Arizona Bankruptcy Attorney Blog

I've been asked by some Chapter 7 Bankruptcy clients why it's so hard to negotiate with Bank of America.

My guesses in the past have been that it's a little like a brontosaurus; it's so big that if you stomp on it's tail, it notices fifteen minutes later.

But it appears that Bank of America may have bigger problems than your credit card debt, which is why it may have problems directing brain cells to your credit card negotiations.

And that, in turn, is why your offers to Bank of America could be turned down, even if they are profoundly realistic. The Bank just can't pay enough quality attention to figure out that you're offering it a very good deal!

Hence, "bankruptcy clients"!

But wait; there may be other issues affecting Bank of America, as well.

In a well written post called "Bank of America death-watch", Yves Smith suggests that Bank of America is having the same sort of sleepless nights that its borrowers are having.

For the same reason.

Fear of the consequences of insolvency.

Now, I have no way of telling whether Bank of America is insolvent. But apparently, the market is speaking to that issue, and it's being rather loud. And rude. And unpleasant.

According to Paul Sperry at Investor's News Daily, Eric Holder and the Justice Department is conducting investigations and levying fines against banks that are deemed racist in their policies, based on inadequate loans to low income minorities.

Prosecutions have generated more than $20,000,000 in loan set-asides and other subsidies from banks in out-of-court settlements.

Some banks have been asked to relax their mortgage underwriting and lending standards for low income minorities, as a part of the crackdown on allegedly racist policies.

But the most interesting paragraph in the article is this one: "In several cases, the government has ordered bank defendants to post in all their branches and marketing materials a notice informing minority customers that they cannot be turned down for credit because they receive public aid, such as unemployment benefits, welfare payments or food stamps."

That suggests to me that banks are being placed in a can't-win situation; either they comply under the threat of being deemed racist, or they make bad loans, and are taken over by the FDIC when bad loans default and they become insolvent.

All in all, it's an interesting program by the Justice Department, and its long-term consequences will be just as interesting to watch.

I haven't see one recently.

But there is one that apparently works very well.

Unfortunately for Arizona Debtors, the program is in Pennsylvania.

Suzanne Kapner has reported in FT.com about the hard line that bank regulators are taking with banks and mortgage servicers.

In specific, banks have been told not to foreclose on homes when there are mortgage modifications in process.

It strikes me as too little too late.

But maybe better than nothing. Watch this space for further developments.

Why am I pessimistic about the prospects for what we might call real justice in connection with bad actions and giant banks? Well, as with the current version of the bankruptcy code, banks have great lobbyists, and folks who are busted have...well, a new perspective on life.

Well, sometimes.

But you might have better odds of a successful result in Vegas.

In general, I hear the following things from my clients when they come to visit: the mortgage company lost my paperwork three times, the process took a full year before they turned me down (or approved me), and I was a success in my mortgage modification but they raised the payment by $40 dollars a month.

And even if you get the mortgage payments modified under whatever cockamamie scheme the mortgage company has cooked up, one question is what the future holds.

Since some people have predicted that home values will drop another 25% before they hit bottom (and I believe that), I don't see a lot of existing home/mortgage combos as lasting for a very long time.

Now, even if a mortgage holder walks away from a mortgage, there's some chance that they won't have to file a bankruptcy if they're protected from a deficiency and a tax consequence by some statute or another. Unless, of course, there's a second mortgage, because second mortgages don't have much of a sense of humor.

A lot of the folks who are chased into my office are chased in by a lawsuit from the formerly Friendly Mortgage Company, which is now a wholly-owned subsidiary of the Unfriendly Collection Company.

Oh, well.

Someday the depression will be over.

And someday we will have jobs again, for decent pay, here in the United States.

But not just yet.

I've been talking to a lot of folks recently who I've seen before.

Previously, they'd considered bankruptcy, or contemplated bankruptcy, or planned to file bankruptcy, or thought about bankruptcy.

And now they've reached threshold. They've suffered enough.

So now they're filing bankruptcy!

I don't know whether it's a phase of the moon, or one of my new Arizona Bankruptcy Blogs, or another new Arizona Bankruptcy Blog; maybe the original, maybe extra-crispy, but whatever it is, I'm seeing a lot of old friends who are now new clients.

I'm also seeing increasing numbers of people who are the subjects of bad actions by mortgage companies and banks, and generally they simply want to get on with their lives.

But more and more, I get to see people who thought they had a deal with banks to extend out the date of the trustee sales, and amazingly, the bank forgot! So the sale happens, and the bank says, Oooops!

But the bank doesn't generally volunteer to put things back the way they were.

It will be interesting to watch the Tsunami. Not the one that got Japan and Northern California last night, but the Tsunami of lawsuits against the banks that keep doing bad things to mortgage holders who are trying desperately to get mortgage modifications.

On the other hand, when the banks wanted to make bankruptcy a colder, more complex, more dangerous and more expensive proposition, they knew how to do it.

They talked to Congress.

And I've heard that money talks.


  

This is a nice, impassioned article about the rotten, illegal, unethical and fattening practices in mortgage modification these days.

I like it when other people let their blood pressure go up, so I don't have to!

I see a lot of mortgage foreclosures these days, because a lot of folks realize that their houses are no longer homes: they're just vacuum cleaners for their wallets.

And they also realize that their homes are no longer good retirement plans, because they'll be in their graves before there's equity in their houses.

Sometimes they just walk away, hoping that an anti-deficiency statute may protect them from a deficiency judgment. Or they try to short-sell their house. But a short-sale is ultimately going to be under the control of the mortgage holders, and often, the second-mortgage holder won't agree to forgo chasing the homeowner for a deficiency.

And that's where I come in.

I'm a bankruptcy lawyer in Arizona.

Willie Sutton was said to have been asked why he robbed banks, and his answer was "That's where the money is!"

Maybe true, maybe not, but easy to understand.

It's also easy to understand why folks would like to see banks beaten up for their continuing Scrooge Act. On the one hand, the banks contributed heavily to political campaigns over a decade, and were rewarded with the 2005 changes to the Bankruptcy Code, which made bankruptcy a much less warm and fuzzy experience.

Then banks went on a foreclosure tear, running trustee's sales and mortgage foreclosures right, left and sideways to the tune of 1.1 million last year, and probably 1.4 million this year.

That's unfortunate, and it's even more unfortunate that the banks were too dumb to figure out a way to efficiently process loan modifications. The word from my clients in the trenches is simple: banks take up to a year to process loan modifications, and lose their documents three times during the process, and come up with contradictory stories to tell the poor mortgage debtors.

But now the pandybat is on a different foot, at least to some extent.

Wells Fargo and Bank of America have reported that they may face fines and lawsuits over mortgage and foreclosure procedures.

It won't be enough, and it sure wasn't fast enough coming down the road, but seeing them smacked around a little is a little bit satisfying. 

And it couldn't happen to nicer banks, you know?

 

Hot off the presses to my readers: take a look at Subprime Foreclosures and the 2005 Bankruptcy Reform! 

Donald P. Morgan is a very smart guy!

p.s. the essence of the article is the idea that the 2005 Bankruptcy Amendments made things far worse in the economy, because if people could have easily discharged credit card debt, they could have more easily made payments on their mortgages.

And you know what? I think that idea is dead on target!

I like the gentle tone of this article; when clients of mine tell me that the Banks routinely lose their documents at least three times during the year long loan modification process, they sometimes actually sound...cranky!

And my favorite loan modification story came from a client who had hired some loan modification company to work for him; he'd worked with them for a year and was finally told that he had been granted a loan modification.

It was for fifty dollars more per month.

 

Well, sorry you get to hear it here, but we'll see the worst year for foreclosures in the upcoming year since...ever.

Remember that in an ordinary year we'll see, as a nation, about a hundred thousand trustee's sales and foreclosures. And last year we saw about 1.2 million.

Got that? More than TEN TIMES as many as a normal year.

But wait: it gets much worse. Banks have gotten past the brief hesitations they experienced in 2010, and in 2011, they are set to go for the foreclosure gusto!

So expect more of the Depression this year, with even more trustee's sales and mortgage foreclosures, and of course, more bankruptcy cases filed in Phoenix, Chandler, Mesa, Scottsdale, Casa Grande, Tempe, Gilbert, and...well, all of Arizona!

Now, it's true that Arizona is going to have to work harder.

We're only Number 2 for trustee's sales and foreclosures.

I think we can do better!

Although we have contenders out there who will do anything to get the Insolvency Crown!

Get this: Illinois has enacted a 66% state income tax increase, because the state is spending more than it brings in, and has for...well, forever!

66%! That's a 66% Tax Increase in a state with only seven actual productive workers left!

Now, unless I miss my guess, that will chase the last seven productive members of society in Chicago right out the back door in Illinois, and we'll get 'em all here in...Arizona!

I've always liked the refugees from the Midwest. By in large, they have little trouble assimilating the culture of the Southwest, which really is different from the Eastern Seaboard. In the East (I saw this in the garment district in New York when I was there for a bankruptcy seminar), people talk about each others' mothers in the same way we would say "Good morning, and how are you?"

For those of you relocating to Phoenix because of a bankruptcy, or the weather, or the affordable homes, it might be good if you read a book called "Cracker Culture", just so you don't miss out on a characteristic of Southern Culture: it's called "fighting words", and it is better to learn about those from a book than from a cranky cowboy!

Trust me on this one.

And trust me that I won't give you that education myself: I'm a meek and mild-mannered bankruptcy lawyer, but this place has a lot of cowboys still, so being ordinarily polite is simply a matter of good personal hygiene.

And it's also a part of your personal health and longevity plan, if you have a single brain cell! Putting it another way, you may think you're just warming up for a business negotiation, New York City-style; the cowboy figures you just requested that you both start the day with a big ol' fight! 

 

I have read a lot recently about mortgage modification programs failing to work as well as expected.

There are a lot of excellent articles about the issue all over the Internet. Here's one, for instance.

But I wasn't very surprised.

Debtors have told me for months that trying to work their way through an attempted loan modification was an utter nightmare, because the mortgage company would lose their documentation three times, and they'd be told five different stories by seven different mortgage company employees, and first they'd be told they were a shoe-in for a modification, and then they'd be told they weren't. Over a period of a year, in many cases.

In one case, a potential debtor was told that a trustee's sale would be postponed, and it was not.

Troubling for the poor debtor. Required an inconvenient quick move, and a fair amount of swearing.

So it will be interesting to see if a workable mortgage modification program gets cobbled together, or not.

In the meantime, folks are leaving houses on which they are underwater like crazy.

Some keep making payments to stay in houses that they know they'll never own in any meaningful sense, because they'll never be able to pay off the inflated mortgage amounts.

But in some cases, just staying current on the first mortgage costs less than renting another house, and the second mortgage doesn't start a trustee's sale because it's entirely underwater.

Now, sometimes the second mortgage in that situation will simply sue on the note, but that normally just precipitates a bankruptcy filing, so it's a little silly of the second mortgage company.

Okay, being number two in the nation is some sort of distinction.

And I guess I'd rather Arizona was number two in trustee's sales and foreclosures than being number one, right?

By now I'm scared. I told you that I was scared about the U.S. Debt Clock.

Now I've read another result from Rasmussen that scares me just as much:

"Fourteen percent (14%) of homeowners expect to miss a mortgage payment in the next six months. This comes at a time when only 55% of homeowners believe their home is currently worth more than the mortgage."

None of this is good news for our country.

I recently talked to a very nice, intelligent man who told me he'd hired somebody to try to help him with a loan modification on his house.

He explained that he was a smart, experienced businessman with a fair amount of banking experience, and that he knew that he was over his head when he was told by the bank that they'd been able to get him a loan modification.

They'd modified his payment up from $1,900 per month to $2,300 per month.