Deep Freeze: Bankruptcy & Foreclosure Georgia Personal Bankruptcy Statistics. Impact on Association Collections

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1 Deep Freeze: Bankruptcy & Foreclosure 2011 Community Association Law Seminar & Expo Julie McGhee Howard P: E: 1. Homeowner Bankruptcy 2010 Georgia Personal Bankruptcy Statistics Impact on Association Collections Chapter 13 Reorganization of Debt i. Proof of Claim ii. Post Petition Obligations Chapter 7 Liquidation of Debt i. Likelihood of Foreclosure ii. Lien Remains if No Foreclosure 2. Lender Foreclosure 2010 Georgia Foreclosure Statistics Association Lien Extinguished Impact on Community Protecting Tenants at Foreclosure Act 2011 Weissman, Nowack, Curry & Wilco, P.C. All rights reserved.

2 2011 Community Association Law Seminar & Expo Cultivate Your Community Deep Freeze Bankruptcy & Foreclosure Julie McGhee Howard

3 HOMEOWNER BANKRUPTCY Personal bankruptcy filings in the N.D. GA were up 10% in 2010 over people in every 1,000 Georgians filed for bankruptcy in 2010, up 6.1%. Georgia had the 2nd highest personal Geo g a ad e d g es pe so a bankruptcy rate in the country in 2010, only behind Nevada.

4 HOMEOWNER BANKRUPTCY Biggest drivers of personal bankruptcies: Real estate collapse and foreclosures; Outstanding credit and unavailable new credit; Job losses.

5 HOMEOWNER BANKRUPTCY 2010 Georgia Filings: 53% under Chapter 7. 47% under Chapter 13.

6 HOMEOWNER BANKRUPTCY The Automatic Stay Stops all collection efforts by the Association and other creditors.

7 HOMEOWNER BANKRUPTCY What do you do when an owner files bankruptcy? Stop all collection action: no liens, no lawsuits. Split your ledgers between pre- & post-petition. Remove pre-petition debt from invoices. File Proof of Claim in Chapter 13 cases.

8 HOMEOWNER BANKRUPTCY Chapter 13 - Reorganization of Debt Pay off debts under court approved plan over 5 years. Must pay pre-petition assessments according to schedule set in approved plan. Must continue to pay post-petition petition assessments as they come due. If not, association is entitled to relief from stay.

9 HOMEOWNER BANKRUPTCY What do you do when an owner files Chapter 13 Bankruptcy? As soon as you receive notice of a bankruptcy, let us know. We ll file a proof of claim on behalf of association, letting the trustee know how much is owed. If association does not file a timely proof of claim, yp it will lose the right to recover it.

10 HOMEOWNER BANKRUPTCY Chapter 7 Bankruptcy Liquidation of Debt Lien remains if owner keeps propertyp Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 Changed standards d for filing bankruptcy. If owner wants to clear out debts, will most likely have to give up home.

11 HOMEOWNER BANKRUPTCY What does Chapter 7 Bankruptcy mean for Associations? Very likely that the property will be foreclosed. The pre-petition debt will likely be wiped out at discharge. If the property is foreclosed, then the pre-petition and post-petition debts become uncollectible.

12 HOMEOWNER BANKRUPTCY How can WNCW help you when your owners file for bankruptcy? If the owner is required to make pre-petition or post-petition petition payments, we can monitor the payments. If the owner becomes delinquent, we can file the appropriate motion with the bankruptcy court. We can seek an order from the bankruptcy court allowing the association to foreclose its lien to pay off the debt.

13 HOMEOWNER BANKRUPTCY What s taking so long? The bankruptcy court moves at its own pace. Creditors have several months to file proofs of claim. Almost all motions allow time for response and require a hearing. Confirmation of a Chapter 13 plan can be put off multiple times to make sure that all creditors are properly covered.

14 HOMEOWNER BANKRUPTCY What can Associations do? Don t panic! Work on payment plans with distressed owners before they declare bankruptcy or their lender forecloses. Don t be intimidated. Post-petition debt can still be collected.

15 Bankruptcy & Foreclosure Owners can still lose their homes to foreclosure despite filing bankruptcy. Many foreclosures are initially delayed by bankruptcy but the owner must still keep up payments.

16 LENDER FORECLOSURE What is Lender Foreclosure? When a bank, lender or its assignee sells real property at an auction under its power of sale in the loan agreement, because the borrower defaulted and failed to make the required loan payments. In Georgia, foreclosure is usually by non-judicial sale. From the first notice to the purchase at auction, the non-judicial foreclosure process takes as little as 40 days.

17 LENDER FORECLOSURE Georgia ranked 7 th in nation for highest rate of foreclosures in was record ecod year for foreclosure oecosue notices in metro Atlanta. January and February 2011 up 13% over first two months of One in every 315 homeowner received a notice of foreclosure in GA in January.

18 LENDER FORECLOSURE Causes of high foreclosure rates: Sluggish economy Unemployment Decreased property values Upside down borrowers Depressed real estate market

19 LENDER FORECLOSURE What happens to the other liens on the property s title? Mortgage Lenders almost always have the highest priority lien on a home s title. When a Mortgage Lender forecloses its lien, and sells the home at auction, all inferior liens are wiped out. The new owner takes the property without any p p y y liens.

20 LENDER FORECLOSURE Foreclosure brings Good News and Bad News for Associations

21 LENDER FORECLOSURE Bad News: Debt owed to association is no longer secured by a lien (except a judgment, if any). You may end up with a vacant property. Foreclosures and re-sales at reduced prices drive down property values for neighborhoods.

22 LENDER FORECLOSURE Good News: Eventual new owner must pay assessments and will stop the bleeding. Association debt is a personal obligation, so board can still collect against former owner if that makes financial sense. Property will likely be fixed-up. Demand bank to do so if it takes over.

23 LENDER FORECLOSURE What happens to an association s s lien after foreclosure? Lender foreclosure wipes out liens that were filed after the mortgage. Association can collect pre-foreclosure debt from previous homeowner BUT Association currently can collect ONLY postforeclosure assessments from new owner including the lender.

24 LENDER FORECLOSURE Ledger: January $ February $ March $ April $ May $ June $ FORECLOSURE

25 LENDER FORECLOSURE Why does foreclosure sometimes take so long? Not all advertised foreclosures get called for sale. Modifications to loans through lender. Title problems: legal descriptions or problem with loan assignments.

26 LENDER FORECLOSURE If the property foreclosed, why is the tenant still there? Protecting Tenants at Foreclosure Act (2009) (Sunsets 12/31/2012) Bona Fide tenant can stay in the property for the term of the lease. If there is no lease, tenant can stay for 90 days. If property is sold to someone who intends to occupy the house, the tenant still must be given 90 days notice prior to closing.

27 Thank you!