Start by understanding your rights and the rules regulating debt collection. The Federal Trade Commission (FTC) has set debt collection rules, so take time to visit its website and request information regarding your rights and what the debt collectors can and cannot do. The National Consumer Law Center is another good information resource. You will also want to enlist the services of a debt attorney. Only a personal attorney will be well acquainted with debt collection law in your state.

In the 1970s, Congress passed the Fair Debt Collection Practices Act (FDCPA) to regulate debt collection companies and attorneys. Remember, this law does not regulate the creditors to whom you owe money. FDCPA covers all personal, family and household debts, including car payments, personal credit cards and medical bills. Under the law, creditors can contact you about your debt via mail, phone, fax or in person; but they may not call you before 8 a.m. or after 9 p.m. unless you specifically agree to it. Collectors must speak with your debt attorney if you have one. If you do not have a debt attorney, creditors may contact people you know to learn your address, phone number or where you work. Usually, debt collectors cannot contact a third party more than once. In most cases, the collector will only tell you and your attorney that you owe money.

Under FDCPA, debt collectors are not allowed to harass or abuse you; these prohibited actions can include threats of violence or obscene language. They cannot give false or misleading representation by implying they are from a government organization or that you have committed a crime. Debt collectors are also prohibited from collecting more money than you owe, taking your property when they do not have the authority to do so or forcing you into a foreclosure filing.

If you are contacted by a debt collector, keep thorough records of any dealings you have with the person. Consider taping any phone conversations you have so there are no “he said, she said” moments down the road. If you choose to do this, make sure the person you are speaking with is aware they are being taped.

If you believe you do not owe the money or the amount given by the debt collector is incorrect, request verification. They are required to mail you a verification letter within five days of their first contact with you. If you believe the debt is yours and correct, set a payment arrangement in writing before sending a check or money order.

Never allow a debt collector access to your checking or savings accounts. In fact, consider sending money orders instead of personal checks. Never assume you will get goodwill from a debt collector – it’s their job to clear your debt and they may tap into your personal bank accounts to do it. Always control information when speaking with debt collectors. Do not tell them where you work, where you bank or where you live. Give them as little personal information as you possibly can.

Calls and other contact from debt collectors can be scary. Instead of dealing with them yourself, try to find a lawyer who is experienced in debt collection law. A personal attorney will look out for your best interests and keep you from any unintentional slip ups – like sending a check when you should send a money order – that could end up costing you. This lawyer may also be familiar with bankruptcy law and can educate you on your best options.

Mark E. Godbey, Attorney at Law
Mark E. Godbey & Associates
708 Walnut Street, Suite 600
Cincinnati, Ohio 45202
(513) 241 – 6650 phone
(513) 241 – 6649 fax

Alterations or “workouts” of troubled mortgages are key to stemming the nation’s tide of foreclosures, say housing advocates and industry experts. The plan announced last week also creates a process to restructure loans, which will spur resolution of pending foreclosure cases, they added.

Curbing foreclosures also has implications for the housing market in particular and the economy in general. “The rise of foreclosure means more houses coming back on market which pushes home prices down further, depresses toxic assets further and continues to erode household wealth,” said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Mass.

While lenders and servicers restructured nearly 2.3 million mortgages in 2008, the financial industry has been criticized for its slow response at processing foreclosures. In addition, housing advocates have said the industry has been too stingy with concessions to troubled homeowners, which they say perpetuates bad loans.

“The affordability piece is critical, otherwise the (workout) loans fail and we’ll be modifying terms again,” said Sister Barbara Busch, executive director of Working in Neighborhoods. a nonprofit housing agency in South Cumminsville.

The stakes are high. Industry estimates say the U.S. could see another 2 million foreclosures this year. The administration estimates 6 million Americans could face foreclosure in the next several years.

Southwest Ohio and Northern Kentucky saw foreclosures in 2008 respectively rise 7.5 percent and 17.2 percent.

Foreclosure filings in Hamilton, Butler, Clermont and Warren counties increased to 12,251 in 2008 compared with 11,397 in 2007. Filings in Boone, Campbell and Kenton counties climbed to 2,001 last year from 1,708 in 2007.

A Delhi Township woman’s case illustrates how a workout may only delay and not prevent a foreclosure.

Shirley Nagy, a 63-year-old retired secretary for Cincinnati Public Schools, fell behind on her mortgage with Wells Fargo last year when her rate began to adjust after two years. Her monthly payments jumped from about $950 to $1,500.
“They wouldn’t deal with me or accept partial payment,” she recalled, noting she fell behind four months when she got a notice her lender would file foreclosure. She avoided losing her two-bedroom, single-bath home last spring when WIN helped negotiate a workout plan.

But there’s a catch. Under the workout, the bank simply agreed to extend by two years the period when her rate is fixed and her payments are below $1,000 – her rate will begin to float again in the spring of 2010.

She owes $130,000 on a house that’s appraised at $115,390. “I’ll be lucky to get it valued at that,” she said. In the next 18 months, “I have to re-fi or I’ll be right back where I was,” Nagy said.

Workout statistics maintained by the Hope Now Alliance, an industry group formed in 2007 to stem the tide of foreclosures, suggest the industry has dug a little deeper as the foreclosure crisis worsened in 2008.

Fifth Third Bank, Greater Cincinnati and Northern Kentucky’s largest mortgage lender with 7,921 local mortgages originated in 2007 with a value of more than $1.2 billion, said it has restructured $770 million worth of consumer loans since the third quarter of 2007.

In 2007 and into early 2008, financial institutions emphasized “repayment plans” that stressed giving homeowners more time to “catch up” with payments. By December, however, more than half of workouts were more aggressive “modification” plans that change the actual terms of a mortgage, such as interest rate, duration and even principal owed.

Industry officials say Obama’s yet-to-be-unveiled modification template could solve the issue of sustainability.

Jeff Quayle, general counsel for the Ohio Bankers League, said Obama’s plan could spur loan modifications by reducing liability issues.

Up until now, lenders and servicers have negotiated workouts on a case-by-case basis. Servicers, who act as bondholders’ agents, have limited flexibility because they could be sued by investors if they don’t collect enough money from homeowners. Establishing industry standards for identifying mortgages in trouble and how they should be restructured provides servicers with the legal protection to conduct more workouts.

“It creates a template the industry can use and they don’t have to be worried about being second-guessed in the court system,” he said.

Once the template is set, the scope of the aid to at-risk homeowners will be clearer, said John Glascock, the director of the University of Cincinnati’s real estate center.

The government is “trying to help but not waste taxpayers’ money,” he said. If homeowners put no money down when they purchased, officials are “probably not going to consider you ‘at-risk,’ they’re going to consider you ‘gone,’ ” Glascock said.

Changing terms in court

Still, one key provision to cutting the burden on homeowners that requires congressional approval – the bankruptcy “cram down” – has emerged as a lightening rod.

The plan advocates allowing judges to modify terms of mortgages for homeowners in bankruptcy. Specifically, bankrupt homeowners who owe more on their mortgage than their house is worth could convert the excess debt into an unsecured claim – which could ultimately mean the lender collects less or even no money for that portion of the debt.

Lenders argue imposing mortgage terms would spur bankruptcies, further undermining value for investors and further destabilize financial markets.

“We’re against the cram down,” Quayle said.

But housing advocates say “you’ve got to have sticks – not just carrots – if banks won’t do it,” Busch said.

To protect themselves, lenders want to be allowed to veto any alteration in a home mortgage, said Michael Calhoun, president of the Center for Responsible Lending, a consumer advocacy group. Bankruptcy lawyers argue that such a veto isn’t necessary because under the proposed change, the homeowner and the lender would be able to present their case.

Each side could have an appraiser, and the judge would hear the testimony of both sides, including information about the borrower’s income and expenses, said Joe Lee, bankruptcy judge for the Eastern District of Kentucky.

Republicans opposed

It’s likely that the bankruptcy provision will be attached to a congressional appropriation bill, and in the process, some details could change. It will also face GOP opposition.

In a statement last week, House Republican leader John Boehner, R-West Chester, questioned whether the provision would increase mortgage payments for responsible borrowers. But U.S. Rep. Steve Driehaus, D-Cincinnati – who as a state representative served on Ohio’s task force to prevent foreclosures – said allowing bankruptcy judges as a last resort to rewrite terms would prompt lenders to “get serious” about loan modification. “I don’t think it will be abused – it’s another tool,” he said.

Joseph H. Spring, Esq.
MARK E. GODBEY & ASSOCIATES
708 Walnut Street, Suite 600
Cincinnati, Ohio 45202
(513) 241 – 6650 phone
(513) 241 – 6649 fax

WASHINGTON, D.C.//October 4, 2006//As the controversial federal bankruptcy overhaul approaches its first anniversary, a new survey of 700 members of the National Association of Consumer Bankruptcy Attorneys (NACBA) is the latest proof that the ill-conceived law is failing on an across-the-board basis. More than two-thirds (68.5 percent) of those surveyed said that their bankruptcy filings are up in the third quarter of 2006, compared of the first half of the year. Almost three out of five bankruptcy attorneys (57.5 percent) now expect filings to reach their pre-overhaul levels by or before the laws second anniversary in 2007.

Key findings of the survey include the following:

Contrary to what proponents of the law projected, fewer than a third of bankruptcy attorneys are seeing an increase in forced Chapter 13 repayment filings. Only 31.4 percent of attorneys have seen an increase in filings since the bankruptcy law changes went into effect last year. Fewer than one in 20 (4.5 percent) reported seeing a major increase.

More than three out of five bankruptcy attorneys report a jump in consumer inquiries about bankruptcy. Comparing the third quarter to the first half of the year, 71.6 percent of those surveyed are seeing increased demand, with more than one in five (21.7 percent) reporting a major increase.

Very few filings are about wasteful spending. In the vast majority of cases, consumers are forced into bankruptcy by major and unforeseen expenses (joblessness at 39.6 percent and medical expenses/other medical costs at 33 percent) or combinations of factors (mortgage/home-related debt at 64 percent and increased credit card interest rates at 41.1 percent). Fewer than one in 10 cases (8.1 percent) handled by bankruptcy attorneys were linked to discretionary spending habits, according to the survey. (Note: Two responses were permitted to this question, which is why the reported total exceeds 100 percent.) 

The NACBA survey of 3,000 U.S. bankruptcy attorneys resulted in a strong response rate of 24 percent (714 completed surveys). The survey was conducted on a secure, Web-based site from September 25-28, 2006. Only one response was permitted per individual. Full survey findings are available online at http://www.thehastingsgroup.com/NACBASurvey/Summary.html.

The new survey is the latest NACBA look at the practical impact of the 2005 bankruptcy law. On February 22, 2006, NACBA released the first analysis of tens of thousands of consumers seeking protection since a new federal bankruptcy law went into effect inOctober 2005. The data showed that of 61,355 of the earliest consumers seen by credit counseling firms the required first stop under the new bankruptcy law nearly all (97 percent) were unable to repay any debts and that an overwhelming majority were forced into dire financial straits by circumstances beyond their control, such as the loss of a job, catastrophic medical expenses or the death of a spouse.

EDITORS NOTE: A streaming audio replay of the news event will be available on the Web at http://www.nacba.org as of 6 p.m. ET on October 4, 2006.