Commentary Is Richmond Calif.s Mortgage Seizure Scheme Even Legal

Commentary Is Richmond Calif.s Mortgage Seizure Scheme Even Legal

ABI Bankruptcy Brief | September 24, 2013
 
  

September 24, 2013

 
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  NEWS AND ANALYSIS   

COMMENTARY: IS RICHMOND, CALIF.'S MORTGAGE SEIZURE SCHEME EVEN LEGAL?

The possibility of using eminent domain to reduce underwater mortgage debt in the city of Richmond, Calif., survived several tough challenges a week ago, according to a Washington Post commentary on Sunday. The Richmond City Council decided to go ahead with the process after a long hearing that could have possibly derailed it. Meanwhile an attempt by Wells Fargo and Deutsche Bank to have the action shut down even before it properly started was tossed out by a U.S. district court. The arguments will now proceed to the two parts of eminent domain law: demonstrating public purpose for the takings and offering fair value. If the case succeeds, according to the commentary, it is likely that other cities that have been hesitant to adopt the tactic will consider moving forward. The biggest remaining worry, according to the commentary, is whether or not this proposal will permanently harm the ability of people in Richmond to obtain new mortgages. One of the main arguments from the banks is that the housing market is recovering at a rapid clip, and if this process scares off lenders, then it could hurt both future homeowners and the fragile economic recovery. Read more.

ANALYSIS: RETHINKING FANNIE, FREDDIE -- AND THE 30-YEAR MORTGAGE

While Congress debates how to replace Fannie Mae and Freddie Mac, an additional question has surfaced as to whether all Americans should continue to have relatively easy access to the pre-payable, 30-year, fixed-rate mortgage, the Wall Street Journal reported yesterday. The 30-year mortgage provides payments that are stable for the life of the loan, which makes finances easier to manage. In many other countries, homes are financed with adjustable-rate mortgages, where payments rise and fall with prevailing interest rates. The government plays an unusually large role in the U.S. mortgage market because banks don't like holding 30-year mortgages. During the 1980s, many savings-and-loan associations failed when rates jumped because the interest they had to pay to depositors soared above the payments they received on those 30-year mortgages (known as "interest-rate risk"). While Fannie and Freddie take on the risk by buying the mortgages from lenders, package them into securities and sell those to investors, they also promise to make investors whole when mortgages default. Those who want the government out of the mortgage business say the 30-year fixed isn't all it's cracked up to be. Because borrowers pay a lot of interest during the first few years of the loan, it's hard to build equity quickly. Defenders, however, say it's the wrong time to push more people into adjustable-rate loans because interest rates are likely to increase over the coming decade. Read more. (Subscription required.)

STRUGGLING SAN JOSE TESTS A WAY TO CUT BENEFITS

San Jose, the third-largest city in California, now spends one-fifth of its $1.1 billion general fund on pensions and retiree health care, and the amount keeps rising, the New York Times reported today. To free up the money, services have been cut, libraries and community centers closed, the number of city workers trimmed, salaries reduced, and new facilities left unused for lack of staff. From potholes to home burglaries, the city's problems are growing. The situation in San Jose is not anywhere near as dire as it is in Detroit or two other California cities, Stockton and San Bernardino, which are already in bankruptcy. But government officials and municipal bankruptcy experts across the country are watching San Jose closely because of a plan to reduce benefits, which was drafted by Mayor Chuck Reed (D) and passed by 70 percent of voters in a referendum last year. The plan is being opposed in court by unions that say that it is illegal under state law. It would introduce a second tier for new city employees involving much lower pension and health benefits. It would also alter pension benefits for existing workers, allowing them to choose either a similar, second-tier benefits plan or to pay significantly more out of their own pockets for the benefits they have come to expect. Read more.

SOME SMALLER BANKS STILL OWE TARP MONEY

Five years after the financial crisis, 113 small to midsize U.S. banks still owe taxpayers about $2.7 billion, turning what was supposed to be a short-term government lifeline into a long-term source of capital, the Wall Street Journal reported today. The banks, which received funds through the Troubled Asset Relief Program (TARP), pose a challenge for the Treasury Department, which is eager to get rid of its financial stakes but is finding many of the banks too weak to forgo government capital. Repaying the government is about to get harder, as quarterly dividend payments owed to the Treasury are set to nearly double to 9 percent. The institutions left in TARP highlight an incongruity in the banking sector: While much of the industry has returned to health, some smaller banks -- particularly those with heavy exposure to commercial real estate loans -- still are clawing their way back. Many of the banks are so weak that they have been unable to make required dividend or interest payments to the government: Seventy-nine of the remaining banks are behind, owing about $217 million to the government, according to the Treasury. Of those, 63 have missed 10 or more payments, which can be a harbinger of trouble: Anchor BanCorp Wisconsin Inc., which had a $110 million TARP infusion, missed at least 17 payments before filing for bankruptcy in August, wiping out the taxpayers' shares in the bank. California's Saigon National Bank owes roughly $1.5 million, plus an additional $390,000 in missed dividend payments. It has missed 18 of those payments, more than any other bank in the program. Read more. (Subscription required.)

ABI'S UNSECURED TRADE CREDITORS COMMITTEE INVITES YOU TO TAKE PART IN ITS OCT. 2 DISCUSSION: CONSIDERATIONS ARISING OUT OF CLAIM-TRANSFER TRANSACTIONS

Members are encouraged to join ABI's Unsecured Trade Creditors' Committee in a discussion on Oct. 2 at 4 p.m. ET about considerations that arise out of claim-transfer transactions. Bankruptcy claim transfers are an active part of the bankruptcy process in today's marketplace, and for this reason, the Judicial Conference of the United States imposed a new fee on each transfer, effective May 1, 2013. The moderator for the call, Neil B. Glassman of Bayard, P.A. (Wilmington, Del.), will lead a discussion focusing on the steps in a claim-sale transaction, standard provisions in the transaction documents, developments in the industry, and tricks and traps creditors' counsel can avoid. If you would like to participate on the committee call, please contact Martha Cannon at [email protected]

ABILIVE WEBINAR NEXT WEEK LOOKS AT THE INTERSECTION OF INTELLECTUAL PROPERTY AND BANKRUPTCY: KODAK, NORTEL AND OTHER CASES

IP experts will shed light on the mysteries of understanding IP law and navigating the often puzzling sales processes, drawing from their experiences in Nortel, Kodak and other important cases, in an abiLIVE webinar on Oct. 3 from 1:00-2:15 p.m. ET. Speakers will include David Berten (Global IP Law Group, LLC; Chicago), Pauline K. Morgan (Young Conaway Stargatt & Taylor, LLP; Wilmington, Del.), Cassandra M. Porter (Lowenstein Sandler LLP; Roseland, N.J.), Kelly Beaudin Stapleton (Alvarez & Marsal; New York) and Christopher Burton Wick (Hahn Loeser & Parks LLP; Cleveland). To register, click here.

FIRST ABI WORKSHOP PROGRAM LOOKS AT RISKY TIMES FOR SECURED LENDERS AND SERVICERS! ATTEND IN PERSON OR VIA LIVE WEBSTREAM

You will not want to miss the abiWorkshops series' inaugural program, "Risky Times for Secured Lenders and Servicers." The program is cosponsored by TMA (Chesapeake), IWIRC (D.C./Greater Maryland) and RMA (Potomac), and will be held on Nov. 6 from 9 a.m. to 3 p.m. ET in the ABI Headquarters Conference Center in Alexandria, Va. The abiWorkshops series provides attendees two great ways of participating: You can register to attend in person at the ABI Conference Center, or you can participate via a live webstream! Topics that will be covered on the Nov. 6 program include:

- Living with the New CFPB Mortgage Servicing Rules
- Business Lending: Navigating What Lies Ahead
- Business Lending: Recent Legal Developments

For more information or to register for the "Risky Times for Secured Lenders and Servicers" abiWorkshop on Nov. 6, please click here.

RECORDING AVAILABLE OF THE ABILIVE WEBINAR EXAMINING THE NEW U.S. TRUSTEE FEE GUIDELINES!

If you were not able to join ABI's recent well-attended abiLIVE webinar examining the U.S. Trustee Fee Guidelines for chapter 11 cases filed on or after Nov. 1, a recording of the program is now available for downloading! A panel of experts, including Clifford J. White, the director of the U.S. Trustee Program, discussed some of the ways the new guidelines could change day-to-day operations in firms, issues relating to the new market rate benchmarks, and how these changes might alter insolvency practice. The 90-minute recording is available for the special ABI member price of $75 and can be purchased here.

ABI GOLF TOUR UNDERWAY; LAST STOP FOR 2013 IS WINTER LEADERSHIP CONFERENCE IN DECEMBER

The 7th and final stop for the 2013 ABI Golf Tour is on Dec. 5 at the Trump National Golf Club, held in conjunction with ABI’s Winter Leadership Conference. Final scoring to win the Great American Cup — sponsored by Great American Group — is based on your top three scores from the seven ABI events. See the Tour page for details and course descriptions. The ABI Golf Tour combines networking with fun competition, as golfers "play their own ball." Including your handicap means everyone has an equal chance to compete for the glory of being crowned ABI's top golfer of 2013! A 22-handicapper won the tour event at July’s Southeast Bankruptcy Workshop. There's no charge to register or participate in the Tour.

ABI IN-DEPTH

NEW CASE SUMMARY ON VOLO: BANK OF AMERICA, N.A. V. ARMSTRONG (IN RE ARMSTRONG; 8TH CIR.)

Summarized by Bruce Weiner of Rosenberg, Musso & Weiner

The Eighth Circuit BAP affirmed the bankruptcy court's ruling that the debt owed by the debtor to Bank of America was nondischargeable under § 523(a)(4). The debtor received insurance checks payable to his business and the mortgage-holder on the property owned by the business. The debtor used almost all the money for personal expenses instead of repairs or paying it to the mortgage-holder. Bank of America succeeded the rights of the mortgage-holder. Because the mortgage-holder was a loss payee on the policy, it was the owner of the insurance proceeds, and therefore when the debtor failed to remit the funds or even inform the mortgage-holder about the funds, he knowingly took funds that he knew belonged to the mortgage-holder. The debtor was not lawfully entitled to use the funds, and therefore the obligation of the debtor to Bank of America was nondischargeable under § 523(a)(4).

There are more than 1,000 appellate opinions summarized on Volo, and summaries typically appear within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI’s Volo website.

NEW ON ABI’S BANKRUPTCY BLOG EXCHANGE: BANKRUPTCY COURT DECIDES IRS FORM 1099-C CONSTITUTES ADMISSION THAT BANK CANCELLED CLAIM

The Bankruptcy Blog Exchange is a free ABI service that tracks more than 80 bankruptcy-related blogs. A recent blog post examines a decision from the U.S. Bankruptcy Court for the Eastern District of Tennessee that highlights the interplay between bankruptcy and tax issues. In In re Reed, Judge Richard Stair, Jr. held that an Internal Revenue Service "Cancellation of Debt" Form 1099-C delivered by a bank to a debtor, who as a result of which reported cancellation-of-debt income, constituted an admission by the bank that its claim had been cancelled. The court emphasized that the issuance of Form 1099-C itself did not discharge the debt. Rather, the issuance of the form "reflects" the discharge or cancellation of the debt.

Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.

ABI Quick Poll

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Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.

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  CALENDAR OF EVENTS
 

2013

September
- Bankruptcy 2013: Views from the Bench
    Sept. 27, 2013 | Washington, D.C.

October
- abiLIVE Webinar: The Intersection of Intellectual Property and Bankruptcy: Kodak, Nortel and Other Cases
     Oct. 3, 2013
- Midwestern Bankruptcy Institute Program and Midwestern Consumer Forum
    Oct. 4, 2013 | Kansas City, Mo.
- Professional Development Program
    Oct. 11, 2013 | New York, N.Y.
- Chicago Consumer Bankruptcy Conference
    Oct. 14, 2013 | Chicago, Ill.
- International Insolvency & Restructuring Symposium
    Oct. 25, 2013 | Berlin, Germany

November
- abiWorkshop: "Risky Times for Secured Lenders and Servicers"
   Nov. 6, 2013 | Alexandria, Va.

  



- Complex Financial Restructuring Program
   Nov. 7, 2013 | Philadelphia, Pa.
- Corporate Restructuring Competition
   Nov. 7-8, 2013 | Philadelphia, Pa.
- Austin Advanced Consumer Bankruptcy Practice Institute
   Nov. 10-12, 2013 | Austin, Texas
- Detroit Consumer Bankruptcy Conference
   Nov. 11, 2013 | Detroit, Mich.
- Delaware Views from the Bench
   Nov. 25, 2013 | Wilmington, Del.

December
- Winter Leadership Conference
    Dec. 5-7, 2013 | Rancho Palos Verdes, Calif.
- ABI/St. John’s Bankruptcy Mediation Training
    Dec. 8-12, 2013 | New York


 
 
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