Debt Advizor

The total federal bankruptcy filings jumped up by 30 percent for the 12-month period ending Sept. 30, with business filings climbing by 49 percent in the same period, according to the Administrative Office of the U.S. Courts. The annual figures released on Monday may not bode well for the coming year, with the fourth quarter numbers showing a 34 percent rise in that quarter alone, according to the report.

Individuals seeking bankruptcy protection represent the bulk of filings, with a total of 1.043 million for the fiscal year ending Sept. 30, up from 801,000 in the same time for 2007. Business filings grew to nearly 38,700 for the fiscal year just ended, up from nearly 26,000 for 2007. Do you need a Bankruptcy Lawyer?

The report shows that the most severe cases, liquidations under Chapter 7, were up by 40 percent from fiscal year 2007, while Chapter 11 reorganizations rose by 49 percent. Only Chapter 12, designed to protect family farmers, was down — by 8 percent for the year. The numbers show some of the hardest-hit areas on a per capita basis were Tennessee, with 7.3 filings per 100,000 population; Nevada, with 6.4; Georgia, with 6.0; Alabama, with 5.9; and Indiana, with 5.89. When looking at liquidation filings alone, Nevada jumps to No. 1, followed by Indiana, Michigan, Kentucky and Colorado.

Broken down regionally, by circuit courts, the western states of the 9th U.S. Circuit Court of Appeals saw the biggest percentage gain, up by nearly 69 percent from 113,541 filings in 2007 to 191,595 in 2008, according to the records. Within the circuit, California’s Central Valley, Los Angeles and the state’s northern regions were hardest hit, followed by Nevada. Do you need a Bankruptcy Lawyer?

The Central District of California, covering the Los Angeles area, saw a 96 percent rise in filings, from roughly 29,000 in 2007 to 57,000 in 2008. The Eastern District, in the Central Valley, with heavy home foreclosures, saw an 83 percent rise and the Northern District saw a 69 percent jump. Nevada showed a 77 percent increase, according to the report. The smallest increase came in the 5th Circuit, up by 6 percent, with the bulk of the increases coming in Louisiana and Mississippi, still recovering from Hurricane Katrina.

If flipping a house in today’s real estate market seems riskier than trekking with a ragtag band of hobbits to Mordor, take heart: Home flippers can still find plenty of opportunities, though they’re not entirely without risk. It may seem counterintuitive to invest in real estate when the housing market is in its darkest hour. But in fact, it may prove to be the most optimal time for such a venture. The question is whether this is the darkest hour or just another break on the ride down.

According to RealtyTrac, a seller of mortgage default data, the foreclosure rate reached its highest level in 50 years in 2007, and has since risen to record numbers in the third quarter of 2008. Real estate investors are finding bargains everywhere, particularly in formerly hot housing markets such as Florida, Nevada and California.

“The key … is doing your research and knowing what you’re getting into. Know the area you’re buying, the market, how the price compares to the neighborhood.”

The horizon is flush with opportunity for those with the money and know-how to snap up a bargain and flip it, but to make it pay you first must understand how the rules of the game have changed.

“The prices that were recently so outrageous are down again, so those with capital or access to credit will find it’s a very good time to pick up bargains in the marketplace. Those bargains are mostly in neighborhoods where you would like to live. Areas undergoing urban renewal present good investment opportunities.“

It seems elementary, but in the recent past many flippers found themselves in trouble because they had not correctly calculated the amount of money it takes to finish a flip and market it. Investors should figure out how much money they’ll need right upfront, and not just the purchase price. It translates to being realistic about renovation costs and the hidden expense that gets so many in trouble: carrying costs.

“You may have carrying costs on the books longer than you think. The days of the 60-day flip are gone.”

Carrying costs, or house payments you must make until you sell the property, can subtract thousands from the bottom line. And even though you are technically chipping away at the debt incurred when you purchased the property, the interest you’re paying at the top of the flip probably won’t be earned back in the sale. Those payments come right out of your potential profit.

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I’ve been spending a lot of time on the road lately travelling over the Festive season, and I’m struck by the number of radio ads for debt settlement services that boast they can cut a consumer’s credit-card debt by half or more.

“So scared you can’t answer your phone anymore?” they ask. “We’ll get creditors off your back.”

I know from my own experience that many of these outfits make promises they can’t keep. Shortly after my wife and I bought a house in Santa Fe, N.M., in December 2005, I began looking for ways to cut our debt, which we had let creep up over the years. Like millions of Americans, we received credit cards in the mail during the 1990s. For many folks, these 0% offers were too good to pass up, and some made the mistake of confusing easy credit with income.

Unfortunately, if you lost your job or got sick and you were late with a payment, the interest rates could skyrocket from 0% to 30% virtually overnight. That was in the agreement that came with the pre-approved card, but most people never bothered to read the fine print. Compounding matters for debtors was a concept known as “universal default.” If you missed a payment on one card, other creditors would automatically raise their rates even if you had been paying them on time.

We fell behind on our credit-card payments and that’s when we started to learn the facts about debt problems. They are not pretty but over the next year we will try and help people out before they get into bad trouble. Good Luck!

Happy Christmas everybody!

Seasons Greetings

Since the Government’s $700 billion financial bailout in October, things have only gotten worse for New Mexico’s home builders. The national bailout was suppose to infuse the capital markets with enough money to trickle down in the form of small business loans through regional banks. In the past 45 days, builders say banks have made their lending policies more onerous. They feel squeezed between consumers who aren’t buying homes and banks that are making it harder to refinance their speculative projects. Lending on new spec projects has died while banks are seeking increasing equity stakes and higher interest rates on current developments whose loans have matured and are seeking renewals. Without renewals, foreclosures could mount.

It’s ominous for the overall regional economy because of hundreds of job losses as builders are abandoning projects throughout the city. Rio Rancho and the northwest quadrant are especially hard hit, where hundreds of approved lots are growing weeds and not homes. No builders are stepping up to acquire abandoned but already platted projects because land prices have yet to drop significantly. And they can’t get the financing.

“Right now our members are very stressed. They were caught with spec homes and have no money coming in from sales. Their loans are expiring and the banks are raising their interest rates on them,” said Steve Nakamura, president of the Home Builders Association of Central New Mexico. The president of Rachel Matthews Homes describes his declining membership as “scraping bottom.” “Everybody is talking about a mortgage- lending bailout, but that is not what is killing our industry. Seventy percent of residential building is small business and 30 percent are the big tract home builders. That 70 percent can’t get loans. The banks have got to lighten up. If we can’t build anything, it also effects our subs [subcontractors] and suppliers.”

Otley Smith is trying to hold on to his spec home projects in La Cuentista on the Westside and in North Albuquerque Acres. He said he has never missed a loan payment and thought he would be treated favorably when his loans needed renewing. Instead, his loan rate climbed 2.5 percent, which translated into $800 extra per month in payments. On a condo project in Corrales, his bank asked for a 9.25 percent interest rate compared to his initial 8.25 percent rate. Smith hired a lawyer to pressure the bank to keep the loan at 8.25 percent and it worked. On another loan, he pulled his business from a local institution and found a more suitable loan at a Bank of the West branch. He decries the banks for not wanting to take on any risk.

“We’re in a vicious cycle,” Smith said. “It’s real common now on renewal notes for banks to require more equity in deals. If your deal is $100,000 and the bank was carrying $80,000, they now want the developer to buy it down to $60,000. They want cash.”

Bankers say renewals are requiring some cash and they can’t do loans tied to the prime rate, which has dropped to just 4 percent. They admit their reluctance to take on new speculative projects.

“There is such an excess of supply that it would be hard to justify how a new spec project would be viable. Those kinds of loans have pretty much ground to a halt or close to it. We’re doing a few loans for pre-sold homes for our steady customers,” said Pat Dee, president of First Community Bank. “When loans mature, we sit down with our existing developers and try to come up with a plan that makes sense for both sides.”

Larry Levy, senior vice president of Bank of Albuquerque, said banks today are under the constraints of the federal government and must carefully monitor their real estate portfolios, making sure that loans “don’t sit still.” David Murphy, publisher of SalesTraq New Mexico, which focuses on new home sales, predicts at least two to three national builders will leave New Mexico in 2009. He foresees smaller builders pooling resources.

“When just 26 new building permits were issued in September in Albuquerque, that is not a recession, but a depression,” Murphy said. “When you look at homes priced $750,000 and above, at best there is a four-year supply on the market now and at worse, it’s a nine-year supply. If you’re looking for the silver lining, homes in the $100,000 to $200,000 [price range] have sold well — there is just a six months supply.”

Texas Attorney General Greg Abbott on Wednesday said he is seeking legislation that would boost his statutory authority to help protect Texans from foreclosure rescue scams. Announced by the Republican attorney general and state Sen. Craig Estes, R-Wichita Falls, the proposal would, among other things, place new restrictions on foreclosure prevention consultants, and allow the attorney general to pursue bad actors under the Texas Deceptive Trade Practices Act.

“At a time when regulators, policy makers and stakeholders are working to help struggling families, unscrupulous operators are scheming to profiteer at homeowners’ expense,” Abbott said. “Too many scam artists attempt to target homeowners with large fees and the false promise that they could help Texans avoid foreclosure on their homes.”

Last week, the Mortgage Bankers Association said 11.5 percent of subprime loans in the Lone Star State had either started the foreclosure process or were more than 90 days in arrears. Nationwide, nearly 7 percent of homeowners were late on their house payments, the trade group said. The proposed Foreclosure Rescue Fraud Prevention Act would require foreclosure prevention consultants to provide consumers a plain language contract, obtain customers’ written consent before beginning any services or accepting any fees and require them to provide a disclosure statement instructing homeowners to contact an attorney or a housing counselor before signing mortgage rescue agreements.

“While most homeowners may never feel the threat of home foreclosure, it is an issue that can impact all of us when it strikes our neighbors, friends, and family,” Estes said. “We are here today to send a very clear signal that these actions by unscrupulous mortgage foreclosure consultants will not be tolerated.”

The attorney general’s announcement came on the heels of an enforcement action against Arizona-based Abell Mediation, Inc., and its president and vice-president, Elizabeth Cory and Michael Cory. They were charged with fraudulently claiming that their company could save homeowners from foreclosure. Their business cards claimed “Abell Mediation Inc. has saved over 7,000 homes from foreclosure,” and boasted about a “staff of highly trained loss mitigation specialists” with established relationships with mortgage lenders and banks. They promised to “achieve results that no one else can,” the attorney general’s office said. Under a settlement between the attorney general’s office and the defendants, they are permanently enjoined from conducting a foreclosure mitigation business. They are also required to pay a total of $1.55 million in fines, restitution and attorneys’ fees.

There are many guides out there for rich people, here is one for Joe Sixpack!

• 1. Begin saving for emergencies. We recommend saving $1,000 as quickly as possible by selling unwanted items or working extra jobs.
• 2. Spend a month noting down every payment you make then create a thorough budget with top priorities of transportation, food, utilities and housing. Plan in advance how you will spend every penny you earn.
• 3. Use a cash envelope system to buy food, gas, clothing and personal items.
• 4. Create a snowball plan to pay off debts by listing them smallest to largest in amount due. As you pay off the smallest, add that payment to the next debt payment, creating a snowball effect that will pay down debts faster.
• 5. Check your credit report frequently for incorrect information and for credit or loan accounts you did not open. We have a good summary of how to do this here
• 6. Make sure your family has adequate health and life insurance. A way of cutting the cost of this is to accept a really high excess. Maybe as much as $5,000. This makes the policy into an effective emergency only policy, and can cut the cost enormously.
• 7. Try to save three to six months’ salary. Save for major purchases and repairs. This will take a while but persist.
• 8. Save for retirement, kids’ college and other major life events.

Q. My husband and I divorced in May 2007, and the divorce decree states that he was to sell our house by the end of 2007 and I would get half.But as of September 2008, he has not done so. He has not moved out or sold the house, and it doesn’t look like he has any plans to do so. Please let me know what I can do about this.

A. You should call your divorce attorney and request that he or she take steps to get your ex-husband moving on the sale. It is not clear from your question exactly what steps would need to be taken. If you are lucky, a call from your attorney to your ex-husband’s attorney may be all it takes. On the other hand, you may need to go back to court to move matters along. Your attorney may want to file a Motion to Compel in an attempt to force your ex-husband to follow through on the steps required of him in the decree. However, if your divorce decree was poorly written, and it lacked sufficient details describing the steps your ex-husband was required to take, then it may be necessary for your attorney to file a Motion to Clarify with the court. The court is not allowed to change the prior arrangement, but it can issue new orders providing more specificity. If all your divorce decree said was that your ex-husband was required to sell the home by the end of last year, then you may need the court to clarify the exact steps he is required to take. For instance, a well-drafted decree would have stated that your ex-husband was required to hire a listing agent by a specified date, to determine a sales price by a specified date, to sell the home by a specified date, to schedule the closing by a specified date and so on. In a worst-case scenario, if your husband continues to refuse to sell the home, the court may need to appoint a receiver to sell it. This means neither you nor your husband would control the sale, and neither of you would be able to approve or disapprove of the sales price or any of the other terms of the sale. Plus, the receiver would receive a fee, equal to a percentage of the sales’ price, for handling and arranging the sale.

In Madoff News: Harry Markopolos, who has been a complete pain-in-the-ass for the last nine years as he tried to alert a world that totally didn’t want to hear about it that Bernie Madoff’s money management business was actually a $50 billion pyramid scam. The WSJ reports:

Harry Markopolos, who years ago worked for a rival firm, researched Mr. Madoff’s stock-options strategy and was convinced the results likely weren’t real. “Madoff Securities is the world’s largest Ponzi Scheme,” Mr. Markopolos, wrote in a letter to the U.S. Securities and Exchange Commission in 1999. Mr. Markopolos pursued his accusations over the past nine years, dealing with both the New York and Boston bureaus of the SEC, according to documents he sent to the SEC reviewed by The Wall Street Journal.

In a statement late Friday, the SEC said “staff from the Division of Enforcement in New York completed an investigation in 2007, and did not refer the matter to the Commission for enforcement action.” The SEC said it reopened the investigation Thursday. It’s not clear what the focus of the 2007 investigation was, or why it was closed. A person familiar with the matter said it related to issues raised by Mr. Markopolos.

A recent survey reveals that the abilities to shop online and manage money are major reasons consumers get prepaid debit cards, reasons that also position the cards as a smart way to spend amid economic concerns this holiday shopping season.

“Concerns about the economy have consumers looking to control spending and avoid debt, therefore many are seeking new ways to pay for gifts and manage their money,” said John Chaney, PreCash Chairman and CEO. “Cash isn’t always an option because there’s a lot you can’t do without a card. Consequently, many are turning to prepaid debit cards like our Vision Card, to stay on budget while maintaining access to financial services like shopping on the Internet, reserving a hotel room for holiday travel, paying their bills or accessing direct deposit.”

The PreCash survey of its Vision Premier(SM) Prepaid Visa® Card users revealed that the top five reasons people get a prepaid card are:

1. To pay bills
2. They wanted a Visa card
3. They wanted direct deposit
4. To avoid carrying cash
5. To shop online

With the holidays just around the corner, the survey findings come on the heels of rising interest rates and recent studies saying banks fees are growing.

“Prepaid debit cards are a flexible alternative because bill payment, direct deposit and not having to carry large amount of cash give people ways to manage their money, and the cards come without the risks of overdraft fees or increased debt,” adds Chaney. “With the Vision Card, consumers can’t damage their credit and they can spend only the money that’s loaded to the card.”

Prepaid debit cards are not only attractive to holiday shoppers on a budget, but appeal to the 75 million financially underserved consumers in the U.S. Under banked consumers using the Vision Card can avoid check cashing fees, manage their money via online account access, track their balance with e-mail and text alerts, and transfer money to friends and family. Like traditional debit and credit cards, a major card network, Visa, brands The Vision Card. Similarly, a regulating bank issues it. The foremost difference is that you don’t need a bank account or a line of credit to get the Vision card. Vision is accepted everywhere Visa debit cards are accepted, and it provides access to cash at millions of ATMs worldwide. Cash is loaded onto the card at retail locations or via direct deposit.