Howick, Westfall, McBryan & Kaplan, LLP is pleased to announce that partner Susan L. Howick has been named to GeorgiaTrend Magazine’s 2012 list of Legal Elite. Each year GeorgiaTrend magazine invites several thousand Georgia lawyers to nominate the attorneys they consider best in 20 different practice categories. Ms. Howick was selected by her peers as one of the state’s top lawyers in the area of Bankruptcy and Creditors’ Rights.

Ms. Howick was admitted to the Georgia Bar in 1982. She is a founding partner at Howick, Westfall, McBryan & Kaplan, LLP and focuses her practice in business litigation, real estate litigation, creditors’ rights and family law.  Congratulations to Susan Howick!

The October 9, 2012 dinner meeting of the Georgia Association of Paralegals featured three speakers from Howick, Westfall, McBryan & Kaplan, LLP.  Partner, Susan Howick, who began her career in law as a paralegal, explained the expanded role of the professional paralegal in the firm in the areas of litigation and real estate. Paralegal, Kym Harris-Gude, described her expertise in the areas of collections and skip tracing. Bappa Basu, an associate in the firm’s Bankruptcy Group, provided a detailed description of the paralegal’s role in the complex process of commercial bankruptcy.  The presenters were well received and guests commented that they enjoyed the informative comments.

 Over sixty Georgia Community Bankers and associated Special Assets Professionals were in attendance for the inaugural GRASP (Group of Asset Servicing Professionals) meeting. Co-sponsored by the Community Bankers Association of Georgia and Howick, Westfall, McBryan & Kaplan, LLP, the networking and educational luncheon meeting was held at Maggiano's Little Italy Restaurant at Cumberland Mall on September 15th and featured guest speaker Steve Wood, City President, CFO and Director of The Citizens Bank of Adel, Georgia. Mr. Wood shared insights into his personal career development and discussed the unique challenges community banks are facing in the Special Assets arena. He also offered advice and encouragement to the professionals entering the field of Special Assets. Attendees represented community banks from all over the State of Georgia.

 GRASP will hold its next meeting on Thursday, January 12, 2012.

Carolyn Brown, CEO of Community Bankers Association of Georgia and Steve Wood

Howick, Westfall, McBryan & Kaplan, LLP is pleased to partner with the Community Bankers Association of Georgia to announce the formation of GRASP, a networking and educational luncheon forum for Community Bank Special Asset Professionals.  GRASP is designed to assist members in staying current on industry standards while promoting networking opportunities and offering additional benefits to Community Bank Association members involved in the origination, perfection and servicing of collateralized assets, loss mitigation and special assets.

Chaired by M. Todd Westfall, managing partner at Howick, Westfall, McBryan & Kaplan, LLP, the inaugural GRASP luncheon will be held Thursday, September 15^th at Maggianos Little Italy restaurant at Cumberland Mall.  The scheduled speaker is Mr. Steve Wood, former Executive VP and Director of the Special Asset Division of State Bank & Trust and current City President, CFO and Director of the Citizens Bank, Adel, Georgia.

Since the decline in real estate values, lien stripping of junior mortgages has become quite common in Chapter 13 cases.  Lien stripping can be defined as the process Chapter 13 debtors use to cancel second or junior mortgages when their residences are worth less than the amount of their first mortgage.  This article will explain the procedure as well as the legal basis for lien stripping in Georgia.  Creditor strategies for responding to lien stripping actions are also suggested. 

Legal Basis

The 1993 US Supreme Court decision, Nobelman v. American Sav. Bank, 508 U.S. 324 held that in Chapter 13 cases, under § 1322, a lender’s lien could not be stripped and the creditor was entitled to the full value of its lien if the lender’s only collateral was the debtor’s primary residence.  However, the 11^th Circuit in Tanner v. First Financial, Inc., 217 F. 3d 1357 (11^th Cir. 2000), held that the Nobleman protection did NOT extend to homestead lenders where their lien was wholly unsecured.  A mortgage is wholly unsecured when the amount of the senior mortgage is greater than the value of the debtor’s residence. 

Example

Scenario One

A Chapter 13 debtor’s residence is worth $200,000.  There is a first mortgage on the residence for $175,000 and a second mortgage for $50,000.  In this case, there is $25,000 equity over and above the first mortgage so the lien on the second mortgage cannot be stripped off.  This is the case even though the equity is less than the full amount of the second mortgage.

Scenario Two

The Chapter 13 debtor’s residence is worth $200,000.  However, in this case, the first mortgage on the residence is for $205,000 and the second mortgage is for $20,000.  Since there is no equity over and above the amount owed on the first mortgage, the second mortgage is wholly unsecured and subject to being stripped off.

Procedure

A Chapter 13 debtor initiates a lien stripping action in the bankruptcy court by filing a motion or by an adversary proceeding to determine the extent and validity of a lien under Section 506 (a) of the Bankruptcy Code.  In the Northern District of Georgia, the action may be brought by motion or by adversary proceeding.  In the Middle District, the action is brought by an adversary proceeding and in the Southern District, the action may be brought before the court by motion or simply as a provision in the Chapter 13 plan.  Other courts across the country require the action to be brought by adversary proceeding, reasoning that due process entitles the lender to the heightened notice through service of a summons and complaint required in adversary proceedings.

The Bankruptcy Code allows Chapter 13 debtors to modify the rights of secured creditors, including mortgagees, in their Chapter 13 plan.  For example, a plan can provide for the payment of a mortgage arrearage over an extended period of time rather than requiring the debtors to immediately bring the loan current.  The plan also provides a mechanism for stripping off a wholly unsecured mortgage as described above.  Where the debtors seek to modify a secured creditor’s rights, a motion or adversary proceeding is appropriate as long as the Chapter 13 plan also provides for the modification.

There are several reasons motions are denied.  The most common reason is improper or insufficient service of process on the lender.  Motions can also be denied if the wrong party is named as respondent.  Additionally, if the plan is silent, unclear or treats the claim differently than the motion, the motion may be denied.  If the property is jointly owned and only one owner files bankruptcy, the individual debtor cannot file a motion to strip the lien.  Finally, the motion may be denied if it fails to state a claim for relief or if the creditor can prove that the property has value, over and above the first mortgage, to support its lien. 

Response

Once a lender receives such a motion, the lender must decide whether it is cost effective to oppose the motion.  The motion may be opposed on procedural grounds as described above or if the Chapter 13 debtor is statutorily ineligible for a discharge.  For example, a debtor would be ineligible if they have received: (i) a discharge in a Chapter 7 or Chapter 11 during the four year period preceding the date of the order of relief in the Chapter 13; or (ii) a discharge in a Chapter 13 within the two year period preceding the date of the order for relief in the current Chapter 13 case.  Additionally, if the lender determines that there is equity in the property, even a minimal amount, there is a basis to oppose the motion. 

If the motion is not opposed or if the court finds that the junior lien is wholly unsecured, an order granting the motion will be entered and the mortgage claim is treated in the plan as a general unsecured claim.  If the case is later dismissed or converted to a Chapter 7, the mortgage lien is not affected by the order and remains valid. 

Conclusion

Bankruptcy courts across the country are dealing with debtors’ actions to strip liens but how the actions are brought to the court depends on the jurisdiction.  A mortgagee can oppose lien stripping motions or adversary proceedings where the debtor has failed to follow the proper procedure or is ineligible for a Chapter 13 discharge.  The mortgagee can also oppose the lien strip on substantive grounds if the residence has equity over and above the first mortgage.  Even if an order is entered voiding the junior lien, the order will become void if the Chapter 13 is dismissed or converted to a Chapter 7.  Lien stripping will continue to be a part of the bankruptcy landscape as long as real estate values remain depressed.  If you have additional questions regarding this topic, please contact us at 678-384-7000.

One question that we are frequently asked by our divorce clients is, “what happens to property that was either received and/or given as gifts during the course of a marriage?” Our clients want to know if they will be required to share such gifts with their spouse in a divorce as part of their “equitable division of property.” 

Under Georgia law, “separate property” is not part of the marital estate nor is it subject to equitable division by the parties to a divorce.  Separate property includes: (1) assets owned prior to the date of marriage, including any appreciation in those assets, as long as the appreciation is the result of market forces, as opposed to the efforts of either spouse; (2) assets obtained with the proceeds of a sale or transfer of assets owned prior to marriage (such assets remain separate property and are not divided at the time of divorce); and (3) assets received by either spouse during the marriage by gift or inheritance from a third party.  Bailey v. Bailey, 250 Ga. 15, 295 S.E. 2d 304 (1982).  However, courts apply a different analysis when the gift in question is from one spouse to the other and when a couple receives gifts as a marital unit.

Marital property is defined as property that is acquired as a direct result of the labor and investment of the parties during the course of their marriage.  Therefore, when one or both spouses are employed, the income received from their employment and the assets purchased with that income is considered marital property.  Consequently, a gift between spouses, if purchased with funds earned through employment, is also marital property subject to division at the time of divorce. Another possibility with regard to gifts between spouses is that a spouse will give a gift of separate property, or a gift purchased using separate assets.  In most cases involving gifts of separate property, the gift will generally lose its separate status and becomes part of the marital estate, subject to division.  Lerch v. Lerch, 278 Ga 885, 608 S.E. 2d 223 (2005) (holding that when a gift of separate property is given by one spouse to the marital unit, the property will become marital property absent evidence of a contrary intent of the donor). 

As stated in the Lerch case, a gift given to a marital couple is marital property.  However, at the time of divorce one party may claim that a particular gift was in fact given to that party individually.  In Hayes v. Hayes, [279 Ga. 741, 620 S.E. 2d 806 (2005)], the Georgia Supreme Court analyzed a series of gifts from the husband’s parents, the first of which was for a down payment on the couple’s home in the amount of $3,500.00.  The second gift from the husband’s parents consisted of a series of checks for improvements on the home in the total amount of $40,000.00.  With regard to the down payment, the Court in the Hayes case held that because there was conflicting evidence as to whether it was given to the husband, or to the husband and the wife together, there was evidence to support the trial court’s conclusion that the down payment on the house was a gift to the husband individually.  However, the Georgia Supreme Court ruled differently on the issue of the $40,000.00 gift, which was transferred by each of the husband’s parents giving checks for $10,000.00 to both the husband and the wife.  Because both the husband and his father testified that the gift was structured to avoid gift tax repercussions, the Court stated that the arrangement of the gifts constituted a sham transaction, and that the state court would not relieve the husband and his parents from the structure of the gifts, as represented to the IRS.

Another case involving gifts from parents is Baker v. Baker, 280 Ga. 299, 627 S.E. 2d 26 (2006).  In that case, the wife argued that a check received from a partnership formed by her parents was a loan rather than a gift.  The Supreme Court of Georgia found that the transfer was in fact a gift based primarily on the premise that “(t)he delivery of personal property by a parent into the exclusive possession of a child living separate from the parent creates a presumption of a gift to the child.”  OCGA § 44-5-84. 

The Court in the Baker case found that although the wife presented evidence to rebut the presumption of a gift, including the testimony of several witnesses and the amounts received being categorized as loans in partnership records, other evidence corroborated the presumption.  The corroborating evidence included the lack of an enforceable promissory note and the fact that the parties never repaid any principal, which was sufficient to uphold the jury’s verdict. 

These types of issues frequently arise in a divorce case.  As shown by the cases discussed above, the resolution of these issues is very fact specific and can depend on slight variances in the structure of the gift or the intentions of the person giving the gift.       

M. Todd Westfall, managing partner at Howick, Westfall, McBryan & Kaplan, LLP, served as a guest panelist for the December 15, 2010 taping of The Commercial Real Estate Show in Atlanta, Georgia.  Mr. Westfall provided information and legal insights in discussing the show’s topic, “Commercial Real Estate Law-Legal Matters Prevalent in this Cycle.”  Moderated by Michael Bull of Bull Realty, Inc., the nationally broadcast radio program featured four local Atlanta attorneys with significant commercial real estate knowledge and expertise.  Specifically, Mr. Westfall discussed: 

• foreclosure sales and related issues;
• the diminishment of bankruptcy as a tool to restructure loans in the current times;
• potential lender liability issues and lender releases;
• loan rework and the challenges it presents due to the deterioration of borrower credit profiles and property values;
• current issues in the foreclosure confirmations arena;
• release of guarantors under their guaranties;
• sale or transfer of promissory notes and other loan documents to a third party purchaser;
• the effect of a foreclosure on existing leases; and
• questions regarding the viability of landlords from a tenant’s perspective in today’s marketplace. 

 The Commercial Real Estate Show is broadcast online at www.commercialrealestateshow.com or on air at 1190 WAFS Business Radio, Saturdays, 10:00 a.m. EST.

In a creative twist on the traditional office party, the entire HWMK staff celebrated the holiday season by dining together at a private facility on a meal they helped prepare.  Led by a renowned celebrity chef, Chef Alex Reethof, the staff took turns prepping, chopping, and cooking the meal. From appetizers to dessert, the holiday cooking school was fun and the meal delicious!

Beginning with knife sharpening, Chef Alex demonstrated safe and correct cutting, slicing, and dicing techniques.  Staff members were “hands-on” preparing a specialty upside down salad and roasted root vegetables as Chef Alex explained the best ways to choose and prepare various foods. Two staff members cooked tenderloin filets under the chef’s close supervision and instruction. Many enjoyed the festive pomegranate punch, a Chef Alex signature drink, while others enjoyed the quiet solitude and homey atmosphere of the private facility.

The 2010 HWMK Holiday Party Cooking School was an enjoyable evening and may be the start of an annual office tradition.

Howick, Westfall, McBryan & Kaplan, LLP is pleased to recognize several of its employees who are actively volunteering and serving their communities.

• Cathy Edwards, a legal assistant in the Litigation Practice Group, volunteers with Project Open Hand, an organization dedicated to providing home-delivered meals and nutrition information to seniors and individuals with nutrition-sensitive chronic diseases.  This fall, Cathy participated in the Alzheimer’s Foundation Memory Walk and the Key West Zonta Club Breast Cancer Walk.  In December, Cathy will finish her busy year of volunteer work by helping in her local Toys for Tots program.
• Virginia “Jenny” Bogue is an associate attorney in the Bankruptcy Practice Group.  Jenny serves as an orchestra volunteer at her daughter’s school and also volunteers at the Buckhead Christian Ministry’s Thrift Store.  Jenny is involved at her church where she teaches Sunday School classes and participates in Habitat for Humanity projects.   
• Bappa Basu, an associate attorney in the Litigation and Bankruptcy Practice Groups, is a volunteer at the Atlanta Humane Society where he assists with adoption events.  Bappa has also volunteered with both Hands on Atlanta and Samaritan House of Atlanta, which provide meals and services for Atlanta’s homeless.
• Jonathan Rotenberg, an associate in the Family Law and Litigation Practice Groups, serves with the Atlanta Volunteer Lawyer Foundation.  Jonathan represents victims of domestic violence and also serves as a Guardian ad Litem. He volunteers as a mentor to Sudanese refugees through the Lost Boys Foundation.  Jon also enjoys his volunteer position at Dad’s Garage Theatre, helping with various duties in concessions. 
• Salena Troy, a paralegal in the Bankruptcy Practice Group, is a member of the American Association of the Deaf-Blind.  She is a sighted guide and sign language interpreter and is often called upon to assist deaf-blind persons visiting Georgia from other states and countries. At her Parish, Salena teaches Religious Education and assists with deaf Latino children whose Spanish/English parents are not familiar with American Sign Language.  She also serves as a mentor in the Parish Life-Teen program. Salena is a volunteer interpreter for the Archdiocese of Atlanta’s Disability Ministry and founded a chapter of the Disability Ministry in her Parish. Salena is also very involved with the Haiti Humanitarian Fund. As a medical missionary, she participates in an annual mission trip to Los Palis and Las Palmas, Haiti, providing basic medical assistance to Haitian families. Salena also volunteers with the Humanitarian Fund’s public relations department and has developed an educational DVD.  In March 2011, she will return to Haiti as a medical missionary.
• Janice Cochran, a paralegal in the Real Estate Practice Group, volunteers with the Georgia Reflexology Organization, serving as the Treasurer and Membership Coordinator.  In addition to keeping members informed about training opportunities, Janice also updates the reflexologists regarding changes in the law which may affect their practice.

Howick, Westfall, McBryan & Kaplan, LLP is proud of its employees and honored to share their volunteer efforts.

The experienced bankers at Citizens Trust Bank in Atlanta turned to the law firm of  Howick, Westfall, McBryan, & Kaplan, LLP and its partners to update them on recent legal developments in the lending and loan enforcement arena. As legal experts in their fields of practice, Susan Howick, Todd Westfall, Lou McBryan, and Mike Kaplan provided an onsite educational seminar for the Atlanta based bankers, with Citizens Trust Bank’s Birmingham office participating via teleconference.  The topics discussed included loan documentation review for loss mitigation, foreclosure, suits on accounts, confirmations, title defaults and title insurance claims, bankruptcy, personal property foreclosure and garnishments.

Participants were provided with comprehensive resource materials for their future reference.