[CLBS] Reinstatement of mortgage

[Bart Green]

Holly, 

The test is whether the secured creditor received more than it otherwise would have received in a Chapter 7 liquidation without the payment. If the creditor is over-secured then the payment did not improve its position because the bank would have been made whole in a Chapter 7 and if the property were going back to the bank, even though the payment would fall within the 90-day reach back period for recovery of preferences as to an "outside" creditor. But I'd rather not be put in the position of having to make that argument. If the lender is under-secured then there was an improvement in its position and the payment would be subject to recovery by the trustee. But more to the point, why risk it? Have your client reinstate the mortgage, and then continue to make the regular monthly payments, within the ordinary course of business, wait until the $28,000 reinstatement payment is at least outside the 90-day preference period, including allowing sufficient time for it to have gone through the bank clearinghouse system so that the payment has cleared your client's account and has clearly been processed and credited by the lender to the loan account balance, outside the 90-day period, and then file the case. That is the safer thing to do. Filing too soon is simply putting a big target on your client and inviting the trustee to seek a way to recover the payment, either as a preference, or to get creative and make an argument that is was a fraudulent conveyance because the debtor was building up his exempt equity under the homestead exemption at the expense of his creditors, essentially converting a non-exempt asset to an exempt asset. I'd wait at least the 90 plus days to file. If I could wait more than six months, I'd wait at least that long, preferably eight months or longer. Remember what the Honorable Joseph J. Meier used to say, when he was in private practice and would be speaking at a seminar, prior to going on the bench: "Pigs get fat, hogs get slaughtered." 

Sincerely, 

Bart Green