Identity Theft Policy

SECTION 1: BACKGROUND.

The risk to the Law Offices of David W. Lima the ("law firm" or "firm"), it's employees and clients from data loss and identity theft is of significant concern to the firm and can be reduced only through the combined efforts of every employee.

SECTION 2: PURPOSE.

The law firm adopts this sensitive information policy to help protect employees, clients, contractors and the firm from damages related to the loss or misuse of sensitive information. This policy will: 1. Define sensitive information; 2. Describe the physical security of data when it is printed on paper; 3. Describe the electronic security of data when stored and distributed; and 4. Place the law firm in compliance with state and federal law regarding identity theft protection. This policy enables the law firm to protect existing clients and reduce risk from identity fraud. The program will help the firm: 1. Identify risks that signify potentially fraudulent activity within new or existing covered accounts; 2. Detect risks when they occur in covered accounts; 3. Respond to risks to determine if fraudulent activity has occurred and act if fraud has been attempted or committed; and 4. Update the program periodically, including reviewing the accounts that are covered and the identified risks that are part of the program.

SECTION 3: SCOPE.

This policy and protection program applies to employees, contractors, consultants, temporary workers, and other workers at the law firm, including all personnel affiliated with third parties.

SECTION 4: POLICY.

4.A: Sensitive Information Policy.

4.A.1: Definition of Sensitive Information.

Sensitive information includes the following items whether stored in electronic or printed format:

4.A.1.a: Credit card information, including any of the following: 1. Credit card number (in part or whole), 2. Credit card expiration date, 3. Cardholder name, and 4. Cardholder address;

4.A.1.b: Tax identification numbers, including: 1. Social Security number, 2. Business identification number, and 3. Employer identification numbers;

4.A.1.c: Payroll information, including, among other information: 1. Paychecks, and 2. Pay stubs;

4.A.1.d: Medical information for any employee or client, including but not limited to: 1. Doctor names and claims, 2. Insurance claims, 3. Prescriptions, and 4. Any related personal medical information;

4.A.1.e: Other personal information belonging to any client, employee or contractor, examples of which include: 1. Date of birth, 2. Address, 3. Phone numbers, 4. Maiden name, 5. Names, and 6. Client number;

4.A.1.f: Law firm personnel are encouraged to use common sense judgment in securing confidential information to the proper extent. If an employee is uncertain of the sensitivity of a particular piece of information, he/she should contact their supervisor.

4.A.2: Hard Copy Distribution. Each employee and contractor performing work for the law firm will comply with the following policies: 1. File cabinets, desk drawers, overhead cabinets, and any other storage space containing documents with sensitive information will be locked when not in use. 2. Storage rooms containing documents with sensitive information and record retention areas will be locked at the end of each workday or when unsupervised. 3. Desks, workstations, work areas, printers and fax machines, and common shared work areas will be cleared of all documents containing sensitive information when not in use. 4. Whiteboards, dry-erase boards, writing tablets, etc. in common shared work areas will be erased, removed, or shredded when not in use. 5. When documents containing sensitive information are discarded they will be placed inside a locked shred bin or immediately shredded using a mechanical cross cut shredding device. Locked shred bins are labeled "Confidential paper shredding and recycling".

4.A.3: Electronic Distribution. Each employee and contractor performing work for the law firm will comply with the following policies: 1. Internally, sensitive information may be transmitted using approved e-mail. All sensitive information must be encrypted when stored in an electronic format. 2. Any sensitive information sent externally must be encrypted and password protected and only to approved recipients. Additionally, a statement such as this should be included in the e-mail: "This message may contain confidential and/or proprietary information and is intended for the person/entity to which it was originally addressed. Any use by others is strictly prohibited."

SECTION 5: ADDITIONAL IDENTITY THEFT PREVENTION PROGRAM.

If the law firm maintains certain covered accounts pursuant to federal legislation, the law firm may include the additional program details.

5.A: Covered accounts.

A covered account includes any account that involves or is designed to permit multiple payments or transactions. Every new and existing client account that meets the following criteria is covered by this program: 1. Business, personal and household accounts for which there is a reasonably foreseeable risk of identity theft; or 2. Business, personal and household accounts for which there is a reasonably foreseeable risk to the safety or soundness of the law firm from identity theft, including financial, operational, compliance, reputation, or litigation risks.

5.B: Red flags.

5.B.1: The following red flags are potential indicators of fraud. Any time a red flag, or a situation closely resembling a red flag, is apparent, it should be investigated for verification. 1. Alerts, notifications or warnings from a consumer reporting agency; 2. A fraud or active duty alert included with a consumer report; 3. A notice of credit freeze from a consumer reporting agency in response to a request for a consumer report; or 4. A notice of address discrepancy from a consumer reporting agency as defined in sec. 334.82(b) of the Fairness and Accuracy in Credit Transactions Act.

5.B.2: Red flags also include consumer reports that indicate a pattern of activity inconsistent with the history and usual pattern of activity of an applicant or client, such as: A recent and significant increase in the volume of inquiries; An unusual number of recently established credit relationships; A material change in the use of credit, especially with respect to recently established credit relationships; or an account that was closed for cause or identified for abuse of account privileges by a financial institution or creditor.

5.C: Suspicious documents.

5.C.1: Documents provided for identification that appears to have been altered or forged.

5.C.2: The photograph or physical description on the identification is not consistent with the appearance of the applicant or customer presenting the identification.

5.C.3: Other information on the identification is not consistent with information provided by the person opening a new covered account or customer presenting the identification.

5.C.4: Other information on the identification is not consistent with readily accessible information that is on file with the law firm, such as a signature card or a recent check.

5.C.5: An application appears to have been altered or forged, or gives the appearance of having been destroyed and reassembled.

5.D: Suspicious personal identifying information.

5.D.1: Personal identifying information provided is inconsistent when compared against external information sources used by the law firm. For example: The address does not match any address in the consumer report; The Social Security number (SSN) has not been issued or is listed on the Social Security Administration's Death Master File; or Personal identifying information provided by the client is not consistent with other personal identifying information provided by the client. For example, there is a lack of correlation between the SSN range and date of birth.

5.D.2: Personal identifying information provided is associated with known fraudulent activity as indicated by internal or third-party sources used by the law firm. For example, the address on an application is the same as the address provided on a fraudulent application.

5.D.3: Personal identifying information provided is of a type commonly associated with fraudulent activity as indicated by internal or third-party sources used by the law firm. For example: The address on an application is fictitious, a mail drop, or a prison; or the phone number is invalid or is associated with a pager or answering service.

5.D.4: The SSN provided is the same as that submitted by other persons opening an account or other clients.

5.D.5: The address or telephone number provided is the same as or similar to the address or telephone number submitted by an unusually large number of other clients or other persons opening accounts.

5.D.6: The client or the person opening the covered account fails to provide all required personal identifying information on an application or in response to notification that the application is incomplete.

5.D.7: Personal identifying information provided is not consistent with personal identifying information that is on file with the law firm.

5.D.8: When using security questions (mother's maiden name, pet's name, etc.), the person opening the covered account or the client cannot provide authenticating information beyond that which generally would be available from a wallet or consumer report.

5.E: Unusual use of, or suspicious activity related to, the covered account.

5.E.1: Shortly following the notice of a change of address for a covered account, the law firm receives a request for new, additional, or replacement goods or services, or for the addition of authorized users on the account.

5.E.2: A new revolving credit account is used in a manner commonly associated with known patterns of fraud patterns. For example, the client fails to make the first payment or makes an initial payment but no subsequent payments.

5.E.3: A covered account is used in a manner that is not consistent with established patterns of activity on the account. There is, for example: Nonpayment when there is no history of late or missed payments.

5.E.4: Mail sent to the client is returned repeatedly as undeliverable although transactions continue to be conducted in connection with the client's covered account.

5.E.5: The law firm is notified that the client is not receiving paper account statements.

5.E.6: The law firm is notified of unauthorized charges or transactions in connection with a client's covered account.

5.E.7: The law firm receives notice from clients, victims of identity theft, law enforcement authorities, or other persons regarding possible identity theft in connection with covered accounts held by the law firm.

5.E.8: The law firm is notified by a client, a victim of identity theft, a law enforcement authority, or any other person that it has opened a fraudulent account for a person engaged in identity theft.

SECTION 6: RESPONDING TO RED FLAGS.

6.A: Once potentially fraudulent activity is detected, an employee must act quickly as a rapid appropriate response can protect clients and the law firm from damages and loss.

6.A.1: Once potentially fraudulent activity is detected, gather all related documentation and write a description of the situation. Present this information to the designated authority for determination.

6.A.2: The designated authority will complete additional authentication to determine whether the attempted transaction was fraudulent or authentic.

6.B: If a transaction is determined to be fraudulent, appropriate actions must be taken immediately. Actions may include: 1. Canceling the transaction; 2. Notifying and cooperating with appropriate law enforcement; 3. Determining the extent of liability of the law firm; and 4. Notifying the actual client that fraud has been attempted.

SECTION 7: PERIODIC UPDATES TO PLAN.

7.A: At periodic intervals established in the program, or as required, the program will be re-evaluated to determine whether all aspects of the program are up to date and applicable in the current business environment.

7.B: Periodic reviews will include an assessment of which accounts are covered by the program.

7.C: As part of the review, red flags may be revised, replaced or eliminated. Defining new red flags may also be appropriate.

7.D: Actions to take in the event that fraudulent activity is discovered may also require revision to reduce damage to the law firm and its clients.

SECTION 8: PROGRAM ADMINISTRATION

8.A: Involvement of management 1. The Identity Theft Prevention Program shall not be operated as an extension to existing fraud prevention programs, and its importance warrants the highest level of attention. 2. The Identity Theft Prevention Program is the responsibility of the law firm owner. Approval of the initial plan must be appropriately documented and maintained. 3. Operational responsibility of the program is delegated to David W. Lima.

8.B: Staff training 1. Staff training shall be conducted for all employees, officials and contractors for whom it is reasonably foreseeable that they may come into contact with accounts or personally identifiable information that may constitute a risk to the law firm or its clientss. 2. David W. Lima is responsible for ensuring identity theft training for all requisite employees and contractors. 3. Employees must receive annual training in all elements of this policy. 4. To ensure maximum effectiveness, employees may continue to receive additional training as changes to the program are made.

8.C: Oversight of service provider arrangements 1. It is the responsibility of the law firm to ensure that the activities of all service providers are conducted in accordance with reasonable policies and procedures designed to detect, prevent, and mitigate the risk of identity theft. 2. A service provider that maintains its own identity theft prevention program, consistent with the guidance of the red flag rules and validated by appropriate due diligence, may be considered to be meeting these requirements. 3. Any specific requirements should be specifically addressed in the appropriate contract arrangements.

Approved this 1st day of March, 2009.

David W. Lima

 

 

The Massachusetts Homestead Act and Bankruptcy

I. The Homestead - A Product of State Law

The Massachusetts Homestead Act allows a homeowner to acquire an estate of Homestead to the extent of $500,000 with respect to a homeowner's primary residence. This allows the owner to claim the first $500,000 of equity in his or her home above the mortgages that the owner has placed on the property. Homestead Declarations are for primary residences only and do not apply to vacation homes or investment property.

The following are exempt from the Homestead Law:

1. federal, state and local taxes, assessments, claims, and liens;

2. mortgages used to purchase the residence, and in the case of the Elderly Homestead, first and second mortgages held by financial institutions or others;

3. an execution issued from the Probate Court to enforce its judgment that a spouse pay for the support of a spouse or minor children;

4. upon an execution issued from a court of competent jurisdiction to enforce its judgment based upon fraud, mistake, duress, undue influence or lack of capacity;

5. debts contracted prior to the acquisition of the Homestead

There is also no protection for recovery of expenses for nursing home care paid for by the government.

Therefore, if you have a Homestead and you're in an automobile accident and your insurance is insufficient your home won't be exposed to the extent of $500,000. The same is true of dog bites, drowning in pools, slip and falls and professional liability claims. It is important to note, that Homestead protection is not a substitute for home insurance or any other type of liability insurance. These are separate and distinct types of protection. The Homestead protection will be effective after any liability insurance is used to pay for any judgments that are related to liability incurred under that particular insurance policy (e.g., home, automobile, etc.).

There are actually two sections of the Homestead Act. Under Section 1 all individuals may obtain a Homestead. Section 1A applies only to the elderly (more than 62) and disabled. A key difference between the sections is that Section 1A mentions obtaining a Homestead in manufactured mobile homes, while Section 1 does not. State courts have not yet interpreted whether the right to claim a Homestead in a mobile home is limited to the elderly and disabled. Also, Section 1 extends protection to the declarant's spouse and children, while Section 1A protects only the declarant's interest in the home. Where a Declaration is filed under Section 1, only one owner may file. Under Section 1A, all owners more than 62 should file a Declaration to protect their interests.

All Homesteads must be filed in the county in which the residence is located. To acquire a claim of Homestead for a mobile home under Section 1A, you must file at the city or town clerk's office in the city or town in which the mobile home is located. Massachusetts Homesteads are not automatic. A Declaration must be recorded to obtain Homestead rights.

II. Bankruptcy

In a MA Chapter 7 bankruptcy, which is an asset liquidation proceeding, a homeowner is allowed to claim certain exemptions which function as asset protection allowances. If a Homestead Declaration is in place, and the state exemptions are claimed, a homeowner would be allowed to retain a much greater portion of the proceeds from a liquidation sale of the home ($500,000) than she or he would be allowed to keep under federal bankruptcy law exemptions ($20,200). This factor in turn decreases or eliminates the possibility that the homeowner would be required to sell his/her home as part of MA Chapter 7 bankruptcy proceedings. The state exemptions in other categories are low compared to the federal exemptions. For example, the state automobile exemption is $700 and the federal $3,225.

The goal of a MA Chapter 7 bankruptcy is to wipe out ("discharge") your debts. In exchange for having your debts erased, you must give up all your nonexempt property to your creditors. You need only give up your nonexempt property. For most people, once the proper exemptions are applied, this amounts to nothing. In many cases, much or all of your property may be exempt. The debtor and their attorney elect to use state or federal exemptions prior to the MA bankruptcy filing.

If an individual has more property than can be protected by available exemptions, or their income is too high to qualify for a Chapter 7 case, or if they are delinquent in a debt secured by property they wish to retain, a Chapter 13 case can be filed. In MA Chapter 13 bankruptcy proceedings, the court will require a homeowner to repay some or all of the unsecured debt over a three to five-year period pursuant to a plan. The debtor is required to repay a percentage of that debt at least equal to that which the unsecured creditors would receive were a homeowner required to proceed under Chapter 7 liquidation regulations. By increasing the amount of the home's exemption, the Homestead Declaration decreases the proceeds which would become available for repaying unsecured creditors through the Chapter 7 alternative. This may decrease the percentage of the unsecured debt the homeowner would be required to repay through a Chapter 13 plan.

A MA Chapter 13 bankruptcy is much less attractive than a MA Chapter 7 filing since a Chapter 13 requires you to pay into a plan, whereas a Chapter 7 just wipes out your dischargeable debts without any payment. In most cases a Chapter 7 filing will be more advantageous. However, Chapter 13 does have many benefits. It can save your home from foreclosure, allowing you to satisfy unpaid mortgage or tax bills over time while your lender is demanding that you pay in one lump sum in order to stop foreclosure. Additionally, under the new bankruptcy law, Chapter 13 bankruptcy also stays on your credit report for three fewer years (7) than Chapter 7 does (10).

Remember that the Homestead Declaration protects a homeowner only from unsecured creditors. It will not offer protection from first or second mortgage lenders and/or equity lenders who possess a security interest in a home. If payments are not current on these types of secured credit, a homeowner runs the risk of losing the home to foreclosure proceedings. When delinquent in these debts, a Chapter 7 filing is not available unless the real estate will be surrendered. A Chapter 13 filing will stop foreclosure proceedings and implement a plan for the debtor to come current, thereby saving the property.

Given the high values of real estate in Massachusetts, the Homestead is of great value to bankruptcy attorneys as a tool to protect debtors. Debtors must choose between the federal bankruptcy exemptions and the exemptions arising under Massachusetts and federal non bankruptcy laws. This is a key decision that is made in consideration of the nature and value of the debtor's property and when it was acquired. There are provisions in the 2005 Bankruptcy Act limiting the state Homestead to $136,875 if the property was bought or otherwise acquired within 1215 days of the petition date. An addition might be considered an acquisition. There is an exception to the 1215 day rule in circumstances in which you buy a home in the same state and roll your equity into your new home. The trigger for reduction of the Homestead amount allowed in Bankruptcy is the date of acquisition of the property and not the date the Homestead is recorded. In re Lyons, 355 BR 387 (Bkrtcy. D. Mass., 2006).

III. Interpreting the MA Homestead

There is little state court case law construing the Homestead Act in Massachusetts. However, there have been a number of cases that have been decided by the Bankruptcy Court which makes rulings based upon what it presumes the Massachusetts Supreme Judicial Court would say if it were presented with the case. These federal court decisions are not binding on our state courts. These cases are the only guides available in the absence of state cases and they will be followed by other bankruptcy courts until the Massachusetts Supreme Judicial Court takes a contrary position. The Massachusetts Homestead Statute is poorly drafted and contains many ambiguities leaving many questions unanswered.

Bankruptcy Judge Henry J. Boroff recently expressed his frustration when he included dicta in an opinion that addressed a Homestead issue. He wrote: " This Court feels compelled to express at the onset it's growing frustration with the application of the Massachusetts Homestead Statute. While it is well settled that the statute's purpose is to protect the family home . . . the Statute's ambiguities have proven to be legion and its benefits 1) appear to be available only for those with the legal training or resources necessary to locate a registry of deeds and record what is, for a layperson, a relatively complex document, and 2) may be easily and inadvertently lost by statutory language and conditions that are hyper-technical and often counterintuitive." In re: Edward R. Szwyd, ----BR----- (Bkrtcy. D. Mass., 2007).

A. Pre-existing debts

The language of the Massachusetts Homestead statute says that it does not apply to debts existing before recording the Homestead. Therefore, one would believe it is important to file it as early as possible. However, one of the early bankruptcy court cases concerning Homesteads held that under federal bankruptcy law the Homestead did apply to pre-existing creditors. Federal law pre-empted state law. In fact, debts can be incurred over a period of years and a Homestead successfully utilized which is filed minutes before the bankruptcy petition. In Re Whalen-Griffin, 206 BR. 277 (Bkrtcy. D. Mass., 1997). (Court ruled that the federal bankruptcy laws preempted Massachusetts Homestead exemptions. Effect is to protect Homesteads from liens, even where debts are incurred prior to Homestead recording.) In Re Weinstein, 217 B.R. 5 (Bkrtcy. D. Mass., 1998) supports the decision in Whalen-Griffin and goes on to include both unsecured and secured pre homestead debt under bankruptcy protection.

Bankruptcy cases often involve a debtor who has a judgment lien against their real estate. The bankruptcy law provides that if the mortgages on the property and the exemption exceeds the value of the home, then the judicial lien can be "avoided" in whole or in part on a motion filed by the debtor. For example, if a home were valued at $790,000 and the home owner had mortgages on the property of $300,000, the court would avoid a judicial lien because the mortgage of $300,000 plus the Homestead of $500,000 totals $800,000 and, therefore, would be in excess of the value of the home. Any judicial lien on the property would be released by the Bankruptcy Court Order recorded in the registry of deeds. NOTE: I've found some bankruptcy attorneys believe the mere filing of the bankruptcy petition is sufficient to dissolve the lien. It is not. A conveyancer will require more. The motion must be filed, allowed and recorded.

Certainly, a different result would be reached by the Massachusetts appellate courts considering the order of recording the Homestead and a lien. A recent state trial court case, Walsh v. Yarossi, Mass. Land Court, December 5, 2006, held that a prejudgment attachment filed before a Homestead Declaration is a valid preexisting lien, negating the Homestead protection, even when the judgment is obtained after the Homestead.

B. Termination of the Massachusetts Homestead

A major cause of concern is the accidental termination of Homestead protection. The terms of the Homestead statute make clear the estate or claim of Homestead will be terminated upon the sale or transfer of the real property or mobile home during the declarant's lifetime, upon the death of the declarant and the remarriage of the declarant's surviving spouse and upon each child reaching the age of majority or by a release of the Homestead estate duly signed, sealed, and acknowledged by the owner and the owner's spouse, if any, and recorded at the Registry of Deeds, or when the property ceases to be the principal residence. In addition, the Bankruptcy Court has ruled that the filing of a subsequent Declaration of Homestead acts to discharge a prior Declaration.

It is unclear how other transfers might be treated under the state statute.

In the recent case of In Re Hildebrandt, 313 B.R. 535 (2004), an unmarried couple purchased a home and one of the two filed a Homestead Declaration. Thereafter, the person who did not file the Homestead transferred her interest in the property to the Homestead declarant. The Bankruptcy Court ruled that the transfer deed terminated the pre-existing Homestead. In this case there was an acquisition of an interest that caused the termination of the Homestead.

Existing state law on the effect of refinancing a mortgage on an existing Homestead is unclear. On August 31, 2004, Judge Henry J. Boroff, of the United States Bankruptcy Court for the District of Massachusetts ruled that the Homestead Exemption is subordinate to a mortgage. Real estate practioners always assumed that the exemption was subordinate to a pre-existing mortgage, but believed the Homestead otherwise remained valid when a new refinance mortgage was recorded after the Homestead. Judge Boroff clarified the law in this area by ruling that, in case of refinancing of a mortgage, the exemption will be rendered null and void. Essentially, as a homeowner, a Homestead Exemption is not valid after a refinancing unless you re-file it after the time of the refinancing, or otherwise reserve it at the time of refinance. In Re Desroches, 314 BR 19 (2004) (Homestead protection was denied where the mortgage was filed after an earlier Homestead Declaration and mortgage did not specifically reserve the debtor's Homestead rights).

Homesteads are often inadvertently terminated during estate planning changes. The estate planner must be careful in implementing a plan to not terminate the Homestead. Situations to consider include:

Selling or transferring of the property;

Selling or transferring the declarant's interest in the property;

Acquiring a new interest in the property, as was done in the Hildebrandt case;

Deeding the property including to reserve a life estate without reserving the Homestead exemption;

Filing a new Homestead Declaration;

Refinanced debt on the home.

C. Proceeds from Sale

In Re Cunningham, Not reported in BR, 2005 Bankr. LEXIS 2419, 2005 WL 3348861 (2005). Land subject to debtor's Homestead exemption was sold and the exemption applied to the sale proceeds. The debtor was able to keep the proceeds of sale.

D. Multiple Owner's Recording Homesteads (Stacking)

In Re Garren, 338 F. 3d 1 (2003). Debtor was not allowed to "stack" two Homestead exemptions in order to avoid judicial lien on his property. If fact, where one Homestead is recorded and another recorded immediately after it, only the second is valid, the first having been terminated by the recording of the second. It should be noted, multiple valid Homesteads may be recorded under Section 1A (Elderly/Disabled), but the value is still only $500,000.

E. Children of Declarant

In Re Vasques, 337 BR 255 (Bkrtcy. D. Mass., 2006). Daughter who co-owned residential property was member of same "family" as mother and therefore protected by mother's Declaration of Homestead without either the obligation or ability to file a Declaration of Homestead on her own behalf even though she was not a minor. The Court decided that the provision of the statute relative to minor children meant that Homesteads remain in effect after the death of a declarant-parent only while the children are minors, and that the provision had no other limiting effect.

F. Manufactured Mobile Homes

In Re Kelly, 334 BR 772, 2005 Bankr. LEXIS 2365, 2005 WL 3293309 (2005). Debtor may not claim a Homestead exemption, pursuant to MGL. Ch. 188, sec. 1, in a manufactured mobile home. Although MGL Ch. 188, Sec. 1A provides for such protection, Section 1 does not. The Court noted "The most persuasive argument that subsection 1 does not include a manufactured home, however, is the fact that subsection 1A does provide for such a Homestead." So only the elderly or disabled may have this right. Other Judges have disagreed.

G. Property in Trusts

In re: Edward R. Szwyd, ----BR----- (Bkrtcy. D. Mass., 2007). Property held in trust is not eligible for Homestead protection. Only individuals may claim a Homestead. The Court allowed the Homestead to stand in this case since the debtor was the sole trustee and beneficiary and no trust existed under Massachusetts law.

H. Owner-Occupied Multi-family Homes

As long as the property is the primary residence of the declarant a Homestead will be valid as to the whole.