One of the most common mortgages was an 80/20 mortgage.  You would be given a first mortgage which would cover 80 percent of the cost of the home and then a second mortgage that would cover the remaining 20 percent of the loan.  The 80% mortgage would be in put in first position and the 20% mortgage would be put in second position.  You had this second mortgage to avoid paying PMI payments each month.

You would put no money down, so essentially you went from renting to paying a mortgage without any pain in the pocket, in fact, a lot of these mortgage payments were less than what a person could rent for.

Very few thought about the chances of these homes going down in value (I did, but I make Murphy look like an optimist).  The idea was that the house would increase in value in a few years and there was no risk in there being a lack of equity in the home because real estate always went up.

There were a few who did think about the chance of property losing value and a few of them were mortgage lenders.  Some of these lenders made the 20% mortgage the mortgage in first position and this is why:

A secondary mortgage can be considered completely unsecured if the value of the property is less than that of the first mortgage.  For example, suppose a borrower has a first mortgage balance of $200,000 and a second mortgage balance of $40,000.  Now in our example, the house is worth $180,000.  The house is worth less than the balance of the first mortgage and that makes the second mortgage completely unsecured.

There is an option inside a Chapter 13 bankruptcy to have that second mortgage treated as unsecured.  In the Eastern District of Pennsylvania, where I practice, you need to have a motion to value the real property and then file an adversarial matter to have the mortgage treated as completely unsecured.

The only way to have the mortgage treated this way is if it were COMPLETELY unsecured.  That means if the property is worth $200,000.01, the second mortgage is not completely unsecured and you cannot treat any of it as unsecured.

What a few unscrupulous lenders did during the housing boom was to put the 20% mortgage in first position.  Now when the borrower finds themselves in financial straits and files Chapter 13 bankruptcy, the option to claim the second mortgage is completely unsecured is off the table because the documents were filed incorrectly, deliberately or not.  The 20% mortgage is considered the first mortgage and unless your property has really taken a dive in value, the 80% mortgage is not going to be completely unsecured.

This is an area that is ripe for another class-action lawsuit, even if you are not planning to file Chapter 13 bankruptcy, because bank malfeasance has taken this option off the table.  If you find yourself struggling to keep up with your debts, please call 610-400-3093 or email me at jim@padebt911.com for a free consultation or a referral to an attorney in your area.

Al Capone gave his creditors an offer they couldn’t refuse.

Now I’m not suggesting that you go over to Bank of America armed with a Tommy-gun and take matters into your own hands, nor am I suggesting that you should hire someone to go to your mortgage lender to break their kneecaps (not that your lender wouldn’t do it to you if it were not for the FDCPA), but what I am suggesting is that you are not powerless in your debt situation, in fact you can give your creditors and offer they can’t refuse!

Your creditors may not be required to cooperate with you, but they must cooperate with the bankruptcy court.  Your creditors may not be required to treat you with courtesy but they must respect the bankruptcy code.

I had a client in my office this weekend who was shocked to learn that the bank must comply with a confirmed Chapter 13 bankruptcy plan.  They were also surprised to find out that the bank may not call to collect on debts once a bankruptcy case is filed.

The reality is that once a bankruptcy case is filed an automatic stay is put in place which makes it illegal for a bank to continue collection efforts.   That’s right, illegal!

Bankruptcy isn’t for everyone and some people may not even qualify, but before you go paying a small fortune to a debt settlement company or a mortgage modification, go see a bankruptcy attorney, Because only a bankruptcy attorney can give your bank an offer they can’t refuse!

One of my favorite clubs is Objecting to a Proof of Claim. 

There are a lot of creditors out there that just cannot or will not file a proof of claim correctly.

When a creditor fails to file an appropriate proof of claim, they leave themselves open for an objection, and when you hire an attorney like me, an objection is what you are going to get.

There are a lot of clients who are required to pay all of their excess income into the Chapter 13 plan for the benefit of unsecured creditors.  However if the income exceeds that of the unsecured debt, then you get to keep that money.

To simplify matters, think of your debt as going into one of two trash cans.  In one trash can your past due secured debt such as past due mortgage and car payments go.  That trash can is paid first.

The second trash can is where your unsecured debt, such as credit cards, personal loans and collection accounts go.

Those are the creditors who tend to foul up their proof of claim.

The creditors who really stink at this are the zombie debt buyers.  A zombie debt buyer normally pays a cent or two on the dollar for your debt and tries to collect it.  They pay so little for it because these are old debts that are unlikely to be collected and they have very little supporting documents, if any.

These creditors also like to inflate the numbers on the debt they claim you owe.  For example, I had one creditor who purchased an account that was charged off in 1989 (Bush was still in office, the first one!) and it had a balance of $4300.  That debt buyer calculated interest on the debt and filed a proof of claim for $11,280.

The debt buyer is allowed to do this, but I filed an objection on the grounds that the statute of limitation on debt in Pennsylvania is four years, not four Presidents, and that they did not provide documentation for their debt.

At this point you might be saying “So what?”.  Think about it like this, every $6000 worth of debt that is paid off in a Chapter13 plan is $100 per month.  By killing off this proof of claim, I saved my client $11,280, or $190 per month!

The creditor realized I wasn’t playing games and I had every intention of showing up in Reading and demanding proof of the debt and proof that the statute of limitations did not apply.

The creditor quickly withdrew its proof of claim (12 hours actually) and now my client is off the hook for $11,280 in debt.

This is why you should not file Chapter 13 bankruptcy pro se.  Nearly every one of my clients has a proof of claim that needs to be objected too.  For nearly every one of my clients, the debt I wipe out with objections is more than my fee.

Using a competent, aggressive attorney with a competitive desire to win and beat the daylights out of unscrupulous debtors nearly always pays for itself.