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Profit Possibilities

posted by Elizabeth Warren

One of the hardest things about teaching debtor-creditor law is keeping up with all the market innovations.  Subprime mortgages are in the spotlight, but credit card debt has not subsided. Last quarter credit card grew at a rapid 9.3%. For families looking for a way to get off the debt treadmill without declaring bankruptcy, a new industry has been born:  debt settlement companies.  These businesses promise to negotiate some debt write-down with the creditors.  But the negotiators too often take a customer's money and offer little relief. 

The industry is growing rapidly, but there are no regulations, no industry standards, and no one to turn to for help if the customer gets cheated. Will this become the next path to bankruptcy--a family hit a rough spot, faced a double-digit rise in interest rates, went to a debt consolidator, then ended up in bankruptcy with even more debt and fewer assets?

Jane Birnbaum from the New York Times wrote about this new industry. Credit Slips' own Adam Levitin from Georgetown talks about the growing number of families in trouble, and Credit Slips' guest blogger Ronald Mann of Columbia describes the industry practices designed to put customers in a "sweat box" to extract money from them. 

Would it be possible to help families through debt negotiation? Cindi Geerdes from the University of Illinois law school clinic says that such actions could help--if done right.  But that's the trick:  It isn't possible to tell in advance whether a family will encounter a good counselor or someone who will strip away their last dollars and leave them even deeper in debt. 


Sounds like the IVA-arranging debt management companies in England, but without the product to back it up.

Of course, there are problems with the debt management companies here (like the fact that the Supervisors supersvise in name only, but none have so far lost their licences as Insolvency Practitioners), or the effects that IVAs may have on customer's credit (not as bad as bankruptcy, of course).

Another long-standing practice here is the consolidation lender, who offers to refinance all existing unsecured debt with one single loan. The average interest rate may well come down, but won't be nearly as good as secured finance. The twist is that if the borrower defaults, and they own land, the judgment debt (after the lender sues on the loan) can be secured on the borrower's land. Even better, judgment debts carry interest at 8%.

The Institute for Mediation and Conflict Resolution (IMCR)is trying to encourage credit card holders and others falling behind in their mortgages to mediate face to face with the lending institutions regarding financial debt. Does anyone have any comment or suggestions?

What exactly would be the point of mediation for someone who can't pay their bills because they have too little money? After the mediation, will they have any more?

If the idea is to try and get the mortgage lenders to actually modify their terms as they have promised to do over and over in the press, I suspect it won't work.

First big problem, who does the borrower mediate with? Probably not the servicer, who has little power to do anything beyond collect payments. Is it the eighteen pension funds in Germany who actually own part of the default tranche of the packaged mortgages?

These businesss are mostly scams - both the credit card relief agencies and the mortgage foreclosure assistance companies.

The scam "non-profit" credit card relief companies charge an upfront nonrefundable fee, take monthly payments, and eventually (theoretically) get around making offers in compromise the credit card companies. Debtors find out what a swell job these companies are doing when they start getting summons in the mail as they are sued on their unpaid credit cards. This usually leads them to a lawyer, and a bankruptcy filing.

This is not to say that there aren't some honest credit counseling agencies out there that do good work - and have for years. The problem is, they are lost in the ad blitzes for the crooked operations.

In contrast, if there is an honest mortgage foreclosure assistance company, I have yet to see one. The scam starts with postcards sent to foreclosure defendants. The foreclosure solutions company asks for an upfont fee of $800 to $1,200. Sometimes an answer is filed in the foreclosure, often nothing is done except "attempts to negotiate" with the mortgage company.

The company ask debtors to keep paying in to them, so they can dangle cash in front of the foreclosing mortgage holder in order to "cut a deal". It almost never works. And when the attempts to negotiate inevitably fail, the return of any monies by the foreclosure solutions company is highly questionable, no matter how much was paid to them "to hold". When things don't work out, and the sale is a week away, they'll recommend that the debtor file a Chapter 13 with a specific petition preparer.

They'll operate until the heat gets turned up by state regulators/law enforcement, and then it on to new highly vulnerable prey: a name change, a new state of incorporation, and they crank the scam up again. It's a whack-a-mole problem.

I agree with you whole heartedly. I've been trying to figure out a way to be effective in the debt industry for about 14 yrs. I have about 5 yrs experience in credit card collections and about 5 in mortgage collections.

Being in the position of a debt collector for so many years and facing what I'm facing now is kinda mind boggling to me. This site and the professional answers are helpful as are other online websites if we make enough good posts to hopefully really help someone.

While I know this is primarily a site about bankruptcy information there's another side called consumer protection laws. The BANKS aren't following them. Regardless of how hard we've knocked on their door to do such. The environment mortgagors are in today is overwhelming.

Unfortunately,most of these places or even attorneys don't know how to handle the mess the mortgage business is in today. I myself have a case where a bankruptcy trustee dropped the ball in initiating a adversary/complaint in our case as they don't know who owns our 2nd mortgage.

A mortgagee/servicer not knowing who they send your payments to is a big issue. Someone owns these debts. How is a homeowner to even know if the real person to be paid is being paid since the banks are all getting sued by the investors their suppose to collect for? We found 32 more current cases of accounts proceeding to foreclosure in OH not having standing to even be proceeding. Yet they are. Their wide spread. The same company officials are knowingly writing false documents. I even realized in my own case that the companies I'm preparing to sue that one I left out will now be put on the complaint to be sued.

Seriously, explain this to me. The company filed paperwork for a bankruptcy knowing that they had previously found to not know who the owner of our mortgage note was. I was going to leave them out of complaint since they did stop the initial sale knowing that anyone they told us could own doesn't own and that they don't know who owns. Then when I reviewed our bankruptcy case information I found out the same company that stopped the sale and claimed innocence and blamed on servicer is the same that filed the POC lift of stay for our bankrutpcy case. So if you ask me this brings malicious intent to deceive. I even took them clients that can produce the type of cash to do business transactions with these large international banks. Their greed for the all mighty $$$ killed it...Seriously Can I sell you my car for $5,000 then you sell it for $10,000 then I want you to give me $2k back alright? Yep..Wanted to make excess money once they sold deficiency balance notes. So that sent any transactions of 10m-50m per mnth down the drain.

Associates with these types of funds that are real don't come along everyday. Couple of weeks back I tried to take another investor even that is on their investor list. And if they would of made a package for investor instead of putting thru a bid process the investor would of done a deal even though he knows who they are. No again...So how does one that has the people to get things done with CASH WIN in todays society I ask?

Here's another mind boggling one...How can a company not know who owns your debt still work something out with your atty to sell the note? When their claiming they don't know who owns the note? I guess in the next few months these questions will get answered. I know inquiring minds want to know and so do I!

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