California Debt Blog

Facing Foreclosure? Ask Bank To 'Produce The Note'

WCBS tv in New York ran a story on producing the note in mortgage foreclosure cases. Read and watch the story here.

Key from the story: "The request to produce the note seems simple enough. But professor of law Katherine Porter claims finding the piece of paper can be difficult.

"In today's market, with huge banks and changes in the financial industry, it will sometimes take the lender three, six or even nine months or a year (to find it)," Porter said."

The banks cannot show that they own the note for months - if ever. While I do not tell people rely on this strategy to save their homes, it is one more tool that homeowners can use to help them.    

Did Countrywide give preferential loans?

Sen. Dodd and Sen. Conrad both received preferential loans from Countrywide, according to testimony in front of a Senate ethics committee. The AP is reporting that, not only did they receive preferential loans, but they knew about it.

I don't know if they knew that they were getting preferential treatment, although I suspect they did. Either way, this is disturbing news. Members of Congress get preferential loans and yet they still apparently have no ability to stop Countrywide, now Bank of America, from its foreclosure boom. The average American gets hammered in the economy and two very wealthy folks get preferential treatment from a company that they are supposed to be regulating and have failed to regulate.

Sample Validation Letter to Debt Collector

I have had a lot of people calling lately asking what to do when a debt collector sends the first letter. By law, you have 30 days to dispute the debt and ask for validation of the debt. You should put your request in writing to the debt collector, preferably by certified mail, return receipt requested. This way you have proof of receipt.

I am providing an updated validation letter to use when you are contacted by a debt collector.

Debt Collector
12345 Difficult Street
Very Difficult, CA 90015

Re: Account Number

Dear Debt Collector:

I am in receipt of your letter of July 1, 2009. Please note that I dispute the above-referenced debt. Therefore, please verify this debt as required by the Fair Debt Collection Practices Act and the Rosenthal Act. 

While this debt is being disputed, you cannot report this debt to the credit reporting agencies. If you have already reported it the credit reporting agencies, please contact the credit reporting agencies, inform them that the debt is disputed, and ask them to delete it from my credit report.

As you know, reporting information that you know to be inaccurate, or failing to report information correctly, is a violation of the Fair Credit Reporting Act and other applicable laws.

Sincerely,

Mr. (or Mrs.) Consumer

Upon receiving this, the debt collector must stop all collection activity until they can validate the debt. Once the debt is validated, they can continue with their collection efforts. But, many debt collectors cannot validate the debt.

More on Erica Brachfeld and Brachfeld and Associates

One concern for attorneys, especially attorney bloggers, is how much you can write about existing cases. Obviously, I cannot list my client names or violate the attorney client privilege. But, I can write about things that happen in cases.

I have a half dozen or so cases with Erica Brachfeld. I called on Friday to her office at Brachfeld and Associates. I asked for her, but alas, she was not in - again. Interestingly, she has never been in  when I have called. But I spoke to a collector.

I asked the collector where my money was from the three sanctions awards I have against them. He said he did not know but would take a message. I asked when I could expect my money. He said "Good luck with collecting from us." Really? Good luck?

Am I the only one who finds it ironic that a debt collector, or in this case, a debt collection attorney, does not pay its own bills? Ms. Brachfeld takes an aggressive approach in trying to collect money from people, whether it is owed or not, but she will not pay court ordered awards.

If you have been sued by Ms. Brachfeld or her firm, Brachfeld and Associates, or even if you have just received a letter from them about a debt, call me. Or, better yet - email me at debt@jonathangstein.com for a free consultation and 1 hour free work if you retain me.

Arrow Financial Services Loses A Default

I recently was sent a copy of a denial of default judgment out of Louisiana. Download  In that case, Arrow Financial Services asked the court for a default judgment. The court rejected it. Why? For the simple reason that Arrow could not prove that there is a contract or that they had been assigned the rights of the contract.

This is a big decision and one that will largely be ignored. Judge Robert Murphy is forcing the debt collectors to prove the elements of a case. This is a very welcome decision.

If you have been sued by a debt collector, do not assume it is your debt or that you owe the money. There is value in forcing the debt collector to prove its case, as Judge Murphy shows. You also want to talk to an attorney about your rights.

The Banks Trying to Limit Your Rights

I do not know the last time I posted and just gave you an article. But here goes from the New York Times:

What is up with the banks and the rest of the financial industry? The people running this system remind me of gangsters who manage to walk out of the courthouse with a suspended sentence and can’t wait to get back to their nefarious activities.

These malefactors of great wealth (thank you, Teddy) developed hideously destructive credit policies and took insane risks that hurt millions of American families and nearly wrecked the economy. Then they were bailed out with hundreds of billions of taxpayer dollars, money that came from the very people victimized by the industry’s outlandish practices.

Now the industry is fighting against creation of an agency that would protect taxpayers and ordinary consumers from a similarly devastating onslaught in the future. And at the same time they are scrambling to raise credit card interest rates and all manner of exploitive fees to build a brand new superstructure of questionable profits on the backs of the taxpayers who came to their rescue.

We’re reaching a whole new level of chutzpah here.

The Obama administration wants to create a Consumer Financial Protection Agency that would shield individuals and families from deceptive practices and outright fraud by banks and other businesses offering credit cards, mortgages, home loans and other forms of consumer finance.

Everything we’ve learned in this recession tells us we need such an agency. As Treasury Secretary Timothy Geithner described it, “This agency will have only one mission: to protect consumers.”

Protecting the consumer is, of course, anathema to the industry. So it’s preparing for war. The Times’s Edmund Andrews neatly summed up the matter when he wrote that “banks and mortgage lenders are placing top priority on killing” the president’s proposal.

The proposed agency developed from an idea offered some time ago by Elizabeth Warren, a

Harvard

Law

School

professor who currently chairs the Congressional Oversight Panel, which has been monitoring the financial industry bailouts. She is a strong contender to lead the proposed new agency.

Ms. Warren told a Congressional committee last month about the stark difference between the warm and fuzzy advertising approach used by lenders competing for consumer dollars and the treachery that is so often hidden in the fine print.

“Giant lenders compete for business by talking about nominal interest rates, free gifts and warm feelings,” she said, “but the fine print hides the things that really rake in the cash. Today’s business model is about making money through tricks and traps.”

It should be clear by now that it is often the goal of financial institutions to see that the consumer is not well informed. “In the early-1980s,” said Professor Warren, the average credit card contract was about a page long. “Today, it is more than 30 pages. ... I am a contract law professor, and I cannot make out some of the fine print.”

She added, “Study after study shows that credit products are designed in ways that obscure the meaning and trick customers.”

There is nothing free or fair about a market in which one side uses double talk and mumbo jumbo to obscure important information and deliberately dupe the other side into making decisions against its own interests.

When I think of the banking industry fighting to kill this proposed agency, it brings to mind the decades in which tobacco companies insisted that cigarettes were safe, and those days long ago when the auto companies fought against seat belts, and all the dopey arguments that were made against protecting the public from unsafe drugs and kitchen appliances that might burst into flames, and so on.

The Department of Housing and Urban Development has concluded that Americans spend approximately $55 billion each year on closing costs that they don’t fully understand. As Ms. Warren noted, “Mortgage lenders furnish reams of unreadable documents shortly before closing, often leaving people with no practical option but to take whatever terms the lender has filled in.”

The family home is the largest purchase most Americans ever make. Paying it off can take much of a lifetime. Everything about that contract should be crystal clear to the buyer.

I had a breakfast interview with Ms. Warren on a variety of subjects last week. On the day of the meeting, USA Today had a front-page article that began: “Even as regulators crack down on abusive mortgage and credit card practices, another type of lending threatens to mire consumers in a credit trap.”

The article detailed the ways in which banks are wringing huge profits from overdraft fees that often are sky high and in many cases are handled in ways that are exploitive, if not predatory.

The malefactors of great wealth view an informed consumer as Public Enemy No. 1. The last thing in the world that they want is a fair marketplace, which is why the Consumer Financial Protection Agency can’t come fast enough.

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I could not have said it better myself. And in California, consumers are under attack by SB 94 and AB 764. It is still not too late to write your legislator in California and ask them to protect consumer rights.

Banks Avoiding Doing Loan Modifications

A new study by the Federal Reserve of Boston concludes that lenders are not offering loan modifications, despite the lenders statements to the contrary. Why? Because the lenders aren't making money on them.

The interesting part, I think, is that the senior economist who coauthored the report believes that the government is better off giving hte money to consumers. From the Boston Globe: "One of the study’s coauthors, Boston Fed senior economist Paul S. Willen, said the government would be better off giving the money directly to struggling borrowers to help them with their payments, rather than to lenders that are averse to working out the troubled loans."

So, the government has been spending tons of money trying to get banks to re-write loans. That has been a failure. The money should be going to consumers. Any economist will tell you that makes more sense. Hopefully the government will listen to the advice from the Boston Fed!

California AG Sues Mitchell Roth

I can't provide the story via the link since it is a locked story, but here is the story from The Recorder, a legal publication out of San Francisco:

SACRAMENTO — Attorney General Jerry Brown on Monday sued a Southern California lawyer for allegedly bilking desperate homeowners with troubled mortgages out of thousands of dollars.

Mitchell Roth of Sherman Oaks charged at least 2,000 homeowners substantial fees in exchange for false promises that he would help them escape foreclosure and improve their credit, Brown wrote in a complaint filed with Los Angeles County Superior Court.

Also named in the lawsuit (.pdf) is Paul Noe Jr., president of Nevada-based United First, a corporation that allegedly solicited homeowners facing foreclosure and referred them to Roth's law firm.

"Despite taking thousands of dollars in upfront and monthly fees, defendants provided little or no assistance to consumers, often abandoning claims they promised to bring on their behalf," Brown wrote.

Roth's attorney, Leonard Sharenow of Los Angeles, declined to discuss specific accusations in the lawsuit but said that his client's "role was simply an attorney for these individuals who were referred to him. He believes he acted properly and he intends to defend himself."

Alfredo Jarrin, Noe's attorney, said he had not yet seen the complaint and declined to comment.

The suit accuses Noe and Roth of violating various sections of the state Business and Professions Code and foreclosure consultant laws. Brown is seeking $2 million in civil penalties, restitution for United First's clients and an injunction preventing the two men from ever providing foreclosure consulting services.

The suit is just the latest trouble facing Roth, who filed his resignation from the State Bar in May. Just two months earlier, Bar prosecutors had obtained a court order shutting down Roth's three firm offices, citing his hospitalization for severe depression. In January, U.S. District Judge Manuel Real of Los Angeles declared Roth a vexatious litigant and ordered him to refund fees to nine clients.

Since the start of the mortgage meltdown, the State Bar has received almost 1,000 questions and complaints a month about lawyers' work on loan modifications and foreclosures. The Bar also has been fielding up to two dozen mortgage-related calls a day on its ethics hotline for lawyers.

The surge in complaints led the Bar in March to issue an ethics alert, warning lawyers that the mortgage arena is "fraught with danger," especially when working with foreclosure consultants. On June 24, the State Bar's Board Committee on Operations also called an emergency meeting to endorse two pieces of pending legislation that would curb the practice of requiring advance legal fees for loan modification services.

"We want you to know that the State Bar is continuing to work with other regulatory and law enforcement agencies to deal with attorneys involved in loan foreclosure fraud," State Bar President-elect Howard Miller wrote in a June 25 letter to one of the bill's authors, Assemblyman Pedro Nava, D-Santa Barbara. "We recognize that the State Bar must step up to the plate and deal with this issue."

The complaint filed by Brown alleges that United First lured homeowners with numerous helpful-sounding Web sites, including www.stopforeclosure.com and www.bailoutmyhouse.com. The firm then charged clients $1,500 upfront and at least $1,200 a month with assurances that Roth would take legal action to halt the foreclosure process. Agreements with United First required consumers to pay 50 percent of any mortgage settlement to the firm or, if their debts were eliminated, 80 percent of the home's value, Brown said.

One victim, identified only as "P.J." by the attorney general's office, paid Roth and United First nearly $5,000 in 2008 only to lose his home earlier this year. Roth took no action to protect P.J.'s home, Brown said.

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My comments: it is about time. Roth has been on the radar since last year. It took until now for the AG to do something. And the State Bar still has not done anything since Roth voluntarily resigned. In the meantime, legislators like Sen. Calderon and Assemblyman Nava are using this one story to try to ban consumers from getting legal help in dealing with banks.

Bankruptcies Higher In Wage Garnishment States

The Associated Press recently studied trends in bankruptcy filings. One thing stood out to them: in states where debt collectors can garnish wages, bankruptcies are sharply higher.

Five states, North Carolina, Pennsylvania, South Carolina, Florida and Texas, prohibit or sharply limit a creditors right to garnish wages. According to the Associated Press, "The nationwide bankruptcy rate is 42 percent higher than the rate in those five states."

There is a simple message here: by allowing debt collectors to go after someone's income, you make it substantially more likely that the debtor will file for bankruptcy. And this helps no one. The debtor does not come out ahead by filing for bankruptcy. The creditor does not get any money from a bankruptcy filing. The court system gets bogged down with more filings.

Maybe it is time for the other 45 states to start looking at North Carolina, Pennsylvania, South Carolina, Florida and Texas to see what they are doing to help avoid bankruptcies.