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November 2010 Archives

Bankruptcy exemption bill: extraordinary or regular?

To recap the status of the bankruptcy exemption bills: The Assembly and Senate passed S. 7034A, the major bill updating bankruptcy and judgment exemptions in New York, in June, but the bill has not been sent to the Governor. When New York City objected to extending the motor vehicle exemption to non-bankruptcy judgment debtors, the State Senate passed a companion ball, S. 8451, on August 4 excluding the state and its municipalities from this particular exemption. The Assembly has not acted on S. 8451 (its Assembly alter-ego is A11677) and has not been in session since August 4.The Governor of New York has called the State legislature into an "Extraordinary Session" November 29. According to the staff at one local Assembly Member's office, the only issues that can be dealt with in an "Extraordinary Session" are those designated by the Governor. Governor Patterson has issued a proclamation
stating the items he wishes the legislature to deal with, and the "little" bankruptcy bill (S. 8451) is not on his list. My understanding is that the Assembly must meet in "Regular Session" to deal with any items not on the Governor's agenda. There are lots of leftover bills passed by one chamber but not the other, similar to S. 8451, so it is entirely likely that the Assembly will convert their session from Wxtraordinary to Regular.

New York bankruptcy judge throws foreclosure bank out of court

In a case out of The Bronx, a bankruptcy judge refused to allow the mortgage servicer to proceed with foreclosure. In re Mims (Bankr. SDNY Bk 10-14030; Judge Glenn; decision Oct. 27, 2010; decision attached below). Wells Fargo moved the bankruptcy court for permission to start a foreclosure against the debtor's residence (a "lift stay" motion, asking for the automatic stay of Bankruptcy Code Sect. 362 to be lifted.) The debtor did not oppose the motion, nor did the bankruptcy trustee. Never the less, the court denied the motion, apparently on its own initiative. The mortgage was originated in 2004, when Lend America recorded a first mortgage against the debtor's house (technically, the mortgage was recorded by MERS, or Mortgage Electronic registration System, as 'nominee' for Lend America.) The mortgage note was endorsed to Washington Mutual, a bank later taken over by the FDIC and its assets sold to Chase. There was no evidence that the mortgage note was ever assigned to Wells Fargo. Wells Fargo may have been the "title owner" of the mortgage itself (that is, the security interest.) Seven days before the lift stay motion was filed, the mortgage but not the note was assigned by MERS to Wells Fargo. The bankruptcy court concluded that Wells Fargo was not a party in interest, as it had not shown that it was the owner or holder of the mortgage note. Wells Fargo could not bring a foreclosure in New York State unless it owns the note being foreclosed. There was no written assignment of the note, and Wells Fargo was not in physical possession of the original note (in New York, a note can be assigned by physical delivery of the original note to a new owner.) The court was also troubled by the timing of the mortgage assignment, seven days before the motion, with no "credible explanation, describing how, when and from whom Wells Fargo derived its rights." (Decision, page 8.) The court also noted that the Assignment from MERS was signed by an officer residing in Florida, his signature was notarized in South Carolina. The attorney for Wells Fargo was unable at the motion hearing to verify where the document was actually signed. This decision adds to the uncertainty surrounding foreclosures caused by missing paperwork and other problems (see my three blogs posted Oct. 23, 2010 under the topic Mortgages and Mortgage Foreclosures.) That the court denied the lift stay motion of Wells Fargo on its own initiative shows that some courts in New York are examining all manner of foreclosure proceedings closely, even absent objection from opposing parties. The motion was denied without prejudice, so Wells Fargo may be entitled to relief in the future if it can overcome the court's difficulties with its paperwork. The attorney for Wells Fargo in this motion was the Law Office of Steven J. Baum, PC, of Amherst NY.

Legislature called back into session: Bankruptcy Exemption bill change may be enacted

Ever since early August, the New York bill updating and expanding bankruptcy and judgment debtor exemptions in new York has been on hold (see Blogs Aug. 13 & Aug. 18). As previously reported, New York City objected to the motor vehicle exemption being applied to municipalities that tow cars to enforce parking tickets. The State Senate passed S. 8451, to correct the problem on August 4, but the Assembly has not been in session since then. Two days ago, Governor Patterson called for a special session of the state legislature starting Monday November 29. This will be an opportunity for the Assembly to pass S. 8451 (or its identical twin, A. 11677), and then both S. 8451 and the original exemption bill, S. 7034, can be sent to Governor Patterson for his signature. The bill must be enacted by December 31; if not, it expires along with the current term of the state legislature.

Trustees requiring valuations on Clean Sweep sales

For some time now the Chapter 7 trustees in the Rochester Bankruptcy Court have been encouraged, by the Court, the United States Trustee and by their own pecuniary interests, to administer miscellaneous marginal unexempt assets in asset cases. For example, if a debtor is turning over unexempt tax refunds, the trustee will also request (or demand, depending on how you want to phrase it) an offer on, say, the debtor's unexempt computer, collection of CD's, and hunting rifle. This practice is known as "clean sweep", where assets which by themselves would not warrant administering a case are swept up and administered in cases with larger assets. Trustees liked clean sweep sales, as it added to their commission. Trustees receive 25% of the first $5,000 in assets collected. If a trustee sells unexempt equity in a car back to the debtor for $3,000, the trustee gets a $750 commission. If the trustee can add another $600 in a "clean sweep" sale, that adds another $150 to the commission for very little additional work.Very recently, though, trustees have been requiring some sort of valuation on these "clean sweep" assets before they would process a purchase offer proposal from the debtor. Since many of these "clean sweep" assets are basically junk, valuing them is expensive, time-consuming and often problematic. These are not the kind of assets usually sold on-line, and appraisals could run $200, more than the assets are worth.My understanding is that the Office of the U.S. Trustee has been requiring trustees to obtain these valuations, rather than relying on the trustee's business judgment. It is understandable that a valuation of some sort is needed for big ticket items, like a car or snowmobile, but how do you value stuff that would be difficult to sell in a garage sale?One piece of information that may be helpful would be to include the year and amount of the original purchase in the Schedule B asset description. For example, "Dell Computer" valued at $200 doesn't say much, but "Dell Computer, bought 2005 for $900" would provide information that might substantiate a current $200 value. An asset description that says "14k ring" doesn't tell you much, but "14k ring, bought 2005 for $5,000" tells you a lot.Another approach would be for the trustee to offer the asset for sale in an on-line auction, such as eBay or bankruptcysales.com. For example, say a debtor offers to repurchase from the trustee a computer, 10 CD's and a DVD player for $500. If the trustee put the proposed sale on hold and offered those items for sale in an online auction, with a minimum sale price of $500, and no one bid higher, then the $500 value might be substantiated on the basis that the items were exposed to the market and no higher offer was forthcoming.I had a situation like that when I was a trustee, and a bankruptcy business owned a customer list. Another business offered me $25,000 for the list, and I served a notice of sale. My position was that this asset was so idiosyncratic that it could not be appraised. Another party objected to the sale and the judge upheld the objection on the basis that the asset was not exposed to the market. I then put the asset on an online auction, even advertising the sale in a newspaper located in the community where similar businesses operated, with a minimum bid of $25,000. When I had no counter-offers, the judge then approved my original sale.

Bankruptcy filings stable in Western New York, compared to many other areas: Interactive map link

The Federal Courts have created a fascinating county-by-county map of per-capita bankruptcy filings in the United States over the past five years. The intensity of bankruptcy filings is indicated by color. By clicking different years, you instantly see the rise - or lack of rise - of bankruptcy around the country.While very interesting, the map over-emphasizes rural areas. Most people live in major metropolitan areas, which cover a tiny portion of the country at large. By putting your mouse pointer over individual counties, you can see the specific ratio of filings per year. This shows a very interesting pattern in different parts of the country, which I have analyzed below.First, I have disregarded the figures for the year October 1, 2005 to September 30, 2006. "BAPCPA", the revision of the bankruptcy code, went into effect October 17, 2005, at the start of that year. A huge surge of filings took place immediately before the new date, followed by a drought of cases immediately afterward, making for a very distorted year. In my analysis, I am starting with the year ending September 30, 2007, the first "normal" year following the enactment of BAPCPA.I start with our home town - Rochester - as a base of comparison. Over the past four years, bankruptcy filings here have been extraordinarily stable, and relatively low: Monroe County (Rochester), New York
2007: 2.65 per thousand residents
2008: 2.70
2009: 2.81
2010: 2.68Our neighbors to the east and west (Syracuse and Buffalo/Niagara Falls) have also shown little change in bankruptcy filings the past four years, although the rate of filings are higher than Rochester:Onondaga County (Syracuse), New York
2007: 4.68
2008: 3.67
2009: 3.87
2010: 3.88Erie County (Buffalo), New York
2007: 3.52
2008: 3.73
2009: 3.93
2010: 3.97Niagara County (Niagara Falls), New York
2007: 3.94
2008: 4.27
2009: 4.40
2010: 4.46

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