NEW YORK – Bank of America Corp. on Thursday said it is splitting its mortgage business into two units, with a new division created specifically to handle foreclosures and discontinued loan products.
The bank said the new Legacy Asset Servicing unit will be responsible for resolving issues involving faulty paperwork that led Bank of America to suspend foreclosures in all 50 states in October. After reviewing procedures, it resumed the actions nationwide in December.
The legacy unit will also handle mortgage modifications and buyback claims on bad home loans sold to investors. It will be led by Terry Laughlin, who joined Bank of America in July 2010 as an executive in its mortgage unit handling credit loss mitigation strategies.
The move is the latest in a series of management shifts since Brian Moynihan took over as CEO in January 2010.
Bank of America Home Loans lost $8.92 billion in 2010, according to the bank's year-end financial report, largely due to the toxic loans it acquired when it bought Countrywide Financial Corp. in 2008.
Countrywide was writing one in six of the nation's mortgages in 2006. The Calabasas, Calif.-based company spiraled into disaster as it became clear many of its borrowers wouldn't be able to repay mortgages that had required no proof of income or down payment, and contained adjustable rates that quickly made monthly payments unaffordable.
In addition to the continuing cascade of consumer defaults, Bank of America has also been beset with buyback claims and lawsuits over the investment securities backed by those loans.
It reached a settlement last month with Fannie Mae and Freddie Mac regarding some of Countrywide's toxic investments, and made payments of about $2.6 billion to the two government-owned mortgage finance companies. At that time, the bank said it still faces claims of about $2.7 billion from the two. Analysts have estimated the bank faces up to $10 billion in claims from private buyers.
Bank of America, which is based in Charlotte, N.C., has also been beset with lawsuits related to securities backed by toxic mortgages. In regulatory filings the bank has said it, Countrywide and its Merrill Lynch unit have been named as defendants in suits related to the sales of more than $375 billion in mortgage-backed securities.
Bank of America Home Loans will continue to handle new loans and the servicing of loans — or collection of monthly payments — that are up-to-date. It will be continue to be led by Barbara Desoer, who has run the unit since 2008.
The bank wrote $306 billion in new mortgages in 2010. At the end of the year, it had a mortgage servicing portfolio of $2.06 billion, according to regulatory filings.
Separately, the company said it will exit the reverse mortgage origination business and shift the staff from that business to other mortgage operations. Customers with pending reverse mortgage loans will be allowed to continue through the process, and the existing loans will remain in force. The bank has about 100,000 existing reverse mortgages outstanding.
Reverse mortgages are typically sold to borrowers over age 62 who want to access the equity in their homes for personal expenses.
Bank of America stock closed Friday trading down 14 cents at $14.29. It gained 44, or 3 percent, to $14.73 cents in afterhours trading following the announcement of the creation of the new mortgage unit.
Monday, May 30, 2011
Friday, March 25, 2011
You Inherited An IRA. Can Creditors Grab It?
Ashlea Ebeling, 03.17.10, 04:41 PM EDT
In what estate planners and bankruptcy lawyers are saying could be a significant case, a federal bankruptcy judge in Minnesota has allowed a bankrupt woman to keep a $63,000 individual retirement account inherited from her father.
IRAs inherited from someone other than your spouse have traditionally not been protected in bankruptcy under either federal or state laws, and thus have been available for creditors to grab. "It’s a huge deal if these IRAs are now protected," said Marc Soss, a tax lawyer in Sarasota, Fla.
The issue is significant not only because more families are facing creditor problems, but also because more of a typical family's wealth is now in retirement accounts. As of the third quarter of 2009, 9% of all household financial assets were in IRAs, up from 4% of assets two decades ago, according to the Investment Company Institute.
Moreover, more of this IRA wealth is likely to be left to children in the future because of a provision that took effect in 2010 allowing all taxpayers to convert traditional pre-tax IRAs into Roth IRAs. In a conversion, you take money out of a traditional IRA, pay ordinary taxes on it and then move it into a Roth, where all future growth and withdrawals are tax free. While retirees are required to begin taking annual distributions from pre-tax IRAs when they turn 70.5, no such requirement applies to Roth IRAs. That means affluent retirees can leave their large Roth IRAs growing untouched, for their children, who can stretch out withdrawals over their own project life spans. (For "10 Reasons To Convert To A Roth IRA," click here.)
In the Minnesota case, In re Nessa, the federal bankruptcy judge relied on new language in the 2005 federal bankruptcy law that protects $1 million in IRA assets from creditors. (The law also protects all assets rolled from an employer pension plan, such as a 401(k) or defined benefit plan, into an IRA, regardless of the amount.) The judge concluded that an inherited IRA is still a retirement account protected under that law, even though it has switched hands from the original owner to the beneficiary. Jean Hannig, the bankruptcy lawyer in Fargo, N.D., who represented debtor Nancy Nessa, hailed the decision as a resounding victory for debtors.
While the Minnesota decision was the first reported case to look at the application of the 2005 law to inherited IRAs, the judge there may not have the last word. The bankruptcy trustee has appealed the ruling to the U.S. Court of Appeals for the 8th Circuit. And earlier this month, a Texas judge in another bankruptcy case, In re Chilton, came to the opposite conclusion of the Minnesota judge.
More Americans will be handing down IRAs to their kids. A new decision suggests it might be a creditor proof inheritance. But nothing is certain yet.
In what estate planners and bankruptcy lawyers are saying could be a significant case, a federal bankruptcy judge in Minnesota has allowed a bankrupt woman to keep a $63,000 individual retirement account inherited from her father.
IRAs inherited from someone other than your spouse have traditionally not been protected in bankruptcy under either federal or state laws, and thus have been available for creditors to grab. "It’s a huge deal if these IRAs are now protected," said Marc Soss, a tax lawyer in Sarasota, Fla.
The issue is significant not only because more families are facing creditor problems, but also because more of a typical family's wealth is now in retirement accounts. As of the third quarter of 2009, 9% of all household financial assets were in IRAs, up from 4% of assets two decades ago, according to the Investment Company Institute.
Moreover, more of this IRA wealth is likely to be left to children in the future because of a provision that took effect in 2010 allowing all taxpayers to convert traditional pre-tax IRAs into Roth IRAs. In a conversion, you take money out of a traditional IRA, pay ordinary taxes on it and then move it into a Roth, where all future growth and withdrawals are tax free. While retirees are required to begin taking annual distributions from pre-tax IRAs when they turn 70.5, no such requirement applies to Roth IRAs. That means affluent retirees can leave their large Roth IRAs growing untouched, for their children, who can stretch out withdrawals over their own project life spans. (For "10 Reasons To Convert To A Roth IRA," click here.)
In the Minnesota case, In re Nessa, the federal bankruptcy judge relied on new language in the 2005 federal bankruptcy law that protects $1 million in IRA assets from creditors. (The law also protects all assets rolled from an employer pension plan, such as a 401(k) or defined benefit plan, into an IRA, regardless of the amount.) The judge concluded that an inherited IRA is still a retirement account protected under that law, even though it has switched hands from the original owner to the beneficiary. Jean Hannig, the bankruptcy lawyer in Fargo, N.D., who represented debtor Nancy Nessa, hailed the decision as a resounding victory for debtors.
While the Minnesota decision was the first reported case to look at the application of the 2005 law to inherited IRAs, the judge there may not have the last word. The bankruptcy trustee has appealed the ruling to the U.S. Court of Appeals for the 8th Circuit. And earlier this month, a Texas judge in another bankruptcy case, In re Chilton, came to the opposite conclusion of the Minnesota judge.
Spendthrift Trusts in Bankruptcy: It’s a Question of State Law
If you are the beneficiary of a trust, and are considering filing for bankruptcy, you might be wondering if you will lose your interest in the trust to your creditors. The answer to this question depends, first, on whether the trust is a “spendthrift trust” under the law of the state which governs the trust, and second, if the trust contains no valid spendthrift clause, on whether there is an exemption which can be used to protect your interest in the trust.
The law states that a trust becomes property of the bankruptcy estate, unless the trust contains a spendthrift clause enforceable under state law. If so, section 541(c)(2) of the bankruptcy law excludes the trust from the bankruptcy estate, and therefore it is protected. This means your bankruptcy lawyer will need to carefully examine the terms of the trust to see whether it contains a spendthrift clause.
Next, your lawyer will need to determine which state’s law governs the trust, and whether the trust’s spendthrift clause was properly drafted so as to be enforceable. This may a matter of interpreting complex trust law unique to the state involved. Your bankruptcy lawyer may need to seek an opinion from an experienced trust lawyer in order to answer this question.
If the trust contains a valid spendthrift clause, your worries are over, because your interest in the trust is excluded from the bankruptcy estate and you cannot lose it. However, if there is no spendthrift clause, or if the spendthrift clause is defective in some way so as to render it uneforceable under the law of the state involved, your interest in the trust will be lost unless you can claim it exempt.
The federal bankruptcy exemptions contain a “wild card” exemption in the amount of $11,200 which can be used to protect liquid cash assets such as a trust. If the value of your interest in the trust is less than this amount, the trust will be protected. Note that it is only your interest in the trust which needs to be exempted, rather than the entire amount in the trust, which may be subject to the interest of other persons who are beneficiaries of the trust.
If you elect to use the state law exemptions in your bankruptcy, it is possible, although unlikely, that an exemption law might be available to protect your interest in the trust. Some states have exemptions which protect various forms of income, and some states have “wildcard” exemptions which protect liquid cash assets such as trusts. However, such exemptions are usually quite limited, and due to the amounts involved in most trusts, it is not likely that a state exemption law of this nature would be sufficient to protect a trust.
The most favorable scenario is one in which your interest in a trust is subject to valid spendthrift clause, and therefore the trust does not even need to be claimed exempt, because it is excluded from the bankruptcy estate
The law states that a trust becomes property of the bankruptcy estate, unless the trust contains a spendthrift clause enforceable under state law. If so, section 541(c)(2) of the bankruptcy law excludes the trust from the bankruptcy estate, and therefore it is protected. This means your bankruptcy lawyer will need to carefully examine the terms of the trust to see whether it contains a spendthrift clause.
Next, your lawyer will need to determine which state’s law governs the trust, and whether the trust’s spendthrift clause was properly drafted so as to be enforceable. This may a matter of interpreting complex trust law unique to the state involved. Your bankruptcy lawyer may need to seek an opinion from an experienced trust lawyer in order to answer this question.
If the trust contains a valid spendthrift clause, your worries are over, because your interest in the trust is excluded from the bankruptcy estate and you cannot lose it. However, if there is no spendthrift clause, or if the spendthrift clause is defective in some way so as to render it uneforceable under the law of the state involved, your interest in the trust will be lost unless you can claim it exempt.
The federal bankruptcy exemptions contain a “wild card” exemption in the amount of $11,200 which can be used to protect liquid cash assets such as a trust. If the value of your interest in the trust is less than this amount, the trust will be protected. Note that it is only your interest in the trust which needs to be exempted, rather than the entire amount in the trust, which may be subject to the interest of other persons who are beneficiaries of the trust.
If you elect to use the state law exemptions in your bankruptcy, it is possible, although unlikely, that an exemption law might be available to protect your interest in the trust. Some states have exemptions which protect various forms of income, and some states have “wildcard” exemptions which protect liquid cash assets such as trusts. However, such exemptions are usually quite limited, and due to the amounts involved in most trusts, it is not likely that a state exemption law of this nature would be sufficient to protect a trust.
The most favorable scenario is one in which your interest in a trust is subject to valid spendthrift clause, and therefore the trust does not even need to be claimed exempt, because it is excluded from the bankruptcy estate
Sunday, February 20, 2011
The Government and Banks May Punish "Strategic Defaults"
September 14, 2010
Steve Elias, NOLO BANKRUPTCY AND FORECLOSURE BLOG
What Are Strategic Defaults?
A number of articles have recently appeared in leading newspapers and magazines reporting that more and more people are engaging in what they call "strategic defaults," defined as not paying your mortgage when you can afford to do so.
The typical story involves a family with a decent income who bought into the housing market when it was high and who now are upside down on their mortgage payments. Rather than continuing to the keep the mortgage current, this family decides to remain in the home without paying the mortgage and then moving when forced to do so (usually due to foreclosure).
This tactic is similar to the advice I give clients who would benefit from stopping their mortgage payments in order to save money to use when they must leave their homes. The difference is that most of the people I speak to really can't afford their mortgage anyway (so foreclosure is probably inevitable). By stopping their mortgage payments, these folks are just trying to cut losses and save some money which they'll need to find new housing at some point in the future.
Proposed Government Actions to Discourage Strategic Defaults
It is not against any law to stop paying your mortgage, whatever the reason. However, the banking industry is pressuring lawmakers and the government housing entities (Fannie Mae, Freddie Mac, and the Federal Housing Administration) to punish people who have engaged in strategic defaults.
Effective October 1, 2010, Fannie Mae will not purchase any mortgage made to a person who has engaged in a strategic default within the past seven years, and Freddie Mac is expected to follow suit. Since almost all mortgages are purchased Fannie or Freddie for securitization and resale, if this happens to you, you will probably be banned from the home mortgage market for seven years.
And it gets worse. The U.S. House of Representatives has passed a bill [H.R. 5072, FHA Reform Act of 2010] that would deny insurance under the Federal Housing Administration to anyone who has engaged in a strategic default. Since FHA insurance is a requirement for many mortgages, this law (if passed by the Senate) might prevent you from obtaining a new mortgage loan -- forever.
Distinguishing Between Strategic Defaulters and Truly Distressed Homeowners
But how will "strategic default" be defined by the law? The House bill leaves the definition of "strategic default" to the HUD Secretary. But figuring out what is and isn't a strategic default won't be an easy task. What if you obtained a modification "in good faith" but then purposely re-default? Do you need to show proof of unemployment or other hardship? If differentiating between strategic defaulters and truly distressed borrowers were an easy task, laws would be better able to distinguish between the two groups. But it's not an easy task, and the laws are unlikely to do a good job of distinguishing between the two groups.
Next up: Using the loan modification process to avoid a "strategic default" accusation.
A number of articles have recently appeared in leading newspapers and magazines reporting that more and more people are engaging in what they call "strategic defaults," defined as not paying your mortgage when you can afford to do so.
The typical story involves a family with a decent income who bought into the housing market when it was high and who now are upside down on their mortgage payments. Rather than continuing to the keep the mortgage current, this family decides to remain in the home without paying the mortgage and then moving when forced to do so (usually due to foreclosure).
This tactic is similar to the advice I give clients who would benefit from stopping their mortgage payments in order to save money to use when they must leave their homes. The difference is that most of the people I speak to really can't afford their mortgage anyway (so foreclosure is probably inevitable). By stopping their mortgage payments, these folks are just trying to cut losses and save some money which they'll need to find new housing at some point in the future.
Proposed Government Actions to Discourage Strategic Defaults
It is not against any law to stop paying your mortgage, whatever the reason. However, the banking industry is pressuring lawmakers and the government housing entities (Fannie Mae, Freddie Mac, and the Federal Housing Administration) to punish people who have engaged in strategic defaults.
Effective October 1, 2010, Fannie Mae will not purchase any mortgage made to a person who has engaged in a strategic default within the past seven years, and Freddie Mac is expected to follow suit. Since almost all mortgages are purchased Fannie or Freddie for securitization and resale, if this happens to you, you will probably be banned from the home mortgage market for seven years.
And it gets worse. The U.S. House of Representatives has passed a bill [H.R. 5072, FHA Reform Act of 2010] that would deny insurance under the Federal Housing Administration to anyone who has engaged in a strategic default. Since FHA insurance is a requirement for many mortgages, this law (if passed by the Senate) might prevent you from obtaining a new mortgage loan -- forever.
Distinguishing Between Strategic Defaulters and Truly Distressed Homeowners
But how will "strategic default" be defined by the law? The House bill leaves the definition of "strategic default" to the HUD Secretary. But figuring out what is and isn't a strategic default won't be an easy task. What if you obtained a modification "in good faith" but then purposely re-default? Do you need to show proof of unemployment or other hardship? If differentiating between strategic defaulters and truly distressed borrowers were an easy task, laws would be better able to distinguish between the two groups. But it's not an easy task, and the laws are unlikely to do a good job of distinguishing between the two groups.
Next up: Using the loan modification process to avoid a "strategic default" accusation.
The Loan Modification Process Can Help Avoid a Charge of Strategic Default
October 18, 2010
Steve Elias, NOLO'S FORECLOSURE AND BANKRUPTCY BLOG
Banks are beginning to punish homeowners who engage in "strategic default," and pushing for legislation to do the same. A strategic default is defined as not paying your mortgage when you can afford to do so, thereby letting your home fall into foreclosure. (For a more comprehensive discussion of strategic defaults and the steps banks and legislatures are taking to punish homeowners, see my previous blog post The Government and Banks May Punish Strategic Defaults.)
An Ounce of Prevention: The Loan Modification Process
One way that homeowners can reduce the risk of a strategic default accusation is to use the loan modification process. (To learn about loan modifications, see Nolo's article Mortgage Modification and Refinancing Under the Homeowner Affordability and Stability Plan.) Here's how it might help:
Because nonpayment when you have the ability to do so is the key aspect of a strategic default, your best protection against having this label applied to you is to make a diligent effort to obtain a loan modification. Of course if you don't really need a modification, the mere attempt to obtain one probably won't immunize you from being considered a strategic defaulter. But few people are that well off.
If your first mortgage is 31% (or more) of your gross income, you have a non-affordable mortgage under the Making Home Affordable guidelines, and failing to pay it should not be considered a strategic default on your part. And you may have additional reasons why you cannot afford your mortgage at the time you defaulted (for example, student loan repayment obligations, a second or third mortgage, or erratic periods of employment).
Defaulting After a Obtaining a Loan Modification Might Hurt You
On the other hand, If you do obtain a modification and then immediately default without a change in circumstance, you may be considered a strategic defaulter almost by definition. (However, obtaining a loan modification is no easy feat. See my previous blog post More Money for Foreclosure Prevention: Will It Help?)
So, if your main goal in participating in a modification process is to avoid this label, success may be failure, and failure success. Such are the strange times we live in.
Document Everything
If you think that you might be considered a strategic defaulter, be sure to thoroughly document your modification efforts. Use email or the post to document all discussions with the bank or a HUD-approved housing counselor. If you receive a phone call from the bank or counselor, follow up with a confirmation letter and record the names and titles of everyone you talk with. Your goal is to be able to provide a ton of paperwork showing that you diligently sought a modification and your default was not made for "strategic" purposes.
An Ounce of Prevention: The Loan Modification Process
One way that homeowners can reduce the risk of a strategic default accusation is to use the loan modification process. (To learn about loan modifications, see Nolo's article Mortgage Modification and Refinancing Under the Homeowner Affordability and Stability Plan.) Here's how it might help:
Because nonpayment when you have the ability to do so is the key aspect of a strategic default, your best protection against having this label applied to you is to make a diligent effort to obtain a loan modification. Of course if you don't really need a modification, the mere attempt to obtain one probably won't immunize you from being considered a strategic defaulter. But few people are that well off.
If your first mortgage is 31% (or more) of your gross income, you have a non-affordable mortgage under the Making Home Affordable guidelines, and failing to pay it should not be considered a strategic default on your part. And you may have additional reasons why you cannot afford your mortgage at the time you defaulted (for example, student loan repayment obligations, a second or third mortgage, or erratic periods of employment).
Defaulting After a Obtaining a Loan Modification Might Hurt You
On the other hand, If you do obtain a modification and then immediately default without a change in circumstance, you may be considered a strategic defaulter almost by definition. (However, obtaining a loan modification is no easy feat. See my previous blog post More Money for Foreclosure Prevention: Will It Help?)
So, if your main goal in participating in a modification process is to avoid this label, success may be failure, and failure success. Such are the strange times we live in.
Document Everything
If you think that you might be considered a strategic defaulter, be sure to thoroughly document your modification efforts. Use email or the post to document all discussions with the bank or a HUD-approved housing counselor. If you receive a phone call from the bank or counselor, follow up with a confirmation letter and record the names and titles of everyone you talk with. Your goal is to be able to provide a ton of paperwork showing that you diligently sought a modification and your default was not made for "strategic" purposes.
Lawsuits Allege Banks Broke Promises to Homeowners Facing Foreclosure
February 7, 2011
Steve Elias, NOLO'S BANKRUPTCY AND FORECLOSURE BLOG:
Steve Elias, NOLO'S BANKRUPTCY AND FORECLOSURE BLOG:
Two recent lawsuits, in Washington and California, use "promissory estoppel" (a legal theory in contract cases) to get monetary damages from banks that broke their promises to homeowners facing foreclosure.
The Washington Case: Promissory Estoppel as a Cause of Action
Abuses by mortgage banks and servicers committed while dealing with homeowners seeking foreclosure relief or mortgage modifications have been well documented. They are especially and eloquently detailed in a class action lawsuit filed on January 10, 2011 in the State of Washington. Reading the Introduction to the complaint (if not the whole document) will be well worth your while.
Among the claims contained in the class action complaint is a type of breach of contract known as promissory estoppel. Promissory estoppel may seem like an impossible-to-understand example of legal jargon but i'ts actually relatively simple. It means that a party making a promise is prevented (estopped) from reneging on the promise. You can sue for promissory estoppel if 1) someone makes you a promise that is clear and unambiguous, 2) your reliance on the promise is reasonable and foreseeable, and 3) you suffered damages as a result of your reliance.
You can't hold someone to a naked promise just by itself. In other words forget about suing your parents who failed to deliver on their promise to send you to Harvard. But if you go through all the motions of enrolling, signing a lease for your housing, and buying textbooks, and your parents had good reason to believe that you would act on their promise, you may have a winning case to recover, at the very least, your out-of-pocket expenses, and possibly even for other liabilities you incurred.
In the class action complaint the promissory estoppel claim deals with a common practice in the mortgage industry. There the bank promised the named plaintiff a permanent mortgage modification if she completed a trial period during which the modified payments were to be paid to the bank. The plaintiff did, in fact, complete the trial period but the bank refused to give her the modification as promised. Here, the requirements for promissory estoppel were clearly met. The bank promised a permanent modification in exchange for three (or more) trial payments. The homeowner reasonably and foreseeably relied on the promise and made the payments. The bank reneged on the promise, and the homeowner suffered damages in that the trial payments would not have been made absent the promise.
You might wonder why this isn't a common-variety breach of contract case. For a contract to be enforceable both sides have to receive something of value (called consideration) in exchange for their agreement to perform the terms of the contract. Also, there has to be an offer and an acceptance. In the situation where the bank makes a promise to modify, it's arguable that only the homeowner is receiving consideration and so a valid contract has not been made. But the law, through the doctrine of promissory estoppel, eliminates the need for mutual consideration and will, under the appropriate circumstances, enforce the promise or award damages if it is not carried out.
Promissory Estoppel in a Recent California Foreclosure Case
The doctrine of promissory estoppel was recently applied to a mortgage workout situation in a California appellate court case titled Claudio Aceves v U.S. Bank (Court of Appeal, Second Appellate District, Div One (1/27/11)). Here Ms. Aceves fell behind on her mortgage and filed for Chapter 7 bankruptcy after the bank served a Notice of Default, a required step in the California foreclosure process. She decided to convert the case to chapter 13 bankruptcy and raise the necessary money to reinstate the loan and pay off the arrearage over the course of the chapter 13 plan. The bank told her they would work with her and that she needn't pursue her Chapter 13 remedy. Relying on this representation, Ms Aceves did not file Chapter 13 and also did not object when the bank filed a motion in her Chapter 7 case to lift the automatic stay (which legally enabled the bank to continue with its foreclosure remedy).
In fact the bank failed to enter into good faith negotiations and instead completed the foreclosure. Ms. Aceves sued the bank alleging a cause of action for promissory estoppel, among others. She argued that 1) the bank's promise to work with her in reinstating and modifying the loan was clear and unambiguous, 2) the bank in fact failed to negotiate the modification, 3) she relied on the bank's promise by forgoing bankruptcy protection under chapter 13 and failing to oppose the motion to lift the stay, 4) her reliance was reasonable and foreseeable, and 5) she suffered damages in the form of losing her house.
The lower court dismissed the action but the court of appeals ruled that in fact Ms. Aceves had stated a claim for promissory estoppel and should be allowed to proceed with her lawsuit in the trial court. In making its ruling the court specifically found that "U.S. Bank never intended to work with Aceves to reinstate and modify the loan. The bank so promised only to convince Aceves to forgo further bankruptcy proceedings, thereby permitting the bank to lift the automatic stay and foreclose on the property."
As long as this case remains published (and isn't ordered de-published by the California Supreme Court) it provides great precedent if you decide to sue your mortgage lender or servicer for breaking its promises. If you can't find an affordable lawyer, you might consider doing your own state court lawsuit with the help of Nolo resources such as Represent Yourself in Court, by Paul Bergman and Sara Berman-Barrett, and Everybody's Guide to Small Claims Court, by Ralph Warner.
While you may be invited to join a class action, those types of cases usually are much more beneficial to the lawyers bringing them than they are to the plaintiffs. If possible, you should consider going your own way. However, sometimes a class action is the only way to find a lawyer without parting with an arm or a leg and if that is your situation, and self-help is not an option, by all means sign up as a class action plaintiff. .
Bankruptcy and Second-Mortgage Liens
February 15, 201
Steve Elias, NOLO's BANKRUPTCY AND FORECLOSURE BLOG:
If you file for Chapter 7 or Chapter 13 bankruptcy, what happens to second or third mortgages and liens on your home? The real estate crash, and the resulting depreciation in home values, may mean that as a practical matter, many people won't have to worry about those liens. Here's why.
The Real Estate Crash Has Resulted in Many Unsecured Second and Third Mortgages
Because of the real estate crash, many people have second and third mortgages on their homes that are no longer secured by the home's value. For instance if your home is now worth $200,000 and you owe $200,000 on your first mortgage and $50,000 on your second mortgage, your home's value secures the first mortgage, but after that, there is no equity left to secure the second mortgage.
What Happens to Those Mortgages if You File for Bankruptcy?
In Chapter 7 bankruptcy, your bankruptcy discharge will eliminate your personal liability on the second mortgage but will not eliminate the lien. In Chapter 13 bankruptcy, you can eliminate both your personal liability and the lien in a procedure called lien stripping. The basic lien stripping rule is: You can eliminate a lien that has no security in the home, but you can't eliminate the lien if part of it is secured by the home's value.
Here's an example. Say your home is worth $210,000, your first mortgage is $205,000, and your second mortgage is $25,000. You can't strip off the second lien because it is secured by at least $5,000 of your home's value.
What if a Lien Remains on Your Home After Chapter 7 Bankruptcy?
Although you can't lien strip in a Chapter 7 bankruptcy, the lien may have very little effect on your future financial affairs. The Chapter 7 bankruptcy will discharge your personal liability for the second mortgage (meaning you can't be sued for money owed on it). And, absent value in the house securing the second mortgage, the holder wouldn't benefit from a foreclosure (since all the value of the home would go to the first mortgage holder in a foreclosure sale).
This means there won't be negative consequence from the lien remaining on the home after your bankruptcy -- unless of course your home's value comes back to a point that would allow you to sell the home or support a foreclosure action by the second mortgage lender. This is clearly less likely when your home is way underwater (50% is common) than when you are just a tad underwater.
The bottom line? Even though you might have a better result in Chapter 13 -- where you can lien strip -- from a practical standpoint, people with severely underwater second mortgages may do just as well in a Chapter 7 bankruptcy.
In some cases it needn't be one choice or the other. It used to be that you could file a Chapter 7 bankruptcy, discharge your personal liabilities and then immediately file a Chapter 13 bankruptcy to strip off the lien. This was called a "Chapter 20" bankruptcy. Now it's not quite that simple. You are still entitled to file a Chapter 13 bankruptcy right after your Chapter 7 discharge but you won't qualify for a Chapter 13 discharge. Still, at least one bankruptcy court said that you don't need a discharge to strip off a second lien in a Chapter 13 case filed on top of a Chapter 7 case, as long as you filed the Chapter 13 in good faith.
The Real Estate Crash Has Resulted in Many Unsecured Second and Third Mortgages
Because of the real estate crash, many people have second and third mortgages on their homes that are no longer secured by the home's value. For instance if your home is now worth $200,000 and you owe $200,000 on your first mortgage and $50,000 on your second mortgage, your home's value secures the first mortgage, but after that, there is no equity left to secure the second mortgage.
What Happens to Those Mortgages if You File for Bankruptcy?
In Chapter 7 bankruptcy, your bankruptcy discharge will eliminate your personal liability on the second mortgage but will not eliminate the lien. In Chapter 13 bankruptcy, you can eliminate both your personal liability and the lien in a procedure called lien stripping. The basic lien stripping rule is: You can eliminate a lien that has no security in the home, but you can't eliminate the lien if part of it is secured by the home's value.
Here's an example. Say your home is worth $210,000, your first mortgage is $205,000, and your second mortgage is $25,000. You can't strip off the second lien because it is secured by at least $5,000 of your home's value.
What if a Lien Remains on Your Home After Chapter 7 Bankruptcy?
Although you can't lien strip in a Chapter 7 bankruptcy, the lien may have very little effect on your future financial affairs. The Chapter 7 bankruptcy will discharge your personal liability for the second mortgage (meaning you can't be sued for money owed on it). And, absent value in the house securing the second mortgage, the holder wouldn't benefit from a foreclosure (since all the value of the home would go to the first mortgage holder in a foreclosure sale).
This means there won't be negative consequence from the lien remaining on the home after your bankruptcy -- unless of course your home's value comes back to a point that would allow you to sell the home or support a foreclosure action by the second mortgage lender. This is clearly less likely when your home is way underwater (50% is common) than when you are just a tad underwater.
The bottom line? Even though you might have a better result in Chapter 13 -- where you can lien strip -- from a practical standpoint, people with severely underwater second mortgages may do just as well in a Chapter 7 bankruptcy.
In some cases it needn't be one choice or the other. It used to be that you could file a Chapter 7 bankruptcy, discharge your personal liabilities and then immediately file a Chapter 13 bankruptcy to strip off the lien. This was called a "Chapter 20" bankruptcy. Now it's not quite that simple. You are still entitled to file a Chapter 13 bankruptcy right after your Chapter 7 discharge but you won't qualify for a Chapter 13 discharge. Still, at least one bankruptcy court said that you don't need a discharge to strip off a second lien in a Chapter 13 case filed on top of a Chapter 7 case, as long as you filed the Chapter 13 in good faith.
Saturday, February 12, 2011
Personal Bankruptcy: What You Should Know Before You File
February 11th, 2011 by Carolyn Okomo
Personal Bankruptcy: What You Should Know Before You File
If you’re struggling to pay your debt, filing for bankruptcy might be the best thing you could do for yourself. Deciding what kind of bankruptcy protection could be a tough thing to do alone, but educating yourself about options and speaking with a professional who can guide you thorough the process can make all the difference.
In both the event of a Chapter 7 or Chapter 13 filing, you’ll have to file a petition and other legal documents that include the following information:
Next, a creditors’ meeting is convened within 50 days after a bankruptcy petition is filed, where you’ll be placed under oath and both the trustee and your creditors will ask you questions about your finances. From that meeting the parties can propose a plan.
While some debt is dischargeable in Chapter 13 bankruptcy, you won’t be able to discharge student loans, home mortgages, taxes, fraudulent debts, alimony and child support and criminal fines.
The final step in the Chapter 13 process will involve winning approval, or confirmation, of your Chapter 13 plan from a bankruptcy judge. Garnering as much support as possible from your creditors will be a very important step, because it will ensure that the confirmation process runs as smoothly as possible. If your plan is approved, then you’ll need to make sure that you follow through on your payments to your trustee, who will then provide those payments to your creditors. Until your plan is full executed, any and all new debt you incur will have to be approved by the bankruptcy trustee.
If you find you’re having difficulty making payments on your plan due to unexpected circumstances you can request a hardship discharge.
Because you’ll be extinguishing most, if not all, of your debt, you’ll only be allowed to retain essential property like motor vehicles, household appliances, pensions, a portion of your home equity and necessary clothing. A Chapter 7 trustee will then take possession of your nonexempt property, sell it, then distribute the proceeds from the sale to creditors.
Whether you file for Chapter 7 or Chapter 13 bankruptcy, just remember there is no shame seeking bankruptcy protection. Find a great attorney or financial professional to walk you through the process and take charge of your personal finances!
How to Decide Whether Bankruptcy Is Right for You
The ramifications of filing for bankruptcy protection are harsh, so you’ll want to think very carefully about what your options are before choosing that path. The American Bankruptcy Institute has a great guide to aid you in deciding whether or not you should seek bankruptcy protection. If you’re faced with several of the following circumstances then you should definitely consider seeking bankruptcy protection:- Your wages or your bank account are garnished
- A majority of your debt is unsecured, like credit card bills or hospital bills
- Your total debt is more than you can pay after five or more years
- You have little or no savings
- You cannot pay your outstanding taxes
- There are lawsuits pending against you
- You have had property repossessed or have property that is in danger of being repossessed
- You are getting calls at home or at work from collection agencies
Bankruptcy: The Process
If you finally do decide to file for bankruptcy, you’ll have the option of filing under either Chapter 7 or Chapter 11 of the bankruptcy code. The minute a bankruptcy petition is filed, something called an automatic stay is enacted. During the automatic stay period creditors are barred from attempting to collect debts from you.In both the event of a Chapter 7 or Chapter 13 filing, you’ll have to file a petition and other legal documents that include the following information:
- A list of all of your creditors and how much each are owed
- Your income information: how much you earn, and how often you get paid
- All of your personal property
- A detailed list of your monthly living expenses, such as food, clothing, utilities, transportation, etc.
Chapter 13: Making a Plan of Action
In Chapter 13 bankruptcy, you’ll be able to retain your property and propose a repayment plan spelling out how you will repay your creditors over the course of three to five years. This plan must be filed with the court no more than 15 days after a you file for bankruptcy. If you think you’ll need more time to construct a repayment plan, then you’ll be able to request an extension from the court.Next, a creditors’ meeting is convened within 50 days after a bankruptcy petition is filed, where you’ll be placed under oath and both the trustee and your creditors will ask you questions about your finances. From that meeting the parties can propose a plan.
While some debt is dischargeable in Chapter 13 bankruptcy, you won’t be able to discharge student loans, home mortgages, taxes, fraudulent debts, alimony and child support and criminal fines.
The final step in the Chapter 13 process will involve winning approval, or confirmation, of your Chapter 13 plan from a bankruptcy judge. Garnering as much support as possible from your creditors will be a very important step, because it will ensure that the confirmation process runs as smoothly as possible. If your plan is approved, then you’ll need to make sure that you follow through on your payments to your trustee, who will then provide those payments to your creditors. Until your plan is full executed, any and all new debt you incur will have to be approved by the bankruptcy trustee.
If you find you’re having difficulty making payments on your plan due to unexpected circumstances you can request a hardship discharge.
Chapter 7: A Fresh Start
Unlike in a Chapter 13, a Chapter 7 bankruptcy filling essentially allows you to wipe the slate clean on your debt, which is why it’s much more difficult to legally qualify for this type of bankruptcy protection. In order to qualify to file for Chapter 7 protection, you’ll need to pass a ‘means test’— or, a test that, based on your income, will determine whether or not you are capable of paying off your debt.Because you’ll be extinguishing most, if not all, of your debt, you’ll only be allowed to retain essential property like motor vehicles, household appliances, pensions, a portion of your home equity and necessary clothing. A Chapter 7 trustee will then take possession of your nonexempt property, sell it, then distribute the proceeds from the sale to creditors.
Whether you file for Chapter 7 or Chapter 13 bankruptcy, just remember there is no shame seeking bankruptcy protection. Find a great attorney or financial professional to walk you through the process and take charge of your personal finances!
Monday, February 7, 2011
Debt Relief, Credit Check: Hot Trends by Theresa McCabe
NEW YORK (TheStreet) -- "Debt relief" is a trending search topic today after thousands of consumers were victims of a fraudulent debt-relief program.
The Federal Trade Commission will mail almost 7,000 refund checks to consumers who were involved in the nationwide deceptive operation. According to the FTC, a fraudulent debt-negotiation company collected an up-front fee of about 5% of customer's unsecured debt, but failed to actually help the customers reduce their debt. The average amount of redress per consumer is about $180.
New federal rules have been put in place that require for-profit debt-relief companies to disclose how long it will take to get results before consumers agree to sign up. Companies can no longer charge upfront fees.
"Credit check" is a popular search topic today following concerns that employers are not accepting applicants on the basis of their credit.
A survey conducted by the Society for Human Resource Management showed that 60% of all organizations polled conducted background checks on job applicants.
Reports speculate as to whether this is a fair procedure and if employers should be allowed to keep someone out of a job based on their credit.
"Bankruptcy" is a trending search topic today after a recent study by John Pottow, a law professor at the University of Michigan Law School, showed that the number of Americans aged 65 and older declaring bankruptcy is on the rise
By 2007, 7% of those filing for bankruptcy were 65 or older, up from 4% in 2001.
Professor Pottow said that more than 66% of those 65 and older who filed for bankruptcy blamed credit cards for their financial problems. "They're using credit cards as a maladaptive coping mechanism," Pottow said.
The study also showed that about 40% of adults were still struggling with medical bills after they filed for bankruptcy.
"IRA accounts" is a hot search topic on the Internet today after the Internal Revenue Service announced a new tax law that is scheduled to take effect next year.
The provision in the Small Business Jobs Act, which President Obama signed into law in September, now allows 401(k) plan participants to roll their accounts over into their designated Roth account.
If a participant rolls over an eligible rollover distribution into a Roth account, he or she must include any previously untaxed portion in gross income. The rolled over amount is not subject to the additional 10% early withdrawal tax
The chatter on Main Street (a.k.a. Google) is always of interest to investors on Wall Street. Thus, each day, TheStreet compiles the stories that are trending on Google, and highlights the news that could make stocks move.
-- Written by Theresa McCabe in Boston.
Sunday, February 6, 2011
Bank of America creates unit for foreclosures- by Eileen AJ Connelly
Bank of America creates unit for foreclosures
FDIC’s Bair: Mortgage Industry Should Compensate Consumers. by Alan Zibel
By Alan Zibel
- Getty Images
- Sheila Bair, chairman of the Federal Deposit Insurance Corp.
Sheila Bair, head of the FDIC, called for a “foreclosure claims commission” to handle complaints from homeowners who say they have lost their homes through errors made by their mortgage companies. The commission, she said, could distribute claims to affected borrowers–much like Gulf Coast oil spill fund–and would be paid for by the mortgage industry.
“We need to provide remedies for borrowers harmed by past practices,” Bair said in a sternly worded speech at a Mortgage Bankers Association conference in Washington. She called for broad changes across the industry, potentially as part of a settlement with attorneys general investigating allegations that mortgage servicers broke state laws.
“The fact is, every time servicers have delayed needed changes to minimize their short-term costs, they have seen a deepening of the crisis that has cost them–and the rest of us–even more,” she said. “It is time for government and industry to reach an agreement that will finally bring closure to the crisis.”
Mortgage servicers, which collect homeowners’ payments and distribute them to investors, have been under intense scrutiny amid revelations that lenders cut corners when processing foreclosure cases. Lenders have pledged to fix their problems. However, banks say the vast majority of affected homeowners have missed mortgage payments and will still face foreclosure.
The problems with mortgage-servicing companies show that the industry’s business model and fee structure are “fundamentally flawed and in urgent need of reform,” Bair said.
The industry, Bair said, has done a poor job of assisting homeowners on the verge of foreclosure. “Many servicers have refused to commit the resources necessary to pursue it in a coordinated and efficient manner,” she said. “Fair dealing with borrowers and adherence to the law are not optional.”
Bair’s remarks come as regulators are devoting heightened attention to mortgage-servicing companies. Federal housing regulators said Tuesday they will develop a new compensation structure for the industry.
The Federal Housing Finance Agency is working on the initiative with the Department of Housing and Urban Development and federally controlled mortgage buyers Fannie and Freddie. Since the pair dominate the mortgage market, any new rules would likely become an industrywide standard.
Compensation for mortgage servicers is currently based on a minimum servicing fee that is deducted from a borrowers’ interest payments. Consumer advocates and some regulators say mortgage servicers don’t have enough incentive to modify loans for troubled homeowners, which has led to poor results from loan-modification programs.
Industry officials say they have hired thousands of workers to deal with a crush of foreclosures and defaults. But some acknowledge that the industry was ill-prepared. “The current model does not work,” said Thomas Marano, head of Ally FInancial Inc.’s mortgage operations. “It’s not built for a calamity.”
Bair, meanwhile, proposed several other reforms. Borrowers, she said, should have the right to appeal to an independent third party if they are denied for loan assistance, and consumers seeking assistance with their loans should be provided a single person to contact.
Saturday, January 29, 2011
Fannie and Freddie's big Foreclosure Backlog-By Clea Benson Clea Benson
Fannie and Freddie's Big Foreclosure Backlog
Fannie Mae (fnma.ob.OB) and Freddie Mac (fmcc.ob.OB) are trying to sell their huge backlog of foreclosed homes in an orderly way to avoid flooding the market and depressing prices. As foreclosures mount, though, analysts say the companies may be forced to reconsider that approach.
The government-controlled mortgage companies' inventory of foreclosed residential property has quadrupled in three years and now stands at a record $24 billion. The number of properties they own has increased fivefold to nearly 242,000, representing roughly a third of all repossessed homes in the U.S. And the total keeps growing as they take possession of homes faster than they can sell them. In the first nine months of 2010 Fannie and Freddie took in 319,243 foreclosed properties and disposed of 210,105. At the same time, U.S. housing prices have been falling. In the most recent reading, the S&P/Case-Shiller index of home values in 20 cities fell 1.6 percent in November from the previous year, the biggest 12-month decrease since December 2009.
Officials at Fannie and Freddie say they are committed to an approach consistent with their mission as backstops for the housing market. They have been trying to stabilize neighborhoods by selling homes at prices close to market levels and giving preference to buyers who plan to live in the homes rather than investors who might rent them out or try immediately to resell them. Fannie and Freddie are also investing in some properties, spending millions on maintenance to make them competitive with other homes on the market in their neighborhoods. "We don't want a reduced value to initiate a quick sale," says David Wendling, senior director of REO (real estate owned) sales at Freddie Mac. "The focus has always been on supporting neighborhood values."
Of the 74,621 properties Freddie Mac sold in the first nine months of 2010, 67 percent went to buyers who intended to occupy them, according to company data. At Fannie Mae, about 80 percent of sales are to owner-occupants, says company spokeswoman Amy Bonitatibus. "We don't hold anything back that is available to be sold," says Jane Severn, director of REO disposition at Fannie Mae. "We're doing the opposite, pushing our homes out to the market as soon as we can."
Some real estate analysts say the companies will have to find a way to dispose of properties more quickly. The number of homes subject to a foreclosure filing may rise by 20 percent this year, up from a record 2.87 million properties in 2010, RealtyTrac, an Irvine (Calif.) data company, predicts. The market currently can absorb about a million foreclosures a year, the Mortgage Bankers Assn. estimates. Fannie and Freddie themselves estimate in regulatory filings that it will take "a number of years" to bring their foreclosure inventory down to pre-2008 levels.
As their holdings of unsold homes increase, Fannie and Freddie eventually will need to drop prices and turn to investors, analysts predict. "I think they're just (postponing) the inevitable," says Michael Slaughter, a partner at New Providence Capital, a Dallas-based private lender. "If they don't start with a systematic distribution of these properties to investors who have cash today and will buy them at the right price, they're going to end up selling the entire portfolio to Goldman Sachs (NYSE:GS - News) or BlackRock (NYSE:BLK - News) at a tenth of what they can get for them today."
The bottom line: Fannie's and Freddie's strategy of not flooding the market with foreclosed homes may come under pressure as their inventory builds.
The government-controlled mortgage companies' inventory of foreclosed residential property has quadrupled in three years and now stands at a record $24 billion. The number of properties they own has increased fivefold to nearly 242,000, representing roughly a third of all repossessed homes in the U.S. And the total keeps growing as they take possession of homes faster than they can sell them. In the first nine months of 2010 Fannie and Freddie took in 319,243 foreclosed properties and disposed of 210,105. At the same time, U.S. housing prices have been falling. In the most recent reading, the S&P/Case-Shiller index of home values in 20 cities fell 1.6 percent in November from the previous year, the biggest 12-month decrease since December 2009.
Officials at Fannie and Freddie say they are committed to an approach consistent with their mission as backstops for the housing market. They have been trying to stabilize neighborhoods by selling homes at prices close to market levels and giving preference to buyers who plan to live in the homes rather than investors who might rent them out or try immediately to resell them. Fannie and Freddie are also investing in some properties, spending millions on maintenance to make them competitive with other homes on the market in their neighborhoods. "We don't want a reduced value to initiate a quick sale," says David Wendling, senior director of REO (real estate owned) sales at Freddie Mac. "The focus has always been on supporting neighborhood values."
Of the 74,621 properties Freddie Mac sold in the first nine months of 2010, 67 percent went to buyers who intended to occupy them, according to company data. At Fannie Mae, about 80 percent of sales are to owner-occupants, says company spokeswoman Amy Bonitatibus. "We don't hold anything back that is available to be sold," says Jane Severn, director of REO disposition at Fannie Mae. "We're doing the opposite, pushing our homes out to the market as soon as we can."
Some real estate analysts say the companies will have to find a way to dispose of properties more quickly. The number of homes subject to a foreclosure filing may rise by 20 percent this year, up from a record 2.87 million properties in 2010, RealtyTrac, an Irvine (Calif.) data company, predicts. The market currently can absorb about a million foreclosures a year, the Mortgage Bankers Assn. estimates. Fannie and Freddie themselves estimate in regulatory filings that it will take "a number of years" to bring their foreclosure inventory down to pre-2008 levels.
As their holdings of unsold homes increase, Fannie and Freddie eventually will need to drop prices and turn to investors, analysts predict. "I think they're just (postponing) the inevitable," says Michael Slaughter, a partner at New Providence Capital, a Dallas-based private lender. "If they don't start with a systematic distribution of these properties to investors who have cash today and will buy them at the right price, they're going to end up selling the entire portfolio to Goldman Sachs (NYSE:GS - News) or BlackRock (NYSE:BLK - News) at a tenth of what they can get for them today."
The bottom line: Fannie's and Freddie's strategy of not flooding the market with foreclosed homes may come under pressure as their inventory builds.
Building a case under Fair Debt Collection Practices Act (FDCPA)
Debtors who are being harassed by debt collectors must keep a record of the calls made by the debt collector in order to pursue a claim under Fair Debt Collection Practices Act.
What the courts will look at to support a claim that a debt collector has violated the FDCPA is that there are factual allegations that identify:
(1) the ‘called number,’
(2) the number of calls made to demonstrate repeated, constant and/or continuous calls,
(3) when the calls were made (dates and times) and over what period of time,
(4) the content of the conversations, if any,
(5) the alleged debt, and
(6) the link between the caller and the Defendant debt collector. Johnson v. National Recovery Group, LLC, 2010 WL 1992636, *2 (E.D. Cal. May 14, 2010)
see: Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)
Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009)
What the courts will look at to support a claim that a debt collector has violated the FDCPA is that there are factual allegations that identify:
(1) the ‘called number,’
(2) the number of calls made to demonstrate repeated, constant and/or continuous calls,
(3) when the calls were made (dates and times) and over what period of time,
(4) the content of the conversations, if any,
(5) the alleged debt, and
(6) the link between the caller and the Defendant debt collector. Johnson v. National Recovery Group, LLC, 2010 WL 1992636, *2 (E.D. Cal. May 14, 2010)
see: Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)
Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009)
Creditor calling-How Many Calls Are Too Many?
by John H. Bedard, Jr
Bedard Law Group, P.C.
Collectors need it. Consumers are demanding it. Regulators want it. Courts are learning about it. And with hawk-like vision, consumer attorneys are looking for it. What is it? Plain and simple; it is dialer control. How many calls do you make in a day, week, month? How many messages do you leave? Complaints focusing on “overdialing” are on the rise. Consumers are challenging courts to draw more definite lines in the law about how many calls are too many. Federal judges concede that the case law on this issue is anything but consistent. Don’t be the next poster child for “Dialers Gone Wild!”
Although the case law isn’t entirely consistent, court rulings are beginning to give some definition to the outer boundaries of the call volume issue. Over the last 12 months several courts have had an opportunity to discuss their ideas on call volume. For example, the following cases resulted in summary judgment in favor of the debt collector (i.e. the debt collector won the case):
- Tucker v. CBE Group, Inc., 2010 U.S. Dist. LEXIS 54892 (M.D. Fla. May 5, 2010) (57 calls to non-debtor (over unspecified period of time), including 7 on one day, only 6 messages left in total)
- Katz v. Capital One, 2010 U.S. Dist. LEXIS 25579 (E.D. Va. Mar. 18, 2010)(15-17 calls after creditor notified of attorney representation, not more than 2 calls/day, no “back-to-back” calls, no inconvenient times, no requests to stop, no calls after consumer hangs up)
- Saltzman v. I.C. Sys., 2009 U.S. Dist. LEXIS 90681 ( E.D. Mich. Sept. 30, 2009)(20-50 unsuccessful calls, 2-10 successful calls in one month)
- Arteaga v. Asset Acceptance, LLC, 2010 U.S. Dist. LEXIS 86541 (E.D. Cal. Aug. 23, 2010)(Court explains that the consumer fails to cite a single case in which "daily" or "nearly daily" phone calls alone raise an issue of fact as to these claims.)
- Lourdes Jiminez v. Accounts Receivable Mgmt., Inc., No. CV 09-9070-GW(AJWx) (C.D. Cal. Nov. 15, 2010)(69 calls over 115 days, no live contact, one voice mail left, no more than 2 calls/day, except for a single day in which there were 3 calls)
Compare the above cases; however, to this next set of cases in which the debt collector did not fare as well:
· Bassett v. I.C. Sys., 2010 U.S. Dist. LEXIS 53697 (N.D. Ill. June 1, 2010)(Collector’s summary judgment denied – 31 calls over 12 days raises fact issue on harassment.)
· Krapf v. Nationwide Credit, Inc., 2010 U.S. Dist. LEXIS 57849 (C.D. Cal. May 21, 2010)(Collector’s summary judgment denied - 180 calls/month. 6 calls/day.)
· Langdon v. Credit Mgmt., LP, 2010 U.S. Dist. LEXIS 16138 (N.D. Cal. Feb. 24, 2010)(Collector’s motion to dismiss denied. Court says: 2+ calls/day “certainly may constitute harassment or annoyance.” “If . . . Defendant calls plaintiff and hangs up the phone, common sense dictates that defendant has not provided meaningful disclosure under FDCPA section 1692d(6).”
· Brown v. Hosto & Buchan, PLLC, 2010 U.S. Dist. LEXIS 116759 (W.D. Tenn. Nov. 2, 2010)(17 calls in 1 month sufficient to state a claim for causing a telephone to ring repeatedly or continuously with intent to annoy, abuse, or harass etc.)
· Valentine v. Brock & Scott, PLLC, 2010 U.S. Dist. LEXIS 40532 (D. S.C. Apr. 26, 2010)(11 calls in 19 days with 2 calls in 1 day is sufficient to state a claim).
The theme beginning to emerge from the case law is that debt collectors may not engage in an “unacceptable pattern of calls.” The problem; however, is that the consumer’s behavior will often be a factor in considering whether the pattern of calls is unacceptable. For example, the court in Katz specifically noted that the consumer never requested that the calls cease. In Jiminez, the court noted the collector never had live contact with the consumer. In Saltzman, the collector only made live contact with the consumer a handful of times and the court noted that the high volume of calls reflected the difficultly in reaching the consumer and not that the collector intended to harass the consumer. Had the consumer repeatedly disputed the debt, the court in Saltzman may have reached a different conclusion.
It is difficult to apply this emerging legal standard (i.e. the “unacceptable pattern of calls” standard) uniformly across a portfolio or a collector’s entire inventory, but instead likely requires case by case analysis. For example, three calls to a consumer in a single day may be lawful if the phone is never answered, at least three hours separate each attempt, and there has never been any live contact with the consumer. However, the same three calls may very well cross the line when the consumer answers each call, explains that they are the wrong Jane Smith, requests verification of the debt, and demands that all calls cease (including calls to family, the POE, nearbys etc.).
So what lessons can we learn from this smattering of judicial opinions on the issue? In the absence of consumer consent or instructions from a consumer about how they would like to be contacted, debt collectors interested in reducing litigation risk on the issue of call volume might consider the following:
- No immediate call-backs after the consumer hangs up on the collector.
- No back to back calls i.e. home phone call results in live call, which is then immediately following by cell phone call, POE call, nearby call etc.
- Dramatically reduce call frequency even after verbal cease and desist.
- Don’t ignore verbal disputes; adjust call frequency pending investigation of even verbal disputes.
- Heightened sensitivity to call volume to POE’s and non-consumers.
- Establish grace period after leaving message before next outbound call.
- Establish cap on total number of calls per day/week/month which overrides all else (with smaller cap on POE and non-consumer calls).
- Establish grace period between outbound calls in same day.
Dialer Control, make it a new phrase in your IT department. Dialer Control, make sure employees at all levels know what it means. Dialer Control, resist the temptation to simply “crank it up.” Dialer Control, get more sophisticated with how you utilize your dialer. Everything in moderation . . . including outbound calls.
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