Tax Foreclosures and Recouping Your Overage Funds: A Practical Guide

Tax Foreclosures and Recouping Your Overage Funds: A Practical Guide

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Foreclosures are rarely if ever a pleasant thing for homeowners.

However, they may be able to recoup the equity in the property after the foreclosure if there were surplus funds after the sale of the house.

How to Claim Surplus Funds

The primary purpose of a tax foreclosure sale is to recover any property taxes that are unpaid. Any money that is left that is above and beyond that owed amount, is considered the overage or surplus.

To claim these tax foreclosure surplus funds, a borrower will have to file a motion with the court in order to be entitled to the surplus. It’s important that you understand what the official process is in your jurisdiction, so it’s always advisable to consult with an experienced attorney.

The lawyers at Babi Legal Group, for example, have many years of experience defending the rights of homeowners who are facing foreclosure, including helping them claim surplus funds.

An important step is to track the foreclosure process so you can learn about the potential for surplus funds, including noting when the foreclosure sale will take place and the contact information of the foreclosing party.

In Michigan you are required to petition the court to seek your surplus prior to your home ever being auctioned whether or not you have a surplus.  However, this law is currently being challenged and may be changed to make it more equitable towards the homeowner that was foreclosed upon.

Laws Governing Foreclosure Surplus Funds

Each state has its own laws that govern foreclosure surplus funds, and these are usually outlined specifically in state statutes. Not only will these laws determine how surplus funds are handled in tax foreclosures, they’ll also explain who’s entitled to receive them.

If your state allows for original borrowers to claim surplus funds, its laws should outline the process for claiming them, as well as the timeline for when you should expect to receive them.

Make sure that you’re aware of your state’s applicable laws so you can understand your obligations and rights. This is also why it’s important you work with a lawyer who’s experienced in real estate law in your state.

Calculating Surplus Funds

How can you calculate surplus funds in a tax foreclosure sale? It’s actually quite simple.

First, add up how much was owed in taxes, and any other fees.

Then, subtract that amount from how much the property sold for at auction.

For instance, if the total amount owed was $650,000 and the home sold for $700,000, the surplus funds in this case would be $50,000.

Again, make sure that you are factoring in any and all costs associated with the foreclosure process and the sale of the home into the calculation, as those will need to be taken out.

Who is Entitled to Surplus Funds

The primary rights to surplus funds lie with the former homeowner. That being said, if there were other liens on the property — such as judgments or a second mortgage — then those creditors might also have a claim to the surplus.

These junior lienholders, as they’re referred to, are typically paid in their order of seniority before the prior homeowner can receive any proceeds from surplus funds if they petition the court to obtain the surplus.

The Tax Sale Process

Property Tax sales are completed to recover any unpaid property taxes, with overages being any amount that results from the sale above what’s owed, including penalties, costs and other liens.  In Michigan, they are held once per year and only allow a 30 day redemption period to payback the property tax balance, otherwise the homeowner will lose their interest in the property.

Avoiding Unclaimed Surplus Funds

In most states, it’s incumbent on you to claim the surplus funds. If you don’t do so within the requisite time period, those funds could be distributed to the unclaimed property division in your state and in some cases, the state simply keeps your money.

All unclaimed assets in the state of Michigan, for instance, are held by the Michigan Department of Treasury if the prior homeowner doesn’t claim them on a traditional foreclosure, but in the event of a tax foreclosure, at this time, the County keeps your money.

To claim them if this happens, you’ll need to initiate a claim on the department’s website and fill out required forms along with proof of identification. 

Protecting Yourself from Surplus Funds Scams

Foreclosure records are public, which means that anyone can review these records and see whether a foreclosure sale resulted in surplus funds. This environment unfortunately creates a fertile ground for scammers who are looking to take advantage of vulnerable homeowners.

You should immediately contact an attorney after the tax foreclosure sale to assist you within the allotted time frame to reclaim your surplus funds, usually for a flat or contingent fee, as it could be a complicated process, while if you delay you may forfeit your right to any surplus.

Timeline for Receiving Surplus Funds

To claim a tax foreclosure sale surplus in Michigan, the process involves several steps as outlined in the Michigan Compiled Laws (MCL).

First, a claimant must submit a notice of intention to claim an interest in any applicable remaining proceeds from the transfer or sale of foreclosed property. This notice must be submitted using a form prescribed by the Department of Treasury and must be filed by July 1 immediately following the effective date of the foreclosure of the property Breiner v. State, 344 Mich. App. 387.

If the property was sold after July 17, 2020, the notice must be submitted pursuant to subsection (2) of § 211.78t. Notice of intention to claim interest in proceeds from sale of foreclosed property.. For properties sold before July 18, 2020, a claim may be made only if the Michigan Supreme Court orders that its decision in Rafaeli, LLC v. Oakland Cty., 505 Mich. 429 applies retroactively, and the notice must be submitted pursuant to subsection (6) Breiner v. State, 344 Mich. App. 387.

Once the notice is submitted, the foreclosing governmental unit is required to pay the amounts ordered by the court to the claimants within 21 days of the order. The claimant must file a motion with the circuit court in the same proceeding in which the judgment of foreclosure was effective to claim any remaining proceeds payable to them § 211.78t. Notice of intention to claim interest in proceeds from sale of foreclosed property.

Common Mistakes When Claiming Surplus Funds

It’s important to avoid common mistakes that often occur when claiming surplus funds. First, make sure to act quickly, not underestimate how complex the process can be and/or attempt to claim funds without seeking an attorney’s help.

If you make any of these common mistakes, you could miss the deadline to claim funds and not be prepared for the process. This is why it’s important to have an experienced and knowledgeable attorney on your side to help you navigate the process.

Additional Resources

If you are a resident of Michigan and need help retrieving surplus funds, reach out to the state Department of Treasury. They can help guide you through the process of searching for and claiming unclaimed surplus funds.

Before it gets to this point, though, consult with a foreclosure attorney to advise you on or tax collector for how you can claim the funds.

Babi Legal Group Can Help You Claim Surplus Funds

If your home was sold at a tax foreclosure auction, you might be able to claim any surplus funds. Figuring out whether there were surplus funds, whether you’re entitled to them and how to go about getting them, though, can be a complicated and complex process.

At Babi Legal Group, we specialize in real estate and foreclosure law, and have helped many people like you claim the surplus funds they’re entitled to, but do not wait as the window to claim your surplus is very short.

For more information, contact us today.

Exploring Bankruptcy and Security Clearance in Law Enforcement and Government Jobs

Exploring Bankruptcy and Security Clearance in Law Enforcement and Government Jobs

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Bankruptcy can often be a financial lifeline for people who find themselves in a mound of debt they can’t get out from under. In many ways, it can be sought as a restart of sorts from a financial perspective, allowing certain debts to be discharged.

Of course, there are ramifications of bankruptcy, including a hit on your credit score, which can affect your ability to get new loans for a certain period of time. That being said, the positives often outweigh the negatives for people who are considering bankruptcy.

One often overlooked aspect of bankruptcy is the fact that it can also affect future job prospects. It’s not always negative, though, as declaring bankruptcy can actually be seen as beneficial to people who need security clearance to work their public-sector jobs or even private-sector jobs.

Below, we’ll dive deeper into bankruptcy and security clearance in law enforcement and government jobs.

Understanding Bankruptcy and Its Implications

There are some implications to bankruptcy that you should be aware of before you file. 

Impact on Credit History

Perhaps the biggest bankruptcy implication is the impact it will have on your credit score and history. From strictly a credit score perspective, bankruptcy is perhaps the most damaging thing that can happen.

In some cases, it may reduce your credit score by 200 points or more. But, it’s not just about the reduced credit score. A bankruptcy will also act as a “stain” on your credit report for many years — 10 years for Chapter 7 bankruptcy and seven years for Chapter 13.

This could affect your ability to get new loans and credit cards for that period.

At the same time, declaring bankruptcy could actually be much better for your credit score and history long term compared to constantly missing payments and getting behind on your debt.

Legal Protections

There are some legal protections that people who file bankruptcy enjoy, especially from an employment perspective.

No public institution — whether it be a local, state or federal government agency — can use a person’s bankruptcy as part of the decision-making process for hiring or firing employees. 

Similar protections are in place in the private sector in terms of firing decisions. However, private companies are allowed to take bankruptcies into consideration when making hiring decisions.

Security Clearance Requirements in Law Enforcement and Government Jobs

Some law enforcement and government jobs require people to obtain a security clearance. Obtaining this clearance essentially certifies that someone is reliable enough to be trusted with confidential information. 

There are various levels of security clearance, and steps that people need to go through in order to obtain them. While having a bankruptcy in your history doesn’t automatically bar you from getting a security clearance, it could affect it in some ways.

Levels of Security Clearance

There are three main types of security clearance — confidential, secret and top secret. Each refers to how severe the risk that the information poses to national security if it were to be compromised. 

The higher the security clearance, the more intense and rigorous the process is for obtaining it.

Background Investigations

Every person who wishes to obtain security clearance must undergo a comprehensive background check. This will involve scrutinizing credit reports, criminal records and personal conduct, which is done through interviews. 

How in-depth the background check will be depends on the type of security clearance a person is seeking. Generally speaking, they will all cover criminal history, work history, overall behavior and financial status.

The goal of background checks is to identify any potential warning signs that might suggest a person is either unreliable or vulnerable to being influenced by outsiders. If any questions are identified, a person might be designated as not dependable enough to handle certain sensitive information. 

Financial Responsibility

The reason why financial responsibility serves as an essential aspect of security clearance is that money troubles could make a person susceptible to bribes — especially for those who deal with sensitive national security information. For instance, if an outsider identifies that a person with security clearance is in financial trouble, they could exploit that to gain access to government secrets.

On a simpler basis, though, financial struggles could also suggest poor decision-making, especially if there’s a long history of unresolved debts, charge-offs and late payments. 

All of this could speak to an individual’s reliability and character.

The Effect of Bankruptcy on Security Clearance

While you might think that a bankruptcy would instantly be a bad thing for security clearance, that’s not necessarily the case. While bankruptcies certainly aren’t something to be desired on a background check, they are viewed as better than other financial troubles.

That’s because bankruptcies could help solve a person’s financial troubles, thereby removing a major concern when issuing security clearance. The ideal scenario is a clean financial picture, but bankruptcies are often preferred to mounting debt and being way behind on payments.

Navigating Bankruptcy Court

If you’ve decided that bankruptcy is the best route for you, it’s important that you understand exactly how it works from a legal perspective. The better prepared you are, the more successful your filing will be — and the more you will be able to take advantage of protections offered under U.S. Bankruptcy Law.

Hiring an Attorney

It’s always important to consult with a local attorney who’s experienced with bankruptcy cases in your state. That’s because each state might have different laws when it comes to bankruptcy and different protections that are available.

Doing this on your own is possible, but it’s certainly difficult, to say the least. The professionals at Babi Legal Group can help guide you through your bankruptcy case so you know what’s best for you. 

Preparing for Court

Your attorney will help guide you through everything that you need to prepare for court. This includes getting all pertinent financial paperwork together, including tax returns, deeds and personal identification.

The court will want to see a complete and precise representation of your finances, as that will play a critical role in whether your bankruptcy petition is approved. The more prepared you can be, the more likely it is that your case will be approved.

Post-Bankruptcy Steps

Once your bankruptcy is approved, there are certain things that you’ll have to do, depending on what type of bankruptcy you filed. If you still owe some debt as part of a Chapter 13 repayment plan, you’ll need to make sure you make those payments.

In all cases, it’s important to come up with a good budget and a concrete plan for not falling into the same debt hole as you did before. This will be especially important as you look to obtain and/or keep the necessary security clearances for your job.

Improving Credit History

While a bankruptcy will be damaging to your credit score, there are steps you can take to improve it over time. You may not be able to qualify for unsecured credit cards right after bankruptcy, for instance, but secured credit cards that are backed by a deposit of cash can help you build your credit score and financial reputation over time.

Slowly but surely, you can build back your credit score to a reasonable range by making smart financial decisions, such as setting and sticking to a budget and not spending above your means.

Communicating with Employers

While there’s nothing that requires you to tell your employer that you have filed bankruptcy — and little that will automatically notify your employer — doing so is a good idea, as it can foster trust. Having an open line of communication with your employer is always important, but especially so if you have a security clearance or need to obtain one.

It’s always better to be upfront about your situation than to have your employer discover your bankruptcy down the line. 

Consult with an Experienced Attorney if You’re Considering Bankruptcy

Bankruptcy can provide a financial lifeline to many people, but there are some implications of filing. It could hamper your ability to obtain a security clearance, or keep one that you currently have.

That’s why it’s always important to  consult with an experienced local bankruptcy attorney if you’re considering filing.

At Babi Legal Group, our experts have a combined 15 years of experience in bankruptcy, debt collection and debt settlement. For more information, please contact us today.

Can Bankruptcy Affect Your Job: Employer Restrictions in Michigan

Can Bankruptcy Affect Your Job: Employer Restrictions in Michigan

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When people get themselves in challenging economic situations, filing bankruptcy might be the best option to provide debt relief and peace of mind. However, at the same time, doing so could impact your future job prospects in the state of Michigan.

Bankruptcy laws do have protections in place for debtors who have filed bankruptcy, shielding them from discrimination from their current employer. For instance, employers are barred from firing an employee based solely on a bankruptcy filing.

At the same time, it could affect your future job prospects, especially in the private sector. While all local, state and federal government agencies are prohibited from using bankruptcies as a hiring criteria, the same protections are not in place for private employers.

Some private employers conduct credit checks on prospective employees and may decide not to hire someone if they have a bankruptcy in their history. And individuals who refuse to permit a credit check may also be removed from consideration for certain jobs.

While most employers will only consider a credit check in relation to the job that you’re applying for, there aren’t specific protections in place in the private sector.

Employer Restrictions on Bankruptcy

People who have filed for bankruptcy do enjoy some federal protections against discrimination in the workplace. It’s laid out in the U.S. Bankruptcy Code that employers cannot discriminate against an employee who has filed bankruptcy.

This employment discrimination clause protects debtors from losing their job solely based on the fact that they filed bankruptcy. This applies to employers in both the public and private sector.

In other words, if you are already employed, you cannot be fired simply due to your bankruptcy filing. 

How Bankruptcy Can Affect Job Prospects

Where a bankruptcy may come into play is with future job prospects, especially if you’re applying to a company in the private sector. 

While there’s nothing that forces you to disclose to prospective employers that you filed for bankruptcy, there are some ways that they might discover it.

For instance, some employers perform credit checks, which could reveal that you filed for bankruptcy. Bankruptcy filings are matters of public record, so employers wouldn’t be doing anything illegal if they discovered you filed for bankruptcy.

Private companies are allowed to consider bankruptcy cases when they are making their hiring decisions, which provides you no protections from future job prospects in the sector. 

If you’re applying to a public-sector job, you will enjoy some protections. That’s because no government agency is allowed to consider previous bankruptcy filings in their hiring decisions.

Security Clearances and Bankruptcy

There are obviously many financial benefits of filing for bankruptcy if you find yourself in over your head with debt. From an employment perspective, it could provide significant benefits for you as well, depending on your job status.

For instance, bankruptcy can actually substantially lower your risk of losing a security clearance. Credit counselors who work for the CIA and the military have said that people who have a lot of debt can become easy targets of blackmail, which could compromise their position with access to sensitive government information.

As such, when you file for bankruptcy and rid yourself of mounds of debt, you could actually be improving your career position at the same time. Not only can bankruptcy help to improve your personal financial concerns, it can also alleviate potential concerns your employer might have if you have certain security clearances — or need them to perform your duties.

Discrimination Laws and Bankruptcy

There are many protections in place for people who file for bankruptcy. As it relates to discrimination at the workplace, federal law bans all private-sector employers and government agencies from discriminating against individuals solely based on the fact that they have filed for bankruptcy.

These protections are provided under Section 525 of the U.S. Bankruptcy Code.

It states that all government agencies — whether on the local, state or federal level — from firing, refusing to hire or discriminating against individuals who file for bankruptcy.

It also prohibits all employers in the private sector from firing individuals because they have filed for bankruptcy. However, the employment protections for individuals in the private sector basically end there.

Keep in mind that your current employer may never find out about your bankruptcy filing, and you are not required to notify them.

If you file Chapter 7 bankruptcy, employers are not required to be notified by the courts. Only direct stakeholders such as creditors and co-signors are automatically notified.

If you file Chapter 13 bankruptcy, though, your employer might eventually receive notice. This is because the bankruptcy court requires a wage garnishment as a method of repayment for your restructuring plan.  However, if you can foresee this being an issue that can negatively impact your employment, then there are options to avoid the wage garnishment to repay your Chapter 13 bankruptcy. 

It’s also important to note that the Bankruptcy Code does not prevent private-sector employers from taking your credit history into consideration for hiring decisions, and this includes previous bankruptcy filings. 

While employers need your permission to run a credit check, if you refuse to give that consent, you can also be denied employment based on that. That’s why it’s typically best to be upfront and honest about your situation.

What to Do if You Experience Discrimination

Despite the protections that are in place thanks to the U.S. Bankruptcy Code, there are still instances in which some people experience employment discrimination.

If you believe that your current employer, or a prospective employer, discriminated against you because of your bankruptcy filing, you need to first make sure that they didn’t have another reason why they terminated you or didn’t hire you.

This can be extremely challenging for you to prove, unfortunately. Many employers don’t need a real reason for terminating an employee, and even if they do, they could build a case against you in other ways.

That’s why it’s important to consult with an employment law attorney if you believe you have been wrongfully discriminated against. They will be able to help determine whether there is sufficient evidence of wrongdoing, and what options you might be able to explore for filing a wrongful termination claim.

At Babi Legal Group, we have more than 15 years of experience in bankruptcy, debt collection and debt settlement law that we can put to work for you if you believe you’ve been discriminated against by a current or prospective employer.

To learn more, please contact us today.

Navigating Michigan’s Homestead Exemption and Out-of-State Property Bankruptcy Filings

Navigating Michigan’s Homestead Exemption and Out-of-State Property Bankruptcy Filings

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Filing bankruptcy can be a scary proposition, especially if you own certain assets that you wish to protect. One of the main assets that comes into question in bankruptcy cases is a primary residence.

Luckily, there are federal bankruptcy exemptions that are in place that can help to shield your home from the bankruptcy process and from creditors. There are also state-specific bankruptcy exemptions that Michigan offers in lieu of the ones offered at the federal level.

As long as you have resided in Michigan for at least two years, you can choose between either the state or federal exemptions that are offered to you. This is good news, as Michigan’s homestead exemption is currently higher than the federal one — $46,125 compared to only $27,900 and even greater if you or your dependent are disabled or a senior citizen.

If you’re not a homeowner, it might behoove you to choose the federal exemptions, as they include greater protection for personal property and cash by providing a wild card exemption that can be used on anything you list as an asset in the bankruptcy.

Regardless of whether you are a homeowner or not, it’s important to understand what your rights are in bankruptcy cases. Consulting with an experienced bankruptcy attorney such as the ones at Babi Legal Group is always a good idea in this regard.

Michigan Bankruptcy Exemptions vs. Federal Bankruptcy Exemptions

No matter what your situation, it’s always good to know what your rights are and what exemptions are available to you. This is especially important in bankruptcy cases, since you can only use exemptions that either the federal government or your state government offers; you cannot use both.

As mentioned above, it may behoove you to choose the Michigan bankruptcy exemptions if you’re a homeowner, since the limit is higher than what the federal government provides. 

In addition, doing so will allow you to take advantage of the federal nonbankruptcy exemptions, if you’re able to qualify for them. Some examples include retirement benefits if you receive Social Security benefits, survivor’s benefits, and death and disability benefits.

If you want to make an informed choice, you need to understand the differences between what exemptions Michigan offers and what exemptions are offered through the federal government. Only then can you make the choice that’s best for you.

The Michigan Homestead Exemption

The Michigan Homestead Exemption allows people who have resided in Michigan for at least two years to protect the equity that they have built in their home, up to as much as $46,125. If you or a dependent is at least 65 years old or disabled, the exemption amount increases to $69,200.  These amounts may even be greater as Michigan is considering to possibly increase these amounts through new legislation in 2025.

What the state’s Homestead Exemption allows you to do is protect the ownership interest you have in your home. To determine the specifics of the program, you’ll need to fully read the homestead statute to see how you can take advantage.

To understand how valuable this can be for you, it’s important to know how much equity you have in your home. To calculate this, simply subtract how much you owe on your outstanding mortgage from the current fair market value of your home.

Claiming Exemptions in a Michigan Bankruptcy

During a bankruptcy proceeding, you’ll be required to file a list of all your assets as well as their values with the United States Bankruptcy Court. You’ll also need to provide proof of ownership of these items, which prevents people from claiming they own something that they actually don’t.

While this may seem like a simple process, it can actually be quite complicated. Even one minor mistake in filling out the paperwork can be catastrophic to your financial future.

In Michigan, you’ll have to file a form known as “Schedule C: The Property You Claim as Exempt” with the bankruptcy court. In addition, you’ll have to file a Statement of Intention form in chapter 7 cases, which will indicate whether you wish to keep the asset or surrender the property as part of your bankruptcy filing.

If you want to ensure that your assets are protected properly, and that the exemption process is handled correctly, it’s important to hire an experienced bankruptcy attorney who is well-versed in Michigan law.

Protecting Out-of-State Property

Many people own property in one state that they don’t call their primary residence. If you are a Michigan resident but own property outside of the state, you may actually be able to protect that property in bankruptcy using the exemptions that Michigan provides its residents.

This isn’t an across-the-board rule, though, as a lot will be determined by where that other property is located and what laws that state has in place. 

If you find yourself in this situation, you’ll want to consult with a qualified bankruptcy attorney so you can understand how the property you own out of state will be treated during a Michigan bankruptcy proceeding.

The Role of the Bankruptcy Trustee

Once you file for bankruptcy, the court will assign a bankruptcy trustee to your case. This person is responsible for viewing your petition to ensure that you’re complying with all applicable bankruptcy laws.

In addition, the trustee in a chapter 7 case also could be responsible for selling off your non-exempt assets as a way to pay your creditors. Again, this depends on the type of bankruptcy that you are filing as well as the assets you have and the debt that you owe.

Regardless of those details, the bankruptcy trustee’s role is to ensure that the process is fair and that you and your creditors are all treated equally.

Working with the Bankruptcy Trustee

As the bankruptcy trustee plays such an important role in your case, it’s essential to cooperate with them and provide whatever documentation is required. If you fail to cooperate with the trustee, it can result in your bankruptcy case being dismissed outright — which will leave you and your assets susceptible to your creditors.

While the bankruptcy trustee may seem like an intimidating person who is asking for intrusive information, there are some simple tips that will make working with the trustee a smooth process.

First, be very honest and transparent about your financial situation with your bankruptcy attorney upon your initial meeting. Remember that they are here to help you, since their work will ultimately ensure that you are able to get rid of certain debts while keeping certain assets.

Provide all required and requested documentation to them in a timely manner. Whenever the trustee requests information from you, respond to them in a prompt manner. 

All of this will engender trust with the trustee and ensure a good working relationship.

Filing for Bankruptcy in Michigan

To file for bankruptcy in Michigan, you must complete a credit counseling course in addition to filing a bankruptcy petition with the bankruptcy court. The course is meant to help educate people who are filing bankruptcy on the financial pitfalls that lie ahead so that they can hopefully avoid repeating this situation in the future.

The bankruptcy court will require you to provide financial documentation as proof that you need relief. This includes pay stubs, tax returns and any other income paperwork as it applies to you.

To file for bankruptcy in Michigan, you must be a resident of the state and meet the eligibility requirements for Chapter 7 or Chapter 13 bankruptcy, depending on which one you are filing for.

Bankruptcy Process and Timeline

From start to finish, the bankruptcy process usually takes several months. How long your case will take depends on how complex it is and the workload of the bankruptcy court at the time you file.

In addition to filing the forms listed above, you’ll be required to attend a creditors’ meeting as part of your bankruptcy case. At this meeting, the bankruptcy trustee and your creditors will have a chance to attend and ask you questions related to your petition.

You might also have to attend a confirmation hearing, which is where the bankruptcy court will review your bankruptcy plan.

Special Considerations

If you have property that you are financing through a loan, such as a home or a vehicle, you might be able to keep it if you continue making payments. If you fall behind on these payments, though, you could be at risk of losing that property.

This is yet another reason why it’s so important to consult with a qualified local bankruptcy attorney so you can fully understand your options when it comes to financed property.

How to Navigate Michigan Bankruptcy

There are many state-specific bankruptcy exemptions offered in Michigan, and they can be used in addition to some of the federal bankruptcy exemptions. One of the key ones for property owners is the homestead exemption, which can protect the home in which you live.

If you want to ensure that your assets are protected and that the exemption process is handled properly, it’s essential to work with a qualified bankruptcy attorney.

The experts at Babi Legal Group have more than 20 years of real estate experience and more than 15 years of experience in bankruptcy, debt collection and debt settlement. For more information and to learn your rights, please contact us today.

Navigating How Michigan’s Judicial Foreclosure Process Affects Out-of-State Property Owners

Navigating How Michigan’s Judicial Foreclosure Process Affects Out-of-State Property Owners

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Every state has the right to set different rules and regulations for residential foreclosure. This can make it tough for homeowners to understand what their rights are, especially if they own property in another state.

The Michigan foreclosure process can be complex, but it’s very important to understand the laws and regulations that govern it. Just like other states, borrowers enjoy protections under Michigan foreclosure laws, including the right to a judicial foreclosure process vs. the Michigan foreclosure by advertisement.

This means that the foreclosure process will play out in the court system, rather than outside of it. 

Typically speaking, a judicial foreclosure in Michigan will begin with the borrower being sent a notice of default from their lender. That will be followed by an official lawsuit being filed and, if nothing is done to satisfy the outstanding debt, a foreclosure sale will take place.

Prior to Once the foreclosure process beginning, borrowers have the option right in Michigan to seek a loan modification or other loss mitigation alternatives to avoid losing their home.

Below, we’ll discuss how Michigan’s judicial foreclosure process works and how it affects out-of-state property owners.

The Judicial Foreclosure Process in Michigan

A judicial foreclosure in Michigan requires lenders to file a lawsuit against the borrower when they want to foreclose on a home.

Once the initial lawsuit is filed, the borrower will have 21 to 28 days to respond to it depending upon how the lawsuit was served upon them. If they fail to respond to the lawsuit, the lender has the right to obtain a default judgment to initiate the foreclosure auction process also known as the sheriff’s sale.

It can take several months for the judicial foreclosure process to complete in Michigan, and if it goes all the way to the end, it could involve a sheriff’s sale. This is an event where the home will be auctioned off to the highest bidder, with the lender trying to recoup as much of their losses as possible.

At any point during the judicial foreclosure process in Michigan, borrowers have the right to seek the advice of an experienced foreclosure attorney, such as those at Babi Legal Group. This is very important, as you need to understand what your rights and protections are throughout foreclosure.

Key Steps Leading to a Foreclosure Sale

In Michigan, mortgage loans are considered delinquent if they are one day past the due date. At this point, late charges can be assessed, and the lender or servicer has to make live contact with the borrower about the options they have.

At Day 45, the lender or servicer has to assign a specific contact to the borrower and provide written notification of the loan delinquency as well as the borrower’s options for loss mitigation.

If no resolution has been made by Day 121, the lender can proceed with the foreclosure process in Michigan.

At this point, they can file a complaint with the court to initiate the judicial foreclosure process. The borrower will have 21 days to respond to it, and the lender can obtain a default judgment and proceed with the foreclosure sale if the borrower does nothing at this point.

This sale is typically conducted by a local sheriff or other authorized official.

Options for Borrowers During the Foreclosure Process

The start of the foreclosure process is not the end of homeownership for borrowers. In the state of Michigan, borrowers have many rights and protections that can allow them to satisfy the outstanding debt so they can remain in their home.

It’s possible that while the foreclosure process is going on, borrowers can negotiate a loan modification or other repayment terms so they can avoid foreclosure. Housing counselors also may be able to explore other alternatives for borrowers so they can avoid foreclosure.

In certain cases, borrowers might be able to file for bankruptcy, which could stop the foreclosure process.

If you’re facing foreclosure, it’s very important to seek the advice of an experienced foreclosure attorney so you know all your rights, protections and options.

Redemption Period and Deficiency Judgments

Even after a home is sold at sheriff’s sale, borrowers in Michigan can still redeem their loan so they can remain in their home and satisfy the mortgage lender balance. This is called the redemption period.

In Michigan, the redemption period can last anywhere from six months to one year, based on a number of factors. The borrower can purchase the property back at this point by paying for the amount that was bid at the sheriff’s sale, plus any interest and/or fees that were incurred.

If the borrower fails to redeem the property during this period, then they will for the most part lose their rights to the property, and if still residing in the property will be facing an eviction lawsuit to recover possession of the property.

Consequences of Foreclosure

There are many serious consequences that borrowers can face in foreclosure. 

First and foremost, they may face eviction proceedings after the foreclosure sale, which would leave them without a place to live. While it’s possible for borrowers to negotiate a settlement with the lender to avoid eviction, it’s still a very real possibility.

Those who are foreclosed on also take a big hit to their credit score. This can hamper their ability to purchase or even rent a new place to live for a certain period of time.

This is why it’s very important to seek the advice of a foreclosure attorney if you’re facing foreclosure in Michigan.

Protections for Out-of-State Property Owners

Anyone who owns property in Michigan can be subject to the state’s foreclosure laws — even if their primary residence is in another state. The laws that regulate the foreclosure process, as well as the rights and protections for the borrower, depend on where the property in question is located, not where the borrower holds their primary residence.

Just like Michigan residents, out-of-state property owners enjoy the same rights and protections, as well the ability to seek advice from a local attorney who is familiar with the Michigan foreclosure laws. If you live outside of Michigan, you may also need to comply with federal mortgage servicing laws.

Seeking Help and Resources

If you are facing foreclosure in Michigan, it’s important to understand your rights, protections and options. 

Borrowers facing foreclosure can take advantage of the resources and assistance that is provided by the Michigan State Housing Development Authority (MSHDA). Housing counselors may also be able to explore alternatives to foreclosure, and non-profit credit counseling agencies may also be able to help.

The best thing to do if you’re facing foreclosure in Michigan, though, is to seek the advice of an experienced foreclosure attorney.

The professionals at Babi Legal Group have more than 20 years of real estate experience, and more than 15 years of foreclosure, bankruptcy, debt collection and debt settlement experience. For more information, contact us today.

Can You Use Retirement Funds to Avoid Bankruptcy?

Can You Use Retirement Funds to Avoid Bankruptcy?

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If you are facing financial challenges, you might be searching for different ways that you can get out of debt and avoid bankruptcy. One potential consideration might be dipping into your retirement funds to pay off outstanding debt in one lump sum.

While this might sound like a good idea on the surface, it’s not always advisable. There are many reasons for this.

For one, if you withdraw funds from many tax-advantaged retirement accounts, you may face a penalty of 10% plus the fact that you’ll have to claim these funds as income. Doing so may also deplete your retirement savings.

What’s more, many retirement accounts such as 401(k)s and IRAs, are generally protected in bankruptcy proceedings and while they are considered part of the bankruptcy estate, they are generally 100% exempted and thus not recoverable by creditors or the Bankruptcy Trustee. As such, U.S. Bankruptcy Courts won’t force you to drain your retirement funds as you march toward debt relief.

Retirement funds are considered “protected assets” under bankruptcy laws, which means you can file bankruptcy without impacting your retirement accounts.

This is why filing bankruptcy may be the better choice.

What are Exemption Limits for IRAs?

The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which was passed in 2005, protects both Traditional and Roth IRAs in bankruptcy proceedings. Each person has a protected limit of $1,512,350 that they can have in these accounts.

This limitation applies to all of the combined holdings that you have in all of your IRAs, not to each individual IRA that you may have. This means that if you have more than this combined in your IRA accounts, the surplus could be used to help repay your creditors.

The federal government adjusts this exemption limit every three years to account for rising cost of living.

Which Retirement Accounts Aren’t Protected?

It’s important to understand that only money that is stored in an officially designated retirement account is protected under U.S. bankruptcy laws. Any money that you store in regular savings accounts, stock option plans, investment accounts or any other non-retirement bank or brokerage account generally isn’t protected from bankruptcy — even if those funds are going to contribute to your retirement.

As such, any money that is stored in these accounts can be considered as part of your bankruptcy estate, which can then be used to pay off creditors. The only way for this money to be kept separate is to obtain a separate cash exemption, which may not be possible.

How Retirement Income is Treated in Bankruptcy?

What happens if you have already retired and are collecting retirement benefits, though? In this case, your retirement benefits are considered income.

Like other income, these retirement benefits can be used by the bankruptcy court to determine whether you’re able to repay your debts. How this retirement income is treated, though, depends on the type of bankruptcy that you are filing, as we’ll discuss below.

Chapter 7 Bankruptcy and Retirement Income

Chapter 7 bankruptcy is considered a liquidation bankruptcy. The end result is to have certain debts discharged at the end of the proceeding so that you can get a fresh start financially, while the Chapter 7 Trustee will seek to sell and turn into cash any unexempt, (e.g., unprotected) assets of the bankruptcy estate.

To be eligible for Chapter 7 bankruptcy, you have to have an income level that’s considered below the median for the state in which you live, as determined by the Chapter 7 means test. The test will take into account your secured debts and other expenses, along with your income.

The courts will also look to see how much monthly income you have remaining at the end of month after receiving your monthly income and spending it on your normal everyday living expenses.  If you have some money left over at the end of the month, then you may not be eligible for a chapter 7 case.

In this process, the bankruptcy court has the ability to consider monthly retirement benefits that you are receiving through retirement accounts and pensions. Any retirement benefits that are ultimately considered to be above and beyond what’s needed to support your life can be used to repay your creditors.

Chapter 13 Bankruptcy and Retirement Income

Chapter 13 bankruptcy, meanwhile, is considered a restructuring. The goal is to restructure your overall debt and come up with a repayment plan that satisfies you and your creditors, while also preserving your major assets.

In these cases, the court will use your income to determine how the debts will be repaid and how much of them you will be required to pay. Typically, the payment plans are set up to last about three to five years.

Any retirement benefits that you receive can be factored into the equation, which could potentially increase the total amount of debt you’re responsible for repaying.

Using Retirement Accounts to Avoid Filing Bankruptcy

If you have significant retirement funds, you may think it’s a good idea to use them to avoid bankruptcy altogether. However, as stated above, this might not be a good idea depending on your situation.

For instance, if you are younger than retirement age, withdrawing funds from these accounts can come with hefty penalties, fees and taxes. You’ll be responsible for paying a 10% penalty on all the money you withdraw, plus that money will be considered income for tax purposes..

Since bankruptcy laws consider money in retirement accounts as “protected assets,” you can file bankruptcy without any impact to what you’re built in your retirement accounts.

Borrowing from Your 401(k) to Avoid Bankruptcy

In some cases, you can avoid these hefty penalties, fees and taxes by borrowing from your 401(k). Generally speaking, doing so to avoid filing for bankruptcy is not usually a good idea.

The reason for this is that you will be required to repay these funds according to a strict schedule. While the interest you pay will benefit you rather than a creditor, it’s essentially just shifting around debt rather than paying it off. Plus, if you aren’t able to repay the debt, or if you lose your job, you may ultimately have to claim all the borrowed money as income and pay a hefty penalty.

An experienced bankruptcy attorney such as those at Babi Legal Group can help you assess your finances to determine whether bankruptcy is a better option than borrowing from your 401(k).

Withdrawing Retirement Funds to Pay Creditors

Usually, withdrawing retirement funds outright to pay off your creditors is not a good option, either. This can actually lead to more debt, tax liability and extra financial stress, rather than solving any problems.

That’s because bankruptcy protection allows you to get rid of debt and debt collectors while preserving retirement accounts.

Protecting Your Retirement Funds in Bankruptcy

In general, ERISA-qualified retirement funds and balances in both Traditional and Roth IRAs are protected from creditors during bankruptcy. There are limitations, of course, and rules that you must consider when filing for bankruptcy to protect these accounts.

Fully Protected Retirement Accounts

Pension plans that are considered ERISA-qualified are also fully protected during bankruptcy proceedings. Unlike IRAs, there are also no limits on the amount that will be exempted.

At the same time, any plan or account that isn’t ERISA-qualified — including stock options, investment accounts and general savings accounts — don’t enjoy bankruptcy protections. Only a few states have local exemptions that will protect these accounts, and even those states only provide minimal exemptions.

Bankruptcy and Retirement Planning

While filing for bankruptcy could be affected by the retirement benefits you receive, it will generally provide protection for funds in your 401(k), IRA, pension and other plans. 

Withdrawing money from these accounts usually comes with major tax penalties, and doing so may not even fix your financial problems. Since most unsecured debts such as balances on credit cards and medical bills can be eliminated through bankruptcy, and retirement funds are protected, bankruptcy is sometimes the better option.

Because of this protection, bankruptcy can allow you to get rid of your debt and debt collectors while preserving the money you have in your retirement accounts.

Bankruptcy Lawyers Can Help

Filing for bankruptcy is often the better option than drawing on retirement assets to pay off debts. Having a knowledgeable bankruptcy attorney on your side is invaluable, as they can provide you expert advice and assistance on how to best navigate bankruptcy without affecting your retirement funds.

Not only can these attorneys guide you through the process, they can help you understand all applicable federal and local laws. This is very important, as these laws are often extremely hard to understand.

Before you file for bankruptcy, consult with a local bankruptcy attorney that you can trust.

The attorneys at Babi Legal Group have more than 15 years of experience in bankruptcy, debt settlement and debt collection law. We can help you review all of your financial information to guide you through the bankruptcy process and protect your retirement funds in the process.

For more information, please contact us today.

How Filing for Bankruptcy Affects Social Security Income: What You Need to Know

How Filing for Bankruptcy Affects Social Security Income: What You Need to Know

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Bankruptcy can provide a financial lifeline to people who find themselves in a bad debt position. It can be a way out, a fresh start from an economic standpoint if you find yourself in over your head with no apparent way out.

When you file for bankruptcy, certain debts can be discharged, which essentially eliminates them from your “balance sheet,” so to speak. Depending on what type of bankruptcy you file, and whether you qualify, this can erase debts that you are having trouble repaying.

At the same time, the bankruptcy court will analyze your ability to repay your debts using your income sources and other assets.

One major question that a lot of people have is whether Social Security benefits can be considered income in bankruptcy proceedings. Below, we will discuss this issue in more depth, as well as provide suggestions on how you can protect your assets in bankruptcy.

Understanding Social Security Benefits in Bankruptcy

Those who earn Social Security benefits know that this money is generally considered income. Every year, Social Security benefits have to be claimed as income on tax returns along with other typical income earned through a W-2 or 1099.

That being said, Social Security benefits are generally considered exempt assets. This means these benefits can’t be used in “means test” calculations when deciding how creditors will be repaid, if at all, in a bankruptcy case.

There is one major exception, though, which is important to understand. According to rules set up by the Social Security Administration, Social Security benefits will remain uncollectable from creditors as long as the funds aren’t commingled with other funds.

To protect your benefits, an experienced bankruptcy attorney will usually recommend setting up a dedicated bank account just for Social Security benefits. This ensures that they aren’t commingled with other funds and remain Uncollectable.

Bankruptcy Options and Social Security Income

There are two main types of bankruptcy that individuals typically file.

The first is called Chapter 7, and it’s known as a liquidation process. Through it, many unsecured debts such as credit card balances get discharged, with individuals being allowed to keep some assets that are determined exempt, such as vehicles and homes.

Social Security income is not included in the Chapter 7 means test, which makes it easier for individuals who receive it to qualify for Chapter 7 bankruptcy in some cases.  However, the Courts are split and do not treat Social Security income the same as some Courts consider it income for the purposes of what a Debtor can repay in the bankruptcy case, while others consider non-income for the purposes of bankruptcy.

Chapter 13, meanwhile, is known as a debt-repayment plan or restructuring. It’s a way to come up with how to repay creditors in a more beneficial way to the borrower. In these cases, the debtor is able to retain all their assets while making repayments according to a plan established and approved by the court.

Protecting Your Social Security Income

There are special protections that apply to Social Security income, whether you file for bankruptcy or not. For instance, as long as you can prove that the funds in question are income from Social Security benefits, then a creditor doesn’t have the ability to force a bank to withdraw that money in order to pay an outstanding debt.

The easiest way to do this is to create a separate bank account that’s dedicated solely to Social Security income. This will make it easy to prove the source of the funds and ensure they remain protected in bankruptcy proceedings.

While filing for bankruptcy gives you some added protections in relation to income and assets, it doesn’t provide any extra income protection for Social Security income, and in-fact in some courts may allow that social security income to be used to repay your creditors.

If you have received past disability payments and/or disability back pay and haven’t spent all the funds, that money may be considered property of your bankruptcy estate. As such, it could be subject to distribution to your credits in Chapter 7 bankruptcy cases if not properly exempted.

The Impact of Bankruptcy on Social Security

Social Security benefits were created by the federal government to ensure that people were able to live a financially secure life as they age and leave the workforce. To this point, these benefits are shielded from creditors’ claims, which reflects the agency’s commitment to protecting the financial well-being of all beneficiaries.

Regular Social Security benefits are specifically excluded from being garnished by creditors, per federal law. However, unspent past disability payments that are mixed with other money may be pursued by a Chapter 7 trustee as it may be difficult to ascertain if they were actually social security funds.

That’s why it’s very important to understand how bankruptcy affects funds you may receive from Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) back pay.

Working with an Attorney: Understanding the Attorney-Client Relationship

Understanding all the pertinent bankruptcy laws and what applies to you can be challenging. That’s why it’s typically a good idea to advise with a trusted local bankruptcy attorney who has experience working in your state.

When you’re working with an attorney, it’s essential that you understand how the attorney-client relationship works and how that will apply to your bankruptcy case. By law, you’re allowed to work with as many as three attorneys so you can find the best fit for your particular case.

The attorney you choose should help you properly navigate the process of bankruptcy and ensure that as much as your assets as possible can be protected, including any Social Security income you receive.

During meetings with your attorney, you should come prepared to share sensitive and/or confidential information about yourself and your financial situation. This will help your attorney fully understand your situation so they can best represent you in court.

If you are in debt, you may start receiving marketing messages from local attorneys who wish to represent you. As with anything, though, it’s important to be cautious and do your research before you select an attorney to represent you.

Next Steps: Filing for Bankruptcy with Confidence

If you’re considering filing for bankruptcy, it’s very important that you understand how it will affect every aspect of your finances and assets, including your Social Security income. Since this can be complicated to fully understand if you don’t have experience, it’s best to consult with an attorney you can trust to determine the best course of action based on your specific situation.

Your attorney should walk you through the debt relief options that are available to you, including Chapter 7 and Chapter 13 bankruptcy and what each entails. 

They will guide you through how separate trust funds are used to pay disability benefits and how that may affect your bankruptcy case. And they will also discuss how retirement benefits and other income may be impacted by bankruptcy.

By consulting with a trusted attorney like those at Babi Legal Group, you can ensure you understand all of these concepts before filing bankruptcy so you can put yourself in the best situation possible.

Our attorneys have more than 15 years of experience in bankruptcy, debt collection and debt settlement, and can provide you with the best advice that you can trust. For more information about how we can help you, contact us today.

Protecting Retirement Funds in Bankruptcy: What You Need to Know

Protecting Retirement Funds in Bankruptcy: What You Need to Know

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For some people, bankruptcy can provide a fresh start, a way out of a bad financial situation that has no other solutions. Bankruptcy can be a complicated process, though, since there are so many factors at play.

One of the most common questions that’s asked by people who are considering bankruptcy is whether they have to give up all their assets when they file — or whether all of their assets will be included in the bankruptcy assessment.

There isn’t a simple answer to that question, since there are different exemptions that exist for different types of assets. 

That being said, most retirement savings accounts are protected in bankruptcy. There are limits on those exemptions, though, as well as consequences for withdrawing any retirement money before bankruptcy.

There are universal rules and protections in place in federal law for individuals who are filing for bankruptcy. This includes protection from creditors who might try to go after your retirement savings to satisfy outstanding debts.

Bankruptcy exemptions can vary by state, of course, with some states providing more protection for retirement accounts than others do.

We take a deeper dive into this issue below.

Types of Retirement Accounts and Their Protection

The first thing to understand is that not all retirement accounts are the same, and each type is treated a little differently when it comes to bankruptcy protection.

In 2005, President George W. Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act into law. That essentially guaranteed substantial protection for all types of IRAs, or individual retirement accounts, that the federal tax code recognizes.

There are limits to how much money in Traditional and Roth IRAs enjoy protection for bankruptcy. This amount is periodically adjusted for inflation, with the current value at approximately $1.51 million.

In addition, SIMPLE IRAs, SEP IRAs and many rollover IRAs enjoy full protection from bankruptcy, no matter how much money is in them.

Federal law also generally provides protection against creditors to employer-sponsored retirement plans such as 401(k) and 403(b) plans, thanks to the Employee Retirement Income Security Act. That law, passed in 1974, also provides protection to pension plans and defined benefit plans.

How Bankruptcy Affects Retirement Income

As mentioned above, the funds that are in your retirement accounts are generally off-limits to credits during bankruptcy proceedings. However, if you have already retired and are collecting your retirement benefits, those funds are considered income and could affect the bankruptcy case.

In Chapter 7 bankruptcy cases, most states will require applicants to have income that is below the median level for the region. In lieu of that, they may require you to pass a Chapter 7 means test to prove that you can’t repay your outstanding debts.

Chapter 13 bankruptcy cases use your total income to determine how the outstanding debts that you have will be paid to creditors. That’s because Chapter 13 is a reorganization of debt rather than a liquidation like Chapter 7 is.

As such, the retirement benefits you receive could factor in the income calculation, which in turn could increase how much of your outstanding debt you will have to repay.

Benefits you receive from Social Security are exempt from bankruptcy proceedings, as long as the payments you receive are kept separate from other income you have.

Protecting Retirement Funds Before Bankruptcy

Before you file for bankruptcy, it is generally a good idea to meet with an experienced bankruptcy attorney who can help you navigate all federal, state and local laws. After fully analyzing your financial situation, they can help guide you on how to best protect your retirement assets from creditors.

While each individual case will vary, there are some general things that will apply to everyone.

For example, it may not be the best option to take money out of your retirement account to pay down your debt, as this could affect the exemptions you enjoy under federal and state bankruptcy law.

That’s why it’s so important to understand the potential consequences of withdrawing your retirement funds before you file bankruptcy, as it can significantly affect the outcome.

As mentioned earlier, since Social Security benefits are exempt from bankruptcy as long as the funds are kept separate from other income, it’s generally a good idea to have that money deposited into a separate bank account from all other money. This will ensure that you enjoy the full benefits of the bankruptcy protections for retirement funds.

State-Specific Exemptions for Retirement Funds

In addition to federal law, many states also have bankruptcy exemptions in place that protect state, county and city retirement accounts. Those who use the bankruptcy exemptions that are provided by their state are also allowed to use bankruptcy exemptions that are provided by the federal government.

Keep in mind that some states — including Texas, Hawaii and Arizona — offer additional protections for retirement accounts from creditors in bankruptcy cases. So, if you want to protect your retirement funds as much as possible, it’s crucial to understand what exemptions apply to you in your state and situation.

Lawsuit Protection for Retirement Accounts

Not all retirement funds are protected from lawsuits, though.

Employer-sponsored retirement accounts do provide some protection from these situations. However, IRAs aren’t exempted from federal lawsuits.

States also have varying takes on how IRAs are protected from lawsuits. One thing creditors can’t do, though, is seize retirement assets through a lawsuit for nonpayment of credit card debt.

The Importance of Professional Advice

As you can see, bankruptcy law can be quite complicated — and all of this just has to do with protecting your retirement assets. That’s why it’s so important to seek professional advice if you are considering whether bankruptcy might be right for you.

A knowledgeable and experienced bankruptcy attorney can provide invaluable insight and assistance, helping you to understand all applicable bankruptcy laws and then guiding you through the process from start to finish so your assets are well-protected.

The best way to ensure you’re making the most informed decisions is to consult with a local bankruptcy lawyer. Make sure that the bankruptcy lawyer you seek advice from is experienced and specializes in bankruptcy law in your state. 

They are the ones who will be best prepared to answer your specific questions about filing bankruptcy and how to best protect your retirement funds.

Trust the Bankruptcy Law Experts at Babi Legal Group

Filing for bankruptcy can affect your retirement savings as well as your income. However, there are protections in place for both Chapter 7 and Chapter 13 bankruptcies that can allow you to keep the assets you have in retirement accounts.

Some non-qualified accounts might not be protected, though, and the rules may differ depending on the state in which you live.

Consulting with an attorney who’s a bankruptcy expert can help to protect your assets, navigate all applicable rules and ensure you’re making informed decisions about your retirement funds.

At Babi Legal Group, we have more than 10 years of experience in bankruptcy law and can advocate for you and your rights. For more information, please contact us today.

How Predatory Lending Practices Lead to Foreclosure: A Grim Realty

How Predatory Lending Practices Lead to Foreclosure: A Grim Realty

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Despite regulatory measures meant to prevent it, predatory lending is a major problem in the U.S. today. People are sometimes desperate to purchase a home or are uneducated on specific details of mortgages, and some lenders seek to take advantage of that.

Predatory lending refers to any unfair, deceptive or abusive loan terms that predatory lenders impose on borrowers. Most of these loans will have high interest rates and fees, might strip the borrower of the equity in their home or even place a creditworthy borrower in a loan that’s rated for people with lower credit.

These lenders seek to take advantage of someone’s lack of understanding of financial vehicles by using aggressive sales tactics to get them to agree to something that isn’t in their best interest.

There are many different types of predatory lending practices, including subprime credit cards, overdraft loans and payday loans — all of which have interest rates that can only be termed as unreasonably high.

Anyone can become the victim of predatory lending, regardless of their income, demographics or education level. Understanding what predatory lending is, and what it can result in, is essential to avoiding signing on the dotted line for one of these loans.

Predatory Lending Tactics

Predatory lenders are looking to do one thing — take advantage of people who are vulnerable to lend them money at unreasonable terms.

“Vulnerable,” in this regard, can refer to many different people in many different situations. Vulnerable populations for predatory loans include people who have limited access to financial education, who are in a desperate situation when it comes to their housing and/or have low credit scores and, as a result, fewer options for credit than others.

Predatory lenders seek out people in these populations and then use deceptive practices to make them feel as if they’re getting a good deal. In reality, though, they take advantage of borrowers’ financial struggles, and profit from them, with high interest rates, exorbitant fees and other unfair loan terms.

These lenders know exactly what they’re doing, and they play to these borrowers’ emotions and situation. They might use aggressive sales tactics, exploit borrowers’ lack of understanding, and even ignore or hinder a borrower’s ability to repay debts.

Some even hire mortgage brokers to specifically target certain borrowers so they can sell them predatory loans.

One common tactic that these lenders use is called loan flipping. This occurs when a lender refinances a loan with a higher interest rate and fees, which ultimately hamper’s the borrower’s ability to repay the loan.

The Impact of Predatory Lending

There are many impacts of predatory lending, both on a micro and macro level. 

From a micro perspective, predatory lending can have a huge negative impact on individual borrowers. It can lead to them entering a debt spiral and experiencing significant financial struggles, which can ultimately lead to foreclosure for borrowers.

Not only can this result in borrowers losing their home, it can also create significant mounds of debt, financial instability and, in the worst case, even bankruptcy.

From a macro perspective, predatory lending can exacerbate social and economic inequalities, which then perpetuates cycles of financial instability and poverty.

That’s because predatory lenders often target minority groups, including ethnic and racial minorities, because they commonly have limited access to financial and credit resources.

Who is Affected by Predatory Lending?

While anyone can technically be affected by predatory lending, minority groups and those of lower economic standing are the ones who are often targeted by predatory lending. That’s because, in essence, these lenders rely on having an advantage of information over their borrowers, and these borrowers typically have less information and knowledge about finances and credit than others do.

In addition to minority groups, low-income families and individuals are often the target of predatory lending practices. So, too, are elderly homeowners who might not only not be “up-to-date” on predatory lending tactics, but also have limited access to additional credit.

Predatory lenders take advantage of these vulnerabilities, and much more, to prey on borrowers who often don’t know any better. That’s why anyone can be a victim of this type of lending, regardless of their income, demographic background or education level.

Prevention and Protection

Since predatory lending relies on a lack of information and education on the part of borrowers, the best way to avoid a predatory loan is to be educated about them. The more knowledge you have about predatory loans, and the more research you do about them, the better prepared you will be to avoid them.

In addition, it’s important to know what your credit rating is so you can identify any potential issues before even applying for a loan. Federal law allows all U.S. residents to obtain a free copy of their credit report at annualcreditreport.com.

When you are presented with a loan offer, it’s important that you read all the documents carefully and understand all of the terms before you sign your name on the dotted line. 

If you want more information or resources about mortgages, you can always seek help from credit and housing counselors, who can help you decide whether a loan is right for you.

Ultimately, it’s important to trust your instincts and ask questions. If a deal sounds too good to be true, it probably is.

Reporting and Addressing Predatory Lending

If you suspect that a company is using predatory lending practices, you should report it to the proper agencies. There are actually a few agencies that can help you in this regard, both from the federal and state level.

The Consumer Financial Protection Bureau (CFPB) accepts complaints on its website and over the phone. So does the Federal Trade Commission (FTC), which is an agency that’s dedicated to protecting U.S. consumers.

Legitimate banks, lenders and credit unions should all also have a regulatory agency that is responsible for oversight. You can find out which agency that is and report them there, too.

Every state should also have a consumer protection organization. In Washington State, for instance, the Washington State Department of Financial Institutions (DFI) is responsible for regulating and enforcing all lending practices.

By filing complaints with the appropriate agencies, you can help to hold predatory lenders accountable and prevent other borrowers from falling prey to their practices.

Seeking Justice and Compensation

If you believe you’re a victim of predatory lending and can prove that your lender violated federal or local laws, it might be a good idea to file a lawsuit. A good place to start is to contact your state’s consumer protection agency, as they can provide you proper guidance and support.

Federal law, and most state laws, provide consumers with the right to file a lawsuit against predatory lenders and seek compensation for damages incurred. It’s possible that if you’ve been a victim, you could gain compensation or some other form of relief.

If you believe you’ve been a victim of predatory lending in Michigan, contact the experts at Babi Legal Group. 

The Role of Regulation in Combating Predatory Lending

Predatory lending was a major cause of the 2008 financial crisis. In fact, subprime mortgages were the main driver of the U.S. economy, and many economies around the world, crashing.

To prevent a similar situation from happening in the future, the federal government passed the 2010 Dodd-Frank Act, which not only established provisions that sought to minimize predatory lending but also created the CFPB.

Many states have also established anti-predatory lending laws, with some outlawing practices such as payday lending completely.

Other agencies that play a role in regulating and enforcing lending practices include the FTC and Housing and Urban Development (HUD). Laws such as the Equity Protection Act also work to protect borrowers from predatory lending practices and other abusive loan terms.

While state-specific and federal laws, as well as federal agencies, were created to combat predatory lending, protections and rules are always subject to change.

Seek Justice and Compensation if You are the Victim of Predatory Lending

Predatory lending is a serious issue that can have devastating consequences for individual borrowers, entire communities and society at large. The key to avoiding predatory loans and protecting yourself from them is to increase education and awareness about them.

Regulation and enforcement also play essential roles in not only combating these predatory practices but also in promoting fair lending practices.

If you believe you’ve been the victim of predatory lending, you should seek justice and compensation, as well as report the practices to the relevant authorities.

In Michigan, the experts at the Babi Legal Group can help you with your claim. We have more than 10 years of experience in debt collection, debt settlement and bankruptcy, with another 20 years of experience in real estate.

To learn more, contact us today.

Waiver and Estoppel in Mortgage and Foreclosure Law: A Comprehensive Guide to Understanding Your Rights

Waiver and Estoppel in Mortgage and Foreclosure Law: A Comprehensive Guide to Understanding Your Rights

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Estoppel is a long-standing legal principle that prevents someone from being wronged unjustly by the actions or words of someone else. Found in many common law legal systems throughout the world — including in the United States, Canada and the UK — it essentially prevents someone from contradicting something that they did or said in the past.

Based in equity and common law, estoppel is also a concept that’s used in international law. Different forms of estoppel can vary greatly from one country to the next, though.

In the U.S., estoppel is often found in mortgage and foreclosure law, and ensures that one party lives up to what they say they’re going to do, or doesn’t do unfair damage to another party. It prevents someone, for instance, from saying they’re going to do something only to not do that in the future.

Below, we’ll discuss estoppel in more depth, including the main types as well as how it pertains to foreclosure cases.

Types of Estoppel

There are many forms of estoppel. Some of the most common ones include …

  • Equitable estoppel: This involves a promise that one party makes to another, ensuring that they don’t do harm to another.
  • Promissory estoppel: This involves a clear and definite promise made from one party to another. It’s found often in contract law, protecting a party from significant financial losses if the other party didn’t fulfill their promise.
  • Collateral estoppel: This prevents one person from re-litigating an issue that the courts have already decided. It essentially prevents one party from abusing legal resources and engaging in legal harassment.
  • Reliance-based estoppel: This focuses on the reliance of one party on an action or statement.

Other types of estoppel include estoppel by deed, estoppel by silence and estoppel by record.

Estoppel Certificates

Estoppel certificates are commonly used in real estate — both commercial and residential. These legally-binding documents confirm the obligations that a seller has to a buyer.

Many lenders and even some third-party entities will require estoppel certificates when a party wants to sell a property that has a tenant, or if the owner wants to refinance their loan. In many cases, the governing homeowners’ association (HOA) or condominium owners’ association will be the entity that issues this certificate.

The landlord is often the one that prepares the certificate, and it’s signed by the tenant or lessee. On the certificate will be listed any assessments, dues and fees that the new owner is responsible for taking over after the sale has been closed. 

Other pieces of information commonly included on these certificates include the lease terms, a confirmation that the lease is currently up-to-date as well as a statement that verifies that there weren’t any modifications made to the lease itself — or a list of any changes that were made and when they were made.

Waiver and Estoppel: Key Differences

Waivers and estoppels are often confused for each other. While they each have a place in common law, they are very different from each other.

An estoppel typically results from actions that are involuntary. This judicial device prevents a party from making an inconsistent claim.

A waiver, by contrast, is a voluntary action that one party takes that results in them surrendering, repudiating and/or renouncing a right or claim they have.

In law, waivers are typically used to resolve disputes, therefore, while estoppels are used to prevent such disputes from arising in the first place.

Estoppel in Mortgage and Foreclosure Transactions

Estoppel certificates are commonly used in commercial real estate. The document is used to do many things, including preventing a tenant from challenging statements that landlords made in the past.

When a commercial property is sold, the buyer of the property relies on estoppel certificates so they can understand what the terms of a lease are. This will ensure that the new entity that’s purchasing the property is completely informed regarding all of the legal and financial standings of it before they finalize the transaction. 

In addition, estoppel can be used to prevent a lender from asserting a claim that’s inconsistent with previous actions or statements it did or made. Similarly, they can be used to prevent borrowers from contradicting or denying that they took a previous action or made a previous statement.

Estoppel in Foreclosure Defense

In some cases, estoppel can be used as an affirmative defense in foreclosure proceedings. They can prevent lenders from asserting a claim that’s inconsistent with another claim they made in the past or action that they took.

It ultimately prevents a party from luring another into any legal position that would be termed disadvantageous to them. 

In addition, estoppel can be used to prevent a borrower from being penalized unfairly if a lender made a mistake. If, for example, the lender made a statement or included a statement in a contract and then figured out later they made a mistake, they cannot unfairly penalize the borrower for that mistake.

Reliance and Estoppel

Like its name suggests, reliance-based estoppel focuses on the reliance of a party on an action or a statement. This form of estoppel is used often in cases where a person has relied on an action or statement from another party to their detriment.

This could include a situation where an individual asserts a set of factors to be the truth to someone else. In this case, the victim can use estoppel to show they’ve been harmed due to the incorrect statements that were made.

It’s used to prevent a party from contradicting a previous statement they made or action they took, or from denying that they did so.

Best Practices for Estoppel Certificates

There are a few best practices that you should follow for estoppel certificates.

First, ensure that you obtain the estoppel from the correct condominium owners’ association or HOA. These are the entities that should be responsible for issuing and holding the certificates.

Next, ensure that you review the estoppel certificate carefully, ensuring that it reflects the seller’s obligations accurately. It also must be signed and dated by all affected parties.

If anything seems off with the estoppel certificate, it could be null and void.

Estoppel in Litigation

Estoppel can be used in legal cases to prevent one party from making inconsistent claims. In other words, it’s used as evidence that can be used to defend a party who feels they have been wronged in a certain situation.

In addition, estoppel serves to prevent an issue from being re-litigated if a court has already ruled on the matter. This protects a party who, for instance, might be in a weaker financial and legal position than another — such as an individual tenant or buyer versus a large commercial real estate company.

Consumer Protection and Estoppel

Estoppel isn’t just used in commercial real estate and complicated legal contracts, though. It’s also used to protect consumers from deceptive or unfair practices on a number of levels.

In real estate, for example, estoppel can prevent a seller or lender from making assertions or claims that are inconsistent. It can be used against either of these parties if they try to contradict something they’ve said or done in the past, or try to deny that they did so.

In essence, it serves as great protection for everyday consumers.

Common Estoppel Mistakes

Some of the most common estoppel mistakes relate to the party from whom they were obtained and/or a failure to review what’s in them.

As mentioned above, if you don’t obtain the certificate from the correct condo owners’ association or HOA, you might be getting incorrect information and, as a result, an invalid document. If you don’t review the certificate to ensure the information is accurate, then you could be signing something that doesn’t give you the correct rights you deserve.

Understand Estoppel to Know Your Rights

Estoppel is a powerful tool that can be used to prevent parties from making assertions and claims that are inconsistent. It’s a principle of common law that can be applied to a variety of different contexts, from commercial real estate, to contract law, to even foreclosure defense.

Understanding the different types of estoppel and how you can use them to protect your rights is essential. Yet, gaining this understanding can be challenging, as it’s complex and hard to understand.

That’s why it’s always a good idea to consult with a trusted law firm that can educate you on everything there is to know about estoppel.

In Michigan, Babi Legal Group has more than 20 years of combined real estate experience, and more than 10 years of experience in business law, debt collection and settlement, bankruptcy and criminal law.

For more information, contact us today.