California Bankruptcy Attorney Blog

As Riverside County loan modification lawyers, we were interested to see an article predicting an increase in lawsuits against homeowners who lose their homes to foreclosures or choose short sales. The South Florida Sun-Sentinel reported May 23 that experts predict large numbers of lawsuits for the next few years. These would be lawsuits seeking a deficiency judgment -- a court order requiring the former homeowner to pay the balance owed on a loan that didn't get paid off after a foreclosure, a short sale or another action ending the loan payments. Experts say deficiency judgments will become more common as banks try to sell the foreclosed homes they've been keeping in reserve -- but homeowners who have moved on may not realize a lawsuit is coming.

Until the housing crisis, banks rarely sought deficiency judgments. Foreclosures were relatively rare and lenders didn't believe most borrowers had enough assets to make a lawsuit worthwhile. But now that thousands of homes are in foreclosure, observers are predicting that banks will change their practices. People interviewed for the article said the borrowers most likely to be targeted by lawsuits are those who walked away despite having the money to keep paying, and angry borrowers who trashed their former properties before they left. One foreclosure sales expert said banks aren't likely to go after people who genuinely couldn't pay -- but strongly recommended that borrowers get a promise not to sue in writing. An attorney pointed out that lenders can also sell the debt to debt collectors, who will then go after the borrowers with all of the same aggressive tricks they use for other types of collections.

The situation here in California is slightly different than it is in Florida, because we are what's known as a non-recourse loan state. A non-recourse loan is one that is not secured by anything but the collateral pledged. That means California mortgages are secured only by the home itself, which means that ideally, lenders shouldn't be able to pursue any assets of the borrower's after foreclosure. However, this applies only to the original purchase money mortgage. A refinance, a home equity line of credit and a judicial foreclosure could all turn the loan into a recourse loan, opening the possibility of a lawsuit. We strongly, strongly recommend talking to a Mission Viejo loan modification attorney if you believe you could be hit with a deficiency judgment. Ideally, in fact, homeowners negotiating a short sale or deed in lieu of foreclosure should have an attorney to help them get a written promise not to sue from the lender.

Continue reading "Experts Predict Flood of Lawsuits Against Unsuspecting Foreclosed Homeowners " »

Our Fontana loan modification attorneys were saddened to read yet another article about a homeowner who is in danger of losing her home because of the mortgage holder's gross mismanagement. The San Francisco Chronicle ran its May 25 Bottom Line column with the story of Kathryn Winogura, 49, of Lafayette. Winogura's husband died suddenly and unexpectedly in April of 2008 after suffering a brain aneurysm. He left behind two children, ages 9 and 14, and mortgage payments too big for Winogura to make with only her salary as a volunteer coordinator for a social services organization. She has been trying for the past 17 months to get a loan modification, but Wells Fargo at first delayed, then denied the modification. Now, she says, the family's home is scheduled to be auctioned off on June 10.

Winogura shared with the newspaper an email that she wrote to Wells Fargo & Co. CEO John Stumpf, in which she explained the events. She said she contacted Wells Fargo in November of 2008 to put the loan in her own name and see about a loan modification. Winogura said she has numerous letters telling her she was eligible for a loan modification and instructing her to wait for further instructions. Those instructions never came, but Winogura kept making partial payments as a show of good faith, for a total of $38,000 in 2009. Unfortunately, a Wells Fargo representative told Winogura in April that she was never eligible for a loan modification because the loan was in estate. To apply for the loan workout, she was told to pay off $53,500 in missed payments and late fees, then put the loan in her name. The bank employee admitted that Wells Fargo had been wrong initially about the loan modification, but said there was nothing to do.

The columnist contacted Wells Fargo, and the bank is working on a solution for Winogura's family. We hope this works out -- but as Gardena loan modification lawyers, we wonder how many other Kathryn Winoguras are out there. As this article shows, it takes only one unexpected health problem or accident to throw a family into financial uncertainty. Loan modifications are one way lenders can deal with situations like this -- but only if the lender is willing to take the application seriously. As this article and many others show, lenders have responded poorly to loan modification requests -- dragging their feet, losing paperwork and miscommunicating. Even if Wells Fargo hadn't been confused about Winogura's eligibility, 17 months is such a long delay that Winogura could be forgiven for assuming the bank had forgotten about her.

Continue reading "Widow May Lose Bay Area Home Because of Mismanagement by Wells Fargo " »

Our San Bernardino commercial loan modification attorneys have been writing all year about negative predictions for the U.S. commercial real estate market. So we weren't surprised to see a May 24 article from Reuters with more bad news about the likely course of the market for commercial mortgages held by banks, not counting mortgages on apartment buildings. The study by Real Capital Analytics predicts a record high number of defaults on these loans in 2010, with the peak number defaulting in 2011. The company predicts serious trouble for the banks that hold those mortgages, with defaults causing banks to lose so much money that smaller banks could be in serious trouble.

Real Capital Analytics said the rate of default on commercial mortgages in the first quarter of 2010 hit its highest level since at least 1992. That rate was 4.17% in the first quarter, or $45.5 billion, up from 3.83% in the fourth quarter of 2009. The 2011 peak is predicted at 5.4%. Like other analysts, Real Capital Analytics blames the bad economy, which has caused buildings' values to plummet, created high vacancy rates and lowered rents. One expert quoted in the article said leases signed a few years ago are expiring, and those tenants are likely to negotiate even lower rents, further depressing commercial real estate companies' ability to pay off their loans. About 50.2% of commercial loans were from small or mid-sized lenders, the study found, although the mortgage default rate at those institutions is lower than the default rate at bigger lenders.

As Irvine commercial loan modification lawyers, we've seen a version of this prediction before. Elizabeth Warren, the head of the Congressional Oversight Panel watching how the TARP "bailout" money is being used, predicted in late March that small to mid-sized banks could fail within the next year if they have "dangerous concentrations" of commercial loans that go into default. She also observed that the rate of underwater commercial loans is very high. In our experience, being underwater doesn't mean default is inevitable -- but it's a strong indicator that a default is coming. Many of the same conditions that create an underwater mortgage loan are conditions of a bad economy generally, which means owners of underwater loans are also dealing with less income with which to pay off that loan. And of course, owing more than the building is worth can drive some borrowers to walk away from the loan.

Continue reading "Study Predicts Record Number of Defaults on Commercial Mortgage Backed Securities" »

As San Bernardino personal bankruptcy attorneys, we were interested to see a recent study of indebtedness in major U.S. metropolitan areas. A report by Experian, one of the big three credit reporting agencies, found that Los Angeles metro area residents carry the least amount of personal debt of any of the cities studied. A May 13 article from U.S. News and World Report reported the study's findings, which used Experian's own data to calculate average debt per consumer in the top 20 major metro areas in the United States. The agency did not take mortgage debt into account. The resulting list is topped by Seattle, with $26,646 in debt per consumer, and bottoms out with Los Angeles, at $24,009 per consumer.

The national average for debt per consumer is around $24,775, the report said. Of the top cities on that list, 14 had higher averages than that. After Seattle, the top five included Dallas, Denver, Atlanta and Phoenix, in that order. The bottom five were Cleveland, New York, San Francisco, Miami and LA. In addition to San Francisco and Los Angeles, the list included a third California region -- the Sacramento metropolitan area. That area ranked slightly above the national average, with an average per-consumer debt of $24,826. A spokesperson for Experian cautioned readers that the amount of debt doesn't necessarily tell the whole story about how creditworthy cities and individuals may be. For example, she said, Seattleites may have high debt, but data shows that they typically make their payments on time and don't max out their credit cards.

Our Los Angeles County individual bankruptcy lawyers agree strongly that debt amount alone is not the whole story. A consumer with the "typical Seattle" features would likely have a higher credit score than someone with a much lower amount of debt, but who consistently made payments late. Furthermore, debt is not automatically bad. Without any debt, your credit score will also suffer, because credit reporters simply don't have information to work with. However, a large amount of debt certainly can be bad, when it exceeds or nearly exceeds the consumer's ability to pay it back. When we take a new client who is considering filing for bankruptcy, one of the first things we do, if the client has not already done it, is calculate the client's total debt. This helps us decide whether the client has a realistic chance of repaying it without a bankruptcy filing.

Continue reading "Los Angeles Ranks Lowest on Credit Agency's List of Cities' Debt Per Consumer" »

As Corona consumer bankruptcy attorneys, we were interested to see a recent piece on bankruptcy statistics from the Orange County Register's On Small Business blog. According to the May 18 post, statistics from the U.S. Bankruptcy Court put California among the states with the most people filing for bankruptcy per resident. The numbers track the 12 months ending at the end of this past March, during which time there were a record number of bankruptcy filings. Our state ranked eighth out of the top ten states, with 6.15 filings for every 1,000 residents. Not surprisingly for the nation's most populous state, California also had the largest sheer number of filings of any state.

The bankruptcy filing numbers include both individual and business filings, of all types. The state with the highest per-resident number of bankruptcy filings was one of our next-door neighbors, Nevada. It had 11.7 bankruptcy filings for every 1,000 residents. No other Western state was among the top 10. Tennessee, Georgia, Indiana and Alabama rounded out the top five, from most to least filings. Nationwide, the last year's data showed the highest number of filings since the year the bankruptcy reform law went into effect, with 1.47 million consumer filings and 61,148 business filings. Total filings rose 27% over the previous 12 months (those ending March 31, 2009). The biggest jump was a 65% increase in Chapter 12 bankruptcies over the 2008-2009 filings, which are for family farms and fishermen. But Chapter 7 consumer bankruptcies increased by 30% and Chapter 13 filings increased by 12%.

This news matches what our Cerritos personal bankruptcy lawyers have learned about bankruptcy filings from other sources in the past few months. Observers from places like the American Bankruptcy Institute predicted that last year would be a record one for post-reform personal bankruptcy filings, and some expect this year's filings to exceed that record. Analysts have also noted that the increase among consumers is largely in Chapter 7 "liquidation" bankruptcies, which means more filers are coming to bankruptcy without the substantial income that would push them into Chapter 13 bankruptcies instead. That is, Americans who file for bankruptcy are getting poorer, or at least tend to have less income than those who filed a few years ago. Not surprisingly, observers blame this partly on the bad economy and its high unemployment rates.

Continue reading "California Ranks Eighth in Top Ten States With the Most Filings for Bankruptcy" »

As Moreno Valley loan modification attorneys, we've long believed that banks' bureaucracy is a large part of the problem with the Home Affordable Modification Program. HAMP is the federal government loan modification effort intended to encourage banks to grant loan workouts to homeowners who meet certain financial standards. It has been under fire for most of its existence, in part because of banks' long delays, miscommunications and other problems that have kept it from helping more than a fraction of those the government believes are eligible. The Wall Street Journal's Developments blog, which focuses on real estate, zeroed in one the bureaucracy problem in a May 18 posting.

The post goes into further detail about Mia Parry, an Arizona homeowner featured in an accompanying article in the WSJ. Parry has been trying for almost two years to get a loan workout on her Phoenix home, which she says she needs because her income as a mortgage-brokerage manager dropped in the housing crash. Parry was originally turned down for a loan modification by her mortgage servicer, a unit of Citigroup, but decided to keep paying and try again when HAMP was announced. She was granted a HAMP trial modification last year... and then told she needed to do another. Then Citigroup told her that the owner of the mortgage wasn't participating in HAMP at all, so no modification could happen. Frustrated, Parry put her house up for sale, but only after draining her savings and incurring bank fees and stress. Further investigation suggests that Citigroup may not be right about the mortgage holder's policies.

The author writes that he wishes he could get Parry in a room with an executive at the mortgage-holding bank, rather than allowing Parry and others like her to be served by a revolving series of call-center employees who don't always get the story right. Implicit in this suggestion is the idea that the fundamental problem with loan modifications is bureaucracy. While our San Dimas loan modification lawyers agree that bureaucracy is certainly a culprit, our experience suggests that the problems go deeper. Banks' management might not be perfect, but it's generally good enough to keep the bank solvent and its assets secure. By contrast, lenders' behavior with loan modifications suggests that they're lucky to still be in business. We believe the difference is in the amount of profit banks expect to make. They are happy to devote resources and personnel to departments they believe will make money --but they think loan modifications are money-losers, so clients like Parry suffer through months or years of unnecessary stress.

Continue reading "Article Describes Bureaucracy at Heart of Problems With Residential Loan Modifications" »

Our Yucaipa unfair debt collection lawyers were interested to note a federal class action against an allegedly crooked debt collector. According to the Roanoke Times and Courthouse News Service, a Virginia man has filed a proposed class action lawsuit against three related debt collection companies for multiple violations of the Fair Debt Collection Practices Act. Johnny Quesenberry alleges that Asset Acceptance Capital Corp., Asset Acceptance LLC and Genesis Financial Solutions are misleading consumers into reactivating old debt, allowing the debt collectors to restart collection efforts on debts that were previously uncollectable because of their age or because they had already been discharged by bankruptcy.

Quesenberry's claim says the companies run a scam by offering credit cards or debt arbitration programs. They tell consumers that if they sign up for these programs or the Pearl Card Gold MasterCard, any debt they transfer to the program or card will be uncollectable. In fact, the agreement for the programs does allow collection actions. Furthermore, putting old debts on the card or into the program restarts the statute of limitations on the debt, which means debt that was previously too old or settled in another way can become active again. In this way, the companies can collect on debt that consumers don't actually owe. Quesenberry requested an injunction against the companies to stop this behavior, as well as unspecified financial damages and attorney fees. He proposes to include among the plaintiffs every Virginian who received such an offer.

As Colton abusive debt collection attorneys, we wish Quesenberry and his co-plaintiffs luck. This type of scam -- if his allegations are true -- takes advantage of consumers who don't understand how statutes of limitations on debt work. A statute of limitations is an expiration date, after which someone can no longer be sued. In the case of consumer debt, the consumer can no longer be successfully sued to collect a debt after the state's statute of limitations runs out. Collection agencies are free to request payment, but because they have no means of enforcement, consumers can ignore those requests. Unfortunately, if consumers do make another payment or take any other action with the account, even a promise to pay, they can restart the statute of limitations, meaning debt collectors are free to sue them. That's exactly what the Asset Acceptance companies are allegedly doing with this scheme -- enticing consumers with uncollectable dent into making it collectable again, ironically by promising them it will be uncollectable.

Continue reading "Proposed Class Action Lawsuit Claims Debt Collectors Mislead About Credit Card Offers" »

As Upland bankruptcy lawyers, we were interested to see a pair of recent postings on the Wall Street Journal's Real Time Economics blog. The first of the posts said consumer bankruptcies were actually lower in April than they had been in March, suggesting a slowdown in the record pace of bankruptcies in 2009 and 2010. Perhaps even more interesting was the second post, however, which pointed out especially high rates of bankruptcy in Western states including California, Arizona and Nevada. Not surprisingly, the post pointed out that many of these states are the same states that have taken particularly hard hits in the housing downturn.

The bankruptcy rate information comes from the American Bankruptcy Institute, which said there wee 144,490 personal bankruptcy filings in April. That's down 3% from the number of filings in March of 2010 -- but it's still up 15% from April of 2009. That year set new records for its amount of bankruptcy filings, which were the highest since the bankruptcy reform law passed in 2005, and an ABI spokesman predicted similar or higher numbers in 2010. Thus far, bankruptcies in the first four months of 2010 are 17% higher than the same period in 2009. The states with the highest rates of bankruptcy filings were California, Arizona and Wyoming; the second-highest tier included Nevada, Florida, Maryland and Massachusetts. Surprisingly, the Journal reported that Tennessee, Alabama and South Carolina actually saw drops from April 2009's bankruptcy filings.

Our Fountain Valley bankruptcy attorneys are disappointed by this information, but not necessarily surprised. The correlation between states with troubled housing markets and states with high bankruptcy filings is not exact, but it's close enough to suggest that bankruptcies and mortgages are connected. In our work, we are sorry to say that we sometimes see clients whose mortgage problems led to other financial problems, as they overextended themselves to keep making unreasonably sized mortgage payments. More and more these days, we're also finding the opposite to be true: financial problems such as a layoff or loss of business are leading more and more people to trouble making mortgage payments.

Continue reading "Consumer Bankruptcies Slow in April But Remain High in Western States" »

As Fontana consumer bankruptcy attorneys, we had reservations about the 2005 bankruptcy reform bill before it even passed. Now, a new paper from a team of three economists -- two in California -- argues that the Bankruptcy Abuse Prevention and Consumer Protection Act actually pushed more homeowners into default on their mortgages. By raising the cost of filing and reducing the amount of debt ultimately discharged, the paper says, bankruptcy reform limited filers' options. The paper was published this month by the National Bureau of Economic Research and written by Wenli Li of the Federal Reserve Bank of Philadelphia, Michelle J. White of the University of California at San Diego and Ning Zhu of the University of California at Davis.

Fox Business senior economist Mark Lieberman discussed the paper at length in a May 10 article. According to that piece, the reform law itself created 159,000 defaults for mortgages made in 2004 and 2005; the "means test" imposed by the law created an additional 36,000 defaults for the same time period. The means test is a standard that filers must meet to file for Chapter 7/liquidation bankruptcy; those who don't pass the test can only choose Chapter 13/payment plan bankruptcy. The authors said default rates rose by 14% among prime mortgages and 16% among subprime loans, even before the housing crisis -- suggesting that reform may have worsened the crisis. Among the changes the law made that they said contributed to the problem were the means test, a higher cost to file for bankruptcy and a new cap on the "homestead exemption" that protects the filer's home equity.

In essence, the authors wrote, that cap made bankruptcy less attractive by making it more likely that filers would have to give up their homes. The means test also hurt homeowners by forcing more into Chapter 13, and increasing the assets Chapter 13 filers were required to use to repay debts. In addition, higher filing costs discouraged some from filing at all. Reform generally reduced the amount of debt discharged in bankruptcy, the authors wrote, which had a negative effect on their ability to pay their mortgages. Even when the mortgage payment itself was not affected, they said, being obligated to pay more toward unsecured debts, such as credit card debts, took away money that could otherwise be paid toward a mortgage.

Our Orange personal bankruptcy lawyers remember some of these criticisms being made before the law passed. Of course, no one in 2005 was predicting the mortgage crisis as it currently exists, but many of our colleagues in bankruptcy law predicted that the means test would push more people into Chapter 13. In fact, this provision of the law was more or less designed to do so. The authors of this paper say the greater rate of mortgage defaults was an "unintended" consequence of the reform law, and they are probably right. But we always thought the authors of the law, who worked closely with the credit card industry to develop it, intended to make bankruptcy filing less attractive, more difficult and less financially advantageous. In that sense, financial distress among filers and likely filers is not exactly a surprise.

Continue reading "Economists Argue 2005 Bankruptcy Reform Contributed to Mortgage Crisis" »

Federal rules could change the bleak landscape for commercial real estate investors who are currently underwater, Inside Tucson Business reported May 7. Our Ontario commercial loan modification attorneys were extremely interested to read about this underpublicized rule, which could make life easier for owners in the troubled CRE market. According to the article, a joint policy statement was issued in October and reissued in February by the Federal Reserve Board, the FDIC and other federal regulators. It says borrowers in a "deteriorating financial condition" who are still current on loan payments and willing to repay their loans should still be considered creditworthy borrowers. And as creditworthy borrowers, the statement said, they should not be subject to "adverse classification solely because" they are underwater.

An increasing number of CRE owners are underwater, which means their loans are worth more than the value of their buildings. Earlier this year, Elizabeth Warren, the chair of the Congressional Oversight Panel watching the financial industry "bailout," predicted that half of all U.S. CRE would be underwater by the end of this year. This is a problem, the article noted, because lenders can generally demand repayment when loans dip underwater. That can cause serious problems for borrowers who are losing rental or lease income in the recession. Experts said the rule should stop lenders from writing down loans solely because of the buildings' appraisals, which banks may do because it allows them to add to their cash reserves. However, multiple experts added that banks have generally been ignoring the rule, foreclosing or demanding full payment from borrowers who are still making payments on time.

As Santa Ana commercial real estate loan modification lawyers, we're disappointed but not surprised to see so many people with the same complaint about lenders' behavior. In our experience, lenders have repeatedly placed their short-term financial needs ahead of the most sensible long-term goal, as well as the needs of their clients. We saw this in the residential real estate crisis, in which foreclosures soared despite the financial losses and maintenance obligations they created for banks. Now, we're seeing lenders in the commercial arena foreclose on viable loans. The article suggests that this is motivated by lenders' need to liquidate their assets. By demanding repayment, lenders force properties into default or siphon all of the capital out of the investors who still have it. They also take on yet another foreclosure at a time when CRE prices are very low.

Continue reading "Experts Say Federal Policy Could Stop or Slow Commercial Real Estate Foreclosures" »

As Riverside County loan modification lawyers, we have continued to follow the downfall of former mortgage lender Countrywide Financial. Based in Calabasas, Countrywide was a leading writer of subprime and exotic mortgages until the housing crash, when it nearly collapsed before Bank of America bought it. Since then, it has settled several lawsuits claiming it followed unethical lending practices related to subprime loans. On May 7, Reuters reported that Bank of America's Countrywide division has also settled a lawsuit by investors, who claimed the company deceived them about the level of risk in the loans it issued. The case, in Los Angeles federal trial court, was slated for trial in August.

The plaintiffs were led by the New York State Common Retirement Fund, one of several pension funds involved. They said they were deceived by Countrywide's public statements about its risks as a lender, including public assurances that it would survive the housing downturn. In fact, it collapsed in late 2007, setting the stage for Bank of America's takeover announcement in January of 2008. During the height of the boom, Countrywide made one out of every six housing loans, but relied heavily on subprime and option adjustable-rate mortgages that carried high risks but allowed fast growth. Countrywide admits no wrongdoing in the settlement, which would compel payments of $600 million from Countrywide and another $24 million from KPMG LLC, its auditor. This would be the thirteenth largest class-action settlement since a 1995 overhaul if it is approved.

Our Temple City loan modification attorneys don't work in securities law -- we work with homeowners who need help negotiating a fair and timely loan workout. But because we keep an eye on California real estate matters, we're not surprised that investors were successful in this case. Former Countrywide CEO Angelo Mozilo and other executives are defendants in a separate securities lawsuit brought by the SEC, which accuses them of insider trading as well as misleading statements about the company's help. In particular, Mozilo is accused of admitting in a private email that Countrywide was "flying blind" about loan safety, then unloading stock options in 2006 and 2007, while the company's stock still had value. This is the same profit-driven behavior that caused Countrywide to sell loans to people they knew couldn't pay them back, target minorities for subprime loans, misinform borrowers and engage in other illegal, unethical practices.

Continue reading "Countrywide Settles Lawsuit Saying It Misled Investors About Loans' Safety" »

Our San Bernardino abusive debt collection attorneys were interested to see a recent article about a collection agency that has come under fire in Minnesota for a second time. According to a May 2 article from the Minneapolis Star-Tribune, Minnesota Attorney General Lori Swanson has asked Afni, Inc., an Illinois debt buyer, to cease all collection efforts in Minnesota until it can identify which debts it bought from phone company Qwest are valid. The request, which affects about 100,000 accounts at Afni, comes in response to a "significant amount" of complaints, Swanson's office said. The complaints included charges that Afni is collecting on "zombie debts" that Qwest has already written off because they had been paid or the debtor was incorrectly identified.

That's what Travis Welk, a 30-year-old Minneapolis man, says happened to him. Welk told the newspaper he was contacted by Afni about debt that he was already told he didn't owe -- eight years ago. The debt apparently stems from a call Welk made in 2001 to price Internet service. He didn't commit to buying it, but Qwest sent him a modem anyway and began charging monthly fees. He returned the modem right away and explained the mistake, but the bills didn't stop and eventually went into collections. After negotiating with a previous bill collector, Welk received a letter in 2002 saying the account was "paid in full"; he says that company told him the collection effort was an error. This year, he got a letter from Afni about the same debt. He said he was frustrated that he'd spent so much time correcting someone else's mistake.

Swanson's office noted that the statute of limitations on debt is six years in Minnesota -- meaning debtors can't be sued after that -- and that debt collectors may not report debts to credit agencies after seven years have expired. That means the debt Afni was trying to collect from Welk is "zombie debt" that the company was trying to resurrect after the end of its natural life. As Carson debt collection harassment lawyers, we've seen many cases like these in the course of our work, in which collection agencies try to collect on a debt the consumers no longer legally owe -- if they ever owed it at all. This strategy relies on consumers to not understand their rights and instead react out of fear. If it is done with the knowledge that the debt is invalid, it is a violation of the Fair Debt Collection Practices Act. If it is a mistake, the debt collector still must verify the debt on request, or it violates the FDCPA.

Continue reading "Minnesota Attorney General Takes Action to Stop Collection of 'Zombie Debt'" »

As Riverside consumer bankruptcy attorneys, we were extremely pleased to see that Congress is considering overhauling the way private student loans are treated in bankruptcy. As The Chronicle of Higher Education reported April 22, Congress is considering legislation that would allow people to discharge their private student loan debt more easily during a bankruptcy. Similar bills were introduced in the House and Senate in mid-April by Democratic lawmakers. In doing so, the lawmakers may have been acting on behalf of President Obama, who has said he would like to see student loan debt forgiven if it becomes burdensome for working borrowers.

Until 2005, private student loan debt was dischargeable in bankruptcy just like any other form of unsecured private debt (such as medical bills or credit card debt). But Congress passed a sweeping overhaul of bankruptcy law that year, and among the changes was a requirement that private student loan debt must pose an "undue hardship" before it can be discharged. This puts private student loans in the same protected category as federally backed loans -- which come with interest rate caps not available for private loans -- as well as child support and tax debt. Critics say this places too high a barrier to discharging the debt, and inappropriately uses federal power to shield private businesses from risk. In fact, some charge that private lenders don't look into whether a borrower can reasonably repay the loan before making it, a charge also made against subprime mortgage loans.

Under the Fairness for Struggling Students Act (Senate) and the Private Student Loan Bankruptcy Fairness Act (House), the "undue hardship" requirement would be removed for private student loans, but not federally backed student loan). That means private student loan debt would be treated like any other unsecured private debt in a bankruptcy, allowing it to be forgiven or modified much more easily. Proponents, including the bills' Democratic sponsors, say this would protect borrowers who are already bankrupt from being locked into a lifetime of debt obligation they can't reasonably pay back. Opponents, drawn mainly from Republicans, say removing the higher standard would encourage students to abuse the bankruptcy system by declaring bankruptcy just to get out of paying back debt, driving the interest rates up on private student loans.

As Long Beach individual bankruptcy lawyers, we think that's an unrealistic fear. In our professional experience, bankruptcy is a last resort that is emotionally unpleasant and harms your credit for years. It's worth noting that the "undue hardship" standard for private student loans is just under five years old, and that private lenders didn't charge the high interest rates or see the abuses they are now predicting before 2005. We believe this legislation would give bankruptcy judges the flexibility they need to forgive debts when the circumstances demand it. It would also end the practice of lending to anyone, regardless of their ability to repay, which lenders can do because they know the borrower won't be able to escape the obligation even by declaring bankruptcy. This has led some advocates to compare private student loans to subprime mortgage loans.

Continue reading "Congress Considering Bills to Allow Student Loans to Be Discharged More Easily in Bankruptcy" »

As Rancho Cucamonga loan modification attorneys, we were interested to see an article outlining how homeowners are still losing their homes because of poor communications from and within their banks. USA Today ran a ProPublica report May 5 outlining how homes end up foreclosed by one arm of a lender, while another arm is offering the borrower a loan modification in an attempt to keep the loan alive. This happens even to borrowers participating in the Home Affordable Modification Program, which explicitly forbids lenders from auctioning off a home while they are still deciding whether to grant a modification. Advocates for borrowers believe this has resulted in multiple avoidable foreclosures, and called on the Obama administration to penalize violators. Lenders and loan servicers say mistakes are rare and happen because their loss mitigation departments are overwhelmed by applications.

The article went into detail about a mistaken foreclosure on the Hill family's home in Lexington, S.C. Michael Hill fell behind on his mortgage payments in early 2009 and spent months trying to get a loan modification from JP Morgan Chase. He had no luck, and on April 2 of that year, Chase filed to foreclose on the Hills. But on August 6, Chase also referred Hill to a housing counselor who helped him apply again for a loan modification. Despite the pending modification decision, the home was sold at auction, and the Hills received an eviction notice November 5. Six days later, Chase called to tell Hill that he was granted a modification.

The Chase representative was surprised to learn from Hill that the home had already been foreclosed and sold. It paid extra to buy the home back from the auction's winner, and Hill was once again enrolled in a trial loan modification under HAMP. However, he said, the bank has continued to contradict itself about whether the trial modification is approved to be made permanent, and he's still waiting for a final answer. His family is living with belongings partially packed, in case of another foreclosure.

According to the article, one contributor to the problem is the fact that different departments within the same company handle foreclosures and loan modifications. Sometimes, those departments simply don't communicate with one another. To make matters worse, many lenders will hire an outside attorney or trustee to handle the legal aspects of the foreclosure. A spokeswoman for the Mortgage Bankers Association added that loan servicing employees are overworked because of the large volume of loan modification requests.

As Gardena loan modification lawyers, we are not impressed with that argument. The foreclosure crisis is well over a year old, which has given banks more than enough time to hire the extra staff they need to process the flood of applications. In fact, because unemployment is high, lenders would likely be able to hire that staff quickly and relatively cheaply. As we have written here before, we believe their behavior shows that lenders and loan servicers really want to modify loans, possibly because they believe they will lose money by doing so. The result, as this article shows, is unnecessary stress, miscommunication and financial expenses for homeowners.

Continue reading "Homeowners Continue to Go Into Foreclosure Because of Bank Miscommunications" »

Our Riverside commercial real estate loan modification attorneys wrote recently about a report that commercial mortgage-backed securities are likely to default in record numbers this year. The private data firm Trepp LLC has just come out with a report bolstering that grim prediction using data from this past month. National Real Estate Investor reported May 4 that April saw a delinquency rate of 8.02% among CMBS, according to Trepp. That number is a massive increase from April of 2009, which saw a delinquency rate of 2.45%. CMBS, like residential mortgage-backed securities, are investments in "bundled" real estate loans, but the loans are higher in value because they represent commercial buildings.

The article said the jump in delinquent CMBS was actually not as steep in April as it was in March. However, nearly half of the basis points used to determine March's delinquencies can be attributed to the default on the loan for Stuyvesant Town, a massive New York City development whose default was widely reported. The 8.02% number includes loans that are REO, in foreclosure or at least 30 days overdue. However, the article also broke down the rate of loans that are "seriously delinquent" because they are more than 60 days overdue. That default rate was more than 7% in April, the article said, up sharply from 1.78% in April of 2009 and 3.91% six months ago. The sector of commercial real estate with the highest delinquency rate was lodging, which had a 17.16% default rate this year and a 2.63% default rate a year earlier.

As San Bernardino commercial real estate loan modification lawyers, we're not surprised to see that lodging is suffering so much. In a recession, hotels and the travel industry will inevitably see fewer customers because individuals have less money to spare. However, the problems in commercial real estate extend to every type of building mentioned in the article, all of which had a delinquency rate above 5% and well above their rates from a year before. In the bad economy, even office and apartment buildings aren't always able to make enough money to pay off their loans, especially loans made at the height of the commercial real estate bubble. This is bad news for everyone, because the crash of the commercial real estate market may well take small banks with it, as lenders and investors lose the money they poured into commercial buildings during better times.

Continue reading "Private Data Firm Finds Delinquency Rate for CMBS Hit Historic High in April" »

As Los Angeles County unfair debt collection attorneys, we were interested to see a recent article about efforts to fight collection agencies here in California. The New York Times and SFPublicPress.org reported April 22 that a group of public interest lawyers in the San Francisco Bay Area is working together to help consumers fight off lawsuits by collection industry lawyers. These attorneys believe bringing unpaid debts to court at all is a misuse of the court system, particularly at a time when the courts are already clogged by high caseloads and a state-mandated shutdown. And when debt collectors sue, the advocates say, they rely on debtors to not respond, allowing them to get a court order taking wages or property without the debtor's consent.

The attorneys' efforts are focused on stopping default judgments. In lawsuits brought by debt collection lawyers, many people don't show up because they don't understand how to respond, are afraid or ashamed or truly didn't get notification. The court usually decides for the party that did show up, so the debt collector wins by default and can then get a court order garnishing wages or bank accounts. Sometimes, the debtor doesn't know anything is wrong until the money disappears. The public interest attorneys in the article believe debt collectors intentionally seek default judgments, and they are working to fight back. First, they help defend low-income people in these lawsuits, allowing defendants who owe nothing to get the claim dismissed. Then, they sue the debt collector for any violation of the Fair Debt Collection Practices Act, turning the tables and allowing clients to collect money of their own.

We're delighted to see that an organized group is helping consumers fight back. As the article notes, debt collection lawsuits have increased dramatically in California in the past three years, and between 70% and 95% of consumers never respond to those suits. As Fountain Valley debt collection abuse lawyers, we've heard many reasons for not responding to notice that a lawsuit is filed, including shame, fear and feelings that there's no real chance to dispute the case. In fact, going to court is vital, because failing to respond can get your money or property taken away by court order, even if you never owed the debt to begin with. With the help of an experienced attorney, you may be able to prove your case and win the lawsuit, which obliges the debt collector to leave you alone. If appropriate, you can then go after the debt collector for any violations of federal or California consumer protection laws.

Continue reading "Bay Area Attorneys Pool Resources to Fight Debt Collectors' Use of Lawsuits" »