Blog

Speculative real estate investors in states like California, who already owned residential properties and took out mortgages to purchase new properties, were responsible in no small measure for the housing bubble and the consequent foreclosure crisis. New research by the Federal Reserve Bank of New York points to the underappreciated role of real estate investors who took advantage of easily available credit to buy residential properties. The role of these speculative real estate investors had not been probed adequately until now.

In states like California, these investors formed a substantial portion of lending activity, and their actions helped push residential property prices up. At one point, the number of these investors was as high as 45%. Between 2004 and 2006, these real estate investors formed a large chunk of mortgage purchases, inflating prices for those who wished to buy homes to live in with their families. As a result, owner-occupants ended up having to spend more to buy residential properties. However, investors were able to benefit from the availability of low and no-down payment mortgages to pick up houses even with these inflated prices.

When house prices began to drop in 2006, many of those speculative investors were also the first to default. Every California foreclosure lawyer knows that owner-occupants are less likely to walk away from a house and apply for a foreclosure, compared to real estate investors who don't live on the property.

The large number of investor mortgage defaults contributed to plummeting housing prices, and vast numbers of foreclosures in California. Many owner occupants found that their homes were worth less than the purchase price, and when the economy tanked, many were unable to meet mortgage payments. This at least partly contributed to the massive foreclosure crisis that affected states like California, Arizona and Nevada the most.

In a victory for California homeowners facing foreclosure, California Attorney General Kamala Harris walked away from settlement talks in September 2011, with Bank of America, JPMorgan Chase, Wells Fargo, and Ally Financial, five of the largest mortgage servicers in the country. “After much consideration, I have concluded that this is not the deal California homeowners have been waiting for,” Harris wrote in a letter to the Associate U.S. Attorney General. “(The) relief contemplated would allow too few California homeowners to stay in their homes.

The talks began following the robo-signing scandal that plagued the mortgage industry with accusations of rubber-stamping when it came to foreclosure paperwork. Over the past 11 months, states have been trying to negotiate a $25 billion settlement that could be passed on to homeowners who have suffered wrongful foreclosures. Some homeowners in California lost their homes despite the promise of loan modifications by lenders who then continued the foreclosure process, often behind the scenes. In other cases, lenders could not prove they had the right to foreclose on a property, yet still evicted the owners.

California carried a lot of clout in these settlement talks because of the sheer numbers of foreclosures hitting homeowners here. New York, another state hit hard by the mortgage meltdown, withdrew from the talks earlier. A big sticking point in the negotiations was the extent to which banks should be released from liability for additional legal claims related to the mortgage crisis if they agreed to the settlement. "It became clear to me that California was being asked for a broader release of claims than we can accept and to excuse conduct that has not been adequately investigated," said Attorney General Harris.

What does the breakdown of these talks mean to California homeowners? In the short term, there will be no quick relief from improper foreclosure. Longer term, Harris indicated California will act independently towards relief for California homeowners by moving forward with investigations into abusive mortgage practices that fueled the housing crisis. While one avenue of foreclosure relief for California homeowners may have changed, it’s not the end of the road.

If you are a homeowner facing foreclosure or other financial problems, contact us to discuss a solution.

Many seniors who have waited till their 60s, 70s and 80s to enjoy the best years of their lives are finding that their struggles are just beginning. In 2008, California bankruptcy lawyers found a startling increase in the number of seniors filing for bankruptcy. Now, new data from the US Census Bureau finds that the number of seniors living in poverty, or on the edge of poverty has increased.

According to the data, the percentage of senior citizens who had annual incomes below 200% of the Federal Poverty Level increased from 33.7% to 34.6% in 2010. There were 13.23 million citizens living below the poverty line in 2009, and these numbers increased to more than 13.54 million in 2010. The number of senior citizens living below 100% of the federal poverty level saw an increase from 3.4 million to 3.5 million.

According to the National Council on Aging, there has been an increase in economic insecurity for senior citizens. Additionally, there has been an increase in the number of people who are teetering on the edge of poverty, struggling every day to pay for food, groceries, medicines and rent.

Moreover, current poverty level markers do not accurately measure the number of people who actually live in such poor conditions. For example, the current poverty level markers measure family incomes at consumption levels dating back several decades. These levels therefore do not accurately reflect consumption patterns in the year 2011. What that means is that the number of senior citizens living in poverty could actually be higher.

Senior citizens who wish to file for personal bankruptcy protection may have limited options. The current employment situation is grim even for younger people with updated skill sets, so going back to work may not be a feasible option. Many people choose to sell off assets like houses, which for obvious reasons, is undesirable. A California bankruptcy attorney should be able to advise you about your options and the best route going forward.

The class of 2011 is expected to graduate with record massive student debt of $1 trillion. Clearly, the student debt scenario in this country has gotten out of control, and California personal bankruptcy lawyers are pleased to see that the Obama administration has finally announced proposals to deal with this crisis.

Under the president's plan to ease student loans, some student borrowers will be able limit their monthly loan repayments to 10% of their discretionary income. This will likely begin from next year onwards. The plan covers an estimated 1.6 million borrowers. However, persons who choose a low monthly repayment plan must understand that this also means a longer repayment term.

Another part of the plan that California bankruptcy attorneys find particularly encouraging is that the remainder of the loan may be forgiven after twenty years of repayment. Currently, persons may have their loans forgiven after twenty-five years. Persons in some jobs like nonprofits could even have loans forgiven after ten years.

President Obama's plan will also allow borrowers to consolidate loans through the Direct Loan Program. This will allow them to get an interest reduction of .25% on the Federal Family Education Loans, as well as another .25% savings on interest on the consolidated balance.

The plan will also allow students to compare and review loan packages before they make a decision. Further, under the President’s plan to tackle student debt and encourage entrepreneurship, Gen Y Capital Partners will meet the monthly student loan payments of entrepreneurs, who have entered a federal loan repayment program and started a new business.

Student debt in this country has already reached crisis proportions, not just because of rising tuition fees, but also because students now graduate with massive amounts of debt, but few employment prospects. In the current economic situation, it would be suicidal to ignore this problem until it balloons to critical levels.

Analyzing the results of a new study conducted by the University of Iowa may seem to Los Angeles bankruptcy lawyers like locking the barn doors after the horses have bolted. The study finds that up to 25% of Americans who filed for bankruptcy in 2007 might have been able to avoid bankruptcy if credit limits were still at the levels they were in the 1970s.

The study was conducted by a University of Iowa sociology professor. According to the study, when you look at the number of people who filed for bankruptcy since the housing crisis hit in 2007, and look back at numbers from the 1970s, it is apparent that many of these people would not have been in this position if credit limits were still at 1970s levels.

Back in the ‘70s, a person could not get a mortgage of more than 30% of his or her income. Car buyers could not take out a car loan that required monthly installment payments of more than 10% of their income. In other words, people were loaned money based on their capacity to pay back.

As any Los Angeles bankruptcy attorney knows, things changed dramatically over the next couple of decades. Banks began lending money indiscriminately to people who could not afford to pay back these loans. Banks then immediately started selling off those loans in order to protect themselves.

Many of the people who took loans in 2007, when the housing bubble was at its peak, were high-risk borrowers whose chances of paying back the loans were slim. This has resulted in thousands of foreclosures over the past three years.

The Occupy Wall Street movement, which began as a small gathering in a New York Park, has spread across the country. In California too, demonstrators have been expressing their loud protest against the fickle Wall Street policies that have resulted in the subprime mortgage crisis and the economic recession.

In California, protests have occurred in Los Angeles, San Francisco, Berkeley, Richmond, Walnut Creek, Oakland and San Ramon. The protests have included participation by students, community groups, and consumer advocates as well as hundreds of homeowners who have been victims of foreclosure.

These demonstrations have broadly targeted the role of the financial services sector in the current economic downturn. However, there has been a special focus on the contribution of the housing crisis. Across the country, California bankruptcy lawyers have noted that many of the people participating in the demonstrations are those who have lost their homes to foreclosure. Foreclosure rates in California and in other states of the country have been declining, but California continues to remain the foreclosure capital of the country.

Much of the protesters’ ire has been targeted at companies that promoted mortgages toward low-income groups. These people were provided easy loans in spite of the fact that they were high-risk borrowers. Many could not afford to repay their mortgages, with the result that many of these homes went into foreclosure. Millions of homes have been foreclosed on over the past three years, and neighborhoods in which these homes were located quickly went to decline because of the large number of neglected and unkempt empty properties.

One of the demands of the protesters is that the federal administration enforce laws governing the mortgage industry. The protesters are also demanding that homeowners and consumers be afforded better protections against manipulations by Wall Street.

The typical profile of a person filing for bankruptcy used to include the words “non-college graduate” and “low-income.” That isn't the case anymore. Although, most bankruptcy filings involve persons without a college education and a lower income level, there are an increasing number of persons with college degrees and high salaries filing for bankruptcy.

The economic downturn has had a dramatic impact on the profile of the average person who files for bankruptcy. California bankruptcy lawyers are coming across more and more filings involving people who have a job and a college degree. Although low-income persons constituted 40% of bankruptcy filings last year, high income earners have been breaching the gap over the past five years. According to a study, between 2006 and 2010, bankruptcy filings among college graduates earning more than $60,000 a year actually increased.

Additionally, the research found that more bankruptcy filings now involve persons who are married. During this period, approximately 64% of the persons filing for bankruptcy were married. The research involved more than 50,000 persons who had filed for personal bankruptcy protection.

Among those with a college and high school education, persons with a bachelor's degree accounted for 13.58% of filings in 2010, an increase from 11.2% the previous year. Bankruptcy filings were the highest among persons who had only a high school diploma, but their share of overall bankruptcy filings fell by 8.6% last year.

The highest number of bankruptcy filings involved people who went to college, but did not complete college. These filings accounted for close to 29% of filings last year. California bankruptcy lawyers don’t find it hard to understand the reason for this. In such cases, the persons likely had a lot of student debt, but did not finish college and get a well paying job, and therefore, did not have the means to pay off the debt.

It’s no secret to Los Angeles bankruptcy attorneys that foreclosures are bad for a person's health. Now, economists from Princeton University and Georgia State University have measured exactly how bad.

The researchers specifically looked at the health of residents facing foreclosure in California, Arizona, New Jersey and Florida. The people in included in the study were people aged between 20 and 49. The researchers found that an increase of 100 home foreclosures was associated with an increase of 7.2% in emergency room visits and hospitalizations for hypertension. Additionally, an increase in foreclosures was associated with an 8.1% increase in diabetes.

Moreover, each increase of 100 foreclosures was also linked with a 12% increase in visits to hospitals due to anxiety attacks. There was a 39% increase in the number of visits to the hospital for suicide attempts. However, the economists did not find any similar associations between foreclosures and diseases like cancer or elective surgeries.

Areas with high numbers of foreclosures in California seem to be associated with an increase in stress-related medical conditions. It may not just be persons facing imminent foreclosure arriving at hospital emergency rooms with symptoms of anxiety and stress. It may also be neighbors in areas with a number of homes in foreclosure, who are anxious and stressed about the drop in real estate equity.

The research also found that in areas in the top fifth of foreclosure activity in the country, there were more than double the normal visits to hospitals for preventable conditions, than those places with low foreclosure activity.
The link between foreclosures and adverse health effects seems to be established. However, the researchers have not been able to establish cause and effect. In other words, it could also be that persons who are highly stressed and are in failing health are more likely to face foreclosure.

Bad financial decisions happen to the best of us, even celebrities. In fact, many celebs’ successful post-bankruptcy stories should inspire people who are currently wary of filing for bankruptcy.

Donald Trump's casino business has filed for bankruptcy more often than once. Bankruptcy papers were first filed in 1992, again in 2004 and yet again in 2009. In 2003, Mike Tyson filed for bankruptcy after it was found that he owed $13.3 million to the IRS and $7 million to various creditors. Kim Basinger filed for bankruptcy in the early ‘90s after a decision to walk out of a movie led to a massive lawsuit and a verdict against her. Oscar-winning actor Nicholas Cage has had his fair share of financial problems, including debt to the Internal Revenue Service and a home foreclosure.

Just as California bankruptcy lawyers often see, many of these people have been able to leave their financial mistakes behind, and move on to successful lives after their bankruptcies. CNN's former anchor Larry King, declared bankruptcy in 1978 after he was more than $300,000 in debt. King managed to dig himself out of his financial situation, and became one of the most successful talk show hosts in the country. Other successful celebrity bankruptcies include Cyndi Lauper, who filed for bankruptcy after she split with her band in 1980. That was five years before she got her first hit single, ending her financial bad days forever.

It's not just entertainers who end up with financial troubles. Former Texas Gov. John Connally, famous for being one of the occupants in John F. Kennedy's limousine when he was assassinated, filed for bankruptcy in 1986. In fact, there is an entire club of American presidents who have filed for bankruptcy, led by Abraham Lincoln who filed for protection in 1833 after his grocery business folded up.

Milton Hershey, founder of the Hershey Chocolate Company, had at least one bankruptcy on his record before he started his legendary chocolate company. Walt Disney was forced to declare bankruptcy when one of his clients fell into financial trouble. However, that did not stop him from establishing an entertainment conglomerate.

According to the American Bankruptcy Institute, there has been a drop in the number of personal bankruptcy filings in the United States in 2011. The statistics show that American consumers filed a total of 709,303 bankruptcies from January 1st to the end of June. That is about 7.9% fewer bankruptcies than during the same period of time last year.
 
The month of June alone had encouraging results for California personal bankruptcy lawyers, with approximately 5% fewer personal bankruptcies than in June 2010. In 2010 overall, 1.5 million people filed for bankruptcy in the United States.

According to the American Bankruptcy Institute, the personal bankruptcy filing decline this year shows that American consumers are making continued efforts to reduce household debt. The drop in bankruptcy filings may also be due to the overall decline in consumer credit.

That was the good news. The bad news is that this drop in personal bankruptcy filings across the country has not been uniform. California bankruptcy lawyers found depressing results for the Golden State. There was no decline in bankruptcies in California compared to the same period of time in 2010. In June, more than one out of every six bankruptcy filings in the country was filed in California. In fact, the national decline in personal bankruptcies could have been steeper if California had also reported a drop. California's dismal figures reflect badly on the national statistics, because of its huge population.

Besides California, the southwestern states are also still struggling with bankruptcy issues. Nevada, for example had the highest number of personal bankruptcies filed per capita in 2010. However, in 2011, Nevada saw 16% fewer bankruptcies compared to 2010. Some states like including Vermont, West Virginia, Washington DC, and North Dakota have seen sharp drops in bankruptcy filings.