August 15, 2008
Housing and Economic Recovery Act of 2008
From the State Bar of California, Insolvency Law Committee
August 15, 2008
Dear Insolvency Law Committee Constituency List Members:
President Bush signed legislation on July 30, 2008, entitled the Housing and Economic Recovery Act of 2008 ("HERA"), regarding a wide range of housing and mortgage issues. Those matters most pertinent to the Insolvency Law Committee are summarized below.
FHA Program to Refinance Distressed Mortgages and Other Foreclosure Protection
HERA establishes a program for the Federal Housing Administration ("FHA") to insure up to $300 billion in refinanced mortgages, designed to allow borrowers in danger of losing their home to obtain less-expensive, fixed-rate loans through the FHA beginning in October 2008. Only primary residences are eligible. In exchange for an FHA guarantee, borrowers must share any appreciation with the government from the subsequent resale of a refinanced home. In order to participate, lenders must agree to accept significant loss by reducing the principal amount of the loan by up to 15 percent. Many lenders are likely to accept such terms, if their only alternative is foreclosure, in which they stand to lose the difference between the principal amount of the loan and the property's value. In addition, HERA extends the period that a lender must wait before starting foreclosure of property owned by a person in military service from three months to one year after the soldier returns from service.
New Caps on Government Sponsored Mortgages and Related Regulation
As of January 1, 2009, HERA will raise the limit on loans that Fannie Mae or Freddie Mac can buy or insure in high-cost areas to $625,000 from $417,000. This presumably will lower interest rates for new homes and refinancings in those areas, as interest rates on so-called jumbo or non-conforming loans are typically higher than the rates on conforming loans which are eligible for Fannie Mae or Freddie Mac purchase or insurance. Earlier this year, Congress had temporarily raised the caps for such loans, for 2008 only, to $729,750 in high-cost regions. HERA also creates a regulatory agency to oversee Fannie Mae and Freddie Mac, which own or guarantee almost half of the mortgages outstanding in the United States. In addition, the legislation will provide the Treasury Department an unlimited line of credit to Fannie Mae and Freddie Mac, and, if necessary, allow it to buy stock in those entities. This enhanced support for the government sponsored is expected to bolster investor confidence, thereby increasing liquidity for borrowers. However, this backing by the federal government puts taxpayers at risk.
Housing Tax Breaks
HERA includes $15 billion in tax benefits, including (i) beginning in 2008, a deduction of $500 to $1,000 (for joint filers) for real property taxes incurred by taxpayers that do not itemize, and (ii) a tax credit of up to $7,500 for first-time homebuyers with modified adjusted gross income of $75,000 ($150,000 for joint filers) or less, who purchase a principal residence between April 9, 2008 and July 1, 2009. The tax breaks are refundable, and must be repaid over 15 years, essentially making them interest-free loans. They are expected to provide some stimulus to the home buying market.
In addition, the legislation provides an additional $10 billion in mortgage revenue bonds for states' residential rental projects. HERA also earmarks $4 billion in grants for local governments to buy and rehabilitate foreclosed or abandoned properties in communities that have been particularly impacted by increased foreclosures. This is intended to provide funds for such areas to revitalize blighted neighborhoods and create affordable housing.
These materials were written by Gary Kaplan of Howard Rice Nemerovski Canady Falk & Rabkin, P.C. in San Francisco. firstname.lastname@example.org
August 14, 2008
The Supreme Court and Gun Control
Judge Richard Posner comments on District of Columbia v. Heller. The article can be accessed here. I love when scholars point out that Antonin Scalia is not as "originalist" as he lets on and is much more pragmatic and political than he professes vigorously to be. He says, "[Scalia's] opinion acknowledges that allowing people to keep guns in their homes cannot help the militias, because modern military weapons are not appropriate for home defense (most of them are too dangerous)." "The Framers of the Bill of Rights could not have been thinking of the crime problem in the large crime-ridden metropolises of twenty-first-century America, and it is unlikely that they intended to freeze American government two centuries hence at their eighteenth-century level of understanding."
The Heller opinion is here, all 157 pages.
National Conference of Bankruptcy Judges Annual Program
The NCBJ annual meeting will be held September 24 through 27 in Scottsdale, AZ. The brochure is here.
August 13, 2008
UST Requests Chapter 11 Trustee in Michael Vick Case
Yesterday the US Trustee filed a motion seeking appointment of a chapter 11 trustee. It seems that the gentleman Vick wanted to be his financial adviser has just been sued by the SEC for securities violations. The prior financial adviser has been accused of taking significant assets without telling anyone. Without a "financial adviser," Vick will have to be the fiduciary of the estate himself. He does not get out of Leavenworth until next summer. The UST has requested a hearing on shortened notice.
August 12, 2008
Rights of Consignment Sellers, In re Whitehall Jewelers
I have a client who owns two large retail jewelry stores. When a chapter 11 looked imminent, my client wanted to know what happens to the consignment goods and the consignment creditors. In the business they call it goods "on memo." The memo, a small piece of paper, says that the goods are on consignment and at all times are owned by the seller until, of course, they become owned by the buyer/store. Clearly no one paid any attention to that language. So is it consignment or not? Bankruptcy Judge Kevin Gross responds to the same question saying, "I don't know either, but until there is an adversary proceeding and a judgment re ownership, the goods cannot be sold in a 363 sale." See, In re Whitehall Jewelers Holdings, Inc., 2008 WL 2951974 (Bankr. D. Del. 7/28/08).
August 10, 2008
Circuit Court of Appeals Cases for Last Week
8th Circuit Court of Appeals, August 07, 2008
In re Addison, --- F.3d ---, 2008 WL 3077066 (8th Cir. 2008)(denial of discharge for conversion of non-exempt property into exempt reversed; section 529 tuition savings accounts opened for the benefit of children were nonexempt property of the estate)
9th Circuit Court of Appeals, August 07, 2008
Lockerby v. Sierra, --- F.3d ---, 2008 WL 3091260 (9th Cir. 2008)(intentional breach of contract cannot give rise to nondischargeability under section 523(a)(6) unless it is accompanied by conduct that constitutes a tort under state law)
11th Circuit Court of Appeals, August 04, 2008
Waldron v. Brown, --- F.3d ---, 2008 WL 2953571 (11th Cir. 2008)(debtor's right to proceeds of a settlement which arose post-confirmation is proper basis to require debtor to amend schedules)
11th Circuit Court of Appeals, August 06, 2008
In re Graupner, --- F.3d ---, 2008 WL 2993570 (11th Cir. 2008)(rolling negaitve equity into financing of new vehicle does not change purchase money character of loan and therefore no bifurcation allowed)
11th Circuit Court of Appeals, August 07, 2008
Nuvell Credit Co., LLC v. Dean, --- F.3d ---, 2008 WL 3070201 (11th Cir. 2008)(payment of interest to 910 creditor required in chapter 13 plan)
Thanks again to findlaw.com