California Bankruptcy Attorney Blog

Our Rancho Cucamonga foreclosure defense lawyers were very interested to see a recent study confirming what some observers have through all along: when a loan is securitized, that loan is harder to modify later. That was the conclusion of a study released Feb. 3 by the Federal Reserve Bank of Chicago, one of the branches of the national Fed. As the Center for Public Integrity wrote in a Feb. 10 blog post, homeowners are a staggering 26 to 36 percent more likely to get a loan workout if a bank still owns their mortgages. In addition, the study found that borrowers whose loans were still with the originator had a 9 percent lower redefault rate, suggesting that such modifications are more efficient. The study drew on federal data from 2007-2009 about 34 million mortgages.

Securitization is the name for the practice of bundling a loan into a group of loans that investors can buy a stake in. Loan securitization was widely blamed for part of the housing crash, because it allowed mortgage lenders such as Countrywide Financial to make high-risk loans, including predatory loans, and then pass the risk on to investors while collecting monthly payments. Borrowers have no control over whether their loans are securitized, but as the Chicago Fed study showed, they have to deal with the results. The authors of the paper found the 26 to 36 percent number to be true regardless of borrower credit quality. While it didn't go into detail about why, the authors suggested that reasons could include "servicers' financial incentives (separation of ownership and control), legal constraints, and ... a coordination problem among investors."

We're pleased that this paper addresses securitization as a reason for problems with loan modifications. Securitization was blamed for loan modification problems early in the housing crisis, but attention has since moved to other issues. While our experience as Santa Ana loan modification attorneys has shown that lender unwillingness to seriously consider loan workouts plays a big role as well, we believe this study could be a useful guide for policymakers trying to avoid a repeat of the housing crisis. Just as securitization gave lenders an incentive to make loans they knew wouldn't be sustainable, triggering part of the housing collapse, it appears to have exacerbated that collapse by making it difficult for homeowners to deal with those unsustainable loans later. In both cases, it's worth questioning whether securitization should continue to be done at all, or done in the same way.

Continue reading "Chicago Federal Reserve Study Finds Securitized Loans Less Likely to Be Modified" »

As San Bernardino County foreclosure defense attorneys, we have a lot of firsthand experience with the bad reasons why many homeowners aren't able to get a loan modification. So we were very interested to see a recent blog post by the activist group Public Citizen about the reasons banks gave the federal government for denying loan modifications. The numbers come from a report issued by the Treasury Department on the last day of January, giving loan-level data on net present value of individual loans as well as information on loan modification acceptance or rejection and reasons why. According to the Feb. 2 Public Citizen blog post, many of the reasons for rejections can be boiled down to paperwork.

The post says that of 2.5 million homeowners taking part in the Home Affordable Modification Program, 1.2 million were rejected -- that's 48 percent, or almost half. Of those who were rejected, only six percent failed the net present value test, which measures whether the modification makes economic sense for the lender. More than three times as many, 21 percent, were reported as not having their paperwork in order. Other common reasons for denials could also have been attributed to paperwork problems, the blogger said, including homeowner not considered payment stressed (20 percent), ineligible mortgage (18 percent) and homeowner not in danger of default (11 percent). Some withdrawn requests, 8 percent, could also be attributed to paperwork issues.

The numbers were similar for those approved for trial modifications but then denied permanent workouts. Of those borrowers, a full 75 percent were rejected for reasons other than failure to make payments. More than half were rejected for having incomes too high for a modification, incomplete paperwork or withdrawn paperwork. In many cases, Public Citizen wrote, these are issues that the lender should have decided before granting a trial modification.

Our Chino Hills foreclosure defense lawyers agree. We've practiced in this area of the law throughout the housing crisis, so we have extensive experience with the headaches clients go through just to be considered for a loan mod. Client have reported for more than a year that lenders repeatedly lose their paperwork; ask for new paperwork; or find arbitrary-seeming reasons why the paperwork isn't complete. We don't believe this is a real problem in businesses as profitable as major mortgage lenders; rather, we believe it's a stalling tactic intended to force homeowners into foreclosure while charging as much as possible along the way. Since the federal government has declined to include any enforcement measures in HAMP, as Public Citizen noted, it's up to individual homeowners and their attorneys to hold lenders accountable for their actions.

Continue reading "Treasury Department Data Shows Most HAMP Rejections Not Caused by Economics" »

As Corona foreclosure defense attorneys, we work every day with clients who are fighting the seeming incompetence or apathy of their mortgage lenders in order to merely be considered for a loan modification. So we were interested to see a Feb. 13 report from the San Luis Obispo Tribune on foreclosures in the county, with particular emphasis on the troubles of Art and Joyce Espinoza. The Espinozas lost their home in Paso Robles after trying for more than a year to win a loan modification, then finding a buyer who made an offer on a short sale. All of those efforts were ultimately rejected, and the couple, both in their 70s, is planning to move out of the home they originally planned for their retirement.

The Espinozas bought their home with an interest-only loan in 2005 and planned to make payments from Art Espinoza's income as a custom cabinet maker. But the economic downturn took away much of his business, and they started to look into a loan modification. As their savings dwindled, Joyce Espinoza tried repeatedly to be considered for a loan modification, only to be met with bureaucratic delays and nitpicking. Once, she said, she faxed a 42-page document to the lender, only to have it rejected because she forgot to sign the back of one of the pages. Eventually, their application was rejected because Art Espinoza did not have full-time income. He said he was staying positive, but wonders whether he and other homeowners were truly given a fair chance to modify their loans.

In our opinion as Los Angeles County foreclosure defense lawyers, they are not. Mortgage lenders have repeatedly blamed their problems making loan modification decisions on the volume of foreclosure work. But the truth is, the other arms of these mortgage lenders are competent and profitable, and they've had ample time to hire help, along with a depressed economy making more workers available. We've come to believe that lenders and servicers don't want to make loan modifications, but aren't willing to say so. Instead, they drag out the process, then deny the modification or decline to make it permanent for no good reason. This is against HAMP rules, but because there's no built-in enforcement mechanism, homeowners who've drained their savings may have no option left but to sue.

Continue reading "Central Coast Couple Loses Home After More Than a Year of Paperwork Delays" »

Our Ontario personal bankruptcy lawyers were interested to see a recent article in which a fellow attorney gave out the same kind of advice we'd like to give. The San Francisco Chronicle-hosted City Brights blog posted an interview Feb. 16 with a bankruptcy attorney from that city, Jeena Cho. Cho discussed the trend toward higher bankruptcy filings in general, which is true across California and the United States as well as in the Bay Area. But she also made several points about how individuals and married couples should approach bankruptcy that we believe are good advice for just about everyone. Most importantly, Cho said, people considering bankruptcy should act now rather than running through assets or being foreclosed or sued.

Cho's advice to take action is reflected in the thing she says drives her crazy with new clients: finding out they've already run through their retirement savings to pay down their debts. This is upsetting for three reasons, she says. Retirement savings are generally protected from bankruptcy - so people who ended up filing anyway could have saved those assets and still gotten the bankruptcy protections they needed. Furthermore, she said, spending retirement savings takes away the client's ability to retire, which is a problem for older filers. Finally, there's often a tax penalty for early withdrawal of retirement savings, and tax debts are not dischargeable in bankruptcy. That means they've essentially traded a dischargeable debt, like credit card or mortgage bills, for a non-dischargeable one, taking away the protections of bankruptcy.

As West Covina personal bankruptcy attorneys, we also see this situation, and we strongly agree that potential bankruptcy filers should find a better way. As a rule, when people in debt start spending their retirement savings, it's a desperate move - which suggests that they may already be candidates for bankruptcy. That also speaks to Cho's advice to act now. People deep in debt may be reluctant to admit it for fear of being judged, or they may truly not know how deep their debt is because it's emotionally difficult to face. In order to protect yourself and your savings the most, however, it's best to face the problem head-on so you can decide early whether you're a candidate for bankruptcy. Many bankruptcy law firms, including ours, offer free consultations, so you can discuss this with an expert without making a commitment just then.

Continue reading "California Consumer Bankruptcy Attorney Offers Tips for Potential Filers in Interview" »

Our Moreno Valley personal bankruptcy attorneys have written here before about the potential danger of hiding assets in bankruptcy or otherwise lying to the court intentionally. So we were interested to see a similar article in the St. Petersburg Times Feb. 16 about the local bankruptcy court's experience with filers who try to hide assets. The story is tagged to the conviction of Gary Parker of Clearwater, who pleaded guilty to knowingly making false statements to the bankruptcy court when he filed for bankruptcy a few years ago. He could face up to five years in prison when he is sentenced in April. The newspaper said 1,611 similar cases were referred for prosecution and 24 were ultimately prosecuted nationwide - a small percentage of the 1.5 million filed.

The article relies on an interview with a bankruptcy trustee and a judge for stories about dishonest bankruptcy filers. According to one trustee, Florida has very low exemptions for personal property: $1,000 for people keeping their homes and $4,000 for people without. If there's evidence that filers tried to understate the value of their property - for example, if they list a tiny value for furniture in a large house - she says she'll typically send out an appraiser. In another case, the home of a couple filing for bankruptcy happened to appear in the newspaper, with pictures of property worth more than they listed. A bankruptcy judge added that dishonest filers are sometimes exposed by ex-spouses or ex-employees, some of whom may have a stake in the property.

As San Bernardino County consumer bankruptcy lawyers, we cannot over-emphasize that intentional dishonesty to the bankruptcy court is a bad idea. While only a small amount of filers end up criminally prosecuted, courts can and do use other penalties. One person mentioned in the article lost his discharge, which means his debts were not forgiven, even though he still has a bankruptcy on his record and lost many assets. Other penalties include having the entire bankruptcy canceled, with or without the option to re-file. Those who remain in bankruptcy will find that the judge and trustee will likely no longer trust them or show much sympathy. These penalties apply not only to outright lies, but also attempts to knowingly hide your assets, destroy records or otherwise deceive the court.

Continue reading "Intentionally Lying in Bankruptcy Court Could Mean Criminal Charges or No Discharge" »

As Redlands foreclosure defense lawyers, we were very interested in a recent ruling out of New York that could have national implications. As the Wall Street Journal reported Feb. 14, a federal bankruptcy court judge in New York has ruled that the Mortgage Electronic Registration Systems, the huge electronic mortgage database company created by a group of major lenders, has no right to transfer mortgages under New York law. This could have implications for all of the 65 million mortgages in the MERS database, because its standard procedures may not be valid in every state, which could in turn invalidate foreclosures. However, the ruling came too late for the bankruptcy filer, whose foreclosure had already been decided in New York state court.

In the case before the bankruptcy court, Ferrel Agard of Westport, N.Y. filed for Chapter 7 bankruptcy in September of 2010. This automatically stopped new action on the foreclosure of his home, which had been approved in November of 2008. The mortgage servicer asked the court to let it bypass the automatic stay and continue the foreclosure, which was on behalf of a bank that was trustee for a security that included the loan. Bankruptcy judge Robert Grossman ruled that he couldn't stop the mortgage, since it had already been approved in court.

But Grossman took the opportunity to address the issue of whether MERS procedures gave the loan servicer a right to foreclose, a potential issue in dozens of cases before that court - and likely thousands across the United States. He said emphatically that MERS does not have the right to assign mortgages under New York law, at least as it was done in the Agard case. Because banks need to own both the mortgage and the note to foreclose in New York, that meant the lender's right to foreclose on Agard's home could have been challenged if it hadn't already occurred. Grossman disagreed with MERS that banks' membership agreements with MERS was enough to assign the mortgage, because authority has to be granted explicitly and transfers done in writing. Thus, the mortgage remained in MERS's name. He also dismissed as "absurd at best" the argument that MERS is both the owner of the mortgage and the assignee of that owner.

This case is interesting to us as Placentia foreclosure defense attorneys because it could invalidate thousands of foreclosures throughout the United States, or at least make them more difficult. This is not the first case discussing whether MERS has standing to foreclose, but it may be the first to emerge since the robo-signing scandal raised awareness that sloppy paperwork from lenders could create invalid foreclosures. MERS was created in the mid-1990s as a national mortgage database that replaces the county land offices that recorded land deals. Rather than filing with those offices in writing, lenders now transfer properties through MERS, a process that requires them to give MERS some amount of ownership. If more courts agree that this process doesn't conform to their own state laws, the system itself may be in trouble.

Continue reading "Bankruptcy Judge Rules Mortgage Electronic Registration Systems Cannot Assign Loans" »

Our Fontana consumer bankruptcy attorneys have been following consumer bankruptcy filings closely as a sign of the economic recovery. So we were interested to see a recent Reuters Blogs post suggesting that the way bankruptcy filing information is presented may be misleading. The Feb. 15 post from Felix Salmon shows a chart generated by the United States Bankruptcy Courts as part of its report on bankruptcy filings for 2010. That chart shows a steady rise in bankruptcies since December of 2006 - but in a way that Salmon suggests doesn't tell the whole story. Salmon looks at numbers he says were left out of the chart and concludes that rather than a steady rise, bankruptcies may be hitting a plateau or decreasing slightly.

A chart generated by the courts shows bankruptcy filings for each quarter since December of 2006, ending in December of 2010. But as Salmon notes, starting the chart then is slightly misleading because it wasn't long after October of 2005, when the bankruptcy law changes took effect. Those changes caused an artificial spike just before October of 2005, then an artificial drop just afterward. Furthermore, he wrote, the courts left out the first three quarters of 2010, which would have showed that the peak of bankruptcy filings was in the spring of 2010, not the end of it. By rearranging the data to include this information, Salmon shows that bankruptcy filings have reached pre-2005 levels, which he says may simply show that they're returning to normal after the law's change.

As Long Beach personal bankruptcy lawyers, we certainly like the idea that our economy is not going to be hit by ever-increasing rates of bankruptcy filings. And it's absolutely true that the 2005 law, BAPCPA, caused an artificial rush to file before it took effect, followed by a predictable drop in filings directly afterward. It would be nice to conclude from this that BAPCPA didn't achieve its stated goal of reducing bankruptcy filings, since bankruptcy is an important tool for people in financial trouble. However, as Salmon notes, we are still emerging from a recession, which would likely have driven bankruptcy rates higher regardless of whether the law changed. We suspect that the real effect of BAPCPA was to drive more people into Chapter 13 rather than Chapter 7. Judging by the courts' data, that worked better before the recession; Chapter 7 filings were 58 percent of all consumer filings in 2006, but 72 percent in 2010.

Continue reading "Columnist Argues That Seeming Rise in Bankruptcy Filings May Be Artificial" »

As Riverside County consumer bankruptcy attorneys, we were wary about the 2005 changes to federal bankruptcy law when it happened. So we were very interested to see a new report from the Federal Reserve Bank of New York saying those changes contributed to the rise in foreclosures in the six years since. The report (PDF), released Feb. 8, uses bankruptcy filing statistics and foreclosure statistics from before and after October of 20005 to support its conclusions. Co-authors Donald Morgan, Benjamin Iverson and Matthew Botsch found that the law contributed to the rise in foreclosures by reducing filers' financial flexibility in bankruptcy by shunting them into Chapter 13 repayment plans.

One of the major changes made by the Bankruptcy Abuse and Prevention Consumer Protection Act was requiring more filers to file Chapter 13, which uses a long-term repayment plan. This generally results in the filers paying back more of their debt and having less forgiven by the court. Prior to BAPCPA, the authors wrote, families in financial trouble could free up money to pay their mortgages by discharging more of their other kinds of debts. BAPCPA took away that option for many filers, and the authors theorized that there should therefore be more subprime foreclosures in states that allow filers to keep larger amounts of home equity.

This was reflected in the data, the authors wrote; subprime mortgages that were already in bankruptcy saw a rise in foreclosures directly after BAPCPA took effect. Their mathematical analysis showed that for a state with an average bankruptcy exemption size, the average rate of foreclosures of subprime loans was 11 percent higher after BAPCPA. That means about 29,000 extra subprime foreclosures per quarter across the U.S., they said.

The authors are careful to acknowledge that other factors also played a role in the foreclosure crisis, including dropping home prices and loose lending standards. But they concluded that bankruptcy law changes also played a role. As Costa Mesa individual bankruptcy lawyers, we're pleased to have a well-written study showing what a lot of bankruptcy lawyers were saying all along: that these changes would be bad for consumers. As the Fed said, the changes essentially made the protections of bankruptcy less available, particularly for loans secured by physical property, including mortgages. As a result, bankruptcy filers couldn't get much help paying their mortgages because they needed their limited incomes to pay back unsecured debt. We hardly need to describe what the resulting wave of foreclosures has done to the economy.

Continue reading "New York Fed Report Says Bankruptcy Law Changes Likely Increased Foreclosures" »

In December, our Corona foreclosure defense attorneys wrote about a mortgage problems of a Newport Beach couple featured on the television show "The Real Housewives of Orange County." Jim and Alexis Bellino's home is owned by a single-asset company, Global Marine, Inc., which filed for bankruptcy that month. The home had been in foreclosure in the past after the couple missed some payments, although it was not at the time of the bankruptcy filing. Jim Bellino said the bankruptcy was intended to protect the home while he and his wife continued negotiating with the bank. Now, the Orange County Register reported Feb. 9, the home is listed as "pending sale" online, suggesting that it could be short-sold.

Like a lot of California homeowners, the Bellinos are underwater on their home, with a $4.5 million mortgage on a home they have now listed for $3.395 million. They missed some payments and went into foreclosure last August. They reportedly had a loan modification negotiated, but Jim Bellino later said the lender changed its offer and the deal fell through. According to the Register, the home was scheduled for foreclosure auction on Feb. 10 despite the bankruptcy filing. However, real estate website Redfin.com listed the home as "pending sale." The Register noted that a final decision could still be months away because short sales are notoriously slow, and because foreclosure auctions are very often rescheduled. It also noted that four other "Real Housewives" in OC have also had mortgage problems.

That's a good reminder that people of every financial background are struggling in this economy, something we've seen firsthand in our work as Diamond Bar foreclosure defense lawyers. In this case, there's an added layer of complexity because of the bankruptcy filing for the holding company that owns the Bellinos' home. A Chapter 11 business bankruptcy is just like personal bankruptcy in one way: it automatically creates a stay on foreclosures and collection attempts, which means creditors are legally barred from bothering bankruptcy filers. For that reason, we're not sure it was truly, or legally, up for auction Feb. 10. The bankruptcy would typically delay any foreclosure for months, if it didn't stop the foreclosure altogether. This isn't the right choice for everyone, but it could give the Bellinos the time they need to finish any short sale.

Continue reading "Home of 'Real Housewives' Company in Bankruptcy May Have Short Sale Pending" »

The Associated Press has come out with a new listing showing what some Californians and our own San Bernardino County bankruptcy lawyers already knew: the recession is not over in parts of the Inland Empire. An Associated Press article dated Feb. 8 analyzes economic stress indicators around the country and concludes that 15 of the country's most stressed counties are in California. In Southern California, that includes Riverside County at number 18, Kern County at number 16 and Imperial County at a disturbing number one. The rankings apply only to counties with at least 25,000 residents and are based on rates of unemployment, foreclosure and bankruptcy filings, using December numbers.

The December rankings were affected most by foreclosure rates, which rose in 33 states. Bankruptcy filings stayed basically steady, the AP said, and unemployment actually lowered a bit. Economic stress eased in California and 44 other states, but California did have the third-highest ranking for economic stress as a state, at 16.36. The AP blamed the trouble for California in part on its heavy employment in real estate, a problem that also affected neighboring Arizona and Nevada. Economists said they expected the economy to improve in 2011 thanks to a tax cut that will allow more people to be able to spend on nonessentials. In addition to those named above, the most economically stressed counties included non-coastal Central and Northern California counties; Yuma County, Ariz., which abuts Imperial County; and counties in Nevada and Florida.

Our Fullerton individual bankruptcy attorneys don't exactly believe this is good news - but it's an improvement over previous years. When unemployment was at its peak, it was actually driving foreclosures - the bankruptcy filers literally had no income to pay their mortgages. Unemployment is still high, but if economists are right that it will continue to ease this year, that would be good news for the housing market as well as for individuals' overall ability to meet their financial needs. More stable incomes will help stabilize the housing market, hopefully keeping prices from dropping or stagnating. It would also be good news for bankruptcy numbers, since having an income makes it much easier to avoid filing for bankruptcy.

Continue reading "AP Says California Has 15 of 20 Most Economically Stressed Counties in the Nation" »

As Fontana foreclosure defense lawyers, we were very interested to see another state taking up the issue of fraudulent foreclosure paperwork. The South Florida Sun-Sentinel reported Feb. 2 that Florida's Fourth District Court of Appeal has asked the state's Supreme Court to consider whether a bank tried to foreclose on a Palm Beach County homeowner using fraudulent documents. While courts across the nation are currently considering this issue, the case is unusual in that neither party appealed the Fourth District's ruling; that court simply asked the Florida Supreme Court to rule on the issue because "this is a question of great public importance." The high court had not yet decided whether to take the case.

The case starts out like many others: borrower Roman Pino fell behind on his mortgage and Bank of New York Mellon started foreclosure proceedings in October of 2008. In its foreclosure complaint, the bank said it had been assigned the note by another bank, but did not include the assignment document with the foreclosure filing. Pino and his attorney moved to dismiss the case because of the lack of documentation. According to the appeals court, the bank then amended its complaint to include an assignment not recorded by the county, and dated just before the case was filed. The bank voluntarily dropped the foreclosure action before Pino's attorney could start trying to prove fraud, and the majority of the appeals court judges ruled that Pino couldn't pursue it. However, the bank has refilled its foreclosure case using different documents.

Our Orange foreclosure defense attorneys hope the high court takes this case. As the appeals court said, this is an issue in thousands of foreclosures around Florida and all of the United States. Several states have already addressed it through rulings or rules of court, and we expect to see more - especially in judicial foreclosure states like Florida. Florida is particularly important because the state was hit hard by the housing downturn and because it had been a center for robo-signing. In fact, the attorney for the lender in Pino's case is one of four being investigated by the Florida Attorney General for fabricating documents outright. Here in California, fraud is just as likely to be common - but because we are a non-judicial foreclosure state with few human beings scrutinizing documents, it's harder to uncover.

Continue reading "Florida High Court May Decide Whether Robo-Signing Could Invalidate Foreclosures" »

Our Riverside County bankruptcy attorneys were interested to see an article reminding readers of some of the disadvantages of representing yourself in bankruptcy. The Erie Times-News reported Feb. 2 on the dismissal of an Erie County councilman's bankruptcy case without prejudice, which means he's free to re-file. Ebert Beeman is still liable for all of his debts right now, the court said, just as if he hadn't filed in the first place. The case was rejected because Beeman didn't submit his Chapter 13 repayment plan or other paperwork to the court in a timely manner. He also didn't complete the required credit counseling before filing, which he said was because his filing was an emergency.

The bankruptcy case comes out of Beeman's federal tax problems. Several years ago, the newspaper said, he made some money as a day trader, but failed to file any tax returns. Beeman is also a retired welder and owns several real estate properties and a notary public business. The federal government says he owes $2.1 million in unpaid taxes and has filed a civil court case seeking to foreclose the properties to satisfy that debt. It also alleges that Beeman has performed sham transactions with the properties to dodge taxes, a claim he denies. Beeman's records say he filed for bankruptcy quickly to get ahead of any decision in that case. Some of his previous court filings have been filed under maritime law, and he has said Treasury Secretary Timothy Geithner is an "alien custodian for Prize and Booty." The article notes that he is representing himself.

Beeman's case may be a bit extreme, but as Irvine personal bankruptcy lawyers, we believe an experienced attorney could have saved him a lot of trouble. People can and do successfully represent themselves through a bankruptcy, but having an attorney creates accountability. That is, if Beeman had an attorney who missed something as basic as paperwork deadlines, that attorney could face professional consequences or even a malpractice lawsuit. In fact, an attorney would handle that work on his behalf, so time wouldn't be such an issue. And an attorney could advise him on the underlying tax case, which is very important because tax debts are not dischargeable in most bankruptcies. That means Beeman may not even need his bankruptcy, depending on the circumstances.

Continue reading "Bankruptcy Court Rejects Man's Case After He Failed to File Necessary Paperwork" »

Our San Bernardino individual bankruptcy lawyers were interested to see that Congress is now considering addressing the wave of foreclosures through the bankruptcy system. HousingWire reported Feb. 1 on a hearing of the Senate Judiciary Committee, which is considering legislation that would give bankruptcy judges the power to order foreclosure mediation. The proposal is not a new proposal to allow "cramdowns," which would give bankruptcy judges the power to modify loans directly. Rather, judges would be able to order both the homeowner and the lender to the mediation table. Sen. Sheldon Whitehouse, chair of the hearing, said the program would give borrowers access to an accountable decision-maker, which is typically unavailable in loan workouts.

Whitehouse pointed out that the Obama administration's HAMP loan modification program has not helped nearly as many homeowners as predicted, in part because compliance is entirely voluntary. Rather than relying on banks to police themselves - a potential conflict of interests - the new proposal would give bankruptcy judges the power to order mediation. It is modeled after foreclosure mediation programs in Rhode Island, New York, Florida and Vermont, as well as several major cities. A New York bankruptcy court judge testified that about half of the foreclosure mediations in his court end in loan modifications. Lenders tend to like the results, he said, because participating clears them of liability in lawsuits. Critics said the program could increase the backlog of foreclosures in hard-hit states, and possibly delay recovery in the housing market.

As Santa Ana personal bankruptcy attorneys, we aren't sure the connection is that strong. But even if it is, we think protecting consumers from overreaching by lenders is more important. As Whitehouse and his witnesses noted at the hearing, lenders haven't been willing or able to consider loan modifications efficiently. This plunges homeowners into a bureaucratic nightmare that sometimes ends in unnecessary foreclosures. If half of the New York bankruptcy judge's cases end in a loan modification, it's worth asking why it took bankruptcy to get there. And if you need more evidence that lenders can make serious mistakes, consider "robo-signing," which has courts around the U.S. scrambling to ensure that banks can prove they even have the right to foreclose. Under these circumstances, the foreclosure mediation plan seems modest and reasonable.

Continue reading "Senate Judiciary Committee Considers Mandating Foreclosure Mediation in Bankruptcy" »

Our Rancho Cucamonga foreclosure defense attorneys sue lenders - when appropriate -- for failure to adequately consider the loan modification requests of our clients. So it was interesting to see a recent item on HousingWire about a court decision explicitly giving a Los Angeles County woman permission to sue her mortgage lender for an allegedly fraudulent mortgage promise. As HousingWire reported Feb. 1, the Second District Court of Appeal ruled that Claudia Jacqueline Aceves may sue U.S. Bank for reneging on a promise to consider a loan modification if she voluntarily removed her home from her bankruptcy case. She did, and the bank foreclosed anyway. Aceves is now without the home, but may sue the bank for damages.

Like many Californians, Aceves got into financial trouble when her mortgage interest rate became adjustable and adjusted beyond her ability to pay. She filed for Chapter 7 bankruptcy, which automatically stops a bankruptcy, and intended to convert to Chapter 13 so she could catch up on her payments. She also got in touch with U.S. Bank, which told her it would negotiate "loss mitigation" options if she removed the home from the bankruptcy. After her bankruptcy attorney received the same promise in writing, she allowed the stay on foreclosure to be lifted. Five days after it was lifted, the loan servicer scheduled a foreclosure sale without contacting Aceves.

She sent documents to explain the situation and was given several conflicting stories, including a promise to contact her about a loan workout four days after the scheduled sale; a statement that the sale was an error because the home had been "discharged in bankruptcy"; and an offer of a loan modification. The loan modification offer increased her monthly payments substantially and required a $6,500 deposit; she turned it down and eventually sued. The Second District Court of Appeal found that she relied on U.S. Bank's promises. Not only did the bank fail to keep that promise, it said, but it "never intended to work with Aceves and modify the loan. The bank so promised only to convince Aceves to forgo further bankruptcy proceedings, thereby permitting the bank to lift the automatic stay and foreclose on the property."

This is a stinging ruling from the appeals court and a key tool for Pomona foreclosure defense lawyers like us. Because it came from the appeals court that handles cases from Los Angeles County, it only applies to courts in that area - but it lays a path for other California appeals courts to follow. In essence, it says that homeowners may sue lenders for fraud when they reasonably relied on promises that were not kept - not at all an original concept in tort law. This is similar to the claims many homeowners make in lawsuits against lenders, but a stronger claim, because it asserts actual fraud rather than failure to consider a loan workout. Unfortunately, Aceves must still battle in court to get her home back, but many others can use this case to fight for their homes.

Continue reading "California Court Rules Homeowner May Sue for Fraudulent Loan Modification Promise" »

As Moreno Valley consumer bankruptcy lawyers, we were pleased to finally see some good news from the monthly bankruptcy filing numbers. As the Wall Street Journal's Real Time Economics blog reported Feb. 1, the American Bankruptcy Institute reports that bankruptcy filings went down significantly in the first month of 2011. Between December and January, filings for Chapter 7 and Chapter 13 declined by 22 percent. Year over year, this January also saw a 9 percent decline from January of 2010's filings. ABI's president said it was a promising start to 2011 after several years of increasing bankruptcy filings.

Last year saw the highest number of bankruptcy filings in the five years since the 2005 changes to the bankruptcy code. At 1.53 million filings, 2010 also saw a 9 percent jump in filings over 2009's numbers. ABI's president said the Institute is predicting nearly 1.6 million bankruptcies this year, which would be only a slight increase over 2010. Others have suggested that bankruptcies may even fall, as the bad economy keeps lending standards very tight and the glut of new bankruptcies slows. The share of filings that were Chapter 13 filings - the payment plan form of bankruptcy - grew slightly since December, suggesting that more filers have steady incomes.

Our Anaheim individual bankruptcy attorneys hope this news signals the start of an economic turnaround. As the article noted, December and January are typically slow months for bankruptcy filings, so it's wise not to read too much into the drop. But a large drop, if sustained, could indicate that bankruptcies are on their way to flattening out again, and that indicates good things about employment and the general health of our economy. Filing for bankruptcy is survivable and certainly better than staying enslaved to huge debt for a lifetime - but it's better for everyone if most Americans don't need that help in the first place.

Continue reading "Consumer Bankruptcy Filings Decline Sharply in January From December Numbers" »