July 2009 Newsletter

1. Obama’s New Mortgage Incentive to Facilitate Modifications

President Obama’s latest set of incentives are designed to facilitate loan modifications with second mortgage servicers. This new plan builds on the Making Home Affordable (MHA) plan unveiled in February. Pursuant to this new program, the government will provide the servicer of the second mortgage with $500 upfront and $250 a year for three years for the successful modification of the loan. Additionally, the administration is unveiling a separate set of incentives for second mortgage servicers to extinguish the liens. Major U.S. lenders such as J.P. Morgan Chase, Bank of America, and Wells Fargo, have agreed to adopt the program, and it can be expected that many others will follow suit.

The Obama Administration’s set of incentives also includes one for servicers and lenders participating in the Hope for Homeowners program. Under this program servicers must agree to modify second mortgages where the first has been successfully modified. To qualify, servicers must extend the term of the second mortgage and reduce interest to match the first mortgage. If conditions are met, the government will share the cost with the servicer of reducing interest to 1% for amortizing loans and 2% for interest only loans. Announcements regarding these plans were made jointly by the Department of Housing and Urban Development and the Treasury. More information can be found on their web sites.

By Karla Burgos
Attorney
Wesoloski Carlson, P.A.

2. Service of Process

Service of process in the State of Florida is governed by Florida Statute, Title VI, Chapter 48. Service is proper when made by delivering the summons to the person to be served with a copy of the complaint, petition, or other initial pleading or paper or by leaving the copies at his or her usual place of abode with any person residing therein who is 15 years of age or older and informing the person of their contents. The statute also allows for substitute service. It states that substitute service may be made on the spouse of the person to be served at any place in the county, if the cause of action is not an adversary proceeding between the spouse and the person to be served, if the spouse requests such service, and if the spouse and person to be served are residing together in the same dwelling. Also, substitute service may be made on an individual doing business as a sole proprietorship at his or her place of business, during regular business hours, by serving the person in charge of the business at the time of service if two or more attempts to serve the owner have been made at the place of business.

If a diligent effort at personal service of process is attempted and cannot be made, Florida Statute allows for constructive service or service by publication to enforce any legal or equitable lien or claim to any title or interest in real or personal property within the jurisdiction of the court or any fund held or debt owing by any party on whom process can be served within this state.

Foreclosure service is sometimes very difficult. For example an owner of investment property may not reside in the actual property that is being foreclosed, or has abandoned the property, or may not even reside in the United States. In the Miami-Dade Circuit Court there are over 15,000 foreclosure complaints filed this year that have not yet been served. In Florida, if a homeowner is not served within four months of the filing of the complaint the case is subject to dismissal. This figure is also a concern because some of these cases are subject to constructive service and there is the possibility that a Default Summary Final Judgment may be entered without the property owner aware that a suit was even filed against them.

By Javier Gutiérrez
Attorney
Wesoloski Carlson, P.A.

3. KEEP IT FOR LESS: Minimizing Secured Debt through a Chapter 13 Bankruptcy

The United States Senate recently rejected the Cram DownBill, (S. 61 / H.R. 200), which would have allowed bankruptcy judges cut the principal on primary loans when rewriting the terms of mortgages for struggling borrowers. Despite the bill’s failure, several options still remain for Chapter 13 filers, such as second loan lien slice offs and cram downs on other types of debts.

Liens can be sliced off of the debtor’s assets in Chapter13 when there is not enough equity in the asset to provide security for the full amount of the note related to the lien. A second lien mortgage is any mortgage that is subservient to the main or first mortgage on a piece of real property. A Chapter 13 filer may petition the Bankruptcy Court to slice off the second lien or other subservient liens which are lower in priority than the first lien, or primary mortgage. The first lien could then remain as the only priority for the debtor to repay in order to maintain the property. Once sliced off, a second lien essentially becomes unsecured debt, like credit card debt, which is able to be discharged. A second lien that is sliced off will likely receive some form of partial payment through Chapter 13 plan, but only after other secured debts are paid.

In contrast, the term “cram down” refers to the Chapter 13 provision that allows debtors to retain collateral as long as they offer (often a full) repayment of the current fair market value through their repayment plan which typically consists of five years (60 months). The outstanding debt is crammed down on the sometimes unwilling creditors because the amount to be repaid may not reflect the original amount borrowed. A cram down effectively reduces the amount of the secured claim on the property at the time the bankruptcy plan is confirmed. Secured debts that may be crammed down can potentially include, but are not limited to, those for investment homes, cars, boats, furniture and electronic equipment.

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