Recent Entries

Northern District of Ohio Bankruptcy Court Announces Budget

Published on February 25, 2010 in Bankruptcy Court. 0 Comments

By Scott D. Fink, Esq.

In a recent open meeting between Judges, the Clerk of Courts and practitioners in the Northern District of Ohio Bankruptcy Court (which covers Cleveland, Akron, Canton, Toledo and Youngstown), it was announced that the Court’s budget had been finalized and that the sum of approximately $8 million was being allocated to the Court to cover operating expenses for the current fiscal year.

From these funds, the Court pays all its operating expenses, including salaries and utilities.  It was also announced that, based upon the current year budget, the Court did not foresee the need for any cutbacks or layoffs, but cautioned that forecasts for next year indicate gloomier times ahead, with possible cutbacks on the horizon for fiscal year 2011.

It was also announced that, over the past four years, the Northern District of Ohio Bankruptcy Court had actually returned about $3.2 million in budgeted funds to the Federal government that went unused.  It’s good to see a Federal agency acting as a responsible steward of the taxpayer’s money and the Court should be applauded for such actions.  

If you have any questions, please contact Mr. Scott Fink, Esq. Scott is an Associate in the Bankruptcy department of the Brooklyn Heights office of Weltman, Weinberg & Reis Co., LPA. He can be reached at 216.739.5644 or via e-mail at .

Commercial Real Estate Slump Likely To Result In Uptick In Bankruptcy Filings

Published on February 10, 2010 in Bankruptcy Filings, Chapter 11, Commercial and Real Estate. 0 Comments

With the commercial real estate market in a continued pattern of free fall, coupled with the still-lagging economy overall, creditors are likely to see a continued increase in overall bankruptcy filings for the foreseeable future.  For every strip mall or office park that watches as long-time, valued tenants vacate their spaces, there are landlords who cannot service the debt on their property due to an overall decrease in rental income, and there are small business owners now joining the ranks of the newly-unemployed, along with their employees.

The unfortunate trickle down sees both employees and small business owners seeking bankruptcy protection, along with a growing number of commercial property owners who are unable to find replacement tenants to make up the shortfall in rental income.

Additionally, those tenants remaining behind may see a lag in business as a result of the loss of “anchor stores” which attracted casual shoppers to the area.  This point was driven home by the recent Chapter 11 filing by Movie Gallery, Inc., the operator of the Hollywood Video chain.  Preliminary indications are that a “significant number” of Hollywood Video stores will be shuttered in the coming months, leaving hundreds of strip malls across the country without a valued tenant.

The Bankruptcy Department at Weltman, Weinberg & Reis will continue to monitor trends in bankruptcy filings and will update you as data becomes available.

Unintended Consequences: Bankruptcy Cram Down May Actually Case Decrease in Bankruptcy Filings

Published on April 8, 2009 in Bankruptcy Act 2009, Chapter 13 and Real Estate. 0 Comments

With the proposed amendments to the Bankruptcy Code placed on temporary hold by Congress until at least late April, it seems appropriate to take a step back and examine the possible unintended consequences of the passage of such a law.

While providing troubled borrowers with an effective tool to rework their mortgage terms under the protection of the Bankruptcy Code, is it possible that the mere threat of such a modification by a borrower could lead an increasing number of lenders to agree to rework the loan terms outside of the bankruptcy process?

Debtor’s counsel have always operated with the knowledge that, while they have the ability to tie up a pending foreclosure for months or even years by aggressively opposing the case, the reality has always been that mortgage lenders held the upper hand once a Chapter 13 bankruptcy was filed. A borrower could not alter the terms of the loan, but could only seek breathing room to bring delinquent payments current.

If the proposed amendments become a reality, the leverage will clearly shift into the borrower’s favor, which may lead more and more lenders to seek a negotiated modification prior to bankruptcy, saving both sides from litigating over valuation of the home and risking assessment prior to plan confirmation.  The end result could be a decrease in Chapter 13 filings within the pool of borrowers who, but for their mortgage delinquency, might not be in financial difficulty.

Of course, the flip side to this argument would be that with all the economic indicators clearly showing a downturn, the actual number of borrowers whose only financial difficulty consists of their mortgage, is likely becoming smaller and smaller each month.  Therefore, it is likely that even with the offer of a voluntary loan modification by the lender, the vast majority of borrowers will still seek bankruptcy relief.

Mortgage Cram Downs in Bankruptcy: Congress Creating More Questions Than Answers

Published on March 9, 2009 in Bankruptcy Act 2009, Chapter 13 and Real Estate. 1 Comment

As proposed legislation winds its way through Congress, it would appear to be inevitable that mortgage lenders can expect to see a viable law within the next 90 days that will dramatically alter the manner in which mortgage loans are treated in bankruptcy.  While attempting to amend the Bankruptcy Code to enable borrowers to reduce home mortgage balances down to the current value of the real estate, Congress has left key questions unanswered for the mortgage industry.

Of particular concern, Congress has failed to adequately detail the actual manner by which mortgage loans will be modified under the new law.  Will borrowers and lenders be required to execute a modified loan or Promissory Note?  What about the underlying mortgage deed?  Or, will Congress leave this important alteration of terms up to the borrower to include as part of their Chapter 13 plan?

The manner in which Congress and the Courts determine the way in which these amended loans are memorialized in bankruptcy will reverberate throughout the mortgage industry for years to come, as parties on both sides will be forced to rely upon such documents for the remaining term of the loan and will look to such documents for their respective rights and obligations.

Stretching Out the Loan Term: Will Lenders Be Stuck with New Terms Forever?

Published on March 5, 2009 in Bankruptcy Act 2009, Chapter 13 and Real Estate. 0 Comments

One of the key components of the “Helping Families Save Their Homes in Bankruptcy Act of 2009”, currently pending in Congress, is a provision allowing a borrower to extend the repayment period on their mortgage loan for up to 40 years.  While such a provision appears straightforward at first glance, Congress to date has failed to indicate whether a borrower will need to actually complete their Chapter 13 plan and receive a discharge in order to enjoy the benefits of the modified terms for the remainder of the loan.  In other words, what if a borrower seeks Chapter 13 relief, modifies the loan term and then has his case dismissed 6 months later for failing to stay current on plan payments?  Does this cancel the loan modification?

Another unanswered question centers on how many “bites at the apple” a borrower gets to utilize for this loan extension provision.  What if, hypothetically, a borrower with a 30 year fixed rate loan files for Chapter 13 relief, modifies the loan term out to 39 years and completes his plan in 3 years.  Then, the same borrower files a second Chapter 13 case 3 years later and attempts to recast the loan back out to 34 years? 

The answers to these questions will have dramatic effects upon the mortgage lending industry and how it assesses risk going forward for all potential borrowers.  Congress should take these issues to heart in determining the final version of the Bill, lest it create more problems for the public than it seeks to solve.