Homestead Protection For Mobile Home/RV Park

 One of my clients is concerned about a judgment from default on a second mortgage on his current residence. The client’s primary investment asset is a mobile home and RV park. The part comprises a large number of lots which are rented to different mobile home and RV owners. The RV park is located in the county and is smaller than 160 acres. 

  The client asked if he could exempt the entire RV park as homestead if he moves his residence to his own mobile home located within his park. The issue is whether a large property used primarily for commercial purposes can be exempted entirely when the debtor resides upon the property.    There is a well established general rule that a homeowner living within a city may not claim homestead for a property used in part to generate income. For instance, a person within a city may not homestead a multi-unit residential building when the homeowner rents one or more of the units. Outside of a city a homeowner may generate income on his homestead; the large, 160 homestead protection is designed to protect the family farmer.  

 The law is not yet clear when a property outside a city is used primarily as a commercial venture such as the case of my client’s RV park. One state court appeals court held that a homeowner could claim homestead where he used part of his property to operate a mobile home park. A federal bankruptcy court subsequently refused to follow the state case and denied homestead protection to a debtor whose property consisted of his own home and eight mobile home lots rented to third parties. 

  In my opinion, most courts would not protect my clients property if the court believed my client relocated his residence to a small portion of a property previously used wholly as a commercial enterprise just so he could protect the entire property under the homestead umbrella.

Kodak files for Chapter 11 bankruptcy

Kodak Co. recently filed for Chapter 11 bankruptcy.  The photography company was created more than 100 years ago, but has struggled in recent years with more and more people relying on digital cameras.

According to their Chapter 11 filing, Kodak has $6.8 billion in debt and $5.1 billion in assets.  Last week, NYSE Regulation Inc. decided to stop the trading of Kodak stock.

Since 2010, Kodak has had to let go of 47,000 employees and close 130 photography labs and 13 factories.  The company hopes to be able to sell off patents in order to continue operations under Ch. 11.  ”Out of the bankruptcy proceedings, a much smaller company can emerge,” said former vice president for digital imaging at Kodak.

Sixth Circuit BAP Allows Debtor to Avoid Unperfected Mortgage on Manufactured Home – In re Barbee

Vincent Howard and our team of Riverside County foreclosure defense lawyers were interested to see another ruling allowing a bankruptcy debtor to successfully avoid a lien on a manufactured home. In In re Barbee, the Bankruptcy Appellate Panel for the Sixth U.S. Circuit Court of Appeals found that Gary D. Barbee of Kentucky may avoid a lien on his manufactured home because the lender, U.S. Bank, never perfected its lien on the home. Barbee mortgaged the land and all improvements, including a double-wide trailer built onto the land. When he later filed for bankruptcy, he argued that the bank never perfected its lien because it never acquired title to the manufactured home. The bankruptcy court agreed, and after review, the Sixth Circuit BAP allowed that ruling to stand.

Barbee and Rebecca Gaunce borrowed about $75,500 from Countrywide to buy the land in 1999, encumbering “all improvements and fixtures” on it. They never acquired title to the home, but the record shows it was gutted and rebuilt as a non-mobile home in 1997. In 2009, Barbee filed for Chapter 13 bankruptcy; Gaunce filed a separate case in which there was no controversy with the lender. Six months later, the bankruptcy court allowed Barbee to pursue an adversary complaint alleging that the bank’s interest is avoidable because it was not perfected by acquiring title. Both sides filed for summary judgment, with the bank arguing that Barbee lacked standing to bring the adversary proceeding in the first place because he also has no title and no interest in the home other than as an improvement or fixture on real estate. The bankruptcy court disagreed, ruling the lien avoidable because ownership was never noted on the title and the home had not been converted to real property.

In a ruling that relied heavily on the Sixth Circuit’s 2011 manufactured home case, Countrywide Home Loans v. Dickson, the Sixth Circuit BAP upheld the bankruptcy court. The BAP in Dickson ruled that the debtor did have standing to avoid a lien even though she was not the trustee, and while the Sixth Circuit itself never reached the issue, the BAP adhered to that precedent. The BAP also ruled that the home is a part of Barbee’s bankruptcy estate, because he has an equitable interest regardless of whether he has the title. However, under Kentucky law, a manufactured home is personal property, which means perfecting a lien requires noting it on the title or converting it n court. Bankruptcy law says a property interest must be created by state law or federal interest, the court said, rending the bank’s mortgage argument incorrect. Other bank arguments were waived because they were used for the first time on appeal. Thus, the BAP agreed that the lien is avoidable.

Our San Juan Capistrano foreclosure defense attorneys are pleased to see another opinion requiring lenders to answer for the consequences of their inaction when it comes to legal technicalities. Very often, borrowers are the ones who suffer when lenders aren’t prompt or make mistakes with paperwork, and it takes an experienced attorney like Vincent Howard to keep these mistakes from doing lasting harm. This case and Dickson rely to some extent on the fact that a manufactured home is treated as a different kind of property in Kentucky — more akin to a car than a home. It’s unclear whether this is true everywhere, but because Dickson reportedly created a split in the circuits, the issue is likely to be revisited. At Howard Law, P.C., our Oceanside foreclosure defense lawyers help clients find quirks like these that can help them fight a rushed or unfair foreclosure.

Free Workshop for Dealing With Your Debts

Free Workshop at the San Francisco Law Library on February 6, 2012.

We will address various ways to deal with your debt including:

• Debt settlement
• Chapter 7 or Chapter 13
• Dealing with underwater homes
• Consequences of doing nothing

Monday, February 6, 2012 12:00 PM 1:00 PM

 
San Francisco Law Library
401 Van Ness Ave, Room 400
San Francisco, CA 94102

What Is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy is a “reorganization” bankruptcy rather than a complete liquidation of debt as in a Chapter 7. A Chapter 13 is, basically, a payment plan enforced by the Federal Bankruptcy Court upon all of your creditors, whether the debt is a “dischargeable” debt like a credit card or “non-dischargeable” debt like a child support arrearage or recent income taxes owed. Contrary to popular belief, you are not required to pay back 100% of what you owe to your creditors in a Chapter 13. 

The Chapter 13 Plan may be 36-60 months long. Although there is no income-based eligibility standard in a Chapter 13, the same income-based “means test” that determines Chapter 7 bankruptcy eligibility also determines whether you may have a 36-month Plan. The Chapter 13 Plan is devised by you and your attorneys and proposed to the court for its and for creditors’ approval. What you pay in a Chapter 13 Plan is whatever net income you have in your household each month, after basic household expenses, such as food and gas and utilities are taken into account. For instance, if you have $1500 in net household income each month and $1200 in household expenses, your Plan payment would be $300 every month. 

The approval process for the Chapter 13 Plan is roughly 5-6 months long and will require you to attend, typically, at least two hearings at the Bankruptcy Court. Once the Plan is approved by the Trustee who is assigned to your case by the Court when it is filed, you are off and running, your only obligations being a timely monthly payment and good communication with your attorney, should your income decrease or expenses increase at any time. 

Chapter 13 is the form of bankruptcy available to you if you are not qualified to file a Chapter 7 bankruptcy.  However, there are many good reasons to file a Chapter 13 even if you are qualified for Chapter 7. 

First, there is no liquidation of your personal assets in a Chapter 13. If you have property that would be seized and sold off in a Chapter 7, a Chapter 13 may be your best option if that property is important to you. 

For this same reason, if you are running a small business, a Chapter 13 may be a wiser option so that you do not risk losing your business in a Chapter 7, where the Trustee has the right, under certain circumstances, to seize and wind down your business. 

Second, in a Chapter 7 bankruptcy, you either keep or surrender your real estate as-is, with all mortgages intact. In a Chapter 13, we can pursue a mechanism called a “lien-strip,” which will remove and discharge your liability to make payments on a second mortgage, if your house is worth less in fair market value than you owe on a first mortgage. 

We can also, under certain circumstances, cram down the payment you make for other secured debts, such as a car payment, so that you pay in full in the Chapter 13 plan only what the property security it as actually worth. If your car, for example, was purchased more than 3 years ago and has more than 75,000 miles on it, you will pay off your loan in a Chapter 13 only to the extent of the car’s real value.

Tax debts and other non-dischargeable debts, with the exception of student loans, can also be paid off through a Chapter 13 Plan at 0% interest—a few percent better than the IRS will give you in most of its repayment plans. 

A Chapter 13 can also be dismissed at any time if it is no longer working for you, or it can be converted to a Chapter 7 later on, if your economic circumstances decline. It is a highly flexible process. 

Chapter 13 Bankruptcy, best of all, requires virtually no negotiation with your creditors for it work. It is one of the most effective and most efficient processes for dealing with personal debt left in the American legal system. Debts discharged through bankruptcy carry no taxable penalty. 

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Domestic Asset Protection Trust Summary

Several states have enacted statutes which provide asset protection of a debtor’s interest in a trust which the debtor sets up for his own benefit and which the debtor capitalizes with  his own non-exempt assets. These trusts are referred to as “domestic asset protection trusts” (DAPT). The trusts legislation attempts to create domestic trust with the same asset protection benefits of offshore asset protection trusts.

Many of my asset protection clients suggest using a DAPT as part of their asset protection program. Whether a DAPT is an effective asset protection tool depends mostly upon where the debtor lives and owns assets. Here is a good summary of DAPT options from Jay Adkisson’s asset protection blog published in Forbes Magazine. Jay provides an easy to understand chart which illustrates when a DAPT will, and will not, work, and he provides also legal citations for the application of DAPT law in different forums.

Jay’s chart shows why DAPT created in other states usually will not protect assets of Florida debtors in Florida courts.
 

TLC singer files bankruptcy for second time

TLC singer Tionne Watkins, or T-Boz, recently filed for personal bankruptcy.  According to the filing, Watkins owes $768,643 to creditors.

In addition, the filing shows that the four-time Grammy award winner only receives about $1,200 a month in royalties from the music she produced with TLC.  She currently has a monthly income of about $11,700, but spends about $8,821 a month.

The majority of the singer’s debt is related to a mortgage on a $1.2 million house.  Watkins’s financial troubles are also related to about $250,000 in owed child support from her ex-husband, rapper Mack 10.

The singer first filed for bankruptcy in 1995 with the band.  The Chapter 11 bankruptcy surprised many TLC fans because it came at about the same time as the peak of the group’s success.

To speak with an attorney about the bankruptcy process, contact the West Palm Beach bankruptcy lawyers of Eric N. Klein & Associates, P.A. by calling 561-353-2800 today.

Bankruptcy Panel Rules Debtors Not Responsible for Guarantee Made by Franchisor to Bank – In re Unterreiner

As Fontana personal bankruptcy lawyers, we were pleased to see a recent bankruptcy appeals panel ruling that declined to hold bankrupt small businesspeople responsible for a loan guarantee made by their franchisor. In In re Unterreiner, bankruptcy filers Jeffrey and Lisa Unterreiner were once part of a business that co-owned three Dairy Queen restaurants in Missouri. When the business ran into financial difficulties, it took out a loan that, unbeknownst to them, was guaranteed by the franchisor, Dairy Queen of Greater St. Louis, Missouri Inc. (DQSTL). When they could not pay back the loan and the Unterreiners filed for bankruptcy, DQSTL’s owner, the Samuel J. Temperato Trust, successfully sued to have the loan declared not dischargeable. The Eighth Circuit’s BAP reversed in this decision.

Jeffrey Underreiner and a business partner, Edward Radetic, owned the three Dairy Queens through King William Management Inc., which franchised from and paid part of its earnings to DQSTL. In 2005, because of King William’s difficulties, an employee of the Temperato Trust arranged for a loan to King William. This was a no-document loan from a bank King William had never before done business with. The Unterreiners, Radetic and his wife all personally guaranteed the loan, and they also gave a security interest in the business assets of two of the Dairy Queens. Without the Unterreiners’ knowledge, the loan also fell under a preexisting blanket loan guarantee issued by the Trust. It was revealed that a separate business entity owned the majority of the business assets in the restaurants at issue, making the security interest problematic at best.

Unfortunately, King William was unable to repay the loan. The Unterreiners paid the bank $20,000 in exchange for a release of any claims related to the loan, and the bank went to the Trust, which ultimately paid $185,000. After the Unterreiners filed for bankruptcy, the Trust brought an adversary proceeding against them to collect that money, alleging they knowingly misrepresented the ownership of the assets, thus causing the loss to the Trust. The Unterreiners argued that they had no knowledge of the Trust’s blanket guarantee to the bank, and that their release of liability from the bank should release them from this debt. The bankruptcy court ultimately found the debt nondischargeable, and they appealed.

The bankruptcy court had found that Jeffrey Unterreiner knowingly made a false statement by pledging the collateral King William did not own, and that the Trust reasonably relied on it when it agreed to guarantee the loan. The Eighth Circuit BAP disagreed. To exempt the debt from discharge, it said, the Trust would have to show that it paid the money directly to Unterreiner at the time of the misrepresentation, which is not true. The Trust could argue that Underreiner did get the guarantee from DQSTL, a thing of value, at the time of the misrepresentation — but DQSTL is not the plaintiff in this case, the court noted; the Trust is. Furthermore, loan guarantee between the Trust and the bank preexisted the loan to King William, the court said. Thus, the Trust could not have relied on the security agreement by Unterreiner when it made the original guarantee. Thus, the Eighth sent back the case with instructions to reverse the determination of non-dischargeability.

Our Tustin consumer bankruptcy attorneys are pleased to see this decision go for the debtors, who undoubtedly cannot muster the high-priced legal representation of their former franchisor. In a sense, the decision breaks no new ground at all because it simply reiterates the rules for nondischargeability: the deception must have been made knowing that the party seeking nondischargeability would lose money. While it’s possible that Unterreiner did indeed intend to deceive, it does not appear to be disputed that he didn’t know about the preexisting blanket loan guarantee. Our Rancho Santa Margarita individual bankruptcy lawyers may be able to apply the ruling for other bankruptcy filers fighting a claim for nondischargeability, whether the dispute arises from business or another matter.