Voided Mortgages in Bankruptcy

      Currently the hottest issue in Bankruptcy law, at least here in Nashville, TN, is stripping mortgages from a person's home. In order for any creditor to be paid in a Chapter 13 bankruptcy, the creditor must file a Proof of Claim. For unsecured creditors, such as credit cards and medical bills, the creditor merely has to file a Proof of Claim form and they are entitled to payment, and it is the burden of the debtor to rebut the presumption that he owes that debt. However, for creditors with collateral securing their loan, such as mortgages and car liens, the creditor must attach with their Proof of Claim, documentation that proves the claim is in fact secured. So for a mortgage, the bank with the mortgage must attach the Deed of Trust and the Promissory Note.

       Now, the collapse of the housing market for the past five years has unveiled many “mistakes” and “errors” of the banking mortgage industry. Once a homeowner signed a mortgage with a local bank or even a national/global bank, many of those mortgages were bundled, sold, and traded multiple times. However, the actual physical documents that were signed cannot be found because many of these transactions were done electronically. Therefore, in Bankruptcy Court, when the Proof of Claim for a mortgage is filed and the documents are not attached, or the documents attached have the name of a different bank on them, then the claim gets disallowed. Subsequently, section 506(d) of the Bankruptcy Code provides that to the extent that a secured claim is not allowed the lien securing that claim on the property is void. Thus, if the Bank cannot prove that they own the mortgage with a Deed of Trust and Promissory Note then the claim is disallowed, and then the lien may be stripped.

       Now, for a Bankruptcy attorney, I am going to discuss some strategies when this issue arises. First, the bankruptcy attorney must follow the Proof of Claims Deadline. When we receive the Notice of the Meeting of Creditors, on it is published the Deadline for Creditors to file Proof of Claims. We mark our calendars for these deadlines. According to our Local Rules, here in Middle Tennessee, the debtor has 30 days beyond this deadline to file a proof of claim on behalf of the creditor. So once this deadline approaches, we check to see if the secured creditors of a case filed their Proof of Claim. If they didn't we file one on their behalf. Obviously, we do not have the Deed of Trust or the Promissory Note, so shortly thereafter the Trustee of the case files a Motion to Disallow that claim. Next, we file with the Trustee an agreed order to hold the funds provided in the plan meant for the mortgagee, that way if the documents arise during litigation, the trustee has been holding those funds so the debtor doesn't fall behind in her payments.

       Now is when we file our adversary proceeding against the alleged mortgagee with the lien to strip the lien pursuant to section 506(d). Also, an attorney must be sure to properly serve the complaint on the bank pursuant to Rule 7004. Another good strategy, is when/if the bank responds with an answer, is to request discovery, production of documents, or subpoena the bank to produce the Note and Deed of Trust. Thus, if the bank cannot provide the documents, then the lien is stripped, or if the bank refuses to supply them, as a strategy to avoid saying the documents cannot be found, then you can ask for sanctions.

How to Prove the Validity of a Will

The process of "proving" or showing the validity of someone's will involves multiple considerations beyond just the will's existence. In some cases, where there is ample evidence that the will isn't consistent with the decedent's intentions, the will may be thrown out entirely.

While the loss of a loved one is a trying time for any family, sometimes situations arise wherein the contents of a loved one's will become the source of controversy. Perhaps you've found a will that no one in the family knew existed, or one that was written in the last few weeks before your loved one's death. Maybe the contents of the will are not exactly what the family might have expected. How will the court determine whether or not that will is valid? 

Mental Capacity

When determining whether a will is valid, one of the most important considerations is the decedent's mental capacity at the time the will was written. For a will to be considered valid, the individual who wrote it must have been of sound mind at the time it was drafted. If you believe that your loved one was not "himself" when he wrote his will, as in the case of dementia or Alzheimer's disease, you may be in a position to contest his will. You will need to show proof of your loved one's mental capacity (as in the form of a letter from his doctor). Undiagnosed conditions and anecdotal evidence will be more difficult for the court to accept.

Undue Influence

While more difficult to prove than straightforward mental capacity concerns, undue influence is another valid reason to contest a will. Sometimes, wills are contested because it's believed that someone unduly influenced the decedent to write his will in a certain way. This situation is less common than mental capacity cases, but can sometimes go hand in hand with a mental capacity issue. A close friend or family member may be suspected of taking advantage of the decedent's diminished mental capacity in order to pressure him to distribute his assets in a certain way.

Proper Execution

The act of putting one's final wishes on paper, as in a handwritten will that's kept at home, for example, doesn't ensure that those wishes will be followed after one's death. There is a process that must be followed in order to properly execute a will. This is part of the problem with DIY wills and downloadable templates. While the contents may be fine, if the will isn't properly executed – including all required signatures and notarization – there is a good chance that the court won't honor it.

Will Contests

Will contests are not only emotionally difficult for everyone involved, they can also be quite complex. If you truly believe that the contents of your loved one's will are not consistent with his intentions, you will need to hire a probate attorney to help you file a contest. In most states, there is a time limit, so you'll want to take action quickly. You will also want to find an attorney with both the skill and experience to handle your case.

This article is for informational purposes only. You should not rely on this article as a legal opinion on any specific facts or circumstances, and you should not act upon this information without seeking professional counsel. Publication of this article and your receipt of this article does not create an attorney-client relationship.

For more information, visit www.TheNevinLawFirm.com