California Bankruptcy Attorney Blog

As Riverside County loan modification attorneys, we were interested to see an article discussing a recent meeting the Treasury Department held about HAMP -- the Home Affordable Modification Program. This is the government-backed loan modification program that has come under fire in many quarters for being ineffective. As the New Republic Online reported Aug. 24, the Treasury Department invited some financial bloggers to meet with officials on various housing finance subjects, including HAMP. At that meeting, the NRO said, some people were surprised to learn that Treasury considered HAMP successful in at least one respect -- in that it slowed the number of foreclosures and stabilized the national housing market. The NRO suggested that this was obvious -- that the intention had always been to "bail out" the banks.

Unlike the NRO, some bloggers reacted with apparent surprise to the idea that individual homeowners were not the intended beneficiaries of HAMP, calling it "cynical" and "cruel" of the government to mislead people about this. The NRO suggested that this was a naïve reaction, saying it had always thought HAMP was "a backdoor bailout for banks" and federal mortgage guarantors Fannie Mae and Freddie Mac. (It appeared to be arguing that this was so because of restrictive rules that applied to refinancing, although the bulk of the article appeared to be about loan modifications, a separate arm of the Home Affordable program.) The article went on to further criticize HAMP for creating "bad incentives" for homeowners, to intentionally fall behind on their mortgage payments in order to qualify for HAMP, only to see their permanent modifications denied at the end of the three-month trial. And so many permanent modifications were denied, the article suggested, because Treasury encouraged banks to start their trial modifications without enough time to fully vet the borrowers.

Our Westminster loan modification lawyers see some merit in the argument that HAMP was intended to help banks rather than borrowers. That has certainly been the effect, and one reason for that effect is that HAMP provides no way at all to enforce the promises lenders make to taxpayers. Stabilizing the housing market was a stated goal for HAMP at the time. So in that sense, if it eased the flood of foreclosures, it has indeed succeeded, even if it did not ultimately save many homes. However, the rest of the NRO's criticisms appear to ignore the role of lenders and loan servicers in HAMP. The government never required borrowers to be behind on their mortgages to participate in HAMP; this was a requirement from some lenders, and it was heavily criticized in the media. Similarly, lenders have control over whether to make the modifications permanent and have attracted a lot of criticism for cases where they declined to make them permanent without any change in the borrower's finances. Finally, the assertion that lenders were rushed into HAMP is simply untrue; many took well over three months to offer any program, and again, were heavily criticized for delaying action so long.

Continue reading "Bloggers Suggest Obama Administration Intended HAMP as a Bailout of Lenders" »

As Ontario loan modification lawyers, we were disappointed to see fresh evidence that the housing crisis is not going away. On the heels of news earlier in the same week that new home sales have dropped came a post on the Washington Post's Political Economy blog about the number of mortgages in default or foreclosure. According to data released Aug. 26 by the Mortgage Bankers Association, one tenth of American mortgage borrowers have missed at least one payment this summer. Nonetheless, the report said, mortgage defaults are down slightly from the first quarter of 2010, leaving observers with mixed news about the state of the housing market.

This quarter, 4.57 percent of mortgages were in any stage of foreclosure. This is a drop from the first quarter's 4.63 percent, but still higher than the 2009 second-quarter number, 4.3 percent. As such, foreclosures can be said to be up overall, but with some evidence of a drop coming. Further potential good news can be seen in drops in seriously delinquent loans and mortgages at least 90 days past due, both of which are typical precursors to a foreclosure. However, a spokesperson said the Association had also seen a rise in new delinquencies lately, suggesting that more trouble may be coming. The end of the federal home-buyer tax credit in April may also be considered a problem, the article suggested. In all, the spokesperson said the slight decrease in new foreclosures would probably not last, but still described the report as "cautiously optimistic."

Our Perris loan modification attorneys are disappointed that the housing market is not getting better, but we wish we were more surprised. It has been clear for a while that any housing recovery is strictly on Wall Street, not in hard-hit areas like the Inland Empire. Near the end of the article, the author notes that unemployment is around 10 percent -- the same percentage of homes that are missing payments. We do not believe this is entirely a coincidence; unemployment is one of the major predictors of trouble paying a mortgage. For borrowers who do not have a steady income and have run out of savings, there may not be much lenders can do. However, for those delinquent borrowers who do have an income, lenders may still be able to offer loan workouts or other changes. In doing so, they could do themselves as well as the borrowers a favor, by staving off yet another foreclosure and financial loss.

Continue reading "Quarterly Mortgage Bankers Report Finds One in 10 Borrowers Missed Payments" »

As Riverside loan modification attorneys, we were pleased to see reports of a recent study that shatters some of the myths about foreclosures in California. As the Ventura County Star reported Aug. 17, the nonprofit Center for Responsible Lending put out a study showing that most foreclosed Californians were not people who bought more house than they could afford. Rather, the study said, the average value of the home when the loan was made was just under $400,000, and the average square footage was a modest 1,494. More commonly, the study said, people who were foreclosed on were more likely to have gotten high-interest loans, often subprime or Alt-A loans. Those people were disproportionately minorities, the study noted, which led to a disproportionately high rate of foreclosures among Latino and African-American borrowers.

The study is based on foreclosures of 877,173 homes in California between September of 2006 and November of 2009. In addition to the data on original price and size, the study noted that three-quarters were priced below median home values in their areas, and that 50.3 percent of foreclosures stemmed from refinancing rather than original loans. It also included a great deal of data about how subprime and expensive loans related to race. In 2006, it said, 53.7 percent of African-Americans and 46.5 percent of Hispanic borrowers received high-rate mortgages, while only 17.7 percent of non-Latino white borrowers did. This was true across all sizes of mortgage, it said, suggesting that income and size of home were not factors. As a result, the study said, 48.7 percent of the people foreclosed on were Latinos, even though they are 36.6 percent of the state's population and received 29.9 percent of loans. Figures were not given for other racial groups. Foreclosures were concentrated inland, in the San Joaquin and Sacramento valleys and the Inland Empire.

Our Rancho Cucamonga loan modification lawyers have known part of these conclusions for months. Several studies, including the Federal Reserve Board study cited in the article, have shown that subprime loans are more likely to lead to defaults, even after looking at factors like housing price changes and credit score. At least one other study, and several lawsuits, suggests in turn that subprime loans were far more likely to be offered to minorities during the "housing boom"; at least one "reverse redlining" lawsuit has been file alleging that a bank specifically targeted African Americans for such loans. This data does not prove that lenders made decisions purely on racial grounds -- we would prefer to see data on the borrowers' incomes and credit -- but it provides strong evidence suggesting it. If it's true, it is not just shameful, but also illegal.

Continue reading "Study of California Mortgage Defaults Finds Most Not Caused by Over-Borrowing" »

A recent article about protest marches on Chase banks throughout California caught the eyes of our Ontario loan modification lawyers. As Watsonville's Register-Pajaronian reported Aug. 12, protestors in that city and many others, including Los Angeles, marched on the banks to call attention to what they saw as the banks' willingness to take public money and do business in a way that harms families and communities. The marchers were upset about the continuing wave of foreclosures facing Californians, despite efforts to promote loan modifications and short sales instead. They also criticized the bank for taking "bailout" money in September of 2008, yet failing to pay millions in property taxes on properties they acquired during the bailout.

The march was tied to a report released Aug. 10 by the Alliance of Californians for Community Empowerment. That report said Chase and other banks were paying too little in taxes because the properties they have acquired during the financial crisis have not been reassessed, costing local California government entities millions of dollars. In April, the assessor-recorder for San Francisco, Phil Ting, made similar allegations, saying his city was owed $1 million by financial companies. The California Tax Reform Association has put that figure at $11.8 million for San Francisco and $50 million for the state as a whole. The Chase protesters said this was unacceptable for a bank that had taken taxpayer money in the bailout. They also cited mistakes or abuses by Chase in loan modification efforts by individual homeowners. A Chase spokesperson said borrowers don't have trouble getting loan modifications if they meet federal standards.

As Norco loan modification attorneys, we know from experience that this is not true. Throughout the housing crisis, we have heard firsthand, and read many articles, about lenders who repeatedly lose paperwork, ignore calls, give their borrowers contradictory information and make other very basic business mistakes. These are not mistakes that are targeted at people who don't meet HAMP standards -- they are indiscriminate mistakes, and many of them happened to people already enrolled in HAMP. As we've written here many times before, we've come to believe that lenders do this because they simply don't want to make loan modifications. Rather than admit it and accept the negative PR, some have chosen to string along borrowers, giving them false hopes for a loan modification the lender never intends to grant. The protesters have every right to be disturbed that a lender would do this while simultaneously accepting government money.

Continue reading "Protesters Call on Chase to End Foreclosures and Pay Allegedly Overdue Property Taxes" »

As Pomona loan modification lawyers, we were surprised and impressed by a recent article from the Los Angeles Times. The piece, dated August 5, discusses the fight by 23-year-old Zeenat Ali to help her parents avoid foreclosure on their Diamond Bar home. Ali is not an attorney and has no special legal background, but the article says she has won several victories in the family's struggle with Deutsche Bank, the holder of the mortgage. She has won procedural fights on the foreclosure itself, and is also suing the bank, alleging that it marketed the family's refinancing loan deceptively and later reneged on an offer to modify that loan. The Alis may still lose their home, the article said, but Zeenat Ali has successfully delayed the foreclosure and impressed observers with her untrained legal skills.

Her parents, Shahida and Ather Ali, had lived in the home for 24 years and raised three children there. When they came from Pakistan, they were an engineer and a doctor, but in 2005, they decided to open an adult day-care business. To do that, they took out a loan for $800,000 from the Small Business Administration, using the home as collateral. Then they refinanced the house with an option-adjustable-rate mortgage for $250,000. They kept their payments low at first to put money into the business, but that increased the loan balance, just in time for high-interest payments to start. The home was foreclosed in December and they stopped paying the loan four months ago.

In her lawsuit, Zeenat Ali argues that the refinance loan was marketed deceptively. But a large part of the suit deals with how Deutsche Bank handled the foreclosure. She alleges that the Alis' mortgage servicer rejected a $30,000 check from her parents in November, saying they had to apply for a loan modification first. So the Alis filled out the loan modification paperwork within a week and sent it back with the check. In the meantime, she alleges, Deutsche Bank was in the process of foreclosing on the house, without notifying the family as required by law. A bankruptcy attorney told the newspaper that even if the Alis win this claim, they may not collect much money and may still lose their home. Zeenat Ali successfully fought attempts by Deutsche Bank to move the lawsuit into federal court -- impressing legal observers -- but because foreclosure is still a real possibility, she has now hired a lawyer to help.

Our Orange loan modification attorneys wish the Alis well in their lawsuit and foreclosure. If the rejected $30,000 payment -- a substantial number -- was enough to keep them out of foreclosure, Ali may be able to successfully argue that the bank should never have foreclosed to begin with. However, under the Truth in Lending Act or a claim for common-law negligence, the actual damages -- that is, the financial loss to the family -- may be calculated according to the equity they had in their home. In this case, that could be little or nothing, because the home is worth less than their loan debt. "Statutory damages" awarded under the TILA have a maximum of $2,000 -- which is unlikely to make up for the loss of a home of nearly 25 years. This case exposes a flaw in consumer protection laws that gives lenders minimal consequences for abusing their borrowers.

Continue reading "Diamond Bar Medical Student Fights to Save Parents' Home From Foreclosure" »

Among the many articles about the large financial reform bill passed in July, our Riverside County loan modification attorneys were pleased to see an article zooming in on a provision specifically intended to help troubled homeowners. The San Francisco Chronicle's Net Worth column reported July 29 on the Emergency Mortgage Relief Program, which provides $1 billion for homeowners who are behind on mortgage payments. The program is not intended to replace loan modification programs like the Home Affordable Modification Program or private programs offered by lenders. Rather, it provides temporary loans to homeowners who are unable to pay their mortgages because of unemployment or medical problems.

In fact, the Emergency Mortgage Relief Program was created in 1975, but never funded until the financial reform bill was signed in July. The $1 billion in authorized funds will be available to homeowners starting on Oct. 1 and will be administered through the Department of Housing and Urban Development. The assistance is aimed at homeowners who are at least three months behind in their payments on a primary residence because of a substantial reduction in income due to involuntary unemployment, underemployment or medical problems. There must be a "reasonable prospect" that the homeowner will be able to make his or her own payments again in the future. In total, participants are eligible for 12 to 24 months' worth of mortgage payments, or up to $50,000. The assistance can take several forms, including loans, but HUD is not sure yet how it plans to administer the program.

Our Orange loan modification lawyers are pleased to see the federal government take this step. To be sure, it can't help homeowners whose financial problems are expected to be permanent or very long-term. But for someone who lost a job and has been unable to replace it in the bad economy, this program could be a lifeline. Lenders frequently have their own forbearance programs -- in which they suspend payments for a few months while the homeowner recovers from a financial shock -- but this program offers several advantages over such a forbearance. The federal program appears to have a much longer duration -- a total of 24 months -- and the "low-interest loan" envisioned by Rep. Barney Frank in the article would likely be cheaper than the interest on a mortgage written during the housing boom. And of course, a federal program would have no concerns about preserving profits, unlike lenders, whose profit-consciousness is widely blamed for the glacial pace of loan modifications.

Continue reading "Emergency Foreclosure Aid for Homeowners Included in Federal Financial Reform Bill" »

At the beginning of 2009, our Fontana loan modification lawyers wrote about many articles outlining the struggles homeowners face when they seek a loan modification. This type of news coverage has dropped off in recent months -- not because it's no longer true, unfortunately, but because it's no longer surprising. That's why we were pleased to see a June 22 report from radio station KPCC about the ongoing struggles faced by at least some homeowners who are trying to get a permanent loan modification, but face indifference, delays and mistakes by their lenders. In addition to costing thousands of dollars with no guarantee of success, the article noted, the delays are bad for the overall economy and cause serious emotional distress to the people whose finances, homes and lives hang in the balance.

The article focuses on the experience of Jean Wilcox, who lives in an upscale gated neighborhood in Irvine. Wilcox has been trying for more than two years to get a loan modification through the Home Affordable Modification Plan, the federal program for distressed homeowners. She says she's completed three-month trial modifications of her loan three times, but that each time, her bank denies her a permanent loan modification for no reason that was made clear to her. Unfortunately for her mortgage holder, Chase Bank subsidiary EMC, Wilcox is a banking and real estate attorney, which means she understands her rights. She is now looking into suing the bank. An attorney with the Orange County Legal Aid Society added that banks frequently claim they didn't receive her clients' paperwork, sometimes five or six times in a row, despite fax confirmation sheets and other documentation. Chase is among those most frequently cited for such delays, as well as for denying permanent modifications.

As Hesperia loan modification attorneys, we wish we could say that Chase is the only such bank. But in fact, our experience, through our practice as well as the media, has been that many servicers are guilty of this same behavior. Lenders that have little trouble staying organized in other areas of their business are unable to retain even basic organization in their loss prevention departments. We do not believe that the problem is genuine lack of organization, especially since this crisis has been going on for more than a year. Rather, we believe the banks are making cynical financial calculations using, as the article said, the net present value of the home to determine whether they would make more money selling it as a foreclosure or modifying the loan. If they think foreclosure is the more lucrative move, we believe they will do everything they can to avoid granting a loan modification -- even if that means deceiving the homeowner for months or years. This is why less than one half of one percent of the money allocated to HAMP has actually been spent.

Continue reading "Report Examines Ongoing Problems With Loan Modifications Even in Wealthy Areas" »

As San Bernardino loan modification attorneys, we were interested to see a piece saying California is seeing its lowest rate of default notices in three years. Default notices are the first step toward a foreclosure, and according to a July 22 article in the Los Angeles Times, the number of such notices dropped dramatically in the second quarter of this year. Statewide, default notices dropped 43.8% over the same quarter in 2009 and 13.6% over the first quarter of 2010. Here in Southern California, the plunge was even more pronounced, at 46.9% over the past year and 15.23% over the first quarter. Troubled Riverside County saw the biggest one-year drop at 49.2%. The numbers come from MDA DataQuick, a real estate information company based in San Diego.

The article suggested that the drop may be due to a slight increase in housing prices and increasing willingness by banks to consider short sales and other foreclosure alternatives. Increased housing prices put fewer homeowners underwater, which economists believe means fewer of them will consider walking away from their mortgages. Furthermore, the article noted, the housing crisis has forced banks to tighten their lending standards dramatically, which means newer loans are more likely to be performing well, and that underperforming subprime loans have not been written. However, the article also said that lenders have increased their seizures of homes that have already been foreclosed on, which have been in foreclosure for an average of 9.1 months. Banks feel increasing pressure by federal regulators to get those loans off their books, the article said, and one result is that trustee's deeds in California are up 11.2% from the first quarter and 4.4% from last year.

Our Chino Hills loan modification lawyers hope the trend toward fewer foreclosures lasts, because a housing recovery would benefit our clients and almost everyone else. We believe the decrease in new foreclosures may have something to do with home prices bouncing back, but we also suspect that the market is simply running out of loans that are candidates for foreclosure. This far into the housing crisis and the recession, many folks who are in serious financial straits have made decisions about how to handle their mortgages, or had decisions forced upon them. And as the article notes, tighter lending standards mean fewer bad loans have been written in the past year or so. We'd also like to note that the large amount of homes that have been foreclosed on for months but not seized seems a lot like a "shadow inventory." We hope lenders are responsible in the way they put these homes on the market.

Continue reading "California Default Notices Hit Lowest Rate in Three Years, But Repossessions Increase" »

Our Newport Beach loan modification lawyers saw an article recently suggesting that the wealthy handle mortgage distress differently from the rest of society. According to a July 9 article from the New York Times, the wealthy are far more likely to stop paying their mortgages than working-class and middle-class homeowners. Using data compiled by real estate data company CoreLogic, the newspaper said more than one in seven mortgages of more than $1 million is delinquent, as compared to one in 12 mortgages below $1 million. The newspaper noted that this does not in itself prove anything, but suggested that wealthy people may default at a higher rate intentionally, because they view an underwater home as a bad investment.

The article also looked specifically at homes purchased as investments. Among those with mortgages of over $1 million, the delinquency rate is 23% -- nearly a quarter of all such homes. Those with mortgages under $1 million had a delinquency rate of about 10% -- higher than the rate for owner-occupied homes, but less than half of the rate for the more expensive investment homes. Here in California, the wealthy Bay Area community of Los Altos had five foreclosure auctions listed in the local weekly paper. Before the crash, one worker at that paper said, it was surprising to see even one foreclosure listing a month. Observers in the article suggested that the wealthy are more likely to see defaulting as a matter of cutting their losses from a bad investment, whereas less well-off people may see walking away as morally or civically bad. The economist also said the rich are more likely to have resources to fall back on when they walk away.

As Rancho Palos Verdes loan modification attorneys, we believe both of those interpretations are right. Getting rich does not necessarily require ruthlessness, as the economist said, but it certainly helps to have good sense when it comes to money. If you believe your million-dollar property will never be worth what you owe, it makes good business sense to abandon the investment and minimize your losses. This logic applies to less expensive homes as well, but as a law professor told the Times, the business sense of the wealthy may not be as affected by arguments that abandoning a home is irresponsible or shameful. However, it's also very much worth noting that the wealthy are far more likely to have somewhere else to live, or the means to find a home quickly, if they do walk away from their homes. Less wealthy people may be more likely to keep paying because they don't have those resources.

Continue reading "Data Shows Walk-Aways More Common Among Mortgages Over $1 Million" »

Our Moreno Valley loan modification attorneys wrote last month about the threat of deficiency judgments against borrowers who go into foreclosure. Deficiency judgments are court orders to former homeowners who went into foreclosure, requiring them to pay the unpaid balance on their mortgages. They are obtained when the lender sues the foreclosed homeowner -- a practice that was once rare, but is growing thanks to the flood of foreclosures and the perception that some people who walk away or short-sell can afford to keep paying. California law partially protects borrowers from deficiency judgments, but allows the judgments against any loan that's been altered, such as with a refinance or HELOC, or went into the relatively rare judicial foreclosure process.

Now, the California Legislature is considering a bill that would protect those homeowners as well, the New York Times reported June 22. SB 1178 extends protection from deficiency judgments to people who refinanced took out home equity loans, but only up to the original mortgage amount. That is, if your original mortgage was for $500,000, the lender cannot pursue the balance owed on that $500,000 -- but may sue to recover any extra taken out as a loan. In fact, the Times reported, the original bill protected homeowners who took out any amount as long as it was to finance home improvements, but the bill has changed due in part to lobbying from the banking industry. On the other side is the real estate industry, the Times said, which wants to make sure potential clients can afford to buy again.

The article reports this as a fight between real estate industry and the banking industry, and from a political standpoint, that might be right. But as Brea loan modification lawyers, we see it from the point of view of our clients, who are ordinary people struggling to hold on to their homes and investments. Of course, this bill would benefit our clients by protecting more borrowers from lawsuits. As things currently stand, whether a homeowner is protected is somewhat arbitrary; people who refinanced for a better interest rate are treated the same as people who overextended themselves with a large HELOC. This bill corrects that inequity. It also, as one San Diego attorney in the article notes, takes away banks' ability to squeeze promises to pay out of homeowners as a condition of a short sale -- a practice that takes advantage of sellers who are desperate and frequently don't understand their rights.

Continue reading "State Lawmakers Considering Bill Insulating Homeowners From Deficiency Judgments" »

In a case with extremely interesting implications for San Bernardino County bankruptcy attorneys like us, a federal appeals court has ruled that bankruptcies may be pursued as class actions. Class actions are lawsuits that bring together a large number of people with the same complaint against the same defendant. They are frequently used in consumer rights lawsuits, such as when many people bought the same defective product, but courts disagree on whether they can be used in bankruptcy court. As the National Law Journal reported June 22, the Fifth U.S. Circuit Court of Appeals in New Orleans has ruled that they can, establishing that right for courts in that circuit. However, the Fifth found that the class in this particular case was improperly certified.

In In the matter of Wilborn et al., the U.S. Bankruptcy Court for the Southern District of Texas sought to certify a class of 1,236 individuals or married couples who had filed for Chapter 13 bankruptcy and had mortgages that were owned or serviced by Wells Fargo Bank. They had filed an adversary action against Wells Fargo, claiming that the bank had charged unreasonable fees and costs for services related to the bankruptcy, such as title searches, ranging from $1,200 to $4,000. Wells Fargo did not disclose those fees to the court, they said, and as a result, many had debts that were not covered by their repayment plans. The Fifth Circuit found that the bankruptcy judge may properly certify a class of debtors in an adversity proceeding. However, it added that this class was inappropriate because individual issues, especially varying fees, predominated over issues common to the class.

As Villa Park personal bankruptcy lawyers, we believe this has implications for our practice in loan modification and foreclosure prevention as well as in bankruptcy. If the description of the inflated fees sounds familiar, it could be because Bank of America settled very similar claims this month brought by homeowners who had mortgages through the now-defunct Countrywide Financial Corp. Like many of the Countrywide borrowers, the Wells Fargo borrowers were already in bankruptcy, making the inflated fees particularly exploitive, greedy and inappropriate. If this turns out to be an industry-wide practice, more lawsuits or adversary claims by people in bankruptcy may be on their way -- and the bankruptcy courts may have more opportunities to certify class actions. Finding common concerns across a very large group of debtors might be hard, but a class action would certainly be more effective if thousands of borrowers truly have been exploited in this way.

Continue reading "Federal Appeals Court Rules Bankruptcy Judges May Certify Classes of Debtors" »

Our Upland predatory lending attorneys have written several times in this space about the legal actions against Countrywide Financial Corp., and after its buyout of Countrywide, Bank of America. Countrywide customers have benefited from several legal settlements, including settlements allowing them to modify their loans, thanks to legal actions brought privately and by state attorneys general alleging that Countrywide engaged in predatory lending practices. Now, Bloomberg News reported June 7, Bank of America has settled a lawsuit brought by the Federal Trade Commission alleging more wrongdoing by Countrywide -- charging inflated and illegal fees to homeowners who went into default. The FTC said the $108 million penalty is one of the largest in its history. The money will be returned to more than 200,000 borrowers.

According to the article, the illegal behavior targeted homeowners who were already behind on their mortgage payments. Countrywide allegedly charged these homeowners up to 400 percent of the normal fee for services like property inspections, and sometimes didn't give any notice of extra charges. When homeowners went into bankruptcy, Countrywide allegedly inflated the debts it entered into the bankruptcy court, essentially using the system to get extra money from bankrupt borrowers. The U.S. Trustee program, which enforces bankruptcy laws, worked with the FTC to resolve the case; an official would not confirm that it was also referred for criminal prosecution to the Justice Department. An FTC spokesman said the agency would need some time to reconstruct how much money is owed to individual borrowers, in part because "most frat houses have better record-keeping" than Countrywide did.

As Pico Rivera predatory lending lawyers, we are pleased that the FTC has been able to recover compensation for people who were taken advantage of by Countrywide. As the FTC spokesman points out, the borrowers targeted were people who were already struggling financially, so badly that they had trouble making their mortgage payments. Piling illegal and excessive fees onto the top of that is cynical and exploitive. Unfortunately, that's consistent with other cynical and exploitive behavior by Countrywide, including targeting minorities for expensive subprime loans -- regardless of their financial health -- and writing loans to people they knew couldn't make payments, knowing that the loans would quickly be securitized. The FTC spokesman mentioned that his agency could do more to prevent this kind of exploitation if Congress gives it rule-making power over the mortgage industry, and we hope Congress follows through.

Continue reading "Bank of America Settles FTC Lawsuit Over Excessive Fees for Countrywide Customers" »

As San Bernardino consumer bankruptcy lawyers, we are closely following the unprecedented growth in bankruptcy filings for individuals and couples. The American Bankruptcy Institute predicts a record number of filings this year, enough to break last year's record for number of filings since the 2005 bankruptcy reform law. But according to a June 9 article from USA Today, bankruptcy filings might be even higher if bankruptcy were an option for more people. Experts in the article say that because bankruptcy doesn't allow the discharge of all kinds of debts, some get no benefit from filing. Other people in financial distress don't file because they cannot afford it. In either case, the article said, some experts believe such people have gone into "informal bankruptcy" without the legal protections of a proper bankruptcy.

The article describes several groups who can't benefit from filing for bankruptcy. One is people with a large amount of student loan debt, especially debt on private rather than federal student loans. Student loans are not dischargeable in bankruptcy unless the filer can show "undue hardship." This rule once applied only to government loans, but was changed to include all student loans -- including unregulated, high-interest private loans -- during the 2005 bankruptcy reform. Proving undue hardship requires an extra trial and lots of extra expense with no guarantee of success. Congress is considering making private student loans once again dischargeable, with predictable blowback from the financial industry.

Another group is simply too financially strapped to pay for bankruptcy filing. According to the article, the 2005 law added more requirements that drive up costs, and attorney and filing fees have also risen. According to one academic paper, these costs keep all but a fraction of potential filers from pursuing a bankruptcy. Unfortunately, delaying a bankruptcy can create even more financial problems for debtors and rob them of resources they need to make a fresh start. Free legal services and fee waivers are out there, but the recession has made both harder to get than they already were.

Finally, the article notes that bankruptcy filing also cannot usually save a home that is threatened by foreclosure. Since the 1970s, bankruptcy law has allowed judges to reduce the principal on any loan but the loan on a primary home -- including loans for vacation homes, boats and other luxury items. An attempt to change the law back failed in Congress last year. A new federal rule forbids lenders from turning down loan modification requests solely because the borrower has also filed for bankruptcy, but borrowers in trouble still cannot turn to bankruptcy to keep their homes.

We are pleased that this article is calling attention to some of the major flaws of bankruptcy law. As Fullerton individual bankruptcy attorneys, we see those flaws firsthand because we work with bankruptcy law and bankruptcy clients every day. The 2005 law was ostensibly intended to reform the bankruptcy process to curb abuses of the system, but many observers believed that the real goal was to discourage bankruptcies, by making effective ones harder to get and more expensive. This article suggests that at least to some extent, those critics were right -- bankruptcies are out of reach for some people who are in real financial trouble. That's a shame and a missed opportunity for our legal system to do some good for vulnerable Americans.

Continue reading "Experts Concerned That Bankruptcy Is Unavailable to Some in Financial Distress" »

Our Moreno Valley loan modification attorneys have worked with distressed homeowners for well over a year, from the beginning of the mortgage crisis. In that time, we've heard numerous complaints from borrowers about lenders that grant a loan modification while also pursuing a foreclosure, which sometimes means the home is repossessed even while homeowners believe they're on the path to financial security. Lender policies and the federal Home Affordable Modification Program ban foreclosures before a loan modification is complete, but it happens anyway, due to poor intra-lender communications and a lack of independent oversight. Now, as the San Francisco Chronicle reported June 2, the California legislature is considering yet another ban, but with some teeth: Borrowers would be able to sue lenders that foreclose in violation of the law.

SB 1275, sponsored by Democrat Mark Leno of San Francisco, would also set down detailed modification rules. Not surprisingly, lenders oppose it, saying it codifies HAMP, which has been changed several times since it was introduced in early 2009. A banking industry spokeswoman also said lenders oppose the lawsuit provision, because they believe it would create lawsuits for minor technical violations and further delay foreclosures. Leno, the bill's sponsor, said the lawsuit provision is needed because HAMP does not hold lenders and servicers accountable for violating the foreclosure ban. In addition, the bill would cover the 25 to 30 percent of borrowers who are not eligible for HAMP.

To illustrate the problem, the article tells a story about a Bay Area homeowner who was literally on the phone negotiating a loan modification when a real estate agent came to the door and told him the house had been foreclosed. Jose Vega said he handed the agent the phone and told him to work it out with the lender, JP Morgan Chase. The Chase representative on the phone knew nothing about the foreclosure. Chase eventually halted the foreclosure and the Vegas are still in the house while they wait for a decision. A Chase spokeswoman said the bank's policy is not to foreclose while considering a loan modification.

As this article and numerous others show, policies like that have done nothing to stop improper foreclosures. That's why our Fontana loan modification lawyers support the private right of action created by SB 1275, and any other accountability tools. As things currently stand, lenders like Chase who break their own policies -- not to mention the requirements of HAMP -- face zero consequences. This is equivalent to not having any such rule in the first place. The right to file private lawsuits would give consumers the ability to enforce their rights. If this creates frivolous litigation, as the banking spokeswoman implied, we believe courts are well-equipped to filter bad lawsuits from good. As for codifying HAMP, we don't believe there's anything wrong with codifying a valuable provision of the law (and applying it to all homeowners), regardless of whether the law later changes.

Continue reading "California Considering Law Banning Foreclosures Before Loan Modification Decision" »

The New York Times published a story recently that caught the attention of our Rancho Cucamonga loan modification lawyers. According to the May 31 article, the delay between a legal foreclosure and an eviction is longer and longer these days -- and some borrowers are taking advantage of it. The article casts this as a "loan modification" that brings the loan payment down to $0, allowing borrowers to continue making ends meet or save money for a new home. These borrowers don't necessarily feel ashamed, the article said, because some believe the lenders are dishonest, unwilling to help and may even be responsible for the mortgage crisis because they made bad loans.

The article quotes LPS Analytics, which says the average time between delinquency and eviction is 438 days, more than 14 months. In January of 2008, that average was 251 days, between 8 and 9 months. More than 650,000 American households had not made a loan payment in 18 months, LPS said -- and with 19% of those, the lender had not even started repossession. The article focuses on the decision by Alex Pemberton and Susan Reboyras, a Florida couple with two daughters, to stop paying their mortgage. They say the home is worth less than half of the $280,000 they owe, and blame the lender for allowing them to take out a home equity loan outside the bank's own debt to income guidelines. Instead of paying the mortgage, Pemberton said the couple has sunk the money into their small attic-restoration business, which is recovering in a way that the Florida housing market is not.

This article has attracted a lot of attention on the New York Times website, undoubtedly in part from people who believe Pemberton and Reboyras are doing something wrong. While our Costa Mesa loan modification attorneys certainly don't recommend going into foreclosure if you can avoid it, we're not sure it's wrong to make the best financial move for your own situation. In fact, a capitalist system depends on individuals to make decisions in "rational self-interest." This is why our system usually allows large businesses to make decisions that aren't in other parties' best interests -- including the bad loan Pemberton claims his mortgage lender made. By deciding not to pay, Pemberton and Reboyras are meeting the same low standard. They are also taking advantage of lenders' own foot-dragging on evictions, which uses foreclosed homeowners are free caretakers of homes that lenders may be keeping in "shadow inventory."

Continue reading "More Homeowners Taking Advantage of Long Delay Between Foreclosure and Eviction" »