California Bankruptcy Attorney Blog

New regulations on for-profit debt settlement companies seemed like a welcome change to our Colton consumer bankruptcy attorneys, when they took effect in October. So we were disappointed by a Dec. 21 article from CNNMoney.com, saying many of those companies have been accused of breaking or skirting those regulations. Nonprofit debt counselors, who are not covered by the new rules, wrote a letter to the Federal Trade Commission earlier this month, asking it to look into practices that seem to be attempts to find loopholes in the law, or even outright ignore it. Some are also hiring attorneys in an effort to pose as law firms, which would make them exempt from the new regulations. This is concerning because some debt settlement companies take advantage of desperate people by taking their money up front and delivering nothing.

The rules that took effect in October apply to companies that advertise their services through the telephone. They ban debt settlement companies from taking money before delivering any services. Instead, they must show agreements with creditors disclosing how much debt they can reduce. Only after the consumer agrees can the companies charge a fee. To escape the telemarketing aspect of the rules, some companies have switched to soliciting via text message or online, or setting up in-person meetings. Another way they try to create loopholes is by claiming to be law firms, or actually hiring attorneys, and calling their fees a "retainer" rather than fees. A presentation from an industry group of for-profit debt settlement firms also suggested that relocating overseas could help them escape the rules. A spokesperson for that group said the presentation was merely explaining the law, not suggesting a way for members to avoid it.

We doubt that. As Stanton personal bankruptcy lawyers, we strongly support the ban on up-front fees for the same reason we supported California's ban on up-front fees for loan modification companies. In both cases, there's a strong component in the industry of shady companies that are willing to take money from desperate people and then simply disappear, without providing actual services. In fact, we think the loopholes these companies have found are good examples of how they can be shady. Texting the customer rather than calling may technically not be telemarketing, but it's still clearly within the spirit of the law. And misleading people into believing they are represented by an attorney when they are not is actually a crime. In fact, the article mentions a successful lawsuit by North Carolina's attorney general against a Florida company posing as a law firm.

Continue reading "Consumer Advocates Ask FTC to Police Debt Settlement Firms That Break the Law" »

Our San Bernardino County foreclosure defense attorneys were pleased to see that robo-signing may finally be creating some widespread negative consequences for lenders. The New Jersey Star-Ledger reported Dec. 21 that the state's Chief Justice, Stuart Rabner, has informed six major lenders that he will suspend their foreclosures unless they can show their internal foreclosure processes meet legal standards. Bank of America, Chase, Wells Fargo, OneWest, Citibank and Ally Financial have until Jan. 19 to file paperwork showing this. The chief justice also called on lenders and servicers with active foreclosure cases to document no irregularities in their cases within 45 days; and sent a letter to the state Bar Association reminding attorneys that they must be able to verify information in foreclosure affidavits before signing those affidavits.

New Jersey, a judicial foreclosure state, has recently gotten national attention after a federal bankruptcy judge there rejected a foreclosure. The foreclosing bank, Bank of America, could not prove it owned the mortgage, and an employee testified that it routinely failed to transfer ownership when securitizing mortgages, a violation of the law. In November, the nonprofit Legal Services of New Jersey sent Rabner a report alleging that failing to validate foreclosure affidavits before signing them is widespread in the mortgage industry. This echoed the national robo-signing scandal that broke in October. Since then, at least four other state attorneys general have ordered lenders to show that their foreclosure processes are valid, and the state of New York also ordered foreclosure attorneys for lenders to certify that they have reviewed the paperwork.

We hope, as Orange foreclosure defense lawyers, that these actions make a difference for people who are at risk of losing their homes to incorrect foreclosures. When robo-signing first broke, lenders claimed that it was only a technical matter, because most people in foreclosure genuinely hadn't made their mortgage payments. Judging by this article, authorities in New Jersey and five other states aren't willing to take lenders' word for that -- they want extra layers of proof or liability to ensure that the foreclosure is not correct. Very likely, judges also dislike the lack of respect for the court shown by lenders' failure to follow basic parts of the law. After practicing in this area for nearly two years of the housing crisis, we strongly agree that some kind of failsafe is important. Lenders and servicers stand to make a lot of money by pushing through foreclosures quickly -- but if they get something wrong, borrowers stand to lose their homes.

Continue reading "New Jersey Chief Justice Threatens to Stop Foreclosures Over False Paperwork" »

As Moreno Valley consumer bankruptcy lawyers who also represent clients seeking loan modifications, we were very interested to see a recent article comparing the two areas of the law. The Pittsburgh Post-Gazette reported Dec. 20 that some attorneys believe filing for bankruptcy is a better way to handle an impending unfair foreclosure than trying to negotiate with the lender, or even suing. One attorney said bankruptcy is simply easier, because the bankruptcy process includes enforcement tools that loan modifications do not have -- modifications "have no teeth." Lawyers also said lenders are rude and unhelpful, citing horror stories by clients tangled in red tape for months. Instead, at least some attorneys said they were more likely to suggest a Chapter 13 bankruptcy, as long as the client had a steady income.

The article repeats the story that real estate observers have all become familiar with: lenders lose paperwork repeatedly, force borrowers to repeat their story to a new person with every call, fail to take action and drag out the process for months while borrowers lose money or fall further and further behind. Bankruptcy lawyers said the process was frustrating, undignified and had only a 50-50 chance of success, thanks in part to a lack of enforcement mechanisms for loan modifications. Allegheny County, where Pittsburgh is located, has a foreclosure mediation program, but it only comes into play after the lender formally files the foreclosure. By contrast, a bankruptcy case is a court case with strict deadlines and a judge serving as a neutral third party who can review both sides' claims. In a Chapter 13 bankruptcy, one attorney said, borrowers can make a plan to catch up on their payments without the pressure of an impending foreclosure.

Our Temecula personal bankruptcy attorneys agree -- to a point. Bankruptcy is one solution to a threat of foreclosure, but it's not the only solution and isn't the right one for everyone. A bankruptcy comes with serious consequences -- it will do serious harm to the filer's credit for seven years, making it hard to get auto loans, start a business or even get a new cell phone contract. For people who are under severe pressure from unpaid debt, this is usually a worthwhile trade-off for getting a clean slate and a chance to start over. However, it may not make sense for people whose only debt problems are with their mortgages. They should also consider whether their mortgages can be challenged in court due to predatory lending, falsified paperwork (robo-signing) or other legal problems. And as the article points out, a payment-plan Chapter 13 bankruptcy isn't available for people without a steady income, who can still file for Chapter 7 but may not be able to save their homes this way.

Continue reading "Some Believe Bankruptcy Is More Effective Than Pushing for a Loan Modification" »

In the experience of our Rubidoux consumer bankruptcy lawyers, most people who file for bankruptcy don't think strategically about it in advance. That's a shame, because planning ahead for bankruptcy is almost always possible and can help filers get the most out of their bankruptcies. Let's start by noting that we do not mean to suggest it's a good idea to start transferring assets to friends and relatives to hold for you before you file. This is hiding assets, it is illegal and it can put you in jail, or at least get your bankruptcy thrown out of court with no ability to re-file. But if you know you're headed for bankruptcy, you can make a few financial moves that maximize the debts you can discharge while minimizing the chance of costly mistakes.

For one thing, potential bankruptcy filers should know that not all debts are dischargeable in bankruptcy. In particular, child support and tax payments can never be forgiven, no matter how big the backlog is or how little your ability to pay them. If you have only limited money with which to pay debts, it may be smart to put it all toward the non-dischargeable debts, and ignore dischargeable credit card or medical debts. While you're planning, you should also take a look at California's bankruptcy exemptions, to see if you can maximize the property and money you keep. Again, this should not be outright hiding of assets, but converting one kind of property into another. An experienced Irvine personal bankruptcy attorney can advise you on what to change and where the line is drawn.

There are also some things bankruptcy filers shouldn't do just before filing for bankruptcy. In addition to hiding assets, filers should never try to get the most out o their bankruptcies by going on wild spending sprees. Heavy spending or lots of cash advances within a few months of a bankruptcy may be considered an attempt to defraud the court. If it is, you will still have to pay those debts. This will probably not apply to large debts you genuinely had to take on, such as high medical bills, or to ordinary spending on groceries and housing. Finally, if you have a large debt to the same bank where you keep a checking or savings account, you should know that the bank is legally permitted to take money out of your account to satisfy that debt. Some lenders may try to do this when you file for bankruptcy, often with a credit card debt they believe won't be fully paid. This is not legal after the bankruptcy is filed, but you're still better off moving your money if you know you're headed for bankruptcy court.

Continue reading "Ways to Plan Ahead if You Know You Will File for Personal Bankruptcy" »

Our Ontario consumer bankruptcy lawyers were interested to see a proposed bill that could change how bankruptcy judges handle foreclosures. As MarketWatch reported Dec. 15, Sen. Sheldon Whitehouse, a Democrat from Rhode Island, plans to introduce legislation making it clear that bankruptcy judges may require good-faith loan modification negotiations. This concern stems from an actual incident in Rhode Island, where two banks have recently challenged the local bankruptcy court's loss mitigation program. Whitehouse testified in favor of his proposal at a hearing the House Judiciary Committee called to investigate multiple paperwork problems in the foreclosure system, including the recently unveiled practice of fraudulent "robo-signing" and ongoing accusations that lenders don't give loan modification requests a fair hearing.

The loss mitigation program in Rhode Island is also used by bankruptcy courts in Florida, New York and Vermont. In Rhode Island, the program allows bankruptcy judges to require lenders, borrowers and their attorneys to negotiate in good faith. They are not required to agree to a loan modification and the court does not dictate the terms. Nonetheless, lenders in two bankruptcy cases are challenging the program, arguing that the court has no standing to order the loss mitigation program. Whitehouse said he was concerned that this challenge, heard in late November, would discourage other courts from setting up similar programs. He said forcing both sides to the negotiating table helps avoid an expensive foreclosure that ultimately benefits neither side.

Our Chino Hills personal bankruptcy attorneys strongly agree. Throughout the housing crisis, we've watched lenders foreclose on people who are willing to pay and in many cases able, as long as the rate is adjusted slightly. However, over and over, we've seen lenders turn down chances to guarantee years of payments from borrowers in exchange for a slight reduction in their monthly payments. The result is foolish -- fewer profits for the lender and a lost home for the borrower. The loss mitigation program, which requires both sides to make a good-faith effort to come to an agreement, is one way to address the problem within the context of bankruptcy. If these programs are successful in the states where they're being used, we hope Whitehouse's bill becomes law and other jurisdictions take notice.

Continue reading "Senator Plans Bill to Expressly Allow Bankruptcy Judges to Order Foreclosure Meetings" »

As Riverside personal bankruptcy attorneys, we were interested to see a high-profile couple in Southern California dealing with foreclosure and bankruptcy with a lot of scrutiny from the press. The Orange County Register reported Dec. 10 on a bankruptcy filing by a company owned by Jim Bellino, husband of "Real Housewife" Alexis Bellino. The company filed for Chapter 11 bankruptcy, so it's not a consumer bankruptcy, as Jim Bellino was quick to point out. But the company, Global Marine, Inc., is a single-asset company whose single asset is the Bellinos' Newport Beach mansion. The couple narrowly avoided foreclosure earlier this year through a loan modification, and now says Chase Bank reneged on that deal. Jim Bellino said the bankruptcy is intended to protect the home while they continue negotiating with the bank.

The Bellinos originally had a $4.5 million mortgage on their home, which lost some value just like the rest of the real estate market. However, they apparently missed some payments and ended up in foreclosure in August of this year. A foreclosure sale was scheduled, but the couple successfully negotiated a loan modification. At the time, Jim Bellino said Chase was "great to work with," but last week, said the lender had changed it offer. Neither side commented on the details. The Bellinos listed the home for sale at $3.7 million and then $3.5 million this week, which would be a short sale, and a foreclosure auction was scheduled for Jan. 10. The bankruptcy of the home's holding company, Global Marine, is likely to delay any foreclosure proceedings still further. That may be what Jim Bellino meant when he said he filed to protect the home, something he said is commonly done in his work as a real estate investor.

We are Garden Grove individual bankruptcy lawyers, not business bankruptcy attorneys, but we can confirm that bankruptcy is also a common way to handle foreclosure on an individual or couple's home. In fact, bankruptcy is a common strategy for people whose foreclosures stem from financial problems they expect to fix. For individuals and couples who don't have a holding company at their disposal, this is a tough decision, because it means a hit to their credit that lasts seven years. But filing for a Chapter 13 bankruptcy allows homeowners to make an organized payment plan to catch up on the payments they missed. The bankruptcy protects homeowners from the threat of foreclosure altogether and may protect them from further late fees and other penalties. The other major type of consumer bankruptcy, Chapter 7, may also exempt the home, but this is not at all automatic.

Continue reading "'Real Housewives' Couple's Company Files for Bankruptcy After Mortgage Troubles" »

Our Perris foreclosure defense attorneys are very interested in the ongoing multistate investigation of major lenders triggered by the robo-signing scandal. As you may recall, robo-signing is the name the media gave to the practice of allowing foreclosure documents to be signed en masse, without the signer actually reading them. There have also been complaints about forged signatures or non-executives masquerading as executives. Attorneys general from all 50 states agreed to investigate whether crimes were committed and how homeowners should be protected or compensated. Iowa attorney general Tom Miller is leading that group, and at a community meeting in Des Moines, he told the audience that he and federal prosecutors in Iowa intend to "put people in jail" for mortgage fraud.

Miller's remarks came at a meeting with homeowners and community activist groups from 15 states. Those groups, including Iowa Citizens for Community Improvement, urged Miller's group to require, not merely encourage loan modifications; require reductions in loan principal; compensate people who have already been incorrectly foreclosed and prosecute whenever someone broke the law. The meeting included testimony from homeowners including Californian Gina Gates of San Jose, who said she was foreclosed owing far more on her mortgage than the lender would have received if it had granted a modification. Miller's office cautioned that the multistate investigation is a civil investigation focused on reducing foreclosures. However, at the meeting, Miller said he and the U.S. Attorney for Southern Iowa plan to prosecute Iowans for any mortgage-related fraud they find.

As Redondo Beach foreclosure defense lawyers, we hope this implies that Miller is open to prosecution on a national level as well. The remark was not widely reported, but it's the first indication that individuals, including executives, may be criminally prosecuted in connection with robo-signing. Thus far, no executives have been imprisoned in any part of the mortgage crisis -- even Angelo Mozilo of Countrywide. However, robo-signing is undeniably a form of fraud, because the signatures are legal testimony that the signer read and confirmed the information on the documents. Robo-signers openly admit to not having done this. Lenders argue that this is only technically fraud because most people in foreclosure deserve to be there. Evidence is mounting that this isn't true, and if fraud is behind many incorrect foreclosures, the people who ordered and carried out that fraud can and should be criminally prosecuted.

Continue reading "Iowa AG Says His Office Will 'Put People in Jail' Over Robo-Signing in His Home State" »

Our Moreno Valley consumer bankruptcy attorneys were interested to see a recent Q&A column about the effects of divorce on a bankruptcy. Bankrate.com ran the column Dec. 8 with a question from a woman who shares ownership of her former home with her ex-husband, who still lives there. The home is for sale, but in the bad market, they have not been able to find a buyer. The ex-husband is in financial trouble and can't pay the mortgage, she said. If the lender moves to take the home, the ex-husband wants to declare bankruptcy. She wants to know if her ex can put the entire home in bankruptcy even though he only owns half, whether she must cooperate and whether it would help to take his name off the deed to the house.

Unfortunately, the columnist had bad news for this woman. Former spouses can file for bankruptcy without consent or participation from their exes, even when ex-spouses share property or children in common. Once a bankruptcy is filed, a trustee will look at all of the ex-husband's assets, just as they would in any case. Those assets will include his half of the interest in the house. If the ex-spouses have little or no equity in the house, the trustee won't have anything to recover and will probably not try to sell the house. But if they do have equity, there will likely be a sale and both exes will be compensated for their shares. Furthermore, depending on the state, the woman would be liable for any deficiency balance if the home is sold through a short sale, whereas her ex would be protected by his bankruptcy. However, this may not be true if he was given responsibility for the mortgage in the divorce decree.

As you can see, much of the issues surrounding bankruptcy and divorce depend on the terms of their divorces. As Downey personal bankruptcy lawyers, we prefer to look through each individual's own financial situation and divorce decree, because it's difficult to generalize. However, one important fact about divorce and bankruptcy is that the debts you take on in a divorce often aren't dischargeable in bankruptcy. For one thing, child support and spousal support (alimony) are not dischargeable and in fact given top priority among creditors, although people who are owed support should file with the court to show they are owed. For another, the 2005 bankruptcy law changes made it harder to discharge debts related to property settlements. In a Chapter 7 bankruptcy, you are still responsible for those debts if not paying them would harm your ex-spouse more than it would harm you. In Chapter 13, this is easier.

Continue reading "Bankruptcies of Former Spouses Can Harm Divorced People With Property Interests" »

When the news of robo-signing broke, one consistent refrain from mortgage servicers and lenders was that it was a technicality. Most or all of the people in foreclosure got there by not paying their mortgages, they argued, so whether the paperwork was in order was ultimately not important. Our Corona foreclosure defense lawyers were therefore very interested in an Associated Press article dated Dec. 8 that tells a different story. The article explains multiple cases in which the lender attempted to foreclose on property it didn't own, that the defendant didn't own or that was up to date. In many of those cases, defendants had to pay large amounts of money to correct errors because lenders refused to do it themselves.

In one case, a bank tried to foreclose on a home that had been paid for in cash, whose owner had never had an account with the lender. Warren Nyerges of Naples, Fla. showed a copy of the cashier's check he used to pay for the house, but no one at Bank of America was impressed. He had to serve as his own lawyer in the foreclosure proceeding, where he was finally awarded $2,500 plus interest for the trouble and cost of fighting their mistake. Another man, Tom Williams of Kansas City, was up to date on his mortgage when GMAC threatened to foreclose unless he paid off the balance immediately -- on a loan set to mature in 2032. The bank put a stop on his account, hurting his and his wife's credit at a time when she was trying to buy a business. Williams said he'd spoken to 25 GMAC employees who promised to help but never did. He was offered a loan modification he didn't want and has had his payments returned. He intends to hire an attorney.

This article describes several other situations like this, some of which have triggered lawsuits. It then goes into detail about the recent history of U.S. mortgage lending, concluding that financial incentives in the fee structures, plus the volume of foreclosures created by lower lending standards, led to disorganization and outright fraud in practices like robo-signing. It also mentioned testimony from several ex-employees who said they had been pressured by banks and law firms to push through foreclosures even when borrowers claimed there was a mistake. As Fountain Valley foreclosure defense attorneys, we are pleased to see these issues covered so thoroughly in the mainstream press. Because we work with homeowners every day, we know lenders' customer service systems are broken, perhaps intentionally -- but their excuses are typically swallowed without question in the media.

Continue reading "Article Outlines Multiple Cases of Mistaken Foreclosure Attempts by Lenders" »

Our Rancho Cucamonga foreclosure defense attorneys have read a lot lately about people who are fighting foreclosures by asking a court to verify that the foreclosing bank actually has the right to foreclose. The Wall Street Journal put a special twist on that story Dec. 4 with an article about a Florida woman who has been in foreclosure since 1985. Patsy Campbell, 71, is a retired insurance saleswoman with a house in Okeechobee County, Fla. Thanks in part to the savings & loan scandal of the eighties, the ownership of the mortgage changed hands several times, confusing ownership and causing foreclosures to be dropped. Like people with more recent mortgage problems, she has been able to stop foreclosures by challenging ownership as well as legal mistakes by lenders.

Campbell inherited the home and its mortgage from her husband, who died in 1980. She stopped making mortgage payment in 1985, when an illness dropped her income. Around that time, banks started selling her note -- at least six times in all. Four different lenders attempted a judicial foreclosure, as is standard in Florida, but the case was dropped every time the note changed hands. It was eventually sold to the FDIC, which sold it to a private lender that tried to foreclose in 2000. That's when Campbell started fighting back with help from a local foreclosure attorney. Some of the defenses she raised were no good, but some were valid, including a demand that the lender prove ownership and complaints about previous lenders' failure to pay court and attorney costs. She also seized on procedural errors, such as a court clerk's mistake, when she found them. When the lender finally got a foreclosure court date this year, Campbell filed for bankruptcy, which is likely to delay things another four months.

The article cast Campbell's actions as clogging the court system with fruitless delays. But as Orange foreclosure defense lawyers, we are impressed, especially since she is now representing herself. Lenders may not like it when foreclosures are delayed, but when there are serious questions about the validity or fairness of the foreclosure, a delay is entirely appropriate. Campbell argues that ownership of her mortgage is now in doubt because it has been transferred so many times. If that argument sounds familiar, it might be because it's also being used by victims of robo-signing and by investors interested in putbacks of toxic mortgage-backed securities. That is, this is yet another instance of lenders failing to follow basic paperwork laws, then protesting when finally held responsible.

Continue reading "Florida Woman Staves Off Foreclosure for 25 Years by Asking to See the Note" »

As Norco individual bankruptcy lawyers, we were interested to see a new report on the bankruptcy filings reported for November. The Wall Street Journal reported Dec. 1 that new bankruptcies dropped 13 percent last month over October's filings, for a total of 114,587. However, that number was still 2.2 percent higher than the number for November of 2009, and experts say 2010 is still on track to set a record high for number of bankruptcy filings since the 2005 changes to the bankruptcy code. Experts suggested that the slowdown may be the delayed effect of increased caution by consumers, although no evidence was offered to support this.

The bankruptcy code saw significant changes five years ago, in an effort the Journal said was intended to make bankruptcy more difficult. As a result, filings spiked just before the new law took effect, then dropped immediately. They have been creeping up again lately, thanks in part to the same bad economy that is reducing consumer spending. The article also notes that unemployment may be a cause. It quoted the Institute for Financial Literacy, which found a 13 percent increase in bankruptcy filers reporting loss of income and a 6 percent increase in those reporting loss of a job. The article also mentioned a lack of availability of credit, which hurts some businesses by making it harder to refinance debt or move money around. In all, bankruptcies are expected to reach about 1.6 million this year.

We follow this news regularly in our work as Torrance personal bankruptcy attorneys, so we're not at all surprised by the volume of filings. But it's good to see that the rate of bankruptcies may be slowing, since that suggests less financial suffering. As a spokesperson for the American Bankruptcy Institute notes in the article, there is also a down side when consumers reduce their spending: less spending hurts the economy overall. However, it also hurts the economy when large numbers of people are forced to declare bankruptcy, since many of their creditors get little or no payment. It would be nice if this were an early sign of an economic recovery that unfreezes credit, increases new jobs and helps the real estate market rebound -- but it's still early.

Continue reading "Bankruptcy Filings Slow in November But Still Expected to Set New Record for 2010" »

The vast majority of the cases our Rialto consumer bankruptcy attorneys see are cases involving first-time bankruptcy filers. Most of these people are new to the idea of bankruptcy and don't always understand how it works, which can sometimes have dangerous results. So we were pleased to see a Bankrate.com advice column dated Nov. 30 about the concept of declaring "partial" bankruptcy. There is no such thing as partial bankruptcy, as the column explains -- and trying to achieve this by simply leaving out certain parts of your financial life could get you into trouble. Not only could it get the bankruptcy canceled entirely, but as this columnist points out, it could make the filer guilty of perjury, leading to jail, inability to file for bankruptcy again or other negative consequences.

The letter-writer in this case is someone who has credit card debt and debt on commercial mortgages. He or she wants to file for Chapter 7 bankruptcy, but leave other financial assets and debts untouched. As the columnist says, this is a very bad idea. Bankruptcy is designed to take stock of the individual or couple's whole financial life, including income, debts, assets and recent transactions. It balances filers' assets against their debts in an effort to see how much they can reasonably afford to pay off. If you leave out debts or assets, you are denying complete information to the court and the bankruptcy trustee appointed to oversee this process. Because you sign a statement saying the list is complete to the best of your knowledge, intentionally leaving anything out is perjury. Even leaving out a recent transaction could be illegal, depending on how recent and what type of transaction.

In our experience as Carson personal bankruptcy lawyers, many people do this, or try to do it, with good intentions. Sometimes, they want to leave a debt out because they want to repay the entire debt and believe it could be wiped out in the bankruptcy. Or they might believe an asset shouldn't be part of the bankruptcy because it is owned jointly. This is not necessary; bankruptcy law gives filers a way to deal with these and other common situations without violating a third party's property rights. And, worse, leaving things out can look like fraud to the court. If you have recently given something expensive as a gift, this could still look to a court as if you were trying to hide your assets. At best, you'd have to amend your bankruptcy to include information that was left off. You could also have your case dismissed and legally barred from being reopened for a specific period. And anything that looks like intentional fraud can land you in jail.

Continue reading "Bankruptcy Filers Must Disclose Every Asset and Debt or Risk Cancellation of the Case" »

As Fontana predatory lending lawyers, we were disturbed to read about a proposal that would destroy an important provision of the federal Truth in Lending Act. According to the Political Economy blog at the Washington Post, the Federal Reserve Board is considering a change to the part of TILA that essentially allows loans to be canceled when they were made illegally, without the proper disclosure of the loan's terms. The proposed rule would keep that right, but require borrowers to repay the full amount of the loan before the loan is canceled. This would be impossible for most mortgage borrowers, making the right of rescission useless. Because this right of rescission is frequently used in foreclosure cases, a group of foreclosure attorneys and consumer protection groups have written to the Fed (PDF) to protest the proposal.

When lenders make a mortgage loan on a primary home, they are required under TILA to disclose things like the payment schedule, APR, finance charges and other basic loan terms. Failure to disclose all of this gives the borrower a right to rescind the transaction for up to three years after closing. The rescission cancels the lender's legal claim on the physical property, and requires the lender to return any finance charges it has already collected. The borrower will still be required to pay off the loan, but he or she will not be required to pay any finance charges in the future. In essence, rescission takes the profit out of the loan. This gives the lender an incentive to make the legally required disclosures. In recent years, rescission has also been used as a tool to defend against foreclosures among people whose loans were illegal to start with, who can then refinance.

Under the new proposed rules by the Fed, the right of rescission would still be in place -- but the consumer would be required to pay the entire loan back before the lender canceled its interest in the property. As the consumer groups' letter says, this rule would make the right of rescission useless. There would be no incentive to make the disclosures, because the lender would retain its ownership right in the property despite having broken the law. This would also take away borrowers' ability to use rescission as a defense against foreclosure, and their ability to refinance the loan with another, more ethical lender after rescission. As the New York Times observed recently, this rule change would benefit and incentivize law-breaking.

Our West Covina predatory lending attorneys strongly agree with the Times and the letter-writers. The Truth in Lending Act tries to even the playing field between mortgage lenders and borrowers. Without full disclosure of the terms of the loan, borrowers have no hope of understanding what they are signing unless they happen to be real estate attorneys. (Even with disclosure, that's questionable.) This opens the door for lenders to commit outright fraud with impunity, because they would know that even if they were caught and the loan was rescinded, they would still be able to foreclose. The Federal Reserve said it proposed the rule to "reduce uncertainty and litigation costs" to lenders, and indeed, the rule would do that. But this is a case where uncertainty and litigation costs are an entirely appropriate reward for breaking the law.

Continue reading "Consumer Groups Protest Federal Reserve Proposal to Change Truth in Lending Act" »

A recent article from Inside Tucson Business addressed what the author sees as some of the most common myths about bankruptcy. We were very pleased to see this, as Ontario individual bankruptcy lawyers, because these kinds of myths come up often in our work. The article largely addresses bankruptcy's relationship with foreclosure, a subject that is very relevant in Arizona as well as here in southern California, but also discusses credit card debt. In each case, the author, a consumer bankruptcy attorney, debunks the myth and discusses the harm that it can cause. That's a serious concern, because delaying filing for bankruptcy can often make the person or couple's financial problems worse, or at least unnecessarily prolong their suffering.

The first myth is one we've seen a lot: the idea that bankruptcy filers will automatically lose their homes. In fact, bankruptcy gives filers a tool for holding on to their homes under many circumstances. Homeowners typically file for Chapter 13 bankruptcy, which allows them to set up a payment plan to catch up on overdue payments at a rate they can afford. Chapter 7 bankruptcy may also exempt your home equity if you have enough. Another mortgage-related myth addressed by the article is the idea that a short sale, in which you sell the home for less than you owe on your mortgage, can get you out of paying the balance of the loan. This is true for certain California mortgages, but it is not at all universally true and not safe to rely on. Finally, the article discusses settling credit card debt instead of declaring bankruptcy. This may work -- but you must be very careful to make sure that you've got the deal in writing and that any debt relief agency you use is a nonprofit rather than a scammer. Even then, it notes, beware of tax liability for the forgiven debt, which is counted as "income."

Our Yorba Linda personal bankruptcy attorneys could add plenty more myths to this list. Two of the common misconceptions we see are almost polar opposites, in fact. One expands on the "losing my home" idea: the myth that declaring bankruptcy means losing everything and ending up on the street or living off relatives. In fact, bankruptcy is designed to leave filers with enough of the basics to get by, and protect things like family heirlooms, wedding rings and personal property. In fact, many personal items, such as clothing, have no resale value and wouldn't be helpful to creditors anyway. The opposite misconception is the idea that bankruptcy can cancel absolutely every debt the filer has. It can go a long way, but certain debts can't be wiped out, including child support, most student loans and tax debts. However, if you are able to get relief from other debts, you may be able to free up money with which to pay those debts.

Continue reading "Myths About Bankruptcy That Keep People in Financial Need From Filing " »

As San Bernardino foreclosure defense attorneys, we were very interested to read about another financial scandal that could seriously harm mortgage lenders. As the Wall Street Journal's Real Time Economics blog reported Dec. 1, the Federal Reserve is concerned that major banks don't have enough money to cover "putbacks" from purchasers of securitized mortgages. In essence, a putback cancels the purchase of a security because of misrepresentations or fraud made at the time of the purchase. In the case of securitized mortgages, investors could claim that the bank didn't conform to the standards it said it would when writing the loan, or that there were misrepresentations on the loan application. People who invested in those loans would be legally allowed to ask for their money back -- and that would stick banks with the bill.

The problem is not completely unlike the "robo-signing" issues that arose in late September, or the still-unfolding issue of whether Countrywide Financial systematically violated state lending laws. Like these other issues, putbacks rely on problems with paperwork. However, putbacks are actions by investors in mortgage-backed securities, not by troubled mortgage borrowers, which means the potentially wronged parties are far more likely to have the financial resources to take their cases to court. Federal Reserve Governor Daniel Tarullo told the Senate that banks' potential exposure to losses from putbacks exceeds their exposure from robo-signing. A preliminary review by the Fed found widespread problems with legal compliance, risk management and quality control at so many major lenders that Tarullo said it could be an industry-wide issue. Some investors have already sued, claiming violations of federal law in loan underwriting. If it becomes a trend, banks could be at serious financial or legal risk.

At first glance, this seems like a dispute between banks and investors, not banks and mortgage borrowers. So why does this matter to mortgage borrowers and Chino Hills foreclosure defense lawyers like us? Because the same fraud or carelessness that could cancel the investments could also cancel the underlying mortgages. If courts start closely examining the safety and legality of mortgage loan underwriting, they could expose problems that affects the mortgages as well. For example, if investors prove that a mortgage was issued despite known fraud on the loan application, the borrower for the underlying mortgage may be a victim of predatory lending. That borrower would then be able to sue to cancel or restructure the predatory loan. The suits could also expose systematic paperwork problems at lenders similar to the robo-signing or note ownership problems, which could create yet another reason to challenge foreclosures.

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