Disposition of Excess Foreclosure Proceeds

Question: I lost my home to foreclosure and they sold my house for more than I owe. Do I get any of the excess money? The bank sold my house for $50k more than I owed, even with the finance charges.

Answer: The bank is only entitled to retain the amount owed on the loans plus any legally authorized costs of the foreclosure sale. Any exceed proceeds could go to you or to creditors that have priority over you.

Suppose you had a second mortgage for $75,000. California Civil Code § 2924k(a)(3) requires that surplus funds be paid to "to satisfy the outstanding balance of obligations secured by any junior liens or encumbrances in the order of their priority." The second mortgage holder would make a claim to the $50,000 above what was necessary to satisfy your obligation under the first mortgage. You might also have judgment creditors who have put a lien on your home that would have priority over you.

If there are no other creditors with a legal entitlement to the money, you can retrieve the excess proceeds from the foreclosure trustee. Feel free to contact us if you need further assistance.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

Deadline to Sue on a Personal Loan

Question: I made a personal loan to a friend of $3000 to help save their business. In the loan agreement, it stated that the money (plus interest) was to be repaid in six months. The due date has passed by eleven months, and I have not received one cent towards repayment. How much time do I have before I loss my right to sue for the money?

Answer: It sounds like you had a written promissory note. If the loan was made under a written agreement, you must sue within 4 years of the date that your friend breached the agreement. Your friend breached the agreement when the loan became due.

If the loan was a verbal agreement, then you have two years from the due date to file a lawsuit.

For $3000, you should sue in small claims court rather than hire an attorney.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

Business Travelers Beware: Free Wi-Fi Scam Strikes at Airports

This Better Business Bureau consumer bulletin is sponsored by San Diego Gas & Electric, a Sempra Energy utility.

In order to keep up in today’s world, a business needs to make sure its employees stay connected, even on the road. Many airports and other public spaces offer free wireless, or Wi-Fi, connections for the public to log onto the Internet from their laptop computers. The Better Business Bureau (BBB) warns that hackers are now taking advantage of this convenience and setting up fake Wi-Fi connections designed to steal your personal information and files without you even knowing.

How it works:

Although hackers can and have set up fake Wi-Fi connections in a number of venues, usually they will target consumers at airports. When searching for connections, consumers may see a network connection available that could be simply named “Free Wi-Fi.” Thinking it’s the free connection offered by the establishment, they’ll log on. Unfortunately, the network may actually be an “ad-hoc” network, or a peer-to-peer connection. The user will be able to surf the Internet, but they’re doing it through the hacker’s computer. And the whole time, the hacker is stealing information like passwords, credit card and bank account numbers, and social security numbers. Beyond simply stealing keystroke information as the user enters various types of data, if the PC is set to share files, the hacker could even steal whole documents from the computer.

Airports across the nation continue to report on Wi-Fi security issues. Officials in Atlanta, New York LaGuardia and Los Angeles airports have all reported the existence of ad-hoc networks advertised as free Wi-Fi connections. An investigation revealed that Chicago O’Hare had 20 ad-hoc networks present that were potentially designed with the intent of hacking into unsuspecting user’s computers and networks.

The BBB offers the following advice on how to keep yourself safe when you go wireless:

• Never connect to an unfamiliar ad-hoc network, even if the name sounds genuine. A hacker can change the name of his network to anything he wants, including the name of the legitimate Internet connection offered by the airport. Just because it has the same name as the Wi-Fi advertised in the airport, don’t believe it. For more information on how to distinguish between an ad-hoc network and a normal Wi-Fi network with Windows Vista or XP visit http://support.microsoft.com/.
• Make sure that your computer is not set up to automatically connect to non-preferred networks. Otherwise your computer could automatically connect to the hacker’s network without your knowledge.
• Turn off file sharing when you’re on the road to prevent hackers from stealing entire documents, files and unencrypted e-mail from your computer.
• Create a Virtual Private Network (VPN) for your business. A VPN establishes a private network across the public network by creating a tunnel between the two endpoints so that nobody in between can intercept the data. Many companies allow remote users to connect to corporate networks as long as they use VPN. This keeps the users' communications just as secure as if they were sitting at a desk in the building.

The BBB is here to help with advice you can trust. For more information on identity theft, fraud prevention, and keeping your company secure online, visit http://www.sd.bbb.org/.

Credit Counseling Versus Bankruptcy

Not all credit counseling agencies and debt reduction companies are created equal as described in a recent article I read called Risks of Using Non-profit Credit Counseling Agencies. Managing to qualify as a non-profit organization does not necessarily mean that the organization is free from corruption or greed. In a recent article, I wrote about a trend that I have recently observed where real estate agents tend to oversell the benefits of a short sale. I am seeing similar overselling of the benefits of credit counseling.

Every bank is required to notify the IRS when it forgives over $600 of your credit card debt. This forgiveness of debt may result in you owing thousands of dollars in back taxes, interest and penalties. If you need debt reduction, you can obtain the same result tax free in a Chapter 13 wage earner's reorganization. The big advantage that a Chapter 13 bankruptcy has over credit counseling and debt reduction companies is that the repayment plan is a binding court order and can deal with all of your creditors. Private debt repayment plans only bind the creditors that are willing to negotiate with you.

Some attorneys will go so far as to say that should not even consider hiring a debt reduction company until you get a guarantee in writing that the debt reduction will not result in back taxes owed to the IRS together with penalties and interest. Keep in mind that not all forgiveness of debt is taxable income. However, it is taxable to the extent the taxpayer is solvent or is rendered solvent by the forgiveness.

Like short sales, credit counseling and debt reduction companies are not a magic pill to save your credit rating and make your debt problems disappear. Credit counseling is an important service to help you regain control of your spending habits. However, the best what determine what is the most beneficial solution for your situation is to seek the advice of a competent attorney and a tax professional.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

Will Having a Line of Credit Harm My Credit Score?

Question: I am refinancing my house and the broker said I could get a home equity line of credit. Does this hurt me if I never use it or if I use it for an emergency?

Answer: Having too much credit can impact your credit score, but it all depends on your circumstances. How much credit you have is just one of many factors that impact you credit such as how much debt you have, your payment history and your employment history.

When you apply for credit, your ability to pay is one of the primary factors a lender will use in making a decision on whether to extend you credit. In terms of the worst case scenario, creditors will consider what might happen if you maxed out all of your available credit. I have seen creditors turn people with nearly perfect credit histories and no debt simply because they had far to much available credit.

If you have sufficiently available credit to get yourself in trouble, it might have an impact on your ability to get new credit for things like a new car or a new credit card. Before applying for credit, you speak with the lender about their underwriting standards to see if your line of credit might impact your ability to get a new loan.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.