The bankruptcy mortgage modification provision, headed to the Senate this week, is a bargain to taxpayers next to the “voluntary” mortgage modification programs instituted by the administration.

HR 1106 involves no taxpayer money;  it strips the special interest provision sheltering banks from  home loan modification.  The costs of changing the mortgage so that the debtor pays the current value of the collateral and the lender is spared the costs of foreclosing are borne by the borrower and lender.

The modification and refinance programs introduced by the adminstration involve taxpayer  cash subsidies to servicers and borrowers who successfully renegotiate a mortgage.

Why is it that the opposition to judicial mortgage modification claim that the honest and responsible are paying the mortgage for the greedy and irresponsible?

American Express is offering a cash reward for card holders who cancel their accounts.  This is touted as a convenience to help card holders manage their finances.  Huh?

Is it my imagination, or weren’t credit card companies recently promoting the use of their cards as a means of conveniently managing money?

Old Am Ex Blue, we hardly knew ye…

We’ve poured money into the nation’s banks, and no amount of money seems to be sufficient to restart the flow of credit through the economy.  Our leaders, our newspapers, and our populace all feel we’ve been shorted.  What did the banks do with the money if they didn’t lend it out?

If you were the chairman of the board of a bank, looking around at the employment situation and the prospects for the economy getting worse, would you be anxious to bet on a borrower begin able to repay a loan?   What is the borrower’s house worth, today?  What’s it likely to be worth tomorrow?  What are the chances a business will prosper?

Frustrated as I am about the situation, objectively I can’t blame the banks for not lending now.  (Now, if you want to talk about what they lent over the past three years, then there’s plenty to talk about.)

The US tax code is stuffed with tax breaks to further some social policy or another.  We’ve made it safer for legislators to funnel money to the poor, the parents of college aspirants, those saving for retirement by giving them a tax break than by appropriating money for the purpose deemed worthwhile.

And these are the consumer breaks.  The business tax breaks, to favor one industry or behavior or another, are more prevalent and more complex still.

Kathy Kristof’s article today points out that the tax code has become so complex that most people hire others to prepare their returns and those professionally prepared returns are full of errors!

The national expenditure of talent and money to navigate the tax code is not a rational use of bright people.  Tom Friedman pointed out last week the waste of talent commited by Wall Street developing exotic financial instruments rather than genuinely useful products.

As an electorate, let’s become brave enough to make our policy choices upfront, and not disguised as a matter of taxation.  Consider what the nation could do with the energy and intellect of  accountants and lawyers liberated from tax issues as a result.

My newest colleague at Bankruptcy Law Network, David Leibowitz, summarized my view of bankruptcy law in the new year :

• Project calm
• Work hard to hone my skills
• Share what I learn
• Stay healthy since it will be a long haul

My hopes are that hard times will reset our personal and societal values, so that “things” and personal consumption will recede in importance in favor of family, friends, and community.

Perhaps we come to understand that the things that taxes buy us are, by and large, positives:  better schools, roads without potholes, bridges that don’t collapse, decent care for the unfortunate.

Maybe even we come to value living below our means and taking responsibility for retirement.

Since my magic wand is out for servicing this  week, maybe it’s enough to hope for clients who will come organized and prepared to help me help them.

I’ve spent the last three days at the annual meeting of the National Association of Chapter 13 Trustees in San Francisco. Strewn through the convention site are banners thanking those who have contributed money to put on the gathering of Chapter 13 trustees. Those three sponsors at this event are exclusively big creditors and lawfirms who represent them.

The parties in interest in a Chapter 13 form a triangle: trustee, debtor, creditors. The trustee has obligations to both of the other parties. Debtors come in onesies and twosies. Creditors tend to be national and big money players. There is no organization of bankruptcy debtors; there is an organization of debtor’s attorneys, the National Association of Consumer Bankruptcy Attorneys. By the nature of the practices of its members, NACBA is not a big money player.
At the gatherings of debtor’s lawyers, the usual sponsors are those who want to sell something to the attendees. It’s not the opposing parties.

I don’t think that Chapter 13 trustees can be “bought” by free breakfast and afternoon snacks. But just like influence of lobbyist money on politicians, this feels uncomfortable to me as a debtor’s lawyer.

More on education efforts by the Chapter 13 Trustees.

It was a good day at my desk, if one has to work on Saturdays.

• I gave notice that one client was rescinding a $180,000 mortgage for Truth in Lending violations.
• I found three clients whose second deeds of trust can be eliminated as liens on homes because they are completely underwater.
• I sent out three Qualified Written Requests under RESPA to lenders whom I suspect have played games with the servicing on my client’s mortgages.

My conclusion about the mortgage meltdown is that there is not one universal approach to getting clients some breathing room on their mortgage debt, but there are a number of approaches that can lessen the pain borrowers are feeling, and raise the odds these people can keep their homes.

A bankruptcy court in Oakland recently rebuffed a mortgage lender who claimed it had been defrauded by borrowers who lied on the loan application. The judge agreed the debtors falsely inflated their income, but found that the lender had not reasonably relied on the false representations. The lies were not enough to make the debt non dischargeable when the lender was asleep at the switch.

The broader question in the mortgage meltdown is whether the Wall Street firms that bought these liar loans from the sleeping lenders have any recourse against the lender. Can the seller of the loan escape responsibility for selling a financial instrument of questionable value? Did the Wall Street buyer have to investigate the actual bona fides of the loans or is it entitled to rely on the lender’s representation that the loan was sound?

Street smarts suggest that Wall Street was content not to look too closely at these loans so it could pretend that all of this profitable paper was what it was puffed up to be. Under the theory of the Hill case, they, too, may be found not to have been reasonable in their reliance.

My friend Kurt O’Keefe writes about the 6 trillion dollars in home equity than has evaporated in the mortgage meltdown. When I look around me in the Silicon Valley and environs, I question just how real that equity really was. Reckless lending practices made a vast pool of people potential buyers for a limited quantity of homes in a desirable part of the world. More buyers chasing fewer homes lead to huge increases in home prices.

This “equity”, the increased value in the surrounding homes, never would have existed had it not been for mortgage lenders passing out money like flyers at a rally. It was artificial from the beginning.

The correction is painful to those who bought or borrowed at the top, but the top was a man- made illusion.

I know that those in financial difficulty are frequently not operating at their peak. But for the life of me, I can’t understand how the recipient of a summons and complaint from a California court can take from the papers only that they have a “court date”. Arghhh!

The basic outline of a collection suit is that the creditor files a complaint with the court. The court issues its summons, which validates the complaint and puts the defendant on notice that there is a legal suit pending.

The summons tells debtors plainly that they must file a typewritten answer to the complaint within 30 days of service, or the defendant may get a judgment for the relief prayed for, which is usually money.

Served with the complaint is a notice of case management conference on a given date, well after the date on which the answer is due. At the case management conference, assuming that an answer has been filed, the court will set deadlines, trial dates, etc. But none of this scheduling is necessary if the defendant has not contested the complaint by filing an answer.

Why is it that a consumer debtor grasps only the date of the case management conference, and absorbs none of the rest of the message that says clearly, in two syllable words, that one must file an answer for there to be anything for a court to decide?

I should have a cassette tape to play to tell clients that the case management conference date is meaningless if you didn’t file an answer. If you don’t have a defense to the action, that’s fine. Just don’t obsess about a date that means nothing if you didn’t take the time to read the summons and understand that filing an answer is the price of admission.

There’s more on the subject of collection suits at Bankruptcy in Brief.