California Bankruptcy Attorney Blog

As Rancho Cucamonga loan modification attorneys, we routinely work with homeowners who are forced by financial circumstances to consider loan workouts, short sales, deeds in lieu of foreclosure and other last-ditch financial moves. So we were interested to see an article on CNN.com Feb. 3 that explains one of the lesser-known repercussions of a foreclosure. As the article explains, a foreclosure or a short sale doesn't always end the homeowner's financial obligations. In many cases, lenders may still pursue the homeowners for the difference between what they owe on their loans and the sales price of the property. This is called a deficiency judgment, and it's achieved by suing the borrower in state court for the difference.

One woman in the article thought she was free of the debt after she was forced to short-sell her house. But about a year and a half after the sale, she received a notice saying the lender was holding her responsible for the $65,000 difference between the sale price and her loan. She couldn't pay, so she had to declare personal bankruptcy. This is not uncommon, the article said, thanks to falling home prices that make it next to impossible to sell homes for what they were worth a few years ago. In fact, lenders in many states can pursue people who let the home go into foreclosure, even if the lender knows the homeowner can't pay. In fact, state laws allow lenders to wait a few years to sue, until borrowers have gotten back on their feet financially. Whether a lender will pursue a deficiency judgment depends on the lender's own policies, the state the home is in and the types of loans involved.

As the article notes, California is a non-recourse state, which means lenders can't go after foreclosed borrowers under certain circumstances. Unfortunately, they're free to pursue deficiency judgments against foreclosed borrowers with refinanced loans and second mortgages, and those who made a short sale or deed in lieu of foreclosure. They're also free to sell those debts to debt collectors who will then go after the borrower. For our Anaheim loan modification lawyers, this means we must carefully analyze the possibility of a deficiency judgment in every case involving loan forgiveness. When necessary, we will aggressively negotiate for a legal document releasing clients from any further financial obligation after the transaction. In some cases, we can also defend clients in court against lawsuits trying to get money the borrower doesn't have and never did have through a deficiency judgment.

Continue reading "Some Mortgage Lenders Pursue Foreclosed Homeowners for Loan Difference" »

Part of our job as Riverside personal bankruptcy attorneys is to explain the ripple effects that our services can provide. At this time of year in particular, that means explaining the tax implications of a bankruptcy, loan modification or other major financial move. As a New York Times blog post set forth Jan. 29, taxes may look substantially different this year for people who underwent major financial changes in 2009. For many of our clients, this includes cashing out investments, having debt forgiven or losing a job.

People who settled debt without bankruptcy, were foreclosed on or had principal forgiven on a loan may be surprised to learn that the forgiven debt is taxable. That's because the IRS counts it as "income," even though a lack of income is likely what led to the debt forgiveness in the first place. There are several exceptions to this rule. Debts discharged in bankruptcy don't count as income. Thanks to a 2007 law, the federal government will also ignore forgiven debt that comes from a foreclosure or forgiven mortgage on your primary home, as long as it doesn't exceed $1 million for individuals and $2 million for married couples. However, this only applies in specific circumstances, so you should talk to a tax professional before making decisions. Finally, you can avoid paying taxes on forgiven debt if you can convince the IRS that you're insolvent, which means your debts exceed your assets.

Unfortunately, many of our clients who get into financial trouble make financial moves that will also complicate their taxes. Cashing out retirement savings, for example, will mean paying income tax on what you took out as well as a 10% penalty. Selling investments can qualify you for a capital gains tax. And unemployment insurance payments are taxable after the first $2,400. The plus side is that if you lost income in 2009, you will drop into a lower tax bracket. And very high medical expenses, which bring too many of our clients into our office, are tax-deductible under certain circumstances.

Our Lakewood consumer bankruptcy attorneys can't overemphasize the importance of understanding these rules before you file your taxes. Innocent mistakes may not be harshly punished, but by failing to take the steps needed to show you're insolvent, for example, you could be locked into higher taxes than you need to pay. Worse, you could end up in a tax debt situation that you'll need professional help to change. To make matters worse, recent debt to the IRS cannot be discharged in bankruptcy. When working with clients, we provide individual counseling about tax implications of bankruptcy and other financial moves. We also counsel clients on related matters, like discharging difficult debts like student loans or unpaid child support.

Continue reading "Financially Distressed and Bankrupt People Should Plan Carefully for Taxes" »

Our San Bernardino County loan modification attorneys have long believed that lenders' policies are primarily responsible for their success or failure in the federal loan-modification program. A Feb. 2 post on AOL's DailyFinance blog adds evidence to that belief by profiling practices at Ocwen Financial. Ocwen has attracted media attention because unlike the larger lenders, it's got a strong record in the Home Affordable Modification Program. Where Bank of America had converted fewer than 2% of its trial modifications to permanent and Chase had converted 4% as of mid-December, Ocwen had converted 40%. Its redefault rate is also about half of those at the larger banks. The DailyFinance blog concluded that policies in place at Ocwen made the difference.

According to the blog, Ocwen got its start by buying distressed loans, working with homeowners to sort them out and selling them once they increased in value. It has since shifted to loan servicing, but a company spokesman attributed its success to that background. Where larger lenders had to scramble to handle surging delinquencies, Ocwen already had resources allocated. Borrowers work with a single consultant, not whoever happens to answer the phone, and that consultant is chosen for specific personality traits. Ocwen also uses behavioral-science tricks to remind homeowners of their documentation responsibilities. For example, consultants are trained to remind borrowers that the federal government will accept only signed tax return documents as income verification. And perhaps most importantly, Ocwen is willing to modify principal in cases where it believes that's necessary -- about 15%.

As Fullerton loan modification lawyers, we suspect all of these are radically different from the way larger banks handle HAMP. While not every lender has the background and experience Ocwen has in loan workouts, it's not hard for any company to follow the policies and hiring practices outlined in the post. In particular, the policy of reminding borrowers what documentation they must submit seems very basic and sensible. Perhaps more difficult for the larger banks would be imitating Ocwen's willingness to cram down mortgage principal. Financial institutions are notoriously reluctant to do this, despite the multiple studies suggesting it's the best way to keep underwater borrowers from defaulting or walking away. Major banks may believe they cannot afford to do this, but Ocwen, a much smaller company than Bank of America or Chase, appears to be surviving it.

Continue reading "A Look at Why One Lender Has Succeeded in HAMP While Others Have Failed" »

As Upland consumer bankruptcy lawyers, we were pleased to see a recent article on the importance of timing a bankruptcy. The Kalamazoo Gazette reported Jan. 16 that experts, including individual bankruptcy attorneys like us, suggest that people headed for bankruptcy consider filing early, before their financial problems are overwhelming. This is how most people handle it, the article said, because most people do everything they can to avoid a bankruptcy in the first place. But if the bankruptcy seems inevitable, personal bankruptcy lawyers say it's better to protect your assets by taking action early.

According to the article, most people drain their savings, cash out their 401ks and IRAs and sell possessions to pay debts after they get into financial trouble. This is understandable, because bankruptcy is a major financial upheaval that stays on the filer's credit report for ten years. During that time, it will be harder for the filer to rent an apartment, get a loan or perform many other basic acts involving credit. Many people try to avoid bankruptcy because they believe it will leave them "nude," one attorney said, meaning without assets. But in reality, experts said bankruptcy can often preserve financial assets while providing a chance to start over. For that reason, attorneys said they wished bankruptcy filers would come to them months earlier, closer to when their financial troubles started.

Our Garden Grove personal bankruptcy attorneys strongly agree. The article doesn't make this explicit, but in many cases, consumers lose their assets needlessly while trying to avoid a bankruptcy. It's better to avoid bankruptcy if possible, of course, but some filers have debts so high that there's no other realistic way to handle the situation. When this is the case, we encourage potential clients not to sell off their assets or liquidate their savings before they speak to us. In a bankruptcy, many of the assets that people typically liquidate are protected, which means they will not be sold to creditors. These include retirement savings, a certain amount of home equity, personal possessions without much value and heirloom jewelry. By declaring bankruptcy early, filers can start over with these assets in place, providing a cushion they'll need as they begin to rebuild their finances.

Continue reading "Experts Say Declaring a Bankruptcy Earlier May Help Debtors Rebound Later" »

Because we are Corona consumer bankruptcy lawyers, we spend a lot of time talking to our clients about the effects of bankruptcy and other major financial decisions on their credit scores. Many of our clients have misconceptions about bankruptcy and credit that can keep them from addressing their financial problems until after a lot of expense and emotional turmoil. That's why we were pleased to spot a Jan. 28 blog post on WalletPop.com interviewing the co-author of a book on living with bad credit. Geoff Williams, who authored Living Well With Bad Credit along with Chris Balish, told his own story about declaring bankruptcy and addressed some of the ways that people end up with bad credit in the first place.

For some people, Williams said, bad credit or a bankruptcy is truly out of their control because it's triggered by a major financial disaster like a serious disease or a job loss. But for many others, he said, one mistake snowballs into several more mistakes made to deal with the first one. For example, he said, buying a car that's too expensive for your budget could lead to higher credit card debt or suspending contributions to a savings account. Signs that your credit is slipping can be difficult to spot, he said, and emotionally difficult to acknowledge. Williams said that while credit matters, bad credit isn't the ruinous, financially crippling situation many people fear. In fact, he said, filing for bankruptcy "was one of the smartest financial decisions I've ever made." Even though it hurt his credit, it helped him get control of his finances and resume saving for things like retirement and his daughters' college tuition.

As San Bernardino individual bankruptcy attorneys, we believe this is true for many individuals who are backed into a financial corner. Some people regard bankruptcy as a failure or a sign that they can't handle their own finances. But in the right situation, bankruptcy can be a smart choice that gives you back the power to control your own future. When you literally cannot pay back all that you owe and that isn't likely to change, trying to pay it off just delays the inevitable. Draining retirement accounts or selling off assets to pay debts are common strategies, but they frequently aren't necessary to declare a bankruptcy, don't solve the problem and leave people in worse financial positions than before. A bankruptcy isn't anyone's first choice, but it can be the first step toward rebuilding savings, credit and a healthy financial life.

Continue reading "Author Discusses Myths About Bankruptcy and Its Effect on Credit" »

Our Redlands debt collection abuse attorneys saw an increase in calls about aggressive debt collection in the second half of 2009. So we were not surprised by a Jan. 21 report in Collections & Credit Risk saying that Fair Debt Collection Practices Act lawsuits increased substantially between 2008 and 2009. The article called it a record high number, saying it more than doubled over 2007's total of 3,813. The statistics come from research firm WebRecon LLC, which provides data about consumer lawsuits to the collections industry.

The trend continued into the first half of January, with 319 FDCPA lawsuits filed between Jan. 1 and Jan. 15. The article offered explanations for the rise from ACA International, a trade group from the collections industry. According to its spokesperson, ACA did not believe the increase in lawsuits corresponds to an increase in actual abuses by the collections industry. It noted that the numbers don't show how many claims were dismissed. The spokesperson attributed the spike in part a rise in consumer debt and increased online advertising by consumer attorneys. However, the article said, other types of consumer lawsuits, such as those under the Fair Credit Reporting Act, have seen little to no growth.

We suspect this flat growth shows that increased advertising is not a factor in the rise in FDCPA claims. Our Placentia unfair debt collection attorneys handle both FDCPA and FCRA lawsuits. Purely from speaking to clients and potential clients, we believe that there are more FDCPA lawsuits because consumers are seeing, and reporting, more violations of that law. As more consumers are having trouble paying their debts in a bad economy, debt collectors are losing money. We suspect that this makes some of them so desperate to collect that they cross the line. The collections industry claims that the majority of its employees are law-abiding, but it's fighting an increasingly large number of media reports of outrageous behavior by debt collectors. If it wishes to eliminate this negative PR, it may have to take a harder stance against law-breaking than it has.

Continue reading "Report Says Individuals Filed Record Numbers of FDCPA Lawsuits in 2009" »

As Fontana loan modification attorneys, we were interested in a recent announcement that the federal government is changing important rules for its foreclosure prevention program. According to a Jan. 28 article in MarketWatch, participants in the Home Affordable Modification Program will have to provide income-verification documents at the start of the process, beginning in June. In return, lenders will be required to acknowledge receipt of the documents within 10 days and make a yes or no decision within 30 days. The goal is to speed up the process of converting trial modifications into permanent ones.

HAMP has been under fire recently because of repeated reports that most loan modifications have not been made permanent. As the Chicago Tribune reported Jan. 28, the Treasury Department reports that only about 7.3% of HAMP loan modifications have been made permanent. Federal officials say the new rules will hasten the process by eliminating confusion and delay about income documentation. Previously, borrowers were required to provide the documentation during their three-month trial periods. Some had income changes that slowed the process or didn't submit the right documents, while others reported that lenders gave them contradictory requirements or lost their documentation. The up-front documentation rule mimics rules at two of the lenders with the highest conversion rates, GMAC Mortgage and Ocwen Financial Corp.

Our San Juan Capistrano loan modification lawyers wish the new program well, but we're afraid it won't increase conversion rates significantly. A large part of the problem with loan modification conversion lies with the lenders' inability or unwillingness to process applications quickly and explain requirements clearly. We believe lenders behave in these uncharacteristically incompetent ways because they don't truly want to offer loan modifications. The new rules try to stop bureaucratic delays by setting deadlines for responses, but these are easy to get around or ignore, if that suits the lender's needs. To get real action, banks need a clear showing that modifying loans is in their self-interest, through either market forces or government intervention.

Continue reading "Treasury Department Announces Tighter Deadlines and Documentation Rules for HAMP" »

One of the most frustrating realities for our Moreno Valley fair debt collection attorneys is that many people don't understand their rights when dealing with collection agencies. That's why we were impressed by a lengthy article published in the Dallas Observer Jan. 20, about a man who understands his so well that he's actually made money from debt collector harassment. The article features Craig Cunningham, who has sued so many collection agencies that he's on an industry list of troublesome consumers. Cunningham, 29, considers himself a "private attorney general" whose lawsuits help correct illegal behavior by debt collectors.

Cunningham, an Army veteran and reservist, got into debt through ambitious investments that came crashing down when the real estate market crashed. Like many Americans, he began receiving harassing phone calls from debt collectors. But instead of hanging up or getting scared, Cunningham went online and began reading up on ways to handle the debt collectors. He learned about the numerous legal protections offered by the Fair Debt Collection Practices Act, which mandates certain behaviors by collection employees and forbids others. A similar Texas state law was even more friendly to consumers. The next time a debt collector called, he used a voice recorder to capture the employee illegally telling him things that weren't true. He sued that collector and won $1,000, then learned enough to file 15 more lawsuits, collecting a total of more than $20,000.

Another person who's made a career out of suing debt collectors told the newspaper that despite the collection industry's claims, "you can find violation in almost every collection attempt in America." As Westminster debt collection abuse lawyers, we think this is pretty close to the truth. The collection industry claims that debt collectors who use illegal tactics are a "rogue" minority, but clearly, there are enough to allow Cunningham and people like him to win multiple lawsuits. If the industry wants to avoid lawsuits from people who know their rights and use the law to their fullest advantage, all it has to do is avoid breaking the law in the first place.

Continue reading "Newspaper Profiles Consumer Who Repeatedly Sues Debt Collection Companies" »

Our Rancho Cucamonga loan modification attorneys have read scores of articles in the past year about the ineffectiveness of most anti-foreclosure efforts, public and private. A new study by state banking regulators and attorneys general confirmed that problem yet again, according to a Jan. 20 article from Dow Jones Newswires. The State Foreclosure Prevention Working Group reported that despite efforts from homeowners themselves, loan servicers and government agencies, foreclosures are likely to actually increase in 2010. The recommendations from the group, whose members include California Attorney General Jerry Brown, included a call for principal write-downs (or cramdowns) to decrease the chances of another default.

The report (PDF) is based on two years of data from 13 mortgage servicing firms. Most disturbingly, it found that only four in 10, or two-fifths, of borrowers in default were even involved in a "loss mitigation effort." As of the end of October 2009, there were 1.7 million borrowers who were at least two months behind in their payments. Meanwhile, in the year between October 2008 and October 2009, the number of loans in foreclosures jumped by 52%. The study also found that the proportion of prime loans in default increased 21% between 2007 and 2009. And more than 70% of loan modifications that are granted actually increase the principal owed, the report said, while only 9% of loans got a principal reduction reducing the balance by more than 10%.

As Fountain Valley loan modification lawyers, we're disappointed to hear that principal is actually added in so many loan workouts. Several studies, as well as common sense, show that negative equity increases the chances that the loan will go into default. It's quite clear by now that banks do not like principal reductions; lobbyists for the financial services industry fought tooth and nail against a proposal to allow mortgage cramdowns during bankruptcies. However, lenders may actually lose more than 10% in a foreclosure or bankruptcy -- and current policies seem designed to force one of those choices. If lenders and servicers are serious about keeping borrowers in their homes, it's clear that they should seriously reconsider principal cramdowns.

Continue reading "State Group's Report Says More Aggressive Effort Needed Against Foreclosures" »

As Riverside unfair debt collection attorneys, we were interested to read about the fallout from the bankruptcy of one of the largest debt collection law firms in the United States. As the Baltimore Sun reported Jan. 16, Maryland-based Mann Bracken was ordered by state regulators to cease operations earlier that week. The order was not entirely necessary; the law firm was already in financial trouble because an affiliated company that handles debt collection, Axiant, had filed for bankruptcy in November. The arrangement tied Mann Bracken's fortunes to an arbitration company called the National Arbitration Forum. That company was sued for consumer fraud by Minnesota's attorney general in 2009.

In fact, the Sun reported that the law firm's financial trouble may have started with the Minnesota lawsuit. The National Arbitration Forum was accused of conflicts of interest that biased its judgments in favor of the credit card companies that paid it. As part of the settlement, it agreed to stop handling consumer arbitrations. Axiant filed for bankruptcy four months later, and Mann Bracken blamed its financial troubles on that move. The firm was facing separate lawsuits and regulatory action accusing it of violating the Fair Debt Collection Practices Act and similar state laws. The firm's closure may dismiss those lawsuits, but it will also end tends of thousands of lawsuits filed by Mann Bracken against consumers. Experts told the newspaper that this was a victory for consumers, who may otherwise have ended up with legal judgments against them before they realized they had been sued.

Our Costa Mesa unfair debt collection lawyers don't exactly enjoy seeing another law firm fail -- but in this case, it may benefit consumers. As the Sun noted, Mann Bracken was under investigation, the target of multiple lawsuits and had a Better Business Bureau rating of F because of numerous accusations of unfair business practices. Closing the business will give valuable time to people who were being sued by the company. In any lawsuit, the person suing must notify the defendant. But shady debt collectors frequently fail to give notice, or find ways to ensure that notice isn't served quickly, because they will win automatically if the consumer doesn't appear and fight the case. This creates a default judgment that the unscrupulous debt collector may use to garnish wages or take property. Many victims don't realize this happened until it's too late to fight back.

Continue reading "Thousands of Debt Collection Lawsuits Dismissed by Collection Agency Bankruptcy" »

Our Ontario loan modification attorneys are not alone in believing that loan modification programs have not helped most homeowners avoid foreclosure. But we were interested to see a Jan. 19 article in the Wall Street Journal reporting that at least some analysts think it's helped stabilize the housing market anyway. The report from Barclays Capital says the federal Home Affordable Modification Program has helped reduce the number of foreclosed homes offered for sale, which has helped stop housing prices from sinking. This helped home prices bounce back a little in the past year, which has helped increase stability in the market, experts say.

Stabilizing housing prices and encouraging new buyers is not an official goal of HAMP, the article said. The official goal is to help borrowers in trouble keep their homes by reducing their monthly payments. The program is not considered a success, although the Treasury Department announced a small amount of progress Jan. 15. But Barclays Capital's analysis said HAMP has been successful at preventing an even steeper fall in housing prices by "buying time" for the housing market. The report said the market was flooded with foreclosed homes in 2008, which pushed prices down. But thanks to HAMP, foreclosure moratoria (like the one here in California) and other programs, the foreclosure process slowed and nearly 210,000 fewer foreclosed homes hit the market in November 2009, compared to a year earlier. Barclays Capital expects the number of foreclosures to peak again in spring or summer of 2010.

As Cerritos loan modification lawyers, we're glad that HAMP has helped slow down and possibly even reverse the fall of housing prices, which was particularly sharp here in Southern California. This should help keep some people out of foreclosure simply by leaving them equity in their homes, and hopefully start restoring more equity as prices normalize. But as this article notes, that's not the goal of HAMP, and progress toward its actual goal of preventing foreclosures has not been strong. Financial institutions have blamed government rules and borrowers themselves for this lack of progress, but media reports show that lenders and loan servicers behave like they don't really want to make loan modifications. But instead of saying so, they continue to take applications and ignore them, repeatedly lose them or deny them for spurious reasons.

Continue reading "Analysis Says Federal Mortgage Program Has Helped Prop Up Housing Prices" »

As San Bernardino County debt collection abuse lawyers, we were interested to read about the conclusion of a major enforcement action against an abusive collection agency. The Federal Trade Commission announced on Jan. 7 that it had settled with two individual employees of Academy Collection Service, Inc. The company itself and its owner, Keith Dickstein, had already paid $2.25 million to settle their part of an FTC lawsuit accusing them of using lies, threats and harassment to compel payments. The new settlement order is against employees Albert Bastian and Keith Hurt III, who oversaw the company's Las Vegas office.

The FTC lawsuit alleged that Bastian and Hurt participated in, or directed and allowed, debt collection practices that violated the Fair Debt Collection Practices Act and the Federal Trade Commission Act. According to a Jan. 14 column in the Washington Post, they and the other defendants in the case are accused of improperly calling debtors' neighbors, children and co-workers; calling at work after being told the employer wouldn't allow it; and making illegal and unauthorized withdrawals from victims' bank accounts. They also allegedly threatened victims with violence, arrest, legal action and wage garnishment, even though they couldn't legally do those things, or didn't intend to. The judgment fines Bastian $375,000 and Hurt $300,000. They were also barred by the court from engaging in the same illegal practices alleged in the lawsuit.

Our Garden Grove FDCPA attorneys are pleased to see the FTC taking major enforcement action against an abusive debt collector. That's especially important right now, because when the economy is bad, debt collectors get more desperate -- and some are happy to break the law. Unfortunately, far too many consumers don't realize that many of the practices the FTC mentioned are even illegal, so they never complain. In fact, the FDCPA restricts debt collectors from using a variety of unfair and deceptive practices, including calling someone other than the debtor, his or her spouse or attorney; calling constantly; threatening actions they can't legally take or don't intend to take; and using profanity. Collection agencies accused of these and other unfair practices can be sued and fined by the FTC, state regulators or individuals.

Continue reading "FTC Settles End of Largest-Ever Case Against Unfair Debt Collection Business" »

Our Fullerton debt collection abuse attorneys were pleased to see a recent article from debt collection industry publication InsideARM about federal action against debt buyers. The Jan. 11 article says the Federal Trade Commission, the agency responsible for enforcing the Fair Debt Collection Practices Act, has requested purchase and sales records from the nine biggest debt buyers in the U.S. The companies are not accused of wrongdoing. Rather, the FTC says it wants to better understand the debt buying industry, which has grown in recent years and is the subject of many consumer complaints. The debt buyers chosen by the FTC are the biggest in their industry, collectively representing about 75% of all debt purchased in the country.

Debt buyers are companies that purchase written-off debt from the original creditors and try to collect it. They are the focus of numerous complaints about harassment from consumers who say they are victims of mistaken identity; unproven debts; debts too old to collect; and violations of the FDCPA. A Scripps Howard newspaper investigation from 2009 showed that debt buyers frequently get incomplete or bad information, leading to incorrect collection attempts, lawsuits and damage to the consumer's credit score. The FTC said it was seeking to understand the industry better by requesting detailed information on the companies' sales and earnings; number of debt portfolios purchased; ages and types of accounts; and other information. Complying with this request is not optional, and debt buyers have until Feb. 25 to comply. A study may follow.

As Riverside unfair debt collection lawyers, we are extremely pleased to see the FTC shine a spotlight on the practices of debt buyers. As the Scripps investigation said, debt buyers don't always get the full information when they buy a debt. This can lead to mistaken identity, confusion about whether the debt was paid off and other mistakes. To make matters worse, some debt collectors are actively hostile when consumers point these mistakes out, believing they're lying to get out of paying what they owe. And particularly in this bad economy, some debt buyers are so eager to collect the debts that they're willing to break the law by harassing consumers, calling their workplaces, neighbors and family or even resorting to threats.

Continue reading "FTC Requests Information From Debt Buyers to Understand Consumer Complaints" »

Our San Bernardino County loan modification attorneyshave written here before about the problem of major lenders targeting racial minorities for expensive subprime or even predatory mortgage loans. This practice, known as "reverse redlining," is the subject of lawsuits against lender Wells Fargo by several municipalities, which claim it violates federal civil rights laws and destroys city neighborhoods. Now, the New York Times reported Jan. 14, the federal Department of Justice has launched a new campaign against unfair lending practices, to be part of its Civil Rights Division. Led by special counsel Eric Halperin, head litigator for the nonprofit Center for Responsible Lending, the new unit will investigate all types of unfair lending practices and file federal civil rights lawsuits when appropriate.

Reverse redlining is the practice of targeting minority borrowers for expensive "subprime" or even predatory mortgage loans. It is illegal under the federal Fair Housing Act, which bans practices that have a "disparate impact" on minorities. This is the legal theory behind the Baltimore and Memphis lawsuits, both of which accuse Wells Fargo of explicit and intentional reverse redlining, with supporting affidavits from former loan officers. An attorney who helped both cities said he hoped the new Justice unit would consider joining the cases. The Civil Rights Division has itself opened 38 investigations into reports of lending discrimination, and more may be coming. The Justice Department plans to analyze Treasury Department data to look for disparate impacts in loan modification decisions, and is also working with state attorneys general on subprime lending issues.

As Placentia loan modification lawyers, we are extremely pleased to see the federal government paying attention to fair housing laws. In fact, as one attorney in the article puts it, the Justice Department involvement in enforcing federal law may be overdue. Because we followed the subprime lending crisis closely, we know that minority communities have been particularly hard-hit by expensive, "exotic" and adjustable-rate loans. This may be particularly true here in Southern California, where unscrupulous lenders may take advantage of our large population of non-English-proficient immigrants. With this move, the federal government has signaled that it takes this issue seriously. We hope that discourages lenders from exploiting people on the basis of race.

Continue reading "Justice Department Opens New Division to Handle Lending Civil Rights Cases" »

As Chino bankruptcy attorneys, we already knew that foreclosure and bankruptcy tend to go together -- one tends to cause the other. The Wall Street Journal illustrated that correlation neatly in a Jan. 7 article juxtaposing personal bankruptcies in the "sun belt" with high foreclosures in those states. The national average increase in bankruptcies last year was 32%, the article said -- but above 50% in the Western states of Arizona, Nevada, California. Not surprisingly, these were also the states with some of the highest rates of foreclosure. Consumer bankruptcy lawyers told the newspaper that mortgage debt helped push some people into bankruptcy by cutting off home equity loans as a source of credit.

The highest bankruptcy rates don't correlate exactly with the highest foreclosure rates. For example, two of the most bankrupt states identified by the Journal were Utah (57% growth in individual bankruptcies) and Wyoming (58.3% growth), neither of which is consistently in the list of most-foreclosed states. And Florida, a heavily foreclosed state, saw its bankruptcies grow by 44.8%, compared to 79.6% in the national record-holder, Arizona. But in the West, states with the most personal bankruptcies tended to be the states that saw housing prices rise and fall to the greatest extremes -- Arizona, Nevada and California. One consumer bankruptcy attorney told the newspaper that his clients were almost always renters a few years ago. But now that prices and equity are falling, he said, more homeowners are forced to consider bankruptcy.

We're sorry to say that our Redlands bankruptcy lawyers see this trend ourselves. As the article notes, the housing crisis can cause bankruptcies by taking away financial tools like refinancing, selling the home or a home equity line of credit. Some homeowners may also file for bankruptcy as a last-ditch attempt to keep their homes out of foreclosure, after exhausting all of their other financial resources. But the reverse is also true: Financial problems that lead to bankruptcy can cause foreclosure even if those problems have nothing to do with the mortgage loan. This might be the case for homeowners who lose a job and can't find another quickly, or those who rack up high medical bills and exhaust their financial resources to pay them.

Continue reading "Western States With Highest Foreclosure Rates Also Had High Bankruptcy Rates" »