Former Los Angeles Bankruptcy Judge


Related Bankruptcy Articles

Total U.S. Bankruptcies in First Half of 2010 Up 14 Percent Over First Half OF 2009

August 17, 2010
American Bankruptcy Institute

The total number of U.S. bankruptcies filed during the first six months of 2010 increased 14 percent over the same six-month period in 2009, according to data released today by the Administrative Office of the U.S. Courts. Total filings reached 810,209 during the first half of the calendar year of 2010 (January 1-June 30), compared to 711,550 cases filed over the same period in 2009. The totals represent the highest number of filings for the first six months of a calendar year since 2005, when the Bankruptcy Code was amended.

Click here to read the full article.

Geithner Sees U.S. Role in Mortgage Market

August 17, 2010
The Wall Street Journal

Treasury Secretary Timothy Geithner sketched out the administration's case Tuesday for some type of continued, if limited, government guarantee of home mortgages.

The private sector's "full retreat" from the mortgage market over the past three years provides a "compelling illustration" of what would happen without some government role, he said.

Click here to read the full article.

Late Mortgage Payments Spike in 2Q vs Year Ago

August 17, 2010
Credit and Collection News

The rate at which U.S. homeowners fell behind on their mortgage payments remained stubbornly elevated in the second quarter.

In the three months ended June 30, the number of mortgage holders 60 days or more behind on their payments was 6.67 percent, credit reporting agency TransUnion said Tuesday. That's a big jump from 5.81 percent in the second quarter of last year, and well above the historical norm of 1.5 percent to 2 percent.

Click here to read the full article.

Debts Rise, and Go Unpaid, as Bust Erodes Home Equity

August 11, 2010
The New York Times

PHOENIX — During the great housing boom, homeowners nationwide borrowed a trillion dollars from banks, using the soaring value of their houses as security. Now the money has been spent and struggling borrowers are unable or unwilling to pay it back.

Click here to read the full article.

Too Big Not to Fail

August 11, 2010
The New York Times

THE Obama administration is set to discuss the future of Fannie Mae and Freddie Mac, the mortgage giants that largely escaped reform in the financial overhaul of the Dodd-Frank law, at the Treasury Department on Tuesday.

Click here to read the full article.

Grim Voter Mood Turns Grimmer

August 11, 2010
The Wall Street Journal

Americans are growing more pessimistic about the economy and the war in Afghanistan, and are losing faith that Democrats have better solutions than Republicans, according to a new Wall Street Journal/NBC News poll.

Click here to read the full article.

U.S. Job Market Loses Steam

August 7, 2010
The Wall Street Journal

The government's latest snapshot of the job market was bleak, a sign the economic recovery is running out of steam with 14.6 million Americans still searching for work.

Click here to read the full article.

An August Surprise from Obama?

August 5, 2010
Reuters

Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama’s loan modification effort. HARP was just extended through June 30, 2011.

Click here to read the full article.

What If the Jobs Don't Come Back?

August 4, 2010
MSN Money

Right now, average Americans aren't buying the recovery story. I can't say I blame them.

Sure, stocks are up nearly 70% from their bear market lows. Corporate profits are rising. The economy is expanding. But many Americans feel left behind. The problem is joblessness and particularly the growing ranks of the long-term unemployed.

Click here to read the full article.

Credit-Card Debt: It's Worse Than It Looks

July 12, 2010
Financial News USA

Don't be fooled by the latest news on credit-card debt. The true picture is worse than many people realize. And unless Congress renews extended unemployment benefits, you can expect it to get even worse.

Click here to read the full article.

Debt Collectors Sock it to Consumers

July 9, 2010
CNN Money

Debt collectors are getting desperate and dirty.

Harassing phone calls, abusive language and physical violence are becoming a bigger part of business as debt collectors struggle to round up money from people who don't have it.

"The American consumer is really hurting and collectors are having to fight harder to get money," said Robert Andrews, a senior analyst specializing in the debt industry at research firm IBISWorld.

Click here to read the full article.

State's Bankruptcies Soar Despite Overhaul

July 4, 2010
San Francisco Chronicle

Five years ago, bankruptcies soared to record levels as debt-strapped consumers raced to seek court protection before Congress changed the law to curb what had been considered an epidemic of filings.

Click here to read the full article.

Consumer Confidence Tumbles

June 29, 2010
Wall Street Journal

U.S. consumer confidence dropped sharply in June, as concerns over the sustainability of economic recovery and the outlook for jobs brought one closely watched indicator's three-month streak of consecutive gains to an end.

Click here to read the full article.

4 Reality Checks for Your Finances

By Liz Pulliam
MSN Money

People in debt often fool themselves about how bad things really are. They think they can afford their obligations if they're able to swing the minimum payments. Or they assume their credit card bills are about average, when in fact they owe way more than the norm.

Click here to read the full article.

ABI Bankruptcy Statistics Website Adds New Interactive Charts by District

June 24, 2010
American Bankruptcy Institute

ABI’s interactive bankruptcy statistics website provides members, press, economists and members of the public with interactive charts, graphs and other easy-to-use tools to gather statistical information on bankruptcy filings dating back to 1980. ABI launched the site earlier in the year with four sections allowing you to research filings by chapter of the Bankruptcy Code (7, 11, 12 or 13), type (consumer or business), state or some combination thereof, federal circuit or some combination thereof, year or some combination thereof, and by the virtually unlimited various combinations of any given number of these factors. This week, ABI has added five additional interactive charts that allow you to research the statistics quarterly by state or federal judicial district, viewing all types of bankruptcy cases at once or viewing only one type at once with an additional detailed numeric chart below the graph. There is also an interactive chart which allows you to view the statistics by individual judicial district. Click here to view the charts.

Cost of Seizing Fannie and Freddie Surges for Taxpayers

June 19, 2010
The New York Times

CASA GRANDE, Ariz. — Fannie Mae and Freddie Mac took over a foreclosed home roughly every 90 seconds during the first three months of the year. They owned 163,828 houses at the end of March, a virtual city with more houses than Seattle. The mortgage finance companies, created by Congress to help Americans buy homes, have become two of the nation’s largest landlords.

Click here to read the full article.

Peddling Relief, Firms Put Debtors in Deeper Hole

June 18, 2010
The New York Times

PALM BEACH, Fla. — For the companies that promise relief to Americans confronting swelling credit card balances, these are days of lucrative opportunity.

So lucrative, that an industry trade association, the United States Organizations for Bankruptcy Alternatives, recently convened here, in the oceanfront confines of the Four Seasons Resort, to forge deals and plot strategy.

Click here to read the full article.

A Surprise Tax Hit on Foreclosures

May 8, 2010
Wall Street Journal

Maxine McDaniel has a message for Americans considering walking away from an unaffordable mortgage: Beware of taxes.

Click here to read the full article.

Notes regarding the above cited article: Discharge of debt by a person receiving a bankruptcy discharge is NOT taxed, which can be a BIG advantage to people who file bankruptcy. In contrast, if a house or other real poprerty is foreclosed, BEFORE a person files bankruptcy, the "foregiveness of debt" that results from that foreclosure is counted by tax agencies such as the IRS as being income, and the person whose property was foreclosed will owe tax on the amount of debt forgiven, as if that amount of forgiven debt were income, unless one of the nonbankruptcy exceptions to owing tax applies. See the following article which discusses the danger of owing tax on debt that is forgiven due to foreclosure. Banks send a 1099 "miscellaneous income" statement to the IRS, reporting how much debt has been "forgiven" by the foreclosure.*

*These statements are provided as information only and are not to be taken as legal advice.

Lifetime Cost of Bad Credit: $201,712

February 19, 2010
MSN Money

Bad or even mediocre credit can cost you a fortune over your lifetime. That was true even before the credit crunch, when I first put together the example of two fictional women, Emily and Karen, for my book "Your Credit Score" and tracked what they paid in interest over a lifetime.

Click here to read the full article.

Notes regarding the above cited article: Filing bankruptcy is a negative on your credit report, but when you get a discharge in a bankruptcy case, the credit reporting agencies are required to remove from your credit report everything that you got discharged, such as judgments against you that are discharged, lawsuits ongoing against you that are discharged, defaulted credit card and medical debts and other debts that are discharged, all of which were lowering your credit score.*

*These statements are provided as information only and are not to be taken as legal advice.

Judicial Conference Raises Concerns About Dodd Bill

April 21, 2010
American Bankruptcy Institute

The Judicial Conference of the United States, the policy arm of the Federal judiciary, has written to Senate Judiciary Committee Chairman Pat Leahy (D-Vt.), expressing several important concerns about the effect of the legislation on the bankruptcy courts and the administration of justice. James C. Duff's letter on behalf of the Conference notes that the bill as drafted would create an unprecedented new structure within the bankruptcy court for the District of Delaware for the purpose of ruling on a petition by the Treasury Secretary to appoint the FDIC as receiver for a failing financial firm; this might result in the removal of a case from the jurisdiction of the bankruptcy court without adequate notice and due process to affected creditors. "Any resulting due process challenges would impose a significant burden on the courts to resolve novel issues, for which the bill provides no guidance", the letter states. The Duff letter further questioned the bill's selection of Delaware as the exclusive venue choice to deal with petitions regarding failing financial firms, noting that it may not be the proper venue under current law. Other doubts are raised about the bill's attempt to designate three judges from Delaware's current roster of judges to the "Orderly Liquidation Authority Panel" and the bill's limited review permitted for decisions by the Secretary to place a firm in FDIC receivership. The letter notes that such a review may exceed the constitutional authority of the bankruptcy courts and in any event seems anomalous since designating the FDIC as receiver removes the case from the bankruptcy court and bankruptcy laws. Among several other concerns, the letter also criticized the bill's 24-hour deadline for review by the Panel of the Secretary's decision to appoint the FDIC, concluding: "... the statutory requirement of such speed seems inconsistent with the thoughtful deliberation that would be appropriate for a decision of such great significance." Click here to read the full letter.

Bankruptcy Issues Arising in Ponzi Schemes

April 14, 2010
Century City Bar Association

By Kathy Bazoian Phelps

What do investors, sales people, attorneys, accountants and auditors all have in common? They can all be completely deceived in a Ponzi scheme, and yet find themselves defendants in serious litigation. When a Ponzi scheme lands in bankruptcy or receivership, the trustee or receiver, hoping to recover funds for the benefit of all creditors, will look at investors, sales people and even professionals as possible targets. A Ponzi scheme is a fraudulent enterprise run under the pretense of a legitimate profit-making business. Investments are solicited, often by broker-dealers, from new investors and those funds are then used to pay earlier investors. That of course induces further investments. All the while, the Ponzi scheme operator siphons off a substantial part of the funds for his or her own use. The scheme is destined to fail and then land in either a bankruptcy or a receivership.

As a Ponzi scheme progresses, the earlier investors are often paid back more money than they invested, receiving fictitious profits that they were promised. Broker-dealers are often paid handsome commissions for soliciting the investments. High-powered lawyers and accountants are often engaged to add an air of legitimacy to the enterprise. When the Ponzi scheme fails and it is time to unwind the tangled financial web, the trustee or receiver then considers seeking recovery of: (1) the funds transferred to the investors (both principal repayments and fictitious profits); (2) commissions paid to the sales people and broker-dealers who solicited the investments for the Ponzi debtor; and (3) damages from professionals on tort theories such as malpractice, negligence, fraud, or aiding and abetting fraud.

To "claw back" the transfers that the Ponzi debtor made to investors, a trustee commonly uses the fraudulent transfer laws in both the Bankruptcy Code and state statutes. Claw back claims can be based on either of two theories. Under an actual fraud theory, the actual fraudulent intent of the Ponzi debtor to hinder, delay and defraud creditors is sufficient to establish the claim to recover the transferred funds. Under a constructive fraud theory, the trustee must establish that the Ponzi debtor did not receive reasonably equivalent value in exchange for the transfers and that the Ponzi debtor was then insolvent or became insolvent as a result of the transfer.

Under either theory, the subjective good faith of the investor-transferee is relevant, assuming value was provided, in establishing a partial or complete defense, depending on the circumstances. The United States Court of Appeals for the Ninth Circuit has issued three significant opinions that provide further guidance for trustees and receivers in pursuing these "claw back" claims against investors. When the trustee is pursuing a constructive transfer theory, these opinions critically distinguish between a transfer that was a return of the principal investment and a transfer that was a profit or "interest" paid in addition to the return of principal. Specifically, the Ninth Circuit has held:

    (1) A transfer to an investor as a return of principal is not recoverable because the transfer partially or fully extinguishes the investor’s restitution claim against the debtor (assuming the subjective good faith of the investor). However, "profits" paid to an investor are recoverable by trustee. In re AFI Holding, Inc., 525 F. 3d 700 (9th Cir. 2008).
    (2) An investor’s good faith may be relevant as a defense to a claim for recovery of principal, but does not protect the investor from a claim to recover profits. Donell v. Kowell, 533 F.3d 762 (9th Cir. 2008).
    (3) Prejudgment interest may be awarded on recovery of profits from an investor. In re Slatkin, 525 F.3d 805 (9th Cir. 2008).

A transfer that the Ponzi debtor makes to a sales person as a commission is also potentially recoverable. However, the courts are split on this question and a trustee’s success in recovering a commission depends on the case law in the jurisdiction in which the claim is brought.

Some courts have found that because a Ponzi enterprise has no legitimate purpose, there can be no value provided by a broker in furthering or assisting the debtor in perpetrating the fraud. Therefore, the commissions paid to the broker are recoverable by a trustee. See, e.g., Warfield v. Byron, 436 F.3d 551, 560 (5th Cir. 2006) ("It takes cheek to contend that in exchange for the payments he received, the [debtor’s] Ponzi scheme benefited from his efforts to extend the fraud by securing new investments.").

Other courts have looked more narrowly at the relationship between the debtor and the broker and measure "what was given and received" by the debtor and the broker. These courts compare market commission rates with what was paid. As one court observed, "Money is valuable even when used for illegal purposes." In re First Commercial Man. Group, Inc., 279 B.R. 230, 237 (Bankr. N.D. Ill. 2002).

Finally, a trustee may also seek to recover damages from any of the Ponzi debtor’s professionals who were negligent, or worse yet, who engaged in the fraud. Also, other third parties, such as banks or insurance companies, might also be liable if their agents participated in the fraud. Liability may be imposed under a claim of aiding and abetting or under the related claim of civil conspiracy. A third party “aids and abets the commission of an intentional tort if the person (a) knows the other’s conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other to so act or (b) gives substantial assistance to the other in accomplishing a tortuous result and the person’s own conduct, separately considered, constitutes a breach of duty to the third person.” Neilson v. Union Bank of California, N.A., 290 F.Supp.2d 1101, 1118 (C.D. Cal. 2003) (citations omitted). Such liability may be imposed even if the third party did not owe the corporate debtor an independent duty, and even if the third party did not financially gain from the tort. Id.

In a third party tort claim, the damages can be measured based on a “deepening insolvency” theory. Under this measure of damages, prolonging an insolvent corporation's life through incurring additional bad debt dissipates corporate assets and harms the value of the enterprise. Official Committee of Unsecured Creditors v. R.F. Lafferty & Co., Inc., 267 F.3d 340 (3rd Cir. 2001). Deepening insolvency can be pursued either as a direct cause of action or as a theory of damages, with mixed success in the different circuits. The Ninth Circuit has recognized the theory of deepening insolvency where the trustee alleges malpractice against the debtor’s accountants for misrepresenting the firm's financial condition to its outside directors and investors. Smith v. Arthur Andersen LLP, 421 F.3d 989, 1003 (9th Cir. 2005) (“if [defendants] had not concealed [the debtor’s] financial condition from its outside directors and the investing public, the firm might have filed for bankruptcy more promptly. In that situation, additional assets might not have been spent on a failing business. This allegedly wrongful expenditure of corporate assets qualifies as an injury to the firm which is sufficient to confer standing upon the Trustee”). But see, e.g., Wooley v. Faulkner (In re SI Restructuring, Inc.), 532 F.3d 355, 363 (5th Cir. 2008).

Professionals frequently assert the defenses of in pari delicto and the trustee’s lack of standing. These defenses have varying success, depending on the facts and the applicable case law. The foundation of the in pari delicto defense is that “a plaintiff who has participated in wrongdoing may not recover damages resulting from the wrongdoing.” Black’s Law Dictionary 806 (8th ed. 2004). The doctrine is invoked to bar a claim that arises from the unlawful actions of the debtor’s principals. The United State Supreme Court has held that state law governs whether an agent’s actions may be imputed to a corporation for state law claims. O’Melveny & Myers v. FDIC, 512 U.S. 79, 84, 85, 87-89, 114 S. Ct. 2048, 2054 (1994). Beyond this general pronouncement, however, courts have reached different results in applying the in pari delicto defense. The result often depends on the state law on corporate agency and on whether the bad acts of an agent can be imputed to the corporation and the trustee as its successor in interest.

In Caplin v. Marine Grace Trust Co., 406 U.S. 416, 433-34 (1972), the Supreme Court addressed the issue of trustee standing to pursue third party claims. The court held that a bankruptcy trustee has standing to represent only the interests of the debtor corporation and does not have standing to pursue claims for damages against a third party on behalf of creditors. Accordingly, a trustee must demonstrate that the Ponzi debtor itself was harmed by the alleged wrongful acts of the defendant.

The bottom line is that investors and broker-dealers are often subject to claw back claims in bankruptcy proceedings of Ponzi debtors, and professionals and others may find themselves defending tort causes of action. The outcomes in these cases may hinge on the types of claims brought, the good faith of the players, and the case law in the jurisdiction.

Los Angeles Faces Threat of Insolvency

April 9, 2010
The Wall Street Journal

LOS ANGELES—A bitter political dispute between this city's elected leaders and its powerful municipal utility threatens to push the city into insolvency as early as next month.

Click here to read the full article.

US Subprime Delinquencies Drop 1st Time in 4 Years

April 7, 2010
Reuters

NEW YORK, April 7 (Reuters) - Late payments on U.S. subprime mortgages fell in March for the first time in four years while defaults on prime home loans kept escalating to top 10 percent for jumbo loans, Fitch Ratings said on Wednesday.

Click here to read the full article.

A Mortgage Break You Can't Afford?

April 6, 2010
MSN Money

If you're struggling to pay your mortgage, your lender may offer you forbearance. Think twice before you take the deal.

Click here to read the full article.

Commercial Bankruptcies Increase

April 5, 2010
Wall Street Journal

By DAVID MCLAUGHLIN

The total number of companies filing for bankruptcy in the U.S. jumped by more than 20% in March over the previous month, as business failures in the first quarter outpaced last year's total.

The total number of companies filing for bankruptcy in the U.S. jumped by more than 20% in March over the previous month, as business failures in the first quarter outpaced last year's total. The total number of commercial bankruptcy filings hit 8,208 in March, a sharp rise from February's total of 6,655, according to new data from Automated Access to Court Electronic Records.

March's total brings the total number of commercial bankruptcies to 21,453 so far this year, almost 1,000 more than the total for the first quarter of 2009, a breakout year for business filings.

Jack Williams, a bankruptcy law professor at Georgia State University, said he expects the rising trend to continue through the second quarter despite signs of an improving economy.

"There's no indication whatsoever that the trend is slowing," Mr. Williams said. "The pace is picking up...and that was off of what was a major filing year in 2009."

The new bankruptcy figures come amid evidence of an improving job market. The Labor Department reported Friday that the U.S. economy added 162,000 jobs in March, though the unemployment rate held steady at 9.7%.

Fed Ends Its Purchasing of Mortgage Securities

March 31, 2010
The New York Times

WASHINGTON — The Federal Reserve’s single largest intervention to prop up the American economy, its $1.25 trillion program to buy mortgage-backed securities, came to a long-anticipated end on Wednesday.

Click here to read the full article.

Foreclosure Fund Gets $600 Million to Help Residents of 5 More States Save Homes

March 30, 2010
The Washington Post

The Obama administration announced Monday that it is expanding by $600 million a fund aimed at helping states tackle the foreclosure crisis with locally tailored approaches.

Click here to read the full article.

Credit Card Over Limit Fees Persist for Small Businesses

March 29, 2010
Bloomberg BusinessWeek

The credit card reform Congress passed last year ended “over limit” penalties –- typically $35 fees applied when cardholders charge more than their credit lines allow -– unless customers opt in. At least for consumers –- not so for business credit cards, which the CARD Act does not regulate at all. Now, with two sets of rules, confusion abounds.

Click here to read the full article.

NACBA Announces HAMP

March 24, 2010
National Association of Consumer Bankruptcy Attorneys

The last two days have been eventful in the world of HAMP.

On Wednesday, March 24th, Treasury released "New HAMP Borrower Outreach and Communication Guidelines," a title that did not hint at its contents. These guidelines contain new protections for borrowers facing foreclosure, as well as protections for bankruptcy debtors. No longer will HAMP servicers be able to discriminate against bankruptcy debtors. Among other improvements, servicers will be permitted to accept bankruptcy schedules in lieu of most other documentation requirements for non-bankruptcy debtors. Please take your time and read through this whole document carefully. There is much content here and we will provide more information about the details in the future.

Unfortunately, these new rules do not become effective until June 1. On a phone call with administration staff today, I expressed my disappointment with this delay and my comments seemed to be met with some sympathy. We will see if any changes are forthcoming regarding the effective date of at least some portion of these new rules.

On Friday, March 26th, Treasury released additional rules that will be helpful to financially distressed borrowers, including bankruptcy debtors:

    1. a pre-HAMP 3-6 month forbearance program for unemployed borrowers;
    2. FHA refinancing to reduce total principal (including junior mortgages) to 115% and first mortgages to 97.75% loan-to-value ratio (first mortgage - 10% minimum reduction);
    3. voluntary principal reductions in HAMP modifications, based upon achieving the target income-to-mortgage ratio by reducing the principal to as little as 115% [the "waterfall" calculations are a little more complicated than can be explained in an email]; and
    4. nominal short-sale and relocation assistance to certain debtors losing their homes in foreclosure. Again, the main problems with these new developments are that they are still largely discretionary on the part of HAMP participants and they will not be effective for several months, perhaps not until Fall 2010.

We welcome these important changes, and also welcome the increasing willingness of the Treasury Department, the White House, and HUD, to listen to the concerns and proposals of consumer groups that work with desperate homeowners on a daily basis. We look forward to working together in the future to further address the foreclosure problems that endanger our economy.

The needs of bankruptcy debtors came to the serious attention of Treasury in mid-November 2009, when I, as NACBA's designated representative, met in Washington with Assistant Treasury Secretary Herbert Allison, about 10-15 other administration staff, and representatives of about 15 other consumer groups. At that meeting, I explained how prohibiting servicer discrimination against bankruptcy debtors would help improve the success of HAMP. Several administration staff told me later that they did not realize the problems that were faced by bankruptcy debtors in HAMP. After that meeting, a few working groups were set up, including the Bankruptcy Working Group, to propose changes to HAMP regulations. The BWG met in early December. At first I was the only consumer representative (John Rao was added at the last minute), Chapter 13 Trustees Brian Lynch, George Stevenson, Debra Miller & Hank Hildebrand were on the committee, along with six lender/servicer representatives. I was grateful for John Rao's participation, since he could represent NCLC, as well as NACBA's interests. Tensions developed, as might be expected, in the course of "laying out the issues." However, some very good ideas came out of the meetings - which are reflected in the bankruptcy provisions just released. After the BWG was disbanded, consumer groups, including myself, continued to meet with Treasury representatives in the development of these changes to the program.

I want to take this moment to specially thank Hank, Brian, George, and Debra, for their very valuable assistance in this extended process. This is evidence of the fact that NACTT and NACBA have many common interests. Members of both of our groups know, intimately, the needs of homeowners in bankruptcy - and we should work together whenever possible in furtherance of the protection of these deserving debtors.

John Rao [Officer of NACBA] posted a summary of the March 24th changes on the BK listserv (pasted below), along with a Directive prepared by NCLC, which he is sharing with NACBA members. The NCLC Directive has been posted at: http://www.nacba.org/files/email/Supp_Dir_10-02.pdf

NACBA anticipates putting out a press release early next week and we will forward that to you at that time.

Sincerely,
Norma Hammes
NACBA President Emeritus

Fewer Businesses File for Chapter 11 Protection in February, Consumer Filings Increase 14 Percent

March, 3, 2010
American Bankruptcy Institute

The number of companies that sought bankruptcy protection last month remained level with January, but new statistics show that fewer did so with the goal of reorganizing, Dow Jones Daily Bankruptcy Review reported today. In February, 6,557 businesses sought bankruptcy protection, nearly the same as the 6,554 that did so in January, according to new data from Automated Access to Court Electronic Records, or AACER. Within those totals, however, last month saw a 20 percent decline in the number of businesses that sought protection under Chapter 11 of the U.S. Bankruptcy Code, which allows a company to reorganize. ABI executive director Samuel J. Gerdano said that the decline in chapter 11 filings may indicate more companies are able to avoid bankruptcy thanks to an increase in available funding from private-equity firms and other sources. "It's not hard to see that the view of bankruptcy may be one that is overly oriented to the quick sale as opposed to the restructuring," Gerdano said. "And that could be fueling an interest in an alternative approach."

In related news, the 111,693 consumer bankruptcies filed in February represented a 14 percent increase nationwide over the 98,344 filings recorded in February 2009, according to the ABI, relying on data from the National Bankruptcy Research Center (NBKRC). NBKRC?s data also showed that the February 2010 consumer filings represented a 9 percent increase over the 102,254 consumer filings recorded in January 2010. Chapter 13 filings constituted 27 percent of all consumer cases in February, representing a 3 percent decrease from January.

Southern California Attorney Arrested for Loan Modification Activities

March 2010
California Bar Journal

An Irvine attorney accused of targeting hundreds of distressed homeowners became the first California lawyer arrested for illicit loan modification activities when he was charged with more than 100 felonies last month. Christopher Lee Diener [#187890] faces one count of conspiracy to commit grand theft, 116 counts of grand theft by false pretenses and a perjury charge. He faces up to 70 years in state prison if convicted.

Click here to read the full article.

Housing Prices Fall at Slower Pace

February 24, 2010
The Wall Street Journal

Home prices kept falling, but at a slower rate, at the end of last year as the housing market continued to stabilize.

Click here to read the full article.

U.S. Weighs Changes to Mortgage-Relief Program

February 23, 2010
American Bankruptcy Institute - Written By: James R. Hagerty

The U.S. Treasury is considering new guidelines to mortgage lenders that would give distressed borrowers more time to try to qualify for a federal program aimed at averting foreclosures.

Under the proposals, loan-servicing companies, which collect payments and handle foreclosures, would have to give borrowers 30 days to respond after being denied a modification of their loan terms under the Home Affordable Modification Program, known as HAMP. During that period, which would allow borrowers to appeal against the decision, the servicer couldn't put the home up for sale at a foreclosure auction.

The proposals are outlined in a draft presentation obtained by The Wall Street Journal and other news organizations.

A Treasury spokeswoman said the proposals are among "many ideas under consideration in the administration's ongoing housing stabilization efforts." She added: "This proposal has not been approved and there are no immediate planned announcements on the issue."

Servicers also would be required to provide a "written certification" that a borrower isn't eligible for HAMP before a foreclosure sale can be held.

The proposal calls for servicers to seek contact with all borrowers who are 60 days or more delinquent on their loans and meet the "eligibility profile" for HAMP in an effort to determine whether they qualify. The effort to reach borrowers would have to include at least four telephone calls and two written notices, including at least one by certified mail.

Servicers could deny a new application for HAMP received within six days of a scheduled foreclosure sale. But borrowers would have to be notified of the deadline for seeking a HAMP loan modification.

These measures would likely further slow down the foreclosure process. Already, that process has been greatly slowed by efforts to determine which borrowers qualify for easier loan terms and by the inability of loan servicers and courts to keep up with millions of unresolved cases.

These delays have created an immense backlog of borrowers at risk of foreclosure but unsure of that outcome. About 2.9 million households are 90 days or more behind on payments, but not yet in foreclosure, nearly triple the total of two years ago, according to LPS Applied Analytics, a data provider. On average, those households are nine months behind on payments.

Write to James R. Hagerty at bob.hagerty@wsj.com

January Foreclosures Up Over Previous Year

February 13, 2010
Associated Press

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.

Click here to read the full article.

Mortgage Officials Try Exits Softer Than Foreclosures

February 11, 2010
The Washington Post

Seeking alternatives to the nation's struggling foreclosure prevention efforts, federal and mortgage industry officials increasingly are looking for ways to get distressed borrowers to leave their homes voluntarily, without going through the expensive foreclosure process or a messy eviction.

Click here to read the full article.

Fannie, Freddie to Step Up Buying

February 11, 2010
Wall Street Journal

Fannie Mae and Freddie Mac said they will ramp up their purchases of some $200 billion in delinquent home loans that the two government-controlled mortgage-finance companies have guaranteed.

Click here to read the full article.

U.S. Employers Slash 20,000 Jobs; Jobless Rate Falls to 9.7%

February 5, 2010
Wall Street Journal

The unemployment rate dropped sharply last month, but employers continued cutting jobs in January as businesses remained insecure about the economic outlook.

Click here to read the full article.

Lawyer Sues Sallie Mae Over ‘Unrelenting’ Student Loan Robocalls

February 3, 2010
American Bar Association Journal

A Seattle lawyer who says Sallie Mae harassed him with “unrelenting” automated collection calls is suing for at least $500 in damages for each unwanted contact.

Click here to read the full article.

 

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