Attorney Ronald I. LeVine of Hackensack, NJ recently moderated a legal seminar and gave a presentation on consumer protection law on December 17, 2015 at the NJ Bar Center in New Brunswick. The seminar was entitled “Consumer Protection Law in a Nutshell.” Mr. LeVine is Chair of the Consumer Protection Law Committee for the NJ State Bar Association and often lectures on the topic. He is also frequently used as a trusted source by local media. Ron is available as a speaker for corporations and organizations looking to learn more about this topic. He has been providing seminars to the public and various groups for over 25 years. Please call the office at (201) 489-7900 for more information.
Ocwen Loan Servicing had a practice of sending out letters to borrowers dated earlier than the mailing date. Since many of the borrower’s rights are time-sensitive, this back-dating process could unfairly deprive the homeowner of opportunities that would otherwise be available. A claim process has been set up to provide compensation between $300 to $3,000 per loan. The forms can be accessed on www.OcwenMisdatedLetterClaims.
Well, we’ve probably all heard of the grandparent scam and the IRS scam. I’ve personally had friends tell me they received urgent calls claiming to be the IRS threatening arrest unless money is wired immediately. BUT now there’s a new one. Vermont Attorney General William Sorrell put out a warning that scammers are calling folks that filed bankruptcy, claiming to be from their lawyer, telling them to immediately wire money. Seems that the record of the filing indicates the lawyer’s name, making it easy pull off this impersonation. Generally, no lawyer will call with such instruction, and anyone receiving such a call should hang up and call the lawyer at the usual number to confirm the scam call. The scammers call after business hours making confirmation difficult. Assuming it is a scam, it should be reported to the local police.
Uptick in North Jersey Foreclosures
These figures are interesting, they indicate that lenders are beginning to process foreclosures again. Folks involved with the foreclosure process report no urgency on the part of their lenders. The simplest borrower-initiated request is for a deed-in-lieu whereby the lender accepts the house back. Given that lenders in NJ almost uniformly avoid deficiency claims (where the lender chases the borrower for its loss), it is unfathomable why a lender will not accept the property back early rather than run out the full foreclosure process. After all, isn’t that what the lender is seeking in its foreclosure? That having been said, my experience with such requests has been negative, with most requests being rejected or ignored.
Unfortunately, during this mortgage crisis, lenders did a terrible job at managing their loans. Maybe the process of slicing and dicing the loans and leaving customer dealings to the “servicer” is a defective model that needs changing. It may well be that the servicer’s financial incentive is in keeping the loan in limbo as long as possible rather than reaching a resolution of the loan.
Student loan debt is the largest type of consumer debt outstanding in America, except for mortgages, with over 1.2 trillion dollars outstanding. That’s about $10,000 for each household in America. More than 40 million borrowers owe student loans. In a relatively recent development, for-profit companies have ramped up their operations. These institutions typically get more than half of their income from student loans and have been criticized for spending more on marketing than instruction. The largest for-profit company, Corinthian Colleges, had been under investigation for falsifying placement rates, deceptive and predatory recruiting. It signed a consent decree with the federal government and closed or sold off its 100 campuses under the Everest, Heald, and Wyotech names last year.
Federal student loans have a provision for student loan cancellation if the school closes either while the student is enrolled or within four months. Students have to make application for debt forgiveness, which has been difficult and complicated. The federal government announced a few weeks ago that it would appoint a special master and streamline the forgiveness process to accommodate the tens of thousand of affected students.
Congress made student loans largely immune from Bankruptcy as part of the 2005 law change, so we note that help for students is an important first step towards rationalizing the student loan mess. This affects everybody, not only students, since new graduates burdened with student loan debts will be less likely to buy cars, houses, or retirement investments and thereby depress the prices of these assets. Forward-thinking organizations, like realtors’ groups, have already sounded the alarm about the shortage of younger buyers due to student loan debt.
Homeowner advocates are particularly concerned about HELOC loans. These loans generally have a reset provision that allows 10 years of interest-only payments but then much larger payments over the last 15 years. This reset problem will be a serious issue as more loans hit the 10-year mark and reset. For example, a $200,000 loan with interest only at 3% will carry a $500 monthly payment that will increase to $1,381 upon reset. Very few homeowners are even aware of the reset provision. We anticipate more difficulty ahead for homeowners who hit the 10-year mark, which may cause a second wave of mortgage defaults.
Bank of America, among other banks, was alleged to have engaged in various violations in its mortgage practices. As a result of the large banks’ agreements with the governmental regulators, these lenders have been releasing second mortgages to fulfill their obligations for mortgage relief. In my practice, I have found many homeowners receiving unsolicited letters advising that their second mortgage is being canceled. When we first saw these letters, we feared it “was too good to be true”, but time proved that lenders were actually canceling second mortgages without even the homeowners’ request. Others are using Chapter 13 to strip off second mortgages and still others are negotiating substantial reductions in the range of an 80% discount.
Strip-off is the name for the process in bankruptcy where a second mortgage is removed from property. As background, mortgages are paid in order of priority in a foreclosure sale, meaning that the first lien is paid in full before any money paid to the second one, and that one must be paid in full before the third one, etc. So, for example, if a property sold for $200,000 and has 3 mortgages, for $180,000, $50,000 & $40,000, the first would get its full 180K, the second $20 and the 3rd would get zero. From an insolvency approach, the first is fully secured, the second is partially secured and the 3rd is unsecured. The property is known as “under water”.
As readers undoubtedly know, bankruptcy provides a resolution of the claims of debtors and creditors. In Chapter 7, individuals receive a discharge of their personal liability in exchange for giving up their assets that over a certain amount that varies from state to state and is a minimum of $13,000 in NJ. So while the debtor leaves Chapter 7 owing nothing (excluding non-dischargeable debts), secured claims are generally left unaffected, meaning that the lender continues to have the right to its collateral (car loan or mortgage). For that reason, most debtors will continue to pay their mortgages and car loans to keep the property.
There are 11 Federal Circuit courts, NJ is in the 3rd Circuit. While most circuits (including the 3rd Circuit) prohibit it, the 11th Circuit (FL & other Southeastern states) allowed Chapter 7 debtors to strip off second mortgages. Chapter 7 debtor Floridian David Caulkett who owed $183,000 on his $90,000 home was able to strip off (eliminate) not only the personal debt but also the mortgage lien from his property. The US Supreme Court released a decision Monday stopping that practice, so Mr. Caulkett is now left with the mortgage lien intact even through he cannot be forced to pay it.
The good news, however, is that this decision will have little impact in NJ, since Bankruptcy lawyers never used Chapter 7 for strip-off. Instead, the NJ practice utilizes Chapter 13 for that purpose. A person such as Mr. Caulkett who filed Chapter 13, under current interpretation, is able to strip off the second mortgage. However, Chapter 13 is more cumbersome and expensive and requires debtors to make at least some payments for 3 years. While Bankruptcy lawyers around the country were hoping for a favorable decision from the Supreme Court, Justice Thomas, writing in a unanimous decision, dashed their hopes, while leaving Chapter 13 alive & well.
Ronald LeVine will be a member of the faculty for a new seminar entitled, “ Practical Tips for Litigating Cases Under the Consumer Fraud Act”. This seminar is presented in cooperation with the NJSBA Consumer Law Protection Committee. It will be held on:
Tuesday, April 7, 2015 9:00 AM to 1:00 PM at the NJ Law Center in New Brunswick, NJ
According to the flyer:, consumer fraud cases dominate New Jersey’s court docket with respect to a myriad of different causes of action. Our panel of attorneys, who have entrenched their practices in handling these cases, will begin by addressing the basics of consumer fraud actions, and then dovetail into a discussion of the most prevalent cases in 2015, procedural issues, tops for presenting and defending CFA claims, as well as many of the challenges raised in handling specific types of consumer fraud cases.
For further details, check out the flyer.
Your FICO Score
Your credit score is the largest factor in getting credit. Your credit score is crucial to secure low interest rates on a home mortgage, a car loan, or even the cost of auto insurance. It is a proprietary number assigned by various credit agencies, the largest of which is Fair Isaac & Company (FICO). Five factors are used to determine your credit score in the available range from 300 to 850. Since several companies provide credit scores, the actual number assigned to a person will vary from company to company. While the companies jealously guard their exact formula used to determine scores as secret, the following information has been gleaned from various sources.
5 Factors of FICO Credit Score
1) Previous Credit History (35%) – Your previous payment history is the largest determining factor of your credit score. Making all payments on time increases your score. Charge off accounts and slow payments are two things that will reduce your score. Unpaid debts will continue to appear each month as unpaid.
2) High Levels of Debt to Income (30%) -The lower the ratio of debt to income, the higher your score will be, as it means that you have more money left over after paying debts, such as car payments, mortgages, and credit card payments. The higher portion of your income that goes straight to debt payment, the lower score you will receive from this factor. Typically, after filing for bankruptcy, your debt to income ratio is improved since you no longer owe the discharged debts.
3) Length of Credit History (15%) – A limited credit history may reduce your score up to 150 points. Newer credit holds less weight when determining your credit score on this metric. Older debts with history that were canceled may also hurt your score.
4) New Credit Applications (10%) – Every time you apply to get new credit, it reduces your credit score. Credit should only be applied for if it is absolutely necessary and if you know beforehand that you will receive the credit, but changes in the scoring system now allow multiple credit applications without penalty when seeking credit for major purchases such as a home or vehicle.
5) Limited Types of Credit (10%) – You should have multiple types of credit, such as a car loan, a home mortgage, and a credit card with a history of on time payments. Having only one type of credit will reduce your score.
3 Categories of Credit Score
The three categories of credit scores are prime, sub-prime, and damaged credit score. Prime, the highest tier, is in the 600-650 range. Those with this score typically have no issue getting a mortgage, securing a car loan, or applying for credit cards. A step down from a prime credit score is a sub-prime credit score. A sub-prime credit score is in the 500-600 range. Those with scores in the sub-prime range will see higher interest rates than those with a prime credit score.
What you really want to avoid is a score below 500, this is known as a damaged credit score. It is very difficult to get a credit card with a damaged credit score. The credit cards that are available with a damaged credit score typically have high fees and low credit limits. Additionally, some lenders of these types of credit do not report good activity, therefore making it impossible to improve your credit score with on time payments. Insurance is more expensive and you may see interest rates that are twice as much as compared to someone with a prime credit score. For instance, you may pay as much as $8,500 more in interest payments on a $20,000 5-year car loan.
Repairing your Credit Score
There are various ways to improve your credit score without filing for bankruptcy. One way is to make your payments on time. Good recent activity will eventually trump previous activity with missed payments. Another way is to keep a low debt to income ratio. Accept increases in credit limit when offered, as the same balance will be a lower debt-to-credit ratio with a higher credit limit. This essentially means keeping your balances low on credit cards and other debts. A third way to repair your credit score is to only apply for credit if necessary. You should be sure you will receive the credit before you apply. The final, but still important tool to repair your credit score is to make sure the information on your credit score is correct. Removing untrue items can improve you credit score. There are forms you can fill out to remove untrue items. Other negative items can also be removed even if they are true because some lenders do not update, supply, or defend information on credit reports. It is also possible to dispute debts on your credit report. This may not eliminate the debt, but it could reduce it. You are entitled to one credit report per year from each of the big three agencies, you can find your credit score on www.annualcreditreport.com. While the credit report is free, you may purchase a credit score estimate for $7.50.
Getting Credit After a Bankruptcy
Looking at the factors relied upon in credit scoring, it is obvious that filing for a Chapter 7 bankruptcy can, over time, improve your credit score. Eliminating most debts, it lowers your debt-to-income ratio. Once the Bankruptcy is filed, creditors may NOT continue to report the debt each month as unpaid; it is reported only once as “included in bankruptcy”. Filing a Chapter 7 Bankruptcy generally increases your ability to repay existing debts. Bankruptcy can improve your chances of getting credit in the future if you consistently make the required payments on time. It is much better to have a clean slate because you filed a bankruptcy in the past than having creditors that you still owe. While bankruptcies dissipate from your record after 10 years, the effect on scoring diminishes after two years, which is generally agreed as the time during which it will be very difficult to get a vehicle loan or mortgage.
Credit repair is the process of improving your credit score, but it is not the same thing as credit counseling. Repairing your credit score is crucial to secure low interest rates on a home mortgage, a car loan, or even auto insurance. It is recommended to check your FICO credit score annually. Your credit score can be found for free online from various websites, such as www.annualcreditreport.com.
Bankruptcy is a tool to get a new budget and a fresh start. It should be considered if your debts can never be paid with your current income. Just because you have filed for bankruptcy does not mean you will not be able to receive credit in the future. People have been able to apply for mortgages and buy homes within a few years after filing for bankruptcy.
Bankruptcy does not stick with you forever, it should be off your credit report 10 years after filing. However, if you were to not file for bankruptcy, “bad credit”, “slow pay”, “no pay”, and repossession can stay on your record until seven years after the final collection activity and then another 20 years from a judgment. It takes approximately two years of timely payments to eliminate the negative effects of a bankruptcy.