Bankruptcy Questions Answered

Housing Prices Hit Eight-Year Low

The latest figures from Standard & Poor’s Case-Schiller Index show that the double-dip in the housing market many economists feared is now a reality. In other words, according to sources, housing market prices have taken another nosedive and home values are now near the same level they were in mid-2002.

How much of a dip is this second downward spike? Reports indicate that:

• The first quarter of 2011 saw a 4.2 percent decline in home prices.
• In the final quarter of 2010, prices dropped 3.6 percent.
• Home prices are currently 5.1 percent lower than they were this time last year and, according to Standard & Poor’s, have reached a new low even for the recession.

If all this sounds like bad news, the kicker is that the cycle of foreclosures and lowered home values seems unlikely to end any time soon.

Gloomy Outlook for the Housing Market

Consider these troublesome figures.

• About 1.9 million homes in the U.S. are currently in some stage of foreclosure, according to RealtyTrac, a company that keeps track of such things.
• Housing prices fall when supply is greater than demand (that is, when there are more homes available than people looking to buy).
• Right now, supply is skyrocketing: empty foreclosure properties are common sights in many states, and apparently nearly two million more are about to follow.
• Unfortunately, demand is also fairly low: many Americans are still skittish about their employment situation and unwilling to take on the burden of a mortgage. Further, many banks have tightened lending standards, making mortgage loans harder to come by even for those interested in buying.
• On top of all this, sources note that as many as 28 percent of U.S. homes are currently underwater, meaning that the owner owes more on the mortgage than the home’s current value. Underwater homeowners may find themselves in foreclosure down the line, whether by strategically defaulting or by being unable to make payments.

Can Chapter 13 Bankruptcy Help?

In the past, Chapter 13 bankruptcy has often been heralded as a way to stave off or prevent foreclosure for some filers. The question of whether Chapter 13 could help some of the millions of Americans who might have mortgage foreclosure in their future is a complex one.

Chapter 13 may work for some people facing foreclosure, but only if those people have sufficient income to make regular payments according to the repayment plan. In other words, if you’re in danger of losing your home because you lost your job, Chapter 13 may not do the trick.

One interesting note, though, is that some sources have reported bankruptcy judges ruling for mortgage cram-downs in Chapter 13 cases, despite laws that prohibit such rulings.

Posted in Bankruptcy and the Economy, Economy, Foreclosure, Mortgage Foreclosure, housing market, recession | Comments Off

Bankruptcy Lawyers Help Homeowners Erase Second Mortgages

Many Americans currently considering bankruptcy are in financial trouble partly because of the struggling housing market. Underwater mortgages (those in which the homeowner owes more than the home’s current value) are a reality for as many as 28 percent of American homeowners.

Even though bankruptcy law prohibits the court from modifying the terms of a primary mortgage, some bankruptcy lawyers have found a legal way to help their clients stay in their home and avoid foreclosure.

Unsecured Second Mortgages

Here’s the process some bankruptcy petitioners are following to help ease their mortgage debt:

• File for Chapter 13 bankruptcy: Entering a Chapter 13 case means that the filer agrees to a three- to five-year repayment plan in which she will catch up on past-due debts.
• Petition the court to declare a second mortgage unsecured debt: Filers who have second mortgages that, combined with their primary mortgages, exceed the value of their home’s current value, may be able to make this move. A bankruptcy lawyer can explain in more detail how the move works and whether it might be possible in any individual’s case.
• Make payments according to the repayment plan: If the court accepts the petition, the filer must continue making payments according to her repayment plan for the duration of the bankruptcy case. At the end of the case, the remaining unsecured debt (including that from the second mortgage) may be excused by the court.
• Avoid foreclosure: In many cases, reclassifying a second mortgage as unsecured debt allows filers to make mortgage payments and remain in their homes.

The Winners and the Losers

Naturally, this legal maneuver is good news for struggling homeowners and potential bankruptcy filers. But banks and other lenders are apparently less than thrilled about the development – after all, they’re the ones who lose out on mortgage payments when debts are excused in court.

But, as one news outlet reminds us, the only way to change the law is an act of Congress. Given the current state of the American housing market and level of financial difficulty many Americans are facing, a move of that sort seems unlikely: what politician would want to be responsible for taking away a tool for avoiding foreclosure?

Can You Save Your Home from Foreclosure?

In order to take advantage of this legal protection, your financial situation must meet a number of criteria:

• Sufficient income to make payments: In order to benefit from Chapter 13, you have to be able to make monthly payments according to a repayment plan, which means you have to have a steady source of income.
• Two (or more) mortgages: Again, primary mortgages cannot be modified in bankruptcy court.
• An underwater home: Finally, you can only have debt declared unsecured if there is no property to secure it (that is, if your loan is worth more than your home). If your home value exceeds the amount of your primary mortgage, then at least a portion of the second mortgage is secured by the home, and cannot be excused by the court.

If you’re ready to find out whether this might work for you, connect with a bankruptcy lawyer today.

Posted in Bankruptcy and the Economy, Chapter 13 Bankruptcy, Foreclosure, Mortgage Foreclosure, stop foreclosure, underwater home | Comments Off

Lawsuit Alleges Mortgage Fraud by Deutsche Bank

News reports this week announce that the U.S. Department of Justice has initiated a lawsuit against Deutsche Bank, one of the world’s largest, claiming that the institution lied to federal regulators in order to secure taxpayer-funded insurance for less-than-secure mortgages.

Here’s a look at the details and some of the underlying issues.

The Charges against Deutsche Bank

According to the lawsuit, Deutsche Bank and its subsidiary MortgageIT:

• Initiated risky mortgage loans to homebuyers. Some of these loans may have been subprime, and since their initiation, sources indicate, about a third have defaulted.
• Lied to federal regulators. While the loans themselves may have been a bad move financially, what interests prosecutors is what happens next: that Deutsche Bank allegedly lied to officials with the Federal Housing Authority (FHA) in order to secure insurance for the shoddy loans.
• Got taxpayer-backed insurance for questionable loans. Because of its reportedly false claims that it was evaluating its mortgages for default risk, Deutsche Bank managed to secure FHA funding (which comes from tax dollars) for the questionable loans.
• Required money from the government when the loans defaulted. Now, as many as 12,500 of Deutsche Bank’s loans have apparently defaulted (meaning that the homes have gone into foreclosure), leaving the government responsible for covering the losses. The money goes to those investors who own the mortgage debt. Sources note that, to date, defaulted Deutsche Bank loans have cost the government more than $386 million.

Because of all these allegations, the Justice Department is reportedly suing the bank for $1 billion, an amount that represents the dollar amount lost plus individual penalties for each mortgage that went into default.

What Mortgage Lending Rules Were Broken?

The government’s lawsuit charges that Deutsche Bank and MortgageIT failed to follow the rules required of anyone interested in federal mortgage insurance. These rules require lenders to:

• Annually verify various records of mortgage borrowers, including credit reports, incomes and record of employment. This measure is to make sure borrowers are not at risk of defaulting.
• Examine any loan that goes into default shortly after being originated in an effort to prevent and eliminate careless lending techniques.
• Act in the government’s best interest, because any money needed to guarantee loans that defaulted would come directly from taxpayers’ pockets.

The lawsuit claims that Deutsche Bank did none of these things and so is both on the hook for the money lost by the government and responsible for paying penalties for breaking the rules of engagement for obtaining federal insurance.

Some sources suggest that the Deutsche Bank lawsuit could be the first of many; after all, reckless lending techniques were fairly common during the housing boom that touched off the current recession.

Posted in Bankruptcy and Predatory Lending, Consumer Protection, Economy, Mortgage, Mortgage Foreclosure, predatory lending | Comments Off

Strategic Default and Foreclosure: What’s the Difference?

With the housing market headed for what some analysts are calling a double-dip downturn, there’s been a lot in the news lately about homeowners who strategically default on their mortgages. Here’s a look at what that means, how strategic default relates to foreclosure and what you need to know if you’ve got a mortgage you can’t afford.

What Is a Strategic Default?

The mortgage manipulation known as the strategic default works like this:

• A homeowner reassesses her debt situation: This can be spurred by a number of things, and in the current economic climate common triggers include having difficulty paying bills (though not necessarily making mortgage payments) and realizing that a home is now worth less than the amount of the mortgage loan.
• A homeowner decides not to make mortgage payments: After a month or two of missed mortgage payments, the mortgage loan will be in default (or, said another way, the borrower will have defaulted on the loan). The decision is usually considered “strategic” because those who choose this path opt to meet other financial obligations in lieu of paying their mortgages.
• The home goes into foreclosure: Because the homeowner stops making mortgage payments, the mortgage lender begins the foreclosure process and takes back the home.
• The homeowner deals with the credit consequences: In addition to finding new housing, strategic defaulters must also face serious financial consequences. Strategically defaulting on a mortgage can seriously damage a credit score, and many lenders (of all kinds) may refuse to issue loans to those with strategic defaults on their record. Fannie Mae, for instance, has announced that strategic defaulters are banned from Fannie Mae mortgage loans for seven years after defaulting.

How Is Strategic Default Different from “Regular” Foreclosure?

A strategic default is a conscious choice on the part of a homeowner to stop making mortgage payments, even if those payments are still affordable. Those who choose to strategically default often indicate that they are no longer willing to pay for a loan worth more than their house.

“Regular” foreclosure happens when a homeowner can no longer afford a mortgage loan and so has no choice but to stop making payments. In both cases, the homeowner loses the house to the lender; in strategic defaults, doing so is a conscious decision on the part of the homeowner.

What Are Other Options for Struggling Homeowners?

Because of the serious credit consequences and questionable ethical nature of strategically defaulting, many homeowners are not willing to do it, even if their loan is bigger than they’d like. Alternatives include:

• Applying for a mortgage modification: Some banks (assisted by federal programs) offer mortgage modification programs. To find out whether you might qualify, contact your bank as soon as possible.
• Filing for Chapter 13 bankruptcy: Some homeowners are able to at least delay (and possibly prevent) mortgage foreclosure by filing for Chapter 13. If you’re interested in learning whether you qualify, contact a bankruptcy lawyer in your state.

Posted in Bankruptcy and the Economy, Chapter 13 Bankruptcy, Foreclosure, Mortgage Foreclosure, strategic default | Comments Off

Mortgage Scammers on the Loose

Despite the best efforts of groups like the Better Business Bureau and the Federal Trade Commission, scammers manage to find new ways to take money from unsuspecting consumers on a regular basis. Here’s a look at one of the latest warnings that’s been posted by consumer advocates.

A New Mortgage Scam Afoot

The latest in a long line of mortgage and foreclosure “rescue” scams seems to be one that involves attempting to trick homeowners into thinking they qualify for money from a lawsuit against their lenders. According to the BBB, the scam works like this:

• An official-looking letter arrives: Victims have reportedly noted that they received a letter indicating that they were eligible to join a “joinder action suit” against certain mortgage lenders and banks. The letters noted the potential for winning significant financial compensation in the suit.
• Unrealistic promises: Victims who called the number listed on the letter were apparently directed to employees of the scammer, who falsely suggested that, by joining the suit, victims might win thousands of dollars, have their interest rates slashed to two percent or have their mortgage principal reduced by 80 percent.
• Request for upfront payment: In classic scam fashion, victims were then told that they must pay a $5,000 retainer fee to ensure their spot in the lawsuit.

Unsurprisingly, none of the information presented in the letters or during follow-up phone calls was true. But what many victims found disturbing was that the scammer had access to their personal information, including name, address, loan information and even loan amount. In other words, this particular scam may have seemed frighteningly legitimate.

How to Spot a Scam

If you’re among the millions of Americans currently struggling with your mortgage, be sure to follow these safety tips (from the BBB) if and when you decide to seek mortgage assistance.

• Go directly to your lender first. Third-party “relief” providers, especially those that approach you unsolicited, are much less trustworthy and much more likely to take your money and offer you nothing in return.
• Be suspicious of mailings from strangers. If you receive a letter about any class action or mass joinder lawsuit, be sure to check online to learn about the latest scams. Then, contact your bank or connect with a lawyer to assess the nature and legitimacy of the letter.
• Shy away from advance fees. Thanks to new consumer protection rules that took effect this year, advance fees are only permitted in rare cases. In many cases, those that ask for money upfront are interested only in your money and may not stick around long enough to provide the help they promised.
• Beware of forensic loan audits. These are hot scamming ground and often have no effect on a person’s mortgage payments.

Posted in Financial Literacy, Foreclosure, Mortgage, Mortgage Foreclosure, mortgage rescue scams, scam | Comments Off

New Solutions for Those with Mortgage Woes?

These days, many Americans are desperate to stay on top of mortgage payments, and are considering unorthodox ways to pay the bills. apparently, when a company called Adzookie offered to pay people’s mortgages for up to a year if those people would display large advertisements on their homes, applications flooded in by the thousands, as a recent report from Credit.com details.

The deal reportedly works like this: if you apply and are accepted into the program, Adzookie will paint advertisements on your home and pay your mortgage for three months (with a chance to renew for another nine if the ads remain in place).

While that may sound like heaven to some struggling homeowners, only a handful of people will be selected for this deal. So what can the rest of us do?

Finding Affordable Housing

Because of the tight standards of many refinancing programs, few homeowners are able to qualify. So that might mean a few things, one of which could be giving up a mortgage (whether with the help of personal bankruptcy or not) and renting for a while.

So how can you find affordable rent? By following these steps for negotiating:

• Know the area: Figure out what people are paying for apartments in the neighborhood you want. In addition, try to determine whether there are more apartments than tenants or vice versa. If there are lots of vacancies, you have a better chance of negotiating a deal. You can do this by scouring local postings and asking people who rent nearby.
• Consider amenities: Determine whether your potential apartment is bare-bones or all-inclusive. The former may provide you better negotiation opportunities, but make sure you’re able to find necessary services nearby—if you have to haul your laundry across town every time you’ve got dirty clothes, a small rent savings might not seem worthwhile in the long run.
• Prove yourself: Offer to show to a potential landlord a strong credit report, a reference from a previous landlord or proof of steady income. A landlord who views you as a good credit risk is more likely to cut you a deal because she’ll be less likely to have to chase you down for rent or lose money on you.
• Think outside the box: Offering to sign a lease longer than one year (which saves a landlord the work of finding new tenants), pay ahead of the due date (which saves a landlord worry and possibly money loss) or move in whenever works best for a landlord can all give you leverage in negotiations, as all these circumstances tend to ease a landlord’s financial (and worry) load.

Posted in Bankruptcy and the Economy, Credit Report, Foreclosure, Mortgage Foreclosure | Comments Off

Celebrate Financial Literacy Month

The Federal Trade Commission has announced that April is National Financial Literacy Month and, as such, a great opportunity for Americans of all ages to brush up their financial smarts to make the most of their money, credit and financial future.

So what kinds of things can you do to celebrate financial literacy month? The FTC recommends checking out these services.

• Money Matters: This web site has information in both English and Spanish about essential financial literacy topics including debt collection, credit repair scams, vehicle repossession, job hunting, job offer scams, foreclosure rescue scams, budgeting for mortgage payments and more. Whether you prefer quick tips or more in-depth videos, this site has information to help you.
• Free Annual Credit Reports: Here, the FTC explains how and why Americans are entitled to a free credit report from each of the three major reporting bureaus once each year. This site also provides information about why it’s important to check your credit report regularly and where you can get your no-strings attached, truly free credit report (www.annualcreditreport.com).
• You Are Here: This site is geared toward children and provides them interactive online games that teach them about advertising, competition and steps they can take to protect their privacy and prevent identity theft.

Why Does Financial Literacy Matter?

So why does our country need a financial literacy month in the first place? In recent years, tests administered to high school students yielded almost no passing scores and, as we are still collectively learning, ignorance about financial matters (such as how mortgages work) on a grand scale can lead to devastating financial fallout for the entire economy.

In addition to those resources provided by the FTC, consider visiting these sites as part of your financial literacy month celebration:

• Fair Debt Collection Practices Act: This page explains who is protected by the FDCPA and what the law prohibits from debt collectors. Understanding your consumer rights is one powerful way to make sure you aren’t victimized by scammers or dishonest debt collectors.
• The Bankruptcy Glossary: Thinking of filing for bankruptcy protection? You may want to start here as you consider what bankruptcy might mean for you. This page offers plain-English definitions for many terms commonly used in bankruptcy cases.
• Consumer Financial Protection Bureau: The government’s new consumer protection body is still growing, but already offers a number of interactive options for people interested in staying up-to-date about consumer protection rules, laws and debates.

Remember: the only one responsible for your money, retirement fund, loan payments and other financial obligations is you. If you aren’t sure how your money is working (or not working) for you, it’s a good idea to take the time to educate yourself about basic financial literacy matters – the resources are out there and they’re free.

Posted in FTC, Financial Literacy, Identity Theft, Mortgage Foreclosure | Comments Off

The Latest on Student Debt and Underwater Homes

New reports highlight some interesting information about two topics near and dear to those who have filed or are considering filing for bankruptcy: underwater mortgages and student loan debt. Here’s a look at what kind of picture the latest numbers paint.

Students Don’t Need to Default to Be Behind on Loans

The Institute for Higher Education Policy released a report last week showing that two-fifths of those who borrowed money for educational purposes fell behind on their payments at some point in their first five years of repayment. So what does this mean?

• Widespread repayment difficulties: These numbers may not even reflect the current rates of repayment difficulty, given that graduates in the last few years have faced a much tougher job market than those who graduated five years ago.
• Old measures may be inadequate: Traditionally, studies on student debt have focused on the rate of default rather than delinquency. Looking at delinquent loans offers a clearer picture of how many people are struggling to repay their loans, even if they manage to get back on track at some point.
• Bankruptcy not an option: Student loans are typically not dischargeable in bankruptcy court, which means that those with unmanageable student debt have few options for easing their debt burden. This is scary, considering that some estimates put the country’s total student debt at $896 billion, which is greater than our national credit card debt total.

Reports note that these numbers may affect the current debate in Congress over whether for-profit colleges and universities should be eligible for federally backed financial aid.

More Underwater Homes

Recent numbers released by a company called CoreLogic show that the number of underwater homes in the U.S. (that is, homes with a current value less than the amount of the mortgage on the house) has climbed since last quarter. Here’s a look at the numbers.

• A reported 11.1 million U.S. homes were underwater in 2011’s first quarter, a jump from 10.8 million in the last quarter of 2010.
• Nevada has a 65 percent rate of underwater mortgages, and is apparently the only state in which the average homeowner is underwater.
• Besides the more than 11 million underwater homeowners in the U.S., 2.4 million Americans have less than five percent equity in their houses, according to sources.
• Collectively, we reportedly owe about $751 billion more on mortgages than our homes are worth.
• Analysts predict that home prices could fall by another five to 10 percent in 2011, meaning that those with little equity could soon find themselves underwater.

Unfortunately, mortgage loans for primary residences cannot be modified in bankruptcy court, but in some cases homeowners may find a Chapter 13 or Chapter 7 filing useful for eliminating other debts to help improve their odds of staying on track with their mortgages.

Posted in Bankruptcy and the Economy, Chapter 13 Bankruptcy, Chapter 7 Bankruptcy, Foreclosure, Mortgage Foreclosure, Student Loans | Comments Off

The Latest Consumer Protection from the FTC

The Federal Trade Commission’s annual National Consumer Protection Week is upon us (March 6 – 12, 2011) and that means it’s a great time to brush up on information about money, credit and the consumer protections available to you – just because you happen to live in the United States.

You can get handy tips for personal finance and money management at the NCPW blog, which is updated regularly with tips for topics including these (and more!):

• Avoiding foreclosure rescue and other mortgage-related scams;
• Knowing how to spot employment opportunity scams;
• Making the most of your money in the early stages of your career;
• Building and maintaining a budget to improve financial stability;
• Avoiding time-share and credit-card scams offered via text messages; and
• Learning what steps to take to save your home from foreclosure.

In short, whether you’re rebuilding from a bankruptcy filing or just starting to establish yourself in the world of credit and wealth, there are excellent, free resources available for your enjoyment and education.

FTC Targets Scammers Preying on the Cash-Strapped

In other FTC news, the commission announced this week new efforts to halt scams that target people in need of work – in other words, those who can least afford to lose money to dishonest schemes.

According to the FTC’s web site, Operation Empty Promises has taken legal action against the following scammers:

• Ivy Capital Inc., a company that allegedly bilked consumers out of more than $40 million with promises of helping them to establish lucrative, Internet-based businesses from their homes. The scam reportedly worked by first asking victims about their available credit and then pushing them to use that credit to buy worthless products and services.
• National Sales Group, Executive Sales Network and Certified Sales Jobs, three names of the same company that allegedly posted fake sales jobs on job-search web sties including CareerBuilder.com. The group, it seems, falsely promised sales positions with Fortune 1000 companies and charged victims money for what they claimed were costs related to background checks – often, this company reportedly overcharged and charged unapproved recurring fees to victims’ credit cards.
• Business Recovery Services LLC, a company that the FTC claims misrepresented the potential effectiveness of its work-at-home wealth recovery “kits,” which sold for $499 each. All told, the FTC reports that this group managed to snag $1.5 million from victims.

Take Advantage of FTC Protections!

The FTC is constantly patrolling for scammers and those violating existing consumer protection rules. If you’ve caught wind of a scam or have been victimized by a scammer, you may want to file a complaint with the FTC as well as consult with an attorney to see whether you might be entitled to any compensation.

Posted in Bankruptcy News and Events, Consumer Credit, Consumer Protection, Financial Literacy, Life After Bankruptcy, Mortgage Foreclosure | Comments Off

The Latest on Foreclosures & Home Sales in the U.S.

Because the current recession was caused in large part by questionable practices in the mortgage market, home sales and foreclosure rates have been particularly interesting to monitor as an overall indicator of the economy’s rate of recovery.

Here’s a look at some of the latest findings and reports about the industry.

Home Sales Up Slightly, Thanks to Foreclosure Sales

The Associated Press reported this week that home sales in the U.S. rose from December 2010 to January of this year:

• Rate of increase: Reports show that existing home sales (i.e. sales of not-new, previously occupied homes) rose at a rate of 2.7 percent between December and January.
• Annual rate: The rate of sales in January put the market on pace to sell 5.36 million homes for the year. December’s sales were at a 5.22 million annual rate. A “healthy” economy, sources note, generally includes about six million home sales per year.
• First time buyers: The latest numbers show that first-time home buyers accounted for 29 percent of all sales, well below the 40 percent that apparently is the hallmark of stronger economic times.
• Hearty areas: Particularly strong types of home sales reportedly included foreclosure sales, at 37 percent of all transactions, and cash-only sales, which accounted for another 32 percent. Sources indicate that these numbers mark a doubling in such types of sales from two years ago.
• Median home price: The glut of foreclosures now on the market continues to drive down home prices, and the median price in January was apparently $158,000, down 3.7 percent from this time last year and the lowest median in nearly a decade (since April 2002).
• Unsold homes: Sources report that 3.38 million unsold homes still clog the nation and hold back the housing market’s recovery. At January’s rate of sales, it would take more than seven months to sell these homes.

New Changes on the Horizon for Mortgage Servicers?

A recent report at Credit.com notes that the federal government may be nearing an announcement of new regulations for the mortgage servicing industry. Here’s why:

• During the subprime housing boom, mortgage servicers were often rewarded for signing customers up for more expensive loans than they could have qualified for.
• This led to abusive practices by many mortgage servicers and caused many customers to pay more than they could have for their loans in interest rates and related services.
• Since the collapse of the housing market, federal investigators have apparently been attempting to determine which practices were most detrimental to borrowers.
• As the research period draws to a close, insiders are reportedly expecting the announcement of new regulations for the mortgage servicing industry in the coming weeks.

Posted in Bankruptcy and the Economy, Consumer Protection, Foreclosure, Mortgage Foreclosure | Comments Off