Fannie Mae Announces Will Sue “Strategic Walk-Aways”

Fannie Mae today announced plans to bar you from getting a mortgage for seven years, if you walked away away from a house (let it foreclose) when you had the capacity to pay or did not complete a workout alternative in good faith.

Also, they announced that they will also take legal action to recover the balance of the outstanding mortgage debt, in jurisdictions that allow the taking of deficiency judgments (which includes Texas!). This is not good, if you decide to “walk-away” from your house, because it is upside down, or because it is a predatory loan. They could sell the house at foreclosure, and come after you for the difference, which could be many thousands of dollars.

Of course they can do that now in Texas, but in my experience, very few (at least first mortgage) mortgage lenders, if any, sue the borrowers that walk on their houses. However, if the first mortgage forecloses, that cuts off any second mortgages, and I have had clients telling me that the second mortgages are turning the debts over to collection agencies for collection. It won’t be long (if they aren’t already) turning the defaulted second mortgages over to attorneys for suit.

To avoid a suit, complete a workout alternative, or file bankruptcy. A Chapter 7 bankruptcy, if you qualify, can completely discharge or cancel a mortgage deficiency balance. Or if you file a Chapter 13 bankruptcy, depending on your income, you can qualify part or most of the deficiency, while paying it only what you can afford.

If you live in the Houston Texas metropolitan area, I offer a free consultation for people considering filing a bankruptcy case. Just call my office at 713-772-8037 during working hours for an appointment with me.

Read the entire Fannie Mae news release at http://www.fanniemae.com/newsreleases/2010/5071.jhtml.

Posted in Bankruptcy Issues, Foreclosure, Lawsuits. Tagged with bankruptcy, mortgage, walkaway, walkaway mortgage bankruptcy.

June 23, 2010

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Turned Down for Loan Modification? This Could Be Why

Castle in Salzburg, Austria

Quite a few of my Houston area bankruptcy clients are trying to get their mortgage servicers to give them Loan Modifications these days. Many people financed houses in the past few years using the so-called “exploding ARM’s” or adjustable rate mortgages whose interest rates can go up and down with an index.

Nationally so far there have only been about 225,000 permanent loan modifications granted, really a drop in the bucket compared to the 3 million to 4 million that President Obama had as a target for 2012. And many of my clients that apply, are inexplicably turned down for a loan modification, to lower their interest rates and give them a fixed rate mortgage loan that they can afford.

I think I may have discovered the reason why. In an article by Kathleen Howley published by Bloomberg on April 21 entitled “Mortgage Servicer Profits May Threaten Obama Housing Programs,” it was stated that mortgage servicers can make $10,000 from foreclosing on a home, whereas the government (that is you and me) is paying them $1000 for each successful Making Home Affordable loan modification.

So no wonder the mortgage servicing industry isn’t exactly “on fire” with granting loan modifications. They can make TEN TIMES AS MUCH MONEY foreclosing, as doing the right thing, and trying to keep borrowers in their homes.

It’s a darn shame that the “mortgage modification” bill lost in Congress. That bill would have allowed bankruptcy judges to modify home loans, by reducing the principal balance to the value of the house, lowering and fixing the interest rates, and extending terms. This would have been the “stick” that may have been enough to encourage mortgage servicers to do more loan modifications.

Granted, a lot of people were allowed to buy homes in the past few years, when they probably should not have. But now that millions of people are in the homes, something has to be done. If all these houses are allowed to foreclose, it will hurt all of our property values.

And frankly, many of the mortgage loans were predatory. One case I am litigating now, the Hispanic couple would have qualified for an FHA fixed rate loan, yet their mortgage broker put them in a high-rate ARM, likely because of the much higher commission. They were told that they didn’t qualify for a fixed rate loan unless they had “perfect” credit, which at the time just wasn’t the case, and they had 20% down.

Posted in Bankruptcy Issues, Foreclosure. Tagged with Add new tag, bankruptcy, Foreclosure, loan modifications.

April 24, 2010

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January Foreclosures Increase 15% Over Last Year

Cactus Outside of Tucson, AZ

The number of U.S. households facing foreclosure in January increased 15 percent from the same month last year, and a surge in cash-strapped homeowners who’ve fallen behind on mortgages could be on the way, the Associated Press reported recently. With high unemployment, it should not come as a surprise.

Many of my clients in the Houston area are trying to get their “adjustable rate” or ARM mortgages modified, with little success. The consumer bankruptcy bar through a national organization name NACBA, tried to get Congress to approve changes in the bankruptcy laws that would let bankruptcy judges modify the loans of Chapter 13 debtors, but that effort failed twice. The mortgage industry just has too much “swing” in Congress, in my opinion.

We have had success lately in “stripping off” second mortgages, but that is only effective if there is absolutely no equity to support the second mortgage, and the homeowner has to file Chapter 13 bankruptcy to do so, of course.

I’m not sure where this is all going to lead, but it can’t be good. When the $8000 tax incentive for homebuyers ends, and interest rates start creeping up, there had better be an end to the recession soon, or there will likely be big trouble on the homeownership front in this country.

By filing Chapter 13 for homeowners in trouble, I can deal with what they are behind, the arrears, but they must be employed or have regular income coming in. And I cannot force the mortgage company to do a loan modification. Unfortunately I have an increasing number of prospective clients who are ready to just walk away from their house; they realize that there is no equity and that they just can’t afford it.

Posted in Bankruptcy Issues, Foreclosure.

February 15, 2010

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FHA Makes Stricter Rules for Home Mortgages

Beautiful Country Outside of Tucson, New Mexico

Will you be looking for a mortgage soon, after being in a bankruptcy? It will likely be somewhat more difficult to qualify for a mortgage, starting this summer.

Why? The Federal Housing Administration (FHA) announced policy changes on January 20th.

New borrowers will now be required to have a minimum FICO® score of 580 to qualify for FHA’s 3.5% down payment program. And that is just the minimum. Most lenders now are going further to minimize their risk, and will require at least a 620 score for an FHA loan.

Also, new borrowers with less than a 580 FICO score will be required to put down at least 10% down on their home purchase. A lot of people will not be able to raise that kind of cash, or it will take them some time.

Other things have also changed, but for many people the biggest problems will be the credit socre and the amount of money that will now be required as a down payment.

After my law office completes a bankruptcy, we perform a free “credit clean-up” for clients, that I’m told has the effect of raising the credit scores from 50-125 points.

We ask the credit bureaus to “re-investigate” each of the “tradelines” or credit accounts, so that they accurately report the bankruptcy, and show the accounts as a -0- balance and the fact that they were “discharged in bankruptcy.”

If this is not done, sometimes one or more unsecured credit accounts continue to show as delinquent, which makes it look like the bankrupt person acquired new credit after bankruptcy, and defaulted on it.

So, now is the time to go for a mortgage. If you need to wait, you will need a better score, and some more cash, to qualify for an FHA mortgage.

Posted in Bankruptcy Issues, Credit, Save Money.

January 26, 2010

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Can I File Bankruptcy If I Own A Small Business?

Sunset Outside of Tucson, Arizona

Yes. For example, I had a prospective client come in recently, and he had a lot of credit card debt, about $75,000. But he also owned a small business that was just getting off the ground, a corporation, and he had a small rent house with some equity in it.

If he filed a Chapter 7 bankruptcy, otherwise known as “liquidation” bankruptcy, there is a liquidation Trustee appointed, whose job is to sell any “non-exempt” or extra property that the debtor has, and use the money to pay the debts as far as the money will go.

In this example, a Chapter 7 Trustee or liquidation Trustee may take the client’s stock in the business away from him, and either sell it or liquidate the business and use the equity to pay the creditors. And, a liquidation Trustee may try to sell the rent house, which the debtor did not want to sell because a relative was renting it from him.

But, if the client files a Chapter 13 bankruptcy, we could propose a plan to pay about $250 per month to a Chapter 13 Trustee for 5 years. The Chapter 13 Trustee then pays that money to the creditors, and when the plan is completed, the rest of the $75,000 debt is “discharged” or cancelled, and the client no longer owes it.

And the client can keep and continue to operate the small business, and keep the rent house. In Chapter 13, the debtor remains in possession of all property, unless the plan provides otherwise.

Also, the creditors cannot try to collect the $75,000 during the Chapter 13, because the client is protected by the “automatic stay,” a bankruptcy court order that goes into effect as soon as a bankruptcy case is filed.

Chapter 13 bankruptcy can be an excellent tool to help a consumer reorganize or rehabilitate their finances, while keeping their property and paying their creditors at a level that they can afford. It also stops the debt collectors from calling, and stops all other collection actions such as lawsuit and garnishments from creditors.

Posted in Bankruptcy Issues. Tagged with bankruptcy, business, credit cards.

November 21, 2009

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Credit Card Banks Getting Pretty Scary

UR Next (or could be next) for the Credit Card Banks

I have had a number of prospective bankruptcy filers come in recently, that have a lot of credit card debt. Some only $20,000 or $30,000; a few as high as $60,000 or $100,000. One fellow had $160,000!

They have had the credit card debt for a long time, and have been able to manage it up until now. They tell me that the credit card banks are raising the interest rates, seemingly for little or no reason.

And we’re not talking about raising the interest rates just a few points. They have their rates raised from a modest 8-10% to the default interest rate of 29.9%. The rates are raised so much, that making payments really doesn’t do any good; very little if any of each payment goes to the principal of the loan; it almost all goes to interest.

I don’t know, but I suspect, that this recent activity is related to the new restrictions on the ability of credit card banks to raise interest rates, without so many days’ prior notice. These regulations are not yet fully in effect, so I believe that this recent activity is designed to take advantage of the situation, and raise bank customer’s interest rates, before the banks become restricted and can no longer do so, at least without giving considerable notice.

How do you avoid getting ripped off by these sky-high interest rates? Obviously, pay off your balances if you can. If you can’t, a bankruptcy filing can, if you qualify, eliminate the debt through Chapter 7, or stop the interest and let you pay part or all of the principal of the debt through Chapter 13.

But if you’ve had your interest rates raised recently, you know how scary it is getting- and it’s time to do somthing.

Posted in Bankruptcy Issues, Save Money. Tagged with bankruptcy, credit card, credit cards.

October 26, 2009

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Internet Payday Lenders Settle With FTC and State of Nevada

I have quite a few bankruptcy clients here in Houston that have been desperate for money, and have borrowed money from internet payday lenders. Talk about an expensive way to borrow money! But I guess if you need money badly, to pay the rent or to buy food or medicine between paychecks, you really don’t have much choice.

At least the FTC has “cooled the jets” of a group of such companies operating out of the United Kingdom, and the payday lenders have agreed to change their ways and pay $1 Million in fines.

Anyway, payday loans are dischargeable in bankruptcy just like any other debt. Some of my clients think they are different, because they have given a post-dated check to the company, or given them their checking account information. To my knowledge, if the payday loan companies deposit the check, it is not something that they can prosecute you for- they knew the check was bad when they took it.

And if you are going to file bankruptcy and they have your checking account information, I would just close the account, and list the payday lender and possibly also the bank as creditors. And stop borrowing from payday lenders. You can be worse than broke. You can be broke and in debt to payday lenders.

An excerpt from the FTC article is as follows:

“The defendants operated from the United Kingdom and targeted consumers in the United States, who were misled into believing that the defendants operated from Nevada. According to a complaint filed by the FTC and Nevada in 2008, the defendants told consumers that the loans had to be repaid by their next payday with a fee ranging from $35 to $80, or the loans would be extended automatically for an extra fee debited from consumers’ bank accounts until the loans were repaid.

The FTC charged the defendants with violating the FTC Act by using unfair and deceptive collection tactics. The Commission alleged that they falsely threatened consumers with arrest or imprisonment, falsely claimed that consumers were legally obligated to pay the debts, threatened to take legal action they could not take, repeatedly called consumers at work using abusive and profane language, and improperly disclosed consumers’ purported debts to third parties. They also allegedly failed to make required written disclosures to consumers before consummating a consumer credit transaction, such as the amount financed, the annual percentage rate, payment schedule, total number of payments, and any late payment fees, in violation of the Truth in Lending Act (TILA) and Regulation Z.

The settlement order requires the defendants to pay $970,125 to the FTC and $29,875 to the State of Nevada. The order prohibits them from falsely claiming that consumers may be arrested or imprisoned for failing to pay debts, that they are legally obligated to pay the full amount of a purported debt, and that for nonpayment they are subject to lawsuit, seizure of property, or garnishment of wages. The defendants also are barred from repeatedly calling consumers’ work places, using obscene or threatening language toward consumers and third parties, and disclosing the existence of consumers’ purported debts to third parties.

NOTE: Stipulated court orders are for settlement purposes only and do not necessarily constitute an admission by the defendants of a law violation. Stipulated orders have the force of law when signed by the judge.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.

MEDIA CONTACT:: Frank Dorman
Office of Public Affairs
202-326-2674
STAFF CONTACT:: Nadine Samter
FTC Northwest Region
206-220-4479

(FTC File No. X090012)
(Cash Today settlement)”

Posted in Bankruptcy Issues, Save Money. Tagged with bankruptcy, payday loans, Save Money.

September 26, 2009

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“Another One Bites The Dust”- Another Debt Settlement Company Goes Bankrupt

North Beach, Oahu Hawaii

I’ve seen this happen before, a debt settlement company going bust. It seems to be happening more often.

Our Texas Attorney General is going after restitution from a “Debt Settlement” company in Bankruptcy Court. In this particular one, it is “Debt Relief USA.”

I don’t recommend “debt settlement” companies, per se. But if you are going to use one, at least choose one that is properly registered and operating legally in Texas. They have to put up a bond, for one thing!

For a list of the ones that are legally operating, go to the website of the Texas Consumer Credit Commissioner http://www.occc.state.tx.us/pages/searches.html and click on “List of Debt Management Service Providers.” Those are the only ones that can legally settle debts in Texas, besides attorneys. And of course you can settle your own debts.

I have a longer article titled “Is Your Debt Settlement Company Legal?” about the perils of going with a debt settlement company on my web site at http://jthomasblack.com/legal.php?nID=18.

Below is the Attorney General’s press release:

Attorney General Abbott Pursues Restitution for Texans from ‘Debt Settlement’ Company in Bankruptcy Court

Bankrupt Debt Relief USA said to hold $4.6 million in client funds

AUSTIN – Texas Attorney General Greg Abbott today took legal action to recover $4.6 million that a bankrupt “debt settlement” company wrongly withheld from its clients in Texas and other states.

In June, Debt Relief USA Inc. of Addison filed for bankruptcy protection in the Northern District of Texas. As a result, more than 2,500 financially distressed customers did not receive the debt relief they were promised. In fact, debtors’ problems were exacerbated by the bankruptcy because some of Debt Relief USA’s clients received no assistance and are now being pursued by collection companies.

According to investigators with the Office of the Attorney General, Debt Relief USA targeted individuals with thousands of dollars in unsecured debt, promising customers it would render them “debt-free in as little as 36 months.”

Under Debt Relief USA’s model, debtors stop paying their debts in order to save the money they would have paid creditors over time. Instead, they paid monthly installments to Debt Relief USA, which promised to later negotiate discounted pay-offs with creditors.

However, investigators indicate that Debt Relief USA assessed an “administration fee” of about 8 percent of each customer’s total debt, as well as monthly “maintenance fees” of up to $40. If the company successfully settled a debt, it then charged a “negotiation fee” of 13 percent of the amount of debt saved.

According to court documents the state filed with the bankruptcy court, Debt Relief USA collected “set-aside” funds from its customers. However, the Texas Finance Code prohibits set-aside funds unless a company is licensed or registered and has posted a bond with the Office of Consumer Credit Commissioner. Debt Relief USA failed to meet the legally mandated registration and bond requirements. As a result, the Attorney General has filed a proof of claim in the bankruptcy case seeking restitution for financially harmed debtors and the return of any fees paid to Debt Relief USA by current or former clients.

In addition, the Office of the Attorney General moved to protect the defendant’s clients’ privacy by successfully arguing that their names and confidential information be removed from the public record. Further, the Attorney General successfully moved to have the bankruptcy case converted from a Chapter 11 reorganization to a Chapter 7 liquidation with a neutral trustee appointed by the court. The trustee’s duties will include liquidating the debtor and paying claims to creditors.

Investigators with the Office of the Attorney General found that Debt Relief USA often never contacted creditors on behalf of their “clients,” which ultimately damaged its customers’ credit reports and even led to debt collection lawsuits by creditors. Debt Relief USA customers risked the ongoing accruals of late fees, interest, over-limit charges and other fees associated with the creditor’s account. Therefore, even in the event of a settlement, customers often owed significantly more on their accounts, which reduced their overall debt settlement savings. In addition, any savings realized under a settlement would be subject to taxation, since these are considered “income.”

In addition to restitution, the Attorney General seeks civil penalties of up to $20,000 per violation of the Texas Deceptive Trade Practices Act, as well as attorneys’ fees.

Texans who believe they have been deceived by similar fraudulent business practices may call the Office of the Attorney General’s toll-free complaint line at (800) 252-8011 or file a complaint online at www.texasattorneygeneral.gov

Posted in Bankruptcy Issues, Debt Settlement. Tagged with bankrupcy, Debt Settlement.

August 22, 2009

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Credit Card Banks Impose New Fees

According to a published report in USA Today yesterday, credit card banks are beginning to add many new fees. You would think there are enough already, with late fees, overlimit fees, cash advance fees, etc. But no!

One bank will start charging $19 fee if credit card borrowers have no account activity for 12 months; an “inactivity” fee! They must have people sit around and think this sort of thing up, over strong drinks. Discover will reportedly start charging 2% fee on purchases made outside the U.S. Another bank will start charging a “reinstatement fee” to be able to redeem accumulated reward points, if the credit card borrower has paid late.

This is just the kind of treatment of consumers that gets them coming into my office to file bankruptcy. One prospective client this last week, said that he saw how he was not going to be able to pay his payments, so he called his credit card bank to try to work something out, ahead of time. “Sorry,” they told him, “unless you are delinquent on your payments, we can’t help you.” “Wow,” he told me, I am trying to keep my payments from BECOMING DELINQUENT, but they won’t help me.” Unfortunately, I hear that a lot.

If credit card banks would just listen to people, and try to work things out (some of them do), I would not be such a busy bankruptcy attorney these days. If you are having financial troubles and want to review your options, and live in the Houston area or surrounding counties, please give my office a call at 713-772-8037 for your first free appointment with me.

Posted in Bankruptcy Issues, Debt Settlement. Tagged with bankruptcy, credit cards.

August 7, 2009

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Credit Card Delinquencies at Record 10%

The "side" entrance to our office building, in Houston

A record percentage of credit cards are delinquent, 10% according to published reports. This is absolutely stunning, as credit card delinquencies historically have run 3%, maybe 4%.

Most people don’t know that credit card debt is “securitized,” or rolled into bond-like financial instruments and sold on Wall Street. This could turn into another mess like recently happened with mortgages; securitization of mortgage debt recently almost wrecked the worldwide economy.

I understand from published reports that the banks are having to “rush to the rescue” of some of these credit card trusts. By securitzing their credit card debt, banks keep much of the risk of the stupendous amount of credit card debt in this country “off the books” and technically not a risk that they have to keep reserves to cover, I suppose. That way, it doesn’t hurt their profitability.

In my opinion, it’s just greed. The world worked a lot better before debt was a commodity, and became this country’s biggest export. It was better when credit was more difficult to get, and people had to qualify for it. Perhaps we’ll get back to that model soon; it may just take another financial catastrophe or two before we collectively wise up.

Posted in Bankruptcy Issues, Credit. Tagged with bankruptcy, credit cards.

June 25, 2009

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« Older posts

Fannie Mae Announces Will Sue “Strategic Walk-Aways”

Turned Down for Loan Modification? This Could Be Why

January Foreclosures Increase 15% Over Last Year

FHA Makes Stricter Rules for Home Mortgages

Can I File Bankruptcy If I Own A Small Business?

Credit Card Banks Getting Pretty Scary

Internet Payday Lenders Settle With FTC and State of Nevada

“Another One Bites The Dust”- Another Debt Settlement Company Goes Bankrupt

Attorney General Abbott Pursues Restitution for Texans from ‘Debt Settlement’ Company in Bankruptcy Court

Credit Card Banks Impose New Fees

Credit Card Delinquencies at Record 10%

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