Archives for August 2008

Consumer Bankruptcy Up 48% in July

A few weeks ago I bookmarked an article posted on Twin Cities Daily Planet which indicated that bankrupty filings in Minnesota are up almost 30% for May and June of 2008 as compared to May and June of 2007. I thought it has seemed to be pretty busy around here, but I still thought the percentage was surprisingly high. Had someone told me in January of 2006, right after the “reform” legislation had gone into effect that this was going to happen, I don’t think I would have believed it. The standard wisdom at that time was that bankruptcy lawyers might be about out of business. In fact, many lawyers quit practicing bankruptcy law at that time. The new law was called BAPCPA (Bankruptcy Abuse Prevention and Consumer Protection Act). In my opinion, the only abuse that was going on was that perpetrated by the credit industry, and the only protection provided was for them and not consumers.

Earlier this week I received a copy of Consumer Bankruptcy News, one of those old fashioned publications that is still printed on paper. In the lower right corner of page 7 was an item stating that nation-wide bankruptcy filings were up 48% in July 2008 as compared to July 2007. There were 94,124 consumer filings in July and 82,770 in June this year. That would be as if everybody in Bloomington, Minnesota and in Duluth Minnesota combined had filed for bankruptcy in June or July. If that keeps up, I would assume that for August it would be as if everybody in Rochester, Minnesota had filed for bankruptcy.

If you should feel a need to come see me to talk bankruptcy, there’s sure no reason to feel alone.

Short Sales Revisited

For several months I have had a video posted at YouTube entitled “The Trouble with Short Sales.” Of all the videos I have posted, this is the one I get the most flack about – mostly from Realtors who are in the short sale business. My experience of this past week emphasizes how right I am about short sales in Minnesota usually being a really bad deal. If anything, my video understates the case.

A client of mine came to me for help with making a short sale work. I advised that it was likely to be a serious problem, but she wanted to try it anyway. For better mental health and possibly better credit among other reasons, she wanted this house out of her life. A buyer was found, and after a few months the mortgage company indicated – in a rather vague letter of intent – that they were ready to complete the short sale. Getting a real person on the phone from the mortgage company was nearly impossible; and when it was possible to get a real person, it was never anybody who could answer a question or make a decision.

I finally was able to speak with the closer who was going to handle the paperwork for the transaction. She indicated that most of the lenders she dealt with were very clear that they intended to reserve the right to come after the seller for the remaining balance owing on the mortgage, even though the house was being sold. The paperwork for the transaction involving my client did not explicitly say that the lender would be suing my client later, but it didn’t say the lender would not be either. The only release that my client could expect to get would be one that released the house only. There would be no release of personal liability.

This was a situation involving only one mortgage. In those situations in the State of Minnesota, the most common method of foreclosure is “foreclosure by advertisement.” When advertisement is the method, the lender gets the house, but that’s all the lender gets. The home owner is off the hook. That means that my client was presented with the following choice:

  1. Either do a short sale and expect to get sued for the remaining unpaid balance of the mortgage; or
  2. Wait for the lender to foreclose and lose the house without getting sued for anything.

The second choice is obviously better than the first. In both choices the house is lost, but with the second choice at least they don’t come after you for more money afterwards. It would have made a lot of sense for the mortgage lender to provide a personal release of liability so that my client could have completed the short sale. Now it will take the mortgage company another year of so and considerable expense to conduct the foreclosure. The house will probably go down in value during that time too. But in letters and calls to the mortgage company, I never seemed to be able to get any body’s attention with this information.

This aspect of Minnesota foreclosure law is unusual. There are only seven other states as far as I know that have similar laws. The mortgage company does business in all 50 states, and follows a one size fits all policy line for everything. Their policy might make sense in most states, but not in Minnesota. They hurt themselves by being that way, but nobody seems to care.

For a short time this week I was excited because I thought I was seeing some signs that I might be able to make the short sale idea work. What it was going to take, of course, was a release of personal liability. By Thursday afternoon, however, it was quite clear that was not going to happen. It was time to back out of the deal, cancel the purchase agreement, and wait for a “foreclosure by advertisement.”

Underdahl II – End of the Source Code Issue?

I’ve mentioned here once or twice in the past, that there has been a small tempest brewing over the source code of the Intoxilyzer 5000 breath test machine. That’s the one that’s been in use all over Minnesota since the early 1990s. I’ve heard it said that the computer processor that is the guts of the gizmo has about as much computing power as one of those old pong games from the 1980s, although I doubt that’s true. It is true, however, that until recently a small minority of judges have been questioning the validity of the test results because the manufacturer of the machine has keep the source code of the software that dives the device a trade secret. No defense lawyer can get an expert opinion on the validity of the source code, because nobody can get the source code, not even the State of Minnesota.

My understanding is that earlier this year the Attorney General’s office in St. Paul filed a suit against the manufacturer demanding that they cough up the code. So far as I know, that is still pending.

Meanwhile our Court of Appeals seems to have either back tracked or flip-flopped on the issue of the Intoxilyzer’s source code, depending on how narrowly one reads the opinion. In 2007 in a civil implied consent case known as “Underdahl I,” they said that the question of the machine’s reliability is subject to challenge and that the Commissioner of Public Safety would not be granted an order which would prevent the district court from enforcing an order requiring that the Commissioner produce the source code. In May of 2008, however, after the State has continued to be unable to produce the code even after suing the manufacturer, the Court of Appeals in a criminal DWI case decision known as “Underdahl II” has said that the defendants failed to make an adequate showing that the source code is relevant to a plausible challenge to the reliability of the Intoxilyzer.

In short in Underdahl I they seemed to open the door to a source code challenge and in Underdahl II they seemed to close it. I must say that after sitting here for a while looking over these two decisions, my head is spinning a bit. I’m not sure if the dust has really settled on this issue or not, and whether there may be further appeals. I still am noticing that some police departments seem to be using a lot more blood and urine testing in an apparent move to side step any possible problem with this.

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