There are many things that bring people into bankruptcy. More than a few times, I’ve represented people who have had something in common: a gambling problem. There are unique legal and practical issues that face gambling debtors. But before I get into my professional perception of things, let me share with you some personal experiences.

When I was in college in Newport, Jai Alai had opened. Jai Lai is a game where men hurl balls using large baskets at a wall. I forget exactly what you're supposed to be betting on. I think it was points.

Anyway, my first visit was a little over 20 years ago. I walked in with $10 in my pocket. I left with more than $100. Obviously, given that I was a poor college student who had a steady diet of macaroni and cheese and other various pasta creations, I was pleased as kitten at a cat nip farm. I also looked forward to going back.

My second – and last visit was a week later. I walked in with $50. At one point in the evening, I was up $100. I eventually left with nothing. I wasn’t feeling so great. And then it really bugged me that it wasn’t feeling great. And then it bugged me even more that it really bugged me that my losing $50 was not making me feel great. I felt silly and ashamed. Perhaps it was knowing that I blew my grocery money on Jai Alai: a game where men use large baskets to hurl balls at a wall. Needless to say, I didn’t sleep well that evening.

But the good that came out of it was I vowed to never gamble again. It just seemed too easy. Too fun. And far, far too risky. I know this because at throughout that sleepless night, I constantly thought about how I could win the money back. Perhaps I could borrow. Perhaps I could... you get the picture. Clearly, this was headed in a good direction.

When I went to New Orleans a few years back for a conference, my hotel was next door to a casino. One night, on the way back to my room, I thought I would take a stroll through the casino - as I had never been in one. I saw many folks having a good time and drinking (presumably free) cocktails while playing black jack and roulette. I was able to get a cheap buffet that had fairly marginal food (but tasted great at the late hour). It was there where I saw many folks who did clearly did not have the same economic means as the high rollers at the black jack and roulette tables, but were nevertheless playing two, three or four penny/nickel slot machines at a time. I wondered how many lived in FEMA Trailers and were hoping for something that could get them out of it.

As an experiment, I took out a $5 bill for the sole purpose of seeing how long it would take to disappear. At one point, I was up to $7.50. It was all gone within 10 minutes. I made up for it at the buffet.

When I have represented folks with gambling issues, they have all felt shame. On varying levels, all of these folks let their gambling hurt their families, lives and careers. The shame factor feeds secrecy; family members do not know why money is missing, where their loved one is at some ungodly hour of the night, or why they are being told not to answer the phone. By the time a gambler has come to me – a bankruptcy attorney – a significant amount of financial and emotional damage has piled up. And most often, the shame and the secrecy continue to thrive.

If you’re a gambler, and you’re reading this, I have two more things I want to share: the first is, if gambling is creating havoc in your life, please talk to someone about it. Call the toll-free National Hotline for Gamblers Anonymous: 1-888-424-3577. For information on meetings and other services, click here.

And the last thing is that if you want to come see me to talk about your financial problems that were brought on by gambling, please tell me about the gambling. Tell me about the scratch tickets, the late nights at casinos or the harassing calls from bookies. Tell me all of it. If I do not know about it, then I cannot prepare, and I cannot advise you properly. If I cannot prepare, then I cannot do my job well. And I cannot do my job well, no one is happy. Including me. And especially you.

Posted by Bill McLeod at 6:13 PM | Permalink | Comments (0) | TrackBacks (0)

Bad news: Check this out at Calculated Risk:

Moodys: 8.8 Million Homeowners Underwater

Mass. foreclosures rise 128% in January

Good News: T.G.I.F. (sorry, that's all I got... enjoy your weekend).

Posted by Bill McLeod at 7:42 AM | Permalink | Comments (0) | TrackBacks (0)

I have a message to all of those folks out there who are hoping that the economy will get better, that their mortgage company will “work” with them, or that the government will do something to help them through the financial quagmire they find themselves in: the sun is not going to come out tomorrow. Perhaps more succinctly said: it ain’t going to happen. I know I sound really negative, but hear me out.

Contrary to what you may read in the news, there are not a lot of mortgage work-outs and rewrites going on. If you do not have equity in your real estate, you’re going to have a tough – if not impossible time trying to refinance. The same applies if you are behind in mortgage payments or if the income is not there to pay the monthly mortgage payments. If you got sucked into an exotic mortgage product with the hope that the value of your real estate was only going to appreciate, then if you think you’re in a precarious position now, it’s only going to get worse.

Property values are depreciating everywhere. If you think I am being melodramatic, read about what’s happening in Arizona, California and Maryland. Then look further.

Property values are starting to go below the mortgage notes secured by the property ….and this hurts even those who did not get into exotic loans. Read more here: here’s a homeowner that bought a home for approximately $400,000 and the value has dropped 20%. Let’s assume that the homeowner put down a $40,000 as a down payment. If the value has dropped 20%, that down payment has evaporated. Poof. All gone (and unfortunately, I have clients in a very similar situation). If the homeowner was in an interest only payment period, then none of those payments were being applied to principal. Without equity, that homeowner has little chance of refinancing.

In addition to all of that the economy is tanking. I am no economist, nor do I pretend to be, but I did grow up during the 70s. I remember the gas lines, the “WIN” buttons and the nightly news updates reporting the price of gold. At that time, it touched just over $800 per ounce. A few years ago, on this very site, I wrote that a rise in the price of gold should be expected. Here’s what I wrote on October 17, 2005:

[W]hat can we Americans expect in the days, months and years to follow? Expect foreclosures to sky-rocket. Expect real estate values to plummet. Expect a slow down in consumer spending. Expect lay offs and business closings. Expect the price of gold, an indicator of inflation, to push past its now 18 year high (a fact which is curiously under reported in the main stream media).

As I write this article, gold is over $900 per ounce. In October 17, 2005, the price of gold closed at $473.80. And we’re no where near the end of this mess.

I’m not the only one touting this fact: Treasury Secretary Henry Paulson is. Watch these videos at Calculated Risk. Mr. Paulson is asked: “Is the worst over?” His answer speaks for itself.

Despite the wishful (and perhaps understandable) thinking of real estate professionals, the real estate market has not hit bottom. The price of gold (and likely silver) is only going to continue to inch its way up to history making highs. If the financial storm has not hit you yet, be thankful but do not assume you are safe and secure on high ground. Think of it this way: the flood waters are still rising, and no one really knows where “safe” high ground really is. All you can do is be aware, pay attention and prepare because when it comes right down to it, “the worst isn't over, the worst is just beginning.”

In other words, the sun is not going to come out tomorrow. Please plan accordingly.

Posted by Bill McLeod at 8:31 AM | Permalink | Comments (0) | TrackBacks (0)

Many times we hear that it is exotic mortgages with resetting ARMS that are fueling the sub-prime foreclosure melt-down. A new report from the State Foreclosure Prevention Working Group suggests something far more nefarious.

"A significant percentage of subprime adjustable-rate loans are delinquent before they experience payment shock from their first adjustment, reflecting weak underwriting or fraud in the origination of the loan," the report concluded.

More here and here (see link, upper right).

My question is this: they have found the fraud....now when are the indictments coming?

Posted by Bill McLeod at 8:49 PM | Permalink | Comments (0) | TrackBacks (0)

According to a study released by the Georgetown Law Center, “there would be ‘no or little’ impact on home-mortgage interest rates if Congress moves ahead with pending legislation -- H.R. 3609, The Emergency Home Ownership and Mortgage Equity Protection Act of 2007) and Senate (S.2136, The Helping Families Save Their Homes in Bankruptcy Act of 2007) – designed to ease the U.S. mortgage foreclosure crisis by allowing modifications in bankruptcy proceedings.”

The study was conducted by Adam J. Levitin, Associate Law Professor at the Georgetown University Law Center and Joshua Goodman, Ph.D. in Economics candidate at Columbia University. It is entitled “The Effect of Bankruptcy Strip-Down on Mortgage Interest Rates.” From today’s press release:

There is no empirical evidence that supports a conclusion that permitting either strip-down or other forms of modification of principal home mortgage loans in bankruptcy would have more than a minor impact on mortgage interest rates or on home ownership rates. As there is significant evidence that mortgage interest rate markets are indifferent to bankruptcy modification risk, we conclude that permitting unlimited strip-down would have no or little effect overall on mortgage interest rates

Addressing MBA claims that mortgage interest rates will shoot up if Congress acts to address the mortgage foreclosure crisis, the Levitin/Goodman study concludes: “… statistically there is a zero percent chance that the MBA’s 150 basis point claim is correct. All empirical and market observational data indicates that that MBA’s claim of an effective 150-200 basis point increase from allowing strip-down is groundless. The empirical evidence indicates that there is unlikely to be anything more than a de minimis effect on interest rates as a result of permitting bankruptcy modification.

The Levitin/Goodman study continues: “The Mortgage Bankers Association (MBA) has claimed that permitting modification of mortgages in bankruptcy will result in an effective 200 basis point increase in interest rates on single-family owner-occupied properties… Our research on current mortgage interest rate spreads among different property types disproves the MBA’s claim. …More recent MBA press releases have claimed only an increase of 150 basis points, without explaining the 50 basis point decline from the 200 basis point figure featured in Congressional testimony.

Commenting on the study findings, Levitin said: “The overwhelming thrust of the historical analysis is that the effect of permitting strip-down on mortgage interest rates would be either nonexistent or quite small — nothing near the range suggested by the Mortgage Bankers Association. We explain the lack of market sensitivity to strip-down risk by reference to two sets of consumer bankruptcy data, one from 2001 and one from 2007, both of which suggests that lenders’ losses in strip-down would be extremely limited both in scope and magnitude and often total less than those they would incur in foreclosure.

The study findings indicate that the nature of the pending U.S. House and Senate bills make it even less likely that there will be interest-rate implications if Congress acts: “First, to the extent our findings are used as a guide for predicting the impact of pending legislation, it is important to note that both our current and historical data analysis is of the impact of an unlimited strip-down regime on certain property types. The proposed legislation in the House (H.R. 3609 with the Conyers-Chabot Compromise Amendment) and the Senate (S. 2136) do not propose such an unlimited regime for single-family principal residence mortgages. Instead, both bills would impose a variety of limitations on modification. Both bills would impose eligibility requirements in the form of a strict means test, limiting relief to those homeowners whose income is insufficient, after deducting modest living expenses allowed by the IRS, to cover their mortgage obligations. Both bills would also limit relief to subprime and nontraditional mortgage products. Moreover, for interest rate modifications, both the House and Senate bills set a floor for modifications of the market rate for 30-year conforming mortgages plus a risk-premium. The House bill would further limit relief to mortgages made between January 1, 2007 and its effective date, and has a seven-year sunset provision. Because of these proposed limitations, the pending legislation would likely have an even smaller impact than the unlimited strip-down regime we tested in our study.

Posted by Bill McLeod at 4:00 PM | Permalink | Comments (0) | TrackBacks (0)