Real estate foreclosure in New Jersey has many technical requirements and many different time frames to keep track of whether or not you are the lender or the borrower. Sometimes when title defects are discovered during the foreclosure process, it is sometimes best to dismiss the action without prejudice and re-file to ensure clear title. A clear title is a property title without any kind of lien or levy from creditors or other parties and poses no question as to legal ownership. However, not all errors will necessarily cause the foreclosure to be defective. This post describes some, but not all, of the potential issues that may arise as well as some solutions to these problems.
Foreclosure is the action of taking possession of a mortgaged property when the mortgagor (borrower) fails to keep up with their mortgage payments. The collateral is ultimately put up for sale by the creditor. Foreclosures vary from state-to-state and can be initiated either judicially or non-judicially. To be non-judicial, there must be a clause in the mortgage that provides for sale of the property in the event of default. In a non-judicial foreclosure, the lender will complete the foreclosure without the court system. In a judicial foreclosure, a civil lawsuit is filed against the borrower to obtain a court order to foreclose. Judicial foreclosures eventually end with the property being sold at a sheriff sale to the highest bidder. New Jersey is a judicial state.
The chapter of bankruptcy that an individual files is extremely important. There are several different chapters of bankruptcy and each has a set of rules and laws that govern them. If the incorrect chapter of bankruptcy is filed, it may not be easy to change between chapters without yielding an objection from a creditor or the trustee. In addition, there may be additional fees and/or legal expense to get into the correct chapter.
Adversary proceedings are separate lawsuits within a bankruptcy proceeding. Creditors who feel they were misled about a debtor’s ability to repay at the time monies were lent can file an adversary proceeding. A separate case number is assigned and separate litigation will commence. The creditors who sue debtors usually seek to have their claim deemed nondischargeable which will prevent the debtor from eliminating that specific debt. The litigation can also seek to have the debtor denied a discharge or all debts.
During an initial bankruptcy consultation it is imperative that all aspects of a potential debtor’s finances are analyzed. This analysis includes all current assets as well as any possible future assets, including any potential inheritances. Sometimes a client may be aware that they are about to receive an inheritance, i.e., a relative is nearing the end of life and the client has knowledge that they are part of the will. Other times a potential client may not be aware that they are a part of an estranged relative or friend’s will. A person may even receive an inheritance by operation of law, when someone dies without a will.
Regardless, the fundamental question becomes whether or not the inheritance is part of the bankruptcy estate pursuant to 11 U.S.C. §541. Section 541(a)(1) provides in part that "property of the estate" includes "all legal or equitable interests of the debtor in property as of the commencement of the case."
It is crucial to fully understand how long a creditor has to collect on a debt. There are a series of laws in place that govern debt collection procedures including for example: the timeframes for collecting a debt, the practices and procedures for collecting a debt, and the penalties for violating these procedures. This series of laws is called the Fair Debt Collection Practices Act (“FDCPA”).
The New Jersey Fair Debt Collection Practices Act (“NJFDCPA”) fortifies the federal FDCPA and bans debt collectors from using unfair and dishonest practices. As with the federal law, the NJFDCPA guidelines apply only to debt collectors and does not apply to original lenders. The FDCPA defines a debt as any obligation of a consumer to pay money arising out of a transaction primarily for personal, family or household purposes, including money owed on a personal credit card account, an auto loan, a medical bill or mortgage. The FDCPA prohibits debt collectors from using abusive, unfair or deceptive practices when attempting to collect a debt.
It is important for every individual who is filing bankruptcy to consider whether they want to file their case individually or jointly, with a spouse. Only spouses can file a bankruptcy petition together. In order to make this determination, the potential client must determine whether there is anyone else responsible for their debts (known as a co-debtor). A co-debtor is a co-signer for the debt and is equally responsible for the debt regardless of whom may be the primary account holder. Often, debtors have a joint credit card with a spouse, a joint line of credit (or mortgage), or have co-signed on an automobile or student loan. The bankruptcy filing can affect the non-filing co-debtor’s liability for the debt. Therefore, it is imperative that co-debtors are properly listed in the bankruptcy case.
Bankruptcy can help an individual get caught up on missed child support payments (often called “arrears”). Child support is priority debt and is also generally non-dischargeable, meaning it gets paid before other types of debt if there are assets to distribute and the debt cannot be wiped out through bankruptcy. The child support must be “in the nature of support” to be non-dischargeable. The Bankruptcy Court cannot modify a family court order for support. Modifications must be sought in the state court. The bankruptcy automatic stay does not apply to actions in the family court to establish paternity or to modify child support obligations.
Generally, a lien will pass through a bankruptcy unaffected, that is, unless it is specifically avoided. If competent bankruptcy counsel is not retained, an unsuspecting debtor may think that they are completely free from the burden of a lien by simply obtaining a bankruptcy discharge. Unfortunately, if the lien is not specifically avoided, the creditor will still have an in rem claim against the property of the debtor. That is to say that a bankruptcy discharge only relieves the debtor of the personal liability for a debt. In sum, lien avoidance is not automatic, and the debtor (through counsel) has the burden of avoiding liens under 11 U.S.C. §522(f).
Often, the bank will object when language is added to Part 4(c) of a Chapter 13 Plan. This section of the Plan is entitled "Surrender" and allows the debtor to surrender their interest in encumbered real or personal property as a debt management strategy. Debtor's attorneys sometimes add language to state that the collateral is being surrendered in "full satisfaction of the debt owed." The bank then objects to this language. Judge Trust, United States Bankruptcy Judge for the Eastern District of New York, recently allowed this in a published decision. See, In re Zair, 535 B.R. 15 (2015).