Bankruptcy in the Beginning – A Dissent from my Colleagues

Posted on October 7th, 2011 by Mark Stopa

This memo written by foreclosure defense attorney Nye Lavalle is making waves around the internet, as it’s been re-posted by foreclosure defense colleagues such as Matt Weidner and Ice Legal.  The basic point of the memo is that homeowners shouldn’t rush into bankruptcy court, that they should fight their foreclosure case first (then file bankruptcy as a last resort).  I respect Nye, Ice, and Matt a lot, but I respectfully disagree with their take on this issue (hence the title of this blog – Bankruptcy in the Beginning – A Dissent from my Colleagues).     

First off, I absolutely agree with the concept of homeowners fighting their foreclosure lawsuit with a bright foreclosure defense attorney.  At this point, with all of the foreclosure fraud and the legitimate arguments about a bank’s lack of standing, there should be no excuse for any homeowner not to retain a foreclosure defense lawyer, especially with the low rates being charged nowadays. 

My point, simply, is this.  In my view, contrary to what the memo indicates, it is eminently reasonable, if not better, for many homeowners to file in the early stages of the foreclosure process, not at the end.  

What does that mean, exactly?  If you’ve been sued for foreclosure, you have to defend the foreclosure case.  Not defending is tantamount to suicide, and bankruptcy is not a substitute for foreclosure defense.  However, in addition to foreclosure defense, it often makes sense to file bankruptcy early in the foreclosure process, shortly after you’ve been sued, rather than waiting until the end of the foreclosure lawsuit.   

Why would lawyers in the same line of work have such differing opinions?  Unfortunately, many homeowners, and even some lawyers, incorrectly believe if they file bankruptcy then they automatically and contemporaneously lose their home.  Generally, it doesn’t work that way. 

Part of the confusion lies in the term “surrender.”  When homeowners file Chapter 7 bankruptcy, they often “surrender” the home, which, in layman’s terms, means they’re giving up the home as part of the bankruptcy.  The bankruptcy trustee, at that point, has the discretion to do with the home what he/she wants.  For instance, the trustee can sell the home to a third party.  However, when the home is underwater, as many homes are when homeowners file bankruptcy, the trustees often don’t sell the home – not because they can’t or don’t want to, but because there simply aren’t any buyers.  After all, who wants to buy a home when there is a mortgage on the home that exceeds the home’s value?  Hence, what often happens is that title to the home remains vested in the homeowner, even after the bankruptcy is concluded.  In other words, the homeowner typically still owns the home (subject to the mortgage) even after the bankruptcy is over.

What does that mean?  Simple.  The homeowner can fight the foreclosure lawsuit in state court, with an experienced foreclosure defense attorney, even after the bankruptcy is over.  If that sounds off to you, think of it this way – the homeowner still owns the home, even after the bankruptcy, so the bank has to win a foreclosure judgment against the homeowner to divest the homeowner of title. 

Now for the important part. 

Why would anyone choose to file bankruptcy early in the foreclosure process, rather than wait to file bankruptcy at the end of the foreclosure process, as Nye (and others) suggest?  Simple.  Suppose you file bankruptcy early on, your bankruptcy has concluded, and you’re still living in your home, defending the foreclosure lawsuit against you in state court.  If you’re able to save money while that case is pending (since you’re not making monthly mortgage payments), then you are entitled to keep that money.  It’s yours.  By way of example, if you save $500/month for 24 months after the bankruptcy is over while the foreclosure case is pending, that $12,000 is yours to keep.  There’s no risk of having to turn over that money to the bank or any other creditors – you’ve already eliminated those debts via the bankruptcy. 

Conversely, suppose you fight the foreclosure in state court, don’t file bankruptcy right away, and save money while the foreclosure lawsuit is pending.  The same 24 months pass, you save the same $500/month, and then you file bankruptcy.  In that scenario, you generally don’t get to keep that $12,000 – it’s an asset which must be turned over to the bankruptcy trustee.   (Alternatively, if you don’t file bankruptcy, lose the foreclosure, and a deficiency is entered, you’ll likely lose the $12,000 to the bank.)

In these two scenarios, the conduct was the same – bankruptcy, foreclosure defense, and saving $500/month for 24 months – but by filing the bankruptcy at the beginning of the process, you come out of it with $12,000, whereas by filing at the end, you likely lose that entire $12,000. 

By no means does this mean that everyone should file bankruptcy in the beginning of the foreclosure process.  For some clients, bankruptcy doesn’t make sense.  For others, it’s better to wait and see what happens.  However, for many clients, it absolutely makes sense to file bankruptcy at the beginning of the process. 

How do you know if you fit into this boat?  Generally, I’d say if your income is $50,000 or less, you have little in the way of assets, your house is underwater, you have significant debts (credit cards, deficiency), and you think you can save money while the foreclosure lawsuit is pending, then it makes sense to file bankruptcy early on.  Otherwise, you may find that you’ve fought your foreclosure lawsuit and saved money, but lost your foreclosure case, had to file bankruptcy, and had to give up the money you saved (or, if you don’t file bankruptcy, that you’ll lose the money you saved to the bank or other creditors).  

I realized, some time ago, that bankruptcy goes hand-in-hand with foreclosure defense.  That’s why Stopa Law Firm handles foreclosure defense and bankruptcy.  By handling both, I think we give homeowners the best of both worlds, using the tools of foreclosure defense and bankruptcy to best fit homeowners’ needs.  Often, the two work hand-in-hand, and I hope these examples illustrate that.

Mark Stopa

www.stayinmyhome.com

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Delay in Foreclosure Cases – a Double Standard?

Posted on October 7th, 2011 by Mark Stopa

I’ve been frustrated in recent weeks with what I perceive to be a double standard on the issue of delay in foreclosure cases.  Respectfully, it feels like some judges accuse homeowners and their attorneys of delay (falsely, in my view), even as they allow/enable more significant delays by the banks.

By way of example, take a look at this Order, then compare it to this Order. 

In the first Order, a Florida court denied my client’s Motion to Dismiss, without notice and without hearing, including language which I would characterize as unnecessarily curt.  I’ve made the arguments in that Motion to Dismiss many times, and often prevailed.  Here, I did not prevail and did not even get a hearing, but what really bothered me were what I perceived to be some unnecessary jabs in the Order.  

For instance, the Order criticizes me/my client for filing a motion for extension of time on April 26, “after the 20-day response period permitted by Florida Rule of Civil Procedure 1.140(a)(1) had expired.”  I found this off-base because the date this motion was filed was totally irrelevant to the Court’s adjudication of the Motion to Dismiss.  More troubling, the 20-day response period is not a deadline to “file” a response (i.e. ensure the response is filed in the court file) – the deadline is to “serve” a response (i.e. to mail out the response from my office).  As the motion/docket reflect, my client’s motion for extension was served on April 25, not April 26.  While that was 21 days after service, not 20, the response was timely because the 20th day was a Sunday, and the Florida Rules of Civil Procedure dictate that the deadline fell on the ensuing business day, which was April 25.  Hence, my client’s response was timely.

Then, the Court commented about how my client “had four months to prepare his answer,” as if to justify its ruling requiring an answer “within ten (10) days from the date of this Order.”  Candidly, this commentary was even more troubling.  Any litigator knows that when a Motion to Dismiss is filed, an Answer is not drafted until the Motion to Dismiss is adjudicated.  As such, there was no reason for me to begin drafting an Answer until this Order was entered.  After all, if the motion had been granted, there would have been no need for an Answer.  Quite simply, we did not have 4 months to draft the Answer – we had less than ten days (since it took 3-4 days for the Order to get to my office by regular mail).

Anyway, when it came to a homeowner’s motion, that was the court’s position on delay – that I should have to Answer a Complaint in a foreclosure case in less than 10 days (and receive the jabs from the Court in the Order about delay). 

Reasonable people can disagree about whether a deadline like that is fair, and that’s fine.  But my frustration when it came time for the bank/plaintiff to file a Reply to my Answer.  Instead of filing a Reply within 20 days, as required by the Florida Rules of Civil Procedure, the bank’s lawyer filed a motion for extension of time.  Incredibly, the bank’s lawyer had the audacity to ask for an additional SIXTY days (80 days total) in which to file the Reply.  Mind you, a Reply is generally quite ministerial and is far easier to draft than an Answer.  Nonetheless, the judge signed this Order granting the extension, without notice or hearing, and without any qualms whatsoever about delay. 

Apparently, at least in this case, the court found it okay for a homeowner to get less than 10 days to file an Answer (and be criticized for delay), yet a bank gets 80 days to file a Reply to that Answer (with no criticisms about delay). 

In the grand scheme of things, are these two Orders in this one particular case that big of a deal?  No.  However, in my view, it’s a good example of the type of double standard that I see happening in some courtrooms on a regular basis.  Homeowners and their lawyers are criticized for delay – even when they’re merely ensuring due process rights for homeowners – while banks can delay cases however they want with seemingly no repercussion whatsoever. 

Respectfully, this double standard should stop.  If judges are going to take the approach towards me like this judge took in the first order, then that’s fine – but they should employ that same approach towards banks.

Mark Stopa

www.stayinmyhome.com

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