U.S. Supreme Court to Address Strip Off of Home Mortgage in Chapter 7

Posted in Bankruptcy & Creditor's Rights

The U.S. Supreme Court has agreed to hear two appeals by Bank of America concerning an important and frequently recurring question of bankruptcy law: whether a chapter 7 debtor can “strip off”-that is, void-a junior mortgage lien on a debtor’s house when the debt owed to a senior lienholder exceeds the current value of the house. This would resolve a split of authority in the circuit courts.

In the cases before the Supreme Court, the Eleventh Circuit held that a debtor may strip off such a junior lien in Bank of America v. Caulkett, 13-1421, and Bank of America v. Toledo-Cardona, 14-163. The Fourth, Sixth and Seventh Circuits have previously held that the reasoning in Dewsnup v. Timm, 502 U.S. 410 (1992), precluded such a strip off.

If the Eleventh Circuit’s decisions are upheld, chapter 7 debtors may not only discharge their personal liability on second mortgage loans, but leave the mortgage-holder without the right to foreclose on the property even if the value of the property subsequently increases.

The issue before the Supreme Court is framed as:

Whether, under § 506(d) of the Bankruptcy Code, which provides that “[t]o the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void,” a chapter 7 debtor may “strip off” a junior mortgage lien in its entirety when the outstanding debt owed to a senior lienholder exceeds the current value of the collateral.

In Desnup, the Supreme Court held that section 506(d) does not permit a chapter 7 debtor to “strip down” a mortgage lien to the current value of the collateral. The mortgage lien in Desnup was partially secured, not wholly unsecured as in the cases on appeal.

Bank of America argues that consistent with the holding in Desnup, that a mortgage is underwater matters only to the treatment of the claim under section 506(a) (secured vs. unsecured), and has no effect on the treatment of the lien under section 506(d). Rather, under well-established bankruptcy practice, liens pass through bankruptcy unaffected unless the underlying claim is disallowed, and any increase over the judicially determined value during the bankruptcy accrues to the benefit of the creditor.

Business Court Program Going Statewide in New Jersey

Posted in Business & Corporate, Litigation

On January 1, 2015, the New Jersey judiciary will expand its Complex Business Litigation Program statewide. The program has been operating in Bergen and Essex counties since 1996. It is designed to handle complex commercial and construction cases with $200,000 or more in damages. New Jersey will join 27 other states with some form of specialized business courts.

Cases are assigned to a specific judge from the beginning, and each judge assigned to the program will be expected to issue a minimum of two written opinions every year so as to develop a body of complex business case law. Cases in the program will not be subject to the court’s mandatory mediation and arbitration programs, although judges can encourage the parties to use alternate dispute resolution. Both jury trials and bench trials will be available.

The program will not include matters handled by general equity judges, or matters involving consumers, labor organizations, personal injury or condemnation, or cases in which the government is a party.

The decision to expand the program statewide was made in response to the New Jersey Supreme Court’s Working Group on Business Litigation’s recommendation. Last year, 199 complex commercial litigation cases and 71 complex construction litigation cases would have been deemed qualified for the program.

Parties in cases where the damages are estimated to be less than $200,000 may make a motion to have their matters transferred into the program if there are compelling issues to be resolved involving discovery, a large numbers of parties or witnesses, or a significant interpretation of a business or commercial statute.

IRS Announces Inflation Adjustments Affecting Estates and Trusts

Posted in Trusts & Estates

Many key Estate and Gift Tax exemptions and exclusions are indexed for inflation by the IRS. The IRS recently released Rev. Proc. 2014-61 which provides for the following modifications for these key exemptions and exclusions:

  • Unified Credit for Estate Tax: $5,430,000 for decedents dying in 2015[1]
  • Annual Exclusion Gifts: $14,000[2]
  • Annual Exclusion Gifts for Non-Citizen Spouses: $147,000 for transfers in 2015
  • Aggregate Allowable Decrease for Special Use Property (i.e. farmland, etc.): $1,100,000 in 2015.

The New Jersey Estate and Inheritance Taxes are not indexed by the IRS. The New Jersey Estate Tax Exemption remains $675,000, while the New Jersey Inheritance Tax can affect transfers of $500 or more.

In addition Rev. Proc. 2014-61 provided the following income tax brackets for Estates and Trusts:

Taxable Income: The Tax is:
Not over $2,500 15% of the taxable income
Over $2,500 but less than $5,900 $375 plus 25% of the excess over $2,500
Over $5,900 but less than $9,050 $1,225 plus 28% of the excess over $5,900
Over $9,050 but less than $12,300 $2,107 plus 33% of the excess over $9,050
Over $12,300 $3,179.50 plus 39.6% of the excess over $12,300

 

These exemptions, exclusions and rates have an important impact on how estates and trusts are structured, and should be considered for every Estate Plan. If you have any questions on how these rates affect you, please contact our Trusts and Estates department for a consultation.


[1] While indexed for inflation this Credit only increases in $10,000 increments.

[2] While also indexed, annual exclusion gifts only increase in $1,000 increments.

In-House Counsel Have Mixed Opinions about Arbitration

Posted in Alternative Dispute Resolution, Litigation

A survey of in-house attorneys conducted in July and August of 2014 showed a split of opinion about whether arbitration generally turned out to be a better solution than litigation. 42 percent called it a toss-up, 25 percent said it was a better solution, and 21 percent said it was not.

The primary reasons given to arbitrate rather than litigate were: it was required by contract; it preserved confidentiality; it limited discovery; and it was less costly. Reasons given for choosing not to arbitrate included: the difficulty of appealing the decision; the arbitration process is not required to follow established legal rules; it limited discovery; and a lack of confidence in the neutrality of the arbitrator(s).

Other reasons cited to choose arbitration included: the chance to avoid unfavorable courts and runaway juries; the less formal setting; you can prohibit class actions; and cases are generally decided quicker. Other reasons not to arbitrate included: the panels tend to be quick, hear every argument, and in the end just “split the baby”; compromise verdicts instead of a defense verdict when the plaintiff fails to prove its case; and cost and time advantages may be illusory.

An interesting side note is that the American Arbitration Association commented on the results, and said that the perception arbitrators tend to “split the baby” with their verdicts is a myth. According to its studies of both domestic and foreign arbitrations, arbitrators have a clear tendency to either grant or deny the relief sought, either by all or nothing decisions, or by granting almost all of the relief sought.

New York Times Highlights Growth of Craft Distilleries in New Jersey

Posted in Beer & Spirits

Since New Jersey’s Craft Distillery Law went into effect on December 1, 2013, several craft distilleries have opened in the State of New Jersey. This is the focus of a recent New York Times article, which details the stories behind three distilleries that have opened in New Jersey recently. Some of the most attractive features of the new law are:

  1. It significantly reduces in state license costs through the Division of Alcoholic Beverage Control (“ABC”);
  2. It provides businesses the ability to conduct onsite tours and sampling; and,
  3. It provides distillers the ability to sell distilled spirits at retail to customers visiting the premises.

In view of these key features and the trend towards nationwide wide growth in the craft distillery industry, growth in New Jersey should continue prosper and flourish.

Stark & Stark’s Beer & Spirits Group provides sound legal counsel to the craft beer and distillery industry in New Jersey and Pennsylvania. For more information contact Marshall Kizner, co-chair of the Beer & Spirits group, at (609) 219-7449 or mkizner@stark-stark.com.

Is the Art of Business Generation Something that Can be Taught?

Posted in News & Events

Lewis J. Pepperman, Chair of Stark & Stark’s Business Practice and Executive Committee Member, was quoted in the New Jersey Law Journal‘s front page article, “Post-Recession, Firms Try to Teach the Art of Rainmaking,” which was published on November 10, 2014. The article discusses the importance of generating business, and whether it is a learnable skill or a natural gift.

Mr. Pepperman definitely believes business generation is something that can be taught, but it is up to the individual attorneys to put it into practice. Mr. Pepperman was quoted saying, “You have to do more than sit behind a desk and do what is given to you. There are so many ways to do it; the biggest part is the follow-up. You can work the room, you can meet people. You may be comfortable going to all kinds of events. But you have to put the work in.”

Read the full article by clicking here.

Community Associations Institute’s (CAI) Conference & Expo

Posted in Community Associations, News & Events

Join Stark & Stark’s Community Associations and Construction Litigation groups at the CAI Conference & Expo this Saturday, November 8, 2014 from 8:00am to 3:00pm at the Garden State Exhibit Center in Somerset, New Jersey. We will be located at booth #504.  Visit www.cainj.org for more information about the event.

Shopping Centers Thrive in Part Due to E-Commerce!

Posted in Commercial, Retail & Industrial Real Estate

Shopping centers are thriving much to the apparent surprise of the media, which has been predicting a demise of centers as we know them, including malls. An interesting article in Shopping Centers Today, a publication by the International Council of Shopping Centers (ICSC), is based upon a report by ICSC. Unfortunately, the article cannot be linked as it is member only access. Growth not despite e-commerce, but in part due to e-commerce. Various historically online retailers, including Amazon, are opening brick and mortar stores and finding those customers are spending substantially more than online customers. Malls and other shopping centers are repositioning themselves for convenience, creating an experience to increase dwell time or going upscale. Moreover, changing demographics and the slowed pace of growth of new centers are all adding to the current success and anticipated growth of existing centers. Do not sell your stock in retail centers just yet!

Latent or Hidden Defects in the Sale of A Residence

Posted in Litigation

When you are either purchasing or selling a residence, you will become familiar with the Seller’s Disclosure Statement which is provided by a seller of a residence. This Statement is designed to disclose all known defects and/or issues with the residence to a purchaser. While some of the issues may be readily apparent to the purchaser of the residence, there are times when issues are latent, or hidden, in nature. The well established law in this area provides that it is the duty of the seller to disclose any latent defects of a residence if they either knew or have constructive knowledge of the existence of the condition. The types of conditions which must be disclosed are those which are material to the transaction and which may directly affect a purchaser’s decision to purchase a residence.

Should a seller not disclose these latent defects, which are material to the transaction, to a purchaser, the purchaser may be able to rescind the transaction or obtain monetary damages if it is demonstrated that the seller either knew or constructively knew of the issues affecting the property. Material defects can concern issues with the structure, the property surrounding the structure, or even nearby conditions which may affect the residence. Obviously, if a condition is hidden and it appears to have been concealed by the seller, this may favor the purchaser and may allow them to either rescind the contract or to obtain damages.

If a lawsuit is commenced to rescind the contract or to obtain monetary damages, the relief which is granted will depend upon numerous circumstances concerning the extent of the condition and how it affects the property. Which remedy is more appropriate is to be determined on a case by case basis. Regardless, it is always the best practice to disclose all conditions known by a seller. This avoids the possibility of future litigation by a purchaser. On the other hand, it is a good idea if you are the purchaser of a residence to specifically inquire as to all conditions, whether they are readily apparent or latent. This may protect you if a latent defect later comes to light which should have been disclosed.

If you are being sued for a latent defect which a purchaser claims you had knowledge of, or if you are a buyer who wishes to sue a seller for a latent defect, it is recommended that you consult with competent counsel. The attorneys at Stark & Stark can help you in this regard.

Permanent Alimony vs. Open Durational Alimony

Posted in Divorce

The new alimony law that was recently passed on September 10, 2014, changed one of the types of alimony from “permanent” to “open durational.” It was really just a change in semantics. Permanent alimony was never meant to be “lifetime” alimony as many clients called it. Under our previous law, permanent alimony could have been modified upon a substantial change in circumstances, such as disability, unemployment, retirement, or a change in need by the payee or change in ability to pay by the payor. Open durational alimony, which has an open term until the court terminates it or the parties agree to terminate it, generally applies to marriages over 20 years in length. This type of alimony can also be modified (reduced or terminated) upon a substantial change in circumstances.

What the new law does give us is some guidance when dealing with substantial changes in circumstances. Prior to the new law’s enactment, we only had case law to help with modification applications.

For example, retirement is a substantial change in circumstance for which modification of alimony would have been considered under case law. Under the new alimony statute, there is a rebuttable presumption that alimony shall terminate upon the payor spouse obtaining full retirement age, which is Social Security retirement age. The law also provides that the court may set a different alimony termination date if the rebuttable presumption is overcome. The factors to consider in rebutting the presumption are as follows:

  1. The ages of the parties at the time of the application for retirement.
  2. The ages of the parties at the time of the marriage or civil union and their ages at the time of entry of the alimony award.
  3. The degree and duration of the economic dependency of the recipient upon the payor during the marriage or civil union.
  4. Whether the recipient has foregone or relinquished or otherwise sacrificed claims, rights or property in exchange for a more substantial or longer alimony award.
  5. The duration or amount of alimony already paid.
  6. The health of the parties at the time of the retirement application.
  7. Assets of the parties at the time of the retirement application.
  8. Whether the recipient has reached full retirement age as defined in this section.
  9. Sources of income, both earned and unearned, of the parties.
  10. The ability of the recipient to have saved adequately for retirement.
  11. Any other factors that the court may deem relevant.

If the paying spouse retires prior to attaining full retirement age, then he/she has the burden of demonstrating that the actual retirement is reasonable and made in good faith.

Other blogs have been posted to this site on the new alimony law and how it effects other changes in circumstances such as cohabitation and unemployment.