Florida Asset Protection Blog

Deficiency Judgments: A Different Opinion of Risk

In response to my statements on this Blog that most lenders do not pursue mortgage deficiency judgments, I received a email from an experienced collection attorney expressing a contrary opinion. The collection attorney (he did not giver permission to reveal his name) stated that he knows that lenders will be pooling mortgage deficiency judgments and selling them to collection companies for pennies on the dollar. Credit card companies have an established practice of selling non-performing credit card debt at seep discount. This same attorney says that many borrowers who walk away from mortgages will be in for a big shock in the future when collectors who have purchased the mortgage companies deficiency rights surprise the borrower with legal action.

Whether or not the attorney’s prediction is correct will be seen in the future. As stated often, my own experience over the past few years is that deficiency judgments are rare, and most attorneys and bankers I have spoken with agree. Yet, if its economically practical to purchase mature deficiency claims then there might develop an industry to pursue some of today’s numerous homeowners walking away from their mortgages. The homeowner needs to be aware of all opinions and predictions in order to make informed financial decisions.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida

Mortgage Deficiency: Update On Tax Consquences

Mortgage deficiency judgments are main reason people express currently for seeking my asset protection advice. I have previously written on this Blog that most lenders do not pursue mortgage deficiencies and some of the reasons for this policy. I just recently spoke with an attorney who represents many mortgage lenders. He said that lenders continue to be inundated with foreclosures and are having difficulty managing the cases. None of the lenders he works for are pursuing deficiency judgments as a matter of course. Many lenders are planning to send 1099 tax forms to borrowers. The lenders file and send the 1099 forms to document their own tax loss. The borrower who receives a 1099 from a foreclosure must deal with its income tax consequences.

I have previously explained in prior Blog posts that borrowers can escape income tax liability associated with foreclosures, deeds in lieu of foreclosure, or short sales by filing a report of insolvency with the IRS. Most people lose properties because the mortgage debt exceeds property value, and the borrowers does not have enough other assets to continue mortgage payments. Most of these borrowers are insolvent. Also, anyone who files bankruptcy is presumed to be insolvent for tax purposes.

To be sure, borrowers concerned about tax consequences of mortgage foreclosure should consult with their CPA. The effect of receiving a 1099 from a mortgage lender is mostly a tax issue rather than a legal issue.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida

Head Of Household Affidavit And Wage Garnishment

Creditors cannot garnish wages of a debtor who is head of household in Florida. I am occasionally asked, as I was this week, whether someone who is facing a possible judgment from a court proceeding needs to file in the same court an affidavit that he his head of household in order to claim the exemption. The answer is “no.” The law does not require such affidavit, and moreover, filing a affidavit will not suffice to protect wages from attempted garnishment.

Head of household status is usually asserted after a judgment creditor has served a writ of wage garnishment on your employer. When a debtor receives notice of a garnishment the debtor can assert on the garnishment form his head of household exemption and file the claim of exemption with the court. The law directs courts to hold immediate hearings on the exemption claim so that protected debtors are not unreasonably inconvenienced.

Rather than file an affidavit in advance of garnishment I sometimes advise debtors who have had a judgment entered against them to take affirmative steps to notify the judgment creditor of the debtor’s garnishment exemptions before the creditor obtains and serves a writ. The debtor should provide the creditor supporting evidence of his exemption. In the case of head of household, the debtor could provide pay stubs of the debtor and his dependants. Most debtors will not attempt garnishment if they believe the debtor’s wages are exempt for fear of a wrongful garnishment action by the debtor.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida

Tenants By Entireties Protection Of Asset Acquired Before Marriage

A caller stated he owned a piece of investment real estate in Florida when he was single. A creditor got a civil judgment against the caller and recorded the judgment in the county where the real estate was located. A title search showed the judgment as a lien on the property. The caller stated that he was about to get married and put his new wife’s name on the title. He wanted to know if he could thereafter protect the property as tenants by entireties property.

Putting his new wife on the property title will not protect the property from prior judgment. Once the judgment is recorded any change is title is subject to the pre-existing lien. Also, tenants by entireties protection requires that the debtor acquire the asset during the marriage. In this case, the debtor acquired his interest in the real estate prior to getting married so he cannot claim that he owns the property by the entireties.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida.

Disability Proceeds: Protection of Single Large Distribution

Florida statutes exempt disability payments from creditor levy. A caller asked if a lump sum disability payment is protected once deposited into the debtor’s bank account. The Florida protection of disability payments most often is applied to exempt from garnishment continuous periodic payments under a disability income policy. The express language in Florida statutes does not protect proceeds of disability policies after receipt. I do not think that a lump sum disability payments would be protected after having been deposited in the debtor’s bank account

The debtor eligible to receive a disability settlement might find protection by depositing the disability payment in another protected asset. The debtor could defend fraudulent transfer claims by stating that the money was exempt until its deposit in which case the debtor has the discretion to transfer or convert the money to any person or any alternate asset.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida

Old Judgments Can Take You By Surprise

Judgments never go away. There is a 20 year statute of limitations for enforcement of judgments. Old judgments can come back to bite you. Take, for instance, the experience of a debtor who called me earlier this week who had a judgment entered against him in California in 1995. The debtor currently lives in Florida. She had heard nothing from the judgment creditor since 1995. Without warning, a couple week ago she found that writs of garnishment had been placed on all of her several bank accounts and brokerage accounts. All financial accounts were owned with her husband as tenants by entireties and were exempt.

The debtor told me that many of her outstanding checks bounced. She had to go to court to get the garnishment dissolved on the basis that the accounts were all exempt entireties accounts. She incurred legal fees and great inconvenience. If the creditor had any reason to know that the financial accounts were exempt joint accounts the debtor may have a cause of action against the creditor for wrongful garnishment.

It is unlikely that the original creditor is the party trying to execute on this judgment. Most creditors let judgments lie on the public record after their initial collection efforts. What may have happened in this instance is that the original judgment was sold to a third party investor, probably a collection company. There are companies that pay pennies on the dollar for old judgments in hope of making money by a surprise attack on a complacent debtor. The lesson is that people must maintain effective asset protection plans long after a judgment is entered against them. Asset protection must remain up to date and correctly implemented. Don’t relax just because your asset protection has effectively defended initial creditor attacks because you do not know when the next collection attack will come.

Why Won't Mortgage Company Negotiate With Me?

At least once a day someone calls me about problems they face paying one or mortgages on their Florida real estate. Many people ask if I could assist them, or at least advise them, in negotiating a work out agreement with their lenders. They assume their lenders will realize that it is better for the lender to adjust their mortgage payment schedule than to force the borrower into foreclosure. The unfortunate fact is that as a practical matter very few lenders will work out customized deal with mortgage borrowers. Some lenders will accept short sales for borrowers already in default, but otherwise, most lenders will not deal with borrowers individual financial situations and modification requests. The main reason for lender inflexibility was expressed in a Wall Street Journal article written by economist Martin Feldstein

The article appearing in the March 7, 2008 Journal stated,

“Most mortgages are no longer held by originating lenders, but are securitized and sold to investors world-wide. More significant, mortgages are used to create complex, asset-backed securities that are cental to current credit-market problems. Investors no long own specific mortgages but only have rights to certain conditional payment streams. So generally, it is no longer possible to prevent foreclosures by negotiations between borrowers and lenders”

In other words, you can’t negotiate adjustments to your mortgage payment and terms because there is no one to negotiate with. For the same reason, there is no one in charge of pursuing deficiency judgments. The best approach for most people who find themselves hopelessly behind their upside-down mortgages is simply send in the keys and walk away.

posted by Jonathan Alper, asset protection and estate planning attorney, Orlando, Florida

Wage Garnishment: Can Debtor Claim Head of Household Exemption in Advance of Garnishment

Some people have sent me emails asking how they can assert an exemption of their salary on the basis that they are head of household. Usually, these questions are sent by debtors owe money for general consumer debts such as credit cards or car repossessions. The readers typically want to know what they have to do to let their creditors know in advance that their wages are exempt from garnishment.

Florida law does not provide a procedure to register an asset exemption in advance of a judgment, with the exception of filing for the Constitutional homestead exemption. A creditor can try to garnish wages only after the creditor gets a court judgment. When the creditor serves a writ of garnishment on the employer the debtor/employee gets a notification on which he can assert an exemption. If the debtor believes he is head of household he states the exemption on the form and sends copies to the court and the creditor. The debtor is entitled to an expedited hearing to dissolve the garnishment at which he has to prove to the judge that he qualifies as head of household.

If a debtor is certain that he is head of a household and anticipates a judgment against him, the debtor or his attorney could write a letter to creditor asserting wage garnishment exemption and providing proof of head of household status. The advance letter could in some cases convince the creditor not to pursue wage garnishment.