Alabama Consumer Law Blog

The Arizona Bankruptcy Lawyer Blog has posted an article about what a bankruptcy discharge is and what it includes. The "discharge" of a debt means that it no longer exists and can't be held against the debtor. However, debt discharge "has its limits" and doesn't include every financial responsibility.

To begin with, debt discharge doesn't deal with every debt. Child support, "spousal maintenance" and newer income tax debt can't be discharged.

Even though the personal liability may no longer exist as a result of the "discharge", liens recorded against the debtor's property, may survive the bankruptcy unless they are modified or removed.

There are time limits that prevent a person from receiving continual debt discharges. The creditor has to be allowed time between bankruptcy filings to collect their money.

Not everyone needs bankruptcy for purposes of obtaining a discharge. Some need it for other reasons, like saving a home from foreclosure or restructuring the repayment of debt. These people don't care as much about the discharge as others. For those debts like credit card, repossession related, old income tax and medical bill debt that are typically governed by it, not only are they "gone", the discharge acts as a "permanent injunction" or a court order at the close of the case, against those same creditors. It replaces the "automatic stay".

If creditors persist in attempting to collect after you have obtained a debt discharge, the creditors can be "punished". Often this "punishment" means they have to pay the former debtor.

We don't cover bankruptcy, but if you have questions we would be happy to discuss options with you. Feel free to contact us.

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We are holding a free Foreclosure Seminar at our office in Birmingham. In this seminar on October 6, 2009, at 6 pm we will address topics that Alabama consumers are facing when foreclosure is either threatened or has already happened:

1. What is the foreclosure process in Alabama?
2. What if the lender or service provider has lied me in the foreclosure process?
3. What if the lender or service provider has refused to follow the contract terms in the note or mortgage?
4. What is RESPA, TILA, and how can they help me with my situation?
5. Does the Fair Debt Collection Practices Act (FDCPA) apply to my loan?

We will address other topics with the goal to be that you will leave the seminar knowing more about your options so that you can make an informed decision.

We will also provide an opportunity to meet with us one on one after the seminar (the group part will last until 7 pm) to discuss any questions you have.

To register for this seminar:

1. Call us at our main number of 205-879-2447;
2. Call us at our toll free number of 888-540-2796 and hit "200" to go to our free recorded message about the seminar;
3. Contact us through our main website (alabamaconsumer.com); or
4. Go to our website about this seminar - alabamaforeclosureseminar.com [please note we have had some technical issues with this site being down so use one of the other methods if this site is not coming up for you today].

We have several spots left and we do not have another seminar planned until November so if you would find this seminar to be helpful, go ahead and register today.

We look forward to hearing from you and being with you next Tuesday at 6 pm.

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The Michigan Collection Law Blog has posted an article about an easy way to deal with debt collectors and creditor harassment. The article was originally written by Kat Sanders, who blogs for Court Reporter Schools.

We don't agree with all of these points but you should consider these. We are finishing our free report on what to do when first contacted by a debt collector and will make that available soon. But do consider these points and take whatever is useful from these.

Sanders' first pointer is for the consumer to know their rights. Debt collectors are prohibited from threatening or harassing you into paying by the Fair Debt Collection Practices Act.

Next, you can negotiate with them. Debt collectors cannot force you to pay, but you can negotiate with them to agree on a monthly sum to pay that will keep your creditor satisfied. This also shows the creditor that you do intend to pay the debt back.

You shouldn't be "bullied down with threats" from the debt collector. Collectors often use intimidation as their main weapon, but are legally very limited in what they can do. They cannot seize funds directly from your paycheck unless they have a court order.

So don’t allow yourself to be browbeaten into paying more than you can afford and neglect your food and rent in the process.

Last, don't threaten the debt collector.

It’s best to deal with debt collectors in a conciliatory way and avoid antagonizing them for your own peace of mind. While you must show them that you are aware of your rights. Don’t throw facts in their face. Instead, try talking to them about your situation and asking them for a grace period in which to repay your debt.

If you have had problems with creditor harassment, feel free to contact us.

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Allison Young of the Atlanta Journal-Constitution has written an article about credit report errors. Equifax mixed Robyn Mueller's credit information with her twin brother's, merging the two individual's debts and bringing Ms. Mueller's score down. Her Equifax report differed greatly from her score from two other credit reports.

Mueller sent Equifax repeated dispute letters beginning in 2006 — and even copies of each sibling’s driver’s licenses, pay stubs and other records — to prove they are different people. But the problem wasn’t fixed until last summer when she sued the Atlanta-based credit bureau.

Federal law is supposed to regulate and require that errors in credit reporting be fixed as soon as possible. However, the article argues that "consumer watchdog groups" insist that credit bureaus do little to investigate and correct credit report errors. Often times, an automated system is used that reduces a complex problem into a simple code. When bureaus refuse to correct errors, the FTC allows consumers to sue to fix the problem.

But nobody knows for sure how often credit bureaus make errors or fail to correct them. Regulators at the Federal Trade Commission, which is responsible for enforcing the Fair Credit Reporting Act, are expected to announce plans for a major nationwide survey of credit report accuracy later this year.

The article goes on to say that the FTC has no idea how often peoples' credit information is mixed up. However, most of the time it is people with similar Social Security numbers, names, etc. A 2004 survey is cited where it was noted that out of 1,578 consumers, only 54% had ever looked at their credit report. 18% of those people had disputed information in their credit file.

When seeking to correct an error in your credit report, one of the most important things you can do is keep detailed records of your attempt to correct the error.

The article also lists several ways you can protect yourself, such as review your reports, dispute errors, notify the lender, provide evidence and complain to regulators. Finally, you should hire a lawyer.

If the credit bureau refuses to correct the error, talk to a lawyer who specializes in Fair Credit Reporting Act cases. The law allows attorneys to collect their fees from the credit bureaus if you win your case.

If you have had problems with fair credit reporting feel free to contact us.

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The Health Care Lawyer Blog has posted an article about the amount of health care funding that could be saved from fraud every year. There is about $75-$250 billion "floating about in the health care system." Around 3-10% of that is lost to fraudsters annually.

these numbers make clear that health care fraud is not just committed by a few scattered criminals masquerading as health care providers. Instead, such fraud is pervasive and extends all the way from Pfizer boardrooms to infusion clinics.

The article lists five ways to curb health care fraud:

-"The government should scrutinize individuals and entities that want to participate as providers and suppliers, BEFORE they enroll."

-Make sure payments reflect the current market. Such as not making a huge payment for a procedure that is now "inexpensive and commonplace."

-"Assist providers and suppliers in adopting practices that promote compliance."

-Abandon the "pay first, ask questions later" approach and instead monitor health care systems for fraud. Technology should be used to identify incorrect claims before the provider is reimbursed.

-Respond quickly to detected frauds and deter others. For example, the use of Health Care Fraud Prevention and Enforcement Action (HEAT) teams to catch Medicaid fraud has been met with success; Since the inception of Strike Force operations in March 2007 through August 2009, the Strike Force has obtained indictments of more than 293 individuals and organizations that collectively have billed the Medicare program for more than $680 million.

If you have had issues relating to fraud, feel free to contact us.

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A couple of weeks ago I was invited by Alabama Live to appear on the morning show to discuss the new changes to credit card laws that went into effect recently. Keep in mind that more changes are coming at the first of the year and then next summer.

If you would like more information about this or if you are dealing with abusive debt collectors or false credit reporting, feel free to contact us.

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Associated Press has posted an article about a record decrease in consumer borrowing for the month of July. Economic uncertainty and job losses have "prompted Americans to rein in their debt" by collectively cutting debt by $21.6 billion. Economists expected it to only drop about $4 billion.

The lagging economy is causing consumers to be more careful about the decision to apply for that extra credit card, but banks are also being more particular and are "clamping down on lending."

Still, a report earlier this year by the company that produces the most widely known credit scores found that companies slashed limits for an estimated 58 million card holders in the 12 months ended in April, even though a high percentage had good credit scores when their limits were cut.

The cuts affected about a third of consumers, according to the study by FICO. But most people did not see a big impact on the credit scores because lenders often cut limits on cards that were unused or lightly used.

Ironically, the huge cutback on consumer spending has come at the same time Cash for Clunkers was introduced with the intent to boost spending and borrowing.

Given the current economic situation, debt collection and payment has become an important issue for many Americans. If you have had problems with debt collection, specifically creditor harrassment, feel free to contact us.

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The Consumerist.com has posted an article that discusses how a Brooklyn judge has tossed out roughly half of the foreclosure suits brought to him over the last two years because the lending companies and banks had such disorganized paper trails...to the extent of not being able to prove ownership.

The Consumerist references the original New York Times article that goes into more detail of Judge Schack's reasoning.

Justice Schack, like a handful of state and federal judges, has taken a magnifying glass to the mortgage industry. In the gilded haste of the past decade, bankers handed out millions of mortgages — with terms good, bad and exotically ugly — then repackaged those loans for sale to investors from Connecticut to Singapore. Sloppiness reigned. So many papers have been lost, signatures misplaced and documents dated inaccurately that it is often not clear which bank owns the mortgage.

Justice Schack’s take is straightforward, and sends a tremor through some bank suites: If a bank cannot prove ownership, it cannot foreclose.

“If you are going to take away someone’s house, everything should be legal and correct,” he said. “I’m a strange guy — I don’t want to put a family on the street unless it’s legitimate.”

Schack's rulings have prompted others in the legal profession to take a hard look at why judges don't hold banks to higher standards. He isn't "coming up with novel readings of the law," but only forcing lenders to obey the rules and making protecting the consumer and their rights a priority.

He also rules against inaccurate and unfair mortgages filing for foreclosure.

I’m a guy from the streets of Brooklyn who happens to become a judge,” he said. “I see a bank giving a $500,000 mortgage on a building worth $300,000 and the interest rate is 20 percent and I ask questions, what can I tell you?”

If you have questions regarding foreclosure and your rights, feel free to contact us. We are going to conduct a free foreclosure seminar in early October at our Birmingham office - if you would like to attend let us know so we can reserve a spot for you. We'll have more details coming soon. The first place we will announce it is in our Consumer Power email newsletter that goes out every Thursday. We would love to include you! Just fill out the form below:

We are often asked by Alabama consumers who are facing foreclosures "What is all of this talk about securitization and tranches and trusts actually owning my house?"

Nicole Perlroth of Forbes has a fascinating article that lays out how the process works using a lady named Adama Kromah as the subject of her story.

Here is a nice overview:

At the peak of the housing boom, Wall Street had a saying: "A rolling loan gathers no loss." Loans were sliced, wrapped, pooled and sold to a seemingly endless chain of investors. This securitization process allowed banks to farm out debt to investors such as pension funds that otherwise couldn't stomach the underlying risk. It also meant that banks could create more mortgages and that Kromah could do the once unthinkable: own her own home.

We don't normally quote this much but this is critical to understand and Nicole has laid this out in a very easy to understand manner:

Countrywide had no intention of hanging on to this mortgage. Months before the closing, in fact the moment Countrywide quoted Ogbewele the $300,000, the two loans were entered into a database for Countrywide's securitization group to pool with other loans and sell to investors in the secondary market. The first buyer of her $240,000 mortgage was a shell company called Countrywide Alternative Loan Trust, or CWALT.

CWALT "sold" her loan again to CWALT 2004-36CB, a securitized trust that issued bonds to investors. At issuance, the trust held $884 million in mortgages. Kromah's mortgage made up less than .003% of the pool.

Countrywide hired Lehman Brothers and Greenwich Capital Markets to divide the trust into 13 slices and sell each to investors. Standard & Poor's and Moody's assigned credit ratings to each slice according to their underlying default risk. Top tranches were given a AAA rating and were to be paid out first. The lower, riskier tranches ranged from single A to B and came with higher yields but would be first to absorb any losses.

Greenwich coordinated the sale of senior tranches. Lehman found investors for the junkier slices, labeled B1 through B5, and paid in that order. The Bank of New York was hired as trustee to distribute principal and interest payments to bondholders.

Kromah's loan was melted into all of these tranches. The senior tranches were bought by insurers Genworth, Alfa Insurance, Ohio National and Investors Capital Research, a mutual fund company, as well as undisclosed private investors, such as hedge funds and sovereign wealth funds. The riskier tranches went to AIG, insurers Employers Reassurance, Country Life and Cotton States, and pension fund giant TIAA-CREF.

In April 2005, Cohen's hedge fund Ramius Capital bought the $4 million B4 tranche of the original Countrywide loan pool and tucked it into its newly created CDO, called Nautilus I. If Countrywide's trust is a pool of mortgages, Nautilus I is the gutter. Ramius essentially took the riskiest tranche of Countrywide's loan pool and folded it into its Nautilus I portfolio with mortgage-backed securities from other trusts for slicing, dicing, pooling, rating and selling anew.

Ramius hired UBS as underwriter to sell the CDO and cut it into even more slices. UBS hired Fitch to rate the slices from AAA to BB, magically turning what was once fairly shaky collateral into sterling-sounding securities. Ramius sold $413 million worth of this CDO to investors and injected a $97 million equity stake as well, in part to entice investors by signaling that it was putting its money at risk along with them.

Here's the ending to this story - at least for now - as foreclosure looms:

Kromah spends days on the phone with Countrywide, getting nowhere. Countrywide, now owned by Bank of America, is too far removed at this point. She hired a lawyer from the Financial Clinic, a nonprofit, to help work out a loan modification. Neither has a clue who really owns her mortgage.

If, or when, the B4 tranche folded into Nautilus I collapses, the next tranche in the CWALT trust to absorb losses will be B3. Then B2, a tranche wholly owned by AIG, the insurer now owned by American taxpayers. That leaves all of us with a little bit of interest in Adama Kromah's home.

We are preparing for our first Alabama Foreclosure Defense Seminar which we will hold in one of our conference rooms in our Birmingham, Alabama office. This will be in early October. Let us know if you are interested in attending as we will limit it to ten families at a time so we can have a good question and answer session to arm Alabama consumers with knowledge of how to fight back against wrongful foreclosures.

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Daniel Wagner of the Huffington Post recently wrote an excellent article about mortgage servicers that harass borrowers. You should read this interesting post by Daniel.

Here's part of the problem:

Without government aid, servicers don't have enough financial incentive to modify mortgages. Each year, they earn about one-quarter to one-half percent of the value of the loans they service, so the larger the mortgage, the more they make. They earn less if the loan is modified, usually by lowering the interest rate or principal or adjusting the term.

The servicers also make money through late fees, or by foreclosing. The paperwork necessary to execute a foreclosure can generate hundreds of dollars in fees for some servicers.

Here is a situation that we are seeing more of in Alabama:

As borrowers fell behind on their loans, the servicers pocketed more late fees, foreclosure fees and negotiation fees. Some even profited from foreclosures.

In February 2005, Janet Simmons was more than $30,000 behind on her mortgage. Bayview Loan Servicing began foreclosure proceedings on her home, located on 3.1 acres in rural Rockingham County, Va., between Washington and Charlottesville.

But Bayview – which stands to receive up to $44.3 million from Treasury's loan-modification program – foreclosed without providing required written notice, the Virginia State Supreme Court found. Bayview never sent Simmons a letter by certified mail, as required under her loan.

Unbeknownst to Simmons, the home was sold at auction in July 2005. She didn't find out she had lost the house until the new buyer asked why she was doing yard work on a home she no longer owned, said her lawyer, Kevin Rose.

The courts awarded Simmons $156,809 – the difference between what her home was worth and what it had received in a foreclosure sale.

The contract between the borrower and the mortgage company - the note/mortgage - must be followed. If it is not followed then the mortgage company has breached the contract. One provision often violated, and in fact we are suing a company for this tomorrow, is the requirement to give proper notice to the consumer that the note is being accelerated and declared in default.

Due to the increasing amount of fraud and illegal conduct in this area, we are going to hold a free foreclosure seminar in early October to help Alabama consumers understand their rights in dealing with mortgage companies and servicers. Feel free to contact us if you would like to attend. We will have more details and our new website devoted solely to foreclosure issues in the next week or so.

You can also sign up for our free email newsletter sent out every Thursday morning - we cover topics such as the one in this post. We would love to include you! Just fill out the form below:

Wall Street played a huge role in creating the economic mess we are in through the securitization of sub prime mortgages and through other ill advised financial products. Now, the NY Times reports that the banks have turned their attention to buying up life insurance settlements and then applying some of the same principles to them that were used on the sub prime mortgages.

Here's the basic gist. Life insurance policies often have a cash surrender value if you want to cancel the policy. But normally this is not a significant amount of money. So what does an elderly or very sick person do if they have a large life insurance policy but need money now? They "sell" their policy to someone who pays money to then keep the policy in force until the person dies.

The idea is that you pay less for the policy and the premiums than you will receive when the elderly or sick person dies.

Until recently, this has been a relatively small market but the big banks that were part of the source of the sub prime problems, and many of whom received a couple of our tax dollars, are planning on making this the "next big thing" in the financial markets.

Here's how it will work:

The bankers plan to buy “life settlements,” life insurance policies that ill and elderly people sell for cash — $400,000 for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to “securitize” these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will then resell those bonds to investors, like big pension funds, who will receive the payouts when people with the insurance die.

The earlier the policyholder dies, the bigger the return — though if people live longer than expected, investors could get poor returns or even lose money.

Either way, Wall Street would profit by pocketing sizable fees for creating the bonds, reselling them and subsequently trading them.

The concern rests in what will happen when investors do not fully understand these risks and the whole market goes down. Will we step up and keep the banks afloat with our tax money again? Or do we let them sink?

Another concern is whether this will raise insurance premiums:

Indeed, what is good for Wall Street could be bad for the insurance industry, and perhaps for customers, too. That is because policyholders often let their life insurance lapse before they die, for a variety of reasons — their children grow up and no longer need the financial protection, or the premiums become too expensive. When that happens, the insurer does not have to make a payout.

But if a policy is purchased and packaged into a security, investors will keep paying the premiums that might have been abandoned; as a result, more policies will stay in force, ensuring more payouts over time and less money for the insurance companies.

“When they set their premiums they were basing them on assumptions that were wrong,” said Neil A. Doherty, a professor at Wharton who has studied life settlements.

Indeed, Mr. Doherty says that in reaction to widespread securitization, insurers most likely would have to raise the premiums on new life policies.

Of course this may be a fantastic new financial product that is good for everyone. It may give elderly and others the opportunity to get the treatment they need or to enjoy their last years rather than their kids getting a big payout on a life insurance policy. It may create more liquidity in the marketplace and help restore the economy.

One thing is for sure - the same characters who were responsible for the good and the bad in the mortgage markets will be bringing their magic to this new area and we all need to be aware of this new trend and how it will affect us.

We'll keep an eye on this and keep you posted....

Update on 9-8-09 --- John Wirzbicki of CT Blue has an interesting take on this development. Read his blog post here.

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Associated Press has posted an article about two of the three major cigarette companies filing lawsuits in response to a new law. The new law gives the Food and Drug Administration authority over the tobacco industry, which tobacco companies say violates their right of free speech.

R.J. Reynolds Tobacco Co., maker of Camel cigarettes, and Lorillard Inc., which sells the Newport menthol brand, filed the federal lawsuit with several other tobacco companies...It is the first major challenge of the legislation passed and enacted in June, and a lawyer for tobacco consumers doubted the lawsuit will be successful.

The new law lets the FDA regulate and reduce nicotine levels in tobacco products, ban phrases such as "light" and "low tar" and require large graphic warnings to be put over any images on the carton.

The companies say in their lawsuit that the law, which takes full effect in three years, prohibits them from using "color lettering, trademarks, logos or any other imagery in most advertisements, including virtually all point-of-sale and direct-mail advertisements." The complaint also says the law prohibits tobacco companies from "making truthful statements about their products in scientific, public policy and political debates."

Ironically, the tobacco companies aren't so much suing the FDA's regulation of actual tobacco, only suit is largely about the "marketing provisions."

"My expectation is that this lawsuit will be ultimately unsuccessful," said Ed Sweda, a lawyer for the Tobacco Products Liability Project in Boston, pointing to previous laws limiting cigarette advertising and marketing that have been in place for more than 40 years.

We'll definitely keep you updated on this developing case. If you have been sued and have questions, feel free to contact us.

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Slate.com has posted an article that discusses how traffic stops can be more beneficial than you might expect.

For example, according to the article:

What do Timothy McVeigh, Ted Bundy, David "Son of Sam" Berkowitz, and 9/11 ring-leader Mohammed Atta have in common? They're all murderers, yes, but another curious detail uniting them is that they were all also brought to police attention by "routine" traffic violations.

The first benefit of a "routine" traffic stop is that "it is a net for catching bigger fish."

One reason simply has to do with the frequency of the traffic stop, particularly in a country like the United States, where the car is the dominant mode of transportation: Most crimes involve driving. But another factor is that people with off-road criminal records have been shown, in a number of studies, to commit more on-road violations.

A study found a direct correlation between a decrease in traffic stops and a rise in traffic fatalities. From 2001-2006 there was an 11% rise in traffic fatalities related to speeding in New York City. During that time, there was an 11% decrease in the NYPD issuing speeding summons. The idea of "folk crime" discourages an increase in traffic stops by saying that police departments, that are already stretched thin, should focus on resolving violent crimes instead of pulling people over for things like speeding. Ironically, more people are killed in traffic related accidents in a year than by "stranger homicides."

Another benefit of traffic stops is an increase in public safety.

...the new Department of Justice initiative called DDACTS, or Data Driven Approaches to Crime and Traffic Safety, which has found that there is often a geographic link between traffic crashes and crime. By putting "high-visibility enforcement" in hot spots of both crime and traffic crashes, cities like Baltimore have seen reductions in both.

Traffic stops might be a nuisance, but there are definitely benefits, such as punishing reckless drivers who put the public in danger. Traffic stops also lead to a decrease in crashes and other crime. If you have questions, feel free to contact us.

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