10 11 bits of free Legal Advice, the dot.com boom, Defending against foreclosure, and in defense of attorneys in a nagging economy—you can’t live with us, and you can’t live without us.

    I was watching a clip on YouTube called, "40 inspirational speeches in 2 minutes" YouTube Link (uploaded by MBelinkie) and saw the famous scene from the 1976 movie, Network (Faye Dunaway, William Holden, Robert Duvall, Ned Beatty) where anchorman, Howard Beale, played by Peter Finch encouraged everyone watching him to and stick their heads out their windows and shout at the top of their lungs, "I’m mad as hell and I’m not going to take it anymore!" YouTube link (uploaded by Onipsi)  In 1976, the economy was not so hot and although Vietnam had officially ended, there were American soldiers dying somewhere. So, maybe instead of despair or worry or getting a divorce, maybe you should do the same—get mad, with you and your spouse, together as one. Anger is a negative emotion and not to be carried around, but unlike despair or shame, at least you can survive on it.  With anger, positive results are possible, but with hopelessness, nothing is possible. 

Even if you purchased an investment property in recent years with the hopes of flipping it, there is a good chance you made your purchase on emotion. Unless you are someone who regularly does this type of business, what is not emotional about purchasing a piece of real estate, no matter how big or small? How is this real estate boom-and-bust that has befallen us any different than the dot.com craze 10 years ago?  As a stock broker/financial advisor, I seem to remember that Amazon was trading at $430 per share and it had not even turned a profit yet . . . or maybe it was Ebay . . . ? Amazon and Ebay of course survived, but most dot.com’s did not.  There is no doubt that this economic downturn is also a serious market correction, but a correction in real estate is so much more painful because real estate is supposed to be safe! After all, this was not a dot.com, or penny stocks, or options, or futures contracts in crude oil--this was a safe investment, but now we know that unlike those exotic investments I mentioned, real estate is just not liquid enough to get rid of quick enough. Ten years ago, many people lost money on paper, but real estate is something tangible that can literally be “taken” away from you. Unless you are investing for the long-term—in anything—you are playing a game of musical chairs assuming you know when the music will stop. In both situations, the common denominator was the banks: before, it was the venture capitalists, Silicon Valley and other technology hubs, entrepreneurs, and investment banks who fed us public offering in stocks—especially in the technology sector.  This time the spectrum was much broader: it was the developers, construction companies, the home improvement industry, interior designers, HGTV, mortgage companies, investment banks, as well as traditional banks. We got over the dot.com bubble and we will get over this!

            Yes, we are all at fault to some extent for this mess, but I personally place most of the blame on the banks. Some will say homeowners were unwise and greedy, some will blame the government--I blame them some also for not regulating the monster they created--but mainly I blame the banks because they have powerful lobbyists who can influence the government and persuade them to "relax" credit. Look, it was difficult to stop and say to yourself, "I shouldn't take out this loan" when your neighbors, coworkers and friends are packing up and upgrading to a better home or buying condos on South Florida’s beaches, Southern California, Arizona, Las Vegas, or just about anywhere where the market is hot.  Our psychology is that we want to be in the norm like everyone else even if we are all acting irrationally at the same time, which Alan Greenspan called, “irrational exuberance” during the dot.com boom.  Or maybe we are copy-cats who think we are unique, but regardless, we are a competitive culture and we want to do better, or at least, keep up.  The investment banks that created these real estate derivatives and the institutions that loaned money: Fannie Mae, Freddie Mac, Country Wide, Wells Fargo, Merrill Lynch, Lehman Brothers, Bear Stearns were running on emotion too, but it was "justified" as a business decision that was carefully calculated to increase their personal profits . . . you know  . . .all those stock options that the corporate executives own.  . . . You see, the prize and temptation was so much bigger this time—so much bigger, huge. Ten years ago lots of people were investing 5, 10, 20, maybe $50,000 here and there in stocks, but this time lots of people were easily investing 10 times that much—homes, you see.  Investment banks always advise us to "diversify your investments and do not put all your eggs in one basket." I know, I was one for a brief time.  Well, that is exactly what they were not doing. Banks were not heeding their own advice and were putting all their eggs in one basket--real estate.  Likewise, banks are made up of people too, who also thought that real estate is always a safe bet.

            . . . And so did we. Some of these executives may have gotten, or may still be getting bonuses, but there are other things us little folks have to consider, which is the point of this diatribe:  if the banks don't care about us, why should we care about them? As a matter of fact, we outnumber them and they largely depend on us, this is why the Federal Government had to bail them out.  . . . Can you imagine if there had been a public vote in this enormous bailout?  “Raise your hand if you would like to bail out the bank that is foreclosing on your elderly mother and father.” The Feds had to bail them out, or we truly may have gone into a depression--even though they sold our promissory notes (loans) over-and-over again and thusly increased the default risk each time, while at the same time, minimized accountability . . . “Hey, who sold me this worthless $300,000?  Oh well, I guess I will just go foreclose on them . . .” Or, packaged them up into “Trusts” (ha), then turned around and resold them back to us--by the way, any of you out there being sued by a Trust? Ridiculous!  . . . Not to mention that although banks would never accept a copy of a check from us, but they are most often able to foreclose on us with a copy of the promissory note we gave them. 

A promissory note is a type of “commercial paper”, just like a check! Do you think if we brought a copy of a check to the cashier’s window they would honor it?  Some judges have allowed foreclosure on a copy because they are overwhelmed--and probably bitter because their intellectual ability has been reduced to becoming a paper-pusher that rubber stamps everything instead of the intellectual minds they want to be, and are supposed to be.  Sometimes, their attitude seems to be, “if you don’t like it, hire another attorney and appeal.” I can’t say that I blame them. Sure, if we walk away from our mortgage or “squat” we will face the stigma and shame of bad credit or being a freeloader to those who diligently make monthly mortgage payments, but eventually these banks will need our money again, and they will be doing everything they can to get out attention. Some banks are massively marketing in areas where many people are angry at their old bank—hoping that they may bring their business to the new bank in town--which is probably just bought the old bank bought and repackaged anyway. I commend them on their good timing.

            Soon, I believe, banks will go back to offering relatively lower interest rate credit cards instead of raising our current credit card rate. They will go back to offering reasonable rates on home loans if we have a good credit score instead of an exemplary score; or ridiculously low teaser rates if we have an average or poor score; and they will offer relatively higher interest rates if we deposit money in their bank instead of a competing bank. When I say relative, I mean relative to the rate of inflation in “normal” times, rather than relative to the rate of the loss of their profits.  Hopefully, this favorable turn of events will happen sooner instead of later, but not if we continue to let them drive us back with their armies of foreclosure attorneys cracking the whip and their unresponsive and uncooperative call centers. Yes, there are many of us waiting to jump on a great purchasing opportunity, but as for now, there seems to be way more houses out there than there are buyers.  The dust is still settling.

This is not a call-to-arms for everyone, but it may be a call-to-arms for some—a time to get mad or maybe, it is time to acknowledge your losses and move on, which is to lose the battle, but survive the war. I'm sure the banks have decided to write off many of your homes as "losses" against their taxable income, so maybe I can help you decide, or become more convinced in the decision you have already made. These suggestions and ideas are in no particular order of importance and may not apply to all, but maybe they will help put things in order or perspective.

I know that consumers assented to the terms of their contracts and knew what they were getting into, but I feel for all the people in foreclosure and believe that although money and legalities are the primary concerns, there are additional things to consider. Because we live in a skeptical society; because the State Bars that regulate attorneys and “disbar” us are sometimes overly cautious; because I do not have a PhD in economics and have limited knowledge of markets; because I’m completely biased and not objective; because I don't want to be punished for publicly trying to help by giving “unsolicited advice”; and because so many people do not like or trust attorneys, I will leave my name anonymous.  Lastly, I write to remind attorneys that for every client—big or small—that their biggest concern is not your accolades, awards, GPA, your alma mater, or reputation, it is this: “Does my attorney really care about my case or my cause?”

1.  Find an attorney after you read this and don’t expect them to agree with everything I say. We have a thing called independent professional judgment—we second guess each other all the time. Get an attorney whether it is for foreclosure defense or to negotiate your credit card debt--especially if you have a family. Do not hire some company you have never heard of just because your coworker or brother-in-law or the Internet told you to. Go find an attorney who you can physically shake his or her hand! There are way too many attorneys who are not making a lot of money and or are underemployed—especially in the more populous states like California, New York, Florida, and Texas. Maybe you can find an attorney fresh out of law school who has 7 years of college, who has passed a horrible bar exam, but who has no job prospects, who wants to work, wants to help, wants to gain experience, and needs money.  In fact, they may need you as much as you need them. If this idea scares you, young AND old attorneys seek advice of other attorneys in areas they have little or no experience in all the time. Just like physicians, attorneys refer or seek help from other specialists.  There are also foreclosure assistance programs, but if they are overwhelmed with cases, go find an attorney elsewhere.

2.  Time to move on? If the bank's loan servicer will not cooperate and you truly cannot find or don't want an attorney, and do not or cannot represent yourself, your only option is to move on now--especially if you are single simply because it is “easier” than someone who is married. I mean move away, find a job, start your own business (small business association), find an apartment, go back to school, move in with mom and dad, sell your stuff, take a job beneath you, and make a decision and move on with your life and don't beat yourself up.  This applies to married couples and the recently divorced.

3.  Short Sale: even if you or your attorney are able to renegotiate the terms of your loan, can you honestly afford to stay put in your home; keep your investment property; wait for the market to recover, and pay the taxes, your bills, groceries, gasoline, kid's tuition, etc? Is your marriage in a strain? Consider a short sale.  If you can ride the storm out, then do so! If you sell now, you will most likely lose money in this market, and you will regret it later because you are selling at the bottom, but how much longer do you want this debt weighing you down. After a short sale, you will still probably owe money, but less than you do now. There are a lot of real estate agents looking for work too.

4.  If you are able to renegotiate the terms of your loan, do you mind staying in a home that is worth less than what you owe?  . . . Mind over matter, if you don't mind, it doesn't matter.  At least you have a home, and like the stock of a good company, your home value will return, eventually. If the real estate taxes are too much, consider selling your home and buying a more affordable home at its lower, but true market value. You will also pay less in property taxes.  Don’t forget, you still have to save liquid money for retirement.

5.  Your ties to the community: How attached is your family to the community? Have you lived here your entire life and everyone you know and love is here and you refuse to leave? This gives you fewer options, but the comfort of knowing your mind is made up.

6.  Are you employed? If not, and you cannot find a job or start your own business, then your home is your second priority and you, or you and your family are your first priority. Much like no. 2 above, move away, find a job elsewhere, join the reserves, go to school, take a job beneath you, go to church, the mosque, the synagogue, the Red Cross, the YMCA, the YWCA, or go home to family and friends for a little while. People need other people and people are attracted to similar people.  Find a way.

7.  Deed in Lieu of Foreclosure: Why would anyone do this? Maybe you just want to buy some time for yourself, but I cannot think of any other reason though one may exist. Anyway, most banks will not even consider this option because they know what you know: that you are buying time.  Also, banks do not want to be landlords and pay for the upkeep of the property—they want to sell it. If you are able give your deed away to the bank and stay put, then you become a tenant in your own home.  Also, you may still have all the debt but no ownership and cannot sell it later if you change your mind.

8.  Bankruptcy: this is the last resort. I generally do not like bankruptcy. Some attorneys will do it for cheap, but again, it is the last resort. In fact, if you are seriously considering bankruptcy, then don't even bother with a deed in lieu of foreclosure or renegotiating debt. Now, I don't practice bankruptcy and I don't know everything about it, or for that matter, foreclosure defense. What I do know is that your credit score may be gone for longer than it takes for the economy to recover, and one day, you may have a job application in front of you or you need a loan for a great opportunity and the application asks, “Have ever declared bankruptcy?” and possibly, "Have you ever been in foreclosure?"  It is drastic, it is the last choice, but sometimes it is the only choice.

9.  Credit Card Debt: if you cannot hire an attorney or negotiate yourself, always try to make more than a minimum payment. Pick a number or percentage:  minimum + interest accrued since the last statement; or minimum + 5% of total debt; or minimum + $10 dollars—anything but just the minimum. Most important, pay the bill as soon as you get it because interest is building up as the bill sits on your desk, beside your bed, or under a stack of other bills. I know someone very close to me who hired an out-of-state debt negotiator (possibly founded by an attorney) and it worked out for them, but a local attorney can do the same thing and you can physically shake their hand and not worry about what is going on with some company you hired 2,000 miles away.

10. Avoid the Deficiency Judgment at all Costs.   I don’t want to sound contradictory, and no matter what I said above, avoid the deficiency judgment. Many people feel like they are in hell now, the last thing you want is a creditor 2 or 10 years from now—whether they can do so legally or not—bothering you for the debt you accumulated years ago. Maybe you can return to your home country and escape a judgment creditor, and maybe not, only time can tell ,but avoid a deficiency judgment.

11. Be Positive: Yes, you heard me. We will get through this. We have all been through things we thought we would never get through: death, divorce, prison, drugs, alcohol, recessions, demotions and discharges from our job, wars. Some of us have been through the unimaginable.  Everyone is to blame--us and them, so it is not always your fault.

This is dedicated to my brother-in-law who took his own life in 2008 due the stress of the economy and the personal stress that he put on himself.