NYC Foreclosure Defense - Affordable Fee

QUIET TITLE ACTIONS brought in NYC for homeowners with securitized mortgages in any state
My Video (Part I) on Quiet Title Actions brought in NYC

When Bankruptcy Is Needed in a Foreclosure Context

There are times when a bankruptcy filing is called for, but far less than most clients and lawyers believe.

If you need an immediate stay of a sale of your home or mortgaged business property, a bankruptcy filing will have an automatic stay which, if filed in time and the sheriff, bank and bank's attorneys are notified in time, should stop the sale, temporarily. If the bankruptcy filing has no substance (sometimes a complicated issue), you can expect the bank to promptly make a motion in the Bankruptcy Court to vacate the automatic stay as to your mortgaged property, so that the bank is permitted to go ahead and schedule a new sale date.

Chapter 13 bankruptcy filings by homeowners to try to save their homes are often of no use because of many factors, to be discussed below.

Chapter 7 bankruptcy filings by homeowners can have the beneficial effect of eliminating credit card debt, under water 2nd and 3rd mortgages, and personal liability on the 1st mortgage or 2nd and 3rd mortgages if they are not under water, but times have changed and getting released from liability is not as easy as it used to be, so find out more about bankruptcy before jumping into any bankruptcy.

Chapter 11 reorganizations for owners of real estate should be avoided like the plague, in my opinion. I'm sure that there are some instances where a reorganization can be worked out, but they probably are few and far between, and probably involve special circumstances. Unless you really know what you are doing, you will probably wind up the loser in a Chapter 11 reorganization brought to try to save a heavily mortgaged real estate business. I'll cover this at length below.

Why Chapter 7, Chapter 11 and Chapter 13 Bankruptcies Should Be Avoided

Remember that I am talking about bankruptcies involved mortgaged real property. I'm not considering anything else. This is an important limitation on my discussion.

The primary reason is that the bankrupt ordinarily has to pay for the entire lawsuit needed within the bankruptcy filing to have a bank's lien declared invalid, for any number of reasons you are now aware, such as robo-signing, don't own or possess the original note, failure to prove chain of title, fraudulent affidavits, bad-faith negotiations in trying to enter into a workout or loan modification agreement (amounting to a breach of the implied covenant of good faith and fair dealing and/or a predatory lending practice), etc.

The full cost of the lawsuit within bankruptcy (called an "adversary proceeding", involving the preparation and filing of a complaint, followed by discovery, motions and trial), could easily be $50,000 to $100,000, especially if the bank decides to litigate you to death (where your bankruptcy lawyer can't receive any additional payment as a practical matter, but the bank's attorney is earning $500/hour and looking for a lot of work to do on your case). You have no hope of winning under these circumstances, so that most bankruptcy lawyers will not file an adversary proceeding in bankruptcy court to contest the bank's alleged lien, and the lien becomes "admitted" by reason of the failure to contest the lien.

If you had the $50,000 to $100,000 to pay the lawyer to file the bankruptcy proceeding, you wouldn't have filed it. You would have probably tried to resolve your economic problem by discussion with the bank.

That one point that I have just discussed is the primary reason that bankruptcy is no good in a foreclosure context.

Adding to the main point above, you have to be aware that your attorney in bankruptcy is not free to get paid from the Debtor. By filing the bankruptcy proceeding, the Debtor's cash flow is now under the supervision and control of the Bankruptcy Court (as "cash collateral" security for the Bank - i.e., the rental income from the property was mortgaged to the Bank, and you have to get the Bank's and Court's approval to use such money to pay your lawyer, which you probably won't be able to do, EXCEPT - AND WATCH OUT FOR THIS ONE - Except if your attorney agrees in a stipulation (probably without your knowledge or understanding) that the Debtor waives all defenses to the foreclosure action. See my website page on this issue at Prenegotiation and Cash Collateral Agreements to Waive Debtors' Defenses.

Because of this practical impossibility of having the bank's lien extinguished in Bankruptcy Court and the great possibility that your attorney, accidentally or not, will sign a stipulation (probably without your knowledge or approval) that you (i.e., the Debtor) are waiving all of your defenses to the foreclosure action, you should stay away from bankruptcy like the plague.

What you need to do instead is the following (and it is not the only course of action, but probably the best in most instances):

When in a judicial foreclosure state (such as New York and Florida), you either sue the bank before the bank gets around to suing you, in what is a lot more than just a quiet title action, because the complaint should address issues of a fraudulent loan modification program, and other issues of concern, including various other predatory lending practices. This makes more sense than waiting for the bank to come after you. For one thing, it means that you owe the bank less and you may be more able to obtain a loan modification agreement as a result by commencing your own action against the bank. Remember, that in many instances the bank is saying that it won't even consider a loan modification agreement unless you are in default. So, you can get them to consider a loan modification agreement when you are not yet in default by suing the bank before going into default. In fact, for the first 2-3 months of the lawsuit make sure you do not go into default, to deprive the bank of any counterclaims against you, making it more important for the bank to resolve your lawsuit through a loan modification agreement you were unable to get when you had no lawsuit between you and the bank.

Of course, most homeowners are timid and not to up-to-date from a legal standpoint, as well as lacking money, so that they tend to wait for the bank to sue them, which means that the homeowner is more vulnerable because he/she has waited so long that he/she has become unable to pay, and is now in default, and waiting for the bank to sue, and without any spare funds to hire an attorney to defend the foreclosure action, so that this course results in a much greater risk of loss of the home. So, once again, I say that in a judicial foreclosure state it seems best at this time for the homeowner to sue the bank without waiting for the bank to sue the homeowner. This puts pressure on the bank -under the time demands created by you and your lawsuit - to come up with answers to the critical questions (such as where is the original note) before the bank wants to deal with that question.

There are various lists of the judicial foreclosure states and I am setting for someone's else's list immediately below. You have to be careful not to rely on this list because times are changing and states are changing the rules so that where you think the homeowner has no protection it now winds up (as in Nevada) that the state legislature has done a good job and created enormous protection for homeowners, administered by the Nevada courts. Anyway, here is the list (and don't rely on it without consulting an attorney):

Connecticut, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Nebraska, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Vermont, Wisconsin. You'll note that Nevada is not on the list, but perhaps you should consider that it is now on the list. The State of Washington may be a similar situation. So just be aware that times are a-changing.

In the non-judicial foreclosure states, where the bank does not go into court to foreclose, and merely gives you a letter notice of your default, and that unless you cure the default (usually by paying off the entire mortgage), the bank will sell your property. In these states, I urgently recommend that you consider bringing a (meritorious) quiet title action (with all the extra -meritorious- claims) against the bank AND THAT YOU TRY NOT TO BE IN DEFAULT DURING THE FIRST 3 MONTHS OF THE LAWSUIT, so that the bank has no counterclaims against you and cannot sell your property in reprisal.

If you have any questions, please give me a call. I may be able to help you out through an attorney practicing law in your state, who I can help you select if you don't have one already. If you have one already, you can arrange to have me speak with the attorney and discuss the foregoing.

My telephone number is 212-307-4444, and my email address is: carlpers2@gmail.com

I look forward to hearing from you.

Attorney Carl E. Person
Office 212-307-4444
Cell 917-453-9376
Fax 212-307-0247
Email carlpers2@gmail.com