California Bankruptcy Attorney Blog

As loan modification lawyers in Orange County, we frequently represent clients whose first language is not English, especially Spanish-speakers. In some of these clients' cases, we discover that they were given mortgage loan documents in English, despite conducting the entire rest of the transaction, including loan negotiations, in their native language. This is illegal under California's Foreign Language Contract Act. Furthermore, in many of these cases, switching the language at contract time allows the lender to sneak in contract provisions different from what the parties agreed to, or that were not discussed, in violation of the federal Truth in Lending Act and other consumer protection laws.

Howard | Nassiri LLP has already filed several lawsuits on behalf of clients in this situation, as have many of our colleagues. One of our colleagues recently reported a victory in such a case: A judge stopped a foreclosure on a San Diego County homeowner who was a victim of these bait-and-switch tactics. That client alleged that he was given loan documents in English after Spanish-language refinancing negotiations, but also that he was granted an adjustable-rate mortgage with an interest rate above 8% -- not the 5.94% fixed-rate mortgage he agreed to. He was never given a copy of these documents in Spanish. When the interest rate on this loan adjusted upward twice, the buyer could no longer make his payments. After consulting an Escondido predatory lending lawyer, he filed a lawsuit alleging illegal practices by his mortgage lender and won a preliminary injunction stopping the foreclosure.

This may be a nationwide problem. According to a recent article in the Orlando Sentinel, Latinos in Central Florida had an above-average number of the region's subprime and adjustable-rate mortgages. Latinos also had a disproportionate share of the highest interest rates. Those findings are reflected in a recent study by the Pew Hispanic Center showing that Latinos (and African Americans) were more than twice as likely as whites to get higher-priced loans. While the study's summary did not address the role of language, common sense, anecdotal evidence and our experience as Buena Park loan modification lawyers all suggest that when borrowers don't understand English well, lenders have an opportunity to mislead and exploit them using English-only documents -- which is precisely why the Foreign Language Contract Act exists.

Continue reading "Lenders Face Lawsuits From Spanish-Speakers Illegally Provided English-Only Loan Documents" »

As Santa Ana loan modification attorneys, we are keeping a close eye on the results of a meeting between loan servicers and top Obama Administration officials July 28. Called by a letter that the New York Times called an ultimatum, the meeting is intended to discuss problems with the Making Home Affordable loan modification plan. According to an analysis by the Center for American Progress, representatives from mortgage servicing companies will meet with officials from the departments of Housing and Urban Development and the Treasury to discuss why homeowners are meeting severe obstacles when they try to take advantage of the program. Making Home Affordable gives lenders financial incentives to grant loan modifications to homeowners whose income qualifies them; the administration had projected that 3 to 4 million homeowners could benefit.

In reality, the analysis said, there have been only 160,000 trial modifications this year under the program, during the same time period when lenders foreclosed on 1.5 million homes. As ABC News noted, it's not just the executive branch that's noticed the problems. After Congressional hearings on the frustrations homeowners have faced, Senator Chris Dodd (D-Conn.) asked the Obama Administration to investigate allegations that servicers have violated federal guidelines by charging homeowners advance fees for loan modifications; incorrectly telling them they must be in default before a modification; starting foreclosures despite the homeowners' participation in the program; and wrongly denying modifications to eligible homeowners.

As Rancho Cucamonga loan modification lawyers, we hear these and other complaints from clients who come to us after their attempts to negotiate their own modifications have met delays, excuses and bureaucratic slowdowns by their servicers. In fact, we strongly suspect that a thorough federal government investigation would turn up evidence showing servicers are not offering meaningful loan modifications simply because they don't want to. As we have noted on this blog before, servicers are nervous about losing money -- and even though a loan modification is cheaper than a foreclosure, tunnel vision or accounting tricks can make foreclosure look more attractive. As a result, millions of homeowners have been endlessly delayed or offered ineffective loan modifications by servicers that could easily afford the personnel and effort necessary for providing real modifications, but prefer to drag out the process for the sake of their balance sheets.

Continue reading "White House Meets With Mortgage Servicers to Discuss Delays and Legal Violations in Loan Modification Program" »

As Diamond Bar loan modification lawyers, we have known for some time that many of the loan modification companies that popped up in the past year are run by former mortgage brokers whose business has dried up. In many cases, these brokers are the same people responsible for selling thousands of subprime and exotic loans across Southern California -- raising questions about whether they can be trusted. On July 20, the New York Times ran an article that made the same point. As one broker-turned-consultant brazenly told the Times, "We just changed the script and changed the product we were selling."

The article focuses on Irvine-based Federal Loan Modification Law Center, a loan modification company started by several former employees and executives from subprime mortgage lenders and brokers. It was sued by the Federal Trade Commission in April for allegedly misleading and defrauding clients and is now defunct, unable to pay employees. Like other loan modification companies, the article said, employees at FedMod used their sales experience to convince panicked borrowers to hand over credit cards. Thanks to their experience, FedMod's founders also knew to hire an attorney, so that it could charge up-front fees that would otherwise have been illegal under California law. Former employees at the company described their colleagues as:

• Making up unrealistic success rates out of thin air
• Misleading clients into believing the company was backed by the federal government
• Misleading clients into thinking an attorney would work on their cases
• Promising interest rate reductions and loan structures they couldn't deliver
• Taking clients' money, then failing to turn over files for processing
• Publicly mocking clients' panicked voice mail messages

While our Murrieta loan modification attorneys do not believe that all former mortgage brokers or lenders are necessarily crooked, we're glad the Times is calling attention to the connection. Many mortgage brokers and lenders who sold subprime loans misled buyers and used pressure tactics to sell people loans they couldn't afford. Now that the housing bubble has burst and they are out of business, some of these same people are taking their questionable ethics into the loan modification business. Essentially, they are using industry experience and the same high-pressure sales tactics they used to sell mortgages to exploit people backed into a financial and emotional corner -- sometimes by them or their colleagues in the lending industry. Consumers looking for help with a loan modification should know as much as possible about these companies before they sign a check.

Continue reading "Mortgage Brokers Responsible for Subprime Loans Find New Work as Loan Modification Consultants" »

As Riverside County consumer bankruptcy attorneys, we already knew that bankruptcies were on the rise, thanks to the economic downturn. But a July 20 article at CreditCards.com put those numbers in an interesting perspective. According to an analysis of nationwide consumer bankruptcy filings, people are filing for bankruptcy protection at rates so high that they are almost approaching the high rates from the months before the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act took effect. According to the article, per-capita bankruptcy rates have increased in almost every state, and doubled or even tripled in some states.

The data comes from Automated Access to Court Electronic Records, a bankruptcy data company. It said Americans filed 5,593 bankruptcy petitions per day in the first half of this year. That number approaches the 6,339 per day filed in 2004, just before the reform law took effect, and vastly outpaces the 2,372 filings per day filed after the law in 2006. Experts expect 1.4 million filings throughout 2009, which would be a 35% increase over 2008 and approach the 2 million filings in 2005. Those interviewed in the article blamed the economic downturn, which has meant more unemployment and foreclosures and higher costs for many necessities.

This situation is remarkable to Rosemead bankruptcy lawyers like us because the 2005 bankruptcy law made it substantially harder for consumers to file for individual bankruptcy. The law instituted a strict and complicated test of the filer's income, higher filing fees, mandatory counseling and other onerous requirements. Experts on both sides believed this would make bankruptcy harder to get and more expensive, almost requiring help from an attorney. As a result, conventional wisdom says that bankruptcies should stay low, even in bad times. Instead, they're rising to levels near the 2005 peak. As a bankruptcy law professor in the article said, we believe this shows the extent to which the economic downturn has devastated ordinary people's finances.

Continue reading "Consumer Bankruptcy Filings Approach High Levels Seen Before 2005 Reform Law" »

As Glendora loan modification lawyers, we were pleased to see that California Attorney General Jerry Brown, 22 other top state prosecutors and the Federal Trade Commission announced sweeping lawsuits against loan modification scammers. According to a July 15 article from the Associated Press, the lawsuits name companies that allegedly took thousands of dollars from each client and did nothing to help them keep their homes. In all, the agencies filed 189 lawsuits against 178 companies. In California, the lawsuits named 21 individuals and 14 companies that allegedly cheated homeowners who were desperate to avoid foreclosure and the loss of their homes.

Brown, who is running for governor, described the defendants in these cases as "confidence men and charlatans." Among the defendants in his cases is Irvine's U.S. Homeowners Assistance, which is charged with collecting up to $3,500 each from borrowers, then providing no loan modification services. In that case, one defendant accuses the company of falsifying her signature and financial information on documents given to her lender. Another company, U.S. Foreclosure Relief of Orange, is accused of dodging customers' phone calls and failing to provide any services at all once it had collected payment. It made $4.4 million over nine months, according to the article. None of the California companies could be reached for comment.

As legitimate Long Beach loan modification attorneys, we work every day with homeowners who are in default on their mortgage loans and facing foreclosure. They're in that position because they don't have a lot of extra money -- including money to waste on thousand-dollar ripoffs. By taking the money of people desperate enough to trust them and walking away, these scam artists are not only exploiting victims, but also pushing them even closer to foreclosure. This ultimately depresses the economy and delays the recovery of the Southern California housing market, hurting everyone. More importantly, however, they are outright cheating thousands of people who trusted them in order to make a quick dollar.

Continue reading "Federal Trade Commission and State Attorneys General Sue Companies for Loan Modification Fraud" »

Our Orange County loan modification lawyers have been meeting with legislators and others over the past few weeks about two very important bills intended to protect homeowners from loan modification scams. Senate Bill 94 and Assembly Bill 764, both pending before the California state Legislature, would forbid anyone in the business of helping homeowners avoid foreclosure from taking fees before they do any of the work. The professionals targeted include attorneys, who would not be permitted to take retainers or other advance payment. This directly affects our work at Howard | Nassiri, and we are proud to say that we support both bills because we believe they would protect our clients as well as the integrity of our profession.

The bills were written after weeks of publicity about dishonest loan modification companies in California that take their clients' money and do little or nothing to help. In many cases, these companies were started by out-of-work mortgage brokers or other real estate professionals whose work had dried up with the housing bust. We're sorry to say that the scammers also included licensed attorneys who took on cases they didn't have the skills or experience to litigate, in order to make a quick buck. They would often then delegate the work to a non-lawyer who didn't understand the cases. As a result, the California State Bar reported that it was getting 800 to 1,000 calls per month about dishonest lawyers who took clients' money and did nothing -- just like the brokers.

We believe these laws would ultimately protect homeowners by taking away the easy profits that encourage the get-rich-quick crowd and the outright scammers to enter the loan modification business. In fact, even though the law would delay our compensation until the end of the case, we believe it would help honest law firms like us by discouraging competition from lawyers without the skills to actually help. Under the new law, our Encino loan modification attorneys will go back to the practice of filing lawsuits right at the beginning of cases, when appropriate, while also pursuing loan workout negotiations. That's something we only stopped doing as a courtesy to lenders, to allow them to work out loan modifications without the expense of hiring an attorney to do what they should have been doing all along.

Continue reading "Howard | Nassiri Supports California Bills That Would Forbid Lawyers and Others From Taking Advance Fees" »

Obama Administration officials are considering a new tactic to reduce foreclosures and curb the damage to the housing market, Reuters reported July 14. According to an unnamed administration official, the Treasury Department is considering a program that would allow homeowners to continue to rent their properties, even if they are foreclosed. The goal would be to stabilize the market and prevent foreclosures from taking a toll on neighborhoods and individuals. A spokesperson for the Treasury Department said it was just one plan under consideration.

The administration's Making Home Affordable plan, which allows refinancing for some and loan modifications for others, has not been as successful as planned. For a variety of reasons, the plan has helped only about 131,000 homeowners, a fraction of the millions who could have benefited. Because the rental plan is not final, no details were available, but Reuters cited the work of an economist who proposed a similar plan two years ago and been in touch with the White House. Economist Dean Baker suggested that banks foreclose on and resell the troubled homes but allow occupants to remain, paying a rent determined by a bankruptcy judge.

As San Bernardino County loan modification lawyers, we work every day with Southern California homeowners who are trying to avoid foreclosure. Through that practice, we've seen firsthand that lenders aren't interested in modifying loans, even given the incentives provided by Making Home Affordable. This plan wouldn't save people facing foreclosure, but it would address many of the problems created by foreclosure, including eviction, the blight on neighborhoods that results and the consequent loss of property values. And by doing that, it could help to stabilize home prices, reducing the number of underwater homeowners and attracting new buyers to the struggling market -- key goals for government officials all along.

Continue reading "Obama Considers Change to Foreclosure Prevention Plan That Would Convert Homeowners to Renters" »

People who are willing to prey on desperate homeowners continue to find easy pickings in California, the Los Angeles Times reported July 5. According to the newspaper, the California Department of Real Estate has seen its caseload of alleged scams rise from 10 in 2008 to more than 750 -- so far -- this year. Officials said part of the problem is the bad economy and the continued high rate of foreclosures, which is expected to increase this year. That creates homeowners who are desperate, and as California Attorney General Jerry Brown told the newspaper, desperate people do desperate things.

The article details the problems faced by Maricela Castellanos, a homeowner in Hesperia who fell victim to an elaborate loan modification scam. After her husband was laid off and they fell behind on their mortgage payments, she received a letter that looked like it was from her mortgage lender. It said she could sign up for a free program that would save her home by giving her a more affordable loan. She signed up right away and sent payments totaling more than $5,000. Months later, she was horrified to learn that the bank had never received those payments or heard of the program, and her loan was still delinquent. Some intermediaries have been convicted for their parts in the scheme, but authorities believe that the ringleaders are still at large and may have fled to Mexico.

As Lancaster loan modification lawyers, we're glad the media is keeping attention focused on the issue of loan modification scams. While some of these scams are easy to spot, others take people in because they look legitimate, using names and logos intended to look like they come from the government or the victim's mortgage lender. As a result, untold numbers of Californians continue to be taken in, sending money to crooks instead of using it to stay out of default or make ends meet. The California and federal governments are pursuing complaints and criminal cases against many foreclosure rescue scammers, but consumers should beware of any plan asking them to send money to someone other than their lender.

Continue reading "Mortgage Loan Modification Scams Continue Their Rise in California" »

An analysis by the Associated Press found sharply higher bankruptcy rates in states that allow debt collectors to seize debtors' wages, the AP reported July 6. The AP compared several years of bankruptcy filings between now and 2006, and compared them with other indicators of a bad economy, including foreclosures and unemployment. Its finding: In the five states that prohibit or sharply limit creditors' ability to garnish wages, bankruptcy filings are significantly lower than in neighboring states. That was true even in counties near state borders, where the economic climate is similar on either side.

The states that outright prohibit wage seizure by creditors are North Carolina, Pennsylvania, South Carolina and Texas. Florida prohibits wage garnishment for heads of households. Certain debts, such as child support, may still lead to wage garnishments in these states. According to the AP, the national bankruptcy rate is 42% higher than the rate in the states that do not allow wage seizure. Filing for bankruptcy automatically stops a wage garnishment, and according to the AP, just the threat or garnishment is enough to convince some people to seek bankruptcy protection.

The appeal of wage garnishment to debt collectors is easy to see. By taking a percentage of the debtor's disposable income before he or she can cash a paycheck, creditors get the first and best chance to be repaid. However, consumer bankruptcy lawyers and others interviewed by the AP said wage garnishments also push some people closer to bankruptcy by limiting their financial flexibility. Carri Grube Lybarker, an attorney for the state of South Carolina, said people who are struggling because of a one-time problem like a divorce can often recover financially and pay back debts if given the chance. In fact, she said, her state's limitations on wage garnishment give South Carolina debtors leverage in negotiations with creditors, sometimes allowing them to stay out of bankruptcy.

This analysis reflects the sad truth we've learned in our own practice as Highland consumer bankruptcy lawyers: Aggressive debt collection efforts drive people into bankruptcy. In addition to limiting debtors' ability to support themselves, wage garnishments and other invasive debt collection efforts can be so frightening or harassing that consumers feel that a bankruptcy is their only escape, despite the havoc it can wreak on their finances. Ironically, this can ultimately harm debt collectors, because many debts can be erased in a Chapter 7 or Chapter 13 bankruptcy -- which means the debt collectors and creditors won't get their money. In many cases, everyone involved may be better off allowing the debtor to work out a plan to repay the debt in full, but more slowly.

Continue reading "Study Finds Consumer Bankruptcies Are Lower in States Prohibiting Wage Garnishment" »

California Attorney General Jerry Brown has sued a Los Angeles loan modification attorney, alleging that he took thousands of dollars from troubled homeowners without trying to help them, the Recorder reported July 8. The lawsuit names former attorney Mitchell W. Roth of Sherman Oaks, who has resigned from the State Bar with charges against him, as well as business associate Paul Noe Jr. Noe is the president of United First, a Nevada company that allegedly found clients to refer to Roth. The men are accused of taking thousands of dollars in up-front fees and providing little or no help to clients. The lawsuit seeks to get clients their money back, $2 million in restitution and a court order prohibiting the men from working as foreclosure consultants in the future.

Roth was already in professional and legal trouble. His law offices were shut down in March, thanks to State Bar prosecutors, and he voluntarily resigned from the Bar in May. In January, a court declared him a "vexatious litigant" -- someone who abuses lawsuits -- and ordered him to refund fees to nine clients. In the lawsuit by Brown, the defendants are accused of charging $1,500 in up-front fees, at least $1,200 a month and contingency fees to homeowners for Roth's legal services. The men would then take no action, the lawsuit said, allowing foreclosures to go through while they collected checks. In addition to violating laws against fraud and foreclosure consulting scams, the men are accused of violating California professional ethics rules.

As Ontario loan modification lawyers, we are especially unhappy to see a loan modification scam involving one of our fellow lawyers. We believe our status as attorneys is one of our advantages over loan modification companies, in part because we are subject to regulations and ethics rules that are not paralleled in the real estate industry. In fact, some of the accusations facing Roth might not be faced by a real estate agent, and certainly not by an unregulated business consultant. The professional discipline that caused his earlier discipline and resignation from the Bar is also unique to attorneys. However, by abusing clients' trust and allowing that professional discipline to catch up with him, Roth has still hurt the reputations of all Los Angeles loan modification attorneys.

Continue reading "State of California Sues Loan Modification Lawyer for Stealing From More than 2,000 Homeowners" »

A new study by the Federal Reserve Bank of Boston confirms what our San Bernardino loan modification lawyers have thought all along: Mortgage lenders aren't really trying to grant loan modifications. According to a July 7 article in the Boston Globe, the New England branch of the Federal Reserve Bank concluded that banks avoid granting loan modifications because that means losing money. (The article did not specify how.) That's true even despite President Obama's loan modification program, which provides financial incentives for lenders to grant loan workouts. To stop the foreclosure crisis, the authors said, it would be more effective for the federal government to give payments or loans directly to struggling homeowners.

The study examined 665,410 loans made in the middle of this decade that subsequently became delinquent, and followed 150,000 homeowners for six months after they got help. It found that only 3% of borrowers behind by 60 days or more had loan modifications that actually reduced their monthly payments -- considered a good predictor of whether the loan modification will help. Another 5.5% of borrowers got loan modifications that did not lower their payments. It also found suggestions that loan modifications aren't right for all homeowners. A total of 45% of borrowers who got any kind of help re-defaulted during the study, while 30% of all delinquent borrowers are able to get out of trouble without help. The study also found no difference in the rate of loan modifications between loans sold to investors and loans owned by the issuer, suggesting that securitized loans are not the problem.

Study co-author Paul S. Willen, a senior economist at the Boston Fed, summed up the issue when he told the newspaper "Loan modification is not profitable for lenders. If it were profitable, they would go out and hire staff." This may seem like rather bitter logic to homeowners who have been struggling for weeks or months to reach their lenders, only to meet bureaucratic "delays" and "mistakes." As Chino Hills loan modification lawyers, we believe this is a cruel way to repay the trust of borrowers who genuinely believed they could save their homes by jumping through enough hoops. As Rep. Barney Frank, D-Mass., said in the article, it also prolongs the housing crisis -- which could eventually end up hurting banks that accumulate a catalog of unsold properties through foreclosure.

Continue reading "Study Finds That Mortgage Lenders Won't Grant Meaningful Loan Modifications Because They Lose Profit" »

A medical crisis can lead to financial ruin even for people who have health insurance, the New York Times reported June 30. The article highlights an important part of a study released in mid-June, which found that medical bills are responsible for the majority of bankruptcies -- and the majority of those medical bankruptcy filers had insurance. Against the backdrop of President Obama's attempt to reform the way the United States handles health care, the Times looked at one such bankruptcy filer.

Lawrence Yurdin of Austin, Texas, bought a limited-benefits health insurance policy through his employer. He also had an irregular heartbeat, a sign of potentially serious cardiac complications. When he had two heart procedures in 2008, the hospital estimated that his share of the cost would be a few thousand dollars. But when he put in the claim, he discovered that his $150,000 hospital benefit was mostly for room and board -- the health care that brought him to the hospital in the first place was not covered. In fact, according to the Times, Yurdin's insurance would have paid for months of bed and board, but not a lab test or surgery. On the advice of a bankruptcy lawyer, Yurdin and his wife have filed for bankruptcy protection.

As Azusa bankruptcy lawyers, we hear far too many stories like these. When the language of a health insurance policy fools even the hospital billing department, it's clear that the policy is not as clear and honest as it should be. The result is that thousands of Americans are driven into consumer bankruptcy filings each year -- and that number is growing. Although many people feel ashamed or reluctant to consider a bankruptcy, nobody chooses to get sick. When it happens anyway, and they don't have the comprehensive medical insurance they need to cover the cost, they should never be ashamed to protect themselves by speaking with a Los Angeles County bankruptcy attorney.

Continue reading "Three Quarters of People Bankrupted by Medical Problems Had Health Insurance" »

The New York Times ran an article June 28 with a twist on the same sad story about absurd bureaucratic delays for loan modifications: It told its story by following a Los Angeles loan modification company's employees. Just like many homeowners, these workers are finding that banks are creating a red-tape nightmare for people who are trying to avoid foreclosure by making a good-faith effort to change their home loans. The article relates that nightmare to the Obama Administration's foreclosure prevention plan, but as our clients and our Rowland Heights loan modification attorneys have found, the delays apply to all homeowners, regardless of whether they qualify for the plan.

The article follows an intern at an unnamed Los Angeles loan modification company. She calls Washington Mutual to check on the status of a customer's loan, only to be told that the documents have disappeared -- for the third time. Because the file is more than 30 days old, the representative tells her to send the paperwork a fourth time. Down the hall, another representative from Washington Mutual tells a second worker that a client's application was rejected because the file was incomplete, a charge the worker denies vehemently. And a third worker at the loan modification company asks GMAC Mortgage to remove an incorrect delinquency from the customer's status, placed there because their mortgage payments are being held as "loss mitigation fees" while their application is being reviewed. Loss mitigation says to call customer service; customer service says to call loss mitigation. When he objects, he is hung up on.

By now, these stories probably sound unhappily familiar to homeowners trying to negotiate a loan modification. As Cerritos loan modification lawyers, we hear stories like these all the time from clients who tried to get a loan modification on their own, only to be ignored, delayed, denied or endlessly transferred back and forth. In many cases, all the phone calls, paperwork and other efforts don't stop the lender's foreclosure process, which means that delays can actually cost the borrowers their homes. Frequently, this is when we step in. Our Murrieta loan modification attorneys negotiate these same issues with lenders -- but with the added weight of the law behind us.

Continue reading "'Paper Avalanche' Delays and Denies Loan Modifications to Struggling Homeowners" »

A June 28 article in the Los Angeles Times confirmed what our Riverside bankruptcy attorneys have been seeing for months: More and more people in Southern California are driven into bankruptcy by the threat of foreclosure or other mortgage loan problems. According to the Times, consumer bankruptcies nearly doubled between 2007 and 2008, giving our region the nation's highest jump in bankruptcy filings. The jump continued this year, with filings between January and April up 75% compared the same period last year. And legal experts, California consumer bankruptcy lawyers and bankruptcy filers all attributed the growth to the housing bust.

The article cited several reasons for this. Southern California has been walloped particularly hard by the foreclosure crisis, with home values taking an especially severe nosedive in the Inland Empire. A consumer bankruptcy filing instantly stops a foreclosure sale -- and for some filers, though not all, it can also eventually save the home. And some homeowners compounded their mortgage problems by funneling all of their incomes toward mortgage payments and depending on credit cards to pay other bills. When they reached their limits -- or had their credit yanked -- they ended up with more debt than they could pay off. Others likely got into debt because of medical problems, which a recent study says are responsible for 60% of bankruptcies.

As Palmdale bankruptcy lawyers, we'd like to go into greater depth about how and when bankruptcy can stop a foreclosure. For most people, there are two kinds of bankruptcy available: liquidation (Chapter 7) and reorganization/payment plan (Chapter 13). Because a Chapter 13 bankruptcy protects homes and forces creditors to accept a payment plan, it is generally considered the best choice for folks trying to stay in their homes and repay their mortgages. A Chapter 7 bankruptcy generally takes less time, but could result in losing your home. However, either filing can stop a foreclosure in the short term, giving our Fontana bankruptcy attorneys time to negotiate changes with loan servicers or reduce clients' debt obligations in other areas, freeing up income for mortgage payments.

Continue reading "Foreclosures and Mortgage Troubles Drive Trend Toward More Bankruptcies in Southern California" »

A short sale, often touted as an alternative to foreclosure that saves the homeowner's credit from ruin, could leave some homeowners on the hook for tens of thousands of dollars. The Puget Sound Business Journal (subscription) reported June 26 that Bank of America's home loan servicing department has quietly inserted language into its standard short sale contract that makes the seller liable for the difference between the loan's amount and the sale price. The change, the article said, could drive up foreclosures when financially strapped people are unable to pay the difference, which is typically five figures.

The article starts with the story of Mindy Moore of Edmonds, WA, who thought Bank of America would absorb the $30,000 loss on the sale of her condo. Because it will not, she still owes that money, which means she still faces foreclosure -- something a short sale is supposed to avoid -- or bankruptcy. Bank of America told the newspaper that it added the repayment requirement to protect investors and creditors from losses, but a short-sale consultant told the newspaper that the change could actually harm the bank by forcing it to keep foreclosures on its books. That could hurt the bank's bottom line and with investors, and eventually discourage buyers from pursuing short sales from the bank at all, since buyers could have their homes repossessed to satisfy the previous owner's debt.

As Corona loan modification lawyers, we are particularly interested in this issue because Bank of America now owns Countrywide Financial. During the housing bubble, Orange County-based Countrywide originated billions of dollars' worth of loans in Southern California, many of them subprime and now underwater. Though some of those homeowners are eligible for loan modifications under a legal settlement, many others could see their efforts to avoid foreclosure and meet their responsibilities through a short sale stymied by this contractual language. And the housing market as a whole will only be hurt by more foreclosures. The move doesn't even help the bank itself, as any losses it would have taken in the short sale would only be replicated by a foreclosure.

Continue reading "Bank of America Short Sale Contracts Leave Homeowners in Danger of Foreclosure or Bankruptcy" »