U.S. GOVERNORS HAVE FEW ANSWERS AS CITIES FACE BANKRUPTCY RISK
U.S. governors of states where municipalities have filed for bankruptcy say that there was little they could have done, even as cities such as Stockton, Calif., crack under continuing fiscal pressures, Bloomberg News reported today. While an improving U.S. economy is helping boost revenue for states, cities face declining aid and a drop in the property-tax take since the housing crash. Cities under fiscal stress are trying to avoid bankruptcy and bolster their finances, including Pontiac, Mich., which abolished its police, and Cleveland, which demolished thousands of condemned structures to preserve property values. Alabama Governor Robert Bentley (R) declined to discuss the Jefferson County case and said that he encouraged the county not to file. Alabama, he said, can do little for the county that encompasses Birmingham, whose 212,000 residents make it the state's largest city and economic engine. Rhode Island Governor Lincoln Chafee (I) said that he is concerned about the impact of the bankruptcy of Central Falls and identified five other municipalities in distress: Providence, East Providence, Woonsocket, West Warwick and Pawtucket. Chafee blamed the recession and previous administration for cutting state aid and "leaving cities and towns to fend for themselves." Whether those cities join Central Falls depends on the legislature's adopting changes to local pension plans, including allowing the suspension of cost-of-living adjustments for retirees, Chaffee said. Read more.
CONSUMER DEBT FALLS ON LESS MORTGAGE BORROWING
The Federal Reserve Bank of New York reported yesterday that total consumer debt levels fell 1.1 percent to $11.53 trillion in the fourth quarter of 2011 compared to the prior quarter, largely due to developments in the housing market, the Wall Street Journal reported today. The figure released by the bank included mortgage-related borrowing, which by itself fell by 1.6 percent in the quarter. The bank noted that household mortgage debt is now 11 percent under its peak level. With housing-related borrowing taken out of the mix, consumer debt levels with mortgages and home equity loans stripped out rose by 0.8 percent in the fourth quarter to $2.635 trillion. Read more. (Subscription required.)
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ANALYSIS: FOR THE COSTLIEST HOMES, FORECLOSURE COMES SLOWLY
A Wall Street Journal analysis today shows that holders of mortgages under $250,000 are foreclosed upon faster than those with mortgages worth more than $1 million. Nationally, borrowers with loans of at least $1 million were in default for an average 792 days last year before banks repossessed their homes, according to an analysis by data provider Lender Processing Services. For loans under $250,000, the wait stood at an average 611 days—a difference of about six months. The intervals are especially long in states such as Connecticut, New York and Florida, where judges are required to approve foreclosures before banks take back properties. Read more. (Subscription required.)
IN NEW REGULATORY ERA, BANKS APPROACH $10 BILLION WARILY
For regional banks, expanding beyond $10 billion in assets now comes with regulatory demands that are aimed at making the financial system safer but that add complexity and costs, the Wall Street Journal reported on Friday. The new Consumer Financial Protection Bureau oversees the banks above $10 billion in assets, and bank regulators require them to strengthen risk-management measures. Under a Federal Reserve proposal, they also would have to undergo an annual stress test to prove they can withstand economic hardship. Banks like Citizens Republic, with $9.5 billion in assets, are exempt from the Dodd-Frank financial-overhaul act's Durbin Amendment, which limits how much banks can charge merchants for debit-card transactions. The processes set in motion once a bank passes $10 billion are "a good, prudent management tool," said Lawrence Kaplan, partner at Paul Hastings, forcing banks to assess their strengths, weaknesses and determine if they have the infrastructure to support the requirements that come with increased regulatory scrutiny. Kaplan added, however, that "Dodd-Frank tried to deal with too-big-to-fail but really created another class of too-small-to-succeed." Read more. (Subscription required.)
PENSION PAIN MOUNTS AS LOW RATES BOOST LIABILITIES
General Electric Co., Boeing Co. and 3M Co. will join big U.S. employers in making a record $100 billion in 2012 pension contributions, 67 percent more than two years ago, as low interest rates boost companies' liabilities, Bloomberg News reported today. Payments may total $400 billion from 2011 through 2015 to ease underfunding at the 100 largest defined-benefit programs, according to consultant Milliman Inc., which estimated that assets in January were enough to cover less than three-fourths of projected payouts. The Federal Reserve Board's vow to keep rates at current levels until 2014 means that pension plans’ fixed-income investments are stagnating just as new rules shorten the time available to shore up funding. Read more.
ABI IN-DEPTH
NOW AVAILABLE FOR PRE-ORDER FROM THE ABI BOOKSTORE: THE SINGLE ASSET REAL ESTATE CASE: BASIC PRINCIPLES AND STRATEGIES
The Single Asset Real Estate Case: Basic Principles and Strategies by David R. Kuney and Alex R. Rovira of Sidley Austin LLP explores the key issues that arise in most commercial real estate cases, including cases that are “single asset real estate cases.” Examining a real estate bankruptcy case from its opening moments, including cases lacking in good faith and the judicial attitude toward real estate cases, the book explores the highly complex issues surrounding the use of cash collateral and how various courts have analyzed continuing problems in rent assignments, as well as the application of adequate protection payments. The book discusses the meaning of designating a case as a “single asset real estate case” and how that changes the operation of case. Lastly, the book explores the structure and standards for a real estate plan of confirmation, and looks at the key Supreme Court decisions in Till v. SCS Credit Corporation and 203 N. LaSalle with an exploration of the “new value exception.” Softbound, 212 pages. Member price: $50 (Make sure to log-in to the site to obtain your ABI member price). Pre-order your copy today!
LATEST CASE SUMMARY ON VOLO: R.M. V. FAGEL (IN RE FAGEL; 9TH CIR.)
Summarized by Emil Khatchatourian of the U.S. Bankruptcy Court for the Eastern District of California
The Ninth Circuit held that the plaintiff-appellant did not waive any challenge to an award of legal-malpractice damages against defendant-appellee (the debtor) because she challenged the amount of damages in her first post-judgment motion to the bankruptcy court -- a Fed. R. Civ. P. 59(e) motion to alter or amend a judgment. A Rule 59(e) motion "may not be used to relitigate old matters, or to raise arguments or present evidence that could have been raised prior to the entry of judgment." Thus, a second Rule 59(e) motion could not properly challenge the amount of damages. "It would be patently unfair to find that [the plaintiff-appellant] waived a challenge to the damages award by complying with the prohibition against improperly relitigating old matters in a Rule 59(e) motion." As the damages award was supported by the evidence in the record and the plaintiff-appellant did not cite any evidence in the record demonstrating that the bankruptcy court's use of defendant-appellee's damage calculation was clearly erroneous, the Ninth Circuit affirmed the district court.
More than 400 appellate opinions are summarized on Volo. Click here regularly to view the latest case summaries on ABI’s Volo website.
NEW ON ABI’S BANKRUPTCY BLOG EXCHANGE: REVIEW OF THE CFPB'S DEBT COLLECTION AND CREDIT REPORTING RULES
The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent post examines the Consumer Financial Protection Bureau's recently announced rules to regulate and oversee some of the bigger players in the debt collection and credit reporting industries.
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 The requirement that all individual debtors receive credit counseling as a prerequisite for discharge should be repealed. Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.
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