Bankruptcy

Oregon Homestead Exemption has Limits

Trustee Can Recover the Money!The Oregon Homestead Exemption has been interpreted broadly by state and federal courts.  Even a mandatory security deposit has been found to qualify for exemption under ORS 18.395 and 18.402.  In a memorandum opinion by Judge Albert Radcliffe entered February 9, 2011, the court rejected the prepayment of $3,900 in rent as exempt under ORS 18.395.  In an unfortunate sidenote, Judge Radcliffe passed away just 10 days later at the age of 63.

By |Apr 25, 2011|Categories: Bankruptcy|Tags: , , |

MERS Is Not A Trust Deed Beneficiary in Oregon

Many home lenders use an entity called Mortgage Electronic Registration Systems, Inc., or “MERS” as a nominal party in loan transactions to facilitate an electronic central registry of note holders and servicers.  On its website, MERS claims many benefits to use of their services.  According to the website, MERS should be named in security instruments as a “nominee for the lender” in order to “eliminate the need for assignments and realize the greatest savings.”  In an Oregon deed of trust instrument, MERS is often named as “Beneficiary” in its nominee capacity.

A recent decision in the Oregon Bankruptcy Court by Chief Judge, Frank R. Alley, III, complicates matters dramatically for institutional trust deed holders using the MERS system when they attempt to foreclose defaulted home loans. 

Deficiency Judgments In Oregon Foreclosure

A deficiency judgment is a judgment entered against a borrower after foreclosure of a secured debt when proceeds from sale of the collateral fail to fully satisfy the debt. A deficiency judgment against the borrower is prohibited by ORS 86.770(2) after non-judicial foreclosure of a trust deed on real property that is held as collateral security. This statute was changed in 2013; current statute is ORS 86-797. This non-judicial foreclosure process is referred to as “advertisement and sale” in Oregon. However, the antideficiency statute only applies after a foreclosure and does not apply when the note holder waives the security and sues directly on the note.  This is made clear in Beckhuson v. Frank, 97 Or App 347, 775 P2d 923 (1989), see also the case of In Re Daraee 279 B.R. 853, a 2002 Oregon Bankruptcy Court opinion.

Deficiency judgments are uncommon for first priority home loans in Oregon. Lenders normally prefer to foreclose and sell the collateral in a nonjudicial proceeding to quickly recover as much as they can, without the expense and delay of a judicial proceeding.

By |Nov 17, 2010|Categories: Bankruptcy|Tags: |

What is a Bankruptcy Preference?

Trustee Can Recover the Money!bankruptcy preference is a transfer made shortly before the case is filed that the trustee can take back from one creditor and share with all the other creditors. The transfer must be of money or property in which the debtor has an interest. It must be made to  a creditor owed money by the debtor. The transfer must be more than the creditor would receive in a Chapter 7 distribution. Finally, it must be made within a certain period of time. 11 USC §547 governs the preference rules under federal law.

The preference period is 90 days before filing unless the debtor has a special relationship with the creditor and is considered an insider. Insiders are close family members, business partners, or a corporation of which the debtor is a person in control such as an officer or director.  The preference period for transfer to an insider is expanded by law to one year instead of 90 days. 

By |Aug 16, 2010|Categories: Bankruptcy|Tags: , |

Housing Crisis Caused By 2005 Bankruptcy Law

The 2005 bankruptcy “reform” law was really about abuse of consumers and protection of banks.  Its lofty name “The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005” was no vehicle for consumer protection.  I have long felt that this effort to make consumers more “responsible” financially has contributed to the dramatic economic downturn we have experienced.  The negative publicity surrounding passage of the bill in April of 2005 caused a rush to the courthouse for many consumers.  The abrupt dropoff in filings after the effective date in October 2005, made it clear this legislation had a significant impact on the economy.

If scaring consumers by taking away some of the protection afforded by the bankruptcy laws makes them more responsible, it also seems to have contributed significantly to home loan defaults.  It makes sense.  Consumers have limited resources.  When they must dedicate more to payment of credit card debt, they have less money to pay their home loans.  Now, there is a study that documents that result.

A new paper written by three economists, Wenli Li of the Federal Reserve Bank of Philadelphia, Michelle White of the University of California San Diego, and Ning Zhu of the University of California, Davis, takes the position the 2005 bankruptcy legislation is a significant factor in the mortgage crisis and the recession it caused.  The abstract of this article is published by the National Bureau of Economic Research under the title Did Bankruptcy Reform Cause Mortgage Default to Rise?  It promotes the paper as arguing that “an unintended consequence of the reform was to cause mortgage default rates to rise.”

After looking at a large number of individual mortgages, the authors conclude that default rates increased by 14% in prime mortgages and 16% in subprime mortgages after enactment of the new law.  They find that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 caused an increase in home loan defaults of approximately 200,000 per year.

You can thank those corrupt senators and congressmen who took millions in campaign contributions from banks, credit unions and other consumer lenders for bringing on the recession we struggle with today.  However, in all honesty, it is the live for today attitude of most first world consumers that is the root of our problems.  The voters elect politicians who promise to lower taxes and increase spending.  These same voters expect public benefits to increase but are unwilling to pay the price for this largess.

By |May 11, 2010|Categories: Bankruptcy|Tags: , , , , |

Is Income Tax Dischargeable In Bankruptcy?

Income tax as well as some other types of tax can be discharged in bankruptcy if certain conditions are met.  This applies in consumer bankruptcy cases, both Chapter 7 and Chapter 13, and covers Federal, State and local income tax liability.  However, all requirements must be met before the bankruptcy is filed or the debt will remain collectible after the case is closed.  To be dischargeable in bankruptcy, income tax must meet the following requirements:

  1. The income tax return must have last been due more than three years before the bankruptcy;
  2. The tax return must have been filed at least two years prior to the bankruptcy (in some circuits it must have been timely);
  3. The tax must have been assessed by the government;
  4. The tax returns must not have been fraudulent; and,
  5. There must not have been a willful attempt to evade or defeat the tax.

When each of these conditions are met, and no exceptions to the rules apply, the tax can be discharged in the bankruptcy proceeding.

By |Apr 24, 2010|Categories: Bankruptcy, Tax Law|Tags: , |