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)