Articles Posted in Homestead

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As is most legal processes, bankruptcy can be a difficult thing to maneuver. There is a lot of misinformation out there, you need to be careful to get your information from a trusted source. Here are some myths regarding bankruptcy:

Myth 1: If I file for bankruptcy, everyone will know.

Like most legal proceedings, most bankruptcy documents are public record. Since I work at a law firm in the bankruptcy department, I search these records all the time. I even have a special username and password that allows me access online. However, how many times do you think your friends, family, or co-workers search through federal court records? The truth is that while your bankruptcy documents will be public information, it is unlikely that those you know would search to find them.

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Zero Interest Rate Bankruptcy HomeThe Federal Housing Finance Agency is reviewing a proposal that would permit Judges of Chapter 13 cases to give 0.00% interest rates on FHFA loans during the duration of the five year cases. Since about 90% of all U.S. Mortgages are FHFA backed, this would allow nearly all mortgages to have zero interest rates for five years. This comes on the heels of the Federal Housing Finance Agency’s plan to allow Chapter 13 bankrupt to enter modifications and attempt to reduce their principle balances.

The proposal comes with two caveats: 1. The home must be worth less than it’s mortgage (46% of Florida homes are underwater) and 2. whether or not to grant the modified interest rate would be up to the bankruptcy judge.

White House spokeswoman Amy Brundage told the Financial Times that the administration is not considering this particular idea. Fortunately, this bill can become law without approval from the White House. Even if a President were to use their veto power, the bill could still be passed by a 2/3rds majority vote by both houses of Congress.

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Many people who are considering bankruptcy are concerned that they will be unable to find a place to live if they give up their home. Although I have addressed this concern in the past by calling housing complexes around the city to see if they will rent to those who are bankrupt, there are still people who worry. Of course there is always the thought, “Sure, it someone else who filed for bankruptcy found a place to rent, but it what if it won’t happen for me?”. It’s easy to understand this concern as almost nothing is more important than having shelter, especially if you have children.

According to the Consumer Bankruptcy Project of 2007, 70% of those who who surrender their home in bankruptcy rent thereafter. Others chose to live with relatives, purchased a different house, etc. I still keep a list for my clients of properties around Jacksonville who will rent to those who file bankruptcy. If you would like more information regarding bankruptcy or would like to get your complex added to our list, contact a Jacksonville Bankruptcy Attorney or call us at (904) 685-1200 for a free consultation.

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Bankruptcy and Underwater Home MortgagesJacksonville residents are facing some of the hardest times ever. With 46% of Florida Homes worth less than their mortgages notes, a lot of folks are considering bankruptcy.

As attorneys, it is our job to counsel our clients on what action is in their best interest. I have worked at a few different law firms and I have found that there are three schools of thought. The first thought is that the debtor should always keep the house, regardless of it’s value to debt ratio. This philosophy feels that the American Dream should prevail and that every one of us deserves to own a home. While I don’t disagree that we should all have the opportunity to own a home, this philosophy often fails because the debtor’s income is simply too low to make the house payments. Attorneys who say that they always try to save the house either make so much money that they don’t remember what it’s like to struggle or even worse, they’re just telling clients what they think the clients want to hear. Be wary of attorneys who only tell you what you want to hear. That’s a sign of a good salesman, not of a good counselor.

The next school of thought is that the house should always be surrendered if it’s under-water. This purely economical approach makes more sense than the one toting the “American Dream” and it’s quite attractive. However I don’t think it’s enough to consider only the economics of the situation. Bankruptcy attorneys tend to think numbers, because that’s what we deal in, but a wise person once said something to the effect of, “A home is more than just a house.”

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Beyonce Home Underwater, BankruptcySinger Beyonce Knowles, recently sold her Miami, Florida condo for nearly 25% of what she paid for it. According to TMZ, Beyonce bought the 190 square foot condo in 2002 for $465,000 only to sell it this November for $110,000. This is a $355,000 loss on what TMZ suggests was essentially a private restroom. This is a far greater loss than most mortgage holders face, but this also wasn’t Beyonce’s homestead, it was a luxury property. With so many homes underwater in Florida, it’s no wonder the star lost out on this investment. One things is for certain, with an income like hers, a small property like this won’t be irreplaceable.

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Florida Homestead ExemptionFor Jacksonville Bankruptcies, individuals filing bankruptcy are permitted to keep certain amounts of property pursuant to the “Florida Exemptions“. One of these pieces of property is their Homestead.

Article X § 4 of the Florida Constitution prevents a home of up to 1/2 acre within a municipality or 160 acres outside a municipality from being forced to sale by anyone except those holding liens for taxes, mortgages, mechanics and the like. This protection is one of the most liberal in the United States Bankruptcy Courts and has lead to the relocation of celebrities such as Oj Simpson who homesteaded property to avoid the loss of otherwise obtainable assets. Due to the quick relocation of people like Simpson, Florida now requires a person to own the property at least 1215 days (about 3.3 years) to exempt the entire value of equity in the home.

A new case, In re Gentry rules that even when a debtor initially states that they intend to abandon their homestead at the date of filing, they can later change their mind by filing an amendment and keep the home. Originally it was thought that the debtor’s intention on the date of filing is what controlled this issue, but the Tampa court stated that Florida Homestead protection is so widespread and liberal that the debtor can change their mind mid-bankruptcy. The question that remains unanswered is just how far into a bankruptcy a debtor would be to be “too late”.

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Strip Second Mortgage, Chapter 7 BankruptcyI admit that the title of this blog, “Jacksonville Debtors Stripping Second Mortgages with Chapter 7” is technically inaccurate. An older post addresses how lien stripping and cram-downs actually work. This blog post is going to tell you how we can get an effect similar to “lien stripping” but in a Chapter 7 case instead of a Chapter 13.

When a person files Chapter 7 bankruptcy, they have the opportunity to keep their debt on a secured loan in a Chapter 7 as long as their current on payments. This, along with the Florida Constitution allow people to keep their financed homes through a bankruptcy.

The problem most people have these days is that their home is under water and their second mortgage is no longer secured by equity. To make things easier, let’s use the following example:

Home Value Mortgage Amount Secured Amount
$110,000 1st Mortgage $120,000 $110,000
2nd Mortgage $80,000 $0

In this example, the debtor owes $120,000 + $80,000 or $200,000 on their home, but the home is now only worth $110,000. This means that the debtor is underwater $90,000. A smart debtor might choose to give up their home in a bankruptcy because it’s horribly underwater. After all, no one in their right mind would knowingly agree to pay $90,000 more than something is worth. Back to the example: If the debtor did surrender the home in bankruptcy, the first mortgage holder would get the whole $110,000 from the sale (first mortgage holders always get paid first) and the second mortgage holder would get $0.

The second mortgage holder knows that they will get zero if the debtor bankrupts as it happens all of the time. They also know that the debtor is likely to go bankrupt if they’re under water because it makes financial sense to do so. What we do is negotiate with the second mortgage holder. We tell them that they can either lose their entire interest in a bankruptcy, or we will offer to settle their lien for a paltry sum. If they accept, the bank can still write off the remaining unpaid amount on their taxes and get cash in the meantime. The debtor can then wait 90 days to avoid the transaction being classified as a “Preferential Payment” and then file a Chapter 7, reaffirming the up to date first mortgage, discharging their other unsecured debts and going on with their life.

If you think you might be a candidate for the “stripping” of a Chapter 7 mortgage contact a Jacksonville Bankruptcy Attorney or call us at (904) 685-1200 for a free consultation.

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Unfortunately, bankruptcy and foreclosure are often very related issues. Financial troubles leave many homeowners thinking they should simply walk away from their homes, especially if they owe more on the home than it is actually worth.

There may be good news on the horizon. Florida state courts currently have a mediation program that is intended to help homeowners negotiate with their mortgage lender and reach a mutually beneficial agreement. But the program has met a fair amount of criticism as not encouraging honest participation. Parties sometimes fail to show up and don’t always follow the terms of the agreement.

The program was a step in the right direction, however, and Florida’s federal courts have taken notice. And unlike Florida’s state program, the federal program has been very successful so far. It is still a relatively young program, but 90% of those who have used it have been approved for mortgage modifications.

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doctor-284x290Doctors practicing in the Jacksonville area should consider their options in bankruptcy if they’ve been found liable for medical malpractice, especially if they were not covered by insurance.

Some debts are non-dischargable, as referred to in our previous entry. However, 11 U.S.C. 523(a)(6) prevents a debtor from discharging debts arising from willful and malicious injury to another person.

In Kawaauhau v. Geiger attorneys argued about the definition of “Willful”, as it could mean an intentional act that brings about an injury or an act that brings about an intentional injury. The Supreme Court oversaw the case and unanimously found that Congress intended the statute to prevent only intentional injuries, not intentional acts that lead to injuries. This means that a doctor who commits negligence can still discharge their liability for that injury in bankruptcy.

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Bankruptcy Mediation ModificationJacksonville Bankruptcy judges are following Orlando judge’s lead in granting bankruptcy debtors motions for court ordered mediation. These motions not only require banks to attend mediation in good faith, but they also require the debtor and banks to come prepared -with all the information and documentation that is required to do a modification. Taking things further, the court will require the bank to send an agent who has actual authority to perform the modification.

Many people fail to get loan modifications because the bank either, “lost the paperwork” or the documents became outdated when the bank had time to reviewed them. A lot of these people are eventually foreclosed on and are forced to bankrupt themselves to remove the liability.

Yes, for this to work the debtor will need to file bankruptcy, but it may be just what some debtors need to force banks to modify loans and keep their homes. If you’ve been trying to modify a loan and found the banks unresponsive and/or impossible to deal with, contact a Jacksonville Bankruptcy Lawyer or call us at (904) 685-1200 for a free consultation and we’ll explore your options.

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