Wednesday, August 25, 2010

New Home Sales: US New Home Sales Sink to Lowest Pace on Record - CNBC

By: Reuters

    New U.S. single-family home sales unexpectedly fell in July to set their slowest pace on record while prices were the lowest in more than 6-1/2 years, government data showed on Wednesday.

    The Commerce Department said sales dropped 12.4 percent to a 276,000 unit annual rate, the lowest since the series started in 1963, from a downwardly revised 315,000 units in June. 

    New Home Sales: US New Home Sales Sink to Lowest Pace on Record - CNBC

    Money Politics Blog — Larry Kudlow: In Praise (!) of Barney Frank — CNBC, Market and Economy News - CNBC

    Can you teach an old dog new tricks? In politics, the answer is usually no. Most elected officials cling to their ideological biases, despite the real-world facts that disprove their theories time and again. Most have no common sense, and most never acknowledge that they were wrong.

    But one huge exception to this rule is Democrat Barney Frank, chairman of the House Financial Services Committee.

    Money Politics Blog — Larry Kudlow: In Praise (!) of Barney Frank — CNBC, Market and Economy News - CNBC

    Monday, August 23, 2010

    Class action RICO suit against Steven J. Baum, P.C., commenced.

     Hundreds of Millions in Damages Demanded for New York Homeowners

    New York, NY (PRWEB) August 20, 2010

    On August 17, 2010, attorney Susan Chana Lask filed a Federal Class Action Complaint on behalf of tens of thousands of New York State homeowners who lost their homes to an alleged foreclosure fraud orchestrated for years by a New York “foreclosure mill” attorney and major mortgage companies. The case is filed in the US District Court, Eastern District of New York, entitled “Connie Campbell against Steven Baum, MERSCORP, Inc, et al.”, Case #10CV3800. It alleges RICO civil racketeering, RESPA, Fair Debt Collection Practices Act violations and that homeowners paid inflated foreclosure and other fees fictionalized by Mr. Baum who profited from the scheme since 2005.

    [continue reading]

    Tuesday, August 17, 2010

    Justice Giacobbe of the Supreme Court of the State of New York, County of Richmond, allows foreclosure to proceed despite bankruptcy filing

    By:  Nicholas M. Moccia, Esq.
           Law Offices of Robert E. Brown, P.C.

    Justice Giacobbe of the Supreme Court of the State of New York, County of Richmond, rendered an informative decision which should serve as a warning to homeowner's who seek to game the system by making multiple filings for bankruptcy.

    In brief, three different family members of the same household made multiple filings for bankruptcy, each in succession during a single sixteen month period, in order to delay a foreclosure action.  Justice Giacobbe notes that  it is well settled that upon the filing of a debtor's bankruptcy petition, an automatic stay is triggered preventing the commencement or continuance of any lawsuit to recover claims against the debtor.  11 U.S.C. 362(a)(1).  The stay is mandatory in nature and is intended to give the debtor "breathing room" by putting a stop on all collection efforts.  Soars v. Brockton Credit Union, 107 F3d 969 (1st Cir. 1979).  However, where family members or other individuals with a "unity of interest" are found to act in collusion to avoid their just debts by abusing the relief afforded by bankruptcy, the courts may vacate the bankruptcy stay and allow inter alia foreclosure actions to proceed.  In the instant matter, Justice Giacobbe found that the defendants and a third non-party family member, each acted in collusion to improperly delay a foreclosure action with multiple bankruptcy filings.  Justice Giacobbe vacated all temporary restraints and allowed the foreclosure to proceed notwithstanding the bankruptcy stay.  Justice Giacobbe cites the following federal authority in support of his holding:  In re Wong, 30 BR 87, 89 (U.S. Bank. Ct. C.D. Cal. 1983); In re Thirtieth Place, Inc., 30 BR 503 (U.S. Bank. A.P. 9th Cir 1983); see also, In re Kinney, 51 BR 840 (U.S. Bank. Ct. C.D. Cal 1985).

    For full text of decision, follow link:

    Washington Mut. Bank v Phillips, 2010 NY Slip Op 32139(U) (Sup. Ct.  Richmond County, July 28, 2010)

    For a bio on Justice Giacobbe, follow link:

    Friday, August 13, 2010

    Bankruptcy and Mortgage Stripdowns: Learning from Experience

    Using the farm crisis of the early 1980s as a model, two economists have refuted several of the arguments against legislation that would permit bankruptcy judges to cramdown or stripdown of mortgage loans.  Thomas J. Fitzpatrick IV and James B Thomson, economists with the Federal Reserve Bank of Cleveland, published their paper, Stripdowns and Bankruptcy: Lessons from Agricultural Bankruptcy Reform in the bank's Economic Commentary on its website.

    Allowing stripdowns of mortgages during Chapter 13 bankruptcy reorganization has been suggested as one way to deal with the housing crisis.  If such legislation were passed, bankruptcy judges would be allowed to reduce the outstanding balance on a mortgage loan to the actual value of the underlying collateral, turning the remaining balance of the mortgage into an unsecured claim which would receive the same proportionate payout as other unsecured debts included in the bankruptcy petition. Some proponents of this provision maintain it could be a partial solution to the foreclosure crisis, reducing the number of homes going into foreclosure by improving the chances of a successful loan modification.  Others favor the law on the basis of equity, saying that mortgages on rental properties and vacation homes as well as virtually every other type of secured loan can be stripped down during Chapter 13 proceedings.

    Those opposing stripdown legislation fear an increase in mortgage interest rates, apparently in response to any increase in loan modifications rather than to the stripdown itself.  The unintended consequences of this, they argue, might be to make homeownership less affordable and accessible to low and moderate income families.  Opponents also cite the possibility of an avalanche of Chapter 13 filings should stripdowns become law in the midst of the current financial crisis. Lenders have been the most vocal of opponents, arguing that stripdowns would shift losses from borrowers to lenders, give bankruptcy judges too much discretion, and that such shifting is unfair in that it changes the rules of contracts after the fact. 

    The economists maintain that such arguments are best viewed against the empirical evidence from the actual experience with stripdowns done under legislation establishing the Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986. This legislation established a separate chapter in the U.S. Bankruptcy Code, Chapter 12 intended solely for farmers.  The legislation was passed in response to an agricultural and bank crisis in the 1980s and originally had a sunset provision, but worked well enough that it was twice extended and then made permanent in 2005. 

    The agricultural lending crisis had some strong parallels with the more recent home lending meltdown, as well as, Patrick and Thomson point out, some distinct differences and many of the claims and concerns expressed in the current debate were central in the debate over Chapter 12. 

    The agricultural lending crisis started in the 1970s when US farm exports rose over 500 percent, from $8.24 to $43.78 billion in a nine year period starting in 1972. This led to a dramatic rise in commodity prices and farm incomes over that time period. Net farm income peaked at over $27 billion in 1979, a rise of 41 percent over the decade. 

    It was a typical boom-bust scenario: When prices for their goods were rising, farms expanded and farm real estate prices increased significantly; in Iowa, for example, the price of farm land more than quadrupled from 1970 to 1982. But, while demand for their products had increased sharply in the early 1970s, farmers watched it fall almost as fast in the late 1970s and early 80s. With the drop in demand and price for products the demand and price for land fell too.  That Iowa land lost nearly two-thirds of its value in five years, and the same thing happened nationally.  The average price of farmland increased more than 350 percent by 1982 then fell by more than a third in the next five years. 

    As the price was going up, so did agricultural debt loads as many farmers borrowed to acquire additional acreage. Cash-short and expecting increased income, many farmers used variable-rate notes to purchase real estate. Caught up in the boom, lenders eased underwriting standards, relying on the continued appreciation of the land for security rather than the ability of the farmers to service their debt.  But as prices and cash flows decreased and the variable-rate notes used to purchase farm real estate reset, many farmers saw their interest rates increase, found that they could not make payments and were underwater on their mortgages.

    Farmland values peaked in 1981 in the Midwest, where the land-price appreciation had been the greatest, and declined by as much as 49 percent over the next few years before bottoming out in 1987. Farm-sector debt quadrupled from the early 1970s through the mid-1980s. Debt declined by one-third from 1984 through 1987, but much of this reduction reflected the liquidation of farms.

    Many farmers, especially in the South and Midwest, were underwater with their agricultural loans and were in danger of losing their primary residences with little relief possible under the existing bankruptcy laws.  Chapter 13 did not allow for modification of debt secured by a primary residence, and Chapter 11, intended for corporations, was too complex for most small and medium sized farmers and also contained provisions that made a stripdown problematic.

    Some states enacted moratoriums on foreclosures but they provided only temporary relief given the underlying economic factors (does any of this sound familiar yet) and left many farmers unable to service their debt and with almost no possibility of renegotiating their secured loans. 

    Fitzpatrick and Thomson point out that, unlike in the current foreclosure crisis, the troubled debt then was highly concentrated a few Farm Credit Banks, Farmer Mac and commercial banks in the affected regions.  Nonetheless, these agriculturally related banks began to fail in 1984 and accounted for a third of all bank failures between 1983 and 1987.  This led to the Chapter 12 legislation and its related stripdowns provisions. Despite the same arguments we hear today, Congress permitted stripdowns for farmers because voluntary modification efforts, even when subsidized by the government, did not lead agricultural lenders to negotiate loan modifications. 

    The actual negative impact of the legislation was minor. Even though the new section of the Bankruptcy Code was created specifically for farmers, it did not change the cost and availability of farm credit dramatically. In fact, a United States General Accounting Office (1989) survey of a small group of bankers found that none of them raised interest rates to farmers more than 50 basis points. The economists say that while this rate change may have been a response to the Chapter 12, it is also consistent with increasing premiums due to the economic environment and  suggest that the changes in the cost and availability of farm credit after the bankruptcy reform differed little from what would be expected in that economic environment, absent reform.
    The Commentary says, "What was most interesting about Chapter 12 is that it worked without working.  According to studies by Robert Collender (1993) and Jerome Stam and Bruce Dixon (2004), instead of flooding bankruptcy courts, Chapter 12 drove the parties to make private loan modifications. In fact, although the U.S. General Accounting Office reports that more than 30,000 bankruptcy filings were expected the year Chapter 12 went into effect, only 8,500 were filed in the first two years. Since then, Chapter 12 bankruptcy filings have continued to fall."

    Despite the controversy that accompanied Chapter 12 and is stirring around the idea of a stripdown authority today, economists say that the "effects of the stripdown provision, in place for more than two decades, on the availability and terms of agricultural credit suggest that there has been little if any economically significant impact on the cost and availability of that credit."  They do, however, point out some significant differences between the agricultural foreclosure crisis of the 1980s and the current home foreclosure crisis. 

    "First, the structure of the underlying loan markets is different. Unlike mortgages today, few if any of the farm loans in the 1980s were sold or securitized. Moreover, there was more direct government involvement in agricultural loan markets in the 1980s than there was in the mortgage markets leading up to the current housing crisis. Finally, the scale of the current foreclosure crisis is several times larger than the 1980s agricultural crisis, which was limited geographically to the Midwest and Great Plains states. Yet, despite these differences, the response to the farm foreclosure crisis and the impact of bankruptcy reform on agricultural credit markets is still informative for the current debate."

    Wednesday, August 11, 2010

    Justice Maltese of Richmond County finds that homeowner’s reliance on a non-attorney’s “expertise” in foreclosure litigation constitutes a reasonable excuse to vacate a judgment of foreclosure and sale on default pursuant to CPLR 5015(a)

    By Nicholas M. Moccia

    In a decision rendered on August 3, 2010, Justice Joseph J. Maltese of the Supreme Court of the State of New York, Richmond County, vacated a judgment of foreclosure and sale pursuant to CPLR 5015(a) and held that a homeowner’s misplaced reliance on a non-attorney’s “expertise” in foreclosure litigation constitutes a “reasonable excuse” for the purposes of vacating a homeowner's default pursuant to CPLR 5015(a).

    Justice Maltese writes:

    The residential real estate foreclosure crisis has ensnared communities, both large and small from coast to coast.  And as this crisis continues to unfold before the eyes of the courts and the public, the unsavory actions taken by mortgage brokers, lenders and some predatory refinance facilitators is outrageous.  While the public only begins to learn of the causes of the current rampant foreclosure filings, the courts have already begun to see a cadre of unscrupulous individuals promising foreclosure cure-alls that prey upon those already approaching an economic rock bottom.

    In this case we have a defendant, [RC], who initially engaged an attorney as she sought to refinance her way out of foreclosure by consulting with HCI Mortgage Bank.  According to the defendant, she became the victim of a “scam” when she attempted to refinance her loan to prevent the plaintiff from foreclosing.  This left to her filing a bankruptcy petition, which was the result of poor advice from “refinance specialists who were attempting to slow down the process in order to convince the defendant to take out yet another loan with a lender they represent.”

    Justice Maltese continues:

    Here, while the defendant realized that she was not savvy enough to navigate the field of foreclosure litigation on her own, she put her trust in a licensed realtor, rather than in a new attorney.  The record indicates that Herricson Torres, a licensed realtor, purportedly assisted [RC] in preparing this order to show cause to help guide her through the litigation process demonstrates the rampant economic opportunism of a growing industry that preys on those least able to support it.  Mr. Torres’s actions are the very definition of the unauthorized practice of law.  (Emphasis supplied).

    This court finds that [RC’s] subsequent reliance on Torres’s “expertise” to stop the foreclosure sale as evidence of a larger problem in the area of foreclosure litigation…Based on the totality of the circumstances the court finds that [RC’s] reliance on Herricson Torres’s “expertise”, rather than on a licensed attorney constitutes a reasonable excuse for her default.

    A defendant seeking to vacate a default judgment must demonstrate both a reasonable excuse for the default, and the existence of a meritorious defense.  Orwell Bldg. Corp. v. Bessaha, 5 A.D.3d 573 (2d Dep’t 2004).  A motion to vacate a default is addressed to the sound discretion of the trial court and, absent an abuse of discretion, the court’s decision will not be disturbed.  Gleissner v. Singh, 264 A.D.2d 811 (2d Dep’t 1999).  Public policy favors the resolution of cases on their merits, and courts have broad discretion to grant relief from pleading defaults where the defaulting party has a meritorious claim or defense, the default was not willful, and the opposing party was not prejudiced.   Harris v. City of New York, 30 A.D.3d 461 (2d Dep’t 2006).  The determination of whether there is a reasonable excuse for a default is a discretionary, sui generis determination to be made by the court based on all relevant factors, including the extent of the delay, whether there has been prejudice to the opposing party, whether these has been willfulness, and the strong public policy of resolving cases on the merits.  Harcztark v. Drive Variety, Inc., 21 A.D.3d 876 (2d dep’t 2005).

    Here, Justice Maltese found that a defendant homeowner’s misplaced reliance on the expertise of a non-attorney in foreclosure litigation constitutes a “reasonable excuse” within the meaning of CPLR 5015(a).

    The defendant homeowner eventually received legal assistance from Margaret Becker, Esq., from Staten Island Legal Services, and later from Robert E. Brown, Esq. of the Law Offices of Robert E. Brown, P.C., who expanded on the defendant homeowner’s initial order to show cause resulting in the favorable decision rendered by Justice Maltese discussed herein. 

    For more posts on Justice Maltese see below: