Written by Columbia Bankruptcy Lawyer, Lex A. Rogerson, Jr.

Several years ago a then U.S. Secretary of Defense opined publicly, if confusingly, about foreign affairs, saying there are known unknowns and unknown unknowns.  The list of questions involved in the everyday application of the bankruptcy means test – some now resolved and some still waiting for answers – reminds us of that somewhat tortured speech.

To put these issues in context, remember that the means test is intended to calculate a debtor’s disposable income.  It begins by calculating gross monthly income based on the last 6 months.  Then it subtracts the debtor’s expenses: fixed allowances in some categories and actual expenditures in other categories.  The difference – the debtor’s disposable income – helps determine whether the debtor is a candidate for Chapter 7 or how much he must pay to creditors in Chapter 13.

Here are the top 5 questions we have faced since the means test came into effect in 2005:

1.    When do I have “primarily consumer debts”?  If a debtor has primarily non-consumer debts, he can usually file Chapter 7 even if he has a fair amount of disposable income he could pay to creditors.  Lots of case law says that “primarily” means over half the total dollar amount of debt.  It’s also clear that a consumer debt is one incurred for personal, family, or household purposes and not for a profit motive.  But so far we have only partial answers on how to classify special debts such as student loans, taxes, and certain domestic obligations.

2.    What all is excluded as social security?  The means test directs us not to include as income any payments “under the Social Security Act.”  Clearly this keeps out payments such as social security retirement, disability, and SSI.  But the courts are about evenly split on the inclusion of unemployment benefits, which don’t come from the Social Security Administration but were mandated by legislation linked to the Social Security Act.  And a few courts have held that only the debtor’s social security benefits are excluded, not those of other members of his household.

3.    Can I claim a deduction for vehicle ownership expense if my car is paid for?  Many courts, including ours in South Carolina, answered this question yes.  But in January 2011, the U.S. Supreme Court decided a debtor can deduct ownership expense only if paying on a car loan or lease.

4.    Can I deduct payments on a secured debt if I intend to surrender the collateral?  In the District of South Carolina, the answer is no based on a 2007 decision.  But the code section involved allows deductions of “amounts scheduled as contractually due,” a phrase that seems to have nothing to do with the debtor’s intention.  And a 2009 court of appeals decision from New England says the majority of cases disagree with our court.  But until a higher court decides differently, we can’t take the deduction in this district.

5.    What happens if something is going to change after I file?  For above-median debtors filing Chapter 13, the means test, at least in theory, determines how much they must pay unsecured creditors.  But what if the debtor knows for sure that things will be different in the future than they have been leading up to bankruptcy?

In June 2010, the U.S. Supreme Court decided that changes to the debtor’s income or expenses that are known or reasonably certain at the beginning of the case will change the means test calculation of disposable income.  In that case, the debtor received a one-time buy-out from her employer a few months before she filed her case.  Because her future earnings would not reflect this bump in income, the court said it should not be included in calculating her payment obligation.

This rule can help or hurt a debtor.  For example, if a debtor is paying off a retirement account loan, that is a deductible expense in Chapter 13.  However, if the loan is paid off while his case is pending, his plan must probably increase (“step-up”) the plan payments at that point.

Hopefully in the next couple of years, several more of the unknowns will become knowns.  Stay tuned.

No related posts.

Written by Charleston Bankruptcy Lawyer, Russell A. DeMott

When you file bankruptcy–in South Carolina or anywhere else–lenders usually stop accepting electronic payments.  In my Charleston area bankruptcy firm, I get calls and emails about this regularly.

Don’t panic!

First, don’t panic.  This doesn’t mean that your mortgage company or auto lender won’t take your payments.  It just means that since you filed bankruptcy, the account has been coded for special treatment.

Why?

I don’t represent institutional creditors, so I can’t give you a definitive answer.  I suspect the reasons for these policies are as follows:

• The creditor does not want to violate the automatic stay so it “flags” or “codes” the account for special treatment.
• If the creditor is debiting the borrower’s bank account, that could be construed–although done with the borrower’s permission–as a violation of the automatic stay.
• The creditor needs to do other things with the account which require it to be coded or flagged–verify insurance coverage, hire counsel to examine the bankruptcy filing, etc.

What do I do?

Pretend its 1989 again.  Mail in your payments.  Most creditors will give your attorney a letter with information about making payments.  Even if they don’t, just send in your payments by writing out a check and putting it in the mail with proper postage–easy peasy.

What kind of debts or payments are we talking about here?

To be clear, I’m addressing payments to creditors who you want to keep paying–your auto lender, your mortgage company, perhaps the IRS if you have “priority” (non-dischargeable taxes).  Keep in mind that you would never continue to pay unsecured creditors (VISA and Master Card) after you file bankruptcy unless specifically advised to do so by your bankruptcy lawyer.

This policy is sometimes irritating and, to some debtors, feels like they are being punished or singled out.  But there are reasons for it. If it helps creditors comply with the law, it’s a good thing.

And if you have questions about these issues, call or email your bankruptcy lawyer. 

No related posts.

The truth, the whole truth, and nothing but....

The US Attorney in Columbia announced Friday that former Gamecock and New England Patriot Rick Sanford has pled guilty to bankruptcy fraud, and been sentenced to two years probation, thirty days home detention, and community service.  The charges and guilty plea stem from a 2009 Chapter 7 bankruptcy filing.

Dr. Sanford, who established a chiropractic practice in Lexington after his NFL career, ran afoul of the Chapter 7 trustee and the United States Trustee almost immediately after filing his case.  From court documents, it appears that the trustee and U.S. Trustee thought that he had undervalued certain assets, and failed to disclose other assets.  Ironically echoing the allegations against Lenny Dykstra, he was also accused of removing assets from his home before the trustee could inventory the contents.  (Just so you know, trustees rarely conduct an inventory of household goods; but when you are a doctor and former NFL player, I guess you get special treatment.)  Apparently the final straw came when the trustee discovered a 25% interest in a Vail condo that had not been disclosed.  The criminal indictment and guilty plea centered around the failure to list that condo as an asset.

The media reports (as is often the case with bankruptcy issues) are not quite accurate.  Those reports indicate that Sanford “withdrew” his bankruptcy petition.  That makes it sounds like he just called a halt to the whole bankruptcy process.  But that is not what happened at all.  What actually happened is that he agreed not to seek a discharge in the case.  A discharge is the court order that says your creditors can’t try to make you pay any more.  So, he did not get a discharge, meaning his creditors can still try to collect from him.  Meanwhile, the liquidation of his assets by the trustee continued.  In bankruptcy terms, he got the worst possible outcome–no protection from creditors, and the trustee sold all his stuff.

Here’s the deal:  Bankruptcy can free you from the oppression of overwhelming debt, but the price of admission is full disclosure.  No half measures, no omissions, no fudging on values.  You have to list all your assets, even the assets that have no value to anyone but you, even the assets that are exempt from creditors.  You have to list all your creditors, even the ones you intend to pay.  You have to prepare your tax returns, and give copies to your trustee.

If you live in South Carolina, the Sanford case (and others like it) should serve to put you on notice that South Carolina trustees, the Office of the United States Trustee, and the U.S. Attorney’s office are willing and able to pursue criminal charges if you commit bankruptcy fraud.  If you have assets that you are concerned about losing in bankruptcy, there are other options available to you.  Have a frank and honest discussion with an experienced bankruptcy attorney about whether it is likely that a bankruptcy trustee will sell the assets that you can’t bear to lose, and what other options you may have.  Trust me, those other options are far better than risking a federal criminal indictment.

Related posts:

1. Bankruptcy Fraud and the Hot Dog Vendor

Written by Spartanburg Bankruptcy Lawyer, Däna Wilkinson

The South Carolina Supreme Court has ordered new mortgage modification procedures to be followed in foreclosure cases in South Carolina.  The intent of the new rules (the “2011 rules”) is to try to stem the tide of foreclosures in South Carolina, ensuring that foreclosure is a last ditch remedy instead of the first tool out of the box.  Whether the new rules will accomplish this goal remains to be seen, but at least the Supreme Court is making an effort.

A little background is in order.  In May 2009, the South Carolina Supreme Court, through Chief Justice Jean Toal, issued an order establishing new procedures to ensure that loans which were entitled to consideration under the government’s Home Affordable Modification Program (the “HAMP” program) were fairly evaluated and that lenders who voluntarily signed up for the program actually complied with the program’s guidelines.  Despite those procedures, however, foreclosures have continued to increase.  As Justice Toal states in the preamble to the new rules:

Since imposition of my prior order, the number of foreclosure actions filed in this State have continued to increase.  The trial courts having jurisdiction over such actions have reported to this Court difficulty in making final disposition of these actions as a result of failed or delayed loss mitigation efforts between lender-servicers and mortgagor-debtors.  As a result, the number of unresolved foreclosure actions has increased, with a resulting burden on the resources of the Court before which the action is pending.

The HAMP program is widely acknowledged to be a dismal failure.  As Justice Toal notes, the program is plagued by reports of mishandled documents, lack of adequate of staff to process applications, failure to properly train staff, and failure to communicate.  I could go on at some length, but suffice it to say that a program that depends on the mortgage servicing industry to handle modification applications efficiently is probably doomed to failure from the start.  Justice Toal is much too professional to say that, but reading between the lines, that may have been her conclusion as well.  This why the new rules don’t rely on the mortgage servicers to communicate with property owners about modification at all; foreclosure attorneys must now handle these communications.

That communication part of the new rules is a very significant provision, but it isn’t the only one designed to stem the flow of foreclosures where the property owner wants to modify the mortgage to try and keep his home.

First, the new rules don’t apply only to HAMP modifications.  HAMP is available where the mortgage in question is guaranteed by Fannie Mae or Freddie Mac, or where the lender has volunteered to participate in the program.  The 2011 rules apply to any “foreclosure intervention,” which is defined as “any policy, process or procedure employed by a Mortgagee for the purpose of seeking a resolution of a foreclosure action by loan modification or other means of loss mitigation.”  Yep, it says “any.”  So, if the lender has “any” loss mitigation or internal modification procedures, it must notify the homeowner of those options.  If the homeowner elects to apply for any mortgage modification–or “foreclosure intervention,” to use Justice Toal’s term–the foreclosure litigation has to wait on the conclusion of that application.  The lender can’t proceed with the foreclosure action at the same time.

As I read the rules, lenders can’t offer the homeowner the foreclosure intervention, deny the intervention and then foreclose, without offering the options again.  So for example, say that you applied for a mortgage modification through your lender before you got behind on your payments, but your the lender lost your application, or didn’t get the documents you sent (or said they didn’t, at any rate) and then turned down your application.  The 2011 rules seem to say that the lender can file a foreclosure action with the court, but at the same time, they have to send you information about their foreclosure intervention programs, give you the opportunity to re-apply, and this time handle all the paperwork through the lender’s attorney’s office.

No one knows whether the Court’s new order will help, and how the trial court judges will apply these new rules, but it’s certainly a step in the right direction.  I applaud our Court for doing its best to ensure that hard working South Carolinians don’t needlessly lose their homes when they would otherwise qualify for mortgage modification.  As William Jennings Bryant said over 100 years ago, “You shall not crucify mankind upon a cross of gold.”  Let’s hope corporate America gets this message and gets it’s act together.

Related posts:

1. Robo-Slop or “How I Learned to Stop Worrying and Love Foreclosure”
2. Wage Garnishment in South Carolina-NOT!
3. South Carolina Chapter 11 Bankruptcy for Retailer Bi-Lo a Success

Written by Charleston Bankruptcy Lawyer, Russell A. DeMott

You need to file bankruptcy, but you have a corporation or limited liability company–maybe even more than one.  What happens to your company when you file?  Does the company need to file bankruptcy, too?

First, some basic concepts

To borrow a phrase my maternal grandmother was fond of, I’ve had a Dickens of a time dealing with this issue in my Charleston bankruptcy practice.  The first thing you need to understand is that your company–I’ll use that term to refer to your limited liability company (LLC) or corporation–is a different person under the law.  When I explain this to my clients, I refer to the company is “Fred.” After getting puzzled looks for a second or two, I point out that I’m just trying to drive home the point that YOU (the client) and your company are two different people under the law.  Just because you file, doesn’t mean Fred has filed bankruptcy.  So get this very basic concept down: you and your company are not the same. 

So do both Fred and I file?

Thank you for referring to your company as “Fred.”  We’re making progress here.  The answer is usually no, if we’re talking about Chapter 7 bankruptcy.  Chapter 7 is a “liquidation” bankruptcy.  All it does for companies is give them a decent burial.  The trustee simply evaluates the assets of the company and sells them to pay the company’s creditors.  In most instances with small “closely held” companies, there’s simply nothing for the trustee to distribute.

And then there’s the taxes and your (in)sanity…

First, in situations where there are assets and those assets are being pursued by creditors and the company owes payroll taxes, filing Fred’s bankruptcy may be very helpful.  Owners of small companies are typically liable for payroll taxes.  And for the most part, payroll tax liability is non-dischargeable in bankruptcy.  Rather than allowing the creditors (lenders, vendors, etc.) to satisfy their debts, it’s better to file bankruptcy for Fred to stop all the collection activity.  Tax claims are “priority” debt, so they’ll typically be paid right after costs of administration of the case–the trustee’s fees.

Second, filing bankruptcy allows Fred to quickly shut down and stops creditors from continuing litigation or other collection efforts.  Even though you (the owner) may not be the target of these collection efforts, creditors can still subpoena records, send nasty letters, continually call you, and depose you about Fred’s financial situation.  Sometimes it’s best to file bankruptcy for Fred so that you only deal with one person, the bankruptcy trustee, on these issues.  (For more information on this, read “Filing Chapter 7 Bankruptcy for Your Company” and note that there is a third reason for filing your bankruptcy for your company discussed in that post.)

Even if you don’t file Fred’s bankruptcy, he’s still important

Remember, when you file bankruptcy, you must list all your assets.  That means your interest in Fred.  The value is determined by compiling a basic balance sheet of assets and liabilities.  It might sound complicated, but it’s not.  In most cases, there’s no net value because Fred has far more debt than it has assets.  For more on this, see “Bankruptcy, Balance Sheets, and Fred.”  

Also, to calculate your income, you need to be able to generate profit and loss statements based on the company’s income and expenses.  Even if you file individually, you need to know about Fred’s financial health–or lack thereof.  This information will be required when you file bankruptcy.  For more information on profit and loss statements, see “Profit and Loss Statements for Bankruptcy.”

So while you generally don’t file bankruptcy for your company, it’s value, profit, and existence will still be highly relevant to your own bankruptcy case.

Post script: If your name is Fred, please substitute another name for Fred as you read this post.  Any other name will do.  It could be Richard, or Francis, or Wayne. Take your pick. And if you don’t file bankruptcy for Fred (or Richard, Francis, or Wayne), you can simply dissolve the company under state law.  (Click here for Articles of Dissolution for Corporations and here for Articles of Termination for a Limited Liability Company.)

Related posts:

1. Bankruptcy Planning: 5 Traps for the Unwary
2. File Chapter 7 Bankruptcy or Do Nothing?
3. Bankruptcy Clients Earn More Than Bankruptcy Judges or Bankruptcy Lawyers!

Enjoy Life Again!

Written by Upstate bankruptcy lawyer Däna Wilkinson: I recently met with a client from Greenville to prepare for the first hearing in her bankruptcy case.  She was nervous and anxious, and I’m sure she was wishing that the whole thing was over.  It crossed my mind, though, that if this was the worst thing she ever has to deal with, she would  be very lucky.  So when I ran across a blog written by friend and colleague Doug Jacobs about the benefits of bankruptcy, it resonated with me.

I recommend reading the entire post, which starts by outlining three obvious benefits of bankruptcy:  Your bills go away, creditors stop hounding you, and you get a fresh start. But Doug also points out some less-obvious benefits of bankruptcy:

My top three unintended benefits:

1.    You get your dignity back.  Too often being broke affects your entire outlook on life.  You walk around worrying about the mortgage or the car payment. That is pretty tough on your self-esteem and can get pretty depressing. Once you file bankruptcy, however, those feelings immediately stop.

2.    Your credit score will return.  The biggest effect on your credit score is late payments..  A bankruptcy won’t help your score immediately, but since the bills that weren’t getting paid will be gone, you can rebuild your credit much more quickly.

3.    Your life comes back.   Money problems are often damaging to your home life and relationships.  When you and your spouse do nothing but worry about where the rent is coming from, you can get easily irritated and start fighting.  No more worrying about money – no more bickering.

So if you are wondering whether it’s worth the time, expense, and trouble to file bankruptcy, what is it worth to get your life back?

Related posts:

1. Spartanburg Tops Foreclosure List–A Dubious Honor

Written by Greenwood Bankruptcy Lawyer, Dee Compton

(Pardon the title’s mixed reference, but it ties together, even if it does seem a little DiNozzo-esque.)

Across the country homes are being taken through foreclosure with fake paperwork. Rooms are filled with “robo-signers,” who gin up false affidavits by the thousands. 60 Minutes just did a story on this, yesterday. In the story, a robo-signer (Chris Pendley) said he signed up to 4,000 documents a day – all in the name of “Linda Green.” (For you cyber-daters out there – this might be too uncomfortably familiar.)

An ugly truth is that robo-signers don’t know what documents they are signing or if they are true. It’s as if they work for “Omni Consumer Products” the evil corporation from “Robocop” also known as “O.C.P.” which runs over anyone in its way, over power and greed.

Consumer and bankruptcy lawyers are trying to fight these abusive practices. Strangely, though, when brought to the attention of the Courts, sometimes judges listen, but more often they appear to think, “what’s the big deal?”

In South Carolina, we are a “lien theory” state, and require formal (“Judicial”) foreclosure. Banks can’t just take your house – they have to take you to court first. If you own a house subject to a mortgage, in South Carolina, you OWN your house until the bank PROVES it has a right to take it by foreclosure. This means that a bank not only must prove you are behind on your loan payments, but it must also prove it owns your mortgage Note. (A mortgage Note a contract which is “negotiable.” This means that it can be sold to others, and the bank which lawfully owns the paper can enforce it.)

Sometimes courts say: “The bank has the Note, so it can collect the debt.” Courts will allow a bank in possession to proceed if it holds the original note, or if they have a valid assignment. Left unexamined, though, this logic doesn’t work. When Banks are allowed to issue thousands of phony documents a day chasing foreclosures, without oversight, it’s bound to get a just a wee little bit sloppy.

Another ugly truth is that banks often can’t even find the original notes and mortgages they say they own. So, instead of producing the original documents, they come to court with made up copies of Notes, with apparent assignments or “allonges” on them, that are supposed to show that the bank is the lawful owner of that Contract. In fact, they are really fake documents created just so banks can run foreclosures quickly through the courts. And, since most people don’t fight them, this usually works.

Here is a real life sample fraudulent allonge fixed up by a bank solely for the purpose manufacturing evidence where it doesn’t exist:

Notice that it was “cut and pasted” into an alleged original.

And here is an analysis of the “signatures”:

All three signatures line up perfectly – pixel for pixel!

A person couldn’t write original signatures three times, this exactly the same, if his life depended on it. And the pixelation of the signatures are grainier than for the text of the document – another sure sign that the signatures weren’t photocopied or scanned with the original copy.

This document is fraudulent, made up just so the bank can use it in a foreclosure case. The bank can’t find the original at all, and used a photocopier to put this together. The court should not consider this evidence and should fine the bank, and any lawyer who tries to use this in court.

This points to a third ugly truth: many people lose their homes to banks without even checking to see whether it even has the right to foreclose.

People should make sure to inspect documents closely and not just assume that “the bank” is “their bank.” You may find the foreclosing bank, instead of owning the loan, really IS O.C.P. – out to get you – dead or alive.

In the end, though, banks can be defeated with their own paperwork mess, so stop worrying.

Instead take action.  If you bother to look, a foreclosure may actually give you an opportunity to undo sloppy bank paperwork. Your lawyer doesn’t even have to be named “Murphy.”

Thanks go to:

Brent S. Snyder, Esq. for the uncovering the fraudulent document.

Matthew Bogosian, Esq. for the signature analysis.

Related posts:

1. New Rules for Foreclosure Cases in South Carolina (“Morgtage Modification Redux”)
2. Foreclosure Defense: Will Matrix Throw Sand in the Foreclosure Machine?
3. Bankruptcy Planning: 5 Traps for the Unwary

Stop Foreclosure!

According to those folks that track foreclosures, Spartanburg currently has the fastest growing foreclosure rate in the country.  Wouldn’t you know, we finally get to the top, and it’s a list we’d rather not be on at all.  Perhaps even more significant is that four of the top five locations on that list are clustered in and around South Carolina:  Spartanburg, Myrtle Beach, Savannah and Charlotte.

The good news is this: South Carolina is also adding jobs at the second highest rate in the nation.  So, although foreclosures may be increasing, so are the number of people who may be able to save their homes in a Chapter 13 bankruptcy.  Chapter 13 is designed to relieve a homeowner who has suffered a temporary interruption in income, but given time to catch up, can afford to keep their home.

Chapter 13 allows someone whose mortgage payments are behind time to catch up.  You go back to making your regular payment as if you’d never gotten behind, and at the same time you are making an extra payment to catch up the arrears.  Eventually, all the payments are caught up, and your mortgage is reinstated, just as if you had never been behind, even if your lender started foreclosure proceedings.

Because Chapter 13 requires that you make your regular mortgage payment, plus some to catch up the back payments, it may not be ideal for those whose income has decreased, unless there are other debts that can be restructured to make up the shortfall.  But for those who have fallen behind on mortgage payments while they were out of work, but are now returning to work (or getting better job).

So if you’re facing foreclosure, but you’re back at work, go talk to a bankruptcy attorney, and see if Chapter 13 fits your situation.  And even if you aren’t back at work quite yet, it wouldn’t hurt to go talk to someone about the your situation, and be prepared to protect your home when you are back at work.

Related posts:

1. Filing Bankruptcy to Deal with the Wolf in Sheep’s Clothing
2. Benefits of Bankruptcy Can Outweigh Negatives
3. Foreclosure and Bad Records–Why We ALL Should Care

Written by Däna Wilkinson, Greenville/Spartanburg Bankruptcy Lawyer

The state of Arizona has sued Bank of America, alleging fraud in its mortgage modification program.  Apparently I’m not the only one that sees a problem with convincing people to make payments with the promise of a modification that never comes.

The legal action was triggered after hundreds of complaints and a year-long investigation centered on the bank’s loan modification and foreclosure practices, said the state’s attorney general Terry Goddard.

“Bank of America has been the slowest of all the servicers to ramp up loss mitigation efforts in response to the housing crisis,” he said, announcing the lawsuit filed in the Maricopa County Superior Court.

“It has shown callous disregard for the devastating effects its servicing practices have had on individual borrowers and on the economy as a whole,” he added.

Well, at least one attorney general gets it.  Stay tuned.  Rumor has it more are coming, maybe even to South Carolina.

No related posts.

By Greenville-Spartanburg bankruptcy lawyer Däna Wilkinson:  I hear it from all sides of the foreclosure crisis–from lenders, lawyers, people on the street, and sometimes even my clients.  Even if the banks that are foreclosing are accused of using falsified documents, robo-signers, failing to meet their own guidelines and misleading their own investors (sometimes even betting against them), homeowners still owe the money, right?  If the payments aren’t made, the lender should be able to foreclose, right?  Despite the fact that they can’t produce a paper trail, they couldn’t be, well, WRONG, could they?  The same banks and mortgage servicers that can’t find the paperwork that says who owns any particular mortgage, couldn’t be, for example, losing payments, could they?  Or misapplying them.  Or losing track of other things?   Rolling Stone explains why those who say that only deadbeats, not deserving people, are being thrown out of their homes, are dead wrong:

There are two things wrong with this argument. (Well, more than two, actually, but let’s just stick to the two big ones.)

The first reason is: It simply isn’t true. Many people who are being foreclosed on have actually paid their bills and followed all the instructions laid down by their banks. In some cases, a homeowner contacts the bank to say that he’s having trouble paying his bill, and the bank offers him loan modification. But the bank tells him that in order to qualify for modification, he must first be delinquent on his mortgage. “They actually tell people to stop paying their bills for three months,” says Parker.

The authorization gets recorded in what’s known as the bank’s “contact data­base,” which records every phone call or other communication with a home­owner. But no mention of it is entered into the bank’s “number history,” which records only the payment record. When the number history notes that the home­owner has missed three payments in a row, it has no way of knowing that the homeowner was given permission to stop making payments. “One computer generates a default letter,” says Kowalski. “Another computer contacts the credit bureaus.” At no time is there a human being looking at the entire picture.

Which means that homeowners can be foreclosed on for all sorts of faulty reasons: misplaced checks, address errors, you name it. This inability of one limb of the foreclosure beast to know what the other limb is doing is responsible for many of the horrific stories befalling homeowners across the country. Patti Parker, a local attorney in Jacksonville, tells of a woman whose home was seized by Deutsche Bank two days before Christmas. Months later, Deutsche came back and admitted that they had made a mistake: They had repossessed the wrong property. In another case that made headlines in Orlando, an agent for JP Morgan mistakenly broke into a woman’s house that wasn’t even in foreclosure and tried to change the locks. Terrified, the woman locked herself in her bathroom and called 911. But in a profound expression of the state’s reflexive willingness to side with the bad guys, the police made no arrest in the case. Breaking and entering is not a crime, apparently, when it’s authorized by a bank.

The second reason the whole they still owe the … money thing is bogus has to do with the changed incentives in the mortgage game. In many cases, banks like JP Morgan are merely the servicers of all these home loans, charged with collecting your money every month and paying every penny of it into the trust, which is the real owner of your mortgage. If you pay less than the whole amount, JP Morgan is now obligated to pay the trust the remainder out of its own pocket. When you fall behind, your bank falls behind, too. The only way it gets off the hook is if the house is foreclosed on and sold.

That’s what this foreclosure crisis is all about: fleeing the scene of the crime. Add into the equation the fact that some of these big banks were simultaneously betting big money against these mortgages — Goldman Sachs being the prime example — and you can see that there were heavy incentives across the board to push anyone in trouble over the cliff.

Read the whole article.  It’ll make you think, and it ought to make you mad.  It’ll help you understand that we are all affected by this crisis.  If you are a homeowner in trouble, it may give you some direction.  If you’re a homeowner in trouble, and never thought you would be, it may help you understand how you got there.  And if you’re a homeowner who’s never had a moments’ trouble making your mortgage payments, and you’ve been thinking that only deadbeats are in foreclosure, it may scare you.  Because it can happen to you, too.

Related posts:

1. Spartanburg Tops Foreclosure List–A Dubious Honor
2. Robo-Slop or “How I Learned to Stop Worrying and Love Foreclosure”
3. New Rules for Foreclosure Cases in South Carolina (“Morgtage Modification Redux”)