A new study, on the Wall Street Journal, finds that one out of four defaults on mortgages is “strategic” – meaning that the mortgage-holder does not pay and goes into foreclosure even when he could have afforded his mortgage payments. This occurs when the negative equity in the home passes a certain threshold. In simple terms, if the homeowner is paying a mortgage based on an older, higher assessment of the value of his home, but that same home is now worth significantly less, he may walk away and let the bank have it – even if he could have afforded his mortgage. This finding may seem obvious to some, but its implications for how we view homeownership are not. We have always thought that in addition to serving as shelter, a house is purchased as a long-term, low-risk investment. It seems, however, perhaps due to the housing crisis, people are not so inclined to “wait it out”, and are pulling their money as soon as negative equity reaches 10% – 25%.

Another finding of the same study emphasizes the importance of your neighbors in your decision to foreclose – because of social stigmas, foreclosing is easier when many in your neighborhood have done the same. Aside from social stigmas, watching a neighbor default on his mortgage makes one more pessimistic about the property values in the neighborhood and therefore the value of his own home. The more people foreclose in a neighborhood, the more the social stigmas are loosened, and the lower the property values in that neighborhood become. These effects lead to a “bubble” in a given neighborhood, with several foreclosures leading to many more.

These two findings together show that the difficulty of affording a mortgage is only a fraction of the story and that a foreclosure is often no more shameful than withdrawing one’s money from a bad investment. In addition, foreclosures are much more a regional problem than an individual one – each zip code is at risk of experiencing its own mini housing bubble.

Judgment of the district court affirming the bankruptcy court’s order confirming the Chapter 13 plan filed by the debtors is affirmed as the portion of a creditor’s secured claim attributable to the payoff of negative equity qualifies for protection from cramdown under the hanging paragraph of 11 U.S.C. section 1325(a) because negative equity financing constitutes a purchase money obligation under the UCC and thus the associated security interest satisfies the UCC’s definition of a purchase money security interest.

CHAPTER 7 & 13 BANKRUPTCY FOR NON-BANKRUPTCY ATTORNEYS

PRESENTED BY ATTORNEY / TRUSTEE THOMAS J. GEYGAN, SR.

What can Chapter 13 or Chapter 7 bankruptcy do for a troubled client?

Handouts

1. Bankruptcy reform requirements.
2. Documents needed prior to filing bankruptcy.
3. Exemptions available to Debtor.
4. Timeframe of a bankruptcy case.
5. Pitfalls to be aware of for Debtors and Creditors
6. Results achievable for client.
7. Questions and Answers

As of 4/1/2010 the updated exemptions under the Ohio Revised Code.

Exemption 522(d)	Old	New
Homestead (1)	$20,200	$21,625
Motor vehicle (2)	$3,225	$3,450
Household goods and furnishings (4)(a)	$10,775	$11,525
Jewelry (4)(b)	$1,350	$1,450
Tools of trade (5)	$2,025	$2,175
Personal injury recovery (12)	$20,200	$21,625
Wildcard (18)	$1075	$1,150

FTC Amends Free Credit Reports Rule To Help Consumers Steer Clear of ‘Free’ Offers that Cost Money
Starting April 2, advertising for “free credit reports” will require new disclosures to help consumers avoid confusing “free” offers – which often require consumers to spend money on credit monitoring or other products or services – with the no-strings-attached credit reports available at AnnualCreditReport.com, or 877-322-8228.

The Federal Trade Commission’s Free Credit Reports Rule will require new prominent disclosures in advertisements for “free credit reports.” For example, any Web site offering free credit reports must include a disclosure, across the top of each page that mentions free credit reports, which states:

THIS NOTICE IS REQUIRED BY LAW. Read more at FTC.GOV.
You have the right to a free credit report from AnnualCreditReport.com
or 877-322-8228, the ONLY authorized source under federal law.

The Web site disclosure must include a clickable button to “Take me to the authorized source” and clickable links to AnnualCreditReport.com and FTC.GOV.

The Credit CARD Act of 2009 requires the Commission to issue a rule by February 22, 2010, to prevent deceptive marketing of “free credit reports.” Specifically, the Act requires that certain advertisements for “free credit reports” include prominent disclosures designed to prevent consumers from confusing these “free” offers with the federally mandated free annual credit reports available through the “centralized source,” which is AnnualCreditReport.com, or 877-322-8228. The Credit CARD Act of 2009 requires a slightly different disclosure between now until April 2: “Free credits reports are available under Federal law at: AnnualCreditReport.com.”

The FTC proposed amending the Rule in October 2009 and received more than one thousand comments from consumers, consumer reporting agencies, consumer report resellers, business and trade organizations, state attorneys general, consumer advocates, law firms, members of Congress, and academics.

The amended Rule also restricts practices that might confuse or mislead consumers as they try to get their federally mandated free annual credit reports. For example, the amended Rule requires nationwide consumer reporting agencies – Equifax, Experian, and TransUnion – to delay any advertising for products or services on AnnualCreditReport.com until after consumers get their free credit reports.

The amended Rule is effective April 2, 2010, except for the wording of the disclosures for television and radio advertisements, which takes effect on September 1, 2010. The FTC will monitor and evaluate the effectiveness of the amended Rule and the required disclosures, and will consider additional changes as necessary.

The amended Rule can be found on the Commission’s Web site as a link to this press release and will soon be published in the Federal Register. The Commission vote authorizing the publication of the Federal Register notice was 4-0.

Information in credit reports may affect whether consumers can get a loan or a job, so it is important that consumers check their credit reports and correct any information that is inaccurate. Each of the nationwide credit reporting companies is required to provide consumers with a free copy of their credit reports once every 12 months upon request. Consumers can learn more about their right to a free credit report under federal law at http://www.ftc.gov/freereports.