Posts Tagged ‘Yep. We’re in trouble.’

Honesty and Bankruptcy, Part I: Day of the Living Dishonest

When rapper Chris Brown beat up his then girlfriend Rhianna, there was an odd reaction from much of Hollywood.  As Adam Carolla and Dr. Drew were recently discussing on Carolla’s podcast, Hollywood’s reaction – especially at red carpet events – seemed less than honest and at times downright pathetic.  Some were praising Brown for being a “good person” who was going through a difficult time.  But only a few stood forward and publicly denounced Chris Brown as a pathetic loser who viciously assaulted his girlfriend… something no one can legitimately justify.  The podcast echoed in my mind this week when I was faced with a debtor who was – to put it mildly – outrageously dishonest.  So much so that I was forced to look this person in the eye and say “you know, you’re not coming across as an honest but unfortunate person entitled to bankruptcy protection.”  I thought I was being polite.  Their response left me thinking even more.

I cannot share the details.  Instead, let me share this clever allegory that I believe aptly illustrates exactly how things went in my meeting with this debtor.

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The Sunday News

A fellow bankruptcy attorney shared this article that appeared in last month’s New York Times Magazine.  I see in it some of the same difficulties I see in clients.  It also makes me question how “half-empty” the glass really is.  Although in the interest of full disclosure, the writer has a book coming out.  In other news…

ONE FLAG! Six Flags Amusement Parks files for Chapter 11 protection.

Nashua NH Telegraph:  Welcome to the New Consumer Economy.

Boston Herald:  Consumer spending may never be the same as it was.

South Coast: Home values could take years to recover.  We also could be hitting bottom (I’m not being sarcastic, it says the market “could be a reading a valley”).  I could also be a ledge (ok, that was sarcastic).

Nantucket foreclosures.  I wonder if these homeowners claim their loan was predatory?  I also have to question whether it was.

A bad apple is removed from the barrel: Brockton lawyer settles fraud suit with the Massachusetts Attorney General’s office.

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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.

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The Recession is Not Over, Take 2

My good friend and my bookkeeper has told me that she has seen the economy declining for a number of years, based on what she has seen with her clients and their vendors.  “In fact,” she once told me “I can tell how bad it is really getting by how easy it is to find a parking space on Newbury Street.”

According to a report in today’s Boston Globe, the Pottery Barn is closing its Newbury Street store.

“It’s surprising to see some one like Pottery Barn go. But there’s been so many stores leaving,” said Debbie Greenberg, owner of upscale boutique Louis Boston, which is planning to vacate its landmark Newbury Street space by next spring for another neighborhood. “The rents went up so high, and then only the stores that could afford it came, making it look like the same street in Chicago and Dallas. It’s not original anymore.”

Looks like finding a parking space on Newbury Street just got a little easier.  And after Louis Boston moves, it perhaps will get even moreso.

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The Cramdown Bill is Dead

From MSNBC:

A dozen Democrats joined Republicans in the 45-51 vote to scuttle the bill, which Obama had said was important to saving the economy and promised to push through Congress. But facing stiff opposition from banks, Obama did little to pressure lawmakers who worried it would encourage bankruptcy filings and spike interest rates.

More here.

I remind everyone that next year, 2010, is an election year.  If you want to know who to blame, here’s the roll call vote.

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Does the Cramdown Bill Have a Chance of Passing?

A report from Housing Wire suggests that the answer may be ‘no’.

“[Senator Richard] Durbin [D-Ill]  had a hell of a time coming up with a bill that’d pass the Senate,” said Burt Ely, a banking expert and principal of Ely & Co. “He’s watered it down so much that his proposal now limits the accessibility or intention of the bill. Even if he got it passed, the gulf is so big it wouldn’t even get out of [the House] conference committee to be enacted into law.”

Not surprisingly, consumer advocates are seeing red.

“With Durbin, Dodd and Reid doing the bidding for the banks, this current state of the cramdown bill will have virtually no impact for at-risk borrowers,” says Bruce Marks, CEO of Neighborhood Assistance Corp. of America, a mortgage broker and consumer activist. “The Senate Democrats have made no measurable actions this year to help the housing crisis.”

More here.

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Tell Congress: It’s Now or Never

Tomorrow (February 26) the House will vote on HR 1106, a housing package that includes the judicial modification provision of HR 200. That provision would let homeowners turn to the bankruptcy courts to allow them to modify the mortgages securing their principal residence. Currently, bankruptcy provides no remedy for homeowners who are trying to save their home from foreclosure.

While there are a number of complicated issues affecting our economy, the housing crisis continues to devolve.  The Washington Times reports that there is no relief in sight from foreclosures and the falling home values that help fueling it.  We can encourage Congress to do nothing, while the economy continues a downward spiral. Or we can tell them to pass this bill and give homeowners the chance they deserve in bankruptcy.

House approval is not guaranteed. The American Banks Association and the Financial Services Roundtable have sent letters to house leaders urging that the bankruptcy modification provisions be removed from the “Helping Families Save Their Homes Act of 2009.”  The “buzz” I am hearing is that the lender lobbyists are showing up in “packs” in Member offices urging opposition to the judicial loan modification proposals.  “Packs.”  What the hell are they so scared of that they have to travel in packs?  According to a report from CNN, two-thirds of mortgage servicers have agreed to the foreclosure mitigation plan outlined by the Secretary of the Treasury.

[T]he prospect of a law amending the bankruptcy code to allow judges to dictate new terms on mortgages in the event of an individual filing bankruptcy, was also likely a significant factor in the companies’ willingness to cooperate with the administration’s plans.

The House is working on legislation which would be aimed at helping people in bankruptcy to hang on to their primary residences. It could see bankruptcy judges compelling mortgage-servicing companies to accept new terms on an individual’s mortgage.

Other than Citigroup, other large banks remain opposed to the bankruptcy-law change, arguing that it would lead to borrowers to seek bankruptcy at the first sign of trouble, rather than consider other options that might be more costly.

I don’t buy that – mainly because when I meet with clients, they are the first to tell me that filing bankruptcy is the last thing they wanted to do.   So to the lenders and their servicers, I say this: if the remaining one-third of you do not want bankruptcy judges modifying their loans, modify the loans so that the homeowner doesn’t have to file bankruptcy.  And for those two-thirds who have expressed a willingness to modify the loans, do it.  Let’s cut the crap and just do it.

Will it increase bankruptcy filings?  The Congressional Budget Office says yes.  But they also say that more than 1 million homeowners facing foreclosure could benefit from this legislation.  I view that as 1 million less people who will lose their home if this bill fails.  These people are our neighbors, our friends and our colleagues.

So what can you do?  Contact your member of Congress by phone or fax.

Email your friends and family.  Ask them to contact their congressional representative by phone or fax.

What do you tell them?  Try something like this:

We cannot end the financial crisis without stemming the rising tide of foreclosures. Court-supervised loan modification is an essential component of an effective and comprehensive plan to meet that challenge.  And unlike every other solution being considered in Washington, it comes at no cost to U.S. taxpayers.

If we are successful tomorrow, we move over to the Senate.  If we are not, that is it.  No second chance.  So please don’t wait.  Support HR 1106.

And if you do not support it, I’ll remember.  I’ll remember it when my friend loses her home because she lost her job.  I’ll remember it when my house value plummets because the home next door is vacant and abandoned because the previous owner could not afford the payments.  I’ll remember it on election day.

Ok, so maybe that last bit is a little over the top, but you get my point.  It really is now or never.  And Congress really needs to know this now.

For more thoughts, check out Real Clear Politics:  Let Bankruptcy Courts Change Mortgages

Previous posts on the subject:

The President’s “Plan”

Mortgage Modification Legislation Update: Citigroup Supports the Bill

Keep the Bankruptcy Option On the Table

Changing Chapter 13: Some Facts on the Pandora’s Box

Mortgage Modification Update: Not So Hopeful

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The President’s “Plan”

I am no economist, but there’s something about the President’s mortgage foreclosure rescue plan that just has not been sitting well with me.  I have not been able to put my finger on it and do the research to put together a thoughtful article.  Fortunately, I can stay focused on my clients and share with you this article from BusinessWeek by Peter Coy and Theo Francis who point out that the plan doesn’t address the danger of negative equity, and that homeowners with negative equity “might just walk away.”

Even for those who want to keep their homes at the moment, reducing monthly payments without addressing negative equity may just postpone the inevitable. “The reality is, people lose jobs, especially in a recession. People get transferred, people have to move at some point,” says Sean O’Toole, founder and CEO of ForeclosureRadar.com, which tracks California foreclosures. “By lowering payments and not principal balance, you’re guaranteeing the extension of this crisis for years to come.”

More here.

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What’s Your House Worth?

When I confer with a client who is facing the prospect of bankruptcy to protect their home, I have many important questions. One of them is “what is the value of your home?” The answers are usually varied, and in most recent situations, clients have only old or not useful information. Regardless of the source however, determining the value of the home is a necessary step in any pre-bankruptcy analysis I need to do. And unfortunately, getting that accurate information is not always easy, and it is not always grounded in reality.

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Hey, I’m just the messenger…

As the Senate begins to vote on the bailout, and as Washington and even some local leadership continues its campaign of fear mongering support, here’s some food for thought, courtesy of the good folks over at Calculated Risk:

As of Sept 30th, the national debt was $10,024,724,896,912.49.

What’s another $700,000,000,000?

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