Sidebar bad credit california refinance by jennyyingdi


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 The Law Offices of Hemar, Rousso & Heald,                                   LLP

                    Making Our Mark fOr MOre Than 30 Years

 Sidebar                            Poetic Justice for a Professional Debtor
                                                                     (A War Story)

       he fall season

       always arrives with               ccasionally a debtor rubs me the         Washington judgment and seemed little
       a brisk chill at night            wrong way, although not all, of          concerned about a California judgment. “My
               to comple-                course. Most of the people and           client has no assets in California,” he said.
               ment our         businesses that come across my desk               “He is judgment proof.” Blah, blah, blah.
               b a l m y        have fallen upon hard times due to bad            He did, however, mention one thing that got
               California       investments, loss of work or a change in the      my attention. He said Morgan’s only income
               sunshine.        economy. The ones that get under my skin a        came from a family trust.
               The current      bit are those that intentionally and deceitfully
                                                                                  Wanting to learn more about his source
               economic         live beyond their means and then try to cover
                                                                                  of income I served him with an order to
               climate is       their tracks through legal shenanigans.
                                                                                  appear for a judgment debtor examination
also changing, and the          Back when I worked
                                                                                                        and with a subpoena
mortgage crisis is having a     in the collections               “What happened to the                  to bring all kinds of
wide impact on our clients.     department at a large
                                bank we referred to such        large Rolex that up until               documents, including
Bankruptcy filings are on                                                                               the documents which
the rise. This issue draws      people as “professional          a few minutes ago was
                                                                                                        established the family
attention to how lenders can    debtors.”                       on your left wrist?” He                 trust. Once served, I
better prevent unfortunate      John Morgan (not               paused, smiled slyly, and                again received a call
results in bankruptcy court     his real name) was a                                                    f r o m h i s a t t o r n e y.
through use of tighter          professional debtor. Our
                                                                  said, “Oh, I must have
                                                                                                        “You have a lot of gall
loan guidelines. And to         client originally entered                   lost it.”                   pursuing my client!” he
tickle your funny bone,         judgment against                                                        cried. “As an officer of
we share a wonderful            Morgan in Washington State because                the court I am telling you he has no assets!”
war story in which a            Morgan entered into a business transaction        More blah, blah, blah. The words from
“professional debtor” gets      there and then skipped town. Morgan paid          Hamlet came to mind: “Me thinks [he] doth
his comeuppance. Enjoy!         no heed to the judgment because he had no         protest too much.” If there were truly no
        -- Martin J. Rousso     assets in Washington and, according to him        assets, why the big fuss?
                                anyway, very few anywhere else.
                                                                                  At the debtor examination I asked many of the
In this Issue                   When the file arrived on my desk, the
                                client’s instructions were to domesticate
                                                                                  typical questions about bank accounts and
                                                                                  employment. He claimed to be unemployed,
 — Poetic Justice               the $150,000.00 Washington judgment in            although he said he did some occasional
                                California and then do all I could to pursue      consulting for a friend. I asked him about
 — HRH’s Newest
                                Morgan and his, supposedly, nominal               his residence. He gave me an address
                                assets.                                           on Balboa Island, but said he paid no rent
 — Bank Gets No Pain                                                              because his same good friend let him live
                                Entering judgment was easy. I spoke to
   Relief                                                                         there free of charge. As I was taking notes,
                                Morgan’s attorney once or twice. Like
                                                                                  I noticed a huge white band of bare skin
                                his client he had paid little attention to the
 — HRH Happenings                                                                                             (continues page 2)
Poetic Justice                             the owner of the real property was          the court will see the notation, ‘sfdot
(continued from page 1)                    the family trust and not Morgan.            rev. (03/18/05).’ Such notations are
                                                                                       common on various legal forms now in
around Morgan’s deeply tanned left         It was during that time that I developed
                                                                                       use. That notation would be commonly
wrist. “Do you have any jewelry, Mr.       quite the professional relationship
                                                                                       understood to mean, ‘Short form deed
Morgan?” I asked. “No,” he said, “I        with Morgan’s attorney. He would
                                                                                       of trust revised March 18, 2005.’ In
don’t have any jewelry.” I then asked,     call me once a day or so to berate me
                                                                                       other words, even though the deed
“What happened to the large Rolex          for my incompetence and to lecture
                                                                                       of trust was supposedly signed on
that up until a few minutes ago was        me on what a trust was, and how
                                                                                       January 2, 2004, the form did not
on your left wrist?” He paused for a       since the property was in a trust my
                                                                                       even exist until March of 2005. By
moment, smiled slyly, and said, “Oh, I     client could not foreclose. I would try
                                                                                       claiming otherwise, Mr. Morgan has
must have lost it.” His smile conveyed     and explain, as politely as possible,
                                                                                       tried to defraud his creditors and this
one additional statement: “You will        that I disagreed with his assessment,
never collect a dime.”                     but that the entire matter could be
                                           easily resolved if his client would         It is not often that such a blatant lie
Back at the office I went over the
                                           simply pay my client what it was            is exposed in open court. Thus, the
documents he had provided, and I
                                           owed.                                       court quickly agreed that Morgan was
did a bit of research. It was true that
                                                                                       a lying scallywag, and the sale of the
he lived at an address that he did not     The calls continued, though, until the
                                                                                       real property could proceed.
own. His friend, however, must have        matter finally went to court for the
been a very good friend because the        hearing on whether we could levy            Not long afterward -— and before the
house was worth about $4 million. I        and sell the real property.                 sale of the $2.5 million Newport Beach
also noticed that the Morgan Family                                                    shack -— our client was paid in full.
                                           Morgan’s argument, through his
Trust owned a two-bedroom house            attorney, was essentially this: “The        I think the legal term for that is,
in Newport Beach. Although small, it       property doesn’t belong to Mr.              “Gotcha.”
was right on the beach and worth in the    Morgan. It is an asset of a family
range of $2.5 million. Not too shabby                                                               — Robert V. McKendrick
                                           trust and therefore the bank and
for a two-bedroom cottage.                 its ignorant half-wit attorney can’t
Because I had already recorded an          foreclose.”                                  HRH’s Newest PaRtNeR
abstract of judgment, thereby placing                                                            Wayne R. Terry
                                           My rebuttal was this: “First, the trust
a lien on the real property, I consulted   documents clearly show that the trust
with my client, and we decided to levy     is a revocable trust, as opposed to
on the real property.                      an irrevocable trust. Therefore, Mr.
Such a levy is not especially difficult,   Morgan maintains full power and
but the filing and timing of the many      decision-making authority over it.
legal documents involved is fairly         California law states quite clearly that
exacting. Once the process begins,         assets of such trusts are available to
things happen swiftly. But, having         creditors.”
done our homework, we sent the              “Second, Mr. Morgan has made a big
paperwork off to court and out to          deal about the fact that the property
be served. Inasmuch as Morgan              is a trust asset as opposed to a

did not live at the property, certain                                                         n August 4, 2008, Wayne R.
                                           personal asset. In fact, Mr. Morgan
legal protections did not apply, and                                                          Terry became a partner of the
                                           claims that on January 2, 2004, he
the sales process was streamlined          placed the Newport Beach property           firm. As Richard Hemar said in making
somewhat. Because, as I discovered,        in the Morgan Family Trust by use of        the announcement, “Since arriving from
Morgan’s adult children did live at the    a deed of trust. However, it is factually   his previous firm, where he was also
cozy beachfront cottage, there would       impossible for this deed of trust           a partner, Wayne has offered valued
probably be a significant amount of        to have been signed on January 2,           contributions in a variety of areas and
family pressure to resolve the matter      2004. If the court will look at bottom      we hope you will join us in welcoming
prior to a forced sale. Potentially        right hand side of the deed of trust,       him in this new position.”
complicating things though, was that
                          Ouch! – Bank Gets No Pain Relief

        he following case is a painful                                                           Findings
        lesson for a large bank that                                                               The court found that the debtors had,
        failed to do its homework during                                                           in fact, knowingly misrepresented their
the loan application process. Although                                                             incomes and that such misrepresentation
mortgage fraud was found, the bank                                                                 was material and with the intent of
received little sympathy — or relief                              “...numerous                     deceiving the bank. But in a stunning
— from the bankruptcy judge, and the                              red flags existed                turn of events, the court nonetheless
debt was ruled discharged. The case is                                                             ruled against the bank and discharged
In re Hill and it was published as a slip
                                                                  on the loan                      the debt. It found that the bank’s reliance
opinion by the U.S. Bankruptcy Court for                            application.”                  on the debtors’ financial statements
the Northern District of California.                                                               was not objectively reasonable. In
Background                                                                                         the court’s view, the bank should
                                                                                                   have delved deeper into the debtors’
The debtors purchased their home
                                                      lack of knowledge of the inflated income creditworthiness because numerous
more than 20 years ago. Over the
                                                      figures. A critical fact was that the red flags existed on the loan application.
years, as their home’s value increased,
                                                      debtors had personally negotiated the These included the dubious authenticity
the debtors refinanced their original
                                                      most current credit line increase with of the CPA letter, and a troubling fact:
loan and later obtained an equity line of
                                                      the bank and provided those figures the debtors’ stated income figures
credit from the bank in the amount of
                                                      themselves. Although they claimed were wildly different from those just six
$200,000.00, which was subsequently
                                                      to be making a combined income of months earlier.
increased to $250,000.00. The debtors
                                                      $150,000.00 per year on the application,
employed a loan broker to refinance                                                                Lastly, the court “surmised” that the
                                                      the court determined it was probably
their loans except for the latter increase                                                         lender probably made the loan based on
                                                      closer to $65,000.00.
in their credit line, which was done                                                               the value of the debtors’ home — not
directly with the bank. Inevitably, the The district manager for the lender testified their income — because only minimal
debtors cashed out the entire equity that the debtors’ loan was a “stated income verification was required
line. With the downturn in the real income” loan, which did not require under the bank’s guidelines. The court
estate market, they could no longer verification of debtors’ income. The questioned the reasonableness of
afford their mortgage payments and lender’s loan approval guidelines required those guidelines. This weighed heavily
filed a Chapter 7 bankruptcy.                         that the debtors’ employment, not their against the lender.
                                                      income, be verified, and further required
                                                      that a third-party verify the reasonableness
The bank filed an adversary proceeding to                                                          The court called this case “a poster child
                                                      of the debtors’ stated income — not
prevent its debt from being discharged,                                                            for some of the practices that have led to
                                                      its amount. In this case, the debtors’
based on 11 U.S.C. §523(a)(2)(B),                                                                  the current crisis in our housing market.”
                                                      employment was verified by accepting
alleging that the debtors obtained                                                                 This decision is a cautionary tale in
                                                      a Certified Public Accountant’s letter
their line of credit by fraudulently                                                               these uncertain times for the mortgage
                                                      attesting to the existence of the debtors’
misrepresenting their income.                                                                      industry. It confirms that the bankruptcy
                                                      business. The CPA letter, however, was
                                                                                                   courts in California, though unwilling to
The loan broker who had represented signed by someone different than the
                                                                                                   condone a debtor’s blatant fraud, are just
d e b t o r s i n f i v e p r i o r r e f i n a n c e CPA whose name was on the letterhead.
                                                                                                   as unwilling to hold in favor of a lender if
transactions was called as a witness The lender provided evidence that it had
                                                                                                   that institution might arguably share the
at trial. He testified that the debtors verified the CPA’s name, but it failed
                                                                                                   blame for its own loss.
had previously provided him with their to show that it had ever verified the
overstated income figures, which were identity and credentials of the person who With the recent rise in personal Chapter
used for the requisite loan application signed the letter. The bank manager also 7 bankruptcies, we anticipate further
for each refinance, and that the debtors testified that the remaining loan approval interesting legal scenarios will arise, and
were aware of those figures when their guidelines, such as the minimum FICO we, at HRH, will continue to keep you
signed their loan applications. The court score, appraised value and loan-to-value apprised of them.
did not believe the debtors’ purported ratio, had been met in this case.
                                                                                                                     — Raffi Khatchadourian

  HRH Happenings                                                                                                           Irwin Wittlin Speaks at UAEL
                                                                                                                            Associate Irwin
        Hemar, rousso & Heald Is Pleased to announce                                                                        M. Wittlin has
            tHe addItIon of tHese new assocIates                                                                            continued his
                                                                                                                            active role in the
David M. Kritzer                                             In addition to raising his 2 ½-year-old
                                                             and five-month-old daughters with his                          United Association
                            David M. Kritzer                                                                                of Equipment
                                                             wife, Edward is a certified divemaster for
                            is the newest
                                                             SCUBA and is looking to try the Ironman                        L e a s i n g
                            attorney to come
                                                             Triathlon next year.                                           (“UAEL”). Irwin
                            to HRH. David is a
                                                                                                                            continues to serve on the board
                            transplanted New
                            Yorker whose family              Matthew R. Rungaitis                                           of directors in addition to actively
                                                                                                                            participating in the UAEL’s Educational
                            moved to California                                   Matthew            R.
                            before his eighth                                                                               and Legal Committee. At the Spring
                                                                                  Rungaitis enjoys
                            birthday.                                                                                       Educational Conference in Napa, Irwin
                                                                                  a distinguished
                                                                                                                            was invited to participate on a legal
David attended and graduated from the                                             and varied career.
                                                                                  In addition to                            panel discussing selected issues,
University of California, San Diego. He                                                                                     including lease collections, lease
                                                                                  his expertise in
received his law degree from Pepperdine                                                                                     law and equipment recovery. Irwin’s
                                                                                  commercial litigation,
University of Law School in Malibu,                                                                                         continuing efforts did not go unnoticed
                                                                                  Matthew has worked
where, in addition to enjoying the                                                                                          by the association, and in July Irwin
                                                                                  in the fields of elder
wonderful climate students can spot an                                                                                      was selected as the UAEL Volunteer of
                                                             abuse and medical malpractice. He
occasional celebrity or brush fire.                                                                                         the Month. At the recent Fall Annual
                                                             graduated from McGeorge Law School
David was admitted to the California Bar                     after receiving his Bachelor’s degree                          Conference, Irwin’s presentation on
in 1994 and has been working in the                          from the University of Minnesota. He is                        lease law was videotaped and will
areas of civil litigation, consumer law and                  licensed to practice law in both California                    soon be made available online to all
collection law ever since. Away from the                     and Arizona.                                                   UAEL members.
office, David enjoys spending time with
                                                             A Los Angeles native, Matthew says
his wife and two sons, and collecting
                                                             he has, “moved around a lot,” spending
                                                                                                                           One Arrival by Stork — Andrew
sports memorabilia.
                                                             years overseas in London, up north
Edward S. Kim                                                in Sacramento, and in lake-filled Minne-
                                                             sota before returning to Los Angeles.
                    Edward S. Kim is
                                                             When not spending time with his six-
                    a recent addition
                                                             year-old daughter, Matthew is an avid
                    to the HRH family.
                                                             SCUBA diver.
                    Edward received his
                    bachelor’s degree
                                                                          Other New Arrivals
                    from the University
                                                             HRH welcomes legal assistants Sanaz                           Associate Jeannine Del Monte-Kowal
                    of California, San
                                                             Adnani, Cristina Gonzalez, Maryann                            is the proud mother of Andrew Thomas
                    Diego, and then his
                                                             Granzow, Blanca Gutierrez, Patty                              Kowal. He was born, two weeks early,
                    law degree from
                                                             Maher, Kim Shepard, accounting clerk                          on April 14. Jeannine and her husband
                    Loyola Law School
                                                             Pat Trent, billing clerk Lauren West,                         Jerry are both convinced Andrew is the
in 2006. He is also a graduate from the
Platoon Leader’s Program for the U. S.                       collector Nelson Lee, and receptionist                        cutest baby in the world.
Marine Corps in Quantico, Virginia.                          Cindy Herrera.

 The Law Offices of Hemar, Rousso & Heald, LLP 15910 Ventura Blvd., 12th Floor, Encino, CA 91436, 818/501-3800, FAX 818/501-2985. The firm specializes in the fields of commercial
 and consumer litigation, collections, bankruptcy and general corporate matters. Individual lecturers on the topics contained herein, as well as others on request.
      This newsletter is published to inform our clients and others about matters of interest. It is not intended as legal advice and should not be acted upon without professional
       No materials contained herein may be reproduced without written permission. Questions, comments and requests for additional information regarding our services are welcome.
 Please feel free to write, call or fax us as indicated above, attention HEARSAY! Editors Peter J. Veiguela, Robert V. McKendrick.


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