February 2011 Archives

Banks Forced to Buy Back Shoddy Loans

Californians and the nation have been hit hard by inefficient, impersonal and predatory lending practices. The banks across the nation and in California have come under continued scrutiny for engaging in shoddy loans. Fannie Mae and Freddie Mac have demanded banks buy back nearly 167,000 shoddy loans valued at $34.8 billion across the nation. Fannie Mae has received $11.8 billion and Freddie Mac has received $9.1 billion from banks between 2007 and August 31, 2010 according to the Financial Crisis Inquiry Commission. The amounts received represent about one-eighth of the total losses absorbed by Fannie Mae and Freddie Mac since 2008.

If you are having problems in Northern California with a bank that is using improper lending or foreclosure practices or you have a shoddy loan, there are remedies available to you. There are law firms that are filing class action lawsuits against the banks that seek a variety of remedies including modification of the loans. There is a fifty state investigation that is currently being conducted by the various attorney generals of each state. If you have had problems with a loan in California, you can contact the California Attorney General and file a complaint. You may find your options on the California Attorney General's website.

If you are facing a foreclosure after attempting to modify a shoddy loan, you may be able to keep your house by filing a Chapter 13 bankruptcy. The bankruptcy will allow you to strip an unsecured second loan and pay any arrears on the first loan and property tax in a payment plan that is usually sixty months. If you are using a foreclosure consultant, you should be aware that they cannot collect up front fees in California. Foreclosure consultants are prohibited by law from collecting money before services are performed.

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Court Rules 401K Loan Repayments Allow Debtor to Qualify for Chapter 7

If you are filing for Chapter 7 bankruptcy in California, there are two income tests that determine whether you are eligible for Chapter 7 bankruptcy. The Statement of Current Monthly Income and Means-Test Calculation (Means Test) and the Abuse Under All the Circumstances test (Abuse Test). Debtors whose average household income over the previous six months exceeds the median income in California for a family of their size must take the Means Test. If their income and expenses reflect that they have the ability to pay extra income into a Chapter 13 plan, they will be forced out of a Chapter 7 bankruptcy 11 U.S.C. § 707(b). In the Abuse Test, debtors compare their income and expenses to determine whether they actually have enough money to repay debts. Even if a debtor passes the Means Test, the debtor can be forced out of Chapter 7 if, under this test, the debtor is able to fund a Chapter 13 plan. The opposite may also occur, debtors that do not pass the Means Test may still be allowed to file a Chapter 7 if there are insufficient funds to repay any debts.

The court in In re Siler, 426 B.R. 167 (Bankr. W.D.N.C. 2010), recently reviewed this issue with regard to expenses that could not be considered under the Means Test, but could be considered under the Abuse Test. The debtor's monthly disposable income created the presumption of abuse under the means test. However, the court allowed the debtor to remain in Chapter 7 since the creditors would not receive any distribution under the Abuse Test and a Chapter 13 plan.

In this case, the debtor was not entitled to deduct ERISA contributions and 401(k) loan obligation repayments from monthly disposable income, and the deductions were not available for the Current Monthly Income (CMI) calculation under chapter 7. The ERISA contributions and 401(k) loan obligations were deductible under the Abuse Test and a Chapter 13 plan. As a result of these deductions, creditors would not receive any distribution under a Chapter 13 plan. Therefore, the court held that the debtor was entitled to remain in chapter 7, notwithstanding the language of 707(b), because dismissing or converting the case to Chapter 13 would create absurd results contrary to Congress's intent.

The court noted that § 707(b)'s plain language unambiguously states that the case must be dismissed or converted if a debtor fails the means test. Although a statute's plain language is normally controlling, courts will not enforce the plain language of the statute when literal application creates results "demonstrably at odds with clearly expressed Congressional intent . . . ." The Siler court noted that Congress enacted the means test as a way to deny a quick discharge under chapter 7 to those debtors who can make payments to creditors in a chapter 13 plan. If the case was converted to chapter 13, this debtor would be making zero payments under the plan for three to five years.

Thus, the court found that dismissal or conversion would create absurd results because the creditors would not receive any distributions. Therefore, the debtor was entitled to remain in Chapter 7 not withstanding the language of 707(b). Under Siler's reading of section 707(b), courts have discretion when dismissing a case for abuse, to make sure the result makes sense, contrary to the strict reading of the statute.

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Bay Area Landmark Claremont Hotel Files for Bankruptcy

Thumbnail image for Claremont Hotel.jpg California businesses continue to suffer the effects of the recession. The Claremont Hotel in Berkeley is the latest victim. The original construction of The Claremont was slowed down by earthquakes, and it dodged the destruction of the 1991 Oakland Hills fires, but even this landmark hotel couldn't weather the storm of the recent economic downturn.

The Claremont Hotel opened for business in 1915. It was immediately one of the nation's grand resident hotels. In 1937 Claude Gillum, purchased the property for $250,000 and rebuilt it from the foundation up, completely refurbishing the interior. At the time, a state law, prohibited the sale of alcohol within a one-mile radius of the University of California. Since the hotel is constructed on the borderline between Berkeley and Oakland, it was assumed to be within the one-mile radius. Thus, it was not allowed to serve liquor. The Claremont was one of very few hotels without a bar. This situation changed when a female student at the University of California began to investigate to see if the building was indeed within the one-mile radius. She and her friends measured the shortest route from the U.C. campus to the front steps and found The Claremont was a few feet over the one-mile radius, meaning a bar could be opened. The woman responsible for these findings was awarded free drinks at The Claremont for the rest of her life.

In 1954, Mr. Harold J. Schnitzer of Harsh Investment Corporation bought the property and leased it to Mr. Murray Lehr. It became a popular site for conventions. By 1959, The Claremont had more convention and exhibit space than any hotel west of Chicago and represented the largest convention resort in the Bay Area.

The Hotel was designated a National Historic Landmark in 2003, and is a designated California Historical Landmark. The Claremont faced destruction in the 1991 Oakland firestorm, but the flames were stopped just short of the hotel. As night descended, the firestorm threatened to destroy The Claremont where the media had gathered to report on the fire. Television crews trained their cameras on the dark hill immediately behind the hotel and millions watched as the fire slowly marched house by house towards the evacuated hotel. The fire was stopped shortly before it reached the hotel.

In 2007, the Claremont was acquired by Morgan Stanley. On February 1, 2011, the resort filed for bankruptcy due to losses attributed to the ongoing recession.

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Beware of Financial Solutions that Sound to Good to Be True

If you live in California and you are having financial problems because you lost your job or have medical expenses, the internet is full of ads to solve credit and financial problems through debt consolidation and government programs to reduce debt. While some of the organizations offer legitimate services, there are some that are scams that take the remainder of consumer's funds placing them in a worse financial situation than when they started.

The Federal Trade Commission (FTC) in December 2010 filed a complaint in federal court alleging that I Works a vast internet enterprise lured consumers into trial memberships for various schemes, and then repeatedly charged monthly fees for these and other memberships that the consumers never ordered. The enterprise allegedly made more than $275 million.

According to the FTC's complaint, the operation used Web sites that pitched various money-making programs or touted the availability of government grants to pay personal expenses. The sites offer "free information at no risk" and ask consumers to provide their credit or debit card numbers to pay a shipping and handling fee such as $1.99. But when consumers provide their billing information, I Works charged them a one-time fee of up to $129.95 and monthly recurring fees of up to $59.95 for the advertised programs, and other monthly fees for unrelated programs. The court froze the assets of 61 corporations (collectively known as "I Works").

According to the FTC, the defendants, violated the FTC Act by misrepresenting that government grants are available for paying personal expenses, that consumers are likely to obtain grants by using the defendants' program, that users of their money-making products will earn substantial income and that their offers are free or risk-free.

The FTC complaint names I Works Inc., Anthon Holdings Corp., Cloud Nine Marketing Inc., CPA Upsell Inc., Elite Debit Inc., Employee Plus Inc., Internet Economy Inc., Market Funding Solutions Inc., Network Agenda LLC and Success Marketing Inc.The 51 shell companies named in the complaint are Big Bucks Pro Inc., Blue Net Progress Inc., Blue Streak Processing Inc., Bolt Marketing Inc., Bottom Dollar Inc., doing business as BadCustomer.com, Bumble Marketing Inc., Business First Inc., Business Loan Success Inc., Cold Bay Media Inc., Costnet Discounts Inc., CS Processing Inc., Cutting Edge Processing Inc., Diamond J. Media Inc., Ebusiness First Inc., Ebusiness Success Inc., Ecom Success Inc., Excess Net Success Inc., Fiscal Fidelity Inc., Fitness Processing Inc., Funding Search Success Inc., Funding Success Inc., GG Processing Inc., GGL Rewards Inc., Highlight Marketing Inc., Hooper Processing Inc., Internet Business Source Inc., Internet Fitness Inc., Jet Processing Inc., JRB Media Inc., Lifestyles For Fitness Inc., Mist Marketing Inc., Money Harvest Inc., Monroe Processing Inc., Net Business Success Inc., Net Commerce Inc., Net Discounts Inc., Net Fit Trends Inc., Optimum Assistance Inc., Power Processing Inc., Premier Performance Inc., Pro Internet Services Inc., Razor Processing Inc., Rebate Deals Inc., Revive Marketing Inc., Simcor Marketing Inc., Summit Processing Inc., The Net Success Inc., Tranfirst Inc., Tran Voyage Inc., Unlimited Processing Inc. and Xcel Processing Inc.

The FTC works to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint or get free information on consumer issues, you can visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. You can also Watch a video How to File a Complaint to learn more. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

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