“Mr. Beaver, I am 78 and my fiancee is 79,” Connie’s e-mail began. “He has gotten himself into a legal mess. Can I get some advice for him on saving his house?

Finding love and companionship at any age is what life should be all about, but something about Connie’s e-mail seemed odd. Why was it from her, and not from her 79-year-old future husband? Why did she want to discuss this with me and not him?

I e-mailed right back: “I’m here at the office, call now.”

Within seconds, the phone rang and it was Connie. I would soon discover that my hunch of something being odd was correct.

“Louis and his son were in a little accident last year, and it has us both concerned,” she began.

“What kind of an accident was it? How old is his son?” I inquired.

“Well, his boy is 50. They got hurt fixing an old building. His son spent two months in the hospital. But they’re fine now. Louis is worried about being sued — by his son,” she added.

“Can you put him on the phone?” I asked.

“Sure, but you’re going to wind up yelling at him, because he can’t come to the point,” Connie replied.

“Put him on, anyway,” I insisted.

Our conversation started out with great difficulty and only got worse as he was not only a poor historian, but revealed enormous issues with basic judgment. But as I had the time, I just let him talk and within minutes, nearly fell out of my chair picturing what had happened to him and his son. Here’s a summary of what he told me:

“I was an insurance broker, owned my own building, and retired about 20 years ago. The office has remained empty. I began getting some really high offers for it in 2005 — but I hung out for more — and then the market just crashed, as you know,” he related.

“The roof was rotted, so last year, my son and I decided to do our own roof repairs. He drives a taxi but spent one summer when he was in high school working for a roofer, so I figured we could do a good job ourselves and save a bunch of money. I hired him to work on the roof with me and pay him what he would lose in not driving the cab for two weeks. I didn’t think there was that much to replacing a roof,” he added.

“Sonny is kind of a big boy, always had a weight problem, and must be about 350 pounds, but I’m pretty skinny,” he proudly added.

“We were tearing shingles off and everything was going really well, when, suddenly, a big hole opened up where my boy was standing. I grabbed him, but we both fell straight through to the floor.

“He broke both legs, one arm, and was nearly scalped by something in the attic, but after two months in the hospital, made a good recovery. His wife’s medical insurance paid some of the bills, but I got a letter from a lawyer asking about my workers compensation insurance and threatening to sue me. That’s why we’re calling — how can I protect my assets?” Certainly Louis would keep the building insured, right? Wrong.

“It’s kind of expensive having insurance on a vacant building, and I didn’t want to spend the money.”

Did he have any form of business insurance? Something? Anything? And why was it important to know?

The answer is that by hiring his son for help with the roof, an employer-employee relationship might have created. This requires workers compensation insurance to cover any injuries, or to be financially strong enough to be self-insured.

Did Louis know that?

“Sure did, but who’d ever think your son would sue you?” he replied.

Hospital bills were well over $300,000.

There were in fact several letters that Louis had received, from insurance companies, hospital collections offices, and the workers compensation attorney hired by his son’s family. Were he wealthy, it might be possible to negotiate with all the players in this developing drama. I asked him what he owns.

“That building, my house worth maybe $100,000, Social Security, and about $20,000 in the bank — that’s all,” he replied.

“Then, Louis, you need to see a lawyer — possibly, three lawyers:

“A workers compensation attorney who represents business owners, and a bankruptcy attorney as soon as possible, as you are going to be sued, by whom is the question. Your son might file for workers compensation benefits, and if it is found that he qualifies, the Uninsured Employers Fund could easily get after you as well to recover any funds they pay for your son’s treatment rehabilitation or permanent injury.

“Your need to consult with a family law attorney to understand your rights, and especially what happens if you and Connie get married — what risks does she face if there are judgments against you. Believe me, this is as serious as a heart attack, Louis,” I stressed.

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

The post Don’t marry this guy appeared first on Dennis Beaver.

In 1998 Grandma Susie and her husband hired a paralegal to file a bankruptcy. Hospital bills which insurance did not cover left them no choice. When informed that the necessary papers had been filed with the Bankruptcy Court, the couple finally realized that their marriage was over and divorced. Only the paralegal never did file the bankruptcy. Instead, using their money for drugs and a Greyhound ticket, she left town.

“I paid those bills that I could, some he agreed to pay even though the purchases were put on my credit card – including a big screen TV and stereo. He took those items when he moved away from Hanford, after meeting some floozy on the Internet, and I am sure they spent many cozy evenings watching the TV and listening to Country Western music on our stereo! Honestly, how anyone could do this – walk away from your wife and children – I will never understand. He has been gone eight years and we haven’t heard a word,” Grandma Susie told me.

Hell Hath No Fury Like a Woman Scorned

You might have heard the saying, “Hell hath no fury like a woman scorned.” Often credited to William Shakespeare, the line comes from The Mourning Bride by William Congreve, written in 1697, and stands as a warning for what might happen when a woman is rejected in love – or ripped off by a druggie paralegal. 300 years have done little to change human nature, and Grandma Susie was indeed a woman scorned – twice. Susie was also someone to be reckoned with.

“When I learned what the paralegal had done – and the problems it created – I took her to court, obtained a judgment, but by the time they located her, it was too late; she died of a drug overdose, we believe,” Susie told me.

And that is where it all would have remained had not Citibank sold this 9-year-old account to Capital Management Services in New York. That’s right, the account had been idle – no collection activity of any kind – for nine years.

Hi There, Gimme $5,000 Or I will Sue You!

In late April, 2006, a collection agency wrote Grandma Susie, threatening suit unless she responded to their demand for payment of this old account. “After all these years, I had no idea what was actually owed, or if my ex-husband had paid on it, and then in came this demand letter. Could they sue me? Would they win?” she asked. “They gave me 30 days to respond to their demand, and after all this time, I have no records and honestly thought that it was written off. They were very nasty on the phone,” she wrote, asking for my advice.

This was going to be fun, I could tell.

Hi, There, Let’s Talk Statute of Limitations

“If they sue you, which these types of companies could very well do, you have a defense,” I told Grandma Susie. “In fact, we are going to have some fun with these guys right now, but first let me explain why they called. These guys purchase old debt from companies all over America, most of written off as uncollectible – for one reason or another – by the company selling this debt. For some odd reason, your credit card company did not elect to go after you for what was owed years ago, if it was truly owed.”

I explained to my Hanford reader that what these collection agencies want you to do is to re-affirm the debt. “At most, in California, they have four years in which to file suit from the last payment. If they do sue you, the correct response is to plead the Statute of Limitations, which means that they are too late. But if you agree to start making payments, or actually do make a few, this eliminates that Statute of Limitations defense – and boy do they love that!” I said.

So, calling their toll free number (I love to make them pay for the privilege of hearing me tell them to drop dead!) I set up a conference call with my Hanford reader and Miss Whatever Her Real Name Was, and after the introductions, the conversation went like this:

Beaver: Ma’am, do you know how old this alleged credit card bill is?

Collector: Hmm, I see l998.

Beaver: Bingo, you can read! That cool, now, you know I am a lawyer, so let’s see if you can read my mind. What am I about to say?

Collector: You are going to say that it is too late because of the Statute of Limitations and you want us to leave her alone. Right?

Beaver: Right. And I want you to mail her a letter to that effect and take her out of your data base NOW. Deal?

Collector: OK.

Beaver: Now, you can have desert.

Grandma Susie heard it all and was silent. I could sense that she was crying. “I’ve read you for years, and guess that it pays to subscribe to the Sentinel!” she said.

Yup, it sure does!

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

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If you listen to Sirius, XM Satellite, or just regular AM radio, you’ve probably heard ads aimed at listeners who are in financial trouble. Some suggest voodoo ways to get out of debt, pay off your house, car, and discover economic Nirvana in a matter of months.

Other ads describe the joys of establishing a Nevada corporation, getting “all the business credit you need with no personal liability.” If you believe the “Nevada Corporation” pitch and send them money, you do not need the services of a lawyer. A psychiatrist is a better choice.

A dose of reality can be found by using a search engine and typing the company name followed by the words rip off or scam. I only wonder why most of these ads are permitted to be carried by credible, national broadcasters, especially those for the Nevada “Asset Protection” group of con artists.

However, some companies which claim to reduce debt are legit and can deliver substantial money savings for a narrow group of folks who are in trouble. So, if you are in debt yourself, or know someone who is desperately trying to pay off their bills, today’s article should be a starting point for doing your own research into debt reduction.

CCR — Credit Card Relief of Indianapolis — is one of the debt relief companies who advertises nationally and was extremely helpful in explaining what they do and who can be helped. While You and the Law obviously can’t make any recommendations, from my research, this concept is certainly worth looking into for some people.

Debt relief is also known as debt settlement or debt negotiation. You’ll might also read or hear the term “debt pro-rator.” The basic idea is to work with unsecured creditors (such as credit card companies) and reduce both the principal and interest rate on substantial outstanding balances.

Indianapolis attorney Tomas P. Dakich explained debt relief this way:

“The concept of debt relief is to work out a way creditors will take less money than you actually owe. Most would rather have half a loaf than nothing at all. So, we help people avoid bankruptcy by reducing the total amount of what they owe unsecured creditors, most often for credit card debt.”

“With insurmountable debt — and high interest rates — you could be paying off bills for years and never get ahead. But many creditors will accept less than the full amount, just to get this account off of their books and to not run the risk of the debtor going bankrupt,” he added.

Attorney Dakich gave me a typical example of one of their clients, whom we will call Danny Debtor.

“Danny is employed, but deeply in debt. He is attempting to pay off $30,000 of credit card and other unsecured debt. He is unable to make all of these payments, and by the time he calls CCR or some other debt relief company, may have already been sued. Our job is to offer, perhaps $5,000 to settle $10,000 in debt. But it does not happen overnight, and could take up to three years,” he cautions.

The founder of Credit Card Relief is a former journalist for the Los Angeles Times, John Nichols.

“Whenever possible, our goal is to prevent clients from getting deeper into trouble. For example, they must keep their car and house payments current. We do not touch secured debt,” he points out.

“So, let’s say that one of your readers becomes a client of ours. Instead of continuing to make those regular unsecured payments, funds will be paid into our trust account, referred to as the Enrolled Member’s Trust. The client continues to pay into that trust account until a significant amount of money is accumulated and our lawyers pick up the phone and start negotiating with the various creditors, to make them a lump-sum settlement offer.”

An obvious question arose during my discussions with Mr. Nichols: “I’m running the risk of being sued if I stop making my regular payments, aren’t I?” His answer was encouraging for people in that precise situation.

“That is an extremely good question, and the logical answer would appear to be, yes, you’ll be sued right away. But that has not proven to be the case in today’s financial environment. About 20 percent of the time, credit card companies will file suit. But with so many people in financial trouble, it is not economically viable to litigate most unpaid accounts.”

“Certainly, if a case that we are handling goes to a collection agency or a suit is filed, our attorneys will immediately attempt to enter into settlement agreement,” he stressed.

“Our clients go through a qualification process. We verify that you have income, money to pay the debts and that you have not fraudulently run up debt. We keep tabs on your credit report and score. As your payments into the trust accumulate, our lawyers are in a position of settling credit card debt from 30 to 60 cents on the dollar — including our fees — resulting in a substantial savings,” Mr. Nichols concluded.

In speaking with a number of companies in the debt relief business, while fees vary, typically, a client will pay a monthly maintenance fee of around $50 and 25 perent settlement fee, based on the amount saved the client. Services include a local attorney, and possibly a national mediation law firm.

So, debt relief firms can help certain clients. However, in speaking with several bankruptcy attorneys, I was told the following:

“It is critical for the client to keep their side of the agreement. We see so many examples of clients who simply do not keep their end of the bargain, and stop making payments into the trust account,” one Los Angeles based bankruptcy attorney told me.

While there can be savings down the road, it is often outweighed by the “certainty of a ruined credit report, and the likelihood of being sued,” I was repeatedly told. Also, you need to be sure that you are dealing with a California licensed attorney, or a company with a surety bond, to protect the money you are paying them.

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

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“Mr. Beaver, I have read your column for many years and trust your advice,” were the opening words of an overly-friendly voice on the phone.

“I need your opinion about ways of making it difficult for someone to sue me, and if they do, to collect on a judgment. I’m considering setting up a Nevada, Wyoming or South Dakota corporation or LLC because I’m told it is possible to save big time on taxes, even though my business is in California’s Central Valley.

“If someone wants to sue me, the people who file corporations in these states tell me that I will be invisible — no one will know who owns my company, and also, the IRS will not be able to touch me. I have already had two business failures, filed for bankruptcy, and don’t want to go through this again. Is there a legal way of escaping from my debts?”

Asset protection planning is legal – Tax fraud isn’t

“Lawyers and CPA’s who specialize in legitimate asset protection planning get these questions all the time,” Los Angeles-based tax attorney Bruce Givner tells You and the Law, adding, “often from someone who feels there is a magic solution to avoid financial responsibility, attracted to misleading information often put out by companies who sell corporation and so-called asset protection services.”

We asked Givner if there is any truth to the radio and internet ads which claim that, with a Nevada corporation, you can avoid taxes in your home state — and the IRS can’t find you.

“If you set up a Nevada corporation and conduct business in another state which has an income tax, then your corporation will have to pay tax on income earned in that state. If your reader deposits his business income into a Nevada bank account, he still owes taxes in California, and, if he doesn’t pay, this could easily be seen as committing state income tax fraud.

“For years there has been a myth that Nevada, Wyoming or South Dakota refused to cooperate with the IRS. This resulted in thousands of corporations formed by people who had no other connection to these states, but thought they could hide from the IRS, remaining invisible. Again, this is complete nonsense. All states co-operate with the IRS,” he points out.

We asked, “What about claims that the only way to ‘keep a low profile’ is by setting up a corporation outside of California?”

And Givner’s response to that claim?

“A misleading selling point of many of these asset protection programs goes along these lines: ‘By filing your corporation or LLC in our state, the identity of everyone connected to your business is completely hidden.’

“But The California Secretary of State’s website tells you that for LLC’s, partnerships and corporations they do not keep owner, shareholder, or employee information, and makes it clear that if you want that information, you’ll have to contact the business itself. The key paragraph on their website tells us:

Personal information such as telephone numbers, email addresses and social security numbers of business entity members (officers, directors, managers, members, partners, agents and employees) is not made of record with the California Secretary of State.

But there is something extremely important that you will find on the California website, and, as Givner notes, “It’s the identity of the Agent for Service of Process. That’s the person or company is designated to receive important correspondence, legal documents, law suits, and then, forward them to the business owners. This is not unique to California — all states have this requirement.”

“You’ve got to have a corporation”

Listeners to satellite radio can’t escape ads which scream the importance of setting up a corporation or LLC, “Or you can lose everything you own!” To Givner, this is a dangerous half-truth.

“It is totally false to suggest that just by setting up a corporation, anyone will automatically be immune from the consequences of being sued for a debt or accident that they might have caused.

“A corporation is an appropriate business structure and offers its owners some — but not total — protection from personal liability which is easy to lose if you do things like paying your personal bills from the corporate account, failing to pay corporate taxes, and many other ways.

“Asset protection–such as having auto and home owner’s insurance–is one way most people protect a lifetime of hard work,” he observes, but points out that, “It is only a partial solution. A frivolous lawsuit by a lawyer who has nothing to lose except a court filing fee will leave you with many sleepless nights, and a risk of losing over 40 years of hard work.”

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

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How often have you shaken your head in disbelief when learning that a decades-old, successful family-owned business has filed for bankruptcy protection, the result of decisions which were supposed to help it survive and keep the children at its helm?

It is a common reality, and, as Lyle Sussman, Ph.D. former Chairman and Professor Emeritus of Management, College of Business and Public Administration, at the University of Louisville observes, “There is a life cycle to any family-run business, and some of the most difficult decisions about its future come at a time when the founders are trying to ease themselves out, looking forward to retirement. Often, owners are pressured by relatives into an expansion mode instead of keeping things small and manageable.”

Three Brothers – Competent Jimmy, Weakling Roy and Con Artist Dave

Some years ago office was proud to have as clients, “Jimmy” his wife, “Katherine,” and their restaurant, simply called “Jimmy’s Place” with a following of customers who would drive over an hour just to dine there.

Great steaks and lobster – a restaurant which consistently offered good food, lots of it at an attractive price would succeed and Jimmy’s did. Then brother “Dave” who had been absent from their lives for years suddenly reappeared and with an idea.

“You two aren’t getting younger and can’t keep this pace up forever, so why not open a second location that I’ll manage, and it will be an exact copy of what you now have. Roy can take over operations of Jimmy’s Place and we will buy you two out?” he suggested, offering no money to invest, but boasted a superior management ability, by virtue of having graduated at the top of his class from law school at the University of California at Irvine.

But there was only one problem with Dave’s educational accomplishments: A law school at U.C. Irvine would only come into existence 15 years later. Dave was a con, a narcissistic, sociopathic con, but Jimmy refused to believe it and over my objections, accepted Dave’s offer, mortgaged everything to build a second restaurant called–you guessed it–“Dave’s Place” in a nearby farming town.

Dave–considering himself a true Restauranteur–wanted it to be a classy place, and so had a “No Hats Policy,” ordering patrons to remove their hats. This, in a farming community, did not go over well, plus his arrogance, led to a boycott of the restaurant, while at home, brother Roy–who had taken over management of Jimmy’s Place–one day didn’t show up. He had checked himself into a mental hospital, unable to take the stress of running a busy restaurant.

Within months, Jimmy had a heart attack, the couple lost their home and all they had worked so hard for wound up in bankruptcy court. How they stayed married was testimony to Katherine’s love.

To Dr. Sussman, what happened was predictable, could have been avoided, and is a good example of the saying, “A family business often goes from rags to riches to rags.”

You Can’t Clone Yourself

“While your example was an established business, so often whenever a startup is successful at one location, owners assume it can be cloned at another. This is especially true with restaurants. But what works now and here, can never be exactly duplicated. You cannot clone success, and even well-established franchise companies will have the occasional failure.

“By increasing scope and scale, problems are created, regardless of how good the concept is. The moment you hire other people to put your vision into practice invariably you are hiring people who are not you. Over time the passion and the vision dissipates. That is the norm and not the exception. They will cut corners and do thing that you would not, in large part because they do not share your DNA, your vision, or the depth of your passion.

Why Small is Beautiful

How often have you seen a restaurant in town open a second location a few miles away, and then in the blink of an eye, they both fold? “Why do they do this? What’s going on with them?” You no doubt wonder. Sussman explains what leads to these awful outcomes:

“Don’t assume that small is bad. Keeping things small and manageable gives you peace of mind and balance in your life. It allows you to run your business without too many accountants and attorneys, providing enough profit to give you the live you want.

“Also, don’t assume that increasing revenues through opening a second or third location will give you more satisfaction. Increasing revenue has a cost – a human cost.”

Sussman wraps it all up with his philosophy that, “Small is beautiful.”

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

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When Uniondale, N.Y. based Natalie Jean-Baptiste graduated from law school with a six-figure student loan debt, it never occurred to her that she wouldn’t be able to pay it back.

“I just knew I was going to be a hot shot entertainment attorney and pay it off in no time. I dreamed of red carpet events, Grammy parties and hanging with my clients in the Hamptons. I never ever dreamed I’d end up in bankruptcy court, let alone become an expert on bankruptcy.”

But she did indeed become an expert on a very narrow–and extremely important–area of bankruptcy law which can be a true God send to the thousands of people burdened by student loans they will never be able to both pay off and live a normal life. Her own experience led a path in law, “So much more rewarding than I could ever have imagined,” Natalie told me. “I get to help people drowning with student loan debt.”

And before going further, this column is not advocating cheating legitimate lenders out of their right to be repaid for making a student loan. Rather, recent history is filled with stories of loans which should never have been made for worthless college programs leaving debtors close to homeless. The next Presidential election may address some of these abuses, but for now, for some people, there is a way out of crushing student debt, as you will see.

Popular Misconceptions – There’s Nothing You Can Do About Student Loan Debt

“One of the biggest misconceptions about student loans is that it is impossible to have these loans discharged in bankruptcy,” she points out.

“Most attorneys will even tell you that. While the path to discharge is challenging, it is possible and I accomplished this for myself,” she says, adding, “Do not trust student loan resources, and even student loan lawyers, who tell everyone to forget about filing bankruptcy. Either they are poorly informed, or have an agenda which is not in the debtor’s best interest.”

A Brief History of Student Loan Debt and Bankruptcy

Prior to 1976, student loans could be discharged in bankruptcy easily. But in 1998, Congress significantly modified bankruptcy law to only allow a discharge if repaying student loans created an undue hardship.

In her own experience, “I was a good fit for the undue hardship claim, and there are thousands of people across the country in the same situation as I was.” She summarized the criteria for a finding of undue hardship:

“The Brunner test is used by the most bankruptcy courts, and requires a finding that:

(1) You can’t maintain a minimal standard of living for yourself and your dependents and afford the monthly payments.

(2) The current circumstances are likely to persist for a significant portion of the payment period.

(3) You made a good faith effort to repay the loan by maximizing your income and eliminating unnecessary expenses.
How To Get the Ball Rolling – Not a Slam Dunk

Natalie wants readers to understand this is not a slam dunk. “First, you need to find a bankruptcy attorney who is familiar with the undue hardship rules as many are not.

“It is important to understand that you will be filing for bankruptcy, and, as you are claiming an undue hardship, this will be decided in what is called, ‘An Adversary Proceeding’ in bankruptcy court. This is a real lawsuit, as the creditor wants to be paid and you are trying to demonstrate why the loan should be forgiven.

“You will appear before a judge who will most likely use the Brunner Test to decide if you have an undue hardship.
“If you can prove all three of these elements, you are entitled to a discharge,” but you’ve got a lot of work to do, beginning with conducting discovery.

“Be prepared to provide financial records, tax returns, bank statements showing your financial resources, proof of expenses, housing, utilities, food, etc.  You will need to present a detailed picture of your financial life.”

She also wants readers to understand that not all student loans are ‘Qualified Education Loans.’

“For example, a private bank making a loan where the amount exceeds the published cost of attendance might not be a qualified loan and therefore is dischargeable without having to show undue hardship.”

Nathalie believes that most people can do this on their own, as she did. “I knew nothing about bankruptcy before teaching myself. There is hope for people who are underwater!  The hardship exception works, it really does.  The myth that you can’t discharge student loans is a popular misconception. It can be done.”

Her website is well worth the time for anyone facing crushing student loan debt: mystudentloancounselor.com

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

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Like ghosts in a haunted house, law firms are pursuing property owners, threatening them with the loss of their property for unpaid second mortgages — known as zombie mortgages.

Some people thought their mortgages were discharged in bankruptcy. Others wanted to pay on their mortgages but couldn’t because there was no longer anywhere to send their payments when their lenders disappeared during the mortgage crisis that started in 2008.

Andy’s story of being blindsided by a zombie mortgage is typical. Here’s how it went down.

How the zombie mortgage got its start

“In 2007, I converted a small house into a commercial structure for our data recovery company,” “Andy” wrote. “There was a first and second mortgage, and I am still current on the first. Around 2009, when things fell apart in real estate, the company servicing my second just vanished! I tried mailing and even wiring payments, but everything came back. I was unable to discover who to pay. Then a letter from a law firm in Florida arrived, claiming to represent a company that had purchased my second mortgage, stating that I was in default, demanding payment in full, or they would foreclose and take my office!”

A real estate attorney explains what happened

I ran Andy’s situation by Hanford, Calif., real estate attorney Ron P. Jones, who says he is “far more familiar with these situations than I would like to be, as they are terrifying to people who are suddenly at risk of losing their home.”

He explained how and why this is happening even today, so many years after the Great Recession.

“Zombie second mortgages step out of the past, haunting property owners and threatening their ability to remain in their home or commercial building,” Jones says, describing two common situations where this occurs:

Situation No. 1: You filed for bankruptcy.

“Many property owners were under the impression that by including the second mortgage in a bankruptcy, they were no longer responsible for it,” Jones says. “They keep the first current, but stopped paying on the second.” But in reality, the lender still has a lien against the property. Mortgage debt (secured debt) generally is not dischargeable through bankruptcy. You do not own the home free and clear, so you are not off the hook for the mortgage. “So, whoever owns the mortgage has the right to foreclose unless you pay it off or negotiate an acceptable restructuring.”

Situation No. 2: The lender has disappeared, and you can’t make payments.

“As strange as it sounds,” Jones says, “the fact that you were unable to keep payments current on the second mortgage does not mean that the money isn’t owed. It is owed.”

Why is this happening all across America?

We can all recall the tsunami of foreclosures and prices of homes and commercial property falling off the face of the planet from the crash. As the value of their homes fell well below what was owed, many people just walked away.

“During those years, holders of second mortgages did not foreclose due to falling home values and little equity in the property,” Jones notes.

When real estate prices started to recover, and in some cases went even higher, that second mortgage suddenly is very valuable and worth trying to enforce, giving a successor mortgage holder a “winning lottery ticket,” enabling them to potentially own the property encumbered by the mortgage.

What about Andy’s situation? It just seems so unfair. He was trying to pay, but could not locate anyone to take his money, and then, blam, he’s threatened with losing the property. What happened?

Meet the zombie mortgage debt buyers

Attorney Jones explains that the same thing happens with mortgage debt that is in default: “Assets of a defunct lender are purchased for pennies on the dollar by one of these debt buyers. So, if $100,000 is owed, the debt buyer might pay 4% to 10% of that amount and gets the opportunity to collect $100,000. Many describe this as legalized extortion. I concur.”

I’ve written about “zombie consumer debt,” where so-called uncollectible/written-off accounts are purchased for cents on the dollar by a debt buyer who then goes about trying to collect from a consumer. It is a hugely profitable, murky business.

What to do if this happens to you

So, if you are in a similar position as Andy, what should you do? Jones recommends:

Contact the customer service department of a title or escrow company. They have extensive resources on mortgage companies that have failed and might be able to locate who to pay.

Reach out to federal lending agencies such as Fannie Mae and Freddie Mac, which also have information on lenders and their successors.

Create a special savings account and deposit each month the same amount you would have paid on the mortgage. That way, when zombies show up, you have negotiating ability.

Immediately contact a real estate attorney. Don’t handle this on you own!

Dennis Beaver Practices law in Bakersfield and welcomes comments and questions from readers,
which may be faxed to (661) 323-7993,
or e-mailed to Lagombeaver1 – at – Gmail.com.

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