While Detroit Mayor Mike Duggan pledges to stem the flood of departures that have crippled the bankrupt city and to begin increasing the city's population for the first time in decades, tens of thousands of residents are on the verge of losing their houses for failing to pay their property taxes, the New York Times reported on Friday. In a city that desperately needs to hold onto residents, there is a virtual pipeline out. At least 70,000 foreclosures have taken place since 2009 because of delinquent property taxes. And more than 43,000 properties -- more than one in 10 in this city -- were subject to foreclosure this year, some of them headed for a public auction where prices can start as low as $500.Tax foreclosures have grown so steeply that county officials have lately had to forgo pursuing tens of thousands of additional properties that have fallen far enough behind to risk foreclosure. Other cities wrestle with unpaid taxes, too, but the size of Detroit's problem is staggering. Contributing factors are soaring rates of poverty, high taxes despite painfully diminished city services and a long pattern of lackadaisical tax collection by the city. In some cases, homeowners have abandoned properties and simply quit paying taxes, and foreclosure may be the only way to get a house back into the hands of people who actually want to live there and pay their share. In other cases, those who lose or abandon their houses sometimes end up buying other houses at auction -- sometimes for as little as $500 -- and begin the cycle again, although new rules are in place to take back properties sooner if taxes are again not paid. Either way, the city fails to get all the tax revenue it is owed. Political leaders here acknowledge that the flood of tax foreclosures has become a problem, and say they are making efforts to improve the situation by lowering property assessments -- and thus tax bills -- and by trying to help people find steady incomes. Read more.
CORINTHIAN COLLEGE STUDENTS AWAIT THEIR FATE AS BREAKUP LOOMS
Corinthian Colleges Inc.'s 72,000 students will soon be swept into the biggest collapse the U.S. for-profit education industry has ever seen, Bloomberg News reported today. Corinthian, which also owns the Heald and WyoTech career schools, as well as an online university, is scheduled to present a plan to the Education Department today to sell most of its 107 campuses and close others. The wind-down comes after the U.S. Department of Education cut Corinthian's access to student aid following more than a decade of complaints. Lawsuits against Corinthian in two states allege that at some schools instructors don't teach, the isolated and the unemployed are badgered into enrolling and the ultimate mission is to lure in students to seize federal money. Corinthian, based in Santa Ana, Calif., has been accused of falsifying grades and job-placement data, luring students with non-existent programs and pushing them into high-interest, subprime loans they can't repay. Read more.
PUERTO RICO SWAP COST AT RECORD HIGH BEFORE BOND PAYMENTS
Investor confidence in Puerto Rico's ability to repay debt is sinking as the cost to protect commonwealth bonds against default has more than doubled since June 12 to the highest ever, Bloomberg News reported today. Puerto Rico Electric Power Authority bondholders are awaiting payment today on maturing debt after legislators last week enacted a law meant to allow some government entities to restructure outside bankruptcy. A revision of Prepa's $8.6 billion in debt would be the largest ever in the $3.7 trillion municipal-bond market. Prices on some Prepa bonds increased today, data compiled by Bloomberg show. Prepa's trustee, U.S. Bancorp, has the money for today's payment on $204 million in bonds, said David Millar, a New York-based spokesman for the Government Development Bank, the commonwealth's financial agent. Even with the money, the trustee can withhold funds if it believes Prepa needs them for legal fees or other expenses, said Lyle Fitterer, who helps manage $33 billion of municipal bonds at Wells Capital in Menomonee Falls, Wis., among them some of the bonds due today. The market reflects the uncertainty. It costs about $1.5 million annually, the most ever, to protect $10 million of commonwealth debt for 10 years through credit-default swaps, according to data provider CMA, which is owned by McGraw Hill Financial Inc. The crisis reflects a broader malaise in the island commonwealth, whose tax-free debt is held in 66 percent of U.S. muni mutual funds. Puerto Rico's economy has struggled to grow since 2006 and its unemployment rate of 13.8 percent is more than double the U.S. average. About 45 percent of its residents are in poverty, according to U.S. Census data. The commonwealth for years has borrowed to keep its government functioning, and investors hungry for the rewards of risky debt kept lending. Read more.
REGULATORS ISSUE HELOC RESET GUIDANCE
Four federal regulatory agencies and the Conference of State Bank Supervisors today issued guidance to financial institutions regarding home equity lines of credit (HELOC) nearing their "end-of-draw" periods, CreditUnionTimes.com reported today. The guidance encouraged financial institutions to effectively communicate with borrowers about the pending reset, and provides broad principles for managing HELOC risks. The regulators said that they recognize that financial institutions and borrowers may face challenges as HELOCs near their end-of-draw periods. Many borrowers will continue to meet their contractual obligation when their loan resets to an amortizing payment or reaches a balloon maturity. However, some may find it difficult to make higher payments or to refinance their existing loans due to changes in their financial circumstances or declines in property values, and could need loan modification. The guidance described how financial institutions can effectively manage their potential exposures under these circumstances, including specific examiner expectations regarding risk mitigation strategies and documentation. Additionally, the appropriate accounting and reporting procedures for HELOCs nearing their end-of-draw periods were also included. Read more.
CHIEF BANKRUPTCY JUDGES REACT TO BELLINGHAM DECISION
On June 16, 2014, ABI presented a panel of chief bankruptcy judges who discussed the new U.S. Supreme Court decision in Bellingham as well as other hot topics. Bankruptcy Judges Dennis R. Dow (W.D. Mo.), C. Ray Mullins (N.D. Ga.), Brendan Linehan Shannon (D. Del.), Cecelia G. Morris (S.D.N.Y), and Barbara J. Houser (N.D. Tex.) reviewed the Bellingham decision and provided commentary on what effect it will have on the bankruptcy courts. You can still hear what these judges had to say by purchasing the program by clicking here.
ARGENTINIAN DEBT CRISIS AND ITS IMPLICATIONS FOR SOVEREIGN DEBT RESTRUCTURING? WATCH JAMES MILLSTEIN'S PRESENTATION AT THE CROSS-BORDER SYMPOSIUM
Not able to catch James Millstein's presentation on Argentina and the future of sovereign debt restructuring on June 20 at ABI's Cross-Border Symposium? Watch the full presentation in ABI's Newsroom.
NEW CASE SUMMARY ON VOLO: NATIONAL HERITAGE FOUNDATION INC. V. HIGHBOURNE FOUNDATION (4TH CIR.)
Summarized by Cara Murray of Whiteford Taylor & Preston LLP
The Fourth Circuit affirmed the bankruptcy court's ruling that the non-debtor release provision in the debtor's chapter 11 reorganization plan was unenforceable.
There are more than 1,300 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: WHILE FILINGS MAY BE DOWN, BANKRUPTCY CASES BECOMING MORE COMPLEX
A blogger recently examined the composition of their cases over the past two years and found that, while the number of filings may have decreased, the cases require just as much time due to the complexity of the cases and the requirements of the Code.
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
A special Bankruptcy Code chapter 14 should be created for "TBTF" (too-big-to-fail) financial institutions.
Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.
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