- Stark & Stark Shareholder Discusses Rise of Bankruptcies for NJN News
Timothy P. Duggan, Shareholder of Stark & Stark's Bankruptcy & Creditor's Rights group, was interviewed for an NJN News story discussing Governor Corzine's economic stimulus bill and the recent rise of unemployment and personal bankruptcies in New Jersey. As the number of Chapter 7 bankruptcies more than doubled from 7,200 in 2006 to 16,955 in 2008, Mr. Duggan states that people are just not able to make mortgage payments in addition to their every day living expenses, and are therefore forced into bankruptcy.
You can watch the full story here.
- Deficiency Actions After Foreclosure Judgements
Deficiency actions to recover balances owed after a consumer foreclosure action are not favored in New Jersey Courts. Although, such actions are permitted under New Jersey law, it is in very limited circumstances and may be difficult to obtain. Under New Jersey law, a judgment for deficiency may not be brought in the same action to foreclosure the residential mortgage (a separate action must be brought); this preclusion also includes claims on any personal guarantees. Foreclosure deficiency actions can be brought only once the mortgage is foreclosed; must be brought within three (3) months from the date of the sale and can not be brought against any party who was not a party to the foreclosure action. The deficiency balance sought must be the difference between the foreclosure judgment amount and the fair market value of the property at the time of the sale.
The public policy behind the legislation was to protect the homeowners from losing their homes and then to have a judgment against them for a deficiency which could be as much as the full amount of the mortgage plus additional costs and attorney’s fees.
The protection afforded by New Jersey’s deficiency statutes does not extend to business or commercial loans, one to four family residential dwellings owner occupied at the time the deficiency action is commenced where the mortgage is not the primary security for the debt or where there is a second mortgage lender and the mortgage is subject to a prior lien(s) not held by the same lender. It is a common misconception that these statutes protect all residential homeowners. For example the protection would not apply to a second mortgage held by a different lender than the one who holds the first mortgage, provided the first mortgage has already completed its sale; a single family dwelling where the owner or family does not occupy the property or a single family dwelling which secures a commercial loan.
Although, the amount of the foreclosure judgment is binding on all parties to the foreclosure action, the defendant in the deficiency action may still dispute the amount of the debt in the deficiency action. The main thrust of the statute’s protection is found in the ability of the mortgagors to dispute the amount of the fair market value of the property at the time of the foreclosure sale.
A deficiency action can not be brought if a deed in lieu of foreclosure is accepted. It must be remembered that an action to recover a deficiency balance will open the foreclosure and sale of the subject property and extend the homeowners right or his assignee to redeem the property for six months, by paying the full amount determined in the foreclosure action.
- The Next Shoe - Private Mortgage Insurance Policy Rescissions
It is hard to know when the proverbial “next shoe” will drop in the current economic crisis but recently credit lenders in my practice have experienced attempted policy rescissions for their mortgage insured accounts where suddenly and without any notice the private mortgage insurer (the “Company”) has attempted to rescind its insurance policy on specific accounts. This is especially true for policies issued on mortgage accounts closed during 2005-2006, the peak years of residential real estate values. Their letter often contains language to the effect that the application’s underlying appraisal was “false, incorrect or incomplete” and was “material to the decision to insure” or something similar thereto. The reality is that private mortgage insurers now realize that they are likely to be hit with a rash of claims on loans they have underwritten since the real estate bubble has burst and home values in many geographic regions have declined precipitously. Rather than brave the tempest and honor their policies they have elected to get in front of the wave through this novel rescission approach.
Attempted private mortgage recessions such as these, need to be handled promptly by qualified counsel. The credit lender’s appraiser should be put on notice and invited to put his carrier on notice of the pending claim. The appraiser should also be requested to review the appraisal used for the original underwriting to make certain that the facts contained therein are accurate and to verify the comps used. There should simultaneously be a demand for the insurance company’s new appraisal. Payments should be made to the Company in the regular fashion even if they are returned initially. Counsel should review the Company’s Master Policy and any exclusions and give the Company any required notice pursuant thereto in anticipation of the pending litigation.
While this recommended course of action often puts credit lenders and their appraisers (often with mutual business interests and longstanding relationships) at odds, New Jersey’s Entire Controversy Doctrine makes a second lawsuit against the appraiser itself impossible. Counsel, experienced and sensitive to these relationships, can normally soften the prospects of the pending suit by a telephone call explaining the circumstances and promising full cooperation in the litigation prior to issuing his written demand.
If litigation is commenced it is imperative to ascertain if the financial institution has other insured loans with the Company and it is normally advisable to seek declaratory relief in the Complaint seeking to maintain coverage on all those other loans where policies exist. Additionally, it may be time to take stock and ascertain the possible exposure of those other loans since the Company’s intentions to “rescind” its policies may signify well-founded concerns for its adequate capitalization. Prudence would suggest that a lender at least recognize the additional risks such mortgage insured loans may poise to a lender’s portfolio. Certain or all of these loans may well be singled out for “special handling”.
If the lender has any concern about the appraisal questioned or any other appraisals insured by the Company then it should hire an independent review appraiser to offer an independent view on the appraisal or appraisals. If there are any weaknesses in the case it is better to know up front. This may well affect the negotiation strategy with both the Company and the appraiser’s insurance company.
In these “recession” situations, it’s a simple “shoe-in” to seek guidance and move swiftly in order to preserve the credit lender’s rights. Normally the bank’s counsel will need a copy of the notifying letter, a copy of the appraisal used by the Company to determine that the underlying appraisal was “false”, a copy of the original appraisal and a copy of the Company’s Master Policy currently in effect with the credit lender.
- Insolvency in Franchise Businesses: Minimizing Risk and Maximizing Recovery Under the Bankruptcy Code
Timothy P. Duggan, Shareholder and member of Stark & Stark's Bankruptcy & Creditor's Rights group, will present a seminar entitled Insolvency in Franchise Businesses: Minimizing Risk and Maximizing Recovery Under the Bankruptcy Code in conjunction with the Legal Publishing Group of Strafford Publications. The 90-minute tele-seminar will be held Thursday December 4, 2008 from 1:00 PM - 2:30 PM.
The seminar will feature a discussion of the weakening economy and it's effects on many franchises, ranging from restaurants to convenience stores to staffing services who are now seeking bankruptcy protection. The Bankruptcy Code addresses how franchise agreements are treated in bankruptcy; however, the Code does not resolve all of the unique issues that arise for franchisors and franchisees. It is critical tha
