Payment Application

Here’s an all too common scenario that confuses people…

A mortgage company files a motion for relief from stay.  They allege that the debtor is in default for the three most recent months.  The debtor swears that they made their last three payments.  Is the mortgage company lying?

No, just that the presentation of the facts is slightly misleading.  Here’s what’s really going on.

Let’s say that John Doe bought a new house in December 2013.  His first mortgage payment was due January 2014.  He makes payments in the following months:

January 2014
February 2014
April 2014
May 2014
June 2014
August 2014
September 2014
October 2014
November 2014
December 2014
February 2015

At the end of February 2015, the mortgage company says they are missing payments for December 2014, January 2015, and February 2015, even though John made his payments in December 2014 and February 2015.

Payments get applied to the oldest contractual payment that was due.  Therefore…

John’s January 2014 payment was applied to January 2014.
John’s February 2014 payment was applied to February 2014.
John’s April 2014 payment was applied to March 2014.
John’s May 2014 payment was applied to April 2014.
John’s June 2014 payment was applied to May 2014.
John’s August 2014 payment was applied to June 2014.
John’s September 2014 payment was applied to July 2014.
John’s October 2014 payment was applied to August 2014.
John’s November 2014 payment was applied to September 2014.
John’s December 2014 payment was applied to October 2014.
John’s February 2015 payment was applied to November 2014.

And that’s why the mortgage company insists that they are missing December, January, and February.

Therefore, if you ever want to dispute a lender’s accusations that you missed a payment, you must go back and show proof of payments over the entire history of the loan (or, in Chapter 13 Bankruptcy, from the date the case was filed or the last time a default was addressed).  And when that happens, 95% of the time, the borrower realized that they did, in fact, default by 3 months, even though some of the earlier defaults may be a forgotten memory.

This is one of the many reasons I recommend conduit mortgage provisions for my Chapter 13 clients who have defaulted on their home loans.  It’s easier for us to access the information concerning when a default took place.

Foreclosure Filings Back Up

After a year of steadily declining foreclosure filings in 2014, January 2015 numbers were up substantially over December 2014, rising to levels not seen since March/April 2014.  Statewide, filings were up 35% over December 2014.  In northeast Wisconsin, filings were up 40%.  Brown County was up 28%; Outagamie County was up 81%; Sheboygan County was up 73%; and Winnebago County was up 35%.
If you were among those served with a notice of foreclosure last month, it’s not too late to save your home.  Call my office today to find out how Chapter 13 Bankruptcy can help you save your home from foreclosure.

Avoidable Security Interests

Let’s say that a debtor needs a replacement vehicle and purchases one shortly before filing for bankruptcy.  And by “shortly before”, I mean less than 90 days, such that the security interest was established during the preference period under 11 U.S.C. § 547.  Can the trustee strip the lien and take possession of the vehicle?
In a typical case, I’m looking to see whether a lien was perfected against a vehicle more than 90 days before the bankruptcy case is filed.  I do this by looking at the vehicle title (for vehicles financed in or before July 2012) or the confirmation of ownership (for vehicles financed in or after August 2012).  If the lienholder is properly listed and the issue date is more than 90 days ago, I know we’re safe to file.  Both documents are from the DMV.  If you do not have the original document, don’t request a duplicate from the DMV.  The issue date will be the date you acquire it, which will not be the date the lien was perfected.  If you do not have the original, request confirmation of security interest from the creditor or get a certified vehicle record from the DMV (form MV-2896).
No matter what, the lien needs to be perfected before the bankruptcy case is filed, otherwise the trustee can avoid the lien.  If the lien was perfected within the 90 days before the bankruptcy case is filed, then we have to investigate further.
If the debt is a PMSI loan (meaning the loan was incurred in order to purchase the collateral for the loan), then § 547(c)(3) applies.  We need to look at the security agreement between the debtor and the lender, and if the lien was perfected within 30 days of the date the debtor took possession of the vehicle, then the lien cannot be avoided.
If the debt is a non-PMSI loan (meaning the collateral was already owned and put up as security for a new loan), then § 547(e)(2) applies.  In that case, we look to when the loan was made, and if the lien was perfected within 30 days of that, then the lien cannot be avoided.
So, the lien has to be perfected, and if there was more than a 30 day delay in perfection, then the debtor risks lien avoidance if bankruptcy is filed within 90 days of perfection.

Scaffidi v. Kenosha City Credit Union (In re Moeri), 300 B.R. 326, 328 (Bankr. E.D. Wis. 2003)

Pioneer CU / Capital CU

In recent days, I’ve received multiple complaints from clients who are receiving collection letters from Capital CU on debts that should have been discharged in bankruptcy.
In each case, the client had multiple loan accounts (secured and unsecured) with Pioneer CU, reaffirmed on the secured loan and not the unsecured loan.  The unsecured loans would otherwise have been secured by cross-collateralization, but they were not part of the executed reaffirmation agreement and therefore discharged in bankruptcy.
In short, Capital CU is making collection attempts in violation of the discharge injunction.
I have spoken to a representative at Capital CU and have been advised that there was a notation issue when the accounts transferred from Pioneer’s systems to Capital’s systems.
If you receive a collection letter on a debt you believed was discharged in bankruptcy, call my office before making any payments.  These issues should be easily resolved when brought to Capital’s attention.