Archive for May, 2011
Has a court judge ever issued a ruling that is completely outside his jurisdiction and feasibly beyond reach of his “long arm of the law?” Well, it’s happening right now and I’m curious as to when and how they might be stopped. Do you remember the political buzz of “Bankruptcy cram downs” a few years ago that the DC gang was trying to pass in the language of the “Helping Families Save Their Homes Act of 2009.” Historically, bankruptcy judges could only modify the terms of mortgages on investment properties and vacation homes in a chapter 13 bankruptcy but not on primary residences. The use of the controversial bankruptcy cram-down has been voted down in Congress several times, but DBRS (corporation credit rating company) says that hasn’t stopped some judges from putting them into practice in the states of California, Texas and Louisiana. So my question to the long arm of the law is; what right do you have as a judge to independently decide to force a bank/lender/ investor to either write down principal balance on a note, change the interest rate, extend the term of years OR all of the above? This is not the law and its ostensible there is a clear violation of law being perpetrated on behalf of judges who clearly are in place to enforce the law, not arbitrarily make it up as they go!
Now don’t get me wrong as I’m not sympathizing with the banks/lenders/investors on this issue. We all know they started this mess by lowering their standards of loan qualifications beginning back with the Community Reinvestment Act of 1970’s under Carter. But that’s another blog for another time. The banks however, should not have to adhere to a judges ruling who clearly has ruled on an issue that is unlawful. Turn the tables to an entrepreneur who has loaned $200,000 to an individual for the purchase of a home. In the mortgage industry he is called a private investor, or hard money lender as the terms of the note are usually much more expensive to the borrower with higher interest rates and abnormal discount points as fees. Is it fair that a hypothetical borrower agrees to specific terms of a loan with a private citizen on his primary home and now needs to file chapter 13 bankruptcy and his judge rules in favor of the borrower that the private citizen that lent the money to the borrower now has to forgive $50,000? Or reduce the contracted interest rate of 12% down to 2%. Or extend his term of 5 yrs for a full payoff to anything longer than that? This is ludicrous. This can bankrupt private investors and banks. Not sure we as Americans are interested in more banks going bankrupt. But if these rogue judges continue ruling unlawfully and nobody stops them…. I can only see the slippery slope to a no win situation for our banking.