Saturday, November 29, 2008

Any Georgia Foreclosure Conducted Between December 2, 2008 and January 6, 2009 May Be Wrongful.

Fannie Mae and Freddie Mac issued a press release on November 20, 2008 stating, in writing and by definition – publically, that they have instructed, “[their] loan servicing organizations and retained foreclosure attorneys [ * * * ] to suspend foreclosure sales on occupied single-family properties as well as the completion of evictions from occupied single-family properties scheduled to occur from November 26, 2008 until January 9, 2009.” http://www.fanniemae.com/

A survey of the Legal Organs in Georgia (Fulton, DeKalb, Gwinnett, Cobb, etc.), does not reveal any slowdown in the publication of foreclosures. Clearly, any advertisement that went to press prior to November 20, 2008 cannot be easily removed prior to the foreclosure date. (They can be removed, but it requires affirmative action to do so).

The Fannie Mae press release seems to cover: 1) any Fannie Mae or Freddie Mac Mortgage, 2) that is handled by one of its servicers or one of its attorneys, contract or otherwise, 3) that concerns a single family residence, 4) that is at or under the current FHA limit of $362,000 or $417,000 for Fannie Mae, and 5) that is scheduled to be foreclosed (in Georgia) in December 2008 or January 2009.

I have watched the foreclosure process in Georgia for over two (2) decades. My guess is that the sheer inertia of the foreclosure process in Georgia will cause many (quite a lot is my personal bet) of these listed properties to be knocked off on the Courthouse steps – Press Release or no Press Release.

Are those foreclosures valid in the face of the Fannie Mae Press Release? Facially, yes. However, they are clearly subject to challenge (read that “wrongful foreclosure”) on at least one legal ground that comes to mind: Promissory Estoppel.

Promissory Estoppel is codified in Georgia at OCGA § 13-3-44. That statute states:

A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.

Here, Fannie Mae’s, promise is in writing which is stronger than many of the promissory estoppel claims that are based only on an oral promise.

There are whole treatises devoted to legal elements of wrongful foreclosure. For that overview, go read them. However, if you or your client own a single family home in Georgia (which Security Deed foreclosed fits within the minimums for FannieMae and FreddieMac – not more than $417,000.00 in the foreclosed loan amount), the Security Deed fits within the prohibitions stated in the November 20, 2008 Press Release and it is foreclosed upon in Georgia between December 2, 2008 and January 6, 2009, your client probably has a “good faith basis” to sue to set aside that foreclosure and has a “good faith basis,” to sue the lender for damages for foreclosing during the moratorium.

The lender will argue that the debtor was still in default on the day of the foreclosure and the foreclosure was proper. The borrower should file suit sounding in “wrongful foreclosure,” to set aside the foreclosure and argue that “but for,” the public promise from Fannie Mae, the borrower would have paid off the debt. Now, contrary to this being merely a lawyer’s argument, I have worked with many (mostly developers or owners with means) owners who have borrowed huge sums immediately prior to a foreclosure to pull properties out of foreclosure. Fannie Mae’s public promise (so the argument should go) has caused or did cause the borrower to focus his/her/its economic resources somewhere else, because Fannie Mae “promised” not to foreclose in December 2008 or January 2009.


Hugh Wood, Atlanta, GA


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WASHINGTON, Nov. 20 /PRNewswire-FirstCall/ -- In order to support the streamlined modification program announced on November 11, 2008, Fannie Mae today issued a notice to its loan servicing organizations and retained foreclosure attorneys directing them to suspend foreclosure sales on occupied single-family properties as well as the completion of evictions from occupied single-family properties scheduled to occur from November 26, 2008 until January 9, 2009.

The temporary suspension of foreclosures is designed to allow affected borrowers facing foreclosure to retain their homes while Fannie Mae works with mortgage servicers to implement the streamlined modification program scheduled to launch December 15. Foreclosure attorneys and loan servicers will be instructed to use the additional time to reach out to borrowers who have defaulted on their loans and continue to pursue workout options. The initiative applies to loans owned or securitized by Fannie Mae.

The streamlined modification program is aimed at the highest risk borrower who has missed three payments or more, owns and occupies the primary residence, and has not filed for bankruptcy. The program creates a fast-track method for getting troubled borrowers into an affordable monthly payment through a mix of reducing the mortgage interest rate, extending the life of the loan or even deferring payments on part of the principal. Servicers have flexibility in the approach, but the objective is to create a more affordable payment for borrowers at risk of foreclosure.

"The streamlined modification program by Fannie Mae, Freddie Mac, Hope Now and 27 mortgage servicers is an important step forward in addressing the systemic issues driving the increase in foreclosures," said Fannie Mae President and Chief Executive Officer Herb Allison. "Until the streamlined modification program is fully implemented, we felt it was in the best interest of both borrowers and Fannie Mae to take this extra step to ensure that homeowners with the desire and ability to prevent a foreclosure have an opportunity to stay in their homes. We encourage other servicers of non-GSE mortgages to participate in the streamlined modification program to bolster our collective efforts to stem the foreclosure crisis."

Fannie Mae will be working with foreclosure attorneys and servicers to reach out to the more than 10,000 borrowers the company estimates would be affected during this period. Borrowers who have Fannie Mae loans that are scheduled for foreclosure between November 26, 2008 and January 9, 2009, will be contacted directly by the attorney handling the foreclosure. If the home is occupied, Fannie Mae has instructed servicers and attorneys to suspend the foreclosure.


Allison also said Fannie Mae's loan servicers are prepared to work with borrowers during this period, even if previous workout efforts have been unsuccessful. As part of the company's "Second Look" initiative, Fannie Mae personnel have been reviewing seriously delinquent loans to determine if the borrower has been contacted and all workout options have been exhausted.

The streamlined modification program and temporary suspension of foreclosures are two of a series of steps Fannie Mae has taken to expand its foreclosure prevention efforts, which are designed to give loan servicers and foreclosure attorneys tools to find the best solution for a borrower in financial trouble. Fannie Mae and its many partners in the housing industry urge borrowers in financial difficulty to reach out to their loan servicers, regardless of whether they are facing imminent foreclosure. Solutions may be available that could make an existing mortgage more affordable.

"Fannie Mae is committed to working with FHFA to implement the streamlined modification program as quickly as possible to help prevent unnecessary foreclosures," Allison said. "We must and will do more."

Fannie Mae exists to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market. Fannie Mae has a federal charter and operates in America's secondary mortgage market to enhance the liquidity of the mortgage market by providing funds to mortgage bankers and other lenders so that they may lend to home buyers. In 2008, we mark our 70th year of service to America's housing market. Our job is to help those who house America. Fannie Mae CONTACT: Brian Faith of Fannie Mae, 202-752-6720
Web site: http://www.fanniemae.com//

& & &

Hugh Wood, Esq.
Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084
www.woodandmeredith.com
hwood@woodandmeredith.com
www.hughwood.blogspot.com
Phone: 404-633-4100
Fax: 404-633-0068


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Monday, November 24, 2008

The US Treasury is Now "Lost at Sea."

When the economic world began to melt down in September 2008, I began writing that the US Treasury would dust off the old Savings & Loan RTC model (1989 to 1995) and start selling off overvalued and unsalable toxic assets. See, Wood, Hugh, The Coming New RTC for Real Estate, September 21, 2008; The NewRTC Jupiter Size Me!, September 24, 2008.

However, in the weeks that followed, to my astonishment, Treasury reversed its position with regard to acquiring "toxic assets," "Somewhat contrary to the public pronouncements made to secure the passage of HR 1424 (which was passed by the Senate and provided 700bn of available funds for "bailout"), Treasury Sec. Paulson has been injecting funds into financial institutions and has not proceeded with the acquisition of any TARP assets stating that doing so now is simply too time consuming. [This is contrary to his TARP request to the US House and US Senate in October of 2008.]." FDIC and Treasury at Odds Over Bailout, November 14, 2008.


On October 3, 2008, Wachovia, NA, agreed to be aquired by Wells Fargo, N.A. At the same time, Treasury was giving its lukewarm support to allowing Wachovia to be acquired by CitiBank for a mere 2.2bn. Really? 2.2bn.


Now, a mere six (6) weeks later, CitiBank, N.A. rolls over and plays dead. Treasury agrees to buy 20bn in Preferred Stock (this story is moving so fast, I cannot confirm it is preferred. However, the other recent stock purchases have been preferred) and Treasury agrees to guarantee 309bn of toxic assets. That means in simple english, if CitiBank, N.A., can't dump those assets even at a fire sale, you and I agree to insure the losses in the final meltdown. [Why do I have to insure the bad lending decisions of bank in New York City?]



This economic disaster seems to be a hurricane storm surge. They just can't seem to contain it.



In August they tell us all is OK.
In September, the sky is falling and they need first 150bn then 500bn then 700bn to stave off financial collapse.
Then every investment bank craters or is absorbed by an FDIC Insured bank.
WAMU collapses.
Wachovia threatens collapse.
Treasury backs CitiBank's aquisition of Wachovia. [Wells Fargo actually gets Wachovia]
Treasury says it will not be involved in acquiring and selling toxic assets. It will only inject capital into backs to prop them up. [Contrary to what it told the House and Senate to obtain passage of HR 1424.]
Treasury surriupticiously changes the Tresury Regulations to eliminate the "mark to market" rule changes of Sarbanes-Oxley. [Done in less than 5 sentences.]
While we are not watching and as fully allowed by its private 1913 Charter, the Federal Reserve pumps 2.5 Trillion dollars into the economy. Read that 2,500 billion. The bailout was only 700 billion.



Now CitiBank (recently the White Knight for Wachovia) threatens to go bust.



Gentlemen, Ladies, whether you can accept it or not, we are living our own 21st Century version of 1932. Even now, we are watching the changing of the guard from Herbert Hoover to FDR. Or, from George Bush to Barack Obama.

My outside observers guess is that the US Treasury is overwhelmed by the storm surge and is simply moving to block the flow and rescue drowning banks whereever it can.



I had given up on the possibility of a NewRTC. However, with today's shocking revelation that the Treasury is going to guarantee 309bn of toxic CitiBank assets, I am not so sure. More banks will show up for the guarantee and soon there will be a collection of NewRTC assets to auction.



So, I do not despair. I expect I will get my billions of toxic assets and the lawyers fees that come along with unloading them before long.



Hugh Wood, Atlanta, Georgia



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Citigroup Bailout Charts New Course for U.S. Government Rescues
By Craig Torres and Robert Schmidt
Nov. 25 (Bloomberg) -- The U.S. government’s emergency rescue of Citigroup Inc. offers a new model for bank bailouts: explicitly insuring against losses on toxic assets, with taxpayers footing the bill.
The Citigroup plan extends the federal commitment beyond the previous framework of capital injections from the Treasury and credit from the Federal Reserve. Now, the U.S. is a partner in the performance of $306 billion in real-estate loans and securities, sharing losses beyond $29 billion on what are likely to be some of Citigroup’s worst holdings.
"Everybody and his brother has got to have their hand out now," said Eric Hovde, chief investment officer at Hovde Capital Advisors, which manages $1 billion in financial-services stocks. "The whole problem is so much bigger and deeper than the Fed and Treasury ever understood."
Taxpayers are likely to be at greater risk from the new template, which may be used to help more companies as debt writedowns continue to climb, analysts said.
"Every situation will need to be evaluated on a case by case basis, but obviously we are able to draw from our experiences as we work through these issues in the financial system," Treasury spokeswoman Brookly McLaughlin said.
Citigroup’s crisis escalated as it was forced to take on its balance sheet a number of special units created to invest in riskier securities. The New York-based bank’s shares lost 60 percent last week, and then recouped some of those losses yesterday after the government’s rescue. Other lenders remain vulnerable.
Weakened Banks
Wells Fargo & Co. is absorbing Wachovia Corp., the bank that regulators pushed in September to merge amid mounting losses from $120 billion in a portfolio of home loans. Bank of America Corp. has taken on both Countrywide Financial Corp., once the biggest independent mortgage lender, and Merrill Lynch & Co., the securities dealer hobbled by $24 billion of losses. Morgan Stanley slumped almost one third in the past three months.
Other banks "are going to show up" and ask for the Citigroup deal, predicted Joseph Mason, a professor at Louisiana State University in Baton Rouge who previously worked at the Treasury’s Office of the Comptroller of the Currency.
The loss-sharing plan is another twist in the saga of Treasury Secretary Henry Paulson’s management of the $700 billion Troubled Asset Relief Program. Since the rescue fund was approved by Congress and enacted last month, Paulson has been criticized by lawmakers and others for not having a clear design for using the money. President-elect Barack Obama joined the chorus yesterday.
‘Confusion’ on Strategy
There has been "confusion on what the overall direction might be" of the Bush administration’s plans, Obama said in a press conference in Chicago. At the same time, he pledged to "honor the commitments" of the outgoing team.
"The model is that there is no model," said V. Gerard Comizio, senior partner in the banking practice at the Paul, Hastings, Janofsky & Walker law firm in Washington. "It is an improvisation battle plan."
Under the terms of the agreement, Citigroup will cover the first $29 billion of pretax losses from the $306 billion asset pool, in addition to reserves it already set aside.
Citigroup will accept 10 percent of losses above that amount, with the government responsible for 90 percent. The Treasury is second in line, taking $5 billion in losses, and the Federal Deposit Insurance Corp. is third, absorbing up to $10 billion. If the portfolio plummets through those triggers, the Fed steps in with a loan for the remaining assets.
Initial $25 Billion
U.S. authorities acted after the second-biggest U.S. bank by assets touched $3.05, the lowest level since 1992, threatening confidence among its depositors and counterparties. Citigroup had already received a $25 billion infusion under Paulson’s $250 billion capital-injection program.
"The Treasury and the Fed are doing what they can do to hold the pieces together, and it hasn’t been easy," said Martin Regalia, chief economist at the U.S. Chamber of Commerce, which lobbies on behalf of 3 million businesses. "If we don’t keep the financial system going that is going to impose costs on the American public that will be real and palpable."
The Fed’s exposure in the deal also represents a tack in the way the central bank has approached the crisis.
Since what was an effective purchase of $29 billion Bear Stearns Cos. assets in March, Fed officials have shown a preference for providing short-term credits for firms facing a cash squeeze.
Assets Swell
The central bank’s balance sheet expanded $1.3 trillion in the past year as the Fed auctioned $415 billion of cash to banks and purchased $272 billion of commercial paper.
Fed officials have pushed to keep the risks involved in future bailouts at the Treasury, which would be forced to negotiate with Congress about the use of taxpayer funds.
Now, the Fed is stepping outside the liquidity boundary once again. The central bank took a step toward risk sharing earlier this month when it opened two new facilities with up to $52.5 billion in loans to help American International Group Inc. wind down its portfolio.
"It is clear that regulators still lack a comprehensive plan to address problems in our financial markets," Senator Richard Shelby of Alabama, the ranking Republican on the Senate Banking Committee, said through his spokesman Jonathan Graffeo. "It is unclear whether they have carefully considered the implications of their continued ad-hoc approach."
To contact the reporters on this story: Craig Torres in Washington at ctorres3@bloomberg.net; Robert Schmidt in Washington at
rschmidt5@bloomberg.net





& & &

Hugh C. Wood, Esq.
Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084
www.woodandmeredith.com
Phone: 404-633-4100
Fax: 404-633-0068
Email:
hwood@woodandmeredith.com



& & &

Saturday, November 22, 2008

First Mortgage Beats IRS in Priority Fight

This case illustrates the interplay of a first mortgage, IRS Tax lien and other creditors in a bitter fight over ownership of debtor's encumbered personal residence. First mortgage beats IRS Tax Lien.


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UNITED STATES OF AMERICA Plaintiff
v.
MICHAEL LAUER, MIZUHO CORPORATE BANK, LTD., KFP INVESTORS PARTNERSHIP, TOWN OF GREENWICH, CT, HEIDI LAUER, and HANNAH HEMPSTEAD, Defendants
MARTY STEINBERG, ESQ., COURT-APPOINTED RECEIVER FOR LANCER MANAGEMENT GROUP II, LLC, LANCER OFFSHORE, INC., OMNIFUND, LTD., LSPV, INC., LSPV, LLC, ALPHA OMEGA GROUP, INC., G.H. ASSOCIATES, LLC, CLR ASSOCIATES, LLC and as RESPONSIBLE PERSON FOR LANCER PARTNERS, L.P., Defendant-Intervenor
Civil Action No. 3-06-CV-1724 (JCH)
United States District Court, District of Connecticut
March 28, 2008
RULING RE: CROSS-CLAIMANT'S MOTION FOR SUMMARY JUDGMENT [DOC. NO. 44]; PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT [DOC. NO. 50]; INTERVENOR'S MOTION FOR ORDER [DOC. NO. 42]
Janet C. Hall, United States District Judge
This case revolves around a foreclosure action brought by the United States against defendant Michael Lauer ("M. Lauer"). The United States seeks to enforce a tax lien it has recorded on M. Lauer's home, and it has filed a motion for summary judgment to this effect. See Doc. No. 50. Mizuho Corporate Bank, Ltd. ("Mizuho"), which holds a superior lien on the property, also seeks summary judgment on its own attempt to foreclose (asserted by way of cross-claim). See Doc. No. 44. Finally, the defendant-intervenor has filed a Motion seeking to affect the manner in which any foreclosure is carried out, and seeking to obtain any net proceeds from foreclosure. For the reasons that follow, the court GRANTS the United States's Motion for Summary Judgment, GRANTS Mizuho's Motion for Summary Judgment, and GRANTS IN PART AND DENIES IN PART defendant-intervenor's Motion.
I. BACKGROUND [1]
In July 2003, the United States Securities & Exchange Commission ("SEC") filed a civil action against M. Lauer in the U.S. District Court for the Southern District of Florida ("Florida court"). The SEC alleged that M. Lauer had deliberately manipulated the closing price of various stocks, and it sought disgorgement of M. Lauer's allegedly ill-gotten gains. On July 10, 2003, the Florida court issued an ex parte temporary restraining order against M. Lauer, freezing all of his personal assets. The Florida court also issued an order appointing Marty Steinberg as the Receiver for various hedge fund-related companies that M. Lauer controlled. On July 17, 2003, the temporary restraining order was converted into a preliminary injunction that froze all of M. Lauer's assets while the SEC's litigation was pending.
At the time the asset freeze was ordered, M. Lauer was living at his home at 7 Dwight Lane, Greenwich, CT. Land records show that on April 30, 1999, M. Lauer executed two mortgages on the property with one of Mizuho's predecessor banks. Yasuda Aff. Exh. 2, 4. The mortgages were for $1,100,000 and $521,000, respectively, and were duly recorded on May 7, 1999. Id. Both mortgages obligate M. Lauer, inter alia, to make monthly payments to Mizuho on the first day of each month, to maintain property insurance on the residence, and to prevent any other liens from being recorded on the property. Id. The mortgages also contain an acceleration provision which allows Mizuho to require immediate repayment in full, and/or to seek foreclosure, if M. Lauer fails to keep any promise in the agreement. M. Lauer asserts that prior to the asset freeze in July 2003, he complied with all of his obligations under the mortgages. Doc. No. 79 at 2.
Before July 2003, however, M. Lauer's residence became subject to an IRS tax lien. This occurred because, on December 30, 2002, the IRS made assessments against M. Lauer based on deficiencies with his 2001 tax returns. At the time, the assessments were for $2,378,057.00 in deficient tax, a penalty of $107,012.56, and interest in the amount of $103,424.13. M. Lauer did not contest this assessment, and on February 7, 2003. the IRS filed a Notice of Federal Tax Lien with the Secretary of State in Hartford and with the Greenwich Town Clerk. M. Lauer subsequently made several payments to the IRS pursuant to an installment agreement. However, the payments stopped after M. Lauer's assets became subject to the asset freeze.[2]
Because of the asset freeze, M. Lauer also lost access to the funds that he had been using to pay the mortgages. Defendant Heidi Lauer ("H. Lauer"), Lauer's then-fiancee and current wife,[3] began submitting mortgage payments on Lauer's behalf. Doc. No. 79 at 3-5. Mizuho accepted these payments for a while. Id. However, on March 22, 2005, Mizuho sent the Lauers a letter in which it indicated it would not accept any further payment from H. Lauer unless it received (1) a copy of a marriage certificate, and (2) confirmation from H. Lauer as to the source of the funds that she was using to make the payments. Yasuda Aff. Exh. 6, 7. The letter also stated that, even despite H. Lauer's most recent payment, M. Lauer was in default of his obligations for reasons unrelated to late payments, including because he had allowed the IRS to place a tax lien on the premises and because he had failed to maintain home insurance on the premises. The letter warned M. Lauer that unless he cured these defaults by April 18, 2005, Mizuho might exercise its right to accelerate the sums due under the mortgage and foreclose.
On April 20, 2005, H. Lauer forwarded a payment of $14,086.51 to Mizuho. Mizuho deemed this payment late, and it also refused to accept any further mortgage payments from H. Lauer.[4] Additionally, M. Lauer did not cause the IRS tax lien to be discharged, nor did he obtain property insurance. Indeed, on April 6, 2005, April 7, 2005, April 13, 2006, October 6, 2006, and April 5, 2007, Mizuho made various payments to the insurance company to maintain property insurance on the premises. These payments totaled $24,321.[5] Yasuda Aff. at 5.
Ultimately, both the United States and Mizuho came to the conclusion that they wished to foreclose on the Dwight Lane residence. In early 2006, both attempted to intervene in the Florida court action, and they sought to modify the asset freeze so that it would allow such foreclosure. The Florida court permitted both parties to intervene, and it modified the asset freeze order "to permit Mizuho and the United States to foreclose upon [M. Lauer's residence]." Yasuda Aff. Exh. 12 at 9. The Florida court noted that the modification was "granted with the understanding that the sale price of [Lauer's residence] be maximized, and that Mizuho is free to proceed by cross-claim or otherwise" in the foreclosure action. Id. The Florida court further noted that the asset freeze would remain in place as to any proceeds that remained after the mortgage and tax liens had been satisfied. Id.
On October 31, 2006, the United States filed the instant foreclosure action in this court. In an attempt to comply with 26 U.S.C. § 7403, the government named as defendants all entities and individuals that it then believed might claim an interest in the property: M. Lauer, Mizuho, KFP Investors Partnership ("KFP"), and the Town of Greenwich.[6] Mizuho then filed its Answer, and by way of counter-claim against the United States, and as a cross-claim against all other parties, Mizuho sought to foreclose on its mortgage.
Marty Steinberg, the Receiver from the Florida court action, subsequently filed a motion to intervene in this case, Doc. No. 31, which the court granted, Doc. No. 41. The Receiver then filed a Motion asking: (1) that any net sale proceeds from foreclosure be paid to the Receiver, and (2) that the IRS be required to list the property with the "Multiple Listing Service" as part of its foreclosure sale. Doc. No. 42. The IRS and Mizuho opposed the second part of this Motion, preferring instead that the foreclosure sale be handled by an IRS Property And Liquidation Specialist (PALS). Doc. Nos. 51, 52. The IRS and Mizuho also filed motions for summary judgment on their respective claims.
After these motions were filed, two additional parties, H. Lauer and Hannah Hempstead, were added to the case as defendants and as cross-defendants.[7]
II. THE SUMMARY JUDGMENT MOTIONS
Summary judgment is only appropriate when there are no genuine issues of material fact. Fed. R. Civ. P. 56(c). The court must view the evidence in the light most favorable to the non-moving party, drawing all reasonable inferences in that party's favor. Rivkin v. Century 21 Teran Realty LLC, 494 F.3d 99, 103 (2d Cir. 2007). However, a party may not rely simply on speculation or conjecture to defeat summary judgment; the party must actually introduce evidence that is sufficient to create a disputed issue of material fact. Bridgeway Corp. v. Citibank, 201 F.3d 134, 143 (2d Cir. 2000). The court will deal with the two Motions in turn.
A. The Tax Foreclosure
Once the IRS makes an assessment against a taxpayer, and gives that taxpayer notice and demand for payment, the IRS obtains a lien against a taxpayer. 26 U.S.C. §§ 6321, 6322. This lien automatically arises in all property owned by the taxpayer. United States v. Comparato, 22 F.3d 455, 457 (2d Cir. 1994). The IRS may then seek to enforce that lien in a foreclosure action in federal court. 26 U.S.C. § 7403(a). The relevant statute provides:
The court shall . . .adjudicate all matters involved therein and finally determine the merits of all claims to and liens upon the property, and, in all cases where a claim or interest of the United States therein is established, may decree a sale of such property, by the proper officer of the court, and a distribution of the proceeds of such sales according to the findings of the court in respect to the interests of the parties and of the United States.
26 U.S.C. § 7403(c).
Here, there is no dispute that the IRS made a valid assessment for the deficiency on M. Lauer's 2001 taxes, that the IRS gave M. Lauer notice and demand for payment, and that the IRS has a valid lien against the Dwight Lane residence. Accordingly, it appears that the IRS is entitled to a judgment of foreclosure in the amount owed. Based on the IRS's Form 1040 tax assessment, which is presumptively correct, see United States v. Fior D'Italia, Inc., 536 U.S. 238, 242 (2002), that amount is $2,901,347.90.
M. Lauer challenges foreclosure on equitable grounds, pointing out that he would have been able to continue making his tax payments under the installment agreement were it not for the asset freeze. See Doc. No. 67 at 6, 11-12. It is true that a district court has a modicum of equitable discretion to avoid a forced sale under the tax statutes. United States v. Rodgers, 461 U.S. 677, 709-710 (1983). However, there are virtually no circumstances in which it will be appropriate to exercise that discretion on behalf of the delinquent taxpayer. Id. Here, the court declines to exercise its discretion on behalf of M. Lauer, for two reasons. First, the asset freeze postdates the time when M. Lauer's 2001 taxes were due. Accordingly, while the asset freeze might provide a justification for M. Lauer's failure to live up to installment agreement, it does not provide a justification for his initial failure to pay his taxes. Second, although M. Lauer challenges the validity of the asset freeze, a court of competent jurisdiction has determined that there is evidence the frozen funds were obtained through a securities fraud perpetrated by M. Lauer.
M. Lauer and H. Lauer next argue that the court should exercise its equitable discretion because H. Lauer, and the couple's young children, live in the Dwight Lane residence. Doc. No. 67 at 12; Doc. No. 100 at 2, 5. Although the court is sympathetic, the court declines to exercise its equitable powers in this manner, as these are the kinds of hardships that are typical in foreclosure proceedings. The court's equitable powers are particularly constrained here because H. Lauer and her children appear to have no present ownership interest in the property.[8] See Rodgers, 461 U.S. at 711.
M. Lauer also attempts to dispute the amount he owes the IRS, claiming that the IRS owes him a refund for tax year 2002. M. Lauer 56(a) Statement at 2. However, there is no evidence that M. Lauer has filed an administrative request for a refund, and thus he is procedurally barred from obtaining an offset of his liability in this court. See 26 U.S.C. § 7422.
Finally, M. Lauer argues that foreclosure should be avoided because it is economically irrational for the IRS to foreclose on his residence. See Doc. No. 67 at 6-10. But whether or not it makes financial sense for the IRS to foreclose given its standing relative to other creditors, the IRS has a legal right to do so.
B. Mizuho's Mortgage Foreclosure
There can be no dispute that Mizuho is also entitled to foreclose on the residence. While H. Lauer and M. Lauer fault Mizuho for not accepting payments by proffered by H. Lauer, there is no dispute that M. Lauer failed to maintain property insurance on the premises, and that M. Lauer was in breach of the mortgage agreements when he allowed the IRS to obtain a lien in his property. Under the mortgages, Mizuho was therefore entitled to accelerate the sums due and foreclose. See Yasuda Aff. Exh. 2 at Rider ¶ 33; id. at Rider ¶ 35; Yasuda Aff. Exh. 4 at Rider ¶ 33; id. at Rider ¶ 35.[9]
C. Priority
Every party agrees that Mizuho's claim has priority over that of the United States. And other than Mizuho, no creditor has suggested that they have a claim that is superior to the federal tax lien. Indeed, other than the United States, Mizuho, and the Receiver, no party has come forward at all to present evidence that they have a valid ownership interest in the property, or that they have a valid lien on the property.
It does not matter that H. Lauer has filed a lis pendens because of her pending divorce action. H. Lauer has not yet obtained a judgment awarding her any interest in the property, and her claim is therefore still inchoate. See United States v. Pioneer Am. Ins. Co., 374 U.S. 84, 89 (1963) (explaining that a lien is not perfected until the amount of the lienor's claim has been established).[10]
III. THE RECEIVER'S MOTION
The Receiver's Motion has two parts. First, the Receiver wishes to be paid the net proceeds from any sale at the residence, after all liens have been satisfied. Second, the Receiver asks this court to direct the IRS to list the property on the Multiple Listing Service ("MLS").
No party has objected to the first part of the Receiver's motion, and the court grants it. When the Florida court modified the asset freeze in order to permit foreclosure, that court specifically directed that the net proceeds, if any, should be held in trust by the Receiver for allegedly defrauded investors.
Both the IRS and Mizuho have objected to the second part of the Receiver's Motion. The IRS and Mizuho believe that a better net sale price can be obtained if the property is liquidated through an IRS Property Appraisal and Liquidation Specialist (PALS), as this would permit the sale to proceed more quickly and inexpensively. Doc. No. 51 at 2-3; Doc. No. 52 at 3-8. The Receiver believes that using MLS will result in a higher sale price because it would increase the number of potential buyers interested in the property. Doc. No. 42 at 6-7. The Florida court did not express a preference between these two methods, and the relevant federal statute for tax foreclosures simply instructs this court to "decree a sale," 26 U.S.C. § 7403(c), without mention of the proper mechanism.
The court declines to require, at this stage, that the foreclosing parties use an MLS listing. The court will consider and determine the conditions of foreclosure in connection with the Motion for Sale. The Receiver's Motion is therefore denied insofar as it seeks to require an MLS listing.
IV. CONCLUSION
Mizuho's Motion for Summary Judgment [Doc. No. 44] is GRANTED. The United State's Motion for Summary Judgment [Doc. No. 50] is GRANTED. The Receiver's Motion [Doc. No. 42] is GRANTED IN PART AND DENIED IN PART. Both the United States and Mizuho are entitled to judgments of foreclosure. The net proceeds of this foreclosure shall be paid first to Mizuho to satisfy M. Lauer's outstanding obligation on the mortgages, including related fees and interest, and next to the United States to satisfy its tax lien. Any remaining proceeds shall be paid to the Receiver to hold in trust.
By APRIL 22, 2008, unless the foreclosing parties request additional time for good cause, the foreclosing parties shall submit a Motion for Sale, following the state Practice Book procedures (as applicable). The court directs Mizuho and the United States to confer, and to attempt to agree on the foreclosure sale procedures. Any objections to the Motion are due 22 DAYS after the date the Motion for Sale is filed. SO ORDERED.
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Notes:
[1] To the extent that evidence in the record creates a factual dispute, the court discusses the evidence in the light most favorable to M. Lauer and H. Lauer, the two defendants who have opposed the summary judgment motions.
The Lauers purport to rely in part on evidence that was submitted in an action pending in another federal district court, but that has not been submitted to this court. The court cannot consider that evidence as part of the record in this court. See Fed. R. Civ. P. 56(e) ("Sworn or certified copies of all papers or parts thereof referred to in an affidavit shall be attached thereto or served therewith."); Loc. Civ. R. 56(a) (explaining that any evidence referred to in a Local Rule 56(a)(2) statement must be "filed and served with [that statement] in conformity with Fed. R. Civ. P. 56(e)").
[2] Because of subsequent penalties, as of April 23, 2007, the IRS calculated M. Lauer's unpaid balance as $2,901,347.90.
[3] At the time, her name was Heidi Carens.
[4] Mizuho contends that it refused to accept the payments because it feared that H. Lauer was funneling assets that actually belonged to M. Lauer, and that were subject to the asset freeze. Yasuda Aff. at 5.
[5] M. Lauer also failed to pay property taxes to the Town of Greenwich in 2006 and 2007. Mizuho had to make those payments, and it expended $40,220.37 to do so. Yasuda Aff. at 5.
By affidavit from one of its Senior Vice Presidents, Mizuho asserts that, if M. Lauer was in fact in default on his mortgages as alleged, as of May 7, 2007 the amounts due to Mizuho were: (1) for the first mortgage, the principal balance of $1,100,000, late fees of $2,502.34, and interest in the amount of $129,404.06; (2) for the second mortgage, the principal balance of $521,000, late fees of $1,785.18; and interest in the amount of $61,290.46; (3) for both mortgages combined, $24,321.00 in home owners insurance premiums, $40,220.31 in property tax payments, $1,365 in title insurance and property appraisal feels, and an unspecified amount for legal fees. Id. at 6. Mizuho also asserts that it would be entitled to additional interest and fees incurred after May 7, 2007. Id.
M. Lauer has come forward with no evidence to contest these amounts.
[6] KFP and the Town of Greenwich have not done anything in this action to affirmatively assert any ownership interest in the property. KFP did file an Answer to the United States's Complaint, and it admitted the government's allegations that it "may claim" an interest in Lauer's residence. KFP has not filed an answer to Mizuho's cross-claim, and it has not subsequently participated in this litigation (aside from participating in status conferences). The Town of Greenwich never filed an appearance in this action.
[7] These two individuals had filed notices in the land records indicating that they claimed interests in the Dwight Lane residence, although they had not originally been named as defendants in the foreclosure action. Without objection, the court ordered the United States and Mizuho to add these two individuals as parties, which they did. See Doc. No. 83.
The United States and Mizuho had difficulty serving these defendants, however, and so the court ordered these defendants to appear under 28 U.S.C. § 1655, and authorized that they be served by publication. See Doc. Nos. 88, 92, 94, 96. H. Lauer subsequently appeared in this action and opposed summary judgment largely by relying on M. Lauer's arguments and filings. See Doc. No. 100 at 2. Hempstead has failed to appear as ordered, and she will thus be bound by the court's ruling despite her failure to appear. See 28 U.S.C. § 1655.
[8] H. Lauer does suggest that she has a security interest in the property. After M. Lauer's assets were frozen, H. Lauer contends that she lent money to M. Lauer to continue making mortgage payments, and she suggests it was understood that the value of the Dwight Lane residence was a "part-collateral" for the loan. Doc. No. 100 at 5. If M. Lauer in fact made such a promise, however, then he did so in violation of the asset freeze, which prohibited him from, inter alia, "pledging" property he owned. H. Lauer's security interest would thus appear to be void. Indeed, since H. Lauer appears to have had actual notice of the asset freeze order, she herself may have been in violation of the court's Order.
[9] M. Lauer argues that the doctrine of laches bars Mizuho from foreclosing based upon the tax lien, as the tax lien had existed for at least two years before Mizuho notified M. Lauer that he needed to dissolve the lien. Doc. No. 71 at 6-8. But M. Lauer makes no argument why the doctrine of laches would defeat Mizuho's claim based on the lack of insurance. Mizuho would therefore be entitled to a judgment of foreclosure irrespective of the validity of M. Lauer's laches argument.
[10] Nor has H. Lauer shown that she has a valid mortgage interest in the Dwight Lane premises. First, as discussed in footnote 8, H. Lauer's "mortgage" was obtained in violation of the Florida court's asset freeze. Second, there is no evidence that H. Lauer ever recorded her mortgage, and thus her interest in the property is enforceable against no one but M. Lauer. See Conn. Gen. Stat. § 47-10.
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Hugh Wood, Atlanta, GA

Thursday, November 20, 2008

Fannie Mae & Freddie Mac Temporarily Suspend All Foreclosures

WASHINGTON, DC -- In order to support the streamlined modification program announced on November 11, 2008, Fannie Mae (NYSE:FNM) today issued a notice to its loan servicing organizations and retained foreclosure attorneys directing them to suspend foreclosure sales on occupied single-family properties as well as the completion of evictions from occupied single-family properties scheduled to occur from November 26, 2008 until January 9, 2009.

The temporary suspension of foreclosures is designed to allow affected borrowers facing foreclosure to retain their homes while Fannie Mae works with mortgage servicers to implement the streamlined modification program scheduled to launch December 15. Foreclosure attorneys and loan servicers will be instructed to use the additional time to reach out to borrowers who have defaulted on their loans and continue to pursue workout options. The initiative applies to loans owned or securitized by Fannie Mae.

The streamlined modification program is aimed at the highest risk borrower who has missed three payments or more, owns and occupies the primary residence, and has not filed for bankruptcy. The program creates a fast-track method for getting troubled borrowers into an affordable monthly payment through a mix of reducing the mortgage interest rate, extending the life of the loan or even deferring payments on part of the principal. Servicers have flexibility in the approach, but the objective is to create a more affordable payment for borrowers at risk of foreclosure.

"The streamlined modification program by Fannie Mae, Freddie Mac, Hope Now and 27 mortgage servicers is an important step forward in addressing the systemic issues driving the increase in foreclosures," said Fannie Mae President and Chief Executive Officer Herb Allison. "Until the streamlined modification program is fully implemented, we felt it was in the best interest of both borrowers and Fannie Mae to take this extra step to ensure that homeowners with the desire and ability to prevent a foreclosure have an opportunity to stay in their homes. We encourage other servicers of non-GSE mortgages to participate in the streamlined modification program to bolster our collective efforts to stem the foreclosure crisis."

Fannie Mae will be working with foreclosure attorneys and servicers to reach out to the more than 10,000 borrowers the company estimates would be affected during this period. Borrowers who have Fannie Mae loans that are scheduled for foreclosure between November 26, 2008 and January 9, 2009, will be contacted directly by the attorney handling the foreclosure. If the home is occupied, Fannie Mae has instructed servicers and attorneys to suspend the foreclosure.
Allison also said Fannie Mae's loan servicers are prepared to work with borrowers during this period, even if previous workout efforts have been unsuccessful. As part of the company's "Second Look" initiative, Fannie Mae personnel have been reviewing seriously delinquent loans to determine if the borrower has been contacted and all workout options have been exhausted.
The streamlined modification program and temporary suspension of foreclosures are two of a series of steps Fannie Mae has taken to expand its foreclosure prevention efforts, which are designed to give loan servicers and foreclosure attorneys tools to find the best solution for a borrower in financial trouble. Fannie Mae and its many partners in the housing industry urge borrowers in financial difficulty to reach out to their loan servicers, regardless of whether they are facing imminent foreclosure. Solutions may be available that could make an existing mortgage more affordable.

"Fannie Mae is committed to working with FHFA to implement the streamlined modification program as quickly as possible to help prevent unnecessary foreclosures," Allison said. "We must and will do more." (c) Fannie Mae

Hugh Wood, Atlanta, GA

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From Bloomburg

Nov. 20 (Bloomberg) -- Fannie Mae and Freddie Mac, the mortgage-finance companies seized by the U.S. government, will suspend foreclosures and evictions over the holidays.

The six-week halt will begin Nov. 26, a day before the U.S. Thanksgiving holiday, and last through Jan. 9, the companies said in separate statements today. The hiatus is designed to give servicers more time to implement a streamlined loan modification program for struggling borrowers.
"It's a giant time out," Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia, said today in a Bloomberg Television interview. "I wouldn't be surprised to see this across the board."

Fannie and Freddie, government-sponsored enterprises that own or guarantee $5.2 trillion of the $12 trillion U.S. home mortgage market, were placed under federal control Sept. 6. They have since been pushed to work harder at modifying troubled single-family and multifamily mortgages to curtail foreclosures.
Until a streamlined modification program is up and running, "we felt it was in the best interest of both borrowers and Fannie Mae to take this extra step to ensure that homeowners with the desire and ability to prevent foreclosure have an opportunity to stay in their homes," Fannie Chief Executive Officer Herb Allison said in a statement.

Fannie and Freddie have partnered with HOPE Now, a government-organized coalition of the largest U.S. mortgage servicing companies, to offer borrowers who are at least 90 days delinquent and have high loan-to-income ratios the chance to modify mortgage terms to cut their monthly mortgage payments.
Incremental Steps

The companies plan to reduce interest rates for up to five years and lengthen repayment terms to as much as 40 years to trim monthly payments to roughly 38 percent of a homeowner's monthly pretax salary. In some cases, borrowers may qualify to temporarily reduce the principal amount of the loan, which would be due without interest if the house is sold or refinanced.
"The Hope Now program is not going to be enough. It's an incremental step," said housing advocate John Taylor, president and chief executive officer of the National Community Reinvestment Coalition in Washington. "Obviously, we're pleased that they're doing this, but absent a substantive foreclosure program, I wonder if this is this just another problem they're leaving for the Obama administration."

Fannie and Freddie posted record third-quarter net losses totaling $54.3 billion last week. Freddie said it needs $13.8 billion from the U.S. Treasury by Nov. 29 to stay solvent, and Fannie said it may need federal aid early next year. Treasury Secretary Henry Paulson set up $200 billion in backup financing for Fannie and Freddie in September, saying the companies were failing and threatened the safety of the broader U.S. economy without federal intervention.
Foreclosures

The worst U.S. housing slump since the 1930s is being compounded by a recession that began in the third quarter and may last a year or more, according to Jay Brinkmann, chief economist for the Mortgage Bankers Association. Home prices in 20 U.S. metropolitan areas fell in July at the fastest pace on record, and sales of previously owned homes in August were 32 percent below the peak reached in September 2005.

A total of 765,558 U.S. properties received default notices, which warns of a pending auction, or were foreclosed on in the third quarter, the most since records began in January 2005, according to default data from Irvine, California-based RealtyTrak. Filings rose 3 percent from the second quarter and fell 12 percent in September from August as state laws created to keep people in homes slowed the pace of defaults. (c) Bloomburg 1122008


& & &

Hugh Wood, Esq.
Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084
www.woodandmeredith.com
hwood@woodandmeredith.com
www.hughwood.blogspot.com
Phone: 404-633-4100
Fax: 404-633-0068


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Tuesday, November 18, 2008

Georgia Auto Insurance Rates Jump 55%. Thank You, Senate Bill 276.

Granted it’s only a statistical sample of one, but a very large very infamous insurance company just jacked my annual auto renewal by 55%. [Which company? Lets see, it’s the same insurance company the US Taxpayers fronted 150bn to “to stem the bleeding from its complex financial contracts.” NYTimes, Nov. 10, 2008. And, it’s the same company that spent $440,000 at the St. Regis resort in Monarch Beach, California a week after the US Taxpayers fronted it 85bn in cash to stave off “imminent collapse.” Financial Post. October 7, 2008” So much for the ad hominem attack on AIG, Inc. The chart shows AIG stock from Nov. 2007 to Nov. 2008. It fell from $55 to $1.5. ]

Gee, 55% Wow. Um. Lets see, I probably deserved the increase. Huh? Change in vehicles? Nope. Accidents? Nope. Not since 1985. Speeding Tickets? Nope. Zippo. Not since college. Underage or new household drivers? Nope. Nothing. Bad Credit or Bad Zip Code? Nope. And, customer service confirmed all the same on the phone. [Go ask ‘em. They tape the calls for “quality assurance;” I told ‘em as much during the call.]

My (next) call to the Georgia Insurance Commissioner’s office left me a bit shell shocked. According to John Oxendine’s office [Ga. Ins. Commissioner], the auto insurance companies are merely economically “testing the market,” to see what the market will bear.

How did this happen? While I was pursuing other issues in life, the Georgia General Assembly recently amended OCGA § 33-9-4. While obscure, it had the practical effect of removing Georgia Auto Insurance Rate Increases from any review or oversight by the Georgia Insurance Commissioner. [So, why have an Insurance Commissioner? He asks, not expecting a response.]

Though it is beyond the scope of this little blog comment, this change in the law (removal of prior approval of auto insurance rates from the purview of the Georgia Insurance Commissioner), seems to have been a political compromise. Auto Insurers agreed to allow Uninsured Motorist (“UM”) coverage to be stacked if the consumer so elects. In exchange for this change in the law, Georgia auto insurance rates (except perhaps the very bottom of the mandatory liability barrel) are now allowed to float unregulated in an economic free market.

While commercial banks may have had in the past to deal with “red lining,” no amount of data sorting is off limits (well, I suppose race, creed and color are …) for the establishment of auto rates. To set your rates they look at your zip code, the cost and age of your vehicles, the number of accidents or lack thereof, the age and experience of your drivers (read that drivers under the age of 25), and, get this, your credit score.

The Good News and the Bad News.

What turned out as bad news for me, may soon be bad news for AIG. While AIG socked me with a proposed 55% rate increase, AIG may never get it. Three (3) of AIG’s auto insurance competitors offered me rate reductions amounting to 20% off last year’s rates. That’s right a 20% discount. AIG wants 55% more to provide the same coverage. Its competitors are willing to offer coverage for 20% less. Go figure. Now, of course, I have to remain accident free and get my money to one of the competitors before Christmas, or I will be stuck with the AIG Grinch over New Years.

Generally, I am a fairly docile customer. If I had suffered a bunch of speeding tickets or had some fault based accidents, then I would have shrugged my shoulders at the proposed 55% increase in my auto rates and said, “I probably deserved it.” However, I knew that, actuality, I was a better customer on renewal than I could have been in the past.

Any company, insurance or not, that treats its best customers such as AIG treated me, deserves to lose them.

Hugh Wood, Atlanta, Georgia


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Opinions vary on law's impact on drivers' rates

By LaTina Emerson
Augusta Chronicle
June 05, 2008

As gas prices continue to skyrocket, your car insurance rates could also increase beginning this fall.
In mid-May, Governor Sonny Perdue signed Senate Bill 276, a portion of which allows insurers to set their own rates without "prior approval" from the state insurance commissioner.
Opponents of the law say motorists' rates could increase up to 20 percent.
"I think that's a very realistic figure," Insurance Commissioner John Oxendine said. "What the dollar effect will be and how much the rates will go up, there's really no way to tell. It could potentially become a very serious problem."
Julie Pulliam, the public affairs director for the American Insurance Association's Southeast division, said that in other states where similar legislation has passed, rates decreased. She pointed to South Carolina's industry reform in 1995 as "a remarkable turnaround."
"In most states you see premiums decreasing. I'm not aware that a 20 percent increase has occurred in those other states," Ms. Pulliam said.
The new legislation should attract more insurers to Georgia, which should benefit consumers through competition. Ms. Pulliam said she believes rates should remain steady or decrease for most drivers.
Under the law, Mr. Oxendine, who plans to run for governor in 2010, can set minimum mandatory liability coverage rates, which impacts only seven to eight percent of drivers.
Mr. Oxendine said he expects consumers to "see the impact" of the bill at the beginning of next year.
Allison Wall, the executive director of Georgia Watch, a consumer watchdog group, disagrees with the commissioner's predictions.
"I believe that we're going to have to wait and see. You have to think about the marketplace in Georgia. You can't just assume the worse," Ms. Wall said.
She said Georgia has more than 200 carriers and has the fourth-cheapest auto insurance rates in the Southeast.
"When you have hundreds of companies competing with each other for the same group of consumers with the same product, it would be suicide for them to jack up their rates," she said.
The recent changes would allow new products, such as flexible coverage, to reach the Georgia insurance market. In the past, customers have not had access to some options because insurers didn't want to jump through regulatory hoops.
However, she recommends consumers shop around to find the best rates if prices start to increase.
Georgia Watch is monitoring the situation and will address the issue with the state legislature if rates skyrocket, she said.
Gould Hagler, the executive director of the Independent Insurance Agents of Georgia, said the legislation allows companies to change rates with "less red tape." They can implement changes immediately "when market conditions indicate."
Mr. Hagler said that some consumers could actually see a decrease in rates.
"We're not in a situation in which companies are losing money or have to increase rates dramatically in order to get an adequate rate," he said. "That gives me confidence that we won't see significant rate increases."


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Gov. Sonny Perdue Signs SB 276 UM Stacking Bill into Law
The controversial Senate Bill 276 which passed late in the 2008 legislative session has now been signed into law by Gov. Sonny Perdue. For months now, the Georgia insurance commissioner, John Oxendine, has been against the bill because of his worries relating to the part of SB 276 that will allow insurance companies to change their rates without his approval. Oxendine's office has given prior approval to car insurance companies for over 15 years, which means companies must set their rates with the approval of his office. But Senate Bill 276 gets rid of the approval process altogether.
SB 276 began its life in the 2007 session as an effort by Sen. Cecil Staton (R-Macon) to "stack" so-called uninsured motorist policies. Before SB 276, if the at fault driver had $25,000 in liability coverage and the victim only had $25,000 in uninsured/underinsured motorist (UM) coverage, the victim would not get the benefit of his UM coverage. With stacking, assuming that the case was worth $50,000, the victim would now be able to recover $25,000 from the at fault driver and $25,000 from his/her own UM insurance carrier.
The new law will now allow those coverages to stack but only if the consumer chooses the stacking option. The consumer can choose the coverage that they currently have where the coverage doesn't stack, or the consumer could choose expanded coverage where they will stack to give that additional protection, or the third option is not to have UM coverage at all.
According to Bill Clark, Chief Lobbyist for the Georgia Trial Lawyers Association, "The states that have adopted a free market system for insurance ratings have seen significant reductions in premiums for their citizens." He said consumers will now have the benefit of a free market system. He also said that the more than 250 car insurance companies that sell in Georgia must now compete with each other to win a driver's business. In the final analysis, we will all have to wait and see who was correct about whether the insurance rates will go up across the board or not.
In my opinion, I think that those who choose the stacking option will pay more for UM coverage, but they are getting more coverage than before. The sad reality is that insurance companies and their agents will likely not fully explain these options to consumers who will be left in the dark about how important UM coverage is, especially UM coverage that stacks on top of the at fault driver's liability coverage.

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Here is the SB276 as passed by the Georgia Senate.

08 SB276/AP
Senate Bill 276
By: Senators Staton of the 18th, Harp of the 29th, Shafer of the 48th, Murphy of the 27th, Mullis of the 53rd and others


AS PASSED
AN ACT


To amend Title 33 of the Official Code of Georgia Annotated, relating to insurance, so as to limit coverages under uninsured motorist provisions to automobile and motor vehicle liability policies and exclude umbrella and excess liability policies; to change the definition of "uninsured motor vehicle" to allow uninsured motorist coverage to be stacked with other available liability coverages; to allow insureds to select more restrictive uninsured motorist coverages; changes standards applicable to making and use of rates; changes prior approval requirements above mandatory minimum limits; to provide for related matters; to provide for effective dates and applicability; to repeal conflicting laws; and for other purposes.


BE IT ENACTED BY THE GENERAL ASSEMBLY OF GEORGIA:


SECTION 1.
Title 33 of the Official Code of Georgia Annotated, relating to insurance, is amended by revising subsections (a) and (b) of Code Section 33-7-11, relating to uninsured motorist coverage under motor vehicle liability policies, as follows:
"(a)(1) No automobile liability policy or motor vehicle liability policy shall be issued or delivered in this state to the owner of such vehicle or shall be issued or delivered by any insurer licensed in this state upon any motor vehicle then principally garaged or principally used in this state unless it contains an endorsement or provisions undertaking to pay the insured damages for bodily injury, loss of consortium or death of an insured, or for injury to or destruction of property of an insured under the named insured´s policy sustained from the owner or operator of an uninsured motor vehicle, within limits exclusive of interests and costs which at the option of the insured shall be:
(A) Not less than $25,000.00 because of bodily injury to or death of one person in any one accident, and, subject to such limit for one person, $50,000.00 because of bodily injury to or death of two or more persons in any one accident, and $25,000.00 because of injury to or destruction of property; or
(B) Equal to the limits of liability because of bodily injury to or death of one person in any one accident and of two or more persons in any one accident, and because of injury to or destruction of property of the insured which is contained in the insured´s personal coverage in the automobile liability policy or motor vehicle liability policy issued by the insurer to the insured if those limits of liability exceed the limits of liability set forth in subparagraph (A) of this paragraph. In any event, the insured may affirmatively choose uninsured motorist limits in an amount less than the limits of liability.
(2) The coverages for bodily injury or death or for injury to or destruction of property of an insured person, as provided in paragraph (1) of this subsection, may be subject to deductible amounts as follows:
(A) For bodily injury or death, deductibles of $250.00, $500.00, or $1,000.00, at the option of any named insured in the policy. Deductibles above $1,000.00 may be offered, subject to approval of the Commissioner;
(B) For injury to or destruction of property of the insured, deductibles of $250.00, $500.00, or $1,000.00, at the option of any named insured in the policy. Deductibles above $1,000.00 may be offered, subject to the approval of the Commissioner;
(C) Deductible amounts shown in subparagraphs (A) and (B) of this paragraph may not be reduced below $250.00;
(D) Deductible amounts shown in subparagraphs (A) and (B) of this paragraph shall be made available at a reduced premium; and
(E) Where an insurer has combined into one single limit the coverages required under paragraph (1) of this subsection, any deductible selected under subparagraphs (A) and (B) of this paragraph shall be combined, and the resultant total shall be construed to be a single aggregate deductible.
(3) The coverage required under paragraph (1) of this subsection shall not be applicable where any insured named in the policy shall reject the coverage in writing. The coverage required under paragraph (1) of this subsection excludes umbrella or excess liability policies unless affirmatively provided for in such policies or in a policy endorsement. The coverage need not be provided in or supplemental to a renewal policy where the named insured had rejected the coverage in connection with a policy previously issued to said insured by the same insurer. The amount of coverage need not be increased in a renewal policy from the amount shown on the declarations page for coverage existing prior to July 1, 2001. The amount of coverage need not be increased from the amounts shown on the declarations page on renewal once coverage is issued.
(4) The filing of a petition for relief in bankruptcy under a chapter of Title 11 of the United States Code by an uninsured motorist as defined in this Code section, or the appointment of a trustee in bankruptcy for an uninsured motorist as defined in this Code section, or the discharge in bankruptcy of an uninsured motorist as defined in this Code section shall not affect the legal liability of an uninsured motorist as the term 'legal liability' is used in this Code section, and such filing of a petition for relief in voluntary or involuntary bankruptcy, the appointment of a trustee in bankruptcy, or the discharge in bankruptcy of such an uninsured motorist shall not be pleaded by the insurance carrier providing uninsured motorist protection in bar of any claim of an insured person as defined in this Code section so as to defeat payment for damages sustained by any insured person by the insurance company providing uninsured motorist protection and coverage under the terms of this chapter as now or hereafter amended; but the insurance company or companies shall have the right to defend any such action in its own name or in the name of the uninsured motorist and shall make payment of any judgment up to the limits of the applicable uninsured motorist insurance protection afforded by its policy. In those cases, the uninsured motorist upon being discharged in bankruptcy may plead the discharge in bankruptcy against any subrogation claim of any uninsured motorist carrier making payment of a claim or judgment in favor of an uninsured person, and the uninsured motorist may plead said motorist´s discharge in bankruptcy in bar of all amounts of an insured person´s claim in excess of uninsured motorist protection available to the insured person.
(b)(1) As used in this Code section, the term:
(A) 'Bodily injury' shall include death resulting from bodily injury.
(B) 'Insured' means the named insured and, while resident of the same household, the spouse of any such named insured and relatives of either, while in a motor vehicle or otherwise; any person who uses, with the expressed or implied consent of the named insured, the motor vehicle to which the policy applies; a guest in such motor vehicle to which the policy applies; or the personal representatives of any of the above. For policies issued or renewed on or after July 1, 2006, the term 'insured' shall also mean a foster child or ward residing in the household of the named insured pursuant to a court order, guardianship, or placement by the Department of Family and Children Services or other department or agency of the state, while in a motor vehicle or otherwise.
(C) 'Property of the insured' as used in subsection (a) of this Code section means the insured motor vehicle and includes the personal property owned by the insured and contained in the insured motor vehicle.
(D) 'Uninsured motor vehicle' means a motor vehicle, other than a motor vehicle owned by or furnished for the regular use of the named insured, the spouse of the named insured, and, while residents of the same household, the relative of either, as to which there is:
(i) No bodily injury liability insurance and property damage liability insurance;
(ii) Bodily injury liability insurance and property damage liability insurance and the insured has uninsured motorist coverage provided under the insured´s motor vehicle insurance policy; the motor vehicle shall be considered uninsured, and the amount of available coverages shall be as follows:
(I) Such motor vehicle shall be considered uninsured to the full extent of the limits of the uninsured motorist coverage provided under the insured´s motor vehicle insurance policies, and such coverages shall apply to the insured´s losses in addition to the amounts payable under any available bodily injury liability and property damage liability insurance coverages. The insured´s uninsured motorist coverage shall not be used to duplicate payments made under any available bodily injury liability insurance and property damage liability insurance coverages but instead shall be available as additional insurance coverage in excess of any available bodily injury liability insurance and property damage liability insurance coverages; provided, however, that the insured´s combined recovery from the insured´s uninsured motorist coverages and the available coverages under the bodily injury liability insurance and property damage liability insurance on such uninsured motor vehicle shall not exceed the sum of all economic and noneconomic losses sustained by the insured. For purposes of this subdivision, available coverages under the bodily injury liability insurance and property damage liability insurance coverages on such motor vehicle shall be the limits of coverage less any amounts by which the maximum amounts payable under such limits of coverage have, by reason of payment of other claims or otherwise, been reduced below the limits of coverage;
(II) Provided, however, that an insured may reject the coverage referenced in subdivision (I) of this division and select in writing coverage for the occurrence of sustaining losses from the owner or operator of an uninsured motor vehicle that considers such motor vehicle to be uninsured only for the amount of the difference between the available coverages under the bodily injury liability insurance and property damage liability insurance coverages on such motor vehicle and the limits of the uninsured motorist coverages provided under the insured´s motor vehicle insurance policies; and, for purposes of this subdivision, available coverages under the bodily injury liability insurance and property damage liability insurance coverages on such motor vehicle shall be the limits of coverage less any amounts by which the maximum amounts payable under such limits of coverage have, by reason of payment of other claims or otherwise, been reduced below the limits of coverage; and
(III) Neither coverage under subdivision (I) nor (II) of this division shall be applicable if the insured rejects such coverages as provided in paragraph (3) of subsection (a) of this Code section. For private passenger motor vehicle insurance policies in effect on January 1, 2009, insurers shall send to their insureds who have not rejected coverage pursuant to paragraph (3) of subsection (a) of this Code section a notice at least 45 days before the first renewal of such policies advising of the coverage options set forth in this division. Such notice shall not be required for any subsequent renewals for policies in effect on January 1, 2009, or for any renewals for policies issued after January 1, 2009. The coverage set forth in subdivision (I) of this division need not be provided in or supplemental to a renewal policy where the named insured has rejected the coverage set forth in subdivision (I) of this division and selected the coverage set forth in subdivision (II) of this division in connection with a policy previously issued to said insured by the same insurer;
(iii) Bodily injury liability insurance and property damage liability insurance in existence but the insurance company writing the insurance has legally denied coverage under its policy;
(iv) Bodily injury liability and property damage liability insurance in existence but the insurance company writing the insurance is unable, because of being insolvent, to make either full or partial payment with respect to the legal liability of its insured, provided that in the event that a partial payment is made by or on behalf of the insolvent insurer with respect to the legal liability of its insured, then the motor vehicle shall only be considered to be uninsured for the amount of the difference between the partial payment and the limits of the uninsured motorist coverage provided under the insured´s motor vehicle insurance policy; or
(v) No bond or deposit of cash or securities in lieu of bodily injury and property damage liability insurance.
(2) A motor vehicle shall be deemed to be uninsured if the owner or operator of the motor vehicle is unknown. In those cases, recovery under the endorsement or provisions shall be subject to the conditions set forth in subsections (c) through (j) of this Code section, and, in order for the insured to recover under the endorsement where the owner or operator of any motor vehicle which causes bodily injury or property damage to the insured is unknown, actual physical contact shall have occurred between the motor vehicle owned or operated by the unknown person and the person or property of the insured. Such physical contact shall not be required if the description by the claimant of how the occurrence occurred is corroborated by an eyewitness to the occurrence other than the claimant."


SECTION 2.
Said title is further amended by revising subsection (i) of Code Section 33-7-11, relating to uninsured motorist coverage under motor vehicle liability policies, as follows:
"(i) In addition to any offsets or reductions contained in the provisions of division (b)(1)(D)(ii) of this Code section, an endorsement or the provisions of the policy providing the coverage required by this Code section may contain provisions which exclude any liability of the insurer for injury to or destruction of property of the insured for which such insured has been compensated by other property or physical damage insurance and may contain provisions which exclude any liability of the insurer for personal or bodily injury or death for which the insured has been compensated pursuant to 'medical payments coverage,' as such term is defined in paragraph (1) of Code Section 33-34-2, or compensated pursuant to workers´ compensation laws."


SECTION 3.
Said title is further amended by revising paragraph (2) of Code Section 33-9-4, relating to standards applicable to making and use of rates, as follows:
"(2) No rate shall be held to be excessive unless such rate is unreasonably high for the insurance provided and a reasonable degree of competition does not exist in the area with respect to the classification to which such rate is applicable; provided, however, with respect to rate filings involving an increase in rates, no rate for personal private passenger motor vehicle insurance shall be held to be excessive unless such rate is unreasonably high for the insurance provided and a reasonable degree of competition does not exist;"


SECTION 4.
Said title is further amended by revising subsections (b) and (c) of Code Section 33-9-21, relating to maintenance and filing of rates, rating plans, rating systems, or underwriting rules and examination of claim reserve practices by the Commissioner, as follows:
"(b) Any domestic, foreign, or alien insurer that is authorized to write insurance in this state must file with the Commissioner any rate, rating plan, rating system, or underwriting rule for all personal private passenger motor vehicle insurance:
(1) For private passenger motor vehicle insurance providing only the mandatory minimum limits required by Code Section 33-34-4 and subsection (a) of Code Section 40-9-37, no such rate, rating plan, rating system, or underwriting rule shall become effective, nor may any premium be collected by any insurer thereunder, unless the filing has been received by the Commissioner in his or her office and such filing has been approved by the Commissioner or a period of 45 days has elapsed from the date such filing was received by the Commissioner during which time such filing has not been disapproved by the Commissioner. The Commissioner shall be authorized to extend such 45 day period by no more than 55 days at his or her discretion. If a filing is disapproved, notice of such disapproval order shall be given within 100 days of receipt of filing by the Commissioner, specifying in what respects such filing fails to meet the requirements of this chapter. The filer shall be given a hearing upon written request made within 30 days after the issuance of the disapproval order, and such hearing shall commence within 30 days after such request unless postponed by mutual consent. Such hearing, once commenced, may be postponed or recessed by the Commissioner only for weekends, holidays, or after normal working hours or at any time by mutual consent of all parties to the hearing. The Commissioner may also, at his or her discretion, recess any hearing for not more than two recess periods of up to 15 consecutive days each. In connection with any hearing or judicial review with respect to the approval or disapproval of such rates, the burden of persuasion shall fall upon the affected insurer or insurers to establish that the challenged rates are adequate, not excessive, and not unfairly discriminatory. After such a hearing, the Commissioner must affirm, modify, or reverse his or her previous action within the time period provided in subsection (a) of Code Section 33-2-23 relative to orders of the Commissioner. The requirement of approval or disapproval of a rate filing by the Commissioner under this subsection shall not prohibit actions by the Commissioner regarding compliance of such rate filing with the requirements of Code Section 33-9-4 brought after such approval or disapproval.
(2) For private passenger motor vehicle insurance other than that described in paragraph (1) of subsection (b) of Code Section 33-9-21, such rate, rating plan, rating system, or underwriting rule for all such private passenger motor vehicle insurance shall be effective upon filing and shall be implemented without approval of the Commissioner. This subsection shall apply to the entire private passenger motor vehicle insurance policy with limits above the mandatory minimum required by Code Section 33-34-4 and subsection (a) of Code Section 40-9-37 and shall apply to the entire private passenger motor vehicle policy with minimum limits if such policy has any additional nonmandatory coverage or coverages.
(c) When a rate filing of an insurer required under paragraph (1) of subsection (b) of this Code section is not accompanied by the information upon which the insurer supports the filing and the Commissioner does not have sufficient information to determine whether the filing meets the requirements of this chapter, then the Commissioner shall request in writing, within 20 days of the date he or she receives the filing, the specifics of such additional information as he or she requires, and the insurer shall be required to furnish such information, and in such event the 45 day period provided for in paragraph (1) of subsection (b) of this Code section shall commence as of the date such information is furnished."


SECTION 5.
(a) Except as otherwise provided by subsection (b) of this section, this Act shall become effective on January 1, 2009, and shall apply to all policies issued, delivered, issued for delivery, or renewed in this state on and after such date.
(b) Sections 3 and 4 of this Act shall become effective on October 1, 2008.


SECTION 6.
All laws and parts of laws in conflict with this Act are repealed.

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Hugh Wood, Esq.

Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084

www.woodandmeredith.com
hwood@woodandmeredith.com
www.hughwood.blogspot.com
Phone: 404-633-4100
Fax: 404-633-0068

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Monday, November 17, 2008

Mortgage Forgiveness Debt Relief Act of 2007 :: Loan Mods Generally NonTaxable

Generally, if you owe debt and it is forgiven, it magically becomes income in the eyes of the IRS. That seems unfair, but it’s the law. Its called discharge of indebtedness. Discharge of indebtedness equals ordinary income. Why? Because you borrowed money you were supposed to pay back. The debt was forgiven. Therefore, you had “income.” However, we both know you spent it long ago.

This concept becomes a real mess in the realm of mortgage loan modification. This is true for a number of reasons. At the time of the loan modification, the borrower is near foreclosure. The purpose of a loan modification is to reduce, change the terms of or eliminate debt. The “amount” of debt in the transaction is usually large, because it is the first mortgage on the primarily residence.

If the forgiven debt (forgiven by a private lender or now accomplished with HUD assistance via the HOPE NOW project) suddenly reappears on the front side of the taxpayer’s 1040, much is lost in the transaction.

Suppose you are up against the wall concerning foreclosure. You owe $850,000 ($650,000 on the first and $200,000 on the second) on your home and there is little you can do to get out from under the debt. The first lender, realizing that it will hold a unsalable asset and the second lender realizing its second will be wiped out on the courthouse steps, agree to a $350,000 loan reduction prorated across the first and the second (with the second taking the larger reduction). Wow! You think you might just be able swing it now that you only owe $500,000 on your home. (A remarkably optimistic and not real world reduction, nevertheless.)

You thank your lucky stars, until your lawyer (me) tells you that you now have to pay income tax on the $350,000 of mysterious income. Lets see, even at your beaten down rate of 27%, you now owe an additional $94,500.00 in income tax. And, that has to be paid in cash – and soon. You pass out.

All this makes no sense. Well, that’s right. It does make no sense. At the edge of foreclosure, somehow, failure to forgive the debt does not make sense. (Yet, at some level you are still getting a free ride for that money.)

Don’t Panic, the Mortgage Forgiveness Debt Relief Act of 2007 allows you to keep the debt forgiven and not report the same as taxable income. You must however file Form 982 to claim it.

The nuts and bolts of the Act are described below.

Hugh Wood, Atlanta, Georgia

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What is the Mortgage Forgiveness Debt Relief Act of 2007?

The Mortgage Forgiveness Debt Relief Act of 2007 was enacted on December 20, 2007 (see News Release IR-2008-17). Generally, the Act allows exclusion of income realized as a result of modification of the terms of the mortgage, or foreclosure on your principal residence.

What does that mean?

Usually, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. The Mortgage Forgiveness Debt Relief Act of 2007 allows you to exclude certain cancelled debt on your principal residence from income.

Does the Mortgage Forgiveness Debt Relief Act of 2007 apply to all forgiven or cancelled debts?

No, the Act applies only to forgiven or cancelled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes.

What about refinanced homes?

Debt used to refinance your home qualifies for this exclusion, but only up to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified.

Does this provision apply for the 2007 tax year only?

It applies to qualified debt forgiven in 2007, 2008 or 2009.

If the forgiven debt is excluded from income, do I have to report it on my tax return?

Yes. The amount of debt forgiven must be reported on Form 982 and the Form 982 must be attached to your tax return.

Do I have to complete the entire Form 982?

Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Adjustment), is used for other purposes in addition to reporting the exclusion of forgiveness of qualified principal residence indebtedness. If you are using the form only to report the exclusion of forgiveness of qualified principal residence indebtedness as the result of foreclosure on your principal residence, you only need to complete lines 1e and 2. If you kept ownership of your home and modification of the terms of your mortgage resulted in the forgiveness of qualified principal residence indebtedness, complete lines 1e, 2, and 10b. Attach the Form 982 to your tax return.

Where can I get this form?

You can download the form at IRS.gov, or call 1-800-829-3676. If you call to order, please allow 7-10 days for delivery.

How do I know or find out how much was forgiven?

Your lender should send a Form 1099-C, Cancellation of Debt, by January 31, 2008. The amount of debt forgiven or cancelled will be shown in box 2. If this debt is all qualified principal residence indebtedness, the amount shown in box 2 will generally be the amount that you enter on lines 2 and 10b, if applicable, on Form 982.

Can I exclude debt forgiven on my second home, credit card or car loans?

Not under this provision. Only cancelled debt used to buy, build or improve your principal residence or refinance debt incurred for those purposes qualifies for this exclusion.

If part of the forgiven debt doesn't qualify for exclusion from income under this provision, is it possible that it may qualify for exclusion under a different provision?

Yes. The forgiven debt may qualify under the "insolvency" exclusion. Normally, a taxpayer is not required to include forgiven debts in income to the extent that the taxpayer is insolvent. A taxpayer is insolvent when his or her total liabilities exceed his or her total assets. The forgiven debt may also qualify for exclusion if the debt was discharged in a Title 11 bankruptcy proceeding or if the debt is qualified farm indebtedness or qualified real property business indebtedness. If you believe you qualify for any of these exceptions, see the instructions for Form 982.

Is there a limit on the amount of forgiven qualified principal residence indebtedness that can be excluded from income?

There is no dollar limit if the principal balance of the loan was less than $2 million ($1 million if married filing separately for the tax year) at the time the loan was forgiven. If the balance was greater, see the instructions to Form 982, page 4.

Is there anything else I need to know before filing?

Yes. Because the Mortgage Forgiveness Debt Relief Act of 2007 was passed so late in the year, the software systems used by tax preparers and at the Internal Revenue Service need to be updated to accept the revised Form 982. The IRS expects to be able to process the new Form 982 electronically on March 3, 2008.

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WASHINGTON [IRS] - Homeowners whose mortgage debt was partly or entirely forgiven during 2007 may be able to claim special tax relief by filling out newly-revised Form 982 and attaching it to their 2007 federal income tax return, according to the Internal Revenue Service.

Normally, debt forgiveness results in taxable income. But under the Mortgage Forgiveness Debt Relief Act of 2007, enacted Dec. 20, taxpayers may exclude debt forgiven on their principal residence if the balance of their loan was less than $2 million. The limit is $1 million for a married person filing a separate return. Details are on Form 982 and its instructions, available now on this Web site.

"The new law contains important provisions for struggling homeowners," said Acting IRS Commissioner Linda Stiff. "We urge people with mortgage problems to take full advantage of the valuable tax relief available."
The late-December enactment means that reporting procedures for this law change were not incorporated into tax-preparation software or IRS forms. For that reason, people using tax software should check with their provider for updates that include the revised Form 982. Similarly, the IRS is now updating its systems and expects to begin accepting electronically-filed returns that include Form 982 by March 3. The paper Form 982 is now being accepted, but the IRS reminds affected taxpayers to consider filing electronically, which greatly reduces errors and speeds refunds.

The new law applies to debt forgiven in 2007, 2008 or 2009. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, may qualify for this relief. In most cases, eligible homeowners only need to fill out a few lines on Form 982 (specifically, lines 1e, 2 and 10b).

The debt must have been used to buy, build or substantially improve the taxpayer's principal residence and must have been secured by that residence. Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing.

Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the new tax-relief provision. In some cases, however, other kinds of tax relief, based on insolvency, for example, may be available. See Form 982 for details.

Borrowers whose debt is reduced or eliminated receive a year-end statement (Form 1099-C) from their lender. For debt cancelled in 2007, the lender was required to provide this form to the borrower by Jan. 31, 2008. By law, this form must show the amount of debt forgiven and the fair market value of any property given up through foreclosure.

The IRS urges borrowers to check the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. Borrowers should pay particular attention to the amount of debt forgiven (Box 2) and the value listed for their home.

Hugh Wood, Esq.
Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084
www.woodandmeredith.com
hwood@woodandmeredith.com
www.hughwood.blogspot.com
Phone: 404-633-4100
Fax: 404-633-0068

Friday, November 14, 2008

FDIC and Treasury at Odds Over Foreclosure Bailout

The FDIC is in substantial disagreement with the US Treasury concerning how, if at all, to "bailout," home mortgages. Somewhat contrary to the public pronouncements made to secure the passage of HR 1424 (which was passed by the Senate and provided 700bn of available funds for "bailout"), Treasury Sec. Paulson has been injecting funds into financial institutions and has not proceeded with the acquisition of any TARP assets stating that doing so now is simply too time consuming. [This is contrary to his TARP request to the US House and US Senate in October of 2008.] The FDIC in a rare break with another federal agency indicated it will pursue a relief program for homeowners without regard to Treasury's input (as of today). No doubt, Treasury must be involved in the final issuance of the ultimate funding for same.

While the Treasury refused to wade into asset purchases, the FDIC issued the following contrary statement:

"The FDIC said its plan would modify about 2.2 million mortgage loans by offering financial incentives to mortgage servicers. It would pay servicers $1,000 to cover expenses for each loan modified to the required standards, and would promise to share up to 50 percent of losses incurred if a modified loan defaults." FDIC.

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The federal agency that insures most U.S. bank deposits unveiled a plan to prevent about 1.5 million home mortgage foreclosures by promising to share any losses with mortgage companies that agree to refinance certain home loans.

The agency, the Federal Deposit Insurance Corp, said on Friday the plan would cost the government about $24.4 billion, which could be paid from the U.S. Treasury's $700 billion bailout program for the financial industry. So far, most of the money in the bailout program, the Troubled Asset Relief Program, or TARP, has been injected as capital into banks.

FDIC Chairman Sheila Bair, who spent weeks unsuccessfully lobbying Bush administration officials for the foreclosure prevention plan, unveiled her agency's proposal two days after Treasury Secretary Henry Paulson dismissed the idea of the government underwriting failing home loans.

Paulson told reporters on Wednesday, "That (foreclosure plan) is a subsidy, or spending, program. The TARP was investment, not spending."

The FDIC pushed forward with its plan, posting it on its website Friday morning (
http://www.fdic.gov/consumers/loans/loanmod/index.html).

"Although foreclosures are costly to lenders, borrowers and communities, the pace of loan modifications continues to be extremely slow," the FDIC said. "It is imperative to provide incentives to achieve a sufficient scale in loan modifications to stem the reductions in housing prices and rising foreclosures."

The FDIC said its plan would modify about 2.2 million mortgage loans by offering financial incentives to mortgage servicers. It would pay servicers $1,000 to cover expenses for each loan modified to the required standards, and would promise to share up to 50 percent of losses incurred if a modified loan defaults.

Eligible borrowers would include those who have missed at least two monthly payments on loans for homes they live in. Servicers would be expected to lower those borrowers' monthly payments to about 31 percent of the borrowers' monthly income.

The Treasury Department said on Friday that it was aggressively looking at ways to reduce skyrocketing home foreclosures under the TARP. "We continue to aggressively examine strategies to mitigate foreclosures and maximize loan modifications, which are a key part of working through the necessary housing correction and maintaining the strength of our communities," Treasury Interim Assistant Secretary Neel Kashkari said in testimony prepared for delivery to a U.S. House of Representatives committee. By Karey Wutkowski (c) Reuters 2008.


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Hugh Wood, Esq.
Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084
www.woodandmeredith.com
hwood@woodandmeredith.com
www.hughwood.blogspot.com
Phone: 404-633-4100
Fax: 404-633-0068

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