New Year Bankruptcy Timeline

NLO Nelson Law Office is a Debt Relief Agency offering debt relief through bankruptcy.


1)  Get Through the Holiday, spend wisely and see our post about credit card use during the holidays
2)  File your taxes as soon as possible
3)  See a Bankruptcy Attorney about Debt Relief Options early in January to find out your options
4)  Receive your tax refund in February and file your bankruptcy.

Why is the New Year such a popular time to file bankruptcy?

Tax Refunds are usually received prior to May 31st of the New Year.  Tax Refunds can be used for legal fees and court costs in a bankruptcy.  The tax refund is listed on the bankruptcy petition, but the portion used for legal fees and filing fees is exempt.

Holiday spending often times puts people "over the top" after years of family budget deficits caused by medical bills, illness, loss of job or overspending.

What should I do if I don't have much of a tax refund?

You can either wait to file your bankruptcy later after you have saved enough money to pay for it, or you can file a Chapter 13 bankruptcy which allows for all of your legal fee to be included in the bankruptcy "plan".

Need more options?  Have Questions?

Call David Nelson at 877-464-6656 to set up a free bankruptcy consultation.

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Can I use my Credit Cards for Christmas Gifts and Still File Bankruptcy?

NLO Nelson Law Office is a Debt Relief Agency offering Debt Relief through Bankruptcy

Yes, you can use your credit cards for Christmas and still file bankruptcy.  However, you must be extremely careful.  If you are filing within ninety days of using your credit cards, you must make sure that you have used them only for "necessary" items and not for "luxury" items.  If you are filing more than 90 days since you last used your credit card, you can essentially charge anything onto the credit cards except it cannot be in bad faith or with a fraudulent intent.  Schedule a Bankruptcy Consultation

At this "Christmas" time of year, people spend excessively and often use credit cards. A large portion of Chapter 7 Bankruptcies are filed in the months of February, March and April because tax refunds can be used for paying your bankruptcy attorney fees, filing fees and due diligence costs such as credit reports.

1.  Best Solution:  Do not use your credit cards - At All.  File Bankruptcy with your tax refund as early as January  or anytime after you receive your tax refund.

2.  Fair Solution:  Use your credit card over the holidays and prior to your bankruptcy for "necessary" items such as groceries and clothing from non-luxury retailers.  File Bankruptcy with your tax refund as early as January or anytime after you receive your tax refund.  Before even considering this solution, you should seek out a qualified bankruptcy attorney.

3.  So-So Solution:  Use you credit card for non-luxury items that might be objectionable as non-necessary, such as toys, electronics or other items are not basic survival items, such as food and clothing.  You could possibly file in January, February or March but best choice is to file April 30th or later.

4.  Not so great solution:  Use your credit card for all items at all retailers, including luxury retailers.  Purchase jewelry, electronics and just about anything you want.  File your bankruptcy at least ninety days after the last purchase.  Take the chance that you have made such flagrantly offensive purchases that the creditor files an adversary petition to take away your discharge, or, worse yet, fraud.  Bottom line: this is risky at best, but if the purchases are small enough, a calculated risk.

5.  Terrible solution that will nearly always run into problems:  Use your credit card during the holidays on anything and run every card up to the limit.  Include luxury items at luxury retailers.  File your bankruptcy whenever you want, such as February.  Chances are that if the purchase is over $500 at any one creditor, the creditor will file an adversary lawsuit.

One scenario that happens over and over again (often times with bad results) is the "blowout" Christmas Charger who decides to "let it all out" one last time before filing for bankruptcy.  This charger may still have up to $1000 left in credit and may often purchase entirely luxury goods such as an IPAD, Wii, Xbox, large screen TV, unnecessary computer, a trip to the Caribbean, or a bunch of jewelry.  Then the charger stops in to a local attorneys office and doesn't mention the charging, the bankruptcy attorney doesn't check out the charge bills, the bankruptcy is filed in February and then a lawsuit is file by the credit card company to take away the bankruptcy discharge with regard to the credit purchases.  Usually, the debtor is forced to hire a second attorney at $2000 or more to represent the debtor in a defense of the discharge action and usually results in the debtor entering into a promise to pay the entire debt to the creditor with interest over a period of time.

What is the lesson of this article?  If you are contemplating bankruptcy, stop using your credit cards and keep it simple.  If you must use your credit cards, then use them only on food and clothing and at non-luxury retailers.  Under all circumstances, try to not use your credit cards at all 90 days prior to the filing of your bankruptcy.

Three true stories:

Client purchases an $8,000 hot tub one week prior to filing on a line a credit issued from a credit card style creditor.  Client files bankruptcy.  2 & 1/2 month after filing bankruptcy, debtor is sued by the credit card company.  Creditor seeks to take away the debtor's discharge with regard to the $8000 debt plus attorney fees and interest or about $10,500 total.  If the case was not settled, this would have eventually been a garnishment on debtor's income for about five years at 15% of his gross salary.  Due to a settlement, the debtor was able to pay off the debt under a new agreement over 5 years at a reasonable interest rate.  What does this teach us?  A luxury item purchased within 90 days prior to a bankruptcy filing that is obnoxious and unnecessary and expensive will result in a nasty lawsuit that will cost the debtor another $1000-2000 in legal fees and possibly ruin all of the benefit of the bankruptcy.

Client purchases a tennis bracelet at Nordstroms as a "gift to herself" for filing bankruptcy...Good Luck!  Nordstrom filed suit against the debtor, debtor ended up returning the item and paying about $600 in attorney fees to Nordstrom as a settlement instead of a fraud judgment, which would have resulted in the denial of an entire discharge of all debts.  Bottom line: no "gifts" for successfully filing bankruptcy.  No jewelry purchases on credit cards included in the bankruptcy up to one day before filing.

Client knows he isn't going to be able to afford a new riding lawn mower for many years after filing bankruptcy, and one week prior to bankruptcy he purchases a new riding lawn mower for $1500.00.  Client files bankruptcy one week later.  Client does not tell his attorney about this purchase and does not make the bill available to the attorney, and the attorney must rely upon a credit report to file the bankruptcy petition.  Debtor is sued in an adversary petition to deny the discharge of this debt.  Result: client ends up paying the debt back over 36 months at 10% interest.  Not much better result than if he had purchased it one year after the bankruptcy legitimately.

The one resounding rule throughout these cases seems to be that creditors object to the discharge, but this "un-permitted" purchasing in effect gives the debtor access to a tool right away that he may have needed immediately but would not have been able to get after the bankruptcy.  Bottom line: even though the behavior above is in violation of the bankruptcy code and even though creditors dislike this behavior, they do end up preferring to extend a loan at a reasonable interest rate.

NLO Nelson Law Office is a debt relief agency offering debt relief through bankruptcy.  To schedule a free confirmation click here and write "Bankruptcy Consultation Request" and hit send.  Our office will respond with a variety of times and date for your consultation.  Or...call our national toll-free number 877-GO-GO-NLO or 877-464-6656.

The Two Hour Closing - How to Stick to It and Never be Late for Dinner Again

CLICK HERE TO HIRE NLO FOR YOUR NEXT REAL ESTATE CLOSING!

Recently, I represented a buyer in a closing that lasted over five hours.  The primary reason for the long closing was funding from the buyer's lender.  I wasn't late for being home from this closing and there is a reason:  There is simply no change that should be occurring on the part of the lender that can't be resolved remotely to the title company.  The seller or power of attorney should remain, the buyer should remain, but service professionals such as attorneys and realtors should be able to leave.

Here's why:

1)  During the first hour of the closing, the buyer signs all of the loan documents, and typically the buyer's attorney reviews, title, deed, related transactional documents.
2)  During the top of the second hours, the closer usually has the HUD for review and it is usually approved by all parties by the middle of the second hour.
3)  Next the documents are sent to the lender who usually raises any substantial objections before the close of the second hour.
4)  The fixing of the lender issues is typically a 15 minute task that is resolved in substance by the end of the second hour.
5)  If the attorneys and realtors leave at this point, they will have their check mailed to them along with supporting documentation.
6)  The risk: if you are a buyer's attorney, the worst thing that can happen is that the lender forces a change and the HUD is re-signed.  Since the lender calls all the shot here and doesn't really allow for any attorney input, this is the point where a simple call to the attorney's mobile phone will confirm whether any changes are undesirable to the buyer going through with the transaction.
7)  For the seller's attorney, the risk is more substantial if he or she is power of attorney for the seller and the HUD must be re-signed.  Bottom line: seller's attorneys who agree to be powers of attorney should add $200 per seller for additional work and significant risk of additional time at the closing table.
8)  For realtors, there is no reason to be at the table after the second hour because their commission is confirmed after the agreement to the first HUD.  Only in a short sale should realtors be gravely concerned about having their commission "chopped down" at the last minute.  But even in these cases, there isn't much that can be done to bring it up if the lender will not approve the short sale with higher commission than the lender's standards allow.

Why is it important in our profession to set reasonable fees but be firm with regard to staying longer than two hours?

1)  It is critically important that we as members of the bar maintain a buyer's ability to afford reasonable cost representation in a real estate closing to ensure that buyers are not taken advantage of and have the opportunity for "good counsel".
2)  Staying at the closing for a "reasonable" amount of time ensures adequate profitability to ensure the ability to continue representing a variety of clients from all socioeconomic groups.
3)  There is simply no reason to be a martyr and stay at a closing just to say you made it to the end, only to stop taking cases that have the potential to be long closings.

How do I ensure that my fees are reasonable and that I am guaranteed to be paid even when the deal falls through? 

The best choice is to use our firm's proposal for a "multi-board" residential attorney client representation agreement.  This novel agreement allows for full pre-payment of fees by deposit into the lawyer's client trust account.  This allows the attorney to bill the full fee on the HUD and then return the deposit to the client or not bill to the HUD if the lender is objecting.  Some attorneys will want to bill the full rate regardless of where the representation terminated; others may choose to charge half when the transaction cancels before closing.

ARE YOU AN ATTORNEY WHO WOULD LIKE TO USE OUR REPRESENTATION AGREEMENT?  IT IS FREE TO MEMBERS OF THE ILLINOIS BAR WITH PERMISSION.

The challenge for residential real estate attorneys in the next decade is to:

1) Not set fees too low
2)  Not spend excessive time at the the closing table 
3)  Bill up-front for fees 
4)  No longer view real estate work as "contingency" work
5)  Turn away "low-ball" business that has no future in providing referrals or subsequent business.

There is also benefit to realtors.  It has often been said that realtors are the keys to the car, and that you won't have real estate closings unless you cave-in to the demands of the realtors who refer the business.  This may be true.  But why work for free or for excessively low fees - leave the residential real estate business and take on cases at the Daley Center and make twice the money.  Many people believe Illinois Realtors have been waiting for this day with bated breath.   I disagree - without good Illinois Residential Real Estate lawyers, the percentage of transactions that make it to closing will fail; more abuses will occur against clients leading to more regulation of the industry; and ultimately, even less real estate transactions will close.

ARE YOU A REALTOR? CLICK HERE TO SPEAK WITH DAVID NELSON TO START A NEW REALTOR/ATTORNEY BUSINESS RELATIONSHIP

Bottom line: residential real estate is and will always be a team sport.  The team: Realtors to take the client to the property; Inspectors to make sure it is right; Lenders to provide the ability to pay;  title companies to do the banking; and Attorneys to make sure that what was agreed upon actually occurs.

Student Loans Chapter 7 Bankruptcy Discharge What to do after the bankruptcy is over?

CLICK HERE FOR BANKRUPTCY INFORMATION 

One of the thorniest issues in a Chapter 7 Bankruptcy is often what happens to student loans.  Student loans are not dischargeable - i.e. they do not go away as a result of filing bankruptcy!  However, student loans do eventually disappear sort of like a "balloon loan".  All student loans die after 25 years after the date of first repayment plus deferments.

Until that time - you are on the hook and must continue paying.  Recently, a client shared with me his experience in dealing the aftermath of a Chapter 7 Bankruptcy.  Below is a narrative of the status of the loan mid-way just after the 341 meeting:

Debtor's account is not past due.

Sallie Mae received the 341 Meeting of the Creditors Notice.

Student loans placed on hold while in bankruptcy status.

No payments due during the life of the bankruptcy.

This hold on the accounts does not affecting Debtor’s credit.

Debtor needs to call Sallie Mae when bankruptcy is discharged.  At that time, his account is reactivated and billing will begin again.  Debtor will then begin to owe payments. 

There will be no arrears at the time of reactivation.  Interest will accrue during the bankruptcy’s life, but Sallie Mae cannot advise Debtor of what the interest may be or has been because that  can be construed as trying to collect on the debt.

Sallie Mae cannot tell Debtor what his balance is, but they can confirm or deny what he says the balance is.

Debtor does not have access to his account via the internet during the bankruptcy.

 This exception gives us a rare window into the behavior of the student loan servicer during the pendency of a Chapter 7 Bankruptcy.

Summary of Student Loan Treatment before, during and after a Chapter 7 Bankruptcy:

• Prior to Filing your Bankruptcy, you should pay on your student loans or seek deferment.
• Failure to do this will result in garnishment up to 15% of your gross income
• After you bankruptcy is filed, you CAN make voluntary payments on the student loan.
• This will keep your balance from rising.
• This IS NOT necessary.
• Only manual payments (check)
• Taking a "break" from payments for 4-6 months may allow you to improve your cash flow position to give you a "fighting chance" to be in good financial standing
• After your bankruptcy is closed, you should resume making your payments. 
• Recommend calling lender to confirm amount of payment and how to make payment
• Electronic payments resume being available

For more information about filing a Chapter 7 or Chapter 13 Bankruptcy, please email NLO Nelson Law Office Bankruptcy Information



To Call and speak with a Bankruptcy Attorney and Set-Up a free Bankruptcy Consultation, please call 877-GO-GO-NLO (877-464-6656).

New Illinois Power of Attorney for Health Care Effective July 1, 2011

Attached is the New Illinois Power of Attorney for Health Care Form.   This form is unedited and is exactly as formatted and presented in the Illinois Statute.

Illinois Power of Attorney for Health Care Form Effective 7-1-2011

For assistance in filling out this form please call NLO Nelson Law Office at 877-GO-GO-NLO or EMAIL NLO

"Cramming Down your Auto Loan" How to Lower Your Interest Rate and Increase the Amount of time to Pay Off your Car!

How to lower the interest rate on your auto loan.  How to increase the amount of time to pay off your auto loan.  How to lower your payments.  It's all a part of filing a Chapter 13 Bankruptcy and properly modifying your loan in the bankruptcy plan.

Here's how it works:

If your car was purchased more the 910 days in the past and the current loan was used to purchase it...oftentimes referred to as a "purchase money loan" you are allowed to both reduce the total loan balance to the appraised value of the car on the date of filing your bankruptcy  PLUS you can also reduce the Interest rate the Till rate.  The Till rate is :

PRIME RATE (Click Here for Today's Prime Rate)  +  RISK FACTOR  (1-3%)

TILL v. SCS CREDIT CORPORATION, 124 S. Ct. 1951, 158 L. Ed. 2d 787, 541 U.S. 465 (S.Ct., 2004)
To Read More about Till Case, Click the Attached link: 
TILL v. SCS CREDIT CORPORATION

Example:

Jeff's 2002 Mitsubishi Galant is worth $2400.00.  Jeff's automobile loan is with Wells Fargo.  The loan balance at the time of filing his Chapter 13 bankruptcy was $5500.00.  The interest rate on this his loan was 22%.  He had 24 payments left on his loan.  Jeff's attorney modified the loan as follows in his bankruptcy plan:

Balance to pay off:  $2400.00   (This is the current appraised value of the auto)
Interest Rate of  Loan:  6.25%      (Current Prime Rate of 3.25% plus maximum risk factor of 3% from the Till case.)

What is my auto loan is only 30 days old?

No problem, you can still modify the interest rate down to the Till rate  of Prime Rate + Risk Factor BUT YOU CANNOT reduce the loan balance amount.


In this example, Jeff's 2002 Mitsubishi Galant is still worth $2400.00.  Jeff's automobile loan is still with Wells Fargo.  But the loan is only 30 days old and the balance is $5500.00.  The interest rate is 22%.  Jeff still has only 24 payments to go, but the loan is only 30 days old.  In this case:

Balance to pay off stays at $5500.00
Interest Rate of the Loan goes to:  6.25% (Current Prime Rate of 3.25% plus maximum risk factor of 3% from the Till case).

Summary:

Chapter 13 Bankruptcy offers the ability to modify an automobile loan by either reducing the interest rate to Prime Rate Plus a Risk Factor or both reducing the interest rate AND reducing the loan payoff amount to the appraised value of the automobile depending on whether the auto loan is 910 days or older.  The Till case is a watershed case that has been followed for years in providing for this treatment of the interest rate.  However, the Bankruptcy Act of 2005 added the 910 day rule.


For more information about Chapter 13 Bankruptcy in Illinois, please call NLO Nelson Law Office at 877-GO-GO-NLO (877-464-6656) or email NLO Nelson Law Office Information

Do You Need to Attach a Summary of the Chicago Residential Landlord Tenant Ordinance to Your Tenant's Lease

Do you need to attach a summary of the Chicago Residential Landlord Tenant Ordinance (RLTO) to your residential tenant lease?

Answer:  Yes & No

You DO NOT need to attach a summary if you as a landlord are not subject to the Chicago RLTO.  You are NOT subject to the RLTO if your rental building is six units or less AND is owner-occupied.

You DO need to attach a summary if you are subject to the Chicago RLTO.  All landlords who rent buildings that are NOT owner-occupied ARE subject to the RLTO regardless of whether it is six units or just one unit.  For example if you own a 1 bedroom condominium in Chicago and rent it out but reside in your own home, the rental unit is not owner-occupied and subject to the RLTO.  However, if you own a six flat and live in one of the units, this rental building is an owner-occupied building and NOT subject to the RLTO.

In a nutshell; if you building is six units or less, occupied by you as an owner, your building is not subject to the RLTO and the summary of the RLTO is not required.  The RLTO in general is geared towards regulating non owner-occupied rental buildings with any number of units.  Any time you are an absentee landlord, you are covered under all the provision of the RLTO with some small exceptions - see the RLTO code below.

If you are subject to the Chicago RLTO, please click on the attached link for a copy of the summary required to be attached to your residential lease.  Chicago RLTO Summary

To view a copy of the Chicago Residential Landlord Tenant Ordinance, please click on the attached link:  Chicago RLTO Ordinance

Has it been a while since you tuned up your rental operation?  As a landlord, please consider calling NLO Nelson Law Office to set up a consultation for a leasing and landlord tune-up.  Call 877-464-6656 or click info@nelsonlawoffice.com to email our office for more information.

Free Credit Report - This is the actual free credit report - not the scam to charge you money for a "free" credit report

Links to the Actual Government Regulated Free Credit Report

Information about the Free Credit Report

Where to Order your Free Annual Credit Report

The Government Mandates that every U.S. Citizen is entitled a  free (that's right - free) annual credit report.  This report is the same report that banks and other credit providers use, however, it does not include your credit score which is a separate service that you must pay for.  Be advised that your credit score usually not really necessary to find out because it is the actual information in the report that needs to be analyzed. 

As an advocate for consumer credit rights, I recommend choosing the "pure" free credit report and receiving it via U.S. Mail.   The electronic credit report is often difficult to save as a readable file and often turns into a trick to get you to have to order a non-free report later.  If you must order the report via electronic format, be sure to save the report on your hard drive or print out right away so that you have it for later use.

For more information about credit reports, debt relief and other legal services, please email NLO Nelson law Office at info@nelsonlawoffice.com or Call 877-GO-GO-NLO (877-464-6656)

File a Bankruptcy on Your Own....In Five Minutes!

Ever wondered how to file a bankruptcy on your own?  Well wonder no more, here is the quick 5 minute course on how to do it!

1. Fill Out the Required Bankruptcy Forms
1. Link to Official Bankruptcy Forms! 
2. Take your pre-bankruptcy credit counseling course at least one calendar day prior to your filing
1. Link to an Example of Court Approved Credit Counseling Agency 
3. File your bankruptcy by going to the Federal Clerk of Court in your district
1. Link to Information about Where to File 
4. Submit your Chapter 341 Documents within 14 days to the bankruptcy
1. Link to Information on how to submit your 341 documents 
5. Attend your 341 Meeting
6. Wait for your Discharge Order!
7. Need Help - Contact the Bankruptcy Assistance Desk
1. Link to the Help Desk

That's it.  How hard can it be?  Avoid attorney fees and file it on your own.

So what's the catch?  Why do people use attorneys in probably 95% of all cases:

• What do you fill - in the forms?
• How do I reaffirm a debt? - such as to keep my car or home
• How do I fill out the means test? - It's worse than doing my taxes
• What do I say and do at my 341 meeting?
• Should I be using a Chapter 13 bankruptcy for my higher income and/or need to save my home?
• What is a motion for relief from stay?
• Why has the trustee filed a motion to dismiss?

Bottom line - filing on your own is a good option when you have a lot of time on your hands and can go to the bankruptcy assistance desk to help along the way to confirm your filings are done right.  This is great for people who have racked up alot of debt say $60,000 in credit card debt are now unemployed, getting harassed by creditors and will not likely be re-employed for at least one year.  This is true of people in the construction business and other long cycle industries.  Another good application for filing on your own is when you have made alot of money in the past, have lots of debt and then suffer a disability which becomes permanent leaving you with an income that is often only 20% of your former income.  In this case you won't be taking on more debt in the future and you are really in no danger of a lawsuit or garnishment, but you simply want to clean up and get rid of all of the old debt so that you can focus on your new life.  Many times these folks will do best using legal aid associations providing pro-bono - free bankruptcies.  One large organization that is used in Cook County is:  Legal Assistance Foundation of Metropolitan Chicago

For a free 1/2 hour bankruptcy consultation to learn whether you qualify for debt relief under bankruptcy or should even consider filing on your own, please call 877-GO-GO-NLO (877-464-6656) or Click this link and email your request for a consultation.

A new video of David C. Nelson from NLO Nelson Law Office!

Can I Skype or Video Conference My 341 Bankruptcy Meeting?

Can I Skype or Video Conference my 341 Bankruptcy Meeting.  Yes.

I recently had a client who filed for a Chapter 7 Bankruptcy several days before leaving for a year contract work assignment in a foreign country.  The client wished to file bankruptcy before she left to ensure that her creditors were not harrassing her while out of the United States.  However, returning to the United States for the 341 Meeting was cost prohibitive at nearly $4000 round trip cost.  After speaking with the United States Trustee and reviewing the bankruptcy code, I learned that there is no real law that either prohibits the use of video conferencing for this hearing  or supports the use.

In the Northern District of Illinois, it is essentially at the discretion of the U.S. Trustee and Local Chapter 7 Bankruptcy Trustee to allow this meeting if it will meet the requirements of a 341 meeting.  Essentially, the trustee needs to ensure that:  1) The debtor is the one present at the 341 meeting  2)  That the debtor review the petition prior to filing it and that the debtor did sign the declaration and recognizes her name.  3)  Identification can be proven up where the debtor's bankruptcy attorney has seen all identification in his office prior to the meeting and has personally met the debtor and can identify the debtor to the trustee.  The trustee must be able to verify the debtors Identification and the picture of the video conferencing match and that a positive identification has been made.  Then it is really just a regular meeting except that the debtor is not in the flesh to confront the trustee and creditors if present.

My recommendation if that the court consider establishing bankruptcy rules that allow video conferencing under the following circumstances:

1)  It would be an undue hardship for the debtor to attend the meeting in person
2)  The debtor found it important to file the bankruptcy realizing that she could not attend the 341 meeting person.
3)  The court should adopt a formalized script for identifying the debtor
4)  The court should set forth minimum standards of quality

In essence this is an extension of the already commonly used telephone appearance made by out of state attorneys in bankruptcy court where to appear in person would be cost prohibitive and to not appear would against the interests of good justice.

In conclusion, I do not believe that Skype or Video Conferencing should be the norm in our 341 meeting appearances, but do believe in situations where a debtor will have an undue hardship in attending that it be an accepted substitute of in person appearance as a means of furthering good justice.

Why Hasn't My Loan Modification Become Permanent - I've made the trial modification payments and now I haven't heard anything from the bank?

Homeowner is a woman whose house is worth approximately $100,000.  She has a mortgage loan of approximately $180,000 and a new trial modification payment of $1000 per month.  She has made all three trial modification payments of $1000 each on time and in compliance with the lender's demands.  At this time, she has now made a total of 6 payments and the lender has still not offered a permanent loan modification.  After the third payment was made the lender "asked for more information".  She has not been able to get any more updates from the lender.

What should she do?

If she wants to stay in the house for over the next five years regardless of whether the loan modification is made permanent, keep making the trial modification payments until the lender says otherwise.

If she does not want to keep the house unless she get the permanent loan modification, I would recommend walking away from the home.  The homeowner should try a short sale, deed in lieu of foreclosure and ultimately bankruptcy to eliminate this debt.

Rationale:

Most residential primary household loan modification are done under the guidelines of the HAMP (Home Affordable Modification Program).   This "program" is not a law and is not something that a homeowner can enforce against a lender.  Instead, it is a law that provided "incentives" of up to $1000 to a mortgage servicer to  keep a borrower from defaulting on their mortgage.  The incentives HAVE EXPIRED.  Lenders are simply offering modifications under these guidelines to improve their profitability by keeping more borrowers from defaulting.  However, where a borrower really can't afford the home long term, it can be surmised that lenders are simply "stringing along" borrowers for several months...without end at trial loan modification payments amounts to get them to pay more towards the lender until they ultimately either give up, default or go back to making their regular mortgage payments.

Therefore, in this case if the borrower simply stopped paying after 6 months of trial modifications, she would be:

1. In Default
2. Not have a modified mortgage
3. Be in arrears immediately because she had been making a lower payment than what was required by the lender

So why can a lender get away with this?

1. Lenders DO NOT have to give modifications after the trial period is completed
2. Lenders DO NOT have to given modifications even if underwriting says they qualify
3. Lenders CAN tell borrowers that they will accept lower payments and accept them and Still then declare a default at anytime and foreclosure AT THEIR LEISURE AND WILL
4. Borrower CAN BE SCREWED OVER at anytime in these modifications
5. Lenders CAN CHERRY PICK only the best borrowers and use modification processes to hurt borrowers and get the most amount of money from them

So is there any justice?

YES - in foreclosure, if the borrow hires good legal counsel for usually more than $2500 in legal fees, fraud can be alleged and judicial action can be taken against the lenders including rescinding the loan.

Why don't we here more about loans being rescinded?

Usually borrowers are completely out of money and the will to fight any longer by the time the foreclosure begins and simply walk away.  Lenders know this and build their business models to exploit this.

Bottom line - BE AN ACTIVIST!  If you don't get your permanent modification in three months as promised, don't wait - take action.  Call any attorney immediately to figure out your options:

1. Foreclosure Defense
2. Bankruptcy
3. Non-Bankruptcy Surrender Options

For more assistance and to schedule a consultation click this link to email NLO Nelson Law Office today by clicking HERE! or calling 877-464-6656

Illinois Hardest Hit Program - Save Your Home - $25K Grant to Pay Mortgage Arrears

For anyone who hasn't heard, here's the news...there's a new program on the block for saving your home.  And for some people, it's a hit.

Looking for unbiased help in figuring out how to save your home?  Check out the following housing organizations. Click on the Link.  I have worked with all of them for years and know of their honesty and fair dealing:

• Rogers Park Community Housing
• Latin United Community Housing (LUCHA)
• Spanish Coalition for Housing
• Illinois Housing Development Authority

The Illinois Hardest Hit Program essentially gets your home out of foreclosure.  Pays all the arrears, court costs, etc. to reinstate your loan fully and then provides up to 18 months of payment assistance.  The cap on the assistance is $25,000.

To apply for this program, please go to (click link):  Illinois Hardest Hit Program

Pro's:

• No Fees
• Completely Reinstates Your Mortgage 
• Up to 18 months assistance

Con's:

• Increases the mortgage balance on your home by up to $25,000
• Does not reduce the total amount owed on your home
• Does not provide assistance after 18 months which is a problem if a person has not secured employment or their family is only partially employed.

Who are the best candidates for this program:

• Homeowners who are only temporarily out of work and can easily return to work in a stable job within 18 month of starting the program.
• Homeowners whose mortgage has less than $15,000 in arrears or is about 6 months or less behind
• Homeowner who want to stay in their house for 10 years or more and does not care about having the flexibilty to move....for say a new job, changed family circumstances (divorce) or any other matter

Who are the worst candidates for this program:

• Homeowners who haven't made a mortgage payment for over one year
• Homeowners who are in a profession that has been affected by the severe economic downturn such as construction or union jobs and are unlikely to have stable employment for the next five years
• Homeowners who want the ability to be flexible in selling their home in the next 10 years.

Who should consider a short sale of their home instead of this program:

• Homeowners who cannot afford their home even when they are fully employed
• Homeowners who are in an employment industry that will not recover soon and may need to relocate for employment
• Homeowners who have so much debt on their home that they will not have equity for ten years or more (typically someone with two or more mortgages including a home equity line of credit)

Who should consider a Chapter 7 Bankruptcy instead of all of these options?

• Homeowners who have unsecured debt (credit card style debt) that exceeds more than 1/3 of their annual take home pay.
• Homeowners who have not made a mortgage payment in over one year
• Homeowners who have not been able to get a short sale approved by their lender
• Homeowners who want to easily walk away from a home to simply move-on or need to relocate for employment
• Homeowners who are insolvent - that is - no real assets outside of retirement accounts

When is a Chapter 13 Bankruptcy Reorganization a  better than the Illinois Hardest Hit Program?

• When a mortgage debt is more than 6 months in arrears (no payment for at least 6 months or longer
• When the homeowners property has more than one mortgage such as a second mortgage or home equity line of credit
• When the homeowner has equity or something valuable to save in the property but also has a large amount of unsecured debt (credit card style)
• When the total home mortgage debt can be reduced through "stripping off the second and junior mortgages/liens".

Can I file Bankruptcy if I am not a U.S. Citizen and/or not a legal Resident? Yes

Can I file Bankruptcy if I am not a U.S. Citizen?   YES

Can I file Bankruptcy if I am not a Legal Resident of the U.S.?  YES

If I am not a legal resident and I file bankruptcy, should I use the Social Security Number that I Purchased years ago?   NO

If I am not a legal resident, but I have a TIN (Taxpayer Identification Number) should I use the TIN instead of a Social Security Number:  YES

What are the risks of filing bankruptcy if I am not a U.S. Citizen and/or not a legal resident of the U.S.?

1. Deportation
2. Charges of Bankruptcy Fraud because of use of Social Security Number owned by someone else or a deceased person.
3. Charges of Tax Evasion for non-filing of taxes even though income is known to exist.

Discussion:

The bankruptcy code specifically grants to every occupant of United States Soil the opportunity to avail themselves of the bankruptcy just as any visitor to the United States avails themselves of the laws of the United States.  However, filing bankruptcy, means that the Social Security Number, Your Name, Your Address and Taxpayer Identification Number come to surface in a public way.  So, if you are someone that Homeland Security wants to deport for a crime, you probably shouldn't file;  if you are someone who has never filed taxes, you probably shouldn't file;  if you have used a fake social security number for taking out any of the credit listed in your bankruptcy - you probably shouldn't file. 

Who files bankruptcy then.  The typical non-citizen, non-legal resident filer is someone who is either a migrant laborer or full time year round worker who works at a job where taxes are taken out under a TIN and files taxes every year and may even get a tax refund.  This is a person who by law should not be in the country but under our immigration system is "permitted" to remain because they aren't considered much of a problem to our government.  Typically, a filer will not have taken any credit out under a fake social security number and if they have a mortgage and own land have either done it with their TIN or purchased long ago and didn't need to provide this information at the time.

While deportation is extremely rare, any filer with a past felony or criminal record should probably avoid a filing until they because a legal resident at least.

This area of the law is not black and white because the bankruptcy code grants to "anyone who avails themselves of United States Laws the privilege of bankruptcy" but does not go on to protect filers from prosecution for being in the country illegally, not filing taxes or other immigration issues.

Therefore, this gray area of the bankruptcy law will continue to be gray and murky with attorneys giving only guidance but not hard advisement on whether a client SHOULD file, but simply whether they CAN file and also what the risks are.

For more information about bankruptcy, call 877-GO-GO-NLO (877-464-6656) or email the office at INFORMATION NLO CHICAGO

Should I hire an Attorney to Represent me in a Refinance?

Yes and No.

Yes, it is always good to have attorney counseling you on the meaning of any legal document you are signing.  No, it is not always necessary to have an attorney to sign standardized bank documents in a refinance unless you want to fully understand the refinance and make sure that you are getting what you bargained for.

Bottom line - Having an attorney at a refinance closing is a really great way to make sure that the interest rate your thought you were getting is right, that it is either fixed or is adjustable in the way you understood it.  It is also important to understand the rather large fees charged (and buried) in a refinance.  On average, a refinance costs $5000 in bank fees.  Bottom line - $250 for an hour appearance fee is a drop in the bucket compared to these fees and will help you feel comfortable with what you are signing.

Hiring the attorney, the problem is how to hire and attorney who can make these sorts of appearances profitable and desirable to do and also be qualified.  Usually an attorney belonging the Illinois Real Estate Lawyers Association (IRELA) www.irela.org will be competent in Illinois to represent you and usually has flat rates that are reasonable.

If you are hiring an attorney generically, try these tried and true questions and technics:

1)  Find three attorneys that serve the geographical area you need service in
2)  Confirm that the attorneys speak your language
3)  Call each attorney and ask three questions:

1. How long have you been in practice in Illinois
2. How many residential real estate closings have you done on average over the last five years
3. What is your flat rate for representation at a refinance including any trip charge

Based on your discussed with the attorney, you should be looking for the following answers:

1. I have practiced in Illinois for over 5 years
2. I do at least 10 residential real estate closings per year and it is one the core concentration areas of my practice.
3. I charge a flat rate fee of $250 per refinance for up to 1 hour of representation.  Trip charge is maximum of $100.  {This illustrates that the attorney understands how to be profitable and thereby of good service both in the City and Suburbs}  Attorneys who charge too little and are unprofitable are not motivated to provide good and competent service and should be avoided.  Value is the golden rule in purchasing legal services whereas price is simply irrelevant.

For more information about representation in any real estate matter, call David Nelson at 877-464-6656 or email Dave at:  info@nelsonlawoffice.com

For more information about NLO Nelson Law Office, please go to:  http://www.nelsonlawoffice.com/contact.html

To see David Nelson's video on YELP go to:  http://www.yelp.com and then search for NLO Nelson Law Office.

Can I Modify my Home Mortgage in Chapter 13 Bankruptcy?

Yes - you can modify your home mortgage in a Chapter 13 Bankruptcy by Stripping off the second mortgage and other junior liens.
Today, you can modify your home mortgage in two ways:  Get a modification from the lender or file a Chapter 13 bankruptcy and attempt to strip off the second mortgage mortgage on your home.  Oftentimes, this will reduce the balance on your mortgage by 30%.  While this isn't perfect, it is oftentimes, the difference between being able to keep your home or being forced to surrender it in foreclosure.

So how does this work.  First it is important to determine whether you should file bankruptcy.  Second you need to file a Chapter 13 bankruptcy.  Third, your bankruptcy attorney files an adversary procedure with the court to rule that the value of your home is less than the balance on  your first mortgage.  Fourth get the Chapter 13 plan confirmed by the court whereby the second (third, fourth, fifth and any junior mortgages) are wholly unsecured and will be paid as unsecured creditors.  At the end of the plan (60 months), the second mortgage and all other junior mortgages are released by the lender and the debtor/s is left with a home with only one mortgage.

Does this work in real life applications.  In the last year over 40% of our firms Chapter 13's had successful plan confirmations with the second mortgage being stripped.    On average this reduced the principal by 30% on the home indebtedness.

So what is not so great......the first mortgage still has to be paid off in full with all of the arrearages paid back over 60 months along with the costs of collection plus the first mortgage may still have a balance that is more than the home can be sold for.......so why has the court allowed this to occur - the answer is in the intent of the bankruptcy code, the idea was that if home mortgages could be modified in bankruptcy, why would anybody pay their mortgage?  Therefore, to save the ability for consumer to get home mortgages from banks, the bankruptcy code strictly prohibits the modification of a home mortgage this is wholly or even partially secured even if secured by only $1.


Bottom line - Chapter 13 offers a crude type of home mortgage modification by getting rid of unsecured mortgages, however, it does not fix long term problems with a first mortgage.  If your first mortgage is OK by itself then this type of modification is for you.  If your first mortgage is still a problem, then it may be wise to simply surrender the home in the bankruptcy and let the lender take the loss.

What are we seeing now that is unbelieveable - it never used to happen in the past, but it is happening now.  After filing the bankruptcy  and after stripping the second mortgage, the lender on the first mortgage voluntarily modifies the first mortgage to make the plan easier.

So what is this all about?

Well.....here's the best way to describe it.  Typically, the interest rate is reduced to 2% for the first five years and it increases by 1/2% per year after that until it hits the market rate and then becomes fixed at that rate.  The kicker is that the bank will put the arrears on to the balance of the loan.  Doesn't seem like a big deal, but it is!  If your old mortgage payment was $2400 per month and you were 10 months behind at the time of your bankruptcy filing, then you owe $24,000 in arrears.  In a typical 60 month chapter 13 plan, you will pay $24,000/60 per month to pay back these arrears.  This is $400 per month.  In this case, the bank basically put this into the balance.  So basically, you are now paying 2% interest on $24,000 over the next 30 years or so.  Around $50 per month.  The benefit is theoretically that your home if you keep it for 15 years will finally be worth more than the mortgage, you can sell it, pay off the mortgage and have a happy life.  This is all true with one caveat.  What if you have to get out of the house one year after your bankruptcy ends and you are still "underwater"   Good luck - you just entered another bankruptcy or years of garnishments.

In a nutshell - if you want to live in your house a long time and don't have a big need to move soon and don't believe you will be forced to move, then this is the ticket.  Basically, the bank cuts its price on loaning you the money.  But if you need to be more flexible and actually have the debt load be less immediately, then you are out of luck and better surrendering the home in bankruptcy.

Examples:

Ron and Karla bought a home in 2006 for $200,000.  The first mortgage was $160,000 from Wells Fargo.  The Second Mortgage for $40,000 was from Banco Popular.  Ron and Karla were doing great until Karla lost her job in 2008.  The couple missed 8 payments.  The couple was five months into their foreclosure action when they filed a Chapter 13 Bankruptcy.

Ron and Karla hired David Nelson to file their Chapter 13.  David suggested that they keep their home, but attempt to strip off the second mortgage.  Ron and Karla agreed.

Ron and Karla make approximately $70,000 per year together and have two children.  Their budget is tight and the means test says that they need to contribute on 10% of their plan to paying unsecured creditors.

Ron and Karla have no other debts besides the home.  Their mortgage payment was $1400 on the first mortgage, $500 on the second and their tax escrow was $300 per month.

Ron and Karla were $11,200 in arrears on their first mortgage when they filed their bankruptcy.

Here is how their plan payment is figured.

$1400 for payment of the first mortgage regular payment
$300 for tax escrow payment on the first mortgage
$67  (10% of $40,000 divided by 60 months) for payment of the unsecured second mortgage
$187  ($11,200 divided by 60 months)
$1954 Subtotal
$195  Trustee Fee (10% of payment)
$2149 total payment

So how does this work out with their budget

$70,000 Gross Income Per Year
$5833 Per Month Gross
($1458)  Taxes
$4375 Net Income Per Month

$2149 Plan Payment
$250  Gas & Electric
$800  Food
$194  Clothing
$100  Laundry
$250  Medical
$502  Transportation
$130  Auto Insurance
$4375  Subtotal


Square Budget.  Home Saved.  Overall home mortgage modified by overall reduction by 20%

Bottom line - this Chapter 13 accomplishes good things.  With other applications we might have an auto loan, additional credit card debt or other unsecured debt.  For those discussions, please see my other blog postings.

For more information about bankruptcy, mortgage modification or other debt relief options, please call NLO Nelson Law Office at 877-464-6656 or email to: info@nelsonlawoffice.com

How to Compute Tax Prorations & Tax Credits in Cook County Illinois

If you are a young attorney just starting out or just someone interested in the obscure world of tax prorations, this article is for you.  Tax Prorations are essentially receiving credit for unpaid taxes either now or later after tax bills come out.

History:  In the Great Depression of the 1930's; the State of Illinois granted a one year property tax holiday.  This set all tax collections back one year.

Example:  Your Tax Bill for the First Half of 2010 (January 1, 2010 to June 30, 2010)  is $2000.  The tax bill is dated March 15, 2011 and due by June 30, 2011.    Since the bill is provided nearly a year after when the tax was incurred, the taxpayer has no idea what his tax bill will be when the tax is actually being incurred....He can only estimate based upon his prior tax bills.

Application.  When you purchase a piece of residential real estate in Cook County, clear title is provided and all of the taxes that can be paid are paid up on the day of closing.  However, because tax bills come out one year after they are due, there is often an entire year of property tax liability that is unpaid and the actual bill is unknown..

Example:  Buyer of Real Estate makes offer to purchase a home in Chicago.  The offer is accepted June 1, 2011.  The closing is to be September 30, 2011.  Full Year Tax Bill for 2009 is $4000.

First:  Calculate the estimated tax liability  up to the date of closing:

First Half of 2010 Tax Bill $2200  (must be 55% of the full bill from the prior year)
Second Half of 2010 Tax Bill (unknown)
First Half of 2011 Tax Bill (unknown)
Partial Second Half of 2011 Tax Bill (unknown)

The contract should call for a proration premium which is typically 105% or more.  In this contract, the amount is 105%.

To figure out estimate full year 2010 bill, simply take the 2009 bill times 105%.
$4000 X 1.05 = $4200.

To figure out Second Half of 2010:

Take $4200 (total estimated 2010 bill) less the $2200 already paid for a credit of $2000 to be given at closing for this half.

To figure out estimated full year 2011 bill, simply take the 2009 bill times 105%
$4000 X 1.05 = $4200.

For 2011 you will be paying 1/2 of the $4200 for the period 1/1/2011 to 6/30/2011 or $2100

For the period or 7/1/2011 to 9/30/2011 you would pay the fraction of ((31+31+30)/365) x $4200
$1058.64.

So our closing statement will show the following credits:

2010 Taxes 1st Paid
2010 Second Half Credit    $2000.00
2011 First Half Credit:  $2100.00
2011 Second Half Credit to 9/30/2011:  $1058.64.


SO WHAT DO YOU DO WHEN YOU DON'T HAVE A FULL YEAR TAX BILL AVAILABLE AND MUST CREATE A BASE TAX AMOUNT FROM SCRATCH?

Answer:  Take 2% of the purchase price.  This is an approximate annual maximum tax rate for homes in Cook County and specifically applicable to the City of Chicago.  This is used often with new homes that do not have any tax record yet.

For more information about tax prorations or to hire David Nelson as your real estate attorney, please call 877-464-6656 (877-GO-GO-NLO) or email David at info@nelsonlawoffice.com

I've Purchased a Home with Mold Damage - What do I do NOW?

First of all, don't panic!   Instead, take immediate action.  Within one week, you should have your own mold inspector preparing a report and providing a referral for mold remediation work.  Next, you should see a Plaintiff's Real Estate Attorney who is intimately family with how to file a lawsuit based on the Illinois Real Estate Disclosure Laws.  Next, if you can afford it, have the mold remediated.  If remediation is not possible and the home is a loss, move out, move on and get your litigation going so that your claim is not barred by the statute of limitations.

How do I find an attorney who is a skilled Plaintiff's Real Estate Attorney, visit IRELA, the Illinois Real Estate Lawyers Association at http://irela.org and take a look at the membership.  You can also email the current President for referrals.

How do I find a good mold inspector?  First call the home inspector who did your original home inspection for a referral.  Then also consider calling two excellent long time home inspectors for their referrals:  1)  Dan Brown, B & G Home Inspections, you can call him at:  312-558-1343  2)  Juan Negron, you can call him at 847-675-4613.

Home much for a Mold Inspection?  $1000 or less

Home much for remediation?  Sometimes as little as $500 depending on the severity of the problem.

Here is an example what can happen when action isn't taken immediately.

Frank purchases a condominium for $200,000.  Unbeknownst to Frank, the Seller is Developer who is concealing a severe mold and moisture issue in the basement of the building being converted to condominiums.  Frank is buying a unit that has a first floor that is living space with all bedrooms located in the basement floor of the duplex.  Frank hires a home inspector who does not bring up mold at the time of the inspection.  Frank does a walk through of the condominium 3 days before closing and does not see mold.  Frank closes on the property.  At the closing Frank takes a out a $180,000 mortgage.  The monthly payment is $1500 including taxes and insurance.  The condominium association assessment is $150 per month.  Frank moves into the condominium 5 days after closing.  8 days after the closing, Frank smells mold, sees mold showing up through the painted drywall and becomes sick.    Frank moves out of the condominium 10 days after the closing and never returns.

The condominium association files an eviction action one year after the Frank left his condo and obtains an order of possession.  The condo association does not rent the condominium because it is unfit for habitation.  However, the condo association has possession of the condo and changes the locks barring the reentry of Frank.

Frank never speaks to his home inspection to ask about why the mold was not discovered.  Frank never hires a mold inspector and never obtains an estimated cost of remediation and/or determination of whether it is possible.

Frank does spend $5000 on a retainer to hire a law firm to sue the developer.  The law firm files a complaint and can never serve it because the Developer has fled the country to Tahiti.  Frank's law firm has stopped work on the lawsuit because they need more money for legal fees.

Frank's lender is threatening foreclosure and a deficiency judgment.  Frank makes $100,000 per year.

What does Frank do?  If his litigation fails, he will most like need to file for bankruptcy.  However, Frank will be forced into a Chapter 13 and with his income will most likely pay at least 40 cents on the dollar to his creditors including the mortgage for a period of 5 years.

Another option for Frank is to sue the attorney he hired for malpractice, however, this claim will be difficult because the attorneys filed a lawsuit within the time limits.

Frank is stuck in between some problems with very few good solutions.  The lesson is to immediate get the home re-inspected, get a mold inspection, get a remediation estimate and then interview 3 different attorneys to determine the best plaintiff's attorney for the complex claim.  Although not always available, these types of lawsuits often benefit from being contingency fee suits.

For more information about this topic, bankruptcy and other legal issues, please call NLO Nelson Law Office at 877-GO-GO-NLO or email to:  info@nelsonlawoffice.com

CHAC Real Estate Closings...What Everybody Should Know!

In the City of Chicago, the Chicago Housing Authority runs various types of low income subsidized housing.  In the past these were often referred to as the "projects" which was a description of several concentrated areas of public housing in Chicago.  The three largest "projects" were the Robert Taylor Homes, Cabrini O'Green and many lesser known housing developments.  All of these housing projects were failures.  A law enacted in the early 1970's is largely responsible for these failures.  For the most part, all tenants had to pay 40% of whatever their income was.  Therefore, there was no way to have super cheap housing and save money over a period of time.  Without saving, no working class person could use these units and only the very impoverished used these units as "safety net".  Although these units provided a way to stay off of the street, they were unsafe "prisons" that simply encouraged and literally trapped people in poverty.  There was no interaction with working class, middle class or upper class persons and all job opportunities fled as far away as possible from these housing projects.
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In the 1980's Mayor Daley enacted a long term plan to close down all of the concentrated low income housing in Chicago.  Part of the program was to create the so-called "scattered" site housing which was essentially 1-12 unit size housing projects.  Most the land was acquired by people who didn't pay taxes and/or were foreclosed upon.  Vacant lots in up and coming neighborhoods provided the best opportunities for good housing with these scattered site housing programs.  As welfare reform was passed in the middle 1990's the need for this program began to fade and opposition to these scattered site housing developments intensified causing a shutdown of the program.  Bickerdike Housing, Lutheran Social Services and other agencies typically manage these sites today.  Today, there is no further building of these types of housing.

With the advent of Welfare Reform and the Creation of "Section 8" Housing came the idea of landlord vouchers.  Poor people would be allowed to rent "fancy" market rate units in regular neighborhoods all over the place with not racial or economic boundaries.  The reality of this situation was quite different.  Section 8 Landlords had to be qualified and typically only desperate landlords in  mediocre to bad neighborhoods oftentimes also far away from good jobs. 

CHAC Houses are essentially a Section 8 voucher used to purchase a home and then have the mortgage payment paid by Section 8 for up to 15 years.  Before you think this is an easy gift for the buyer.....think again.  Typically, the buyer has been in public housing for over 20 years and has a lot of getting used to working and not being essentially a ward of the state.  It takes a long time to make the transition and usually these buyers have really put forth some good effort to get into the right mindset.  Also, the Section 8 Subsidy only cover principal and interest and does not cover taxes, insurance and mortgage insurance.  Bottom line, oftentimes, the buyer is paying up to 1/3 of their housing costs right away.  .....AND they can never return to public housing - ever!  They sign this agreement when they accept the CHAC home.


So what are the issues for the seller's and buyer's attorney?  BEWARE!  First of all, as all real estate attorneys known in Illinois, nearly 3/4 of their compensation comes from providing the title insurance policy.  This odd and not particularly good situation arises from the introduction of title insurance in the 1930's.  Traditionally attorney's made 1% of the purchase price as their compensation.  Title Insurance Premiums were designed to replace this with only nominal legal fees to the seller.  In a CHAC closing, the seller's attorney is NOT ALLOWED TO PROVIDE THE TITLE insurance.  This is done via a forced rider that the seller signs during attorney review.  Bottom line, if the seller is desperate to sell the property, then they will essentially need to pay their attorney for the missing premiums which average about $1500.  In a good market, the seller will simply refuse to sign the rider and cancel the transaction.

Hopefully, you are starting to see the bad precedent.  Bottom line, the title insurance costs ultimately are paid for by the low income buyer and in an amount that is more than they would have been if the seller's attorney was allowed to provide the title insurance.  Also, better properties will typically cancel faster because they can choose standard buyer's who don't have "weird" financing and restrictive riders to sign.

Obviously the intent of the creators of CHAC was to provide a low cost title insurance policy to the buyer.  However, this ultimately results in a higher price and unavailability of many homes where the seller's reject the CHAC riders in attorney review.  This may be viewed as discrimination and it is, but it's not prohibited discrimination, just unfortunate.

Buyer's attorney also need to be aware that the first sign that your buyer is a CHAC buyer, you need to withdraw.  CHAC requires volunteer attorneys.  This is also misguided.  Good, reasonably priced attorneys who are qualified provide good experience to buyers in how to hire attorneys which they will need in their new non-welfare lifestyle.  Free attorneys sets a terrible precedent for these new homeowners where they think that just because they are low income they will have attorneys wanting to offer pro bono (free) services which is not reality.

In my opinion, the CHAC program is great except that title should be pulled by the seller's attorney using existing rate cards and buyer's attorneys should be hired using reasonable rates.  Moving people into the opportunity to own a home is great.  The process of getting to home ownership should help train the new homeowner in the way the transaction would ordinarily be conducted outside of CHAC home ownership. 

Lastly,  I have recently seen where CHAC buyer's became "stuck" with the idea that they needed a certain kind of home for a certain kind of price regardless of where it is located and regardless of the effect on their commute.  The bottom line is this - it is my opinion that CHAC counselors should always encourage potential buyers to buy within 10 miles of their employment with a viable public transportation option and near an area that has job growth.    A beautiful home that is not near your home is called a "vacation home".  A beautiful home in a depressed economic area is called a museum.  A small but practical home near tremendous job opportunities, vibrant communities and good schools is called a HOME.

For more information about the CHAC program, please contact the CHA at THECHA.ORG


For more information about quality real estate attorneys who represent residential real estate sellers and buyers, please contact David Nelson at NLO NELSON LAW OFFICE INFORMATION

Fidelity National Title and JP Morgan Steal Buyer's Attorney's Fee with Petty RESPA Disagreement

I recently was involved in a closing where JP Morgan Chase and Fidelity National Title ended up "stealing" my attorney fees by not allowing them on the HUD.  How many times has this happened under all sorts of pretenses:  You didn't request your fees be added to the HUD in writing;  The lender didn't list you as receiving any attorney fees;  Your fees don't match the good faith estimate.  HERE'S THE BOTTOM LINE:  If buyer's attorneys cannot be paid pursuant to their written fee agreement with their client in a secured way through the HUD then something is going to have to change.

Specifically, what happened in this case is the following.  Buyer's had a total fee of $450.  This fee was increased due to a cancellation of a schedule closing less than 48 hours prior to the closing date.  All of these terms were in the written fee agreement which the clients signed.  Under our fee agreements, clients must pay 1/2 of the fee up front which the client's did.  Therefore at closing, $225 of the regular rate and $225 additional for the abruptly cancelled closing resulted in $450 due at closing.

The $450 was requested to be added to the HUD and Fidelity placed it in line 1307.  Unfortunately, JP Morgan Chase objected and said that the fee should be placed in line 1100 section.  Fidelity's software supposedly doesn't allow this.  JP Morgan Chase alleges that this is what the RESPA law requires, but Fidelity doesn't allow this.

To settle the matter, I ended up slashing my fees by 50% for a payment by check at the closing from the client.  What is most sinister about this is that the client had more than $1000 that they had to forfeit in seller paid credit for closing costs because they could not get money back at closing.  My total fee could have been paid out of this had JP Morgan Chase not objected or Fidelity had their software updated to comply with JP Morgan Chase's view the RESPA law.

SOLUTION:  All clients should pay 100% of the estimated flat fee to the buyer's attorney up front and deposit into the client trust account.  Upon the failure of the closing, the buyer's attorney could specify in their fee agreement that 1/2 of the estimated flat fee be paid from retainer and 1/2 returned.  Upon successful completion of the closing, all fees wold be paid from the retainer.  Any special charges such as trip charges, cancelled closing fees and other miscellaneous charges could be either invoiced to the client outside of the HUD or invoice and paid via the HUD at closing .....subject to lender and title company approval.  Bottom line - most of the time all of the fee would be paid.

The other option is for real estate attorneys to either take these closings on a loss leaders or simply exit the representation of buyers. 

Attached is a model representation agreement for review.

To download a copy of our proposed Illinois Buyers Residential Real Estate Client Representation Form, please click Download CRA

Steel Porches, Building Maintenance and Condominium Assessments

Today, while riding the Red Line L into work, I was struck by how many steel porches are rusting on Condominium Buildings.  About ten years ago, a porch collapsed in Lincoln Park.  The porch was in adequate condition by porch standards of the day, but it was pushed past its limit with nearly 100 people crammed on a porch designed for about 5 people.  Unfortunately for the owners of the building, several people were killled....an guess what they were wealthy and politically connected.  The result, the new Chicago Porch Ordinance and the witch hunt against landlords and condominium associations to upgrade their porches.

The good news - Chicago has some great porches that are much safer than ordinarily found.  The bad news....well many of the condominium conversions of the housing boom now have strong, but rusty steel porches.  I remember the ballyhoo of developers discussing how great these "premium"steel porches would be.  Practically no maintenance, incredibly strong and panacea for anyone wishing to avoid the costly replacement of wood porches.

Well  - think again.  Steel Rusts.  And it  rusts really well.  In fact, typically rust starts forming immediately after a painted steel surface is exposed to moisture.  So guess what - you need to to regular maintenance on these porches, such a sanding, painting and testing the integrity of rusting areas.

Example:

In 1999, Developer converted 12 unit apartment building to 6 condominiums.  Each unit has "miraculously" only paid $150 per month for their assessments which are to cover primarily condominium association insurance and miscellaneous expenses.  The association does not reserve money and has not ever had an increase in assessments.  Since 1999 all of the original owners have sold and moved out with only second or third generation owners present.  The "new" roof is now over 10 years old, there have been reports of small leaks onto the ceilings of the top floor units.  Also, the "deluxe" steel porches prominently featured in the original advertisement for the condominium development have worked out well for 3 units and poorly for the other 3 units.  Apparently the porches don't all drain outward leaving puddles after rainstorms  After ten years, 3 units have consistently rusty areas that really need to be fixed.  The owners are angry but can't get the association to fix these rusty spots as this is "unnecessary".

Solution:

Automatically raise assessment 15% each year in the budget regardless of whether the membership thinks this is a good idea to get assessments more in line passively over the next few years.   Propose a modest one time special assessment for porch maintenance involving sanding and painting and if the areas are significantly corroded have an engineer prepare a report indicating that now replacement of the deck is necessary.  The increase reserves to at least 10% of budget for the current year - this will make the association FHA compliant.    With good maintenance a steel porch can last indefinitely, but unlike treated wood, constant small amount of maintenance are necessary.

No Saturday Walk-In Office Hours for August 6, 2011

There will be no Saturday Walk-In Office Hours for Saturday, August 6, 2011.   The next walk-in office hours are Saturday, August 13, 2011 from 12 Noon to 4pm at 2215 South California Avenue; Chicago, Illinois.  For more information call 877-GO-GO-NLO or visit http://ping.fm/eZqTA

The Dangers of Non-Bankruptcy Credit Consolidation

The Bankruptcy Act of 2005 wrote in a number of provisions that "encourage" potential bankruptcy debtors to consider non-bankruptcy debt relief such as Credit Consolidation.  The problem with Credit Consolidation is that it is not regulated and is not a global settlement of debts.Also, the cost of credit consolidation is usually between 30 to 50 cents on the dollar which typically is more expensive than what most debtors pay in a Chapter 13 Bankruptcy. 

Just last week, Lisa Madigan, Illinois Attorney General filed a Cease and Desist Order Against Legal Helpers, an Illinois Based Debt Consolidation Firm under the new law effective January 1, 2011 that prohibit any non-lawyer from offering non-bankruptcy debt consolidation.

So what's the solution:  Bottom line is this.  If you are wealthy enough that a bankruptcy is more harmful than good, the traditional route to take is to spend some serious money on legal fees to restructure you debt and also defend lawsuits as they arise.  For most people's debts that are beyond their ability to pay, bankruptcy is the only safe choice because it is court supervised and is global in its effect.  This is not to say that Bankruptcy is the best debt relief ever, but is simply to say that only in a bankruptcy can you get the automatic stay which stops all lawsuits and debt collections from happening without court order.  Also, in a bankruptcy,  a repayment plan uses long established and well thought out priority rules to determine which debts are paid in preference to other debts.  Lastly, all parties in bankruptcy proceedings generally have attorneys which helps to ensure that the focus is on debt relief and not on silly mistakes of procedure or allowing one creditor to have preference over another.

Here is a typical example of why non-bankruptcy debt relief through non-attorney assisted credit consolidation is now prohibited in Illinois:

Sally and Ben are married with two children.  Their family income is $50,000.  The have $2000 of tax debt from last year, Ben owes child support arrears to his ex wife in the amount of $10,000 and Sally has $60,000 in credit card debt.  Ben and Sally own a modest home with a $80,000 mortgage and $500 per month payments.  Ben and Sally are 4 months behind on their mortgage payments and are about to have foreclosure lawsuit filed against them.  Sally has two court judgments against her.  Both have been sent to collection.  15% of Sally's gross income is being deducted each month for these garnishments.  Currently Sally will be in garnishment for 5 years before they are paid off.

What should they do:

If they file a Chapter 7 Bankruptcy, all of the credit card debt will be gone and they can surrender their house and move out in approximately 6 months. Ben will still be garnished for his child support arrears up to 50% of his gross income and he and Sally will also have to make steep payments on their back taxes.  The family will move into low quality rental housing within 9 months.

If they file a Chapter 13 Bankruptcy, all of the credit card debt will be paid at 10 cents on the dollar or $6000 over 60 months.  The arrearage on the home mortgage will be paid first without interest and is approximately $2000 over 60 months.   The tax debt will be paid back before all other creditors at 100% with 9% interest over 30 months.  Ben and Sally will be able to keep their home.  Ben will pay back all of his child support arrears without interest over the 60 month plan at 100%.  In this case, the garnishments stop.  Meaning that the family now only pays 10% of its gross income not to just two unsecured creditors but in satisfaction of ALL of the unsecured creditors - this is where the good deal is.  Also - if Ben and Sally had a car loan, it would be converted today to 6.25% interest with payment spread out over 60 months.

If they went with debt consolidation, Ben and Sally would most likely pay $4500 for debt consolidation services up front.  Then they would pay approximately $1200 per month for at least 36 months.  At the end of the 36 months, the creditors who voluntarily agreed to a reduce payoff would be gone and paid off.  The creditors who did not join in would still be owed money and most likely would have filed a lawsuit for collection and have entered a garnishment against Ben and Sally.  The Child Support and Tax Debt would be paid through garnishment of Ben's Salary up to 50% of his gross income and the tax debt would be paid through a tax lien which would tie up all of their real and personal property, freeze their bank accounts and ruin their credit rating.

Bottom line - when the Bankruptcy Reform Act of 2005 was enacted, part of the goal was to increase the payout to credit card companies.  This has been accomplished by increased payouts under Chapter 13 plans and the means test that forces everyone with above mean income into a Chapter 13 repayment plan.  Bottom line - voluntary credit consolidation was bad for most people prior to 2005 and it is still bad today.

Only the very rich with very private and expensive attorneys benefit from these types of restructuring and usually it is done to simply keep control of many assets with very little equity but lots of income.

For more information about debt relief through bankruptcy, please email  info@nelsonlawoffice.com  or Call 877-GO-GO-NLO to set up a free bankruptcy consultation.

Post-Bankruptcy Survival Guide...Budgeting, Planning and Lifestyle Changes

Congratulations!

You've successfully completed your bankruptcy.  In 75% of cases, you've just completed a Chapter 7 Bankruptcy which is oftentimes called a "Liquidation" or "Straight" Bankruptcy.  Other Debtors have typically completed a Chapter 13 Bankruptcy which is unique in that it uses a 60 month repayment program to keep debtors on track with their budget and also pay back between 10% and 100% of their debts.  This guide is especially designed to help those debtors who are leaving a Chapter 7 Bankruptcy.

As you know, the filing is done by your attorney, then 30 days later you have a 341 meeting.  90 days after that you typically have a discharge order and your case is closed.  Here's the problem,  you have just gone from having typically $60,000 in credit card debt with minimum payments of $1200 and payday loans, garnishments and all sorts of other things that disrupt planning and budgeting.  In this guide, we will discuss how to plan a good budget in the newly stable environment created.

The first year:  The first year after a Chapter 7 Bankruptcy can be traumatic. In many cases, a car was surrendered, a house given up at foreclosure and possibly a new job has replaced the job lost which caused the bankruptcy in the first place.  So let's talk about the big things to worry about in the first year:

1)  Set Up a Budget
2)  Determine how long you can live in your home if it was surrendered in the bankruptcy
3)  Figure out inexpensive transportation options if you gave up a car in the bankruptcy

The Budget:

A.  Items that cannot be changed:
1.  Electricity
2.  Gas
3.  Water and/or sewer bill
4.  Basic Telephone Service
5.  Basic Food
6.  Basic Dry Goods

For Electricity and Gas Bills, you should get on a "budget" plan that allows you to pay the same amount each month. If you are estimating your budget amount, simply take one year of bills and divide the total of all the bills by 12.  This is your average amount spent on that utility.

For Water and/or sewer Bill, determine whether paid monthly, quarterly, semi-annually or yearly.  If anything other than monthly, set up a savings account at a bank specifically for this bill and the put the same amount in monthly and transfer the necessary amount into your checking account when you are making payments.


Basic Telephone Service - Remember this is a discussion only for the first year and designed to see how low you can get your fixed utilities that you must have.  The goal is to see just how much flexibility you have.  In this area, you should determine if you want a mobile phone or landline.  The bottom line is - you don't need both.  I recommend a voice only plan for less than $50 per month.  Internet Service, TV Service and other service are nice but not necessary to everyday life.  Bottom line - those are part of the choices you get to make with your "extra" income which is under planning.

Basic Food - What is this?  This is the food that is necessary to live.  Not necessarily what you want or desire, but what is necessary to live a healthy life.  Bottom line,  Meat, Fruit, Bread, Dairy.  The typical family of four spends about $800 on these necessary items.  If you have trouble with staying in the budget, simply try one week without the following:
a) Bottled Water
b) Soda
c) Candy
d) Booze (Beer, Wine & Liquor)

Even though this isn't fun - the point of this exercise to find out how much power you can yield by removing any lack of control over your necessary "fixed" budget items.

Basic Dry Goods:  What is this?  This is the old fashioned way to describe:  Toilet Paper, Soap, Razor Blades, Garbage Bags, Cleaning Supplies, Cookware, First Aid Supplies,  Toiletries & Cosmetics.  The typically family can keep this under $400 per month.  If you are having trouble staying within these budget amounts try eliminating:  1)  Paper Towels 2) Magazines and Newspapers 3)  Anything that won't be used in the next week  4)  House Decorations  5)  New Sheets, Linens, Towels, etc.



B:  Items that can be changed:

1.   Transportation
2.   Insurance
3.   Medical
4.  Schooling
5.  Recreation
6.  Vacation
7.  Hobbies and Interests
8.  Out to Eat, Drinking and Concerts
9.  Unnecessary Home Repair or Decoration

Transportation:  Do you need two cars?  Can you do with one or none.  Does your job require you to travel in a way that you need a car.  Is the car that you own a low cost car to run.  This can usually mean less stylish and prestigious but the reduction in stress from a low cost car is superior to the satisfaction of a prestigious car.

Do you need life insurance?  Do you have kids who will need money if you die.  If so, great....now how much.  Think about this, if one of you dies and your spouse has three years of income to live on, he or she won't have much trouble getting into a new job and situation to replace the income lost.  If both of you die, then you should have enough money for your guardians to take car of your children for at least several years after you death.  Bottom line - a 20 year policy of term life insurance equal to your salary times 3 is enough.  This should never be over $100 per month for a healthy married couple in their 30's.  Do not buy whole life or buy insurance to pay off your house.  This is useless.  The maintenance cost and taxes on a home will take it away from the survivor even though there isn't a mortgage any more.

Auto Insurance is another one.  If you have less than $10,000 in cash and all of your other assets are in retirement accounts, than the State Minimum Liability Requirements are all you need.  If you have a loan, then get the minimums for collision to satisfy the lender.  As you get more assets you should increase this coverage.  This includes increased equity in your home.

Health Insurance:  Bottom line, if you don't have a policy at all from work or paid by yourself, you should get a basic policy that at least gives coverage for the big events and also gets you access to reduced rates at hospitals.  Sometimes a family of 4 can get a policy like this for under $400.  However, you should switch jobs to one that provides health insurance as a benefit until the new Health Care Act changes how we are able to purchase health insurance.

Medical:  This is an easy one:  If you are on a lot of recurring medications which are a monthly fixed amount that you cannot afford, you need to sit down with your doctor and find out which ones are really necessary for your survival and which ones can be swapped out for older cheaper medications that will allow you to survive until you can afford the medications you really want, but may not really need.  A very frank and direct discussion with your physician is necessary because they are not incentivized to reduce your costs.

Schooling:  You may want to send your kids to a private school, but if the money doesn't exist now, it may or may not later.  Bottom line - compare your net tuition after scholarships and grants (not loans) with the cost of public, magnet or charter school offerings and try to figure out something does not overburden your fixed expenses.  In the future, if your income increases, you can simply allocate that additional income towards a private school education.  On average, the IRS estimates that a family should spend no more than $147.50 per month on a child's education pre-college.  While this amount may not work for everybody, it is a good guide to how many budget for pre-college education.

Recreation:  This is a tough area to budget for, but essentially, in the first year especially, you need to get the most bang for the buck and to be very selfish about making sure that you spend your funds on activities that you and your family like and not to just please others who have suggested an activity.

Vacation:  Depending on your job, vacation may or may not be included.  Bottom line, we all need a vacation.  Here's a primer on vacation:  There is the one day vacation, the weekend extended and the week off.  Bottom line, if you can do it, one week of vacation away can have dramatic benefits for your mental health and can refresh you greatly.  If one week doesn't work either because of cost or scheduling days off at work,  you should consider extending a holiday weekend and going away some where.  Here's the bottom line, take 30% of your annual discretionary budget and try to save it in a special savings account for your vacation.  If you end up with $900 than pick a destination based upon $450 in upfront charges to go and $450 to spend along the way.  In the end, it is the experiences you have on vacation that are most important and not what you did and/or how much money you spent. 

Hobbies and Interests:  It is important to do something that takes your mind off of work and family but is compatible with your obligations to work and family.  For example, you may not be able to afford a sailboat, but maybe you can sail for free as crew.  You may not be able to afford a motorhome, but  you may be able to afford a really good tent and use it twelve times every summer.  Your interest may be Roll-Royce History, but you won't be owning a Rolls-Royce Collection, you may need to be part of a local club, work as a volunteer at a museum or simply collect books and memorabilia.  When it comes to sports, the cheapest choice is TV, but let's face it, if sports is your life and you like baseball, then maybe a partial season of tickets is the way to go.

Out to Eat Drinks and Concerts.  Look at how much extra money you have every month and decide how much you want to allocate towards going out, concerts and other entertainment.  If your budget isn't big, then may pick a concert once every 3 months instead of a mediocre list of events every week.  Or eat before going out and just have drinks.  In the first year after bankruptcy, creativity is the key.  The problem is friends and family who may have unreasonable expectations of  your ability to entertain and spend money going out - this is the first time you will really see what the quality of those relationships are - after a frank discussion about what you will not be doing any more, you will see the true colors of your friends and learn how to navigate family politics.

C.  Planning Items for the Future:

Take the amount of money that is discretionary every month and think about how you would like to spend it:  General Saving,  Saving for something specific, Education, Vacation, Saving for Kids, Saving for Retirement.

D.  After the first year:

1)  Look for a new job
2)  Get a new career
3)  Plan for education to get new career and more income.
4)  Reduce Commute to Work
5)  Improve Schooling and Reduce Cost through Public Schools that meet your children's needs
6)  Purchase more reliable car with lower operating costs
7)  Find Better Place to Live
8)  Plan a Vacation

Look for a New Job:  If you have been in the same job for years without any pay increase, maybe it's time to consider looking at whether your skills are worth more money elsewhere.  This can help with making your budget looser and letting you explore new hobbies, interests and vacations.  The typical jobseeker who is currently employed looks for 6-12 months for a better job.  It never hurts to look around.

Get a New Career:  Before you lose your job, get downsized, get laid off or suffer cutbacks or furloughs at work, it's time to look at whether you are working in the right industry.  For example, the printing industry has suffered continuous declines for at least 10 years as many types of information are now delivered digitally.   A print set up person who has a good grasp of graphic layout should maybe head to a different firm to do web design set up or advertising layouts which may not be printed but use the same set of skills.  Bottom line, if you are in a dying industry - they usually don't come back and it is best to switch industries before you are laid off.

Plan Education for a new career - it sounds easy, but the typical graduate degree earned while working takes 5 years.  Bottom line, if you think you need more education, to make the next step in your career and continue to have increased income, you need to start now to have the education you need in five years.  Choosing a school is dependent upon net cost, logistics and your schedule.

Reduce the commute to work.  Reducing your commute to work can sometimes save thousands of dollars per year and save sometimes 10 hours a week in wasted time.  Bottom line - if you work in an industry whee a company is located closer to home, it may take 6 months to a year to make the change.  It is good to start the planning now.

Reduce the Cost of Schooling - Sometimes you have to break a comfortable habit.  If you have been at a private school for years, but it contributed towards your bankruptcy, then you have to recognize the fact that you may not be able to send your child to private school.  Sometimes Scholarship and Grants can help, but if you need to reduce your budget now to stay out of financial trouble, you should put other concerns aside and do what you need to do.

Purchasing a Reliable Car - Many times, the least costly car isn't the one with the lower gas mileage or one that is a car that everybody thinks is great.  What's important is reducing the overall cost which includes:  Maintenance, Gas, Oil and Insurance.  To do this right, you should look over all of your maintenance costs for the last year, call your insurance company to see how your existing and proposed car rate for premiums and compare mileage costs.

Find a Better Place to Live:  Finding a better place to live should include the following factors:  1) Proximity to your job 2) School System Quality if you have children 3) Functionality and Space of the New Residence  4)  Overall Cost versus how much you to spend in your budget.  For most people leaving bankruptcy, you must wait 3 years after your house is sold in foreclosure to qualify for a FHA First Time Homebuyer Loan.

Plan a Vacation:  The key to a long happy life is making activities outside of work the focus and making work an enjoyable means to an end.  Planning frequent high quality vacations with an emphasis on moderate cost and high quality activities is the key.  The best vacations are always planned months in advance and often include friends and family.  Good planning is free.  Great Value is Priceless.

For more assistance with your post bankruptcy situation, please call:  877-GO-GO-NLO or Email our firm at dcnelson@nelsonlawoffice.com