December 28, 2011
Temporary Payroll Tax Cut Continuation Act of 2011
On December 23, 2011, President Obama signed into law HR 3765, the Temporary Payroll Tax Cut Continuation Act of 2011, extending the current 4.2% Social Security Old-Age, Survivors, and Disability Insurance (OASDI) tax rate for employees to wages paid between January 1, 2012 and February 29, 2012. Please be aware of the following:
- Effective immediately, any payrolls processed with a check date between January 1, 2012 and February 29, 2012 will reflect the employee Social Security rate of 4.2% with a wage limit of $110,100.00.
- For 2012 payrolls processed prior to December 27, 2011, Social Security tax was withheld from your employees at the rate of 6.2%. Your employees will automatically receive a credit for any overpayment of Social Security tax with their first 2012 pay check processed on or after December 27, 2011.
The reduced tax rate may be extended through 2012. Congress and the White House intend to pursue further legislation to extend the reduced 4.2% OASDI tax rate through 2012. Employers will continue to pay Social Security tax of 6.2% up to the taxable wage limit for each worker ($110,100 for 2012), as well as the 1.45% Medicare tax, with no limit.
August 10, 2011
Change in California Deficiency Law
SB 485: No Deficiency Judgments After a Short Sale
The California Legislature approved and the Governor has signed SB 458, which will eliminate any deficiency judgments that a holder of a Mortgage Loan may have against a Borrower after a short sale of a dwelling of 1-4 units that has been approved by the holder is completed, and also provides that no deficiency shall be collected or requested. This legislation was passed as an urgency statute and became effective on July 15, 2011.
It follows SB 931 which went into effect on January 1, 2011 and added Section 580e to the California Code of Civil Procedure. That section provides that no holder of a Note secured by a first Deed of Trust could obtain a deficiency judgment against a Borrower when a dwelling of 1-4 units is sold in a short sale that has been approved by the holder. A short sale is a sale of the Secured Property for less than the remaining amount of the indebtedness due at the time of the sale with the written consent of the holder of the Deed of Trust. The written consent of the holder obligates the holder to accept the sale proceeds as full payment of the debt. The prohibition against deficiency judgments in SB 931 applied only to first Deeds of Trust but included non-owner-occupied as well as owner-occupied dwellings.
SB 458 expands the prohibition against deficiency judgments in Section 580e to junior Deeds of Trust on the Secured Property. It is also applicable to owner-occupied and non-owner-occupied dwellings. It does not apply when the property at issue is secured with multiple collateral (not solely the deed of trust or mortgage at issue).
Section 580e does not apply to Borrowers that are corporations, limited liability companies or limited partnerships.
For more information about this topic, please contact Julie Greenfield, (949) 230-3241, firstname.lastname@example.org
For more information about the Business Law Standing Committees, please see the standing committees web page.
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October 13, 2010
House to Vote on Exempting Guns From Bankruptcy Claims
July 30, 2010
New Bureau of Consumer Financial ProtectionMore bureacracy. You can access a nice summary of the Dodd-Frank Act aka the "Wall Street Reform and Consumer Protection Act" here and all 2300 pages of the act here. The new law creates a Bureau of Consumer Financial Protection "dedicated to monitoring and enforcing federal consumer financial protection laws" of which several sources have suggested that Prof. Elizabeth Warren should be the first director. According to the summary, "The Bureau will have separate offices for Fair Lending and Equal Opportunity, Financial Education and Service Member Affairs, as well as separate units for Research, Community Affairs and Complaints." Sounds like a bunch of more billions of government.
June 04, 2010
New Hamp Regulations
Thx to Karen Cordry:
New Home Affordable Modification Program (“HAMP”) Loan Modification Guidelines Taking Effect June 1, 2010
The federal government provided new HAMP borrower outreach and communication guidelines for foreclosure actions while a borrower is being evaluated under HAMP. Furthermore, these guidelines provide additional protection for delinquent borrowers who have filed bankruptcy but would otherwise be eligible for HAMP benefits. For a copy of the full disclosure, see Supplemental Directive 10-02.
Here are some of the key highlights from the directive include:
Additional Foreclosure steps are required:
• The servicer must evaluate the borrower’s eligibility under HAMP and determine that the borrower is ineligible before referring the borrower to foreclosure (or make “reasonable solicitation efforts”).
• If foreclosure activity has already been initiated, the foreclosure sale cannot occur until after the servicer has determined the borrower is ineligible under HAMP (or make “reasonable solicitation efforts”).
• The servicer must give the borrower 30 days to respond to HAMP “Non-Approval Notices” in certain circumstances before conducting the foreclosure sale.
• The servicer must provide the foreclosure attorney certification in writing that the borrower is ineligible for HAMP before conducting the foreclosure sale.
• If the borrower in active Chapter 7 or Chapter 13 bankruptcy (or attorney or bankruptcy trustee) requests, the servicer MUST consider the borrower under HAMP and can no longer decline borrower as a “proper exercise of discretion.”
• If the borrower has been approved on a trial loan modification and files a Chapter 7 or Chapter 13, the servicer MAY NOT deny the borrower for a permanent modification only because of filing bankruptcy.
• If a delinquent borrower has a discharged Chapter 7 and chose not to reaffirm the first lien mortgage debt is still eligible under HAMP, with the following provision added to the permanent modification agreement: “I was discharged in a Chapter 7 bankruptcy proceeding subsequent to the execution of the Loan Documents. Based on this representation, Lender agrees that I will not have personal liability on the debt pursuant to this Agreement.”
Karen Cordry, Bankruptcy Counsel
National Association of Attorneys General
April 24, 2010
Pending Student Loan Legislation
Thanks to David Goch who posted this on the Bankruptcy Roundtable Listserve:
Yesterday, the House Judiciary Committee's Subcommittee on Commercial and Administrative Law held a hearing on H.R. 5043, "The Private Student Loan Bankruptcy Fairness Act of 2010".
H.R. 5043, according to Rep. Cohen (D-TN), the bills sponsor along with Rep. Davis (D-Ill.), "is very narrowly tailored to make debt resulting from student loans issued by private, for-profit institutions dischargeable in bankruptcy."
H.R. 5043 amends Bankruptcy Code Section 523(a)(8), eliminating Section 523(a)(8)(B), which currently makes debt from private loans issued by for-profit lenders nondischargeable in bankruptcy absent undue debtor or debtor's dependents hardship. The bill also amends Section 523(a)(8)(A)(i) to clarify that only loans for which substantially all of the funds were provided by a nonprofit institution remain nondischargeble in bankruptcy.
Deanne Loonin, a staff attorney for the National Consumer Law Center, pointed out that student loan borrowers are a very diverse group of people but they chare one common trait: "they're all trying to better themselves through education" and are all struggling with student loan debt. However, Loonin stated "[B]ankruptcy is not and should not be the entire safety net" for borrowers who cannot repay their student loans."
Loonin said she supports H.R. 5043, not because bankruptcy is the best option, but because it is the only option some have to be able to move on with their lives.
According to John Hupalo, managing director at Ramirez Capital Advisors, a group specializing in student loan finance, whether or not to permit bankruptcy discharge of private student loan debt is a complex issue. Huppalo indicated he understood the intended benefit of repealing non-dischargeability of private student loans, but went on to state he is concerned the bill would be "counter-productive to the country's shared goal of making a college education more accessible to the greatest number of students possible."
Adrian Lapas, a solo practitioner testifying on behalf of the National Association of Consumer Bankruptcy Attorneys, voiced support of H.R. 5403, noting that the legislation will "restore fairness in student lending by treating privately issued student loans in bankruptcy the same as other types of private debt."
Meanwhile, in an April 21 letter to Cohen, more than two dozen organizations representing students, consumers, institutions of higher education and civil rights and public policy organizations expressed their support for the bill. Among the groups signing the letter: The American Council on Education, Consumer Action, Consumer Federation of America, Consumers Union, Demos: A Network for Ideas & Action, Rock the Vote, U.S. Public Information Research Group, UNCF, and the National Association for Equal Opportunity in Higher Education.
January 11, 2010
Home Affordable Foreclosure Alternatives Program (“HAFA”)
From the California Insolvency Law Committee:
New Federal Program Effective April 10, 2010 to Streamline and Create Incentives for Short Sale Transactions for Lenders and Borrowers through 12/31/12
Summary. On November 30, 2009, the Treasury Department released guidelines and forms for its new Home Affordable Foreclosure Alternatives Program (“HAFA”). HAFA is part of the current Home Affordable Modification Program (HAMP). HAFA provides financial incentives to loan servicers and borrowers who utilize a short sale or a deed-in-lieu of foreclosure (DIL) to avoid foreclosure on loans eligible for modification under the HAMP program. HAFA complements HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their homes. Click HERE to view full program details.
Applicable Lenders. HAFA applies to loans not owned or guaranteed by Fannie Mae or Freddie Mac. The lender must have executed a HAMP servicer participation agreement. Participating lenders are listed HERE.
Start Date. April 5, 2010 (but qualifying servicers may voluntarily implement sooner).
Eligible Homeowners. The homeowner must meet the HAMP guidelines to qualify for HAFA, which are as follows: (1) the property is the borrower’s principal residence; (2) the mortgage loan is a first deed of trust originated prior to January 1, 2009; (3) the mortgage is delinquent, or a default is reasonably foreseeable; (4) the current loan balance is less than $729,750, and (5) the borrower’s total monthly mortgage payments exceed 31% of the borrower’s gross income.
Lenders are required to evaluate a borrower for a HAMP modification prior to any consideration being given to HAFA options. Further, every potentially eligible borrower must be considered for HAFA before the borrower’s loan is referred to foreclosure.
Program Benefits. The HAFA program does the following:
Minimum Net Price. Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds). The minimum net proceeds may be either a fixed dollar amount or percentage of the current fair market value of the property. It cannot be increased for 120 days.
No Commission Reduction. Prohibits lenders or their loan servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6 percent).
Release of Remaining Loan Balance. Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).
Standardized Documents. Uses standard processes, documents, and timeframes/deadlines.
Financial Incentives. Provides the following financial incentives:
$1,500 for borrower relocation assistance;
$1,000 for servicers to cover administrative and processing costs; and
$1,000 for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders (on a one-for-three matching basis).
Procedure. A borrower may request short sale approval by providing the lender with a Request for Approval of Short Sale form (RASS), a Short Sale Agreement (SSA) and a Hardship Affidavit. The lender then has 30 days to do the following: (1) evaluate the borrower’s eligibility; (2) determine the current value of the Property; (3) establish the minimum net proceeds; and (4) review the title to evaluate subordinate liens
Short Sale Agreement. The lender provides the borrower with a standard form Short Sale Agreement (SSA). The SSA creates the following obligations and benefits: (1) the borrower must list the home for sale with a licensed real estate agent; (2) the borrower has 120 days to sell the home, but the lender may extend the term; (3) the lender must postpone any pending foreclosure sale during the 120 day term; (4) the borrower must maintain the property in good condition; (5) a new, lower monthly mortgage payment is set, which cannot exceed 31% of the borrower’s monthly income; (6) the borrower must move out at close of escrow, leaving the property in good condition; (7) the borrower cannot sell the property to a family member, friend or business associate; (8) the buyer of the property must agree not to resell it for 90 days after the close of escrow; and (10) the lender has 10 business days to approve a short sale that meets or exceeds the minimum net price.
Deed-in-Lieu. The lender and borrower may also agree that, if the property does not sell within 120 days, the borrower will execute a deed-in-lieu of foreclosure. The borrower still receives a waiver of the loan deficiency and a $1,500 relocation assistance. All subordinate lenders must also agree to a release of liability for their loan.
End Date. HAFA sunsets on December 31, 2012.
These materials were written by Mark L. Strombotne, senior partner in the Strombotne law firm in Saratoga, California, and Robert G. Harris, a partner in the Silicon Valley law firm of Binder & Malter, LLP. Mr. Harris is presently a member of the Insolvency Law Committee.
January 05, 2010
New California Legislation Effective Jan 1
From the California Insolvency Law Committee:
New California Legislation Effective January 1, 2010
With the start of the New Year, several statutory amendments of interest to insolvency constituents came into effect in California:
Impound Accounts on Residential Mortgages. California Civil Code Section 2954 has been amended to add two new exceptions to the law which prohibits a lender from requiring an impound account as a condition of a loan on a single family, owner-occupied dwelling. As of January 1, 2010, a lender may, in addition to the previously-allowed situations, require an impound account:
• Where the loan is made in compliance with the requirements for higher priced mortgage loans established in Regulation Z, whether or not the loan is a higher priced mortgage loan; or
• Where the loan is refinanced or modified in connection with a lender’s home ownership preservation program or a lender’s participation in such a program sponsored by a federal, state or local government authority or a nonprofit organization.
Reverse Mortgages. California Civil Code Sections 1923.2 and 1923.5 have been amended to add restrictions on a reverse mortgage lender’s participating in certain other financial or insurance activities, and on referring the prospective borrower to anyone for the purchase of other financial or insurance products; to make certain changes in the 16-point type notice required to be given to a potential borrower; and to add requirements for the delivery of a written checklist covering issues that might impact the borrower as a consequence of the loan.
Residential Real Property Foreclosure. California Civil Code Sections 2923.5, 2923.6, 2924.8 and 2924f and 2943, and California Financial Code Section 17312, have been amended to make temporary changes to the handling of foreclosures relating to certain mortgages and deeds of trust. Changes include adding procedures for the handling of short pay agreements. The new provisions sunset January 1, 2014.
Judgment Liens. California Code of Civil Procedure section 697.510 and 697.670 have been amended to provide that, within six months prior to the expiration of a judgment lien recorded with the California Secretary of State, the judgment lien can be renewed in the same manner as a UCC financing statement.
In addition to the foregoing, a new law on mechanics liens will come into effect on January 1, 2011:
Mechanics Liens. California Civil Code Sections 3084 and 3146 have been amended, effect on January 1, 2011 to require, as a condition of the enforceability of the mechanics lien, that notice of the lien be served on the owner or reputed owner of the property, by registered, certified or first class mail, or on the construction lender or original contractor. The amended statute provides that failure to serve such a notice will render the lien unenforceable.
These materials were prepared by Molly J. Baier in the San Francisco office of Reed Smith LLP
December 12, 2009
House Rejects Loan Modification BillYou can access the Reuters article here.
December 07, 2009
House Taking Another Shot at Loan Modifications in BankruptcyFrom The Hill.
July 19, 2009
Cramdown Hearings Thursday July 23, 2009
NOTICE OF SUBCOMMITTEE HEARING
The Senate Committee on the Judiciary, Subcommittee on Administrative Oversight and the Courts will hold a hearing entitled " The Worsening Foreclosure Crisis: Is It Time to Reconsider Bankruptcy Reform?" on Thursday, July 23, 2009 at 10:00 a.m. in Room 226 of the Senate Dirksen Office Building.
Chairman Whitehouse will preside.
By order of the Chairman
June 15, 2009
California Residential Mortgage Foreclosure Moratoriums Went Into Effect on June 15, 2009
The California Dept of Corporations information including FAQs and the Application for an exemption can be found here.
April 21, 2009
Update on Cramdown Bill in the Senate
The Washington Post article today by Renae Merle can be accessed here. Lenders are putting up a pretty good fight in the Senate. Among the concessions demanded is a sunset provision in 2014 when the legislation will end, and a requirement that the debtor accept a loan modification without cramdown if offered. What's most interesting is who is not negotiating. "[T]he Mortgage Bankers Association and American Bankers Association, major industry groups, are not part of the current negotiations, and congressional Republicans continue to resist the provision." "The Independent Community Bankers of America had been observing the negotiations, but walked away last week, said Camden Fine, president of the group. 'Basically we were told by the senators that are involved that we either had to agree in principle to some sort of cramdown provision or we couldn't stay in the room,' Fine said. 'And we could not agree to that because we don't agree in principle.'"
April 10, 2009
Mortgage Modification Bill in Senate Not Looking So Good
Thanks to Eric Clark
From the American Bankruptcy Institute 4/9/09
MORTGAGE MODIFICATION, EXECUTIVE COMPENSATION LIKELY TO BE DROPPED FROM SENATE AGENDA
Senate Democratic leaders appear likely to drop several high-profile legislative issues from their agenda, including efforts to tax bonuses paid to corporate executives and giving bankruptcy judges the ability to reduce mortgage payments on the primary mortgages of chapter 13 debtors, according to a CongressDaily report today.
Senate aides said that the legislative agenda this year might increasingly focus on revamping financial regulations -- which could reach the Senate floor in late summer -- and on health care reform. The chamber will reconvene April 20 by taking up a fraud-e enforcement bill that authorizes increasing Justice Department funding and authority to crack down on mortgage fraud and other crimes related to federal assistance programs. Those efforts come as more high-profile legislation sits on the back burner in the face of opposition from Republicans and moderate Democrats. Senate Majority Leader Harry Reid (D-Nev.) and Senate Finance Chairman Max Baucus (D-Mont.) have said that they have not dropped efforts to craft a bill slapping heavy taxes on bonuses for firms such as American International Group that received bailout money, but Democrats have no immediate plans to move an AIG bill in the face of White House concerns and strong opposition from the banking industry. Also faltering is mortgage cramdown legislation that lobbyists and some senators say lacks the votes to pass. Reid has said previously that he is prepared to drop the cramdown language provision from a broader housing bill if the votes are not there.
March 01, 2009
Cramdown Bill to Come to a Vote in the House on Tuesday
A summary (of the big stuff) is as follows:
1. Secured debts where the collateral is the debtor's underwater home will not be included in the chapter 13 eligibility test in Section 109. A debtor who has received notice from the lender that it may commence foreclosure will not have to do the credit counseling.
2. A pre-existing loan on the debtor's home where the debtor has been told by the lender that a foreclosure may be commenced, may be modified in a chapter 13 to pay only the secured portion per Sec 506(a)(1); provide for payment of the secured portion over 40 years at a fixed and reasonable interest rate. If the home is sold before the chapter 13 discharge, the profit must be shared with the lender.
3. The debtor must certify in the chapter 13 that he attempted, at least 15 days before filing, to "contact the lender regarding modification" unless a foreclosure sale is scheduled within 30 days after the petition date.
4. This applies to existing chapter 13 cases provided the debtor tries to work it out first before filing a request for modification.
5. To permit bifurcation of the secured claim, the court must find that the modification is proposed in good faith and the debt was not incurred by fraud.
6. The Effective Date is the date of enactment.
February 27, 2009
Update on Proposed Legislation
WASHINGTON -- House Democrats have pushed back until next week a vote on legislation to allow bankruptcy judges to reduce the principal balance of mortgage loans, after some in their party raised concerns about the measure.
Speaker Nancy Pelosi (D., Calif.) said the vote, which was scheduled for Thursday, will be postponed so that House Democrats can meet Monday evening with Housing Secretary Shaun Donovan to discuss the measure.
The vote is now likely to occur no earlier than Tuesday, though the House began debating the measure Thursday.
The postponement comes shortly after the legislation's Senate author, Sen. Dick Durbin (D., Ill.), said he would be open to limiting the measure to just subprime mortgages.
Some centrist Democrats began to waver after the remarks, balking at supporting a controversial bill amid signs that the Senate might pass a narrower version. The Obama administration, which backs the measure, also proposed tighter restrictions than are contained in the House legislation.
At a meeting of House Democrats Thursday, centrist Democrats raised concerns that the measure offered little help for troubled homeowners who don't want to turn to the bankruptcy courts for relief, Rep. Ellen Tauscher (D., Calif.), said.
The bulk of her constituents who are struggling with mortgage payments "want a quality government loan modification," Ms. Tauscher, a leader of the business-friendly New Democrat Coalition, said.
She added that she and other New Democrats would support the legislation, but wanted assurances from Donovan than the Obama administration was moving swiftly on its plan to offer incentives for mortgage servicers to modify loans. They also want to hear more details about the plan, Ms. Tausher said.
"As of now, we have a skeleton of a program and there still are some Gordian knots that need to be worked out," she said.
The administration is set to release the details of its plan next Wednesday.
Under the legislation, strapped borrowers could have the principal balance of their mortgage loan reduced by a bankruptcy judge -- known as cram down. Currently only vacation properties, and not primary residences, can be crammed down by a judge.
The banking industry has been lobbying fiercely against the measure, contending it would raise borrowing costs on all homeowners. The measure has nonetheless gained momentum in recent weeks due to the shift in power in Washington and the perception that mortgage servicers haven't done enough to help strapped borrowers.
The Obama administration has made it a central plank of its plan to prop up the housing market. However, officials say they view it as a last resort, to be used only when serious attempts at voluntary modifications fail.
Proponents have already made one major concession to the banking industry, limiting the cram down authority only to existing mortgages in exchange for Citigroup's backing. Industry lobbyists are pushing to add further restrictions.
Some House Democrats appear unlikely to support the measure unless it is narrowed. "The criteria judges use [to rework mortgages] needs to be tightened," Rep. Allen Boyd (D., Fla.), a leader of the Blue Dog group of conservative Democrats.
In the Senate, it is unclear if proponents have the 60 votes necessary to avoid procedural obstacles to a vote. Only one Republican, Sen. Arlen Specter of Pennsylvania, has backed the measure.
Mr. Durbin on Tuesday told the American Banker trade publication that he was willing to restrict the authority to subprime mortgages.
Aside from the bankruptcy measure, the House legislation includes provisions to erect a safe harbor against investor lawsuits for servicers that modify loans. It would also revamp the Hope for Homeowners program, started last fall to help refinance troubled borrowers into more affordable government-backed loans.
— Michael R. Crittenden contributed to this report.
February 02, 2009
Report from Credit Suisse re Proposed Amendments to Chapter 13
This report has some useful information. Thanks to Marc Stern in Seattle.
January 30, 2009
Great Analysis of H.R. 200 in its Present Form
From my friend Peter Lively. You can access his analysis here. This looks like a handful but it really helps understand the proposal. Printout the attachment and read it. Its a little easier to understand.
C1 Certification that D received N.
C2 Certification that D attempted to contact lender for loan mod within 15 days.
C3 Certification that D attempted to contact lender for loan mod (no time required).
E Effective date of new law.
F Current FMV of R.
I Prevailing interest rate on petition date.
L Loan originating before E, secured by R, subject to N.
M All debt secured by R up to FMV.
N Notice that D receives from lender that it may commence foreclosure against R.
P Premium added to I for “risk”
R Debtor’s principal residence.
T Total debt secured by R; T = M + U.
U All debt secured by R over FMV and also debt formerly secured by R (due to TS or surrender).
X Proceeds paid to lender if property sold within 4 years of loan modification.
Y Maximum years of modified loan < or = (40 years - # years paid on existing loan).
Proposed Changes to Code:
109 Debt NOT include T, if F < $1,010,000 (plus CPI adjustments)
109 If C1, then no required CBC
502 If T subject to TILA then not an allowed claim
1322 Where petition not yet filed:
If D provides C2 (or, if TS date within 60 days of petition date) and T is ARM loan,
then Court may prohibit, reduce or delay adjustment of interest rate; OR
modify T under 506(a)(1) into M and U, then modify M over Y at I + P
Where case pending:
If D provides C3 before filing Plan or Plan Modification Motion, then Court may prohibit, reduce or delay adjustment of interest rate; OR
modify T under 506(a)(1) into M and U, then modify M over Y at I + P
BUT, if Debtor sells R, then lender gets X = the lesser of the allowed unmodified claim, and [100% - (20% * # years since loan modification)] * [Sale Price - (M + COS + Improvements)]
January 28, 2009
Manager's Proposed Amendments to HR 200
You can access the proposal here. The right to modify a home mortgage would be limited to existing mortgages. If the debtor sells the residence during the plan period, the creditor would get some of the excess proceeds if any. The amendment will still apply to existing bankruptcy cases.
January 26, 2009
Opposition to New Mortgage Bill Lining Up
According to an Associated Press Article yesterday,
The chief lobbyist for the Mortgage Bankers Association, Steve O'Connor, said new homebuyers would end up paying higher interest and bigger down payments if lenders are saddled with the risk that a judge could change mortgage terms.
"We're going to defend the industry" against "bad public policy," O'Connor said.
The association's 23-member government affairs team is trying to persuade lawmakers to kill the bankruptcy legislation. The team includes six lobbyists and nine policy experts who double as lobbyists, said O'Connor, senior vice president of government affairs.