The settlement announced by the Attorney Generals with the mortgage service industry has generated big headlines and created false hope of help for underwater homeowners. $25 billion dollars sure seems like a lot of money.
It’s a Scam
When you hear that the mortgage servicers have agreed to a $25 billion dollar settlement I bet you believe it means they are going to pay $25 billion dollars. Wrong!
Most of the settlement is not going to be paid. It will “paid” in the form of mortgage principal reductions. The maximum amount of the reduction is reported to be 20% of the amount owed. So the few people who will get the maximum benefit will still owe more on the house than it is worth.
A fairly typical situation I see in my office is a Mesa homeowner who owes $250,000 on a house that is now worth $120,000. Assuming they will qualify for the maximum benefit they will now owe $200,000 on a house worth $120,000. I doubt the mortgage industry would every collected the dollars they are going to use to pay this settlement.
The Math Doesn’t Work
The government bragged that it will help at least 1 million homeowners. My math tells me that works out to $2600.00 each.
That doesn’t seem like much help to Arizona homeowners who have lost virtually all of the equity in their homes and nearly 70% of homeowners owe more on their mortgage than the house is worth. House values have dropped as much as 50% in communities such as Mesa, Chandler and Glendale. It is even worse in towns like Maricopa and Queen Creek.
This “settlement” makes about as much sense as throwing a drowning man a glass of water.
Cheating Pays
The government paid for a massive bail-out of the financial industry — the same companies that are responsible for the failing economy. The mortgage industry was paid to help homeowners stay in their homes. They took the money and refused to offer any meaningful help to homeowners. At the same time they caught filing fraudulent documents and illegally foreclosing on homeowners.
It might be time to stop waiting for the government to ride to the rescue.
A new book, Best Practices for Filing Chapter 13: Leading Lawyers on Examining Today’s Consumer Bankruptcy Trends and Preparing a Throrough Chapter 13 Filing, was just published by Aspatore Books.
I know that lots of books are published everyday. But, there is one thing that makes this book remarkable. One of the Chapters titled “The Continuous Ebbs and Flows of Bankruptcy” is written by yours truly, Joe Volin.
The book is available from one of the major legal publisher’s, Westlaw, internet bookstore. I wish I could post a copy of my Chapter, but I can’t because the copyright agreement I signed with Aspatore does not allow me to.
Is the book a good investment? For a consumer who needs to hire a bankruptcy lawyer, no. Things change too fast in the law. The material in the book was written last summer. New Court decisions have been published that have put a new spin on much of what is discussed in the book. Ideas evolved too. For example, a good part of my chapter deals with challenging mortgage claims in Chapter 13 cases. Since writing that material my thinking and ideas on how to attack mortgage claims has evolved. I no longer rely on the same approach I used at the time the book was written.
For a bankruptcy lawyer the book has a great deal of solid information. It is a great starting point for their own independent research for the cases they are handling. Also, many of the chapters discuss the authors mental approach to dealing with bankruptcy issues. These sections are timeless and will always be valuable. One that I will always apply to my practice is to understand that each client is unique. They are not, and should not be treated like stacks of papers. To do a good job, and get the best results, it is critical that I really listen to my clients and then find the best solution for their unique situation.
One of the enduring myths about bankruptcy is that tax debts cannot be discharged in bankruptcy. They can be, but not all of the time. The rules governing when they will be discharged are complex and full of loop-holes.
The things that matter are: was a return filed? When was it filed? How old are the taxes? When were the taxes assessed? Did any events that extend the time periods to discharge taxes happen? This included filing an offer-in-compromise, requesting a due process hearing, an appeal, a prior bankruptcy, among others.
Before you believe that tax debts cannot be discharged in bankruptcy consider a letter I received from the IRS addressed to one of my clients. It starts off by saying: “You recently received a discharge under Chapter 7 of the Bankruptcy Code. Thus, you are relieved from personal liability for the following tax Liabilities….” The letter then lists about $100,000.00 in tax debts my client will not have to pay. The IRS also released the tax liens that it had previously filed.
There was nothing really special about the letter. It is a form letter that I have received many times before. The only thing that varies is my client’s information, the tax years, and the amounts.
What is different is how we approach these cases. They are different than the typical bankruptcy filing. The special rules for discharging taxes require special handling. Before a case is filed we need to investigate the type of tax, who they are owed to, the tax years, our client’s assets, search for tax liens, and obtain tax transcripts, and of course put together a game plan for getting rid of the tax.
If you are up to your eyeballs with tax debts, don’t buy into the myth that you can never deal with taxes in bankruptcy. Just make sure you have someone on your side who knows the rules. Then, you may be getting a letter from the IRS announcing that the tax burden you have been fighting has been taken off your back.
