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socrateaser, Attorney
Category: Bankruptcy Law
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Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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My husband and I had to file for 7BK two years ago. Our attny

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My husband and I had to file for 7BK two years ago. Our attny advised us not to take the homestead exemption because our house was deeply underwater. We always wanted to keep our home but never thought we'd get a loan mod we could afford.The trustee put it up for short sale. After 2 years he has a contract. We are told by the trustees realtor that the closing is Monday. Ocwen tells us they are still waiting on a BPO and they won't close w/o it. Very recently we got a pre-approved loan modification that we can afford. We did not apply for this modification - it is being offered as part of the Department of Justices Settlement with Bank of America based on Predatory Lending. Ocwen calls it a "blind modification". They say by accepting the mod it cancels the SS. I spoke with the trustee and he talked about those involved in the sell and how they are due the closing b/c of their hard work (whilst we lose our home). He advised me to contact our attny but he isn't responding. What consequences might we face if we accept the mod? We were discharged but our case remains open due to the SS. What options do you suggest?
Submitted: 1 year ago.
Category: Bankruptcy Law
Expert:  Phillips Esq. replied 1 year ago.
Thank you for giving me the opportunity to assist you. Kindly use CONTINUE or REPLY button to ask for clarification or follow-up questions.

Question: My husband and I had to file for 7BK two years ago. Our attny advised us not to take the homestead exemption because our house was deeply underwater. We always wanted to keep our home but never thought we'd get a loan mod we could afford.The trustee put it up for short sale. After 2 years he has a contract. We are told by the trustees realtor that the closing is Monday. Ocwen tells us they are still waiting on a BPO and they won't close w/o it. Very recently we got a pre-approved loan modification that we can afford. We did not apply for this modification - it is being offered as part of the Department of Justices Settlement with Bank of America based on Predatory Lending. Ocwen calls it a "blind modification". They say by accepting the mod it cancels the SS. I spoke with the trustee and he talked about those involved in the sell and how they are due the closing b/c of their hard work (whilst we lose our home). He advised me to contact our attny but he isn't responding. What consequences might we face if we accept the mod? We were discharged but our case remains open due to the SS. What options do you suggest?

Response: First and foremost, there is nothing wrong with the advice that you received from your bankruptcy Attorney. You CANNOT take a homestead exemption in your bankruptcy case when there is no equity in your home. Exemption is taken for the equity in the home. When there is no equity, you cannot take the exemption. So, regardless of what your bankruptcy Attorney advised, you would not have taken the exemption in the first place when your house is underwater.


Second, you should of course take the modification if the modification means that you can now afford the payments. Otherwise, you should let the short-sale proceed and just walk away from the home and find a cheaper place to live.


Your home is till underwater. So, the Trustee cannot take the home. The Trustee is there to make his commission of the short-sale and does not seem to care whether you lose your home or save it. If the short-sale falls through, you should not be charged for the expenses. However, the Trustee may try to squeeze money out of you in order to close your bankruptcy case. Unfortunately, you would not know what the expense would be until the Trustee has filed request for compensation with the Court. Once filed, you may dispute it or try to work out arrangement with the Trustee.

Customer: replied 1 year ago.

Thank you for your response PhillipsEsq. The trustee has a purchaser who is willing to pay his "carveout fee". We owed our HOA about $40,000. before our discharge. The trustee negotiated with our HOA and the purchaser is paying $18,000.

We can certainly afford the modification however, I am concerned if we mess up the ss, by accepting the mod, the trustee may retaliate and have our case dismissed. Although it has been discharged it remains open due to the trustee's ss.

I look forward to your response.

Expert:  Phillips Esq. replied 1 year ago.

Thank you for your response PhillipsEsq. The trustee has a purchaser who is willing to pay his "carveout fee". We owed our HOA about $40,000. before our discharge. The trustee negotiated with our HOA and the purchaser is paying $18,000.

We can certainly afford the modification however, I am concerned if we mess up the ss, by accepting the mod, the trustee may retaliate and have our case dismissed. Although it has been discharged it remains open due to the trustee's ss.

I look forward to your response.



Response: As you may be aware, you are not responsible for HOA fees that accrued up to the date you filed for bankruptcy protection. See 11 U.S.C. Section 523(a)(16). Anything after that, you would be responsible for. What you would need to do is to find out from the Trustee what his compensation would be if you were to accept the loan modification. You also need to find out what the HOA can accept in HOA fees that have accrued since the filing of your bankruptcy case. Once you get the information, you can make a decision to see if you can still go through with the loan modification or just let the short-sale proceed.

Customer: replied 1 year ago.

Thank you again. The Trustee's carveout fee is $35,000. This is on top of the $18,000. he is having the purchaser pay to the HOA. Couldn't it be misconstrued as 'bribing' the Trustee to offer him compensation?! If we accept the loan modification - although we have been discharged the case is still open - can he have our case dismissed?

PS we have paid our HOA fees since filing.

Expert:  Phillips Esq. replied 1 year ago.

Thank you again. The Trustee's carveout fee is $35,000. This is on top of the $18,000. he is having the purchaser pay to the HOA. Couldn't it be misconstrued as 'bribing' the Trustee to offer him compensation?!




Response 1: Obviously, you cannot offer the Trustee $35,000.00 in order to cooperate with you. That would be bribery and quite illegal. The Trustee cannot take that fee from you. Secondly, you cannot afford the fee. What I was thinking about as far is Trustee’s fee is the Trustee’s expense on the short-sale such as out of pocket expenses paid for appraisal, title examination and such.




If we accept the loan modification - although we have been discharged the case is still open - can he have our case dismissed?




Response 2
: He may try to get the Court to revoke the Discharge, but the case CANNOT BE DISMISSED at this time because you have already obtained a Discharge Order from the Court. However, I do not see how he can get your case revoked when all you did was to accept a loan modification to save your home.


If you really are in a position to save your home, you should do so and let the bankruptcy Trustee file any objection to your case. Then the bankruptcy Trustee would have to explain why he needs to be paid $35,000.00. I do not see the Court agreeing with the Trustee on this one. The Trustee's fee here is related to his commission from the sale of your property. If your property is no longer going to be sold because the lender has decided to work with you, then the Trustee should not and must not expect for you to pay him $35,000.00 in order to cooperate with you. That would be quite an outrage if the Court were to side with him. However, I do not see this happening.




PS we have paid our HOA fees since filing.


Response 3: If you have paid your HOA fees since the bankruptcy filing, then you do not owe the HOA anything. If the HOA tried to collect the fees that had accrued before your bankruptcy filing, the HOA would be in violation of Discharge Injunction and you would then need to file Complaint with the Bankruptcy Court at that time for sanctions against the HOA. See 11 U.S.C. Section 524.



.
http://doney.net/bkcode/11usc0524.htm






Customer: replied 1 year ago.
Relist: Inaccurate answer.
i need a bankruptcy specialist.
Customer: replied 1 year ago.

You are wrong about the HOA fees. If we keep the house HOA fees are non-dischargable. If we had taken your advise to accept the mortgage mod we would be back on the hook for $40,000+. Yikes.

Expert:  Phillips Esq. replied 1 year ago.

You are wrong about the HOA fees. If we keep the house HOA fees are non-dischargable. If we had taken your advise to accept the mortgage mod we would be back on the hook for $40,000+. Yikes.

Response: With all due respect, you are quite mistaken. Pursuant to 11 U.S.C. Section 523(a)(16) your HOA fees that accrued up to the day you filed for bankruptcy protection have been discharged in your bankruptcy. You can pay the fees if you want to. However, you no longer have legal obligation for those past due fees. I stand by my previous response on this. You can print my response out and give it to any bankruptcy Attorney or even a Bankruptcy Judge for that matter. In any event, whether you take the loan modification or not is your call.


For the record and for your information, I am a practicing Bankruptcy Attorney.

Customer: replied 1 year ago.

For future readers of this thread

PhillipsEsq, the following is what my attorney tells me as well as everything I look up on the internet. I am not making this response to prove I am right, I just don't want anyone in my situation to make what could be an ultimate costly mistake. On the contrary ... I wish YOU were right.

The following is from NOLO



If You Keep Your Home, You Must Pay HOA Dues


If you are going to keep the property, you will have to pay the past due HOA dues. This requirement is no different than paying any past due mortgage payments as a condition of keeping your property. You must also pay all of the future dues and assessments for as long as you own the property.


Your HOA articles are a “covenant running with the land,” which means that it is sort of like a zoning regulation. Everybody in your home owner’s association has to obey the rules. For example, if you buy a piece of property that is zoned only for single family residences, you will be violating the zoning ordinance if you suddenly turn your house into a gas station.


In your case, you bought your home subject to the requirement that you would abide by the terms and conditions contained in the HOA articles. This includes paying all dues and special assessments.


If You Don’t Keep Your Home


Things will turn out somewhat different if you plan to walk away from the property, either by selling it or allowing a foreclosure sale to occur. Here’s what happens to past and future dues:



  • You may be able to discharge your past HOA dues in your bankruptcy. (Learn more about the bankruptcy discharge.)

  • However, the bankruptcy law specifically provides that HOA dues that accrue after you file for bankruptcy will not be discharged. So, if you continue to own the property after your bankruptcy filing, you will still be liable for ongoing HOA dues. If you don’t pay the dues, the homeowner’s association can collect by: suing you for the money or even foreclosing on your property.


Leon Bayer is a Los Angeles bankruptcy attorney. He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy. The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo. By answering a question on this blog, Mr. Bayer does not become your lawyer.


Expert:  socrateaser replied 1 year ago.
Hello,

Different contributor here. Please permit me to assist.

The information from Nolo that you received is based upon California law, as interpreted by the attorney who wrote the article, and is founded (presumably) on the case of In re Foster, 435 B.R. 650 (9th Cir. 2010), decided by the U.S. 9th Circuit Court of Appeals, which governs bankruptcy case law throughout most of the Western USA

However, South Carolina (apparently where your property is located) is controlled by the U.S. 4th Circuit Court of Appeals. Consequently, while the Foster case is persuasive authority, it is not binding law for South Carolina bankruptcy courts. In fact, no bankruptcy court controlling South Carolina jurisdiction has decided the issue of dischargeability under Bankr. Code 523(a)(16). However, the 4th Circuit has ruled similarly to Foster, on the issue of covenants running with the land, vis-a-vis contractual obligations, in interpreting Section 523(a)(16) and Virginia law. See River Place E. Hous. Corp. v. Rosenfeld (In re Rosenfeld), 23 F.3d 833 (4th Cir. 1994).

So, the question for your purposes is: How would the court rule on the issue when interpreting South Carolina law?

There are two nonbankruptcy South Carolina cases which differ on this issue. The bankruptcy courts would use these cases to try to determine a debtor-association member's liability under Bankr. Code 523(a)(16).

In Harbison Community Ass'n, Inc. v. Mueller, 319 S.C. 99 (SC Ct. App. 5/30/1995), the SC Court of Appeals held that covenants requiring property owners to pay fees for improvements, maintenance or other services to a homeowners association run with the land. This decision would support the argument that the association fees, whether pre or post-petition, are not dischargeable under Section. 523(a)(16).

However, in First Federal Sav. and Loan Ass'n of Charleston v. Bailey, 316 S.C. 350 (SC Ct. App. 9/19/1994), the SC Court of Appeals held that covenants requiring the payment of maintenance assessments are contractual in nature and bind the parties to the covenants in the same manner as other contracts.

In summary, at this instant in time, no one can answer your question. It's still "up in the air," and it may depend somewhat on the exact text of the declaration of covenants, and how they discuss the obligation to pay homeowners assessments.

So, while I realize that everyone here (and presumably, your bankruptcy attorney, as well) wants to be correct in their respective analysis and conclusions concerning this issue -- the fact is that we are all just "pissing in the wind" at the moment, because the answer is subject to the interpretation of the bankruptcy courts sitting in South Carolina, and the 4th Circuit Court of Appeals if the matter is appealed by either party after the bankruptcy courts decide.

Please let me know if I can be of further assistance.
Customer: replied 1 year ago.

Socrateaser,

I greatly appreciate the length to which you've gone to look into this. This likely sums up the differing opinions between my attorney and PhillipsEsq. Excellent work.

Since the original writing of this thread the BK Trustee has filed a motion to have us evicted. The final appraisal happened today. As you can see time is of the essence is an understatement. What is your opinion could happen if we accept the loan mod?



Thank you Kindly!

Expert:  socrateaser replied 1 year ago.
If you accept the loan modification, you would have to simultaneously reaffirm the existing debt, which would otherwise be discharged by the Chapter 7 -- and you cannot modify a discharged loan, because there is no loan to modify. I don't know if this is a good idea, because by accepting the modification, you will remain subject to the past-due HOA fees, and you would have to litigate their dischargeability -- an outcome which is unknowable at this time.

To me, the entire exercise is too risky, unless you can also pay the fees, and put them behind you. And, paying those fees, probably make the entire package too costly -- which means, that it's probably time to pack your bags and "ease on down the road."

Hope this helps.
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 33801
Experience: Attorney and Real Estate Broker -- Retired (mostly)
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