Question/Answer for Assignments 1 and 2

1. I have a question in regard to exemption statutes.  The Wisconsin statutes state that a debtor can claim which property he wishes to claim as exempt.  Does that mean he can choose what the creditor can't take? 

For example, suppose the debtor owned two cars, both worth $4000.  Does the creditor choose which car he wants to foreclose on?  And then does the debtor say, "No, not that one!  I claim it as exempt."?  Then the creditor is forced to foreclose on the other car? If one of the cars is worth $6000, is there anyway the debtor can claim it as exempt and force the creditor to foreclose the other car first?

If the debtor had two cars, the debtor can choose which car to claim as exempt.  But as to the second question, recognize that if the value of the car was more than the exemption limit, the creditor could still force a sale of the car anyway (with the debtor just getting the exempt amount of the sale proceeds).  So if the debtor claims a $6,000 car as exempt but the exemption is only $4,000, then if the debtor picks that car as exempt, the creditor can still force a sale of that car.  The debtor does not have the right to force the creditor to go after totally nonexempt property first, before it goes after partially exempt property.

But if the debtor had two cars --- one a crummy $3,000 car and the other an even crummier $500 car, the debtor could keep the $3,000 car as exempt (the creditor would then only be able to force a sheriff’s sale of the crummy $500 car).

2. You said in class that the Missouri exemption law was less generous than Wisconsin's. How much less generous?

The statute is found at Mo. Rev. Stat. § 513.430. In Missouri, the debtor can claim the following as exempt:

3. Problem 2.3(b) on page 38 was something we didn't specifically discuss in class. If the O'Hurleys executed a deed in lieu of foreclosure and gave it to the Bank "with an understanding that [Bank] will give it back to them if they make up the back payments within 60 days, but otherwise [Bank] will record it," is that really a deed in lieu of foreclosure at all? Would the court recharacterize that deed as a sort-of modified mortgage?

Probably so. Bank might argue that there's technically no "debt" because the O'Hurleys no longer HAVE to pay back the money, they just "can" pay it back, as if it were an option, and that if there's no "debt," there can be no "mortgage." But that argument would probably fail. This would especially be the case if the facts suggested that (a) the O'Hurleys were remaining in possession of the home during the interim, and continuing to pay taxes and insurance and maintenance costs until then. It would also probably be the case if the facts suggested that the value of the home was more than the "back payments" the O'Hurleys were supposed to pay to catch up. In that case (i.e., if the back payments are $20,000 and the value of the home is $300,000), the O'Hurleys are practically obligated to pay the back payments if they can, in order to protect their equity, even if they aren't legally obligated to do so.

So in that circumstance, I think it is likely that the court would recharacterize the deed as a mortgage and would still require the Bank to foreclose it.

4. Could the Bank in Problem 2.4 get around foreclosure by having the borrower give a power of attorney allowing the bank to designate someone to execute a deed in lieu of foreclosure after the borrower defaults? Why wouldn't a power of attorney work?

It wouldn't work here for the same reason that a deed in escrow would not work — if the purpose of the power of attorney is to enable the lender to avoid foreclosure, and the power of attorney is exercised at the time the loan is made (before there's an actual default), then the power of attorney is just a clog on the borrower's equity of redemption and clogs on the equity of redemption are invalid.