I called Elena at work to give her the good news that the Space-X Dragon capsule had made it back to earth after its trip to the International Space Station. When I got her on the phone I said the following: “Elon’s capsule just made it back from Mars.” Elena laughed and said: “you wish.” I guess you would call that one a Freudian slip.
This is a subject that is “near and dear” to my heart. I first became interested and concerned with this subject when I read the 1992 Tom Clancy book The Sum of All Of Their Fears. I also loved a 2004 mini series on South African television called Snitch. In the show South Africa created 7 nuclear weapons as opposed to the six they turned in when they gave up their nuclear weapons program. A wealthy British man gets hold of the weapon and wants to detonate it in Johannesburg. I agreed with the whole idea that if we ever had a nuclear terrorism event (God forbid) it would not be Muslim terrorist but some other disillusioned group few would suspect.
Some two days ago the US National Archives released some data on US efforts to prevent a nuclear terrorism event. I was amazed to see that the US government has taken this threat seriously since 1986. They have devoted serious resources to it. The sad news is that they simulated a nuclear terrorism event in downtown Indianapolis. They failed to stop a simulated nuclear weapon going off.
On March 17,1967 I was still a high school student. I went to the US Navy Reserve training center and enlisted in the US Navy Reserve. I took the oath to protect and defend the constitution. I was not sure that Vietnam was a just war. But I knew that I owed my country service. I learned a lot in the US Navy and I met some really great people. I also got wounded. To all of you who served thank you very much. To the families of those lost and badly mentally and physically injured I give you a big hug!! I give a special thanks to the author Steven Coonts, He’s a former US Navy pilot and a great author. I also give a special thanks to Dakota Meyers. He was just awarded the Medal of Honor by President Obama. In the middle of a hopeless battle when the whole military bureaucracy failed him, adrenalin kicked in. He fought off 150 Talibans to save four trapped men. “No greater love hath any man or woman) than to sacrifice themselves to save others.” Happy Memorial Day!”
Many of you are living in houses that once were worth a lot of money and made you look rich. Now the source of your wealth has dropped as much as 50%.
Some of you have already executed “a strategic default” or simply walked away from an underwater mortgage. Some of you have become squatters sitting in the house waiting for the day somewhere in the distant future when some bored sheriff’s deputy will knock on the door and tell you that you have a few days to vacate the house. Many of you are still paying on the underwater mortgage and praying for a return to a good real estate market. (Although you know down deep in your heart that is not going to happen.)
Today I am going to share with you the moves Elena and I made to cure underwater mortgage situations without walking away from our home or rental property. I am going to discuss moves that will affect your credit in a negative way or send you to bankruptcy court.
Those of you in the following occupational categories cannot take advantage of this advice as follows:
1) US government and US military people with high-level security clearances.
2) Employees of civilian contractors with high-level security clearances doing work for the US government.
3) Law enforcement officers working for any level of government.
4) Any employee of a financial institution.
5) Some employees of state or local governments in sensitive positions. (If in doubt is this area please get legal advice.)
To those of you in the categories above, please continue to read only out of academic curiosity.
For those not in the categories above let us get to work.
Many people got into their houses without a down payment. A second mortgage was obtained to make the purchase of the property. In the alternative one paid some down payment and also took out a second mortgage to buy the house. There were also some of you who put big second mortgages on your house, using it as an ATM machine and the market went crazy and we all thought that we were rich.
Now the lien is still on house but there is little or no actual equity to keep the second lien as a secured debt. In this case you are left with a large debt that is a credit card debt. If you default on this debt, the bank cannot foreclose your house because they no longer have a security interest. The bank will harass you with all sorts of phone calls and letters. Eventually some bored process server will appear at the door and serve you with a lawsuit.
If you do not know your legal rights or you are broke and cannot afford lawyers, the bank will get a deficiency judgment against you. Soon your wages will be garnished and you will be humiliated in front of your work mates and family.
If you understand your legal rights or can afford lawyers, you will file a defense to the lawsuit. The lender is in for a legal battle that will last 3-5 years with huge legal costs. The lender wants to avoid this at all costs and would eventually “settle the suit” outside of court for far less than the amount owed.
Since you know this you do not have to wait for a lawsuit. You could go right into a Chapter 13 bankruptcy filing. Once the court determines that the second lien no longer has any equity to support it. The lien will be stripped from the property. The debt will become an unsecured debt. Based on your income and remaining assets you might get the whole debt erased or a good part of it. Please consult a bankruptcy attorney like The Comfort Law Firm to get guidance here.
There are negative consequences of a bankruptcy filing. If you do not want to go bankrupt there is another way to deal with the second lien. You default and let collection action begin. Once you are past due a few months, you can hire a professional loan negotiator to approach the bank. I recommend Mr. Alan Sherman of the Comfort Law Firm. This negotiator will go to the bank. He will point out that he can put you into bankruptcy and the bank could end up with nothing. In the alternative he can offer to settle the debt for 10% to 15% of the face value.
In our case we had a $152,000 second lien with Wells Fargo Bank. My Sherman settled the debt for $20,000. We did not have to go bankrupt over it. You have the potential to do the same.
There is also a situation where there is a controversy over the value of the house and the second lien might have some equity left. Your negotiator will need to hire a very professional real estate agent to make a study of houses sold in the local market and those sold in short sales and foreclosure. This study will find the true value of your house.
Once we solve the second lien some of you will still have a first lien that is underwater. There was a big push on years ago to allow bankruptcy judges to modify first liens. The big banks literally bought off the US Senate and stopped this. First liens are exempt from any legal intervention. A professional loan negotiator can’t help you here.
But there is a way. If one is the owner of a rental property or properties, you can file a Chapter 13 petition. The court will entertain professional appraisals on the true values of the properties. The bankruptcy court will have the power to reduce the debts to what the properties are worth now. The only catch here is that the courts treat rental properties like car loans. You will need the cash flow to pay off the property or properties in sixty months.
You could get help on your personal residence first lien by moving out and leasing the house. This has to be bonafide in every way. Any false statement or misrepresentation could land you with a felony conviction and a trip to Federal prison.
Under this strategy you wait 6 months after the move out. Then you file for Chapter 13 bankruptcy with the legitimate claim that the house is a rental property. You can rest assure that the bank is going to object and raise hell. You also will need to keep it rented out for the life of the bankruptcy proceedings. You would have a high monthly payment.
I have a rental property and went into Chapter 13 bankruptcy. I bought the property for $415,000 and got its value reduced to $265,000. The judge agreed with it. I had to withdraw from the Chapter 13 when the property value dropped to $160,000 and we were facing a $100,000 loss.
Elena and I had a big challenge in the house. When we started to do normal cooking smoke detectors would go off on the slightest provocation. He had to open the kitchen door and all windows when cooking. It was a huge hassle. I went to Comcast and the Xfinity Home Security Division. The recommended some specialized smoke detectors hooked into the security system wireless. I liked the idea. A technician came out and installed two very high quality smoke detectors. If they do happen to go off while cooking is going on, a prompt appears on the screen. We have 30 seconds to disarm the smoke alarm and continue cooking. Last night we cooked a chicken dinner and the new smoke alarms remained silent. It worked. Xfinity well done!!!
Perhaps a lot of you readers do not know that I am the author of a 700+ page book on white collar crime. Prosecutors and law enforcement officers who read it get a big laugh out of it and love it.
One topic that I cover in the book is what is called in the underworld: “A Bankruptcy Bustout.” In a crime like this some organized crime person or group picks a company that has been in business for a long time, has a good name and lots of good credit. This company is also “past its prime” and in a slow decline. Needless to say, such a company can be purchased for a cheap price.
When such a company is located, “the bad guys” would move to take it over. Rarely would they pay cash for the company. They would use borrowed money and buy just enough of the shares to gain controlling interest in the company.
Once in charge the gangsters proceed to run up big debts using the company’s good credit. They buy large amounts of inventory on credit and see it “off the books” at discounted prices and claim that they sold the inventory on credit and never got paid.
At some point the company becomes overloaded with debt and cannot pay its creditors. A petition for bankruptcy is filed. In some cases “the bad guys” get by with this and are not detected. In other cases you have an alert and smart bankruptcy trustee who “smells a rat.” and calls in the FBI. When the agents see who is behind the broke company, they begin an intense examination of the books and the money flow. Eventually charges are filed and some of “the bad guys” end up in jail.
The Huffington Post took a close look at Mitt Romney and his operations with companies while he was at Bain Capital. A pattern similar to “A Bankruptcy Bustout” was observed. Romeny and the people at Bain Capital would buy a company with borrowed money, run up huge debts and bills and put the company into bankruptcy.
A concerned bankruptcy trustee looking carefully into a questionable bankruptcy would see a prominent Wall Street firm and the son of the former governor of Michigan and the former Secretary of Housing and Urban Development. With such prominent people involved, the FBI would not be called.
Here is the link to the Huffington Post article:
Yesterday I spent a good part of the day organizing new tires for our six year old cars. While new tires were being put on my Saturn Vue, I found myself at a Starbuck’s reading The Wall Street Journal. There was a small article about a humble factory in Detroit manufacturing televisions. It seems that China and other parts of Asia have becoem more expensive and it’s now cheaper to manufacture things right here in the USA. This means that a lot of manufacturing that left the USA will eventually come back.
I saw a larger article in the newspaper stating that the auto industry was booming and many new workers were being hired.
When we add this to all of the new oil and gas finds here in the USA there is a moment to be a little optimistic about the future.
I read this shocking story today. Even a man of Ben Bernanke’s financial success and fame has to ask his son to finance his professional education. With the doctor shortage and the fame of his name, Chairman Bernanke’s son will not have trouble finding a job.
The same cannot be said for many other college and professional school graduates with debts ranging from $25,000 to $400,000. Many of these students are unemployed. They are not paying their student loans. Student loan lenders are high-priority creditors like child support. One cannot discharge a student loan debt in bankruptcy (unless there is an extraordinary situation like permanent disability.) Desperate creditors are resorting to ruthless tactics like trying to intimidate of use legal technicalities to make the parents liable for these debts.
In the early 198r’s Britain had an unemployment crisis like we have today. Young people left the UK and went to West Germany, Australia, South Africa, the US and Canada to find work.
Many of these American students are going to wake up and realize that good employment opportunities exist in places like Brasil, Chile, Singapore, China, etc. They will leave the USA for “greener pastures” and turn their backs on their student loan debts. The US taxpayers will be left “holding the bag’ for hundreds of billions of dollars of unpaid student loan debts.
I had the chance to buy some Facebook shares yesterday on the IPO. I declined to do so.
Conventional wisdom was that the shares were going to quickly shoot up to $70.00 per share. Instead they had to be supported by the banks to prevent the embarrassment of a drop in share price.
For a good part of my life I had a best friend named Ralph. He used to be a big politician in Texas. Sadly he died at age 58 of a heart attack. Ralph had an unusually large male organ. It had the nickname of “Big Bertha.” (This was the name of the giant German cannon mounted on a rail car that bombarded Paris in World War I.)
Ralph was always bragging about his exploits in the bedroom. One evening I talked to a lady who had gone to bed with him. She made the following comment: “He had all of the right kind of equipment but did not know how to use it.”
The same can be said of Facebook. They have this incredible resource of 900 million users. Their business plan is not good enough (yet) to mine large advertising revenues out of this resource. A lot more work needs to be done!
A little-noticed statistic hit the news casts and newspapers this morning. For the first time in US history births of non-white babies equaled 50.4% of the births. It appears that we people of Northern European ancestry are becoming the minority in the USA,
This is troubling to the Tea Party and political conservatives. It’s not troubling to me. I spent 6 years in South Africa where people of Northern European ancestry are only 15% of the population. I had no hassles at all in this environment. People were nice to me. I was never discriminated against for jobs, housing bank loans, social life, love life etc. We are entering a world of globalization. Welcome ti and do not be frightened of it!