Consumer bankruptcy: Considering a potential career path for a post-recession conveyancer

Issue May 2014 By Michael Katin

The Great Recession confirmed an omen shared by many conveyancers during the real estate bubble that preceded it. The volume of work and income we were experiencing was too good to be real. Our concern quickly proved to be well founded as the recession devastated real estate values and precipitously reduced the need for our services. As the recession dragged on, those of us involved in providing legal services for home owners found ourselves counseling clients less on the legal aspects of purchasing, selling and financing home transactions and more about how to weather the financial woes of high mortgage payments on "underwater" homes. The situation intensified as clients and potential clients suffered under-employment and unemployment. We found ourselves struggling with the inability of secondary mortgage market lenders and loan servicers to effectively process short sales and loan modifications.

There appears to be slow improvement in the employment market, decreased bankruptcy and foreclosure filings and an increase in loan modification approvals. However, the financial media is beginning to opine that the various loan modification programs will fall short of their goals notwithstanding the increase in approvals. Although unemployment is beginning to decrease, many people returning to work are finding themselves under-employed and income growth relative to inflation remains stagnant. Many loan modifications now going into effect provide for graduated increases in the initially lowered interest rates along with increased monthly payments. As a result, it is very likely that the financial crises of a substantial number of individuals will remain unabated or recur.

These economic developments have coincided with the decisions in Real Estate Bar Association for Massachusetts, Inc. v. National Real Estate Information Services, et al, in 2011, U.S. Bank National Association v. Ibanez in 2012, Eaton vs. Federal National Mortgage Association in 2013, and the implementation of the Consumer Financial Protection Bureau regulations this year.

These changes in the economy, case law and consumer protection regulations will undoubtedly result in major sea changes in both conveyancing and consumer bankruptcy practices.

When I graduated from Suffolk University Law School 38 years ago, a residential real estate practice consisted of representing individual borrowers/buyers and sellers on a fee basis and conveyancing for local banks. The change of mortgage lending being provided primarily by large secondary mortgage market lenders with national outreach has increasingly required Massachusetts conveyancing practices to accommodate the national trends. The most apparent result of this accommodation is the reduction and even elimination of fees for traditionally fee based services (e.g., representation of buyers and sellers in connection with purchase and sale agreements) and rely on title insurance premium commissions for economic survival.

In the past, I focused my practice on the needs of individuals in purchases and sales of what was usually their most significant and important financial investment. As a result of the aforementioned trends, I am seeking ways to modify the way I can continue to focus on the legal services required by individuals relative to ownership of their primary residences. My personal preference is to continue devoting most of my practice to the personal legal services required by these individuals in lieu of developing a business model that would require changing my philosophy. Admittedly, this preference could mean that I am just an old dog unwilling to learn new tricks.

Although most of my career has been in the area of conveyancing, I had some mentoring by experienced bankruptcy attorneys shortly after my admission to the bar. This served me well when my practice included foreclosures for local mortgage lenders in the late 1980s and the recession of 1990-1991. Specifically, I found that I could successfully prosecute motions for relief from automatic stays. Although the need for conveyancing services rebounded in the 1990s and well into the new millennium, I retained an interest in bankruptcy and had begun to counsel clients who found themselves on the other end of foreclosures. Eventually, I began to file some consumer bankruptcy cases but it remained a very small part of my practice. I became reluctant to take on any new bankruptcy cases with the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCA). However, the improvement of bankruptcy software that simplified the statistical requirements of the BAPCA means testing coincided with the onset of the recession. I found myself with clients needing these services along with an improved capacity to process their cases. In doing so, I have not promoted myself as a "bankruptcy expert." Instead, I have made it clear that I am still a general practitioner with a lot of experience in real estate law and capable of handling basic consumer bankruptcy cases.

Consumer bankruptcies provide one important tool that home owners should consider when their continued ownership of their principal residence and/or investment becomes financially challenged. Going forward, I am hoping that I can make this area of the law a viable and compatible part of a practice focused on individual needs. Bankruptcy is a complex area of the law. Shifting toward an increase in handling these cases without past specialization is somewhat daunting. Members of the local bankruptcy bar, including the bankruptcy trustees and their staffs, have been very forthcoming with advice, providing a valuable supplement to traditional CLE. A national source of CLE and networking is the National Association of Consumer Bankruptcy Attorneys (NACBA). The fact that bankruptcy is exclusively federal, a national organization like the NACBA provides an abundance of helpful tools.

I truly appreciate the changes taking place in conveyancing. The need for new business models to accommodate those changes provides a great opportunity for new members of the bar to use their legal training in an entrepreneurial manner necessitated by the shrinking job market available to recent law school graduates. As I have alluded to in this article, it is a personal choice to modify my practice instead of completely changing its business model. In doing so, I hope to continue using the valuable skills we all acquire in this profession in the same manner and with the same philosophy that initially incentivized me to be an attorney.

Michael Katin, a resident of West Newton, has been a shareholder of Scheier Katin & Epstein PC since its founding in 1990. Katin is the chair of the Massachusetts Bar Association's Real Estate Law Section.