Bankruptcy basics: what is a 341 creditors hearing in a bankruptcy case?
Attending a 341 Creditor’s Meeting – What is it? What to Expect
Whether it is Chapter 7 or Chapter 13, everybody must go to a 341 meeting. Section 341 of the Bankruptcy requires a meeting with creditors. It is a very brief appearance. Your bankruptcy attorney will be there, you will be there (the debtor) and the Trustee will also be there.
Creditors are permitted to attend and question various things, but they will rarely show up and, in fact, almost never. Showing up as a creditor doesn’t change your rank. You don’t go from an unsecured creditor to a secured creditor just because you show up. So your credit card company cannot show up at a 341 hearing and acquire secured creditor status. There’s no point and it wastes time. Some credit unions might show up if they feel there has been some kind of fraud, like a lie on an application. They could show up and ask a couple of questions. Other times you might find crazy ex-spouses or girlfriends show up or people who just want to vent in which case the Trustee might let it go on a couple of minutes and then they will cut it off.
Basically it is just an opportunity to check your ID’s and make sure you are who you are. You have to show up on time with your driver’s license and Social Security card. They swear you in and then begini by asking some general questions (nothing that you haven’t answered on your Petition).
For example, (1) did you examine the petition before you signed it, (2) did you list all your assets? (3) are you a Plaintiff in any lawsuits, (4) do you have any other personal property you have not listed on the schedules, etc.?
The questioning is tape recorded and is basically 4-5 minutes long. It goes very quickly. Like I said, it is mostly an opportunity to verify your ID’s. Before you go there you meet with your Trustee and the Trustee will send out a Trustee letter a couple of weeks before your 341 meeting. It is a letter that requires you to fill out a form, and it is going to require you to submit the documents that he/she asked you to submit. So they might want 6 months of bank statements. You will want to mail all the requested items into the Trustee’s office before you show up and then when you show up he/she will have everything prepped and they will be ready to ask you about any assets you have and what not.
For the most part, 95% of the time it is only about 5 minutes long because they do about six every half an hour in Maricopa County. So it is like 5 minutes – six people every half hour, on the half hour. They call everyone in as a big group and they even call you individually into the main chamber and then they will go one at a time.
That is a basic overview of what happens in a 341 creditors meeting.
Before filing for bankruptcy protection, have you considered the short sale option? Should you consider the short sale option?
We are getting more and more calls from people who have decided to give up on the hopes of principal loan balance reduction (we have always told people principal loan balance reductions are like a bigfoot sighting) and instead seek to short sell their property letting the bank deal with the property, especially where the stubborn bank (that got their bailout) refuses to help the homeowner save their home by providing a reasonable and meaningful loan modification.
Now, in the context of shot sales, there are a few things to consider:
(1) Will you be liable for a deficiency judgment (meaning if the lender allows you to sell your home for less than its worth, can the lender come back against you for a deficiency judgment?
We have talked about deficiency judgments in Arizona on one of our other websites: Click here for more general legal information: http://www.arizonadeficiencyjudgment.com/
(2) Are there tax implications involved with the lender forgiving debt owed?
(3) Are you entitled to $1,500 relocation expenses following a short sale under the HAFA (Short Sales Incentives law)?
(4) Do you qualify for HAFA?
We outlined the general qualifications for HAFA and some of the general rules on our HAFA short sale blog which can be found here: http://activerain.com/blogsview/1546150/short-sales-overview-before-and-in-anticipation-of-hafa
(5) Can a forensic loan audit and letter to your lender help assist in them accepting a short sale over forcing you into foreclosure? Do you have any predatory lending violations that you can leverage? Is it better to file a lawsuit against your lender?
We have previously outlined some of the things we look for in an Attorney forensic loan audit on this website: http://vondranlegal.com/2009/08/15/what-is-a-forensic-loan-audit/
(6) What other options might you have if the lender refuses to accept your short sale? Options such as filing bankruptcy or pursuing a deed-in-lieu of foreclosure?
Our Arizona bankruptcy website can be found at www.ArizonaBankruptcyResourceCenter.com
(7) If the lender insists on denying your short sale, have they followed the foreclosure process that would permit them to legally foreclose on you?
(8) Are there outstanding issues that can be solved with a Qualified Written Request under RESPA?
We have discussed in general terms the topic of Qualified Written Request under another blog that can be found here: http://www.foreclosuredefenseresourcecenter.com/forensicloan-loan-audits/qualified-written-request/
(9) Do you have a right to rescind your loan under Truth in Lending (TILA) extended three-year right to rescind?
We have a website dedicated to truth in lending rescission rights (TILA) which can be found here: http://www.rescindmyloan.net/a-general-overview-of-truth-in-lending-law-and-the-right-to-rescind/
These are some of the loss mitigation and foreclosure defense questions/issues we deal with on a daily basis. If you are facing any of the above legal issues, you might want to think about retaining a real estate and foreclosure lawyer to protect your interests. The banks, lenders, and loan servicers have lawyers on their side and they are probably hoping you don’t take this step on your end. In California, the lenders backed SB94, a law that prevents any lawyer or broker from accepting any advance fees for loan modifications which has literally allowed lenders to force California homeowners to be unrepresented in the loan modification context. This is the way they wanted it done, and the California legislature went along with it. In Arizona, you may still hire a lawyer to assist you, at least for the time being.
For more information about hiring a Phoenix Short Sale Lawyer, please visit our website at www.PhoenixShortSaleLawyer.com
KEYWORDS: PHOENIX SHORT SALE LAWYER / SCOTTSDALE SHORT SALE LAWYER / ARIZONA SHORT SALE LAWYER / SHORT SALE ATTORNEY / PHOENIX SHORT SALE ATTORNEY / SCOTTSDALE SHORT SALE ATTORNEY / ARIZONA SHORT SALE ATTORNEY / ARIZONA FORECLOSURE LAWYER / PHOENIX REAL ESTATE LAWYER / SCOTTSDALE FORECLOSURE ATTORNEY / PHOENIX BANKRUPTCY LAWYER / PHOENIX BK LAWYER / REAL ESTATE LOSS MITIGATION / DEED-IN-LIEU OF FORECLOSURE / ARIZONA INJUNCTION / FILING LIS PENDENS / PHOENIX LOAN MODIFICATION / SCOTTSDALE LOAN MODIFICATION / ARIZONA LOAN MODIFICATION / TILA RESCISSION / RESPA QUALIFIED WRITTEN REQUEST
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Before you commit to bankruptcy consider short sales and deed in lieu of foreclosure – new HAFA program may provide help???
FORECLOSURE DEFENSE BASICS: UNDERSTANDING THE HOME AFFORDABLE FORECLOSURE ALTERNATIVES PROGRAM (HAFA), SHORT SALES, DEED IN LIEU OF FORECLOSURE AND DEFICIENCY JUDGMENTS
So many homeowners are fighting for reasonable loan modifications that will save their homes from foreclosure. Other people are seeking refuge in a bankruptcy Court (Chapter 13 Bankruptcy, and Chapter 7 Bankruptcy). Still others are seeking a Deed-lieu-of-foreclosure strategy, while other homeowners who are completely upside down on their properties are either walking away, or seeking to short sale their property. This is the current state of affairs in the United States, and banks (who have been generously bailed out) are picking and choosing who gets what. It seems like if you want the bank to perform any loss mitigation for Arizona of California homeowners, you have to basically incentivize them to do something (e. HAMP – Making Home Affordable).
We have previously published an article on the Lender/loan servicers HAMP report card. The results are not overwhelming. Click here to view that blog post:http://www.loanmodradio.com/2010/03/hamp-trial-plan-fraud-or-just-off-to-a-slow-start-hamp-lender-report-reveals-some-insights/
So now comes along yet another incentive program that may help some homeowners obtain short sale relief and deed-in-lieu-of-foreclosure relief (and of course stuff more cash into the pockets of the bankers and loan servicers). This new loss mitigation program is called HAFA – Home Affordable Foreclosure Alternatives Program. Pretty cool name! HAFA supplements HAMP. Servicers implementing HAMP must also comply with the HAFA directives and consider people for short sales and deed in lieu of foreclosure.
What is a short sale? A short sale is a transaction whereby a lender agrees to accept less as a payoff than is owed by the homeowner/borrower by allowing the property securing the debt to be sold for less than the lender is owed. In some cases the lender will forgive the outstanding debt owed and in other cases the lender may want an agreement from the borrower to pay the deficient loan balance.
What is a deed-in-lieu? This is basically where a homeowner/borrower hands over the deed to the property (with marketable title) to the lender who agrees to accept the deed, thereby eliminating the need to pursue a foreclosure sale. Sometimes a lender will require short sale efforts before they would accept the deed in lieu of foreclosure.
Why would a lender agree to a short sale or deed in lieu of foreclosure? It costs less for a lender to do a short sale or accept a deed in lieu than it does to pursue a foreclosure. So where it makes financial sense, the lenders will entertain these loss mitigation measures.
Ok, so let’s take a look at the major points under HAFA:
(1) Program is for HAMP-eligible borrowers who were (a) nevertheless denied under HAMP, (b) qualified but were not given a trial plan, (c) could not make 2 or more trial plan payments, or (d) completed trial plan but no permanent modification was given. To see what types of borrowers qualify for HAMP see this link: http://www.treas.gov/press/releases/reports/guidelines_summary.pdf(generally must be borrowers principle residence, first mortgage loan must not exceed 729,500, and payment must be in excess of 31% of borrowers gross monthly income).
(2) Program takes effect April 5, 2010 and “sunsets” December 31, 2012.
(3) The hardship letter and financials on file with the lender / loan servicer can be used for the short sale or deed-in-lieu. (Goal is to make easy for those denied under HAMP to be reviewed for the short sale or deed in lieu).
(4) HAFA allows borrowers to receive pre-approved terms (ex. minimum acceptable net proceeds) before listing their property for sale.
(5) All short sales must be at “arms length” (meaning, you cannot sell the property to any relatives or other persons with a close personal or business relationship). The buys of the property are bound to not re-convey the property – ex. back to the borrower – within 90 days.
(6) HAFA prohibits loan servicers from requiring a commission reduction in the agreed real estate listing agreement between the seller and agent (up to 6% is protected). However, Servicers may use short sale assistants on their end that must be paid a specified portion of the commission.
Here is Freddie Mac’s Short Sales commission policy: http://www.realtor.org/wps/wcm/connect/c126d4804f53ab6586b8c74e813808c1/Freddie+Mac+Short+Sales+Policy+10.27.09.pdf?MOD=AJPERES&CACHEID=c126d4804f53ab6586b8c74e813808c1
And here is Fannie Mae’s short sales commission policy: http://www.realtor.org/wps/wcm/connect/7e6786804018046f8d0cfd205f470b6e/Fannie+Mae+Short+Sales+Policy+10.27.09.pdf?MOD=AJPERES&CACHEID=7e6786804018046f8d0cfd205f470b6e
(7) Requires borrowers to be fully released from facing deficiency judgment liability judgments on the first mortgage (and on the second mortgage as well if the junior lien holder receives any incentives under HAFA). This means they cannot require a deficiency promissory note be signed, seek a deficiency judgment in a court of law, or demand any other cash contribution from the homeowner seeking the short sale.
(8) HAFA requires the use of Standard forms, process, timelines, and deadlines. See Supplemental Directive 09-09 here: https://www.hmpadmin.com/portal/docs/hamp_servicer/sd0909.pdf
(9) HAFA requires all servicers participating in HAMP to implement HAFA in accordance with their own written policy consistent with investor guidelines. This means the servicer can have its own internal policies for implementing HAFA which policy can take into account local markets and the severity of financial loss, timing of pending foreclosure actions, etc. Yes, the discretion on all loss mitigation efforts is always left to the discretion of the servicers. Good for them, potentially bad for homeowners.
Other factors that may be taken into account in dealing with whether the homeowner will be permitted to seek a short sale or deed in lieu of foreclosure are (i) Expected recovery if foreclosure is pursued; (ii) current condition of title / encumbrances, (iii) borrowers financials submitted under HAMP, (iv.) property valuations, and (v.) effect of short sale/deed in lieu and perhaps (vi) predatory lending litigation and truth in lending (TILA) rescission risks.
(10) HAFA permits a 90-day timeline that gives homeowners the ability to sell their homes in a short sale without risk of foreclosure. See our timeline discussion below.
Here is a list of the HAMP participating loan servicers: http://www.foreclosuredefenseresourcecenter.com/2010/03/hamp-trial-plan-permanent-modification
(11) HAFA provides financial incentives for borrower relocation assistance following the short sale ($1,500); incentives to the servicers to cover short sale processing costs ($1,000); and incentives for investors matching up to $1,000 for each lien holder ($3,000 total).
(12) Credit impact following a short sale or deed in lieu of foreclosure: following a short sale, the creditor will report to the credit reporting agencies that the mortgage was settled for less than full payment (this will still impact your credit score but should not impact as much as a foreclosure).
(13) Potential tax implications for debt forgiveness following a short sale or deed in lieu: Borrowers pursuing a short sale must investigate the potential tax ramifications involved, usually by discussing this with a tax accountant, CPA or tax lawyer prior to selling their property. In some cases, debt that is forgiven that does not exceed the amount borrowed to acquire, construct, or rehabilitate property may not be treated as taxable income. Again, contact a tax professional. We will be writing a separate blog on general overview of tax issues in the loss mitigation context.
GENERAL TIMELINE UNDER HAFA:
(1) BORROWER IS REVIEWED FOR HAMP LOAN MODIFICATION BUT IS DENIED, OR CANNOT COMPLY WITH TRIAL PLAN OR IS NOT OFFERED A TRIAL PLAN ETC. SEE CONDITIONS ABOVE;
(2) BORROWER EITHER REQUESTS A SHORT SALE OR DEED IN LIEU OF FORECLOSURE AND/OR THE LOAN SERVICER SENDS BORROWER NOTICE OF RIGHT TO BE REVIEWED FOR HAFA’S SHORT SALE AND DEED IN LIEU OPTIONS WITHIN 30 DAYS:
(3) IF BORROWER FAILS TO RESPOND WITHIN 14 DAYS, THE RIGHT TO BE REVIEWED UNDER HAFA IS LOST;
(4) IF REQUESTED, BORROWER RECEIVES A SHORT SALE AGREEMENT FROM LOAN SERVICER. THIS AGREEMENT DISCLOSES THAT BORROWER HAS AT LEAST 120 DAYS TO SELL PROPERTY FREE FROM FORECLOSURE RISK AND HAS SPACES FOR THE BORROWER AND REAL ESTATE BROKERS SIGNATURES. THE LISTING AGREEMENT SHOULD BE ATTACHED AND RETURNED WITH THIS DOUCMENT AS SHOULD THE HARDSHIP FORM AND INFORMATION ON JUNIOR LIEN HOLDERS AND THE PROGRESS OF ANY NEGOTIATIONS WITH THESE LIENHOLDERS.
NOTE: YOU WILL MOST LIKELY BE DENIED A SHORT SALE IF YOU HAVE NOT NEGOTIATED YOUR SECOND MORTGAGE AND GET THEM TO RELEASE YOUR LIEN. THIS SEEMS PRETTY BRUTAL BUT ALSO SEEMS TO BE A REQUIREMENT TO GET YOUR SHORT SALE APPROVED.
(5) BORROWER HIRES A SHORT SALES AGENT AND LISTS PROPERTY FOR SHORT SALE IN LOCAL MLS; (SHORT SALE BROKER MUST SIGN DOCUMENT LISTED ABOVE);
(6) SELLER GETS AN OFFER TO PURCHASE THE PROPERTY (MUST BE AN ARMS LENGTH TRANSACTION);
(7) BORROWER SUBMITS A COMPLETE SHORT SALE PACKAGE TO LENDER INCLUDING A REQUEST FOR APPROVAL OF SHORT SALE (RASS); LOAN PREQUALIFICATION LETTER FOR THE BUYER, AND MUST FILL OUT A FORM INDICATING THE TRANSACTION DETAILS. A COPY OF THE PURCHASE AND SALE AGREEMENT MUST ALSO BE ATTACHED AND CERTAIN REPRESENTATIONS, MADE UNDER PENALTY OF PERJURY, MUST ALSO BE GIVEN.
(8) THE LOAN SERVICER CONDUCTS AN EVALUATION OF THE SHORT SALES TRANSACTION USING THE FACTORS DESCRIBED ABOVE TO SEE IF BORROWER QUALIFIES FOR THE SHORT SALE OR DEED IN LIEU OF FORECLOSURE PROGRAM;
(9) THE LOAN SERVICER MUST ACCEPT OR DENY THE RASS WITHIN 10 BUSINESS DAYS OF RECEIVING THE RASS FORM AND ADVISE BORROWER ACCORDINGLY.
(10) IF LOAN SERVICER AGREES TO THE SHORT SALE IT MUST ALSO AGREE TO WAIVE ANY DEFICIENCY JUDGMENTS FOLLOWING THE RECEIPT OF SALE PROCEEDS AND CANNOT DEMAND ANY NOTES BE SIGNED AGREEING THE PAY THE DEFICIENCY;
(11) ESCROW IS OPENED – TYPICALLY A 45 DAY ESCROW – AND THE TYPICAL REAL ESTATE TRANSACTION FUNCTIONS PROCEED (APPRAISAL, FINANCING, SELLER DISCLOSURES, INSPECTIONS, ETC.);
(12) THE BUYER OF THE SHORT SALE MUST BE A BONA FIDE PURCAHSER (ARMS LENGTH TRANSACTION) AND THEY CANNOT RE-CONVEY THE PROPERTY FOR AT LEAST 90 DAYS AND CANNOT HAVE AN AGREEMENTIN PLACE TO LEASE THE PROPERTY TO THE FORMER HOMEOWNER AS A TENANT ON THE PROPERTY;
(13) FOLLOWING THE SHORT SALE RECEIPT OF FUNDS, THE SENIOR LIEN HOLDER MUST RELEASE THEIR FIRST MORTGAGE LIEN WITHIN 10 DAYS AND CANNOT PURSUE ANY DEFICIENCY JUDGMENTS.
(14) THE SELLER WILL THEN BE ENTITLED TO $1,500 RELOCATION ASSISTANCE PAID OUT OF ESCROW PROCEEDS.
(15) TAX AND CREDIT IMPLIACATIONS ARE DISCUSSED ABOVE AND IN OTHER BLOGS.
IF YOU ARE A CALIFORNIA OR ARIZONA HOMEOWNER INTERESTED IN PURSUING HAFA SHORT SALE OR DEED IN LIEU OF FORECLOSURE YOU NEED TO ACT FAST. CONTACT OUR OFFICE TO DISCUSS YOUR CASE AND DISCUSS IMPLICATIONS COCERNING DEFICIENCY JUDGMENTS AND NEGOTIATING WITH SECOND LIEN MORTGAGE HOLDERS AND JUNIOR LIEN HOLDERS.
KEYWORDS: Arizona deficiency judgment / Phoenix HAFA lawyer / Scottsdale HAFA lawyer / Short sale attorney / Short sales lawyer / HAMP short sale program / deed-in-lieu-of foreclosure / Arizona foreclosure lawyer / Phoenix Foreclosure Lawyer / Phoenix foreclosure attorney / Scottsdale loan modification lawyer / Phoenix loan modification lawyer / Phoenix loan modification attorney / Lis Pendens / Quiet Title / Injunction / Arizona loan modification lawyer
Google our other foreclosure defense blogs on Arizona Deficiency Judgments and HAMP Loan Servicer report Card and Tax Issues in Arizona Short Sales (use keyword Vondran).
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