Recent reports in the New York Times indicate that lenders faced with loss of profits in this difficult environment are rediscovering the benefits of issuing credit cards to people with less-than-stellar credit.
We have always felt that having and using credit cards is an important part of financial success. Proper use for purchases gives you protection through the billing dispute process. Proper use paying each month's charges in full is an important building block to a good credit score. And a charge card may be a lifesaver in a true emergency. The trick, like everything else, is knowing how to use cards.
For useful guidance, check out Federal Reserve Guide to Credit Cards. We recommend to avoid using charge cards for anything you can watch, listen to, eat or drink (other possibly for on-line purchases). But most important is to do a budget and keep track of what you are charging.
The budget is easy. Add up how much money you can reliably and consistently count on receiving each month. Let's call that Monthly Net Earnings.
Next, calculate your Required Monthly Expenses. For items like food and groceries, you may want to track what you spend on a weekly basis, then multiply by 4 1/3. Some items like clothing are easier to use an annual figure and divide by 12. Don't forget medical expenses, prescriptions, co-pays etc. Think carefully about transportation, and don't forget to add $10 per month for the cost of replacing tires. Our website's Forms page has a a personal budget spreadsheet template you can use if you have Microsoft Excel. Others are readily available.
This is something you can do yourself. Be realistic. Now you know how much you can afford to pay for any new debt.
Next you have to avoid the "minimum payment" trap. Say you charge $1000.00. You may only have to pay 4% or $40 per month. Sounds easy, right? In fact, you might end up having to pay for as long as 10 years or more, and a lot of interest. Check out this calculator. Worse, the feeling that you can afford to charge more can easily get you in over your head. Instead, if you cannot pay your balance in full in a particular month, stop using the card until you have paid off the balance, and allot enough to pay off the balance in 6 months or less.
So that you do not charge over your head, keep track of your charges. Save each month's charge slips, clipped together in your wallet or purse. With each charge, write the total monthly charges to date on the slip. This should be easy as the last charge will have that cumulative balance to date. The numbers need not be exact, approximations will do. Or keep a "check register" listing all the charges. Even better, don't use the card more times than you can easily keep track of.
From over 27 years of helping people in financial trouble, this advice comes from their hard experience.
Tuesday, December 21, 2010
Friday, December 3, 2010
New rules in federal court for expert witnesses
Effective December 1, 2010, there have been major changes to the rules governing expert witnesses and discovery in bankruptcy courts and federal courts. As those of us who are involved regularly in litigation in federal courts know, this is very significant.
The major changes are
- 1. Draft expert reports for “retained experts” are no longer discoverable “regardless of the form in which the draft is recorded”. This implies that the draft needs to be recorded in some form. Q. is a purely oral draft report discoverable?
- Each party has to provide disclosures about the expert under rule 26(a)(2). Drafts of such disclosures are no longer discoverable the same as draft reports.
- Communications between a party’s attorney and an expert are protected “regardless of the form of the communications, except to the extent that the communications:
- (i) relate to compensation for the expert’s study or testimony;
- (ii) identify facts or data that the party’s attorney provided and that the expert considered in forming the opinions to be expressed; or
- (iii) identify assumptions that the party’s attorney provided and that the expert relied on in forming the opinions to be expressed.
- The commentary to the rule proposal makes clear that exceptions (ii) and (iii) are intended to be narrowly construed, and are not to include discussions of the relevance or import of particular documents or facts. This will be an area of controversy as the courts apply the rule changes.
- There is a new requirement for more limited disclosure by persons who will provide expert testimony but who are not “retained or specially employed” to provide expert testimony. This could include a party, a spouse, a debtor, a friend or an employee who could give expert testimony. A common example is where a party testifies as to market value of her property or an employee testifies as to a company's viability or the feasibility of a plan or proposal as part of the plan confirmation process. These types of experts must disclose
- (i) the subject matter on which the witness is expected to present evidence under Federal Rule of Evidence 702, 703, or 705; and
- (ii) a summary of the facts and opinions to which the witness is expected to testify.
Here is a link to the text of the rule: Rule 26 text . Here is the advisory committee report with commentary showing in blackline the changes made to the rule and other rules: Proposed rule revisions commentary and blackline (may need Wordperfect to open)
For those of us who regularly practice in federal courts or bankruptcy courts or provide expert testimony there, this is a major and largely welcome development.
Thursday, November 25, 2010
Technology moves fast, but do we need to keep up?
Technology moves faster than we can keep up, but there are a few veritable truths about its progress, or lack thereof. That is the gist of this great little article by the NY Times' tech editor:
NY Times 11-25-10: Lessons of 10 years of talking tech
In my profession, law, we have gone from memory typewriters to fax machines to PC's to smartphones. Scanned documents supplement if not replace photocopies. Email and electronic court filing have replaced laborious paper filing and mailing of court papers, almost... We communicate day and night by email and cellphone. We instant message. We have gone from secretaries taking dictation on a steno pad to digital dictation, and voice recognition systems that enter text as we speak into our computers. Research using books is long gone; now we use the internet and electronic databases.
There is a lot good about this. I hate "telephone tag", and much prefer email messaging that I can read at my convenience and respond to. Modern word processing saves so much time and reduces the cost of repeated re-typing that my productivity is several orders of magnitude greater than it could be otherwise. Using forms and templates eliminates errors, reduces the amount of proofreading, and captures and preserves the value of learning the correct procedure and applying the correct law to regularly encountered court matters such as motions for stay relief or applications to retain my firm or othe professionals. Being able to use my smartphone to stay in touch out of the office makes valuable use of otherwise wasted time, and avoids my paying for every extended venture out of the office with a deluge of messages and correspondence to dig through.
On the other hand, I have not adopted all that is available. I do not use voice mail when there are people in the office. Call my office and you will speak to a real person, who will try to help you and often can address basic inquiries. As a result, I can view a list of messages in a written list, and am not required to plow through a pile of other less pressing messages to get to the one that needs immediate attention. And my clients do not have to navigate a "telephone tree" to get to me or someone who can speak for me. My clients have the experience of personal attention every time they call.
I draft or edit my documents on the computer at my desk. I take notes on my computer, where I can quickly find any of them for any case. This avoids my having to have a pile of files cluttering my office. At the same time, I have learned the hard way to always proofread briefs and contracts from hard copy, then give the document to someone else to read. It is amazing how many typo's become invisible on a video display.
While having 24-7 electronic access to our offices or the internet frees us to work or write when the mood or energy hits us, (I am writing this at the kitchen table while eating breakfast) that does not mean we need to be "on call" all the time. My Blackberry does not receive emails except when I am out of the office for extended time periods. Very few messages need instant replies. Very few cannot wait until the next business day or a short time until I am back in my office. What is more important is that messages are not ignored. What is more important is for me to "disconnect" at least part of each day to focus on other things and other people.
And however convenient electronic communications may be, there is still no substitute for the inflection and nuance of voice communication, or the connection of face to face communications.
And while programs, "apps" and operating systems are constantly evolving, I have learned to tread carefully before moving to what works now to the latest, greatest thing. Windows 7 Professional is vastly superior to Windows XP, but it took years of "beta testing" through a little program called Windows Vista to get it to where it was. Or as one wag put it "You can always spot the pioneers in a group...they're the ones with arrows in their backs."
So, technology is a boon for all of us, but how we incorporate it into our personal and professional lives is up to us.
NY Times 11-25-10: Lessons of 10 years of talking tech
In my profession, law, we have gone from memory typewriters to fax machines to PC's to smartphones. Scanned documents supplement if not replace photocopies. Email and electronic court filing have replaced laborious paper filing and mailing of court papers, almost... We communicate day and night by email and cellphone. We instant message. We have gone from secretaries taking dictation on a steno pad to digital dictation, and voice recognition systems that enter text as we speak into our computers. Research using books is long gone; now we use the internet and electronic databases.
There is a lot good about this. I hate "telephone tag", and much prefer email messaging that I can read at my convenience and respond to. Modern word processing saves so much time and reduces the cost of repeated re-typing that my productivity is several orders of magnitude greater than it could be otherwise. Using forms and templates eliminates errors, reduces the amount of proofreading, and captures and preserves the value of learning the correct procedure and applying the correct law to regularly encountered court matters such as motions for stay relief or applications to retain my firm or othe professionals. Being able to use my smartphone to stay in touch out of the office makes valuable use of otherwise wasted time, and avoids my paying for every extended venture out of the office with a deluge of messages and correspondence to dig through.
On the other hand, I have not adopted all that is available. I do not use voice mail when there are people in the office. Call my office and you will speak to a real person, who will try to help you and often can address basic inquiries. As a result, I can view a list of messages in a written list, and am not required to plow through a pile of other less pressing messages to get to the one that needs immediate attention. And my clients do not have to navigate a "telephone tree" to get to me or someone who can speak for me. My clients have the experience of personal attention every time they call.
I draft or edit my documents on the computer at my desk. I take notes on my computer, where I can quickly find any of them for any case. This avoids my having to have a pile of files cluttering my office. At the same time, I have learned the hard way to always proofread briefs and contracts from hard copy, then give the document to someone else to read. It is amazing how many typo's become invisible on a video display.
While having 24-7 electronic access to our offices or the internet frees us to work or write when the mood or energy hits us, (I am writing this at the kitchen table while eating breakfast) that does not mean we need to be "on call" all the time. My Blackberry does not receive emails except when I am out of the office for extended time periods. Very few messages need instant replies. Very few cannot wait until the next business day or a short time until I am back in my office. What is more important is that messages are not ignored. What is more important is for me to "disconnect" at least part of each day to focus on other things and other people.
And however convenient electronic communications may be, there is still no substitute for the inflection and nuance of voice communication, or the connection of face to face communications.
And while programs, "apps" and operating systems are constantly evolving, I have learned to tread carefully before moving to what works now to the latest, greatest thing. Windows 7 Professional is vastly superior to Windows XP, but it took years of "beta testing" through a little program called Windows Vista to get it to where it was. Or as one wag put it "You can always spot the pioneers in a group...they're the ones with arrows in their backs."
So, technology is a boon for all of us, but how we incorporate it into our personal and professional lives is up to us.
Monday, November 22, 2010
Mortgage Borrowers win in Court, sort of....
In two New Jersey cases, both decided on November 16, 2010, mortgage lenders lost battles with borrowers because they could not proved they held the Notes those mortgages were based on and otherwise could not establish they were the party entitled to proceed in court.
In Kemp v Countrywide Home Loans, Inc, decided by Chief Judge Wizmur of the U.S. Bankruptcy Court for New Jersey, Countrywide Home Loans was denied the right to enforce payment of arrears in a Chapter 13 bankruptcy because it did not have possession of the mortgage note, and the original note had not been endorsed over to it until the time of trial. As a result, the debtor/borrower will not have to pay those arrears under his bankruptcy plan. This is, however, only a pyrrhic victory, because at the end of the day, the mortgage will still be there, unpaid and even further in arrears. However, the opinion illustrates ways in which a lender seeking to foreclose on a mortgage can be challenged, and what a mortgage lender needs to show in order to prove that it is the "holder" of the note entitled to enforce the underlying mortgage loan obligation. The opinion illustrates that under New Jersey law and the Uniform Commercial Code, the right to enforce a mortgage depends on being the "holder" of the mortgage. And recently, a judge in Atlantic County dismissed a foreclosure case without prejudice on similar grounds.
Here is the link to the slip opinion Kemp v Countrywide, case no 08-02448-JHW as featured in the New York Times article Trying to Put a Price on Bank Errors, NY Times, Nov. 21, 2010
Mr. Kemp filed a Chapter 13 bankruptcy plan which proposed to pay Countrywide's mortgage arrears on its two mortgages, then filed suit in the bankruptcy court challenging the proof of claim asserting arrears which Countrywide had filed as agent. Countrywide, now owned by Bank of America had transferred the mortgage loans into a trust for which Bank of New York was servicer and got back a share certificate in the trust. That trust was governed by a Pooling and Servicing Agreement [PSA] which required that the original Note be delivered, endorsed in blank. Critically, this was never done and testimony established that the original Note had stayed in Countrywide's possession.
An assignment of the mortgage to Bank of New York as trustee was recorded, but this was not enough to give it the right to enforce the loan obligation and collect upon it.
Countrywide tried to fix things by producing a late filed "Allonge to Promissory Note" that assigned the Note to Bank of New York. this was not enough because Bank of New York had not been given, and never had actual possession of the original Note.
The decision details the requirements for one to be the "holder" of a negotiable instrument under Article 3 of the UCC. It signals that mortgage lenders are going to have to be more careful to make sure that the person claiming to be paid or claiming to have the right to foreclose a mortgage actually has done what is needed to have that legal right.
Separately on the same day and on substantially the same grounds, the NJ Superior Court in Atlantic County dismissed a foreclosure complaint filed by Bank of New York. Bank of New York v. Raftogianis, F-7356-09. Judge William Todd ruled that because BONY could not establish it had possession of the Note when it filed its foreclosure Complaint, it did not have the right to seek foreclosure as the holder of the obligation. While the lender can refile its foreclosure, the Judge required that the Complaint be accompanied by a certification by someone with personal knowledge stating that the lender is in actual possession of the Note at the time the Complaint is filed.
Beyond alerting those representing defaulting borrowers to ways to challenge lenders and possibly leverage concessions as part of a settlement, these rulings, when applied will only delay the inevitable and will not prevent foreclosures nor wipe away mortgages. Once the lender follows the right steps to have the proper enforcement rights, there is nothing stopping the ultimate collection of monies due or foreclosure on the mortgaged real estate. That said, it is only fair and proper that, like any other plaintiff seeking relief in our courts, lenders take care to see that all the proper steps have been taken to establish their right to relief. In these days of mortgage obligations bundled into trusts and securitized, it is no longer clear or obvious who really owns a mortgage, and the courts' recognition of this reality is long overdue.
In Kemp v Countrywide Home Loans, Inc, decided by Chief Judge Wizmur of the U.S. Bankruptcy Court for New Jersey, Countrywide Home Loans was denied the right to enforce payment of arrears in a Chapter 13 bankruptcy because it did not have possession of the mortgage note, and the original note had not been endorsed over to it until the time of trial. As a result, the debtor/borrower will not have to pay those arrears under his bankruptcy plan. This is, however, only a pyrrhic victory, because at the end of the day, the mortgage will still be there, unpaid and even further in arrears. However, the opinion illustrates ways in which a lender seeking to foreclose on a mortgage can be challenged, and what a mortgage lender needs to show in order to prove that it is the "holder" of the note entitled to enforce the underlying mortgage loan obligation. The opinion illustrates that under New Jersey law and the Uniform Commercial Code, the right to enforce a mortgage depends on being the "holder" of the mortgage. And recently, a judge in Atlantic County dismissed a foreclosure case without prejudice on similar grounds.
Here is the link to the slip opinion Kemp v Countrywide, case no 08-02448-JHW as featured in the New York Times article Trying to Put a Price on Bank Errors, NY Times, Nov. 21, 2010
Mr. Kemp filed a Chapter 13 bankruptcy plan which proposed to pay Countrywide's mortgage arrears on its two mortgages, then filed suit in the bankruptcy court challenging the proof of claim asserting arrears which Countrywide had filed as agent. Countrywide, now owned by Bank of America had transferred the mortgage loans into a trust for which Bank of New York was servicer and got back a share certificate in the trust. That trust was governed by a Pooling and Servicing Agreement [PSA] which required that the original Note be delivered, endorsed in blank. Critically, this was never done and testimony established that the original Note had stayed in Countrywide's possession.
An assignment of the mortgage to Bank of New York as trustee was recorded, but this was not enough to give it the right to enforce the loan obligation and collect upon it.
Countrywide tried to fix things by producing a late filed "Allonge to Promissory Note" that assigned the Note to Bank of New York. this was not enough because Bank of New York had not been given, and never had actual possession of the original Note.
The decision details the requirements for one to be the "holder" of a negotiable instrument under Article 3 of the UCC. It signals that mortgage lenders are going to have to be more careful to make sure that the person claiming to be paid or claiming to have the right to foreclose a mortgage actually has done what is needed to have that legal right.
Separately on the same day and on substantially the same grounds, the NJ Superior Court in Atlantic County dismissed a foreclosure complaint filed by Bank of New York. Bank of New York v. Raftogianis, F-7356-09. Judge William Todd ruled that because BONY could not establish it had possession of the Note when it filed its foreclosure Complaint, it did not have the right to seek foreclosure as the holder of the obligation. While the lender can refile its foreclosure, the Judge required that the Complaint be accompanied by a certification by someone with personal knowledge stating that the lender is in actual possession of the Note at the time the Complaint is filed.
Beyond alerting those representing defaulting borrowers to ways to challenge lenders and possibly leverage concessions as part of a settlement, these rulings, when applied will only delay the inevitable and will not prevent foreclosures nor wipe away mortgages. Once the lender follows the right steps to have the proper enforcement rights, there is nothing stopping the ultimate collection of monies due or foreclosure on the mortgaged real estate. That said, it is only fair and proper that, like any other plaintiff seeking relief in our courts, lenders take care to see that all the proper steps have been taken to establish their right to relief. In these days of mortgage obligations bundled into trusts and securitized, it is no longer clear or obvious who really owns a mortgage, and the courts' recognition of this reality is long overdue.
Thursday, November 4, 2010
Debt Settlements and Short Sales- watch out for the hidden tax bill !
Whenever a debt is settled for less than the full amount owed, there is a potential for what is called Debt Discharge Income. In essence, the amount by which your debt is discharged, except in bankruptcy, can become income to you and has to be reported by you. We have warned clients and fellow professionals to watch out for this. In April 2010, the IRS issued Publication 4681 for tax year 2009 covering all the rules and exceptions. They are complex but this article does a pretty good job of explaining them. Here is the Link IRS Publication 4681. If you are in this situation, consult with your accountant or tax adviser.
This is important for clients to be aware of when they engage in short sales or deeds in lieu or any settlement outside of bankruptcy where they get part of a debt forgiven. Just as important, if you are advising such people, make sure you warn them and document that you did!
IRS CIRCULAR 230 DISCLOSURE: Pursuant to Treasury Regulations, any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used or relied upon by you or any other person, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any tax advice addressed herein.
Sunday, October 31, 2010
One person's take on how to do a job interview
Here is a great article about one young man's change of approach to the intitial job interview that got him a call back then an interview with the head of the organization and ultimately the job in Information Technology (IT), a very competitive field. I Asserted Myself and Got the Job By MARAT GAZIEV
I have to remind myself as I speak to people in financial trouble that it is anything but easy being where they are, and I really do not know how well I would do in their situation. Nevertheless, in these times, when I read something positive and uplifting that I think is valid I like to pass it on to my friends... I like what this author has to say. I enjoyed reading his article and passed it on to my kids. I think what he has learned has value for all of us.
I have to remind myself as I speak to people in financial trouble that it is anything but easy being where they are, and I really do not know how well I would do in their situation. Nevertheless, in these times, when I read something positive and uplifting that I think is valid I like to pass it on to my friends... I like what this author has to say. I enjoyed reading his article and passed it on to my kids. I think what he has learned has value for all of us.
Thursday, October 28, 2010
Think it is bad being in financial trouble here? Try somewhere else!
With all the financial distress, falling real estate prices and mortgage defaults, we forget the advantages individual borrowers have under our system of laws. In Spain, people who default on their mortgage debt can never escape. Read the story of a man who, after losing his home and business, still faces huge unpaid debts not only for the mortgage but also 77000 euros in bank legal fees.
In Spain, homes are taken but debt stays (N.Y. Times 10-28-10)
In Spain, homes are taken but debt stays (N.Y. Times 10-28-10)
Sunday, October 17, 2010
Is the wave of bankruptcy and financial distress due to income inequality?
I just read a fascinating and thought provoking article in the Sunday NY Times that suggests that rising levels of income inequality may have contributed to the wave of financial mania that led to current high levels of foreclosures and bankruptcies. Here is the link:
Income Inequality: Too Big to Ignore? (NY Times 10-17-10)
The point is that as the rich become wealthier and spend more, they raise the bar of expectation for the middle class below them, leading to over-spending and over borrowing in that group. Equally as important, this documented and rising level of inequality, as the top 5% of earners make more while everyone else makes less, is bad for all of us.
Something to think about.
Income Inequality: Too Big to Ignore? (NY Times 10-17-10)
The point is that as the rich become wealthier and spend more, they raise the bar of expectation for the middle class below them, leading to over-spending and over borrowing in that group. Equally as important, this documented and rising level of inequality, as the top 5% of earners make more while everyone else makes less, is bad for all of us.
Something to think about.
Saturday, October 16, 2010
The Foreclosure Mess- opportunities for all and a time for some new thinking
The news lately has been full of stories about how many mortgage lenders were playing fast and loose with the rules, committing perjury in the interest of expediency and profits, to push through foreclosures. This creates new risks for those who consider buying foreclosed properties. My point in this article is that while close attention needs to be paid to this, people who have the right counsel and an appetite for calculated risk may do quite well. And on the other side, for lenders and everyone else it is time for some innovative approaches involving reasonable business decision-making instead of the limited and failed foreclosure process
The New York Times reporting on this has been excellent
See for example the story of the poor woman whose case and the actions of her courageous volunteer lawyer started the furor when he fought GMAC who was trying to foreclose on her home: http://www.nytimes.com/2010/10/15/business/15maine.html
On the risks created by lenders misbehavior, see "Avoid Foreclosure Market Until the Dust Settles" (NY Times).
So what does it all mean?
If you are a potential buyer of a foreclosed or distressed sale property, it's "buyer be careful". I would not go into one of these sales without an experienced attorney who knows the foreclosure process and the title issues, or an experienced broker or some other source who knows the market. I would demand a "Certificate of Regularity" or spend the money up front to do an examination of the court records and the title. If the deal doesn't pan out, consider it money well spent as it saves you from worse troubles. (Check the procedures in your state and get advice of local counsel)
If you are the one whose property is being foreclosed, it is time to evaluate all the options and alternatives with independent experienced advisers, who are professionals in their field and are not offering quick or easy solutions.
Time for Lenders to Think Outside the Box
If anything, the current brouhaha puts a lot of pressure on lenders to do what they should have been doing all along, namely to consider options besides foreclosure. In New Jersey, it is taking up to 20 months just to get to a sheriff's sale, with a lot of stumbles and delays along the way. If we look at the parties' interests, in some cases, there are better choices for everyone than foreclosure.
First, why not help the borrowers sell the property themselves? If lenders made short sales quick and easy to arrange, without a lot of bureaucratic red tape and reasonable and fair incentives to owners, brokers and attorneys. In even the recent past, those trying to do short sales faced illprepared and overworked lender personnel with little discretion to make business decisions, and lots of time and effort needed to so something that made good sense. Whether that has changed or will change is anyone's guess.
Ironically, a bankruptcy is a way to help this process, where there are multiple mortgages and liens that need to be cleared to deliver good title. Chapter 13 provides tools that may make it easier for cooperating lenders and borrowers to get a sale through. More on that in a later post or article.
Fair and open leaseback arrangements are another option that lenders should support. I have heard that lenders who have gotten foreclosed properties back are not putting them on the market. Indeed, there have been credible reports that there is a huge "shadow inventory" of such properties waiting to come on the market. Logically, flooding the market with such properties only depresses the market more. It makes sense for a lender to consider renting rather than selling in this market. At the same time, the borrower needs a place to live. If the borrower can afford a reasonable rent, why not lease the property they used to own? Why not even include a simple, fair and realistic purchase option for the future?
The answer may be that the lender does not want to have to evict the tenant later to sell the property. IMHO this is part of the business decision that has to be made, but the benefit may outweigh the risk. And an agreement with the borrower-now-tenant for financial incentives to move out if and when the time comes, ie "cash for keys" makes sense.
All these are innovative and out-of-the-playbook solutions. But in these times, all the parties to the foreclosure mess have to start thinking outside the box. The "bankers playbook" that I suspect lenders and the trustees who hold securitized portfolios of mortgages have imposed on themselves has to change. If this happens, we will all be the better for it.
The New York Times reporting on this has been excellent
See for example the story of the poor woman whose case and the actions of her courageous volunteer lawyer started the furor when he fought GMAC who was trying to foreclose on her home: http://www.nytimes.com/2010/10/15/business/15maine.html
On the risks created by lenders misbehavior, see "Avoid Foreclosure Market Until the Dust Settles" (NY Times).
So what does it all mean?
If you are a potential buyer of a foreclosed or distressed sale property, it's "buyer be careful". I would not go into one of these sales without an experienced attorney who knows the foreclosure process and the title issues, or an experienced broker or some other source who knows the market. I would demand a "Certificate of Regularity" or spend the money up front to do an examination of the court records and the title. If the deal doesn't pan out, consider it money well spent as it saves you from worse troubles. (Check the procedures in your state and get advice of local counsel)
If you are the one whose property is being foreclosed, it is time to evaluate all the options and alternatives with independent experienced advisers, who are professionals in their field and are not offering quick or easy solutions.
Time for Lenders to Think Outside the Box
If anything, the current brouhaha puts a lot of pressure on lenders to do what they should have been doing all along, namely to consider options besides foreclosure. In New Jersey, it is taking up to 20 months just to get to a sheriff's sale, with a lot of stumbles and delays along the way. If we look at the parties' interests, in some cases, there are better choices for everyone than foreclosure.
First, why not help the borrowers sell the property themselves? If lenders made short sales quick and easy to arrange, without a lot of bureaucratic red tape and reasonable and fair incentives to owners, brokers and attorneys. In even the recent past, those trying to do short sales faced illprepared and overworked lender personnel with little discretion to make business decisions, and lots of time and effort needed to so something that made good sense. Whether that has changed or will change is anyone's guess.
Ironically, a bankruptcy is a way to help this process, where there are multiple mortgages and liens that need to be cleared to deliver good title. Chapter 13 provides tools that may make it easier for cooperating lenders and borrowers to get a sale through. More on that in a later post or article.
Fair and open leaseback arrangements are another option that lenders should support. I have heard that lenders who have gotten foreclosed properties back are not putting them on the market. Indeed, there have been credible reports that there is a huge "shadow inventory" of such properties waiting to come on the market. Logically, flooding the market with such properties only depresses the market more. It makes sense for a lender to consider renting rather than selling in this market. At the same time, the borrower needs a place to live. If the borrower can afford a reasonable rent, why not lease the property they used to own? Why not even include a simple, fair and realistic purchase option for the future?
The answer may be that the lender does not want to have to evict the tenant later to sell the property. IMHO this is part of the business decision that has to be made, but the benefit may outweigh the risk. And an agreement with the borrower-now-tenant for financial incentives to move out if and when the time comes, ie "cash for keys" makes sense.
All these are innovative and out-of-the-playbook solutions. But in these times, all the parties to the foreclosure mess have to start thinking outside the box. The "bankers playbook" that I suspect lenders and the trustees who hold securitized portfolios of mortgages have imposed on themselves has to change. If this happens, we will all be the better for it.
Thursday, September 2, 2010
Economics made interesting-book review
I recently read and reviewed Naked Economics: Undressing the Dismal Science, by Charles Wheelan. Available in paperback from Amazon. This book was timely, fun to read and eye-opening. I enjoyed it and recommend it. Herewith the entire review:
"The last few years have taught us and many of our clients, painfully, the importance of understanding money and finances. In my active bankruptcy practice, very few of my clients have this understanding. As a result, most have made unwise if not downright foolish decisions that brought them to me. Yet many avoid economics courses in college for the same reasons my children espouse: the courses are heavily laden with theory and mathematics. Looking for a solution to this, I came across Naked Economics: Undressing the Dismal Science, by Charles Wheelan, a reporter and columnist for the British magazine The Economist. Out in softcover and available at sites such as Amazon,com, this book-- fully revised and updated--is interesting, enjoyably readable, timely, and understandable. Indeed, I found it eye-opening.
The explanations are virtually devoid of mathematics and pedantics. Instead, Wheelan uses real life, practical and sometimes whimsical illustrations to make his points. His illustrations ring home. Rarely does one have to go back and reread a sentence or a paragraph to grasp the meaning.
At the same time, Wheelan avoids dogmatic recitations of theory. Indeed, a subtitle of this book could well be “Economic Theory--Warts and All”. He is refreshingly willing throughout to acknowledge and explore the limitations of economics, and the fallacies of the past. As the reader is regularly reminded, economics is a only tool for understanding what happens in our world. It does not dictate the decisions that we or our leaders make.
One of the strengths of the book is Wheelan’s understanding of the political process. For example, he shows how policies that lead to expanded trade and globalization benefit to society as a whole, but do not play well in the policy arena. This is so because the benefits are widely spread and diffuse so that no one individual or group feels them, but the corresponding pain and disruption is sharply felt by a small and often vocal group. Thus, in a succinct and pithy narrative, Wheelan explains why governments and politicians often make or are driven to decisions that are not necessarily the wisest or best from an economic perspective.
Another beauty of this book is that each chapter can stand on its own. For example, the chapter on the economics of information (subtitled “McDonalds Did Not Make a Better Hamburger”), provides by itself a very readable explanation of the real world imbalances in information that create economic and political challenges to achieving health care care reform. Likewise, the chapters on Globalization and The Wealth of Nations (or why some nations are rich and others poor) are fascinating when read by themselves.
The discussions are current and up-to-date. For example, the chapters on Financial Institutions and the Federal Reserve contain explanations for the causes of the 2007-2008 banking crisis and the issues faced and being faced by government in trying to overcome its effects and prevent such crises from happening again.
I can highly recommend this book to anyone who wants to have a better “real world based” grasp of economics and our financial institutions. In these troubled times, this is valuable knowledge, sorely lacking, but which we all need. Despite having taken several economics courses in college, I came away from the book with a broader and deeper understanding of much that I thought I knew but really did not."
"The last few years have taught us and many of our clients, painfully, the importance of understanding money and finances. In my active bankruptcy practice, very few of my clients have this understanding. As a result, most have made unwise if not downright foolish decisions that brought them to me. Yet many avoid economics courses in college for the same reasons my children espouse: the courses are heavily laden with theory and mathematics. Looking for a solution to this, I came across Naked Economics: Undressing the Dismal Science, by Charles Wheelan, a reporter and columnist for the British magazine The Economist. Out in softcover and available at sites such as Amazon,com, this book-- fully revised and updated--is interesting, enjoyably readable, timely, and understandable. Indeed, I found it eye-opening.
The explanations are virtually devoid of mathematics and pedantics. Instead, Wheelan uses real life, practical and sometimes whimsical illustrations to make his points. His illustrations ring home. Rarely does one have to go back and reread a sentence or a paragraph to grasp the meaning.
At the same time, Wheelan avoids dogmatic recitations of theory. Indeed, a subtitle of this book could well be “Economic Theory--Warts and All”. He is refreshingly willing throughout to acknowledge and explore the limitations of economics, and the fallacies of the past. As the reader is regularly reminded, economics is a only tool for understanding what happens in our world. It does not dictate the decisions that we or our leaders make.
One of the strengths of the book is Wheelan’s understanding of the political process. For example, he shows how policies that lead to expanded trade and globalization benefit to society as a whole, but do not play well in the policy arena. This is so because the benefits are widely spread and diffuse so that no one individual or group feels them, but the corresponding pain and disruption is sharply felt by a small and often vocal group. Thus, in a succinct and pithy narrative, Wheelan explains why governments and politicians often make or are driven to decisions that are not necessarily the wisest or best from an economic perspective.
Another beauty of this book is that each chapter can stand on its own. For example, the chapter on the economics of information (subtitled “McDonalds Did Not Make a Better Hamburger”), provides by itself a very readable explanation of the real world imbalances in information that create economic and political challenges to achieving health care care reform. Likewise, the chapters on Globalization and The Wealth of Nations (or why some nations are rich and others poor) are fascinating when read by themselves.
The discussions are current and up-to-date. For example, the chapters on Financial Institutions and the Federal Reserve contain explanations for the causes of the 2007-2008 banking crisis and the issues faced and being faced by government in trying to overcome its effects and prevent such crises from happening again.
I can highly recommend this book to anyone who wants to have a better “real world based” grasp of economics and our financial institutions. In these troubled times, this is valuable knowledge, sorely lacking, but which we all need. Despite having taken several economics courses in college, I came away from the book with a broader and deeper understanding of much that I thought I knew but really did not."
Ingredients for success
Sometimes we run across really pithy but right to the point articles. This one, published in the September 2, 2010 New York Times, is a good example. The author tells what he told a young man who asked him the secrets of success, while they were both stopped at a stoplight. "Top 10 reasons for entrepreneurial success"
Good reading.
Good reading.
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