Category Archives: Property

Fees Are Where The Profits Are

I read a great article in the June 26 New York Times business section titled “How Housing’s New Players Spiraled into Banks’ Old Mistakes.”

The article focused on a mortgage servicer named Nationstar. Nationstar is a private equity mortgage servicer and mortgage originator based in Dallas, Texas. If you are a homeowner and you pay your mortgage payments through a servicer (and most of you do!), you must read this article.

The mortgage payment collection business and its spin-offs are an endless opportunity for fees to be charged to the homeowner. Like banks, for mortgage servicers, fees are where the profits are.

They Were Under Oath & On Reality TV! Part 2

Abigale Lee Miller is the central presence on Lifetime channel’s “Dance Moms,” reality television surrounding the Abby Lee Dance Company, a painful drama of driven pre-teen competitors and hovering mothers and Miller – our next reality star whose bankruptcy truthfulness was found wanting.

Abby Lee Miller’s rise in celebrity status began seven months after filing a Chapter 11 bankruptcy reorganization in December 2010. This court-supervised repayment plan obligated her to truthfully tell the court, every month, what her gross income was, what her expenses were, and deposit all monies earned in a traceable account. She was to make a set payment for a number of years on this plan. But Miller’s fame and fortune caught up.

When Miller’s actual finances were discovered in early 2013, as a result of a bankruptcy judge channel-surfing and spotting her show well before any investigation, she offered to amend her Chapter 11 plan and pay off all if her debts in full. The judge wanted an investigation, as $288,000 in income was disclosed at the February 1, 2013 hearing (link opens a PDF, see page 12) without any explanation. According to the indictment, Miller told the court that income from the reality television show was “volatile” and denied that any contracts for the show existed (link opens a PDF, see #23 on page 9).

under oath

Miller really doubled down. Within less than a month after that hearing before the bankruptcy judge, and freshly admonished, she – according to Reuters.com and the indictment – sent an email to a joint partner and her accountant with a subject field stating “LET’S MAKE MONEY AND KEEP ME OUT OF JAIL.” To be clearer, she then told them that they needed to avoid raising any “red flags” and instructed both of them: “DON’T PUT CASH IN THE BANK!!!!” The end result was more investigation, culminating in the October 13, 2015 indictment for 20-counts of bankruptcy fraud for concealing income.

This is an indictment, not in a conviction. But to you or me, if that’s her email, that is evidence of criminal intent.

What did Joe, Teresa and allegedly Abby fail to comprehend? Their core failure was to take not take seriously the obligation to disclose to the court what they owned. No lawyer can correct dishonesty.

The concept of what a person contemplating bankruptcy actually owns is technical and complicated. Being vague and being downright dishonest are recipes for disaster, as the above television stars have realized.

It is natural to resent the fact that what you have worked hard to gain could be jeopardized because of collapsed finances. Our advice is not to let that resentment lead you astray when considering, and filing, bankruptcy.

Sources: IMDB.com, Reuters.com, The United States District Court for the Western District of Pennsylvania (opens a PDF), WTAE.com

They Were Under Oath & On Reality TV! Part 1

Over the last couple of years, there have been two high-profile examples of reality television stars failing to fully reveal all of their property and possessions during bankruptcy proceedings.

These two examples provide insight into the effects of untruthfulness – where the intersection of facts and bankruptcy proceedings collide with fame and fortune.

Lying under oath has consequences for all – the rich and famous, the middle class and for the down and out. Anyone lying during their bankruptcy proceedings will get caught, and can pay a high price. Jail time is the scary reality!under oath

Joe and Teresa Giudice are our first case study. Their lives were detailed in a Bravo reality show called “Real Housewives of New Jersey,” which premiered in May 2009. That high profile and visible television presence spelled doom for them.

The Giudices filed a chapter 7 bankruptcy in October 2009, claiming that their income was not sufficient to pay their debts. That may or may not have been true at the time. But, their disclosure filed under oath to the New Jersey bankruptcy court in 2009 was definitely not true. Much of that falsehood was created by ‘leaving off’ personal property. Like ATVs, go-karts, a rental property (see page 17 on this linked U.S Department of Justice indictment), a cement mixer (who hides a cement mixer?).

Ultimately, in July of 2013, Joe and Teresa Giudice were federally indicted on 39 counts, including lying on their bankruptcy disclosures, and other counts stretching back over ten years, for fraudulently obtaining secured loans against properties, and tax evasion. In some cases, they had created false documents, like pay stubs for jobs that didn’t exist and tax returns that were never filed and were largely fiction. In other cases, they moved income around to shell companies.

The evidence was overwhelming. On October 14, 2014, after Teresa had previously plead guilty to four counts and Joe to five counts of bankruptcy and mail fraud, Teresa was sentenced to fifteen months in federal prison, with her husband Joe facing forty-one months.

Stay tuned for part two, with Abigale Lee Miller of Dance Moms.

Sources: Justice.gov, NYTimes.com, & this NYTimes.com.

Saving Pennies, Losing Dollars: Tales of Bankruptcy Filings Without Legal Advice

Mounting bills, calls from creditors and declining funds leads to a maddening level of desperation. People often feel that they are too broke to hire an attorney to file their bankruptcy. You are between a rock and a hard place, you need to get rid of the stress of your debts and it seems like the best thing to do is to file a bankruptcy on your own.

You are not alone in this thought. Between 25% and 33% of all bankruptcies filed in Arizona are filed by people who have either attempted to prepare their own bankruptcy documents or hired a paralegal service to prepare them.

Many of those people end up having an unpleasant and expensive experience with the bankruptcy court. Many will have assets confiscated. Many will lose the only decent sum of money they receive all year – their tax returns. Yes, the bankruptcy court will take your tax returns! This is why you need to plan for a bankruptcy with an attorney.

Here’s an example what can happen if you choose to file a bankruptcy without the assistance of an attorney.

I met with a woman about a year ago who was unaware that her tax refund, which was substantial, would be confiscated by the Bankruptcy Court Trustee. She ending up losing nearly $8,000 in her tax return money that she desperately needed to the bankruptcy system. Because she didn’t have an attorney at her side. That money could have been used to purchase a vehicle, pay for an attorney, and help with utilities. With careful disclosure of that spending, she would have survived her bankruptcy without losing other assets. She thought she had to be in a rush to file the bankruptcy, and didn’t get the advice she needed to plan accordingly.

This can be avoided with experienced representation. 

I stress that this planning must be done appropriately, by competent attorneys with an intimate knowledge of what is allowable in pre-bankruptcy planning and what is not. Pre-bankruptcy planning is intricate and can take time. But it is extremely valuable.

Another classic scenario involves a person who has been sued, and is consequently highly motivated to file a bankruptcy before a wage garnishment starts, but may also have a large tax refund coming, or perhaps a reimbursement for some work expense, or a personal injury claim, or an inheritance.

Again, they rush in with no legal advice, get a paralegal service to type up what they think they need to file, and then lose assets unnecessarily.

Recently, my office assisted a bankruptcy client with pre-bankruptcy planning on how to purchase a home for their family by using a personal injury recovery as a down payment. We were able to help them to keep that home.

Saving pennies can cost significant dollars. The main ally you have is an experienced attorney who can offer sound advice and good knowledge. Document preparers, and, sadly, lawyers who charge cut rates and who will only provide cut-rate legal advice, are not in your best interest.

Don’t be penny-wise and dollar foolish!

If you have questions about your bankruptcy eligibility, or ways to avoid bankruptcy through other means, schedule a free initial consultation with Daniel Rylander by calling (520) 299-4922. Upon hire, we provide sustained support throughout your bankruptcy process.

Flagstar Bank “Benched” By Consumer Financial Protection Bureau

On September 29, 2014, the Consumer Financial Protection Bureau (CFPB) took serious action against Flagstar Bank, a financial institution based in Michigan, for severe violations of CFPB’s mortgage servicing rules. Flagstar at one point in 2011 had 13,000 applications from mortgage borrowers seeking help with their monthly payments through modifications or loss mitigation. Flagstar had 25, that’s right, twenty-five employees and a company in India assigned to those applications.

Flagstar has been significantly sanctioned for its egregious failures.
For more information, see the full article here.

“The Tale of a House, and an Entire Market”

Image courtesy commons.wikimedia.org

Image courtesy commons.wikimedia.org

On January 25, 2014, The New York Times published a great story on how complicated the mortgage industry has been by focusing on one house in Maryland and following its significant price fluctuations between 1990 and 2013. It helps clarify some of the craziness, that – while still confusing – brings to light the nuances of the market, the gambles people took and the scoundrels who took advantage.

These same things have happened to our clients. Forewarned is forearmed. Never trust, or give money to, people who say they can work on your behalf in mortgage negotiations without talking to your real estate agent, insurance broker or attorney.

Read the story here.

Bankruptcy & HOAs

Have you ever watched the 1990s sci-fi television show X-Files? In 1999, they produced an episode (Arcadia) about a monster wreaking havoc on individuals living in a housing community that had a “community association” with very strict regulations. The community association controlled every aspect of their residents’ domestic lives. The rules dictated whether or not home owners could, for example, shoot some hoops in their driveway or have a light bulb in an outside light fixture a certain color. Don’t even ask if the house could be painted purple! If the residents didn’t comply with every last aspect defined by the HOA’s rules and regulations, their fines were paid with their lives!

Of course, that was an episode of science fiction, but it was modeled after some of the strict contractual rules homeowners associations apply to a homeowner in such a community.

In real life, homeowners associations can serve useful purposes. They help maintain property values of the community by collecting monthly assessments from home owners living in the subdivision, and use those funds to maintain common areas. They aren’t real monsters; but, they do have real power.

They, for example, have the power to fine homeowners. And fine they do. Do you park your car in the front yard? You will be getting a fine. Did you paint your fence an “unapproved color”?  At best they fine you and will require you, at your expense, to repaint it. At worst, they repaint it for you and then bill you. Did you neglect to pull monsoon weeds from the yard? You’ll be getting a fine. Did you fail to pay the assessment? You will owe the assessment, and a fine for not paying it.

This bad situation can escalate rapidly. In our practice we routinely see homeowners who, in response to financial pressures, neglect to pay the monthly, quarterly, or semi-annual or annual assessments. Be aware that, in that situation, the homeowners associations do regularly employ attorneys to write demand letters to the homeowner. When that happens, that bill for, say $150 in late assessments just doubled or tripled, as the law firm will bill the homeowner for the cost of writing the demand letter.

We regularly see homeowners that have actually been sued by their own homeowners association, and most of the time, the bulk of the debt being sued for is for fines, attorneys fees, recording fees, court filing fees, etc. The actual missed payments constitute only part, and in most cases, a relatively small part, of the total fee. And the courts back them!

This is all legal under Arizona law.

If you are a homeowner with financial stress, our advice is not to stop paying the homeowners association whatever other pressures are on you. If they request that you pull your weeds, pull them or get someone to help you pull them. If you want to talk to the folks in charge, go to the homeowners’ association board meeting.

Homeowners Associations will usually send a notice of noncompliance before they fine, so act when you get that notice. Don’t wait.

Don’t wait! And, to reiterate, don’t wait to take care of the fine(s) or the remedial actions the HOA requires.

Don’t sleep on this type of creditor. If you are a home buyer, make sure that you know whether or not the property you are buying is subject to a homeowners’ association lien, and plan accordingly.

Even if you are planning on short selling your home, or simply moving out and letting the mortgage company foreclose, Do Not Stop Paying the Homeowners Association! Until the property is actually and legally no longer owned by a homeowner, the assessments, and potential fines, will continue. And you will be liable for all of those assessments, fines and fees.

Positive Proposed Changes to Arizona Bankruptcy Rules/Statutes

One of the fundamental issues facing Arizonans forced by unfortunate circumstances to consider bankruptcy are the interactions of what are called “personal property exemptions” with their possessions. In its simplest description, what do Arizonans’ forced to file bankruptcy get to keep and what don’t they get to keep?

This question is asked by our clients on a regular basis. The answers are complicated and in some instances, frankly ridiculous. Arizona State Representative Eddie Farnsworth, District 12 (R) Gilbert, is proposing to update some of the Arizona statutes that affect Debtors seeking bankruptcy protection through House Bill 2325. This bill is a great start to providing a more level playing field for Arizonans facing financial difficulty.

First, what is an exemption? An exemption is a state statute that excludes certain categories of personal property from being taken and sold to pay creditors. Links to the current Arizona personal property exemptions that Rep. Farnsworth is seeking to amend are: (click on the titles) Household furniture/appliances (A.R.S. 33-1123), Personal items (A.R.S. 33-1125), Money benefits or proceeds (A.R.S. 33-1126), Tools of the trade (A.R.S. 33-1130).

Even a cursory review of them will cause some head scratching. For example, the Arizona homestead (house, mobile home, condo, etc., where one resides) exemption, (A.R.S. 33-1101) is $150,000. But the vehicle exemption  (A.R.S. 33-1125(8)) is only $5,000. There is an exemption for a typewriter (A.R.S. 33-1125 (7)). But there is no exemption for a computer. There is an exemption for a 401(k) plan. But  there is no exemption for a small business’ list of customers.

For individuals forced to use bankruptcy (Debtors) to keep creditors from taking needed income, these exemptions matter. The reason they matter is that, whether the Debtors must use Chapter 7 (liquidation bankruptcy), or Chapter 13 (reorganization bankruptcy), what is exempt and what isn’t exempt determines what you pay for or lose in the bankruptcy.

In the case of reorganization bankruptcy (Chapter 13), what isn’t exempt partially determines what the Debtor’s creditors get paid. This can increase the monthly payment amount a Debtor pays over several years, regardless of actual income. The Debtor using liquidation bankruptcy (Chapter 7) might have to give up personal property to a bankruptcy trustee so the trustee can sell it. Some trustees will require the Debtor to buy back their own property.

This state of affairs where the personal property can be seized to pay debts makes sense when individuals owing lawful debts own substantial assets that can be liquidated. But most Debtors in Arizona who have to deal with this issue are dealing with relatively low value assets. This office has handled many small asset liquidation bankruptcies for Debtors, and in the vast majority of those cases, the asset is excess equity in the vehicle our clients need to get to work. Or, it is their wedding and engagement bands. And, the trustees are generally collecting less than $5,000, before auction costs and trustee’s fees.

Does this seem a little unfair?

A formerly well off Debtor with a car valued at private party sale at $10,000, and using the current exemption, will likely have to pay the trustee at least $4,000 to keep their vehicle. A Debtor with a $2,000 wedding band will have to pay the trustee at least $500 to keep it. In fact, these low exemptions are actually a problem for liquidating trustees. They know that a retail value of a wedding ring is not what it will sell for. The trustee solution, is once again, to burden the Debtor with the cost of a written appraisal of value. This cost may be worth it for the Debtor, but the information about its ‘real sale value’ may be frankly depressing.

In our experience, the disclosure of this fact – that personal property can be confiscated or Debtors can be forced to pay for it – leads Debtors to often conclude that the solution is filing their case and “leaving off” some of their personal property. Sounds like a simple fix, right?

Wrong.

Under the federal law that controls bankruptcy, “leaving information off” is a federal crime. It is perjury. Our office will not and cannot counsel our Debtors to perjure themselves. So, we often counsel our clients to sell property. Again, a depressing burden heaped on already financially stressed individuals.

Considering that the exemptions were created to protect the personal property of Debtors from creditors with lawful debts, why are they so uneven and arbitrary? The reason is that our Arizona state exemptions are outdated.  In 2004, the homestead exemption and the vehicle exemption was increased. But the main personal property exemptions – Household furniture/appliances (A.R.S. 33-1123) and Personal items (A.R.S. 33-1125) – have been in place since 1976! They have not kept up with the times.

Now, Arizonans – by contacting their state representatives – have an opportunity to change this.

State Representative Eddie Farnsworth of Gilbert has proposed House Bill 2325. This bill is a great start to providing a more level playing field for Arizonans facing financial difficulty. Please read it. It will take less than 5 minutes. Most notably, it increases the dollar amount of exempt personal property values, and updates the statutes to modern times.

This bill will not only help Debtors facing bankruptcy, but Debtors with judgments against them.  Imagine facing a sheriff’s auction of your one valuable item that is free and clear, a pickup truck, and the auction of your work tools. This can happen under the current law.

Arizona House Bill 2325 will reduce that threat. These small changes in dollar amounts on state statutes that are obscure, but operate to tilt the bankruptcy and collections playing field in favor of humiliating loss of assets, will make a big difference in the bankruptcy outcomes of stressed Arizonans. It will also reduce the desire on the part of honest but unfortunate state residents to commit bankruptcy perjury because they are worried about their wife’s wedding ring, or their tool box, or their customer list, or their armoire that came down from family over one hundred years ago.

This office supports House Bill 2325. Contact Representative Farnsworth’s office at (602) 926-5735  or by email at efarnsworth@azleg.gov. Contact your own state senator or representative and tell them you would recommend they support Arizona House Bill 2325.  The time is now to make this contact.  This bill is in committee (judiciary – contact the members), and it will take support, and continued support, to make it law.

Find what District you are in by clicking here. Click here to find your Arizona State Legislators and their contact information. Please do contact them with your support of this bill and the much needed changes it can help to provide. Read the Arizona Daily Star article here.

– Daniel J. Rylander