HOT TOPICS IN CREDITORS RIGHTS AND BANKRUPTCY LAW BRIAN ANDERSON & SUZI GRIGG FEBRUARY 2, 2018

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1 HOT TOPICS IN CREDITORS RIGHTS AND BANKRUPTCY LAW BRIAN ANDERSON & SUZI GRIGG FEBRUARY 2, 2018

2 Auto loans becoming larger part of CU portfolio Refinancing auto loans presents unique problems Problems amplified when member files bankruptcy 2

3 Common fact pattern: Member refinances auto loan with Credit Union Credit Union funds loan to pay off prior loan Prior lender fails to execute lien release or timely turn over title to Credit Union More than 30 days later, Credit Union obtains title and lien release and files application to record lien with Department of Motor Vehicles (DMV) DMV notes lien on vehicle s title Member files bankruptcy within 90 days of date of lien recordation Bankruptcy trustee files action to avoid lien on vehicle as a preference Ex. Loan made outside of 90 days, lien perfected within 90 days. 3

4 What is a preference? 11 U.S.C. 547(b): Trustee may avoid a transfer of an interest of the debtor in property: (1) to or for the benefit of a creditor (2) for an antecedent debt (3) made while the debtor was insolvent (4) made within 90 days of the filing of the bankruptcy petition (5) that enables such creditor to receive more than it would have had the transfer not been made and the debtor had filed a chapter 7 4

5 Why is the recording of a lien a preference? Encumbering property is a transfer (1) for the benefit of Credit Union (2) for a prior debt, i.e. the car loan (3) Insolvent? Presumed in 90-day period before bankruptcy filing (4) lien recorded within 90 days of bankruptcy filing (5) Hypothetical Test - If other creditors would not receive 100% of their claims in a hypothetical Chapter 7 case, Credit Union with lien receives more on account of the lien. 5

6 Defenses: 30-day safe harbor for perfecting liens 11 U.S.C. 547(e)(2) Transfer occurs when transfer takes effect, i.e. execution of security agreement, if transfer is perfected within 30 days It relates back If perfected later than 30 days, transfer occurs upon perfection NC Law: 20-day safe harbor N.C. Gen. Stat If application for notation of security interest with required fees is delivered to DMV within 20 days after date of security agreement, perfection occurs on date of execution of security agreement Otherwise, date of delivery of application is perfection date SC Law: 10-day safe harbor S.C. Code Ann Perfection at the time of creation of security interest if lien application is delivered to DMV within 10 days Otherwise, date of delivery of application is perfection date Contemporaneous exchange for new value Must be intended to be a contemporaneous exchange for new value and in fact a substantially contemporaneous exchange - Fact specific analysis 6

7 Defenses: PMSIs only - Creation of security interest in property acquired by the debtor Securing new value given at or after signing of security agreement Enables debtor to acquire the property and is used to acquire the property Perfected within 30 days of debtor receiving possession of property 7

8 What can you do if you cannot get title or lien release from prior lender? NC: File application without physical possession of title Credit Union does not need title to file application with DMV N.C. Gen. Stat : Documents accompanying application: The application must be accompanied by the existing certificate of title unless in the possession of a prior secured party. Instead, must state name and address of the prior secured party. An application may be signed by the secured party instead of the debtor when the application is accompanied by documentary evidence of the applicant's security interest in that motor vehicle signed by the debtor and by affidavit of the applicant stating the reason the debtor did not sign the application. SC: No similar statute to NC; however, don t give up File lawsuit Retain counsel to work with DMV 8

9 CFPB MORTGAGE SERVICING RULES SUCCESSOR IN INTEREST 12 CFR , current rule effective April 19, 2018 Defined as: A person to whom an ownership interest in a property securing a mortgage loan is transferred from a borrower provided that the transfer is one of the following: By devise, descent or operation of law on the death of a joint tenant or tenant by the entirety; To a relative resulting from the death of a borrower; Where the spouse or children of the borrower become an owner; Divorce or marital settlement by which the spouse of the borrower becomes an owner; or Inter vivos trust where borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy 9

10 CFPB MORTGAGE SERVICING RULES PERIODIC STATEMENTS IN BANKRUPTCY Current rule effective April 19, 2018, requires modified periodic statements for borrowers in bankruptcy with single-billing-cycle exception, unless: Borrower has agreed to surrender property or Requested in writing that Credit Union cease providing a periodic statement Proposal attempts to clarify exception to allow exception for one period statement when borrower enters/exits bankruptcy Proposed rule issued in October, 2017 for comments Unknown release date for final amendments, but CFPB believes that a final rule will be issued prior to April 19, 2018 Disclaimer: We are sending this statement to you for information and compliance purposes only. 10

11 CHANGES IN BANKRUPTCY PROOFS OF CLAIM Effective December 1, 2017 Rule 3002: in a chapter 7, 12 or 13 case, secured creditors must file a proof of claim (Official Form 410) within 70 days from the filing date If the claim is secured by the principal residence, you must include the attachment (Official Form 410A) and escrow analysis, if applicable Be certain to attach proper documentation (i.e. Note, Deed of Trust, Mortgage, etc.) to support the claim If you are seeking attorney s fees and costs, note requirements of Rule (c) If the payment amount changes, you must file and serve a notice of payment change under Rule (b) 11

12 CHANGES IN BANKRUPTCY FORM CHAPTER 13 PLANS Official Form 113 is the model Chapter 13 Plan available for use nationwide Opt-out provision: provided that the local Chapter 13 Plan complies with the requirements of Rule , the state may opt out of the Form Plan SC has opted out watch out for section 8.1 Non-standard language NC has also opted out in all three districts Change in Important Deadlines SC: operative date is the confirmation hearing and any objection to confirmation is due 7 days prior to hearing on confirmation of the Plan NC: Varies by district EDNC: Motion Requesting Confirmation of Plan (28 days to object) MDNC: Notice to Creditors and Proposed Plan (28 days to object) WDNC: Plan filed with petition. 341 meeting of creditors deemed to be confirmation hearing, absent objection (14 days after conclusion of 341 meeting to object) 12

13 NEXSEN PRUET, PLLC Brian R. Anderson Member Greensboro, NC (336) Suzi Grigg Member Columbia, SC (803)

Executive Summary of the 2016 Mortgage Servicing Rule

1700 G Street NW, Washington, DC 20552 October 18, 2017 Executive Summary of the 2016 Mortgage Servicing Rule On August 4, 2016, the Consumer Financial Protection Bureau (Bureau) issued a final rule (2016