I’ve been thinking about yesterday’s blog entry. When I first read the First Circuit decision, I wondered why the case was brought. Here was a homeowner arguing that a mere technical violation of TILA would enable him to rescind a mortgage that he signed 20 months prior. Based on the facts cited by the Court, it seemed a bit disingenuous. But then, as I was thinking about it more, it occurred to me that what did not sit well with me was not what I knew from the court decision. It was what I didn’t know. I knew nothing about the homeowner.
I don’t know if the homeowner knew exactly what he was doing when he was at the closing. I don’t know if the homeowner was honest when he was applying for the loan, but knew that he could not afford the mortgage unless he was able to refinance. I don’t know if he was banking on rates going down, his property value going up, or both.
I don’t know if the mortgage broker lied, if the notary was drunk, or the closing agent fled to Columbia after the closing. I don’t know if the homeowner was warned every step of the way, but heard and saw only what they wanted to.
I don’t know if the homeowner simply misgauged what the future might hold. I don’t know if he was motivated by greed. I don’t know if he was motivated by someone else’s greed, like family member’s, fueled further by his reluctance or his refusal to urge restraint.
I don’t know if his inability to afford the payments is based on what they could have controlled, but for whatever reason, did not. I don’t know if he had the ability, the choice or the wherewithal to do everything he could to avoid heading into the financial minefield he now finds himself in.
I don’t know if it was a father trying to refinance their home because of a child – a new child to be born, an older child to be schooled or a sick child to be healed. I don’t know what was going through his mind. I don’t know what was going through his heart.
I also don’t know if the homeowner himself or his spouse was ill. Assuming they were, I don’t know if he was ill because of something he couldn’t control, or if his quart-of-gin-and-two-pack-a-day lifestyle was finally catching up with him.
I don’t know if the homeowner was employed, was under employed or was unemployed. I don’t know if the homeowner one day went to work only to find the office doors locked or if he came home to find his spouse gone.
I don’t know if the homeowner refinanced to pay for a new roof, new wiring or a new septic system. I don’t know if it was for a man-cave for him or an addition for his ailing mother.
Nor do I know if the homeowner was a scoundrel. I don’t know if he overestimated his income to such a degree that it reflected a hope for a better, brighter and richer future than any rational person would think possible. I don’t know if this is just one more thing he had already assumed he was going to get away with.
Regardless of the one or the combination of any of the above things that I do not know, I do know that the homeowner cannot go to bankruptcy court to modify the loan secured by the mortgage on their principal residence. If you simple replace the words “I don’t know” with “What if you knew that…?” in each of the above situations or with a combination of any, and was able to consider what you did know, it would not change anything because the homeowner still could not modify the loan secured by the mortgage on their principal residence in bankruptcy. But more simply stated: for the homeowner before the First Circuit Court of Appeals seeking to change the terms of a promise he made 20 months prior, I don’t know the reasons why.
Section 1322(b)(2) of the Bankruptcy Code of the United States won’t allow any homeowner in chapter 13 to seek modification of a loan secured by their principal residence regardless of the reason. Congress has determined that the reason for the requested modification is irrelevant. They have determined that no one, no judge, and indeed, not even me or my readers need ask why the modification is needed in chapter 13. From the perspective of Congress (and frankly that of the Mortgage Bankers Association and their ilk), “why” is irrelevant. (Actually, I’m not entirely correct on that point. Lenders can choose to voluntarily modify the mortgages on a debtor’s principal residence. They alone can consider the reasons “why.”)
Our country is embroiled in an economic crisis of historic proportions. It’s bad out there, and for many may get worse. If I’m eventually (i.e., within several months) proven wrong then you can all paint me crazy and I’ll find myself my own “Plan B.” Until then, let’s all help each other find answers to the questions that start with “What if you did know…?” And let’s start a meaningful discussion that may result with an amended Section 1322(b)(2) that will let homeowners prove in our forum of last resort (the Bankruptcy Court) the desperate financial situations they find themselves in, and will let judges consider and weigh the reasons why they should get a second chance to keep their family home. If for no other reason because it defies logic that the same standards be applied to someone who has been dealt a bad hand versus someone who is gaming the system.
My Thoughts on the Half Glass
There seems to be a trend to see our country’s economic problems through the lens of a glass containing several ounces of a beverage that is approximately 50% of what the container will hold. Some will look and say the glass is half empty. Those folks are perceived as pessimists. Others, including our President, view the glass as half full. That view is considered more optimistic. I have a very different take on all of it.
Let’s assume that the beverage is water. The conventional wisdom (which apparently is now being debated) is that you need 8 glasses of water each day. Thus, if I am looking at half of a glass of water, I’m not thinking “by golly, it’s half full!” Instead, I’m thinking “where the heck are the other 7 ½ glasses?” Surely, I can enjoy that half-full glass. But sooner or later, I’ll be thirsty again and if I do not find more water, I could slip into dehydration and then things could just get uglier from there.
Recently, a prospective client called me to discuss their business problems. Over the last several years, the client had made major investments into what he miscalculated as a growing business. Additional locations were added, staff was increased, and overhead costs exploded. The problem was that the revenue of the business depended exclusively on consumers who have disposable income and have a budget that provides for recreational spending. Needless to say, business was not going according to the original plan.
He told me his goal was reorganizing the business. After exploring a few options with him on the phone and learning more details about his situation, I asked if - as a part of his reorganization – he had considered pairing down his business to a more manageable or fiscally feasible model. He didn’t like that idea. I reminded him that it was important to consider a ‘Plan B.’
Before we ended our conversation he was kind enough to share with me this gem: “You know, I think need to work with someone who like me, sees the glass as half-full.”
Really?
I appreciate the need for remaining positive. Being positive is what helps us all get out of bed in the morning. However, I also appreciate the need for being realistic.
Imagine your waiter bringing over a lovely cheese soufflé and then asking him, ‘is this fattening?’ If the waiter wants you to feel good and still eat the dish you ordered, he’ll say something like ‘of course not’, or perhaps something wry such as ‘only if you eat it on Sunday, and since today is Wednesday, you’re ok.’ It would make you feel better about eating it, but it you cannot really say it was being particularly realistic…unless you really believed that eating certain foods on certain days of the week somehow affects their caloric value and fat content, which is far, far beyond what I am capable of commenting on.
On the other hand, if your waiter respects that your need for information is fueled by a desire to make an informed decision (and hopefully the best one), the answer you get will be honest. After all, do you call a bankruptcy attorney because you want an straightforward assessment of the issues facing your life and what you can do about them? Or are you looking for someone else that will look at that half-glass of water and tell you what you want to hear?
Perhaps this is a better question: are you better off believing that things are better than they really are? Or are you better off with honest answers to tough questions so you can make the best and sound decisions for you and your family? The bottom line, it really doesn’t matter whether the glass is half-full or half-empty. What matters is what’s in the glass, and whether you can, should, or want to drink it.
And that decision, as difficult as it may be, is entirely yours to make. But you cannot make it without the right information.
Tags: Bankruptcy, Commentary, Yep. We're in trouble.
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