The Atlanta newspaper recently published an article reporting that over 40% of homes in the metro Atlanta area are “underwater,” meaning that they are worth less than what is owed. In such a climate, homeowners faced with years of payments on real estate with no chance for even a break even sale, much less profit are deciding to simply walk away.
Abandoned homes, of course, cause neighborhood values to decline even more, continuing the downward cycle. Presumably, at some point property values will level off but it may take years, if ever, for values to rise to pre-2008 levels.
In years past, mortgage lenders would act quickly to secure their rights by initiating foreclosure proceedings against homeowners who defaulted on their loans. We have seen far less foreclosure action in the metro Atlanta area over the past few years because lenders are worried about potential liability arising from procedural irregularities (the “robo-signing” problems) and because the federal government has put a great deal of pressure on the big mortgage companies not to foreclosure during a bad recession.
Because foreclosure activity has been restricted, real estate markets in large metro areas like Atlanta have stagnated. Thousands of homes remain in limbo – payments are not being made but foreclosures are not being processed. Towards the end of 2012 and on-going, however, we are starting to see an uptick in foreclosure activity.
Demand for housing is increasing, especially for homes in the $75,000 to $150,000 range and lenders want to clear out their inventory. Foreclosure numbers are trending upwards and will likely to continue to do so. As such, it may be helpful to you to understand a bit more about how foreclosure law in Georgia works.
Foreclosure law in Georgia is governed under Georgia Code Section44 Title 14. These laws are very specific about notifications to borrowers, deficiency judgments and rights of redemption. 1
No Requirement for Court Involvement in Georgia
Georgia is considered a title theory state, which means that the mortgage lender actually holds the title to a property until such time as the borrower has paid his debt in full. Mortgages in Georgia almost always contain a power of attorney clause which says that in the event of default, the borrower (you) authorizes the lender to sell the property at public sale in the event of default. Again, no court involvement is required but lenders are required to provide notification of the foreclosure sale to the borrower.
There are two steps required for notification:
First, the lender must send you a written demand notice outlining all past due amounts allowing the borrower 10 days to pay in full. If the borrower does make this payment, the lender cannot assess any foreclosure fees.
The second step is a foreclosure schedule notification which must be published for at least four consecutive weeks in the local newspaper. In addition, the borrower must be re-notified within 15 days of the sale via certified mail.
Once the notification requirements are met, a foreclosure sale must only take place on the first Tuesday of the month at the courthouse steps of the county where the property is located. If you were to visit your local county courthouse on foreclosure Tuesday you will see mortgage company lawyers auctioning off property to the general public.
In many foreclosure sales, however, the only bidder for the property is the foreclosing mortgage company. This is because a third party purchaser or investor would have to satisfy the outstanding first mortgage before taking title. If the first mortgage debt on the property is greater than the value, a buyer would have to pay more than the property is worth to take title – obviously no one will do this, so in underwater mortgages, the lender “bids in” an offer equal to the outstanding principal balance.
If the lender “buys” the property for the outstanding first mortgage balance, that lender can pursue a deficiency claim against the borrower. However, under Georgia law (O.C.G.A. Section 44-14-161(a) the only way a lender can pursue a deficiency judgment is to file a lawsuit in Superior Court asking a judge to confirm the deficiency. This “confirmation” basically means that the superior court judge agrees that the lender’s assertion about fair market value is legitimate and that the lender’s calculations about its outstanding balance are accurate.
A confirmation judgment is a very serious problem for the borrower/former homeowner. Once this judgment is issued, the former homeowner’s assets area at risk, his bank account is subject to levy and his paycheck is subject to wage garnishment.
If have received a notice of foreclosure out any deficiency claim along with the rest of your unsecured debt., it would be wise to talk to a lawyer about your options. Ginsberg Law Offices is a bankruptcy law firm and we can counsel you about Chapter 13 - which you could use to stop the foreclosure, and Chapter 7 – which you could use to wipe.
We can also answer your questions about timing and non-bankruptcy options. We can be reached at 770-393-4985 and we are standing by to answer your questions.
Just over three years ago, I received a phone call from an old acquaintance who seemed extremely stressed out. This gentleman had previously been in sales and I had done business with him over 20 years ago. During our dealings we had discovered that we shared several mutual friends and over the years I had run into him several times on social occasions.
Now, he needed advice about some significant debt problems. His small business was failing and he owed tens of thousands of dollars to multiple creditors. After reviewing his paperwork I suggested that Chapter 7 would work and should be considered. My friend agreed but did not want to file because he felt very guilty about not paying back his debts.
For the next two and a half years, I would talk to my old friend on the phone about his debt problems. He was sued by several creditors but because he was unemployed there were no wages to garnish. He had no bank account so the judgments just sat there waiting for his financial situation to improve.
Finally, about two months ago, my friend called to say that he was ready to file. It turned out that he had a new job and his prospects were improving. I ran the means test numbers and….determined that he no longer qualified for Chapter 7 because he had too much disposable income.
My friend’s situation is, unfortunately, all too common. He did not want to file bankruptcy and avoided it successfully for over two years. His concerns were somewhat vaguely stated misgivings as opposed to a firm moral conviction. When his financial situation changed for the better, it was too late. Now, he is faced with the prospect of losing 25% of his take home pay to a wage garnishment and, given that he owes well over $200,000, he’ll be paying for a long time.
I would submit to you that my friend made a poor financial decision. I also do not think that he made a particularly good moral decision as he never articulated a thought out moral objection to filing bankruptcy (a fact he has acknowledged to me). From a purely business standpoint, my friend has subjected himself and his family to a great deal of hardship.
Everyone has heard of Donald Trump. A business tycoon, reality TV star and sometimes politician, the Donald has filed bankruptcy on corporate debt dozens of times over the past few years. Mr. Trump structured his business deals to avoid personal liability and I’m sure that the interest rates he paid on borrowed funds reflected that. I am equally certain that for every bad deal, Trump was successful on ten others and paid back his loans in full.
Trump recognizes that bankruptcy functions as a financial tool. The banks that loaned his corporations money also understood that not every deal works and that there is a risk of default. Banks are in the business of evaluating risk and charging fees and interest to reflect that risk.
When you are in financial distress you should make your decision about whether or not to file bankruptcy in the context of a business decision. When your creditor made the decision to loan you money that decision was based on business calculations and you should keep the transaction in this same arena. If you allow personal feelings of guilt to creep into your decision making you will almost certainly not make the best business decision for yourself.
As a bankruptcy attorney I help my clients evaluate their bankruptcy options as a good or not so good business choice. My friend allowed non-business considerations to influence his decision making and he will pay the consequences. Don’t you make the same mistake.
Last week, a former client called and tried to refer me a new Chapter 13 client who was facing foreclosure. While I appreciated the referral, I could not take the case because the potential client was calling from out of town at 5pm on the Monday before his house was schedule to be sold at a foreclosure sale on the courthouse steps. The potential client did not have a credit counseling certificate and because he had filed before twice, the automatic stay would not go into effect even if he did file.
During our conversation, the potential client told me that he had been negotiating with his mortgage company and that until that Friday, he was led to believe that a modification and restructuring of his loan was likely.
I hear the same story from vehicle owners who have fallen behind by two or more payments but who are talking to the customer service reps at their lenders. I remember one case involving a woman who had never had any credit problems before but was struggling to pay her car note because of a job layoff. [Read More...]
If you are facing a looming debt crisis, the idea of filing for bankruptcy may have crossed your mind. For many of our clients, it can be very difficult to take that first step of calling or emailing a bankruptcy lawyer.
In this Google “Hangout” video, Atlanta bankruptcy attorneys Jonathan Ginsberg and Susan Blum discuss a threshold question of their bankruptcy practice – how does an honest, hardworking family know that it is time to call a bankruptcy lawyer.
You can read more about filing bankruptcy in the Atlanta area, please visit our web site.
Were you aware that credit reporting agencies (Equifax, Experian and Trans Union) have assigned you a score which reflects the likelihood that you will pay a delinquent bill? This collection score 1 helps bill collectors decide where to focus their collection efforts.
Credit reporting agencies also offer “bankruptcy risk scores” which offer credit grantors a numerical rating score to determine whether a customer or potential customer is more or less likely to file bankruptcy.
- The collection score product is described in more detail here, in a brochure published by the Fair Isaac Company, the organization that also provides credit scoring algorithms for the credit reporting agencies. ↩
- My professional colleague, Long Island, New York bankruptcy lawyer Craig Robins writes more about bill collection and bankruptcy in his excellent Long Island Bankruptcyblog. Thanks to Craig for his excellent post about automated bill collection systems, which you can read here. ↩
My Bankruptcy Law Network colleague Andy Miofsky, who practices in southern Illinois, referenced a very cogent “open letter to debtors and their counsel” that was issued in 1997 by a Bankruptcy Judge who sits in a California bankruptcy court.
Judge Jaroslovsky’s open letter points out that every schedule you file is issued under penalty of perjury. Amending schedules to update information does not change the fact that the original filings were somehow false. “I have no idea where anyone got the idea that amendments can cure false schedules,” writes the judge. The debtor has an obligation to correct schedules he or she knows are false, but amendment in no way cures a false filing. Any court may properly disregard subsequent sworn statement at odds with previous sworn statements.
Specifically the judge references emergency, “two page” filings where the debtor lists one or two creditors (such as a mortgage or a vehicle lender) and swears under penalty of perjury that his schedules are accurate. In truth, the debtor (and his counsel) know that other creditors exist. The emergency filing, therefore constitutes perjury.
I think that Judge Jaroslovsky makes a valid point that most debtors and their attorneys readily use the amendment process to “fix” schedules that were knowingly inaccurate when filed. I think it is incumbent upon debtors and their counsel to work with updated and accurate information. Perhaps it would be wise for debtors to indicate “more to come” on their emergency or initial filings. However, I respectfully disagree with the judge that these amendments ought to be disallowed. [Read More...]
I ran across an interesting lottery story with an interesting bankruptcy twist. This story took place in Syracuse, New York where a down and out maintenance worker named Robert Miles bought a scratch off lottery ticket in a quick mart in 2006.
Addicted to drugs at the time, Mr. Miles took his ticket to the proprietors of the Green Ale Market to find out if he had won. The owners of the Market responded that yes, he had won $5,000. In reality, the winning ticket was worth $5 million. The store owners gave him $4,000, keeping $1,000 of the “winnings” for themselves as a fee(!). The store owners then waited six years to submit the winning $5 million ticket.
Officials at the state lottery office launched an investigation because they were suspicious that the purported winner had waited six years to come forward and that the winner owned the store where the ticket was sold.
When he read about the store owners’ stroke of luck, Mr. Miles – now sober – came forward to say he had been ripped off. The store owners ended up in jail and Mr. Miles was awarded his deserved $5 million.
The news story also reports that in 2008, Mr. Miles filed bankruptcy, “knowing that he should have been a millionaire five times over.” [Read More...]
The New York Times recently published a somewhat discouraging article about the difficulty older workers are having finding jobs following the “Great Recession.” According to the article, it takes workers over 50 almost a full year to find a new job, compared to about 20 weeks for 16 to 24 year olds.
Further, less than half of laid off workers between the ages of 55 and 64 are finding jobs at all, and less than 25% of workers over the age of 65 are finding work.
Those workers who do find jobs often do so for less money and a recent Supreme Court decision [The Supreme Court ruled in 2009 that the Title VII framework does not carry over to age-bias lawsuits. This case was Gross v. FBL Financial Services, Inc. - you can read more about it here.] which makes it more difficult for an older plaintiff to recover damages for age discrimination.
You may be asking “what do these statistics have to do with filing bankruptcy?” [Read More...]
Back in 2011, the nation was fixated on the trial of Casey Anthony, the Florida woman who was accused of killing her daughter. Ms. Anthony was, of course, acquitted of murder but her problems did not end there.
Earlier this year, Ms. Anthony filed Chapter 7 bankruptcy, claiming that she owed over $800,000 to around 80 creditors and that she has no income. Among the creditors are her defense attorney – to whom she owes $500,000, and a defamation suit of an unknown amount filed by a former babysitter 1
No doubt Ms. Anthony’s bankruptcy case will continue for months and months as she is likely to face litigation in the form of challenges to dischargeability from creditors. However, one issue has been resolved that is somewhat unusual for a bankruptcy case. [Read More...]
- A Chapter 7 debtor can and should include all creditors and potential creditors even if the exact amount of the debt is unknown or not yet determined. If the Chapter 7 discharge goes through the pending claims will be extinguished. ↩
When I first began working in the consumer bankruptcy field, co-signed loans were a common problem that I saw often. Then credit standards loosened and I rarely saw clients who were co-signers or who had co-signed loans.
Now the personally guaranteed co-signed loan is making a comeback. I can state without reservation that in both a personal and a business context, agreeing to co-sign a loan for someone with poor credit is never a good idea.
In the current market, standards for consumer credit are tight and securing credit approval can be a challenging feat for someone with mediocre or poor credit. Because of the tightening credit market and increased regulation by the federal government on lenders, people who may have been approved in years past are now needing others to co-sign in order to take out a loan. [Read More...]