Portland Bankruptcy Law Group

The Benefits of Falling Home Values in Your Bankruptcy Case

posted on 4.29 @ 7:04 pm

In our last blog we talked about how the home values have fallen during this Great Recession. Particularly, we showed how, both nationally and in the Portland area, prices recovered somewhat during portions of 2009 and 2010 but have been again decreasing and, particularly in Portland in the last couple of months, at a steep rate.

There is a silver lining to this continuing bad news, if you are considering filing bankruptcy. Reduced, and still reducing, home values have many consequences in a bankruptcy case, and mostly positive ones. Here are two of the most important ones. In our next blog, we’ll give you a few more.

1. Keeping your home through a Chapter 7 case: Although most people who own a home and are being forced to consider bankruptcy have no equity in their homes, some still do have equity. If you file a Chapter 7 case and have too much equity in your home—in Oregon, more than $40,000 for a single person and more than $50,000 for a couple—then you could risk losing that home to your creditors. But with the ongoing downward slide in values, homes that just a year or two were worth too much, now may well no longer be.

Another twist of this: Although for bankruptcy purposes your home’s property value is determined as of the day your case is filed, the general downward direction in home prices means that if your home value is close to the edge—maybe a bit more equity than the permitted homestead exemption—the Chapter 7 trustee is going to be less inclined to be interested in your house. That’s because by the time the property would actually be sold, it will likely be worth less, and perhaps less than your homestead exemption. The trustee generally cannot sell your house if, after paying you the homestead exemption, there would be no money left for your unsecured creditors.

But careful: when eventually the prices DO start going up, the opposite happens—the trustee will be MORE inclined to go after real estate that is on the edge of having equity beyond the homestead exemption.

2. Paying less or even nothing to your unsecured creditors in a Chapter 13 case: In a Chapter 13 payment Plan, one significant factor determining how much you must pay to your unsecured creditors is the amount of equity in all your assets—including your home—beyond the applicable exemptions. One major reason people file Chapter 13 instead of Chapter 7 is to protect such “non-exempt assets.” A reduction in home value means that you may well be permitted to pay your unsecured creditors that much less.

For example, if a year ago you and your spouse owned a home then worth $250,000, with a mortgage of $180,000, that home had a gross equity of $70,000. That is $20,000 more than your $50,000 homestead exemption, meaning that you would have to pay at least that much to your unsecured creditors in your Chapter 13 Plan. But if the home’s value fell by the average Portland rate of 7.8%, your home would now be worth about $19,500 less, or about $230,500. Let’s assume that the debt did not go down at all (if you miss just one payment or make a few payments late, the extra fees and/or interest will usually more than make up for any of the slow progress on the principal balance). That means that the home would be only $500 over the homestead exemption instead of $20,000 over— the current home value of $230,500 minus $180,000 debt = $50,500 in equity, minus $50,000 exemption = $500. All other things being equal, that Chapter 13 plan would cost you about $20,000 less to pay off.

Please visit us in two weeks for our next blog on more advantages of lower home values in bankruptcy. We’ll talk about judgment lien avoidance and “stripping” second mortgages.

Home Values in the Midst of the Dreaded Double-Dip

posted on 4.15 @ 4:48 pm

The big question in residential real estate for the last year or two has been when will home values hit bottom and start heading back up. The general assumption had been that at that point many potential home buyers would jump into the market and this would start a healthy climb in values. They have been waiting on the sidelines not wanting to buy a house that would continue depreciating. But when prices would stabilize and start climbing back up, they would want to get in on the “ground floor” of the next period of price increases.

But unemployment has remained persistently high, gasoline prices have skyrocketed, and food and other commodity prices have edged up significantly. All of these diminish the buying power of potential home buyers. Add in international tensions in North Africa and the Middle East, as well as the triple earthquake/tsunami/nuclear disasters in Japan, plus the intense political squabbling in Washington about the federal budget. So, not surprisingly, consumer confidence took a major hit in March. After inching up for five straight previous months, it fell so much that it erased those earlier gains. So consumers have neither the money nor the confidence to get into the housing market.

As a result, after a number of months when it seemed that home values were starting to stabilize, they’ve started falling more sharply again.

Nationally, the Case-Shiller Home Price Index, which measures prices in 20 metropolitan areas, was down 3.1 % from January 2010 to January 2011. But in the prior two months, the prices were down 1.0% EACH MONTH, a much steeper decline, which would equates to a 12% decline annually.

Portland was much worse. The January 2010 to January 2011 reduction was 7.8%, more than two and a half times worse than the 20-metro average. And the price decline from November to December 2010 was 1.2%–equating to 14.4% annually. Then accelerating further to a decline of 1.8% from December to January 2011—which would be a depressing 21.6% annually.

As a result, home prices in Portland have hit a new low during this recession. And there is no indication that this downward direction will change soon.

So is this a “double-dip,” where prices go back down after starting on their way up earlier?

Nationally, yes. The Case-Shiller index fell from mid-2006 until the 2^nd quarter of 2009, when it started a slow increase that persisted most of the rest of that year, only to turn down again in early 2010, bumping up again in mid-2010, only to head downhill ever since. So, yes, on the national front, we’re in a double- or even triple-dip in home prices.

In Oregon, also yes. After hitting top prices in mid-2007, a year later than nationally, our prices also first hit bottom in the first half of 2009, and have largely followed the direction and timing of national price increases and decreases since then, with the recent even sharper price declines recited above. The result is that in Oregon, worse than nationally, we have now gone lower than the short-lived trough we hit in 2009. So by any definition of a “double-dip,” we are unfortunately definitely in one now. The scary result of the recent downturns coming AFTER modest gains is that even when home values do start inching back up next time, there will be no confidence that it HAS turned the corner. This will make turning that corner all the harder.

Foreclosure Cancellations in Oregon and Elsewhere

posted on 4.02 @ 9:47 pm

In our last blog we talked about MERS—the Mortgage Electronic Registration Systems, Inc.—and the problems it has caused for lenders and their foreclosures during the past several months. We ended that blog by telling you that we would update you in our next blog about the recent cancellations of many foreclosures in Oregon.

We’ll give you a few very recent facts about Oregon foreclosures. And then tell you what we think those facts mean.

Fact: In the last few months, a number of different federal judges in Oregon have stopped foreclosures involving MERS, with three of those decisions coming rapid-fire within a short period in February.

Fact: By mid-March, many hundreds of non-judicial foreclosures (those not involving a lawsuit) all over Oregon had been cancelled by lenders. By way of just one example, ReconTrust, which administers foreclosures for Bank of America and its various subsidiaries, went from processing hundreds of foreclosures at a time to no more than twelve, throughout the entire state of Oregon! Populous counties like Multnomah and Clackamas went from many dozens of foreclosures pending to only two apiece!

Fact: But within a matter of just two more weeks, from mid- to late-March, the processing of foreclosures resumed in a flurry. Using ReconTrust again as just one example, during just the last few days of March, it started MORE THAN 800 home foreclosures! As of the time we write this, Multnomah County went from two pending foreclosures to 142 of them.

Fact: Still using ReconTrust as an example, 140 of those Multnomah County foreclosures are all scheduled to go to foreclosure sale on one of only four days. That’s at least 30 foreclosures at a time happening supposedly all at 10:00 A.M. at the Multnomah County Courthouse entrance on each one of those four days.

So what does all this mean? What it clearly does NOT mean is what a Bank of America spokesperson said at the time of the mass cancelations: that they were being nice and wanting to “ensure that homeowners nearing a foreclosure sale have exhausted other opportunities, including loan modifications and short sales,” as an Oregonian article a month ago put it. Those “other opportunities” take months to work through. Instead, the wholesale cancellation of virtually all of ReconTrust’s foreclosures—a tremendously expensive decision—was a clear acknowledgement by the lenders that these very recent court decisions against MERS called into question all their ongoing foreclosures.

In the last few weeks and months the mortgage lenders have undoubtedly invested a huge amount of money on large law firms to figure out how to best get out of the corner they have painted themselves into. Because the judicial decisions against them in Oregon focus primarily on non-judicial foreclosures, there was a question whether lenders would switch to judicial foreclosures, but that does not seem to be happening. Instead part of their tactic now, we believe, is to flood the system with non-judicial foreclosures, getting as many of them over with as quickly as possible. Only a very limited number of homeowners have the willingness and capacity to oppose them, even just to take the first step of talking with an attorney about their legal options. Even though the law has been turning against the banks, they are trying to skip past the law by assuming, probably accurately, that most homeowners will not challenge them. The big open question is how they will act towards those homeowners that do. Will they be more AGGRESSIVE in order to discourage fair settlements? Or instead will they be more FLEXIBLE on mortgage modifications, short sales, bankruptcies and such because they are legally on the defensive and need to process their troubled mortgages more efficiently? We shall see.

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The Benefits of Falling Home Values in Your Bankruptcy Case

Home Values in the Midst of the Dreaded Double-Dip

Foreclosure Cancellations in Oregon and Elsewhere