One of my clients discovered she has a magic consumer loan. What makes this loan magical? It appears and quickly disappears. The woman, not a client at the time, had a mortgage with First Place Bank who foreclosed. It is very hard to make ends meet when your former husband will not pay support. Children enjoy little things like eating and having a roof over their heads even if daddy is a dead beat.
The Magic Begins
If you are in Lorain County, Ohio, you know Northern Savings and Loan was a wonderful local bank whose greatest asset was its customer base. I banked with them, so did many others. Northern sold to First Place Bank, who then was taken over by Talmer. This bank makes magic. Talmer made itself into Chemical Bank. More magic!
Great News! You Have a Consumer Loan
This client never did business with Talmer. Her home was foreclosed, sold and the sale confirmed more than two years ago. The only bank she ever dealt with was First Place. Her home did not sell at Sheriff sale for enough to cover the full loan. There was a nearly $70,000 loan deficiency. She never heard from anyone about it until this year (2016). She opened a letter from Talmer Bank which said she has a large consumer loan balance which was now in default. A consumer loan popped into existence from thin air. It’s magic.
Call a Bankruptcy Lawyer
Since her foreclose she lives with one of her sons who has been helping to get her finances straight. All was going well until she found out about a $70,000 consumer loan. She can’t afford that. She did what anyone might do. She called and met a bankruptcy lawyer. That attorney reviewed her case and told her, yes he can do something about this, but the attorney fee will be $3,000 plus filing costs. She doesn’t have three grand. She was distraught. Her son did not want her to file bankruptcy either.
The woman grew up with Deb, my legal assistant. Her son insisted she call my assistant for a second opinion since he knew Deb works for a bankruptcy attorney. Deb flat out told her none of this sounds right. Deb set her up to see me.
To Battle Magicians Hire a Wizard
Five minutes into our consultation I saw the problem and a non-bankruptcy solution. I told her I was about to make her very happy, it would cost a little money, but only a fraction of $3,000. I wanted to do a some research and then if the law is still what I believed it to be, I would send a letter to the bank to hopefully put this to rest.
Legal Magic of Our Own
Ohio has a law that says that a judgment creditor in a foreclosure case has two years from the date of the confirmation of a judicial sale of property used as a residence to collect on any deficiency in the sheriff sale. This law has been on the books without change since 1957. In English the bank has a limit of two years to collect on a deficiency on you home’s foreclosure. This does not apply to junior lien holders. They are not required to cross claim in a foreclosure case.
Some quick online research showed this law is still good. I mailed one letter to the bank citing the law, and I corrected them that a foreclosure deficiency payable to a bank they bought is not a new consumer loan. I sent a copy to the client along with a final bill for my magic. The bank did not contact her again.
The Moral of the Story
Why have I related this experience to you? Most of the time a bank will issue a 1099 for cancellation or abandonment of the debt. In this case the bank tried to get creative to collect the old bank’s receivables. Money in hand is always better than a tax deduction. The easy way out might have been to file bankruptcy. That isn’t always necessary.
My first analysis is always whether you even need to file bankruptcy. I am a bankruptcy attorney. It is how I make my living. Bankruptcy is not for everyone. I know that. Many attorneys either don’t know or ignore the fact to get your money. It is important for an attorney to know the options.
No one knows what the future holds for this client, but I do know at least for now she is able to avoid paying a debt that magically appeared from the air by finding a bankruptcy lawyer who knew enough to make it go away just as fast.
I suspect this woman is not the only former customer of First Place bank this is happening to. My hope is others see this article and call me before filing bankruptcy, or worse yet paying or making arrangements to pay a bill for a consumer loan they do not owe.