California Business Lawyer Blog

General vs. Limited PartnershipsThere are two types of partnerships: general partnerships and limited partnerships (LPs). In a general partnership, each partner can incur obligations on behalf of the partnership, and each assumes unlimited liability for the partnership's debts. For example, if the partnership owns a truck, and the truck strikes and injures a pedestrian, each partner is personally liable for any damages or judgments says California Business Attorney Steven C. Peck.

This unlimited liability risk makes limited partnerships an attractive alternative to general partnerships. In an LP, there is usually just one general partner (although there can be more). The other partners are called "limited partners." The general partner has full management responsibility runs the day-to-day operations of the business. A limited partner cannot incur obligations on behalf of the partnership and does not participate in the firm's daily operations or management. In fact, a limited partner's role usually involves nothing more than making an initial capital investment in exchange for a share of the firm's profits indicates Los Angeles Business Lawyer Peck.

While the general partner wields most of the power, they also bear the lion's share of the liability. A limited partner's liability, on the other hand, cannot exceed their financial contribution to the partnership. So, if a truck owned by a limited partnership accidentally injures someone, the damaged party could go after the general partner's personal assets but could only go after a limited partner's actual investment in the partnership.

As a result, a limited partnership offers two key advantages: It gives the general partner the freedom to run the business without interference, and it protects the limited partners if something goes wrong. Limited partners may choose to get more involved in a partnership's daily operations, but they do so at their own risk. In the eyes of the law, their involvement may make them a general partner and strip them of their limited liability.

Continue reading "General vs. Limited Partnerships: Types of Business Structure" »

On the eve of the second of three major trials, one of the largest business lawsuits in Michigan history has settled for $500 million.

Livonia-based Valassis Communications, Inc. reached an agreement to settle its outstanding lawsuits against News America Marketing (NAM), a division of Rupert Murdoch's News Corp.

U.S. District Court, Eastern District of Michigan Judge Arthur Tarnow OK'd the agreement, which would have prevented a Feb. 2 trial in asserting violations of the Sherman Act. If Valassis had prevailed in this suit -- as it did in a $300 million July 23, 2009, trial asserting unfair competition and tortious interference -- the damages would have been trebled.

Besides paying Valassis $500 million, NAM also will enter into a 10-year shared mail distribution agreement with Valassis Direct Mail, a Valassis subsidiary. In addition, the judge will issue a permanent injunction related to certain business practices at issue in the lawsuits, and Valassis also will drop a pending state court case in California.

"It has become evident to our legal advisors from pre-trial proceedings over the past couple of weeks that significant risks were developing in presenting this case to a jury," said News Corp. Deputy Chairman, President and Chief Operating Officer Chase Carey in a statement. "That ... led us to believe it was in the best interests of the Company and its stockholders to agree to a settlement."

Valassis asserted that, over a six-year period, NAM tried to monopolize the free-standing coupon insert (FSI) market. Valassis contended that, by 2006, NAM had more than 60 percent of the FSI market, and did so by illegally bundling deals on its FSIs with its other consumer marketing division, in-store and point-of-purchase media.

Continue reading "$500 Million Business Lawsuit Resolved" »

Long-term financing is a tool that most companies use to promote their business and increase their profitability says California Business Lawyer Steven C. Peck.

While several options for business loans are available, most loans are subject to the same volume terms and conditions.

Business loans have two main lengths: intermediate-term and long term. Intermediate-term loans are one to three years, while long-term loans are more than three years. Ten years is a popular choice for long-term loans.

Loan terms include loan amount, repayment options, interest rate and any special requirements such as financial statement updates or balloon payments. These terms have been negotiated by the applicant to ensure they get the best loan for their business.

Banks use strict credit assessments to determine the amount of credit to extend to the applicants. Factors such as current outstanding loans, on-hand capital and business credit ratings are important factors used in approving long-term loans.

Some lenders require businesses to provide collateral for the loan amount. This security is surrendered to the bank if the company fails to fulfill any of the loan terms.

Long term Business loans are best used by companies expanding business or buying competitors, which will increase their profitability. These types of long-term profit operations allow companies to build a positive cash flow before repaying their long-term loans.

Continue reading "Long Term Business Financing Used to Increase Profitability" »

By category, the top five legal service requests according to Pre-paid Legal Services include:

Real Estate, Landlord/Tenant Issues and Foreclosure - Approximately 358,000 requests for legal services that include residential and commercial real estate transactions, landlord and tenant issues and legal counsel related to foreclosure and short sales

Consumer Finance - Approximately 195,000 requests for legal services related to retail transactions for warranties, guarantees and other contracts

Family Law - Approximately 193,000 requests for legal services related to divorce, child support, child custody and child visitation

Collections - Approximately 162,000 requests for legal assistance to support members against other parties and to defend members from third-party debt collectors

Estate Planning - Approximately 160,000 requests for legal services for preparation of wills and other counsel related to final estates.

Continue reading "Top Five Legal Service Requests for 2009" »

While filing for bankruptcy can ruin one's credit record, it can protect consumers from debt collection actions, including being taken to court.
Mounting medical bills and job losses have pushed many U.S. residents to seek protection from creditors by filing for bankruptcy in federal court, which saw a 68 percent increase in bankruptcy filings over the past year.

Steven Peck, a California Business Attorney, says chronic medical conditions are triggering a rise in bankruptcy filings because some of the major medical bills consumers face aren't always fully covered by health insurance.
"Most clients who come to see me have done everything they can do to avoid bankruptcy, and every penny of available income has been spent, but debts are still owed, including late fees, interest, penalties, court costs, etc.," Peck says.
Debt-burdened consumers also can get overwhelmed as garnishments, repossessions and foreclosures loom, he added.

The National Bankruptcy Research Center reported that bankruptcy filings rose by nearly a third last year."As foreclosure and unemployment rates rise, consumers and businesses turn to bankruptcy for reprieve. A fundamental goal of the bankruptcy code is to grant the debtor a "fresh start" from burdensome debts, according California Bankruptcy Attorney Steven Peck.

But while the bankruptcy code offers a fresh financial start for those crumbling under the weight of heavy debts, debtors who must list their assets and liabilities, by business professionals who must disclose their relationships and financial arrangements, and by trustees who must zealously attend to their fiduciary duties.

There are several bankruptcy filing categories in which a debtor can file, and the most common are filings under Chapter 7 and Chapter 13 of the bankruptcy code.

Under Chapter 7, in return for having debts discharged -- meaning debtors are no longer obligated to pay them -- a debtor must turn over certain non-exempt property to a bankruptcy court trustee to be sold and the proceeds distributed to creditors.

Non-exempt properties include tax returns, real property other than the debtor's home, or a second car for a single filer. In order for a debtor to keep any property subject to liens and mortgages, such as cars or homes, the debtor must continue to make regular payments to retain the property, indicates California Business Attorney Peck.

Under Chapter 13, debtors propose a repayment plan to make installments of past-due debts to creditors for a period of three to five years. During the repayment plan period, the law forbids creditors from starting or continuing collections efforts against the debtor. But if agreed-upon payments fall behind, the trustee and/or the creditor can ask the court to allow foreclosure proceedings against the debtor.

The surge in bankruptcy filings have occurred even after the bankruptcy laws were substantially changed in 2005 to make it more difficult for individuals," according to Peck, to have their debts discharged under Chapter 7 of the bankruptcy code.

The National Bankruptcy Research Center, which compiles and analyzes bankruptcy data, stated that personal bankruptcy filings across the nation rose to 1.41 million last year, representing a 32-percent jump from 2008. It added that 2009 saw the highest bankruptcy filings since 2005 when reforms made bankruptcy filing tougher.
The 2005 bankruptcy law overhaul pushed more consumers into Chapter 13 filings instead of Chapter 7, according to the center. However, to file under Chapter 13, an individual must have a regular income, and with the national unemployment rate at 10 percent, many filings may not met that standard.

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Continue reading "Medical Bills and Job Losses Have Pushed U.S. Residents To Seek Bankruptcy Protection" »

Whether you are a business that regularly has customers or clients in collections or you are an individual that is owed money by another person you should seek an attorney that specializes in the field of collections. Too many times people will go either to a collection agency or an attorney they have worked with in the past or have been referred to even though they have no or little collection experience. Usually, these experiences end either ineffectively, costly, or both.

Let's talk about effectiveness. You tell me what is more effective, a letter from a law office or from a collection agency? How about a call from an attorney or a collector? A collector has hundreds if not thousands of accounts on his call list. He treats them all the same because to him they are. He calls, he blows out the person on the other end, and moves on. A collection attorney will take the time to know your file because he is the one that may one day have to appear in court on it. Collection attorneys are also skilled negotiators who will listen when it is time to listen and press when it is time to press. They can, and often do, incorporate many styles of negotiating into a single claim depending upon the situation. Often times they will get a deal on the table when a collector will not.

What about cost? Collection agencies work on volume. Therefore, if you are not providing them with a large number of accounts then you will probably be charged a fairly high contingency rate. Furthermore, they need to incorporate an attorney's rate into their rate in case they cannot collect and the claim needs to go into litigation. For example, if they charge you 33%, they will pay the attorney 25% out of that rate if it goes to litigation. If you go directly to an attorney you may be able to negotiate the same or lesser rate and skip the "middle man", so to speak.

What else does cutting out the "middle man" mean? It means you do not have to assign your claim as is so often required by collection agencies. This means that instead of the legal right to collect the claim being in their name, it stays your name. Granted, if an assignment occurs the agency will owe you a fiduciary duty, however, you are essentially giving up your rights and should never do this. Collection agencies can go out of business overnight and/or collect money and not remit to the original creditor. It has been known to happen. If you go to a collection attorney they represent YOU, and they are not going to risk their practice and years of expensive schooling by not looking out for your best interests.

Maybe you are thinking, "If my account goes to a collection attorney anyway if the agency cannot collect, why not take two bites at the apple?" As we discussed, the collection agency is likely going to charge you a higher contingency. Also, the account may no longer be in your name. Of additional importance is that now that the collection agency is involved they will stay involved even once the account goes into litigation because they have a vested interest in it. So instead of dealing with the attorney directly, you are still dealing with the collection agency who is dealing with the attorney. He is essentially their attorney, not yours.

Continue reading "Collection Attorneys versus Collection Agencies" »

Although the goal of the federal bankruptcy laws is to offer a financial "fresh start" to the honest but unfortunate debtor allowing a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.

A discharge releases you from personal liability for certain specified types of debts. Discharge means you are no longer required to pay those debts. It is your 'get out of jail free card', so to speak. It is refreshing, and; relieving. And best of all, it is morally, ethically, and; legally o.k. It is your fresh start!

The discharge directs creditors to refrain from taking any form of collection action on discharged debts, including legal action and communications with you such as telephone calls, letters and personal contacts. In other words . . . hopefully in your case . . . No more worrying. When you place it in our hands, you will hopefully begin to feel release, and; begin to sleep at night, knowing that no one will harass you on the phone any longer.

Not all debts are discharged in a California bankruptcy. Although you may be relieved of personal liability some debts may continue after the discharge. For instance some liens on a property may remain after the bankruptcy case. A second trust deed; in some cases, might be discharged completely! That means, that if you have a $100,000.00 secondary lien on your home, it could be wiped off completely (this of course is on a case by case basis, and; you will need to call the law firm for an appointment to discuss your case).

A secured creditor may enforce the lien to recover the property secured by the lien. In other words, if your car is still under financing, the lender can repossess the vehicle. You may; however; reinstate the loan if you so desire in certain situations.

Other types of debt that are not dischargeable include alimony, child support, certain taxes and debts for death or personal injury caused by the debtor's operation of a motor vehicle while the debtor was intoxicated from alcohol or other substances. (Of course, all bankruptcy matters are on a case by case scenario, and; each client's matters must be discussed with the attorney in order to insure that all of the rules of bankruptcy are applied and; that the best relief possible is being given to you).

Continue reading "Dischargeability of Debt in a California Bankruptcy: Basic Principles" »

The stock market gives many Americans a chance to have a small ownership share in publicly traded companies. Stock holders, as partial owners of the company, share in the company's profit and loss. However, they often have little, if any, say in the business decisions of the company and they have no control over the everyday operations of the company. Instead, it is the company's Board of Directors that is charged with the decision making responsibility and operational control says California Business Attorney Steven C. Peck.

Over the years, the courts have been in the often difficult position of having to decide if a company's Board of Directors acted appropriately in certain situations. The courts have been reluctant to second guess the business decisions of Boards of Directors, even if those decisions are disastrous. However, the courts have recognized that Boards of Directors have certain duties or responsibilities to company shareholders. Those duties are called the Board's fiduciary duties and include the duty of care and the duty of loyalty. indicates California Business lawyer Steven C. Peck.

The Duty of Care
Each publicly traded company's Board of Directors has a duty of care to its shareholders. That means that in making business decisions the Board must exercise reasonable care in the decisions that it makes for the company. Reasonable care has two elements. First, the Board must be acting in good faith for the benefit of the company. They must believe that the actions they are taking are in the company's best interest. Second, they must believe that the actions are in the best interest of the company based on a reasonable investigation of the options available. In other words, they must carefully consider the available options within the time and financial constraints presented before they make a decision or take a particular action on behalf of the company.

The Duty of Loyalty
In addition to the duty of care, the Board of Directors owes a duty of loyalty to company shareholders. That means that the Board of Directors must be loyal to the company and its shareholders and act in their best interest. The Board and its individual members may not act in their own best interest or engage in self-dealing while making decisions or taking actions on behalf of the company. The duty of loyalty is sometimes known as the business judgment rule because the Board is required to make its judgments in the best interest of the business.
Shareholders must remember, however, that even if the Board of Directors strictly adheres to both of its fiduciary duties of care and loyalty, business decisions may still be made that hurt that company. That is because many business decisions are inherently risky. The courts recognize this risk and do not engage in the business of second guessing business decisions that were carefully made in what was honestly believed to be the company's best interest. That said Boards of Directors are in unique positions of trust. They must, therefore, carefully exercise their duties of care and loyalty in their furtherance of their business goals. Then the shareholders, the Board members and the business will be protected.

Continue reading "The Duty of Care and the Duty of Loyalty: Basic Business Law Principles" »

The important principles of letters of intent and term sheets are not dissimilar to the standards you learned in high school. Both letters of intent and term sheets are essentially outlines of a contract that is yet to be drafted by the parties. They provide the most important parts of the agreement between the parties in much the same way that an outline of a research paper provided you with a guide to your final paper.
What are Letters of Intent and Term Sheets?
Letters of intent and term sheets are very similar. Both documents outline an agreement that two or more parties expect to make. A letter of intent, as the name implies, is written in the form of a letter whereas a term sheet is more often a list of the important parts of the anticipated contract or agreement.
Generally, letters of intent and term sheets are used for one of a few purposes including:
To clarify complex terms that will later be included in a contract;
To provide notice that the parties are officially negotiating with one another; or
To provide certain safeguards in case the negotiating parties do not end up entering a contract.
Often, business letters of intent are used when one party intends to acquire another party, when two or more parties intend to merge or when two or more parties intend to embark on a joint venture. Forms are available online to draft letters of intent and term sheets and these documents do not usually require formal execution in the presence of witnesses.
Since letters of intent and term sheets are, by definition, written before a formal and binding contract has been executed, many of the elements included in the letter of intent or term sheet are not binding on the parties. The terms that explain what the parties anticipate agreeing to or hope to achieve are not binding, for example. However, terms that relate to the negotiations themselves are usually binding and one party may sue another and recover damages if those terms are breached.
The legally binding terms may include:
· non-disclosure agreements to prevent parties from sharing confidential information with third parties;
· a covenant to negotiate in good faith; and
· exclusive rights to negotiate that prevent parties from negotiating with other parties while they are negotiating with each other.
What Happens After Letters of Intent and Term Sheets Have Been Written?
After a letter of intent or term sheet has been written, the parties still have a lot of work to do. A contract must still be negotiated and properly executed in accordance with state law in order for the agreement of the parties to be binding. Letters of intent and term sheets are not substitutes for contracts. Letters of intent and terms sheets provide the benefit of providing clarity to mutual understandings in the often complex world of business negotiations but it is important to remember that they are limited in that they do not fully reflect enforceable agreements between the parties.

Continue reading "Letters of Intent: Basic Principles" »

The California Supreme court in American Motorcycle v. Superior Court (1978) 20 Cal. 3d 578 reviewed the common-law right of an injured party to recover damages sustained as a result of an indivisible injury under the joint and several doctrine as codified in California Civil CodeSection 1714.

The basic tenet is that an injured party has the right to full recovery of all damages from each responaible party. The doctrine ensures that the injured party receives adequate compensation for its injuries, even if one or more of the responsible parties do not have the financial resources to pay for their share of the liability.

Continue reading "Joint and Several Liability: Basic California Business Law Concepts" »

Many of us have one, or two or maybe even three.

We get them to build credit, or earn points for vacations, but the rates and terms for many credit cards are soon changing.

Credit cards can either be your best friend, or your worst nightmare.

But if you keep an eye out, some new changes could prove to be more friendly.

Card holders beware, 22 new changes for your accounts will go into effect on February 22nd, 2010.

"Credit card companies cannot charge you a late fee unless you're 60 days or more delinquent, you usually only have 14 days to pay that bill, that will be extended to 21 days, due dates must remain the same every month, they will not allow you to go over your credit card limit." Says California Business Attorney Steven C. Peck.

The new laws are meant to protect both consumers and lenders.

Especially the debt stricken college aged student who has an average of $3100 worth of debt.

Among the many changes, new restrictions could determine how companies solicit to students, and just who can sign up for a credit card.

"If you are under the age of 21, you will have "If you are under the age of 21, you will have to have a parent or legal guardian's co-signature in order to get a credit card. For parents or guardians out there though, that info will also on your credit report, so you have to be careful about that." Says Peck.

Perhaps the most notable change involves your interest rate. Your credit card company now has 45 days to notify you of a rate change and why it's changing.

"You will somewhere in the wording of the letter they send you, you will either have the option to either call or write a letter to opt out of that rate increase. Once you opt out of that, your rate will go back down but your access to that card will close." Says California Business Lawyer Steven C. Peck.

From clearer wording on bills to other stricter rules and regulations, some think the changes will make the decision between cash or credit a little easier.

"You shouldn't over draw you account, that's just going to cost you a lot of money, they have all kinds of penalties. So, probably have a place where they actually stop and say no- it would help people prevent getting themselves in too deep." Says Los Angeles Business Attorney Peck.

Continue reading "New Credit Cards Changes Go Into Effect on February 22, 2010" »

In Donohue v. Quick Collect, Inc., Case No. 09-35183 (9th Cir. Jan. 13, 2010), the Ninth Circuit interpreted two sections of the Fair Debt Collection Practices Act ("FDCPA") and held that a collections agency did not violate the FDCPA because the original payment terms between the appellant and her dental practice did not constitute a forbearance agreement under Washington State law. Additionally, the court held that the collections agency did not violate the FDCPA when it mislabeled the interest owed on the debt. The court found that the overall amount owed by the appellant was correct and, therefore, the mislabeled interest was not "materially false." indicates California Collection Attorney Steven C. Peck.
The appellant filed a class action lawsuit that asserted that the collections agency, which was trying to collect a debt owed by the appellant to a dental practice, violated the FDCPA by charging a usurious rate of interest and by violating the FDCPA's prohibition against the use of false, deceptive, or misleading statements in connection with collecting a debt by "misrepresenting the amount of interest" that the appellant owed. The Eastern District of Washington ruled in favor of the collections agency on cross summary judgment motions, finding that the collections agency had not violated the FDCPA states California Business Law Attorney Steven C. Peck.

The two FDCPA provisions that were at issue in this case are 15 U.S.C. §§ 1692e and 1692f. Section 1692e(2) prohibits "[t]he false representation of...the character, amount or legal status of any debt." Section 1692f prohibits a debt collector from using "unfair or unconscionable means to collect or attempt to collect any debt." "The collection of any amount...unless such amount is expressly authorized by the agreement creating the debt or permitted by law" is a violation of § 1692f(1). Both sections are analyzed objectively. The relevant question in examining both sections of the FDCPA is whether "the least sophisticated debtor would likely be misled by a communication." Guerreor v. RJM Acquisitions LLC, 449 F.3d 926, 934 (9th Cir. 2007) (internal quotation marks omitted).

The Ninth Circuit affirmed the lower court's decision that the collections agency had not violated §§ 1692e and 1692f by charging more than 12% annual interest in contravention of Washington usury law. Washington law prohibits charging more than 12% annual interest "for the loan or forbearance of any money, goods, or things in action." Wash. Rev. Code § 19.52.020. The Ninth Circuit found that the 90-day "grace period" in the original payment agreement between the appellant and her dental office was not a forbearance agreement.

The court relied on the Washington State Supreme Court's definition of forbearance under Washington law, which defined it as "a contractual obligation of a lender or creditor to refrain, during a given period of time, from requiring the borrower to pay a loan or debt then due and payable." Whitaker v. Spiegel Inc., 623 P.2d 1147, 1152 (Wash. 1981). Based on that definition, the Ninth Circuit determined that the dental office's payment arrangement was not a forbearance because the dental office had no contractual obligation to "refrain, during a given period of time, from requiring [appellant] to pay a loan or debt then due and payable." Id. (emphasis added). Instead, the payment was "due to be paid in full within ninety (90) days of service." The dental office did not agree to forbear and, therefore, the court concluded that the collections agency did not charge usurious interest in either the complaint or demand letter says California Business Lawyer Steven C. Peck.

The Ninth Circuit also concluded that the collections agency's complaint against the appellant did not violate the FDCPA because it did not contain a false, deceptive, or misleading representation. The complaint stated that the Appellant owed an interest payment of $32.89 calculated by applying 12% annual interest to the principal owed. It turned out that the $32.89 was actually made up of two components: $24.07 in pre-assignment finance charges assessed by the dental office and calculated at the rate of 1.5% per month, and $8.82 in post-assignment interest calculated at an annual rate of 12%. The Court also noted that the complaint contained the correct principal owed and the total non-principal amount owed was also correct affirms Los Angeles Business Attorney Steven C. Peck.

Continue reading "Ninth Circuit Interprets Fair Debt Collection Act" »

Severly commonly used methods of valuing closely held companies and professional practices have developed over the years. These methods are widely used by appraisers and others who are responsible for estimating fair market value indicates California Business Attorney Steven C. Peck. Although some of these methods may not be suitable for buy-sell agreements, business law attorneys should have at least some familiarity with the procedures.

Before using any partiuclar valuation method, an appraiser is required to make a study of the economics of the particular industry of which the company is a part, the company's competitive market position, the economic environment of the market served, the experience and capability of management and the assembled work force, the company's financial position and earnings record, and other pertinent factors says California Business Lawyer Steven C. Peck.

Continue reading "Methods of Valuation of Closely Held Companies and Professional Practices" »

It's time to pay the piper.

The first credit card bills from Christmas are beginning to roll in. For some people, it will be a shock.

But instead of panicking, use this year's first credit card bills to diagnose your debt and choose your best option for paying it off says California Business Attorney Steven C. peck.

You'll get some help from the second set of provisions that take effect Feb. 22 as part of the landmark Credit Card Accountability Responsibility and Disclosure Act of 2009 indicates California Business lawyer Steven C. Peck.

The federal law includes restrictions on over-the-limit fees, the marketing of credit cards to adults younger than 21 and dramatic changes in how issuers can impose interest rate increases states Los Angelels Business Attorney Peck..

A key provision that takes effect next month will change credit card statements significantly by requiring issuers to provide new, clearer and timelier disclosures of account terms and costs before and after an account is opened.

Pay attention to one key feature: Statements now will include details warning consumers about the high costs of making only the minimum payment.

"It's a good thing to show people that paying just the minimum payment due has consequences," said Nick Bourke, project manager of the Pew Safe Credit Cards Project, which aims to identify industry trends and help policymakers protect consumers. "People can really have a clearer understanding of what it costs to use credit card debt that they will pay over time."

All of a sudden that $1,000 TV will look like it costs $2,000 - and it will, if you make only minimum payments as the interest piles up.

Here's an example from Consumer Credit Counseling Service:

If you had a $1,000 credit card balance at a 17 percent annual percentage rate and you made just the $15 minimum monthly payment, it would take a little more than 17 years to pay off the card. And the total payback, including principal and interest, would be $3,082.

But if you paid just $5 more, or $20 a month, it would take seven years and four months to pay off the card at a total cost of $1,750.

That's a savings of $1,332 and 10 years.

To further help cardholders chart their way out of debt, the credit card law requires statements to show the monthly payment required to pay off the existing balance in 36 months. It will also show the total cost of payments and interest.

Here's a rule of thumb If you can make your minimum payment, plus 20 percent of that minimum each month, you can probably pay off your debt in three to five years without outside help.

The key is that you must make a dent in the principal, not just pay enough to make the interest payment.

"If you can't pay back your credit cards in three years or less, you probably need to get outside help," said Detweiler, co-author of Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights. "It's going to be hard to stick with a payment plan longer than three years. Life happens, the car breaks down, the kids need braces, the house needs repairs."

If you're having trouble paying your credit card bills or anticipate having difficulty, get help now.

"A lot of times we wait too long to get help with our debt," said Detweiler, credit adviser for Credit.com. "The longer you wait, the fewer options you have."

Continue reading "The Credit Card Accountability Responsibility and Disclosure Act " »

About 25 percent of homeowners who received trial loan modifications through President Barack Obama's main foreclosure prevention plan are failing to keep up with their new reduced payments says California Business Lawyer Steven C. Peck.

At least 196,000 borrowers have missed some or all of their required payments, according to comments Treasury officials made on a conference call today and calculations from government data. An additional 115,000 homeowners who started trial repayment plans last year have either dropped out or been kicked out of Obama's Home Affordable Modification Program, indicates California Business Attorney Steven C. Peck.

"None of these programs have really been a success," said Vivek Sriram, a mortgage strategist for RBC Capital Markets in New York. "With the high unemployment rate, it's tough to solve the problem because these people will redefault even if their loan terms are fixed."

The U.S. has shed 7.2 million jobs since the recession began in December 2007, with almost half those losses occurring after Obama took office in January 2009. The mortgage program, which Obama said would target as many as 4 million Americans struggling to hold onto their homes, has successfully modified 66,465 loans as of Dec. 31, according to data released today by the Treasury indicates Los Angeles Business Attorney Steven C. Peck.

At Wells Fargo & Co., about 14 percent of the customers who make one payment in the trial modification phase don't end up making all three to qualify for a permanent reduction, said Mike Heid, co- president of Wells Fargo Home Mortgage in San Francisco.

"About half of the customers who end up making all three payments end up in a permanent modification," Heid said. "Another 25 percent are just not eligible."

Changing the Program

Michael Barr, the assistant Treasury secretary for financial institutions, said the government is considering changes to improve the program's performance, such as permanently cutting outstanding loan balances where borrowers owe more than the property is worth.

"We are in the process of reviewing that now as we have been continually through the program," Barr said on the conference call. "You have to be very careful not to design a program that would change people's behavior across the country in a destabilizing way."

Obama has set aside $75 billion to subsidize lenders that successfully modify troubled loans by reducing interest rates, extending loan repayments, deferring principle payments for as long as five years and adjusting other mortgage terms.

GMAC Mortgage Inc. remained the leader in successful loan modifications, completing 9,872 permanent payment plans as of Dec. 31, the Treasury said in its report today. Wells Fargo finished 8,424 modifications, while JPMorgan Chase & Co. made 7,139 permanent, the report shows. Bank of America Corp., the largest U.S. mortgage company, completed 3,183 modifications.

'Improved Pace'

Borrowers with permanent repayment plans have had their monthly mortgage payments drop by an average of 39 percent at Wells Fargo, Heid said. The company has modified 350,000 loans outside of the Home Affordable Modification Program, or HAMP.

So far, 787,231 trial modifications had been started in the Obama program through December, up from about 697,000 in November, according to the department. Permanently reduced payment plans more than doubled from 31,382 in November. The Treasury began disclosing last month how many trial revisions had been made permanent to publicly push lenders to work harder.

The report reflected an "improved pace" for both trial and completed modification plans, said Phyllis Caldwell, who runs the Treasury's Homeownership Preservation Office.

The three-year housing slump has wiped out at least 28 percent of home values nationwide, government and industry data show. Almost 23 percent of homeowners in the third quarter owed more than their properties are worth, according to First American Core Logic, a real-estate data company in Santa Ana, California.

Fannie, Freddie

Turning around the U.S. housing market is one of Obama's top priorities, Lawrence Summers, the president's top economic adviser, told reporters yesterday. The administration has put off restructuring federally controlled mortgage-finance companies Fannie Mae and Freddie Mac while they are administering the mortgage- modification program.

"There's no question that the future structure of the housing market is going to have to be very different than the structure that led Fannie and Freddie to the point of conservatorship, but this is an issue that's going to play out over time," said Summers, director of the National Economic Council.

He said the Obama administration is "thinking hard" about the future of Fannie Mae and Freddie Mac, "but for now the primary focus has to be on making sure the system of housing finance" is effective.

Continue reading "Loan Modification Recipients Fail to Keep Up With Their Reduced Payments" »