.

As more and more foreclosed homes hit the market, this will inevitably drive up supply, thus decreasing home values further.

If you find yourself in a foreclosure situation and have exhausted every other remedy available, do not forget that filing a Chapter 13 Bankruptcy can provide you with an opportunity to help you keep your home.