Southern Points

Safely guiding you through today's changing mortgage environment

Winter, 2012 - Vol 1, Issue 4
In This Issue
Changes in the Bankruptcy Rules
2012 Legislative Updates
Deed in Lieus
Vacant Property Scams
Binding Loan Mod Offers
New Faces

Positive Words from Clients and Borrowers!

"I just wanted to thank you all for coming out and for the awesome training you provided us.  The feedback from the staff was excited and positive.  I agree, the best attorney training we have had!"  - Client


If you've received great service, we'd love to hear from you!  Please email lfierman@rubinlublin.com with your comments. 

Need Training?
Do you have any new staff that need training on mortgage default laws in Georgia, Tennessee or Mississippi? 

Want to update existing staff or provide more in depth information to managers?

We are happy to prepare materials and deliver learning sessions on site for you! Just email lfierman@rubinlublin.com to discuss your needs. 

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Giving Back
We feel it's important to stay active in our community, as well as yours!  Here's some of the charitable efforts we've been involved in this quarter:
  • Soles4Souls
  • Gwinnett Habitat for Humanity
  • Norcross Community Co-Op Winter Food Drive



As I write, we are still digesting the landmark mortgage servicing settlement involving the 5 major loan servicers. At this point, we are pretty certain that other large and mid-sized servicers will jump on board. Beyond that, there is a great deal of uncertainty as to how things will play out.  One thing is for certain though - Between this settlement and the newly organized Consumer Financial Protection Bureau, servicers, default law firms and vendors are going to be scrutinized at an unprecedented level in the coming months. Toward that end, we bring you our 2012 first quarter newsletter that contains information to help you weather the storm. In the newsletter we have information on deeds in lieu, scams involving squatters, the effects of the new bankruptcy rules, potential pitfalls involving loan modifications and updates on the 2012 Legislative sessions thus far. I hope you find this information useful and we will talk again this summer.  


Glen D. Rubin

Managing Partner

Rubin Lublin Suarez Serrano, LLC

 Changes in the Bankruptcy Rules Require All Parties' Participation

                                                   Written By: Danielle Hudson

Recent changes in the Federal Rules of Bankruptcy Procedure reflect the underlying goal of many of the over-arching rule changes lenders are experiencing in other areas of law: disclosure. This article will discuss the basics of the Bankruptcy Rules and related forms, uncertainties under the new rules, and tips for compliance.


An Overview of the Amendments

Changes affecting the Proof of Claim

Effective December 1, 2011, new Bankruptcy Rules require any lender filing a proof of claim in a bankruptcy proceeding to file attachments therewith, including: 1) an itemized statement of any pre-petition interest, fees, expenses, or charges; 2) a statement of the amount necessary to cure any prepetition default; and, 3) for secured claims in the debtor's principal residence, the B10 Attachment.


The B10 Attachment requires the claimant to list a breakdown of all prepetition fees, expenses, and charges, including the dates incurred for each. It also requires a statement of the principal and accrued interest due on the loan as of the petition date, and a breakdown of all installment payments due as of the petition date. Where the loan has an escrow component, the B10 form requires claimants to attach the most recent escrow analysis in a form consistent with non-bankruptcy law.


Additionally, as has always been a requirement under Bankruptcy Rule 3001(c), those claimants with a secured interest in the debtor's real property evidenced by a writing (e.g., a mortgage or note) must also attach a copy of said writing to the claim. For mortgage lenders in Georgia, Tennessee, and Mississippi, this includes a copy of the recorded security instrument and a properly endorsed note showing a full chain of title.


Changes to Post-petition Disclosure

Under the new rules, mortgage lenders are required to serve and file any post-petition mortgage payment changes at least 21 days before the effective date of the change in a Chapter 13 where the Debtor is curing a default. Further, mortgage lenders must also serve and file an itemized statement of any post-petition fees, expenses or charges, and the date incurred for each within 180 days of incurrence.


In Chapter 13 cases where the debtor is curing a default on a secured claim on the debtor's principal residence, the new rules require the debtor or trustee to serve and file a "Notice of Final Cure" on the lender within 30 days following the debtor's last plan payment. The lender is now required to respond to these notices as supplement to its claim within 21 days of receipt, indicating whether it agrees or disagrees that its claim has been cured and whether the debtor is otherwise current on payments under Section 1325(b)(5). Where a lender disagrees that the debtor is current or has cured the default, the lender must itemize the required cure or post-petition amounts remaining unpaid.


Both Proof of Claim rule changes and newly imposed post-petition disclosure rules are mandatory and allow the imposition of sanctions for non-compliance.


What We Don't Know

As with any new rule, there are uncertainties which will eventually play out in court. The most pressing challenges for lenders involve the time limits and disclosure requirements under the new rules. In some circumstances, obtaining loan information on mortgages that have been recently transferred or service released can be difficult when faced with short timeframes for compliance. Verifying every date and amount for every fee, expense or charge assessed on the loan can also be difficult for counsel, particularly where reading complex loan servicing screens is concerned.


Still looming despite the rule changes are issues such as removing the debtor's personally identifiable information from all documents filed with the court, verifying all information contained in the Proof of Claim is supported by the documents attached thereto, and deciding whether to include post-petition, pre-confirmation attorney fees as an arrearage on an otherwise current loan or as a line item on a payoff quote. Additionally, because the notices of payment change and post-petition fees are supplements to the claim itself (and are now mandatory), it appears that a Proof of Claim is necessary in every bankruptcy case, even if the loan is current at filing.


It also remains unclear whether the fees and costs associated with filing the new post-petition notices are always recoverable. In a circumstance where the claimant is filing the notices of post-petition fees too frequently, for example, every 30 days, a judge is not likely to assess these fees against the debtor. However, where the creditor is filing the notices only frequently enough to comply with the rules and the debtor is paying the arrearages per the underlying mortgage terms, these fees and costs will likely be recoverable.


Finally, there is no clarity on whether a lender can seek waiver of these new requirements where the debtor pays directly, has stripped the lien or surrendered it in the plan, or the lender has received relief from stay.


Tips from Counsel

The best way to ensure compliance with the new Bankruptcy Rules is to first begin a process of auditing all loans currently in bankruptcy. Determine whether any post-petition fees, expenses or charges have occurred on these loans since the petition date and file a "Notice of Postpetition Fees, Expense, and Charges" as soon as practicable, but not later than close of business on May 28, 2012. This deadline is 180 days from the effective date of the rule change.


If the loan entered bankruptcy after December 1, 2011, then by this time, all mortgage lenders should have new procedures in place whereby every loan in bankruptcy is assessed at a specific interval for post-petition charges. We have heard a 120 day timeframe recommended by some Chapter 13 trustees, as this provides the lender with a buffer period to iron out any difficulties with assessing the loan or providing necessary documentation, etc.


Also, though the B10 attachment is only required for claims against the debtor's principal residence, we recommend filing this attachment with all claims, because it is often difficult to determine whether a property is the debtor's principal residence. It is our view that providing more information at the outset is best.


Another highly effective practice is to provide counsel with all necessary information, including documentation, upon referral. As lenders are aware, the actual preparation of these forms can be time-consuming, making added delay potentially disastrous. Due to the mandatory nature of these rules and the threat of sanctions for non-compliance, we believe the best practice is for clients to compile all necessary documentation and information before referring the action out to counsel. This will alleviate bottle-necking in preparation, as well as reduce the added costs associated with dedicating resources to post-referral communications, needs, etc.


So, just what documents and information should be provided? First, for a proof of claim in any case, counsel will need copies of the original loan documents showing a properly perfected security instrument and a full and proper chain of title on the face of the note or allonge. Additionally, any post-origination loan modifications that affect the interest rate or payment amount should be provided. For those claims including prepetition fees, expenses, and charges, counsel will need copies of invoices to prove up any fee, expense, or charge related to a prior foreclosure or bankruptcy. This includes, for example, title fees, attorneys' fees, publication costs, mailing costs, etc.


For claims in the debtor's principal residence, clients will need to provide a breakdown of the amount and date of each fee, expense or charge that is being claimed. It is highly recommended that clients send an itemized list to counsel showing this information. It is often hard for counsel to glean information from lender screen shots and any misrepresented information could later be subject to objection and potential sanctions.


In conclusion, lenders seeking to modify current referral methods and case management processes in order to comply with the new Bankruptcy Rules should keep the purpose of the new rules in mind: disclosure. When in doubt, err on the side of caution and disclose.


2012 Legislative Update

Written By: Heidi Billington, Associate


We are monitoring the Georgia, Tennessee and Mississippi General Assembly to keep you updated on bills of importance to the default servicing community.  Please click on the links below for our 2012 Legislative Updates.


Password: RLSSLLC


2012 Georgia Legislative Update


Navigating the Deed in Lieu Process

Written By: Pamela Nix, Partner


Deeds in Lieu of Foreclosure are increasing in popularity among borrowers and lenders. Used correctly, it is a way for the borrower to convey all of his/her property interest to the lender, merging record title into the lender. Upon recording of the deed in lieu (DIL), the lender becomes the current owner of the property without having to go through the foreclosure process.   Advantages to the lender are the reduction in time and cost of foreclosure and repossession, along with the lessening of the risk of property destruction prior to taking possession. For the borrower, the DIL avoids the necessity of a public sale of the property through foreclosure. By agreement with the lender, the borrower may be able to obtain a release of personal liability on the note. Also, the DIL may be less damaging to the borrower's credit than a foreclosure.


In order to convey good and marketable title to the lender, there must not be any junior encumbrances, judgments, or federal tax liens that will remain attached to the property after recording of the DIL. The best candidate for a DIL is a situation where there is only one recorded Deed of Trust/Mortgage/Security Deed on title. In cases where there are junior liens, they will need to be paid and/or released to clear the title for a DIL. Sometimes borrowers are required to pay off small liens or to negotiate with junior lienholders to obtain a release for an agreed upon payment. In some situations there may be government incentives that provide a small sum to be used for payment and release of junior liens, to clear the way for a DIL conveyance. Naturally, if the title search shows that there are any other title issues, such as prior open liens or problems with the legal description, clearance action will be required, either through specific title underwriting, manual title clearance, or filing a title insurance claim. If the issues require filing a formal title insurance claim, that could delay the title clearance and negate the time savings for the lender that is considering acceptance of a DIL.


The DIL title review begins with ordering and receipt of a full title examination. The search needs to be reviewed and the findings reported back to the lender for their consideration. If title is clear, it is possible for the process to proceed quickly to the document preparation and send out phase. Then it is up to the borrower to promptly sign and return the executed documents to the attorney's office, to await recording instructions from the lender. As a practical matter, a minimum of 30 days should be allowed to complete the process of title review, document execution, and recording. HUD guidelines set special timeframes that apply to certain steps in the DIL process. For instance, HUD allows up to 90 days for the servicer to complete the DIL process after a failed forbearance agreement or the pre-foreclosure sale program. For more information see http://www.hud.gov/offices/hsg/sfh/nsc/rep/dilfact.pdf.           

In order to protect against the possibility of additional liens being filed after the title has been checked and before the DIL is recorded, the standard Deed in Lieu of Foreclosure document includes anti-merger language. This is so that the lender could still foreclose the underlying mortgage to wipe out any new liens that might appear on title in the gap. Because of the anti-merger language it is necessary to record a cancellation of the underlying mortgage document after recording the DIL and checking down the title for final clearance.


Keeping an Eye On Vacant Property Scams

Written By: Frances Suarez McKinney, Partner


With the increasing REO timelines and the vast numbers of vacant foreclosed houses all over the country, there are stories in the news every day about vandalism and other destructive acts that happen in these properties. Some cities are taking the stance that if a property is vacant for a long period of time, the city will condemn it and have it torn down. I thought it would be interesting to take a look at the more enterprising ways people employ to try to take over possession or ownership of vacant properties. Here are some of the worst:


Some people are making a living by moving into a foreclosed home, pretending they are rightfully there and demanding cash for keys from the bank in order to move out. These people have learned that the bank would rather pay the person to move out in a short period of time than to go through the eviction process. These people research what a bank might pay out for a Cash for Keys deal and then inhabit high priced homes to run their con. Once done, they move on to the next one. This con is common in California.


In Atlanta, another popular scheme is to use the court system to try to bury the bank in paper. The plot involved putting fraudulent tenants in homes in higher priced neighborhoods using phony leases. When the tenants are served with an eviction notice, they would then provide copies of their "lease" and threaten legal action against the company trying to evict them if laws are followed. Cons in this scheme even send cease and desist letters to real estate companies asking them to remove the properties from the MLS system or face harassment/wrongful foreclosure lawsuits. Cease and desist letters in this case are sent from fictitious law firms.


In Texas and Arizona, adverse possession seems to be the most prevalent scheme to gain ownership of a bank's vacant property. Basically, adverse possession is a concept where you openly take possession of someone else's property for a certain period of time and if they do not object then the property legally becomes yours. The requirements vary in each state such as you may have to pay the property taxes, make improvements to the property and have exclusive possession of the property for a certain period of time, usually around 7-10 years. Adverse possession is incredibly hard to prove and is a lengthy process, nonetheless it does not deter people from trying to claim adverse possession. This situation can cause a lot of trouble, time and hassle for the real estate agents and banks trying to remove people from the property.


Homeless squatting is another rampant challenge. Homeless people are breaking into vacant homes, moving in, changing the locks and turning on the lights. There is even an organization helping them do this. The homeless are being helped by Take Back the Land, a national group that identifies foreclosed properties in good condition and secures the houses and turns on the utilities as a moral statement. In New York, Take Back the Land Rochester's primary concern is not, "what's legal and illegal, but what's moral and immoral," said Ryan Acuff, head of the local group. "We believe it's immoral to have people out on the street, especially in Rochester's winter especially during the holiday season." One woman who had help moving into one of these homes illegally said " You ride around you see how many houses are for sale or vacant or boarded up, so why wouldn't you want me to stay there instead of it just sitting here? It's a better solution for both of us."


And last, but not least... SOVEREIGN CITIZENSHIP. Sovereign citizens are described as domestic terrorists. Sovereign citizen is a term used to refer to a political movement which grew out of a belief that governments abuse power. Members often refuse to hold social security cards or driver's licenses and avoid using zip codes. Its adherents believe that virtually all existing government in the United States is illegitimate and seek to "restore" an idealized, minimalist government. To this end, sovereign citizens wage war against the government and other forms of authority using paper terrorism harassment and intimidation tactics, and occasionally resorting to violence. These people can be the most challenging to deal with because they believe that the banks and the police and court system do not hold any power over them. In addition they are not afraid to use violence to accomplish their goals. They believe that banks can't own land or property and that any homes, including all the vacant foreclosed properties are available to take up residence. What a sovereign citizen usually does to claim ownership is to record a bogus quit claim deed to the property. Once recorded they will post it on the property to show their ownership and post no trespassing notices on the property as well. SWAT teams have been used to removed this squatters from properties.


As you can see, there are quite a few enterprising people out there trying to claim ownership of what does not belong to them. This underscores the need to get vacant properties on the market to eliminate the opportunity for some to take advantage of an abandoned home.


Litigation Corner: 

Does You Loan Modification Offer Create A Contract?

Written By: Kelsey Grodzicki, Associate


As the term "loan modification" becomes a buzzword across the country, mortgage servicers and lenders operating in Georgia should review their documents to make sure they are not unwillingly entering into a binding contract when they send out letters and proposed modifications. Often times when a borrower is struggling to make its payments, the servicer will provide the borrower with information on applying for a loan modification. This is typically accomplished by sending a letter on company letterhead to the borrower, informing it that it could be eligible to modify their payments so long as the borrower: signs and notarizes the enclosed modification documents; provides proof of income; and returns the documents by a certain date. The letter states that once completed, the servicer or lender will review the returned documents to see if the borrower qualifies for a loan modification.


Recently, a Federal Judge in the Northern District of Georgia issued an opinion that turns this process on its head. On September 26, 2011, Judge Richard Story issued an Order in White v. BAC Home Loans Servicing, LP, Case No. 2:10-cv-00119-RWS, holding that the servicer's loan modification letter and enclosed proposed modification agreement created a binding contract under Georgia law, even though the servicer did not approve it.


In his Order, Judge Story opined that the servicer's loan modification letter constitutes an "offer" under Georgia law because it states the borrower could obtain a loan modification by taking certain actions. Judge Story further stated that this "offer" was accepted when the borrower complied with the requirements of the letter. As a result, Judge Story ruled that even though the servicer attempted to reject the paperwork on a technicality, because the borrower rightly thought that a contract would result, a binding contract was formed under Georgia law.


Nevertheless, lenders and servicers operating in Georgia can protect themselves. To avoid unwittingly entering into a loan modification, a servicer should clearly state on its loan modification letters that the letter is not an "offer" and that by complying with the terms will not form a contract, but only bring the borrower one step closer to achieving a modification. Another method of protection is to immediately tell the borrower, in writing, that he or she does not yet qualify for a modification once the servicer makes the in-house decision. This letter should also explain what requirements have not been met and should set a firm deadline for their completion. One last action servicers can take is to avoid accepting checks for the modified payment amount. Most judges will focus on whether the checks were cashed and will generally disregard any arguments made with regards to placing the funds in suspense.


New Office, New Partner & New Faces


In order to best serve our clients, we have opened a second Tennessee office in Nashville, Tennessee.  The office is adjacent to the Nashville Courthouses.


Industry veteran, Pamela Nix joined our firm as a Partner in the Title Department.  Pam's many years at First American give her a great perspective.


Associate Attorney additions include Seth Newsome in our Foreclosure Department, Katherine Commander in the Eviction Department, Danielle Hudson and Sarah Smith in our Bankruptcy Department, Craig Bower in the Title Department and William Smith in our Litigation Department. 


To read more about all our new hires, click here.



Our talented new hires will allow us to continue to provide the same level of superior service to our loyal clients that they've learned to expect.



See y'all soon,
Lauren Fierman
Marketing Director
Rubin Lublin Suarez Serrano, LLC
3740 Davinci Court
Suite 400
Norcross, GA 30092