Senate considering Foreclosure Prevention Act 2008
Posted by: Richard Stevenson
February 15, 2008
Topic: Foreclosures

Help may be on the way for hundreds of thousands of individuals suffering financial crises due to the implosion of the subprime mortgage industry and the downturn of the housing market.  Many families had gotten swept up in the wave of refinancing that swept through the country a few years ago, getting into adjustable rate mortgages with very low "teaser" rates effecitve for only the the first 2 years.  What has been happening, as many are now aware, that the increased rates that took effect after the teaser period resulted in substantially higher monthly mortgage payments.  At the same time, with housing values eroding, equity cushions evaporated, leaving countless families with no ability to refinance to better rates.  Often times, families were rushed or talked into obtaining these "exploding ARMS" with the assurance that they would be able to refinance again in a couple of years without any problem.

Though it is certainly true that some sophisticated borrowers understood the risks and knew what they were getting into.  The problem is, many of the families that were "sold" into these ARMs lacked the financial sophistication to understand the risks.  In many cases, especially in the subprime arena, these were families that would not have qualified for a conventional mortgage and, with the promise of obtaining a piece of the American dream dangled in front of them, were easily convinced that these risky loans were the only way to go.

Well, as in every capitalist system, there are periods of economic boom and bust.  Though the powers that be do their best to mitigate the bust periods, sometimes it is simply beyond the control of the Federal Reserve to stop.  What is happening now is, in my humble opinion, due in large part to rampant greed on the part of mortgage banks, mortgage brokers, etc, who were only looking at the money they stood to make by ushering countless thousands into bad loans with very lax qualification standards.

So, as a result, hundreds of thousands of people now are staring foreclosure in the face.  As the property values have declined, their options for remaining in their homes are limited.  Sometimes a lender will agree to a forebearance, to give a borrower time to work out a deal.  Sometimes borrowers are able to negotiate a workout and essentially restructure the loan, at least temporarily.  Other times, a short sale is the only option- where a borrower attempts to sell the house for less than the balance owed on the mortgage loan.  The mortgage lender must agree and often times will request that the borrower sign a promissory note for the difference.

Another option that may soon be available for homeowners facing this situation is Chapter 13 bankruptcy.  Though Chapter 13 bankruptcy has long been an option available for borrowers to de-accelarate defaulted mortgage loans and pay off mortgage arrears over time, mortgage lenders have been protected from any sort of lienstripping, provided the residence was the borrower's primary residence.

Lienstripping is the bankruptcy jargon for limiting the value of a secured loan to value of the collateral.  For example, if a person owed $500,000 on his or her mortgage, but the property was only worth $250,000, lienstripping through Chapter 13 would change the nature of the mortgage loan so that the lender was only secured up to $250,000 and the other $250,000 would be considered unsecured debt.  In essence, the loan is modified by the equitable power of the bankruptcy court via the Chapter 13 Plan.

Last night, Senate Majority Leader Harry Reid (D, NV), introduced S.2636, the Foreclosure Prevention Act of 2008, which may be considered by the whole Senate by the week of February 25th.  Among the many components of this bill is one that would allow mortgage modifications in Chapter 13 for debtors who meet strict income and expense criteria.  This proposed legislation could help more than 600,000 families who are facing the potential loss of their homes through foreclosure.  I urge everyone to contact their Senators and urge them to vote for this legislation.

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20 Most Common Violations of the Law by Debt Collectors
Posted by: Richard Stevenson
July 09, 2007
Topic: Debt Collection

July 9, 2007

 How do you know if a debt collector or creditor is violating the law while attempting to collect a debt?  Today, I felt it might be helpful to include a list of the most common violations.  Any single one of these violations subjects a debt collector (or a creditor here in California) to liability for violating the Fair Debt Collection Practices Act (FDCPA) or California's Rosenthal Fair Debt Collection Practices Act (RFDCPA).

1. Calling you at work more than once.

2. Calling other people (friends, neighbors, relatives) more than once to try to locate you.

3. Telling anyone else that the collector is attempting to collect a debt from you.

4. Leaving a message on an answering machine without identifying themselves by leaving the collector's name and company and saying they are trying to collect a debt.

5. Suing or even threatening to sue on a debt that you have not made a payment on for more than four years.

6. Saying or implying anything about arrest, going to jail or anything similar.

7. Threatening to sue you when the collector has no intention of suing you.  You can usually prove this by showing the collector gave a deadline which passed without any lawsuit being filed.

8. Threatening to garnish your wages without first explaining to you that the creditor must first file a lawsuit and obtain a judgment.

9. Making threats about taking cars, furniture, or any other property or threats about putting liens on your property.

10. Suing you on a debt somewhere other than: a) where you live right now or b) where you entered into the debt agreement.

11. Embarrasing you by saying things like " You are a deadbeat; why don't you pay your bills; you are a disgrace; why don't you get rid of your spending spouse." or other things like that.

12. Using profane or abusive language; swearing at you, insulting you.

13. Shouting, screaming or getting angry with you.

14. Giving you the impression that the caller or his/her company has some connection with the government, the courts or the police, etc.

15. Trying to collect the wrong amount by, for instance, adding small fees.

16. Threatening to deposit a post-dated check, particulary when the collector knows you do not have the money to cover the check.  Typically, they will tell you "Give us a check and we will hold it and stop calling you." 

17. Calling you repeatedly.  One call a weak is fine, but more than one call a week is harassment.

18. Calling you before 8:00 AM, or after 9:00 PM, your time.

19. Calling you AFTER you write a letter to the collector's company telling them not to call you.

20. Calling you, or other people, after the collector knows you have an attorney.

If you or anyone you know is experiencing any of these types of calls, then you should contact an attorney knowledgeable in consumer rights and debt collection abuse.  The FDCPA and RFDCPA are powerful consumer rights laws that provide consumers the ability to "fight back" against abuse debt collection tactics like the ones listed above.

An debtors rights attorney will be able to advise you on whether or not you have any potential claims against a debt collector for violating the law. For more information about debtors rights, please visit my website at http://www.rls-law.com.

 

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Are you feeling squeezed by credit card debt?
Posted by: Richard Stevenson
May 01, 2007
Topic: Credit Card Industry

May 1, 2007

If you are feeling squeezed by credit card debt, you are certainly not alone.  I recently returned from a bankruptcy law conference in Philadelphia, PA put on by the National Association of Consumer Bankruptcy Attorneys (NACBA), an organization of which I am a member.  Of the many interesting and informative programs presented by NACBA this year, one of the most fascinating to me was the presentation of a new documentary film entitled "In Debt We Trust: America Before the Bubble Bursts."  The film was produced and directed by Danny Schechter.  For more information about this movie, please visit Danny's website at http://www.stopthesqueeze.org. For more information about NACBA, please visit their website at http://www.nacba.org.

What watching this film made me realize is that America truly has become a society driven by and dependent on consumer debt.  America is no longer the manufacturing giant that we used to be in the decades following World War II.  Instead, our economy is primarily based on providing services- services predominantly purchased by Americans with credit cards.

Here are some interesting statistics: there are approximately 300,000,000 Americans carrying a combined total of approximately $3,000,000,000,000 in consumer debt.  The average debt per household is $30,000.  Two-thirds of our economy in America is based upon consumption. Approximately 10 large banks control about 92% of the credit industry and in 2005, these 10 banks spent about $ 2 billion in advertising. 

The credit card industry earns about $30 billion in annual profits.  Very successful by any standards.  However, a disturbing figure not apparent in these statistics is that the credit card industry earns roughly 54% in net profit on the poorest of Americans.  That is right- money earned on the backs of the poorest among us.  Why?  Well, in research conducted by some banks they found that the poorer a person is, the more honest they tend to be and the more likely they are to pay.

When you consider the late fees, over the limit fees, finance charges, etc that can quickly accrue when a person falls behind on credit card payments, it is easy to see how those profits can rack up for the banks that provide credit cards.

Now- to be fair, credit is a good thing.  As stated before, the economy is driven by credit and having good credit is essential to living a productive life in this country.  There is absolutely nothing inherently wrong with having credit cards and using them.  The key is- to learn the responsible use of credit.  A person has no need for more than one, maybe two credit cards and should never charge more than he or she can pay off at the end of the month.  Bear in mind the high interest rates credit cards charge when a person runs a balance- as high as 29%.

I recommend that, instead of using credit cards for common purchases, use a debit card instead.  Because a debit card is linked directly to your checking account, you will not be tempted to spend more than you have.  Credit cards should be reserved for emergency situations.

Yet, those emergency situations do arise for many people- especially if they have recently suffered a job loss, some medical catastrophe, the death of a spouse or other family member, or divorce.  Some people find themselves with no real choice but to use credit cards to survive- pay rent, buy gas for their car, food for the table.

If you or someone you are close to has found themselves in such a situation, feeling squeezed by debt and unsure what to do, please feel free to contact me, attorney Richard Stevenson.  I can help advise individuals facing insurmountable debt about what legal options are available to them.

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How bankruptcy can help with foreclosure
Posted by: Richard Stevenson
April 14, 2007
Topic: What you should know about bankruptcy

With all the recent news about the increasing foreclosure rates in San Diego County, as well as the implosion of the subprime lending market, I felt it would be helpful to post some helpful information about the ways bankruptcy can assist a person facing foreclosure.

First- you should know what the steps in the foreclosure process are.  First, a person has to have not made his or her mortgage payment for about three to four months before a lender will send out the first notice.  That first notice is called a Notice of Default.  A Notice of Default is recorded at the County Recorder's office and a copy is sent to the debter.  It alerts the debtor that the loan is currently in default (meaning the debtor has not been making the payments as agreed) and warns that the home could be foreclosed on if the past-due payments are not made.

Second- if no payments are made after the Notice of Default is sent out, then the lender will record and send out a Notice of Trustee Sale.  This Notice of Trustee sale may NOT be recorded and sent until three months after the Notice of Default.  The Notice of Trustee Sale alerts the debtor that the house will be sold at auction on a date at least 20 days after the date the Notice of Trustee Sale is recorded.  The auction generally takes place on the front steps of the courthouse in downtown San Diego.

If you have received a Notice of Default, you should begin planning on the best way to resolve the situation.  There are a number of options outside of bankruptcy that may be beneficial.  You can contact the mortgage lender and ask about its Loss Mitigation programs.  The lender may allow you to temporarily lower your payment, add the amount past due to the balance of the loan, etc.  You will have to explain your current hardship and be prepared to document it.

Another option available, if the house is not your primary residence, or it is a property you are willing to walk away from, is to consider what is called a Short Sale, or a Deed in Lieu of Foreclosure.  These options are attractive if the fair market value of the property is significantly lower than the balance due on the loan.  In a Short Sale, the lender agrees to accept less than what is owed on the property and a sale of the property is arranged.  A Deed in Lieu of Foreclosure is an arrangement where the debtor essentially gives the property back to the lender, avoiding the costs of going through foreclosure.

There are a few things to be wary of if pursuing either a Short Sale or Deed in Lieu.  First, there may be adverse income tax consequences.  Whenever a creditor voluntarily accepts less than what is owed on a debt, the difference between the amount the creditor accepts as payment in full and the amount owed is considered income by the IRS.  This type of income is called discharge of indebtedness income. If the mortgage lender voluntarily foregives a portion of the amount owed in a Short Sale, the debtor could see a 1099 issued.  Now, if such a short sale is arranged after the debtor has filed for bankruptcy, there should be no 1099 issued because there is a bankruptcy exception to discharge of indebtedness income.

Another potential issue is the possibility of a deficiency.  A deficiency exists when the debtor owes the creditor for the difference between what the creditor received in value and the total amount owed on the debt.  When negotiating either a Short Sale or a Deed in Lieu, one should ensure that the creditor releases its interest in both the Note and the Deed so that there will be no possiblity of a deficiency.  It is beneficial to have an attorney and/or real estate broker experienced in these transactions to assist you.

Now- bankruptcy offers some powerful assistance to a person facing foreclosure.  If the debtor is able to afford the normal monthly mortgage payments and wants to remain in the house, then a Chapter 13 may be the best option.  A Chapter 13 would allow the debtor to not only halt any pending foreclosure proceedings, but also to pay off the arrears (the amount of past due payments) over the next 3 to 5 years.  As long as the debtor can make consistent monthly mortgage payments, then A Chapter 13 may be advisable.

A Chapter 13 is also advisable if the value of the home is significantly more than the balance due on the mortgage.  Currently, California allows a person to protect up to $50,000 of equity in the home under what is known as a Homestead Exemption.  If the fair market value of the home is $50,001 or more than the balance due on the mortgage, then a Chapter 13 would likely be preferrable than a Chapter 7.

A Chapter 7 is rarely advisable when a person either owns a valuable home, or can simply not afford to make the mortgage payments.  Filing a Chapter 7, assuming the debtor qualifies under the means test, etc, will only by the debtor time.  Chapter 7 may not be used to address the past due mortgage payments.  However, if the property is one in which the debtor has decided to walk away from, then a Chapter 7 will provide the protection of the Automatic Stay, as well as preventing any discharge of indebtedness income should the debtor be able to sell the property, or arrange a short sale.

One note of caution for selling property in a bankruptcy.  The permission of the trustee and the bankruptcy court will be needed if the debtor wants to sell property in a Chapter 7.

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