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Thursday, December 10, 2009

Bank or America Making Short Sellers Sign Personal Guarantees?

From the Puget Sound Business Journal:June 26, 2009 | Modified: Monday, June 29, 2009

BofA wording may cause more foreclosures

Puget Sound Business Journal (Seattle) - by Kirsten Grind Staff Writer

When her Edmonds condo went on the market, Mindy Moore thought she had managed to avoid foreclosure.

Moore listed the home in Edmonds for about $30,000 less than she owed on the mortgage. She thought the “short sale” agreement signed with the bank meant the bank would absorb the loss.

Then she discovered that her lender, Bank of America, might still come after her for the difference. That means she may have to let the bank take back her property, or file for bankruptcy because she can’t afford to pay up.

Experts say the wording, which was recently and quietly added to Bank of America’s short-sale agreement, could have major ramifications for a large group of distressed homeowners in Washington and across the country.

As one of the country’s largest home lenders — and the largest bank by deposits in Washington —Bank of America could end up pushing thousands more homeowners into foreclosure or personal bankruptcy, said Richard Eastern, a short sale consultant in Bellevue.

It’s unclear whether other lenders are following suit. But Bank of America could be harming itself with this tactic, Eastern says, because the foreclosures would have to be carried on its books until sold. Bank of America also owns Countrywide Financial, one of the largest mortgage lenders in the country.

“You’re trying to do the right thing by selling the house,” said Eastern, of his clients. “But now you’re going to owe them the difference. That’s huge.”

Bank of America said in a statement that it asks for a promissory note from sellers — the term used to describe the written promise to pay back the difference — to protect its “investors and shareholders from the losses in a short sale.”

“Many investors and mortgage insurance companies require this process,” according to the statement. The bank declined further comment.

While Bank of America’s short-sale agreement wording appears new, Kevin Kim, a short- sale consultant in Seattle, said other lenders have similar wording in their agreements that would require homeowners to pay the money left on their loan amount.

Bank of America’s short-sale agreement illustrates the financial complexities facing hundreds of Washington homeowners struggling to deal with underwater mortgages (in which the owner owes more than the house sells for). It also shows the tug-of-war between banks and borrowers as banks try to recoup as much money as they can from their failed loans.

As the foreclosure rate soars in Washington, and elsewhere, more homeowners are turning toward short sales in a last-ditch attempt to offload their property before foreclosure hurts their credit score, say short-sale experts.

Of the single family homes listed on the Northwest Multiple Listing Service, about 12 percent — or 4,400 — are listed as short sales, according to Eastern, who analyzed homes on the market. The Northwest MLS doesn’t officially track short sales.

But that’s only an estimate. The real number is likely much higher, as not every short sale is identified as such, he said.

The number also is growing. Although no local agency tracks those figures, short-sale consultants and real estate agents say the volume in Washington has jumped dramatically in the last year.

It’s not clear whether other banks will follow suit with Bank of America on short-sale agreements, but if they do, that would be “alarming,” said Jason Bloom, president of the Washington Association of Mortgage Professionals and vice president at Elliott Bay Mortgage in Seattle.

Bloom, who only recently learned about the issue, said at least two homeowners working with Elliott Bay Mortgage could be affected it. While Bloom isn’t sure why Bank of America would change its agreement, he said it’s likely the bank is attempting to avoid unnecessary short sales.

“They’re trying to recoup any of their costs and, at the very least, try and discourage some people who might be able to make it through without doing a short sale,” said Bloom.

Short sales could become a dead end for homeowners, said Eastern, who’s chief executive of Washington Property Solutions. And that would complicate the clearing of bad debts from the housing market.

About a third of the 150 homeowners Eastern is currently working with would be affected by Bank of America’s more stringent short sale agreement.

For more information about bankruptcy protection and foreclosure visit the Bankruptcy Attorneys at San Diego Bankruptcy Law Firm at

Tuesday, December 8, 2009

The American State of Bankruptcy, 2009

Great Article from Miller McCune

The American State of Bankruptcy, 2009

Not surprisingly, bankruptcy filings are on the rise and likely to increase. Is the 2005 bankruptcy reform act helping, hindering or neutral in this instance?

In this economy, determining whether or not the 2005 bankruptcy reform act is a help or a hinderance is no simple task.Ryan Dickey /
"People are hurting, and it is showing up in the bankruptcy courts."

This statement, profoundly simple then and depressingly obvious now, is from the March 2008 blog of University of Illinois law professor Robert Lawless. Two months later, Lawless, a national expert on bankruptcy trends, explained to Newsweek, "People borrow to stave off the day of reckoning, and then when credit tightens, the bankruptcy numbers go up." By the end of the year, Lawless got specific: "For 2009, I am expecting a little under 1,400,000 bankruptcy filings."

In early October 2009, Lawless's skill as a prognosticator was substantiated. Using data from the National Bankruptcy Research Center, the American Bankruptcy Institute, the research arm of the bankruptcy industry, reported "Consumer bankruptcies totaled 1,046,449 filings through the first nine months of 2009, the first time since the 2005 bankruptcy overhaul that filings have surged past the 1 million mark during the first three calendar quarters of a year. ... The filings for the first three-quarters of 2009 were the highest total since the 1,350,360 consumer filings through the first nine months of 2005."

The ABI says the jump of 35 percent over the same period last year was the first time the January-through-September total has exceeded 1 million since the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 passed.

"Bankruptcy filings continue to climb as consumers look to shelter themselves from the effects of rising unemployment rates and housing debt," said ABI Executive Director Samuel J. Gerdano "The consumer filing total through the first nine months is consistent with our expectation that consumer bankruptcies will top 1.4 million in 2009."

ABI also reported that September 2009 filings by consumers reached 124,790, a 41 percent increase from the 88,663 consumer filings the September before and a 4 percent increase from the 119,874 filings in August 2009. Some 28 percent of the consumer filings in September were Chapter 13, the less punitive filing, which also sees debtors continue to repay at least a portion of their debts over time.

This wasn't what was supposed to happen under the new law, at least not according to its chief proponents: credit card companies, big banks, and the Bush Administration. (Lawless said simply, "That law was the poster child for campaign finance and special interest law reform.") They combined forces because they believed bankruptcy scofflaws were being allowed to file and skip out on their debts unfairly.

According to author and credit expert Gerri Detweiler, "The idea of the 2005 bankruptcy 'reform' law was that it would stop abusive filings and as a result everyone would be better off, except the shameless few who were abusing the system," she wrote. "We were sold this bill of goods so effectively that many of us who are usually quite compassionate felt the reforms probably made sense. After all, shouldn't it be difficult to file for bankruptcy? The resulting mess was legislation that bankruptcy judges are calling a colossal failure."

The American Bankers Association finds that an overstatement. "Bankruptcy reform was designed to eliminate abuse and ensure that the system is used fairly," the trade group wrote in July.

"Prior to bankruptcy reform, some higher-income filers had used bankruptcy under the old system as a financial planning tool, escaping from debts that they could afford to repay. Filers are now required to prove their income with a current tax return or pay stubs, helping to eliminate abusive filings where debtors did not accurately disclose their income. All debtors will be required to receive credit counseling before filing for bankruptcy."

As to the new law's efficacy, Peter Garuccio of the ABA told Miller-McCune, "If success is defined as fewer bankruptcies, then one could argue the reforms have not been successful. However, the intent of the bill was not to reduce total bankruptcy filings but to curb abusive filings — that is the more accurate measure."

Then there's the recession ...

"I'd be shocked," Washington attorney Philip S. Corwin, a partner at the law and lobbying firm of Butera & Andrews told Miller-McCune, "if the number of bankruptcy filings wasn't rising, given the unemployment rate and the general state of the economy. After all, we're in the worst economic downturn since the Great Depression. What the increase in flings does prove is that the critics of the 2005 changes who contended that it would impede access to bankruptcy were dead wrong. The people who need bankruptcy relief continue to get it, as they did before the 2005 act went into effect."

While with the American Bankers Association, Corwin directed the ABA's successful effort to see the 1994 Bankruptcy Reform Act pass. He continues to represent ABA on bankruptcy matters and was involved in the effort to enact the 2005 law.

But critics of the 2005 law don't buy the times-are-tough-all-over line. While the number of bankruptcy filings hit 2 million in 2005, a lot of those filings, Lawless explained, were the result of people hurrying to file before the changes took effect.

Today, he said, "You have to be careful not to read too much into the bankruptcy filings as a sign of what's going on in the economy. They are a weak, lagging indicator of what's happening in the economy. There are a lot of people in financial distress who don't file bankruptcy.

"So, the fact that bankruptcy filings have been going up probably has something to do with the economy, but probably also has something to do with some other things. And the biggest other thing is that after the 2005 changes to the bankruptcy law, bankruptcy filings were artificially depressed, but they have been returning to their, if you will, natural level of what they were before the 2005 law, which, frankly, was a disaster."

In June, USA Today reported (in an article that quoted Lawless), "Bankruptcy filings took a dramatic nose dive after the 2005 bankruptcy reform measure was signed into law to curb bankruptcy abuse and make it harder to erase debts. But filings are surging back in part because of rising job losses. The unemployment rate has hit 10 percent. And tighter credit, dwindling 401(k) accounts, smaller paychecks and less savings have left unemployed workers and those who are working but struggling with fewer financial resources to keep creditors at bay."

Lawless pointed out that in the past, people could stave off bankruptcy by pushing their credit cards, both old and new, to their limits. "The fact that consumer credit has tightened and shrunk explains why bankruptcy filings have now gone up so dramatically."

Maureen Thompson, legislative director of the National Association of Consumer Bankruptcy Attorneys, agreed. "Credit card companies are reducing lines of credit and boosting interest rates, etc., so for people who have found themselves in financial difficulty, there is really nowhere for them to go to try to stay afloat while they either come up with the money to pay off their debts or somehow pay those debts down. They just don't really have anywhere to go right now."

Echoing Lawless's word choice, Thompson said, "Bankruptcies are a lagging indicator, meaning they take some time to catch up to the economy, and so with unemployment near historic highs and pretty much staying put — people talk about a 'jobless recovery' — we expect to see the numbers if not getting worse, then certainly hovering where they are now, over the 1 million mark.

"Why? Because you have people who were laid off six months ago and they kept getting deeper and deeper into debt and can't pay off those debts and find that they have to file for bankruptcy. I expect that we will see the kinds of numbers we are seeing now for some time into the foreseeable future, say 2011.

"Most people are saying that the economy's improving, but we aren't seeing that in the unemployment figures. We are expecting that the economy will be where it is for some time into the future."

Monday, November 23, 2009

Getting Started

Did you know that filing bankruptcy:

1. Can immediately stop home foreclosure.
2. Stops creditors from calling and harassing.
3. Can discharge most if not all of your debt.
4. Gives you a fresh start.
5. Can cost less than a loan modification or credit counseling.
6. Provides a permanent and lasting solution.

The attorneys at SAN DIEGO BANKRUPTCY LAW FIRM have over 40 years of combined legal experience to help you during these difficult times. It is important to understand your legal rights. Often during times like these people turn to unscrupulous credit counselors, debt consolidation firms or loan modification companies only to be dissappointed with the outcome. Bankruptcy is the only option that can stop foreclosure and harassing creditors. With Chapter 7, most debts are completely discharged. We focus on consumer bankruptcies under Chapter 7 and Chapter 13 of the Bankruptcy Code.

Don't be fooled by late night television advertising or slick marketing attempts, in times like these you need competent legal advice from trained professionals. You need to speak with an attorney directly and you want to speak to the same attorney about your case every time you call. Don't get caught in a bankruptcy mill with multiple offices and hundreds of employees, where you are treated like a number. We specialize in personal attention each and every time you call. The attorneys at the San Diego Bankruptcy Law Firm are here to help you each and every step of the way. We suggest you set a meeting with us immediately to discuss your options and there is no charge for your initial consultation. You have nothing to lose. Call today.

San Diego Bankruptcy Law Firm is a Debt Relief Agency and assists consumers in getting a fresh start by filing for relief under the Bankrupcty Code.