California Bankruptcy Attorney Blog

As Moreno Valley personal bankruptcy lawyers, we followed last year's debate on cramdowns in Chapter 13 bankruptcies with interest. If Congress had passed the law it had been considering, bankruptcy judges would have been permitted to "cram down" the value of a first home mortgage to the current market value of the home, allowing the remaining value of the loan to become an unsecured debt with a lesser priority, just like credit card debt. But Congress failed to pass the cramdown legislation because of an outcry from the financial industry, which said cramdowns would drive up interest rates and make home loans harder to get. On Sept. 19, the Los Angeles Times ran a syndicated column about a Cleveland Fed paper that took a closer look at those claims.

The August paper from the Cleveland Fed -- a regional division of the Federal Reserve Bank -- examined the idea by analogy to a similar reform enacted in farm bankruptcies. Farmers saw a lending crisis in the early 1980s similar to the one affecting homeowners today. In response, Congress created Chapter 12 bankruptcies, which were aimed at family farms. The new Chapter 12 bankruptcies gave judges the ability to perform cramdowns, then called stripdowns, on farmers' homes.

The authors, Thomas Fitzpatrick IV and James Thomson, wrote that "Stripdowns were permitted for farmers because voluntary modification efforts, even when subsidized by the government, did not lead agricultural lenders to negotiate loan modifications. At the time, opponents of stripdowns made the same arguments people are raising today: Allowing stripdowns would flood bankruptcy courts, permit abuse by borrowers who could afford to pay their loans, and reduce the availability of credit, among other things."

However, the paper found, any negative result of Chapter 12 was actually small. A 1989 survey found a small increase in interest rates offered to farmers, which the authors said could just as easily have been a result of the economic environment of the time. Later economic studies found that Chapter 12's main effect had been preventive: it gave lenders an incentive to perform private loan modifications, in order to avoid a stripdown they could not control. In the year Chapter 12 was enacted, they said, the government predicted 30,000 Chapter 12 filings, but only 8,500 were filed within the first two years.

Our Placentia individual bankruptcy attorneys have long believed that cramdowns would not do as much harm as the financial industry claims. As things currently stand, cramdowns are allowed for second homes, car loans and other secured debts in consumer bankruptcies, as well as for certain types of business bankruptcies. Lending is not tighter for these types of loans than it is elsewhere in the economy, and while it's hard to directly compare mortgages to auto loans, we do not believe standards on auto loans are significantly tighter. The Cleveland Fed paper just adds more information based on experience to this common-sense evidence. It also shows that allowing Chapter 13 cramdowns would have benefits even for people not in bankruptcy, because it would give lenders an incentive to modify loans before a judge can modify them.

Continue reading "Cleveland Fed Paper Suggests Bankruptcy Cramdowns Would Do Little Harm to Banks" »

Our Yucaipa loan modification attorneys were interested to see a Sept. 21 report saying GMAC Mortgage is suspending its foreclosure evictions and sales in many states. According to Reuters, GMAC took the action after discovering that the affidavits it used in 23 states contained information that employees did not personally verify, even though they signed the affidavit stating that they had done so. In some cases, the affidavits were also not signed in the presence of a notary, another requirement. The suspensions are only in the states in which foreclosures must be approved in court, which typically does not include California. Interestingly, the suspension appears to come after a homeowners' law firm took legal testimony from a GMAC employee claiming he signed tens of thousands of affidavits he hadn't verified.

An affidavit is a legal document that swears to the truth of the information it contains. Like people who give testimony in court, people who write affidavits can be charged with perjury if they say something untrue. A false affidavit would also invalidate, or at least call into serious question, any decisions made on the basis of that false information. Affidavits are used as testimony in many states that use judicial foreclosure, such as Florida and New York. The discovery that many GMAC affidavits may be untrue could be important for homeowners in those states, because it could invalidate many foreclosures and subsequent foreclosure sales. It will also provide an important tool to homeowners who are fighting foreclosures from GMAC and any other servicer that finds it has false or missing paperwork. An attorney quoted in the article suggested that the same practices are widespread throughout the mortgage industry.

As Rialto loan modification lawyers, we would not be at all surprised to hear this. There is a certain amount of cutting corners in any job, and loan servicers have had a lot of foreclosure paperwork to process lately. However, this is an area where sloppy work cannot and should not be tolerated, because in a foreclosure, the servicer is taking away the homeowner's property rights and investment. Courts require banks and servicers to have adequate documentation for a foreclosure and swear to its truth because a foreclosure will have a major effect on the borrower's life and finances. We believe making sure that information is correct is the least the servicers and lenders can do. Similar problems with lost or inaccurate paperwork have slowed foreclosures as well as loan modifications in other states.

Continue reading "GMAC Suspends Foreclosure Evictions in 23 States Because of Illegal Affidavits" »

Our Highland personal bankruptcy attorneys were interested to see a report on the bankruptcy statistics here on our home turf in Orange County. The Orange County Register's Jan Norman on Small Business blog reported Sept. 21 on bankruptcy filings in the county, using information from the U.S. Bankruptcy Court for the Central District of California. Norman wrote that Orange County bankruptcies reached their highest point in 11 years this August, with 1,654 bankruptcies filed by consumers and businesses in August of 2010. That was 19.3 percent higher than the number for August of 2009, but 3.5 percent fewer than the number for July of 2010. In the entire Central District of California, the filings rose even more sharply, up 32.6 percent since August of 2009.

Norman pointed out some good news: the rate of bankruptcy filings has slowed, in Orange County and throughout the Central District of California. Whereas January's filings were up by 58 percent, she wrote, that number slid to the 19.3 percent number in August. August's numbers were also only 3.5 percent more than July's. The rate of increase has also slowed in the Central District as a whole, which includes every part of California from San Luis Obispo to the Inland Empire. The district saw a total of 13,052 bankruptcy filings in August, which is up, but not as sharply as in previous months. Nonetheless, Norman wrote, it's too early to predict a trend toward slowing filings. In Los Angeles County, filings increased from 2009 to 2010 by 57.2 percent, and in San Bernardino County, they increased by 35.8 percent.

We are not surprised by these numbers, thanks to our work as Anaheim consumer bankruptcy lawyers. As with the national bankruptcy filing numbers, the Central District numbers reflect the grim state of the economy overall. However, California has been particularly hard-hit during the recession, consistently having one of the highest unemployment rates in the nation and the steepest drop in home prices. These numbers are acknowledged as good predictors of bankruptcy, and it's no surprise -- no one can pay the bills without a steady income, and losing home value robs homeowners of equity and options. Given the state of the economy in southern California, more and more people are being forced to choose bankruptcy. It's not an easy choice, and it's not right for everyone -- but under the right circumstances, it can help our clients shed obligations that they can no longer realistically meet and make a fresh start.

Continue reading "Court Records Show Orange County Bankruptcy Filings Reached Record High in August" »

A recent article about a California collection agency in legal trouble caught the attention of our Fontana unfair debt collection lawyers. The Ventura County Star reported Sept. 12 that Forensic Case Management Services Inc., which has been headquartered in several Ventura County cities, has lost its license to collect debts in Minnesota. It is also facing $35,000 in fines and fees in that state, which alleges that the business has lied to and misled consumers in order to collect debts. The business, owned by David M. Hynes, has changed its name and location several times, the article said, and is currently known as Rumson, Bolling & Associates of Van Nuys. The legal action in Minnesota does not affect the company's ability to do business in California because our state does not regulate debt collectors.

Minnesota accuses the Hynes business of making false and misleading statements to consumers and threatening legal action in order to collect debts. When asked to comment on those accusations, the company responded through its attorney, who said it is the victim of a "long sustained Internet defamation campaign perpetrated by a handful of disgruntled individuals." Nonetheless, the Star reported, the company has been the subject of hundreds of complaints to the Better Business Bureau of Ventura, Santa Barbara and San Luis Obispo Counties. A spokesman for the BBB said the complaints tend to be the same even when the name of the business has changed. The Hynes companies have also been sued dozens of time, the newspaper noted, including six federal lawsuits in the last 11 months. Five of those lawsuits were based on the Fair Debt Collection Practices Act, the newspaper said, but a sixth was filed by a client that said the company never made the collections it was hired to make.

As Garden Grove debt collection harassment attorneys, we see plenty of stories about debt collectors that are sued by consumers, but not about lawsuits by clients. We suspect this shows that the state of Minnesota was correct to identify this business as dishonest. Unfortunately, in our experience, dishonest collection agencies are not at all unusual. Clients with Fair Debt Collection Practices Act claims come to us with stories about being lied to, harassed, threatened and more. All of these practices are outlawed by the FDCPA and its California cousin, the Rosenthal FDCPA, because they unfairly prey on consumers' fear and frequently, their ignorance of their rights. However, for the exact same reasons, these tactics work on most people -- which is why debt collectors continue to use them. In essence, they rely on consumers to remain too ignorant and scared to question a collection effort, even when they do not owe the money in question.

Continue reading "Ventura County Debt Collector Loses Minnesota License After Reports of Law-Breaking" »

As Rancho Cucamonga personal bankruptcy attorneys, we were interested to see a recent federal appeals ruling on how bankruptcy courts deal with increases in the values of homes exempted from the bankruptcy. According to a Sept. 15 article in the Metropolitan News-Enterprise, the Ninth U.S. Circuit Court of Appeals ruled Sept. 14 that exemptions made at the time a bankruptcy is filed cover only the amount of equity exempted, not the entire value of the home. Thus, if the home increases in value while the bankruptcy is pending, a bankruptcy trustee may seek to sell the home to claim the excess value on behalf of creditors. The case, In re Gebhart, No. 07-16769, was consolidated from two bankruptcy appeals within the Ninth Circuit, concerning Arizona filer Nikalous Gebhart and Washington filers Steven and Julie Chappell.

Gebhart filed for Chapter 7 bankruptcy in 2003 and claimed the full value of his home at that time as an exemption. His trustee did not object at the time, but the home appreciated in value between then and 2006, while the case remained open. In 2006, the trustee sought to sell the home to reclaim the appreciated value, on behalf of Gebhart's creditors. The Arizona bankruptcy judge allowed that sale to go through despite Gebhart's objection that his exemption should have covered the full value of the home. In the Chappells' case, a Washington judge faced with similar facts came to the opposite conclusion. In the consolidated appeal, the Ninth Circuit ruled that any additional value after an exemption is still the property of the estate. This relied on the Supreme Court's decision in In re Reilly, 130 S. Ct. 2652, which said that exemptions naming specific dollar amounts exempt only an interest in a property, not the entire property.

This article implies that the trustee in Gebhart's case may have negligently failed to close the case. Gebhart's debts were discharged four months after he filed, but the case remained open until 2006, giving the home time to appreciate. For this reason, our Stanton individual bankruptcy lawyers would have preferred a different ruling. The Ninth Circuit noted that a ruling in favor of Gebhart would have penalized creditors for the trustee's negligence. While this is true, the current ruling penalizes Gebhart for the trustee's negligence. While homes are unfortunately not gaining much value right now, future Chapter 7 filers and consumer bankruptcy attorneys like us should take an active role in discharging a bankruptcy when it is over. And of course, bankruptcy filers who are trying to keep their homes should also consider a Chapter 13 bankruptcy, which avoids liquidating homes (and most other things) by allowing debtors to set up a repayment plan at rates the court determines they can afford.

Continue reading "Bankruptcy Courts May Consider Increase in Values of Exempted Homes, Ninth Circuit Rules" »

As Irvine commercial real estate loan modification attorneys, we were interested to see a recent article detailing a modification to a commercial loan for a major office building in Seattle. As the Seattle Times reported Sept. 15, Beacon Capital Partners, owner of the Columbia Center in downtown Seattle, has succeeded in winning an extension to its loan after six months of negotiations. The negotiations were complex in part because they were not with one lender, but with several representatives for bondholders with an interest in the property, which is part of a commercial mortgage-backed security. Before the loan modification, the 76-story property reportedly had the largest delinquent CMBS loan. Beacon is the largest investor in Seattle commercial buildings, and the article notes that it is in negotiations to modify other loans as well.

Beacon bought the Columbia Center in 2007, at the height of the CRE boom, and financed the purchase with a $480 million loan. The lender, Morgan Stanley, put $380 million of that loan into a mortgage-backed security; another $100 million was sold to private investors. Like many other owners of CRE, however, Beacon has found that it now cannot generate enough income from the property to make its payments. Almost 40 percent of the building is vacant, the article said, in part because Amazon recently moved employees out of the 177,000 square feet it had leased. Beacon stopped making loan payments in March. To avoid a foreclosure, the bondholders and Beacon agreed to extend the loan by three years, reducing its monthly payments by 38 percent. It also has two one-year extension options that, if exercised, would mean the loan would be due in 2017. A real estate analyst told the paper that neither Beacon nor its lenders really wanted a foreclosure.

Our San Diego commercial real estate loan modification lawyers do not doubt it. In fact, we are surprised not to see more articles about similar loan extensions. Foreclosure is never good for the lenders, but it's particularly bad right now because the properties are unlikely to fetch high prices in the current market. With many troubled loans coming out of the boom years of 2005-2008, this almost certainly means taking a loss. And of course, commercial borrowers prefer not to lose their own investments in their buildings. The practice of extending loans has been derisively called "extend and pretend," with the implication that lenders are pretending the borrower will be able to meet its obligations later. We do not believe this is such a far-fetched idea; after all, real estate is believed to be cyclical. In the short term, commercial real estate is suffering in proportion to the rest of the economy, but as the economy rebounds, a long-term or mid-term loan extension could allow lenders to keep collecting payments and make a profit on those loans.

Continue reading "Owner of Flagship Seattle Office Building Wins Loan Modification After Six Months" »

As Riverside loan modification attorneys, we have read a lot of articles suggesting that the housing market may lose some of the recovery it has made before it fully recovers. So we were interested to see another such prediction from a Sept. 15 article in the Ventura County Star. The article focuses on predictions by Sung Won Sohn, an economist and a professor at CSU Channel Islands as well as a former Wells Fargo Bank executive vice president. Sohn said he believes the economy will grow, though it will likely be sluggish for the next six months. But he was less optimistic about the housing market in particular, suggesting that the market may dip again because of that bad economy and its accompanying high unemployment numbers. The remarks came from the Ventura County Housing Conference, held that week in Camarillo.

Sohn acknowledged that now is a good time to buy property, thanks to lower housing prices and very low mortgage interest rates. But he said buying property requires a down payment, a job and a good credit rating, all of which are rare during a bad economy. Furthermore, he noted that lending standards had tightened pretty significantly, which means fewer people qualify for home loans. This is a reaction to the previous loose standards, which got some lenders in trouble, but Sohn said his own experience with a refinance showed that lenders can be so strict that they could slow down a recovery. He believes a recovery will likely come from a significant improvement in unemployment numbers -- because unemployed people simply cannot make loan payments. Similarly, he said, more foreclosures are likely if California's unemployment rate remains at its current 12 percent (as of June).

Our Los Angeles County loan modification lawyers must agree. Throughout the housing bust, unemployment has always been a consistent predictor of foreclosure. This is especially true with long-term unemployment, which lasts longer than the typical loan forbearance offered by lenders. Many people profiled in the media have months' worth of savings they collected just in case they were unemployed, only to discover that it would take more months before they could find a job. After people in this situation run out of savings, they have very few options left. By contrast, folks who are still employed, but at a reduced income, are good candidates for loan modifications because they have steady incomes. One way to prevent the dip in the housing market Sohn predicts might be for lenders to aggressively seek to modify loans for people in this situation, rather than tighten standards so much that underemployed borrowers end up foreclosed anyway.

Continue reading "Ventura County Economist Predicts Recession May Not Worsen But Housing Will" »

As San Bernardino commercial real estate loan modification lawyers, we were disappointed but not surprised to see that commercial real estate is driving increased losses at banks. That information comes from a report by Deutsche Bank AG in New York, Bloomberg News reported Sept. 10. In fact, the report said monthly losses on commercial loans more than doubled between April and August, to $501 million in the latter month. The article also reported on a separate Moody's report that also reported bad news in the CRE market -- the delinquency rate on commercial mortgages packaged into bonds has risen. A Deutsche Bank analyst said the jump in losses on CRE loans was the start of a trend caused by the rising number of loans that are in trouble and banks' increasing unwillingness to restructure smaller loans.

Fitch Ratings estimated that as of June 30, about $92 billion worth of loans are currently in "special servicing," meaning the borrowers are having trouble making payments and may be delinquent. That number is 25 percent higher than the value of loans in special servicing at the end of last year, and Fitch expects the number to hit $110 billion by the end of this year. The Deutsche Bank analyst said special servicers are giving up on trying to reach a loan workout on smaller loans, perhaps because they want to save their limited resources for reworking bigger and higher profile projects. As a result, the analyst said, lenders may start selling small loans in bulk portfolios more often. The article mentioned one financial company selling a portfolio of 20 non-performing loans with an average size of $5 million each. An observer told Bloomberg that more lenders are now willing to take a risk on such portfolios, driving up prices.

This information strikes our Los Angeles commercial real estate loan modification attorneys as odd. Lenders will not modify smaller CRE loans because they don't believe the return is worth the resources, but this means they are losing money. Wouldn't they lose less money if they put more effort into trying to save those nonperforming loans? There may be another factor that makes this a good business decision, but it was not reported. Meanwhile, the article says lenders will finance the purchase of portfolios full of small non-performing loans. These may be different lenders from the ones that won't finance attempts to change those loans so that they will perform. The financial industry is a complex system and it's doubtful that lenders are planning these strategies together. But it seems simpler for lenders to keep trying for workouts on loans that can reasonably be saved.

Continue reading "Deutsche Bank Data Shows Bank Losses Mounting as Lenders Stop Trying for Workouts" »

As Fontana loan modification attorneys, we were sorry to see yet another story about homeowners who were victims of their mortgage lender's extreme negligence. Columnist David Lazarus of the Los Angeles Times wrote Sept. 10 about Mike and Ellen Kahara of Long Beach, who discovered that their home was sold at an auction less than a week after Wells Fargo assured them that it would not sell their home for at least 30 days. That assurance came with a notice that the Kaharas had been denied in their application to make their temporary loan modification permanent. The home was sold to a San Diego investment firm, which asked them to leave the home by Sept. 9. The couple plans to sue Wells Fargo and may also declare bankruptcy to try to avoid eviction.

The Kaharas' situation arose out of a mixture of the recession and their decision to buy their home through an interest-only loan in 2004. Because of this loan structure, their monthly mortgage payments eventually reached almost $3,000. Then, the bad economy hit and business was bad for Mike Kahara's small construction company. His wife's work as a nanny was not enough to help the couple meet all of their financial obligations, and they eventually racked up $30,000 in credit card debt as well as falling behind on their mortgage. Through the Home Affordable Mortgage Program, they applied for and received a trial loan modification that lowered their payments to a manageable amount around $1,400.

They made all of their payments in full during their three-month trial, but Wells Fargo did not make a decision on making the workout permanent. Instead, it told them to continue paying the trial amount, which they did. The bank also requested a lot of paperwork, which the couple continued to send. Ellen Kahara said she called repeatedly in early August to check on her status, but never got a return call. Instead, they received a letter dated Aug. 11 saying the permanent status had been denied -- five or six months after the trial ended -- and that they would have 30 days to discuss other options, during which the home would not be sold. Nonetheless, they were visited in person Aug. 18 by a representative from an investor that had bought the home, asking them to leave. A Wells Fargo spokesperson said the home had been sold Aug. 16 -- five days after the letter assuring the Kaharas that no such sale would occur. The spokesperson also said that Wells Fargo had made a mistake by making that assurance.

As Placentia loan modification lawyers, we are glad that this couple has an attorney and plans legal action against Wells Fargo. Even if the bank had not outright admitted its mistake, the evidence is clear and in writing that it did. That means they have a claim against the lender for negligence in its behavior toward them. Depending on the circumstances, they may also have a claim against Wells Fargo for failing to decide on a permanent loan modification for half a year, or even failing to grant one if they met all of the requirements of the program. This cannot help the Kaharas reverse the foreclosure, but it can help them defray some of the costs of the foreclosure and the sudden, unexpected demand to move out. Those funds would undoubtedly be welcome as the couple works to rebuild their financial lives. A lawsuit might also help raise other people's awareness of Wells Fargo's negligent behavior.

Continue reading "Wells Fargo Sells Home Despite Assuring Borrowers in Writing That It Would Not " »

As Upland personal bankruptcy lawyers, we were pleased to see a positive story on bankruptcy recently -- a story showing that under the right circumstances, bankruptcy is the most responsible and smartest choice. The article comes from the Las Vegas Review-Journal, which reported Sept. 7 on the story of Renne Fortier, a 38-year-old mother of two who lost her husband unexpectedly. Mark Fortier was diagnosed with a brain tumor in January of 2009 and died in March of 2009, leaving behind his wife and two daughters, ages 16 and 11. With him, the family lost 60 percent of its income, but was on the hook for $40,000 in medical bills and a monthly mortgage payment averaging $3,300. After a loan modification and short sale failed, Fortier eventually filed for Chapter 7 bankruptcy, which she said was a relief.

Fortier said she did not originally consider bankruptcy because it had a stigma attached to it, at least in her mind. Instead, she asked for and received a temporary loan modification from Bank of America, which cut her payment to $2,200 a month. Even though she was enrolled in the program, however, the bank reported her as delinquent to credit agencies, causing her credit card company to more than double her interest rate to above 20 percent. This caused her credit card bills to skyrocket. Meanwhile, the loan modification was made permanent, but at a rate of $2,800 a month, equal to Fortier's take-home pay. Fortier considered a short sale, but ultimately contacted a bankruptcy law firm to discuss her options. Eventually, she decided to file for a Chapter 7 bankruptcy, known as a "liquidation" bankruptcy because it sells off the filer's non-exempted assets in order to pay creditors. She lost the home, but was able to keep personal items like clothing and stop the financial stress.

Our Anaheim consumer bankruptcy attorneys know that not everyone would consider this a success story, but we do. Many people approach bankruptcy with a lot of emotional baggage, but we believe bankruptcy is best viewed as a business decision. If you cannot make a realistic plan to pay off your debts, it might make more sense to file for bankruptcy -- and take a seven-year hit to your credit -- than it does to continue putting your limited income toward making a small dent in it. This is especially true if you are trying to pay the debts by using assets that would be exempt in a bankruptcy, such as many retirement accounts. Unfortunately, many people don't consider bankruptcy because of how they approach it emotionally -- they view it as a failure or as an irresponsible attempt to dodge their obligations. These are widely held and understandable beliefs, but they often keep people from seeking bankruptcy or other help until they have suffered for months and run through all of their assets.

Continue reading "Bankruptcy Helps Unexpectedly Widowed Woman Start Over and Support Daughters" »

Our Rancho Cucamonga fair debt collection attorneys frequently write about the borderline illegal tactics debt collectors use to extract money from people, including people who do not owe that money. So we were very interested to see a recent interview with the author of an exposé about the debt collection industry. WalletPop ran an interview Sept. 7 with Fred Williams, a business journalist who left his job temporarily to take a job as a debt collector with an unnamed Buffalo, N.Y. company he describes as mainstream and well known. The result was a book on debt collectors' tactics and consumers' rights, in which he discusses some of the unprofessional and outright illegal behavior he observed in that job. He also goes into detail with advice for consumers looking to protect and enforce their legal rights.

In the interview, Williams says trainee debt collectors at his firm were not instructed on what was legal and what was not. This was not a result of negligence, he said, but an intentional choice intended to give the company plausible deniability if a trainee violated the law. If the company got into trouble, he said, it could always say the employee made a mistake because he or she was just a trainee. These trainees were a substantial portion of the entire workforce, he added. After an initial classroom training, he said, all training was done by shadowing existing employees. It was not uncommon for those employees to use illegal tactics like threats or implying they were law enforcement officers, he said, but there was no official policy with such tactics. Similarly, Williams said, trainers emphasized that the debt collectors' notes were the only official documentation of their calls, implying but not outright stating that they would not be caught if they lied.

As Moreno Valley debt collection abuse lawyers, we are not at all surprised to hear about this. Debt collection agencies frequently claim that bad collectors who are caught are outliers, and that complainers just want to avoid paying what they owe. That may be true, but it by no means exonerates the debt collection industry for quietly encouraging behaviors that violate the law and consumers' rights. The Fair Debt Collection Practices Act, the federal law that regulates debt collectors' behavior, exists precisely because debt collectors have discovered that they have better luck when they threaten, lie to and intimidate their victims. Those practices are allowed to go on today because they make money for the collection agency -- and because consumers do not realize they have the right to sue to stop them.

Continue reading "New Book Exposes Illegal and Borderline Illegal Practices Used by Debt Collectors" »

As San Bernardino loan modification lawyers, we were backing Senate bill 1275 in the California state legislature. This bill would have required lenders to make a decision on a pending loan modification request before foreclosing on the home. Unfortunately, as the San Francisco Chronicle reported Sept. 1, the bill failed to pass the state Assembly by a vote of 36-30. Authored by Democrat Mark Leno, the bill was supported by consumer advocates but opposed by the California financial and mortgage industries. The vote was along party lines, the article said, with 12 assemblymembers abstaining, all Democrats. Leno said he would continue to work on foreclosure and mortgage issues in the new legislative session that starts next January.

Leno's bill addressed a complaint common among homeowners: that while they are waiting for word on a loan modification from one arm of the lender, another arm forecloses on the property. In a few cases, the homeowner has been granted a loan workout while the foreclosure happens. No federal law currently addresses this issue, and while the federal HAMP requires no foreclosures during the modification process, it has no enforcement arm. SB 1275 would have required a fully considered decision on the loan workout before a foreclosure, and given homeowners the power to sue if they did not receive such a decision. The banking industry, in lobbying against it, said the bill would have allowed lawsuits for technical violations and could unnecessarily delay foreclosures when homeowners are not eligible. Leno said he felt there was a good compromise in the bill, "unless your philosophy is that the lenders should not be held accountable and not have repercussions for their actions."

Our Downey loan modification attorneys think this is likely the philosophy behind the banking industry's lobbying. Indeed, there may be meritless lawsuits if homeowners are allowed to sue, but there are meritless lawsuits in every area of the law. Our system has ways to weed out this kind of claim early in the process, and those would apply to SB 1275 lawsuits as well. We suspect that lenders' real problem was with the possibility that they would have to answer to a court of law when homeowners are foreclosed in violation of the proposed law (and of HAMP rules). This is not an idle speculation; this bill exists precisely because this actually happens and is commonly reported in the media. This is usually portrayed as a bureaucratic mistake by the lender. But if lenders care enough to actively oppose preventive measures in the Legislature, we might conclude that it is an intentional, deceptive choice -- or at least that lenders prefer to continue behaving with gross negligence.

Continue reading "State Assembly Fails to Pass Bill Requiring Loan Workout Decision Before Foreclosure" »

As Irvine commercial real estate loan modification lawyers, we have followed reports on the health of the commercial real estate marked for some time. So we were interested to see a recent report on delinquency among the loans backing different sectors of commercial real estate. The information comes from the Mortgage Bankers Association, which released second-quarter delinquency and 30-days-overdue numbers Sept. 2. That report, as HousingWire noted, said delinquencies among loans held in commercial mortgage-backed securities are at their highest since the association started tracking them in 1997. The same was not true for the other two categories of CRE tracked in the report, Fannie Mae multifamily loans and ordinary bank & thrift CRE loans. A MBA spokesperson suggested that those two categories have reached a plateau.

CMBS delinquencies rose from 6.83 percent in the first quarter to 8.22 percent in the second, both of which are massive increases over the 3.91 percent for 2009 and 0.53 percent for 2008. The Atlantic's Daniel Indiviglio made a chart of the data and offered some analysis. He pointed out that the loans chosen for CMBS are typically those considered more likely to default, suggesting that a higher delinquency rate was always likely. He also said the CMBS data included earlier-stage delinquencies than the other two, suggesting that earlier delinquencies could be driving the spike in all delinquencies. If this is the case, he said, those delinquencies could indicate that the commercial real estate market is still struggling for a recovery. However, he cautioned readers that the three datasets are not directly comparable, in part because the CMBS data includes REO properties while the others do not.

As San Diego County commercial real estate loan modification attorneys, we would like to see a recovery in the CRE market (as well as the residential market). Thus far, however, the data seem to suggest that this is not a strong possibility. In addition to the occasional news of a CRE foreclosures and walk-aways, the rest of the economy has simply not improved in a way that allows rents to increase and office and retail spaces to fill back up. In fact, if Indiviglio is right about the early-stage delinquencies, many more foreclosures could lurk in late 2010 and next year. This is bad news for the original borrowers whose loans have been securitized, because modifying CMBS is unlikely to be any easier than modifying securitized residential mortgages. In both cases, investors are legally entitled to hold up a loan workout or other action because they have a financial stake in the outcome.

Continue reading "Mortgage Bankers Association Study Finds Record High Delinquency Among CMBS" »

As Temecula loan modification attorneys, we have believed for quite a while that the federal loan modification program is not working due to its lack of a strong enforcement provision. So we weren't surprised to see a San Diego Union-Tribune article from Aug. 31 on the latest numbers from the Home Affordable Modification Program, released by the Treasury Department. As in other areas, those numbers in San Diego County as not good; 6,500 homeowners in the county, and 422,000 in the entire nation, have received permanent loan modifications. The national number is slightly more than a tenth of the total number of homeowners the Treasury Department believes are eligible for the modifications. The number of borrowers involved in trial modifications, which are the first step toward permanent ones, has dropped by 63 percent across the U.S.

The article offered several perspectives on the problems with HAMP. The Treasury Department report noted that "insufficient documentation" was the most common reason for canceling a loan modification among HAMP participants. The head of a nonprofit homeowners' advocacy group said this is frequently a problem because lenders lose paperwork repeatedly, or fail to take action before the information becomes too old to be useful. He said one borrower he helped had to resubmit paperwork 15 times over eight months. That person said the banks are probably overwhelmed, but a loan officer quoted in the article said it seemed like some lenders are intentionally "screwing up." A Bank of America spokeswoman said that, in addition to the high volume of calls the bank must handle, changes to the HAMP guidelines have slowed down the process.

Our Dana Point loan modification lawyers do not think much of these claims. As we have noted here repeatedly, lenders do not seem to have trouble organizing themselves well enough to handle other parts of their business. It's only in the loan workout department that they seem to be incompetent. In addition, the lenders have had well over a year to get organized, along with a high unemployment rate that guarantees access to available workers. We are more inclined to believe the mortgage broker quoted in the article, who points out that many mortgage servicers have no incentive to help, because they make a lot of money from delinquent loans. Similarly, we believe lenders and loan servicers keep borrowers hanging on because this allows them to keep a foreclosure off their books. Then, when the borrowers' resources are drained, the modification is denied and the property goes into foreclosure.

Continue reading "New Report on HAMP Confirms That Program Has Helped Very Few Homeowners" »

As Chino consumer bankruptcy attorneys, we have always had doubts about the 2005 bankruptcy reform law. Intended to curb abuses of the bankruptcy system, it raised fees, imposed a "means test" for Chapter 7 eligibility, required credit counseling before filing and more. Now, as the Wall Street Journal's Bankruptcy Beat blog noted Aug. 27, the American Bankruptcy Institute Law Review has published a study noting a presumably unintended consequence of the law: Bankruptcy is now up to 55 percent more expensive for the debtors than it was before the change. The study was conducted by bankruptcy attorney and law professor Lois R. Lupica and sponsored by the American Bankruptcy Institute and the National Conference of Bankruptcy Judges.

This was actually a "pilot" study -- a look at 2,000 cases across bankruptcy districts in six states. The full study, due in 2011, will expand that to 10,000 cases in 90 bankruptcy districts. Lupica cautioned that the broader study will be more reliable, but told the Journal that she had no doubt that the bankruptcy reform law had raised costs for everyone involved. Among individuals and couples filing for Chapter 13 bankruptcy, a press release noted, the median cost was $2,930 in 2003 and 2004, before the Bankruptcy Abuse Protection and Consumer Protection Act. That median price jumped to $4,077 in 2007 and 2008. Among Chapter 7 filers, the costs in the same period went from $900 to $1,399. The study found that those costs are passed along to trustees, attorneys and creditors, in the form of time as well as money. Lupica said this was a direct result of requirements that cost money and time, such as credit education courses.

Our Fullerton individual bankruptcy lawyers do not believe a study is required to see this. Of course, most people go into bankruptcy without a lot of extra money, so every dollar they have to spend counts. In the press release, Lupica said the increased costs may have driven down the total number of bankruptcy filings. Post-reform filings are still below their pre-reform peak, even though they are currently at all-time post-reform highs. If this is a direct result of the reform law, we think it's a shame that the law has effectively taken away some people's access to bankruptcy. Bankruptcy is not a first resort, but for some filers, it's the smartest way to handle a financial situation that is not sustainable. Without it, the poorest may continue to suffer from ruined credit and constant debt collection calls without any means of starting over and rebuilding. And of course, requirements that raise costs also take away money that could be used to pay off creditors.

Continue reading "Study Finds Bankruptcy Reform Increased Costs for Filers and Recoveries for Creditors" »

As Newport Beach commercial loan modification attorneys, we were interested to see a recent article suggesting that the trend of "walking away" from mortgages has now reached the commercial sector of real estate. The Wall Street Journal wrote Aug. 25 about at least three companies that have chosen to default on commercial loans because they believe it makes better business sense than continuing to pay the loans back. The article compares this trend to the debate among residential mortgage holders, where many people have accused walk-aways of failing to meet a moral obligation to repay their lenders, even if it makes good financial sense to abandon the loan. By contrast, the article said, there is less of a stigma for this in the financial world -- in fact, some companies that walked away have even been rewarded financially for what was seen by some as a smart business move.

The article cites at least four commercial property owners that have made strategic financial decisions to stop paying their mortgages and return the keys to the lender. They include Taubman Centers Inc., owner of the Beverly Center in Los Angeles, which walked away from a mortgage on a property in Atlantic City, N.J. Robert Taubman, the company's chief executive, told the Journal that the decision was not made lightly, but the gap between the $52 million value of the property and the $135 million paid was very large. At least one investor, Deutsche Bank's RREEF, reportedly favors companies that get rid of "money pit" properties, as long as their loans do not hold buyers personally responsible for a default. The article said whether a buyer walks away depends to some extent on the lender, noting that at least one borrower blamed its walk-away on its inability to make a deal with the lender. Nonetheless, it said lenders and investors take a financial hit when they are forced to re-sell properties at the bottom of the CRE market.

Our West Covina commercial real estate loan modification lawyers make this argument to lenders whenever we have a client seeking a loan workout in lieu of an outright foreclosure. Unfortunately, not all lenders are listening. As this article suggests, cold logic is likely to lead many CRE investors who bought at the height of the bubble to consider walking away. Those investors are also much less likely to be affected by the "moral obligation" argument being advanced in the residential mortgage debate, simply because commercial real estate is a business transaction for the buyer as well as the seller. Under those circumstances, lenders will probably need to take a hard look at the possible consequences before simply denying a loan workout or extension to commercial investors. Otherwise, they may be stuck with multimillion-dollar properties they cannot sell, or sell for their true value.

Continue reading "Commercial Property Owners Begin Exploring Walking Away to Deal With Debt" »