San Francisco Bankruptcy Lawyer Blog

With depressed real estate and capital markets, capital is used to purchase defaulted commercial real estate loans at discount.

Though there are returns in this type of investment, when buying distressed mortgage debt, do not focus entirely on price. Do a valuation on a net present value basis or capitalization rate basis, studying the cash flow and liquidation value of the real estate, the expenses, and time it will take to complete a foreclosure to convert the loan into real estate ownership.

Depending on the quality of loan documents and history, the borrower may have claims that can delay a foreclosure on the collateral and reduce the return to the loan buyer. While the real estate asset securing the loan is the source of repayment, the buyer of loans is not buying the real estate collateral. Though lender rights include the ability to foreclose on the mortgage and become the owner of the real estate, the loan buyer is acquiring the loan documents.

Sometimes the real estate collateral may need to be recovered out of a borrower bankruptcy, delaying the time to market and sell the real estate. The lender wants to avoid the borrower filing bankruptcy because of an automatic stay against the lender going for a mortgage foreclosure. Look at the loan documents to see if there is a "carve-out guaranty," where the person/entity controlling the borrower agrees to become liable on a recourse basis for the loan. The guarantor will become personally liable for the loan if the borrower files bankruptcy. These guaranties have been found enforceable by courts and are effective to deter bankruptcy filing and enhance the mortgage loan value.

Continue reading "Buying Loan Notes is not Buying Real Estate" »

On October 2, 2009, the New York Times reported on "Defying Knockoffs and Inviting Them". In the retail business, a company may fall into bankruptcy if it does not prevent knockoffs to protect its fashion designs.

Companies can apply for design patents on fashion designs, but it may be expensive if the designs are not long-term or high volume sales. Design patents may not be recommended for short term or seasonal designs. Cost for preparing and filing a design patent application is about $3K. The application is not as expensive as a utility patent application because it consists of drawings with 1 - 2 page descriptions, and does not require the drafting of claims. Time to issue is probably 6 - 12 months, assuming there are no conflicting designs.

Design patents only cover the ornamentation of the designs. For example, a t-shirt may have 6 hearts in a row - the design patent protects the way the item looks. If someone else did a t-shirt with a pattern different from the design patent (for example, 5 flowers in a row instead of 6 hearts in a row), then there would not be protection because it is not an exact knockoff. The company filing for intellectual property protection would need a design patent application for each different pattern.

Design patents provide similar protection as copyrights. Copyrights are traditionally for text but are now being used for designs. Copyright is intellectual property that gives the author of an original work exclusive right for a certain time period, including its publication, distribution and adaptation, after which time the work enters the public domain. The main difference between copyrights and design patents is that the damages for patent infringements might be more. A copyright registration for the assertion of rights requires the same specimens as for a design patent filing - a clean graphics of the design, both alone and on the shirt.

Design patents do not cover functions. For example, if a shoe lights up, for the protection of the shoe lighting up function, the company would need to file a utility patent. A utility patent protects the way an invention is used and works. Utility patents cost $6K - $8K. The filing requires drafting claims and figures. The utility patent would protect the function no matter the design. The utility patent would probably also protect the designs themselves if the company filing for intellectual property protection drew the designs into the patent application. The company filing for intellectual property protection would need different claims for each type of function such as a claim for a shoe lighting up when two people are close to each other, and another claim for lighting up when a person is running. The application needs to indicate how the function is done - the function process should be novel. Obtaining patent protection might not be worthwhile if the patent office asked to narrow the claims because the company filing for protection is not protected unless another party does the process exactly. For example, if a claim for a lighting up function occurs through electric circuitry, and another party does it through chemical process, there is no infringement protection.

Continue reading "Intellectual Property Protection for Fashion " »

Jumpstart.org believes that financial literacy begins when people are students in high school. For children to become wise on money, and not fall into bankruptcy, teach them to balance a checkbook and manage earning, spending, saving, and investing. Parents become an example by letting children take part when reviewing their retirement savings goals.

In October 2007 the Department of Labor (DOL) released final regulations governing the use of Qualified Default Investment Alternatives (QDIAs). The Pension Protection Act of 2006 (PPA) added ERISA §404(c)(5) to broaden the relief for plan fiduciaries under ERISA §404(c). The rule extends the fiduciary relief under ERISA §404(c) to situations in which a plan participant fails to choose how to invest funds, and the plan directs that the account be invested in a QDIA.

If a participant receives notice describing the default investment that will apply if he/she does not give investment instructions, and the default investment constitutes a QDIA, the participant will be treated as having exercised control over the assets that are invested in the QDIA.

A fiduciary of an individual account plan will not be liable under ERISA for any loss resulting from the investment in a QDIA, if the following requirements are met:

1) Participants receive advance notice at least 30 days before the first default investment, or at least 30 days before the date of plan eligibility. Participants must receive an annual notice at least 30 days in advance of each subsequent plan year.

2) Participants given the opportunity to direct their investments and failed to do so.

3) The assets must be invested in a QDIA. There are four alternative types of investment products that meet the definition of a QDIA. The alternatives: (a) product with a mix of investments that takes into account the individual participant's age, retirement age, or life expectancy, such as a life-cycle or targeted retirement date fund; (b) product with a mix of investments that takes into account the characteristics of a group of employees as a whole, such as a balanced fund; (c) investment service that allocates contributions among existing plan options to provide an asset mix that takes into account an individual participant's age or retirement date, such as a professionally managed account; (d) capital preservation product, but only for the first 120 days of participation. Absent participant direction, the plan fiduciary must redirect the participant's account balance into one of the above three QDIA categories after the first 120 days of participation.

4) Plan fiduciaries must provide participants investment information such as fund prospectuses, proxy voting materials, and fund performance and expense information for the QDIA into which a participant's assets will be defaulted.

5) Participants must have the ability to direct the investment not less frequently than once in any three-month period.

6) A broad range of investment alternatives must be offered.

Continue reading "Qualified Default Investment Alternatives " »

According to consumerjungle.org, 50 common financial mistakes include: not having a savings account, buying too soon--that is, buying something on credit instead of waiting until the money saved up, not having emergency savings, not saving early enough in life for retirement, lack of budgeting, following bad investment advice, not knowing the financial consequences of DUIs, drunk driving, speeding, etc., not taking advantage of an employer contribution to a retirement plan.

Choosetosave.org is a web site that offers financial literacy to debtors. It offers calculators, savings tips, and investment strategies.

As part of the Pension Protection Act of 2006 (PPA), employers have been helping employees choose to save by automatically enrolling new hires to 401(k) plans beginning January 1, 2008.

Employees who do not want to be part of a retirement plan should watch out for employer notifications on (1) their right to opt out of the plan, (2) to change their deferral amounts and investment allocations and what the default investment will be if they fail to do so. Employees automatically enrolled may revoke the enrollment within the first 90 days and receive a refund of deferred amounts as current taxable compensation without the 10% early distribution penalty excise tax.

Employers with automatic deferral must set a first withdrawal minimum of 3% to 10% of pay and must escalate at a rate of at least 1% per year so that the employee is deferring at least 6% after the third year.

Continue reading "Automatic Enrollment in 401(k) Plans" »

The following is a fictitious scenario:

Ted announces on LinkedIn that his job is being eliminated. Ted came in as a temp at Formaldehyde 4 years ago. Ted graduated from a nontraditional college. It was after his divorce that he went back to school. He has a 28-year-old daughter, Stacey, who lost her inside sales job in a prior round of layoffs. Ted remarried two years ago to a woman he met on match.com. It must be frustrating for Ted because his wife also lost her job in 7 months ago. She was in business development, and has not landed. One company made her go through 4 rounds of interviews before rejecting her. But, she makes every moment belong. She started making furniture out of wine barrels, developing an unbelievable web site with a shopping cart to market the chairs and tables. They bought a truck to haul the furniture to wineries on weekends to find buyers. His wife also passed a life insurance exam and started selling policies to friends. She's still interviewing for business development positions, but she doesn't give unemployment a value out of proportion to its merit.

Continue reading "Thinking Outside the Box" »

On January 12, 2010, CBS Broadcasting Inc., with Associated Press contributing, made the Yahoo! buzz with its "Tough First Year For Yahoo's Tough-Talking CEO". One year after Carol Bartz was appointed CEO, Yahoo!'s share of the Internet search market has lagged behind Microsoft and Google. What are the factors that affect company downfalls?

One factor is employee performance. This is why companies are doing more employment background checks. With background checks, people should know what is in their credit reports, and make sure reports are not sent to people without permission. In Banga v. National Credit Union Administration, et al., 2009 U.S. Dist. LEXIS 93449 (N.D. Cal. Oct. 6, 2009), the plaintiff brought suit alleging defendant Equifax furnished her credit report to multiple companies without a permissible purpose in violation of the Fair Credit Reporting Act ("FCRA"). Permissible purpose means that any consumer reporting agency may furnish a consumer report to a person which it has reason to believe intends to use the information in connection with a review or collection of an account of the consumer. It is not objectively unreasonable for a CRA to furnish a consumer report to the holder of a closed account.

Another factor affecting downfalls is the cost of workforce benefits. On December 19, 2009, President Obama signed the Department of Defense Appropriations Act, 2010 (the DOD Act), extending the COBRA subsidy program through the end of February 2010 to 15 months. The House of Representatives passed the Jobs for Main Street Act of 2010 expanding the COBRA subsidy program class through the end of June 2010 if enacted. The extension will be more costly for employers who let go of workers.

But pessimism does not seem to confront a company that stays concerned with investor relations. For example, Omnicell, Inc., a provider of systems and software solutions focusing on patient safety and operational efficiency in healthcare facilities announced in its October 22, 2009 earnings release that revenue for the third quarter of 2009 was $54.0 million, up $1.3 million or 2.5% from the second quarter of 2009. Part of its success may come from its corporate governance. Its whistleblower policy allows for not only employees, but also outside parties party, such as vendors, consumers, stockholders or competitors to report accounting or auditing matters. Omnicell products allow nurses, pharmacists, and other medical professionals to control their inventory, medication use processes, and workflow.

Continue reading "Factors Affecting Company Downfalls " »

On January 12, 2010, Associated Press reported in "STIMULUS WATCH: White House changes job-count rule" that the White House abandoned its method of tracking jobs under President Barack Obama's economic stimulus, making it difficult to count jobs saved or created with the $787 billion in recovery money.

But, the New Year appears to be bright for some job seekers in the San Francisco Bay Area. On January 12, 2010, Harris Stratex had 14 positions open in San Jose, CA on its web site. Harris Stratex Networks, Inc. provides mobility and fixed network applications. Its products fall under these categories: wireless transmission, voice compression, network management, WiMax broadband. On December 16, 2009, Harris Stratex announced that Melita Plc, a joint venture between GMT Communications Partners, MC Venture Partners, Gee Five Ltd., selected the NetBoss XT® resource management solution to manage its 3G mobile network, and installed Harris Stratex Eclipse™ radios for IP connectivity. From its Corporate Governance policies, the management at Harris Stratex seems to care about ethics, integrity, and honesty in its decisions; and seems forward-looking in its initiatives on protecting the environment, with compliance on Europe's Waste Electrical and Electronic Equipment directive.

Jobs creation remains a top concern for 2010. Edwin Duterte started pinkslipmixers.com to help people network and share jobs online and offline. The January 2010 live event was held in Palo Alto, CA with recruiters from Google and Tesla. The next live event is scheduled at PACIUGO Gelato, Hermosa Beach / Pier & Hermosa Ave., 1034 Hermosa Ave., Hermosa Beach, California 90254 on February 23, 2010. A resource for job tallies is Recovery.gov.

Continue reading "Job Counting" »

Lawsuits may cause depression when there seems no end to the dispute. Depression is the opposite of vitality not happiness. Sadness goes away whereas depression affects concentration, and is not about the moment but the past. Memories of criticisms stay longer.

People in litigation may get caught up in negative thinking created by anxiety, and then lie, cheat, or steal, feeling helpless with no self-esteem to generate the things they want. Continue on when there are no alternatives. Resolving a lawsuit requires accurate thinking. Believe in possibilities even when they are not seen.

In a lawsuit, mediation is a confidential process to settle differences unencumbered by courtroom procedures. Mediation empowers parties to retain control of decisions. The mediator is a neutral third party who does not impose any outcome. In Alameda Superior Court, there is a list of panel mediators for parties to choose from who do not charge for all their time in preparation or facilitation. These mediators qualify for the panel after a 40-hour training on conflict and communication, continued training updates in mediator issues, and mediation experience in at least five civil cases.

Mediation starts off with both parties sending the mediator a brief. The brief may be any length, even a one-page letter. Because not all mediations result in settlements, the parties should be careful not reveal any information they do not want discovered by the other side. On the day of the mediation, usually the parties begin in the same room, summarizing their view of the facts to the other side and the mediator. Then, they may split into different rooms with the mediator shuttling back and forth between the rooms presenting settlement proposals.

Continue reading "Mediation" »

It is wise to stay away from people who are manipulative because they are interruptions in life, but litigation may have more to do with calculated risks on doing what someone thinks is right, though in hindsight creates danger that makes life worth living.

A debtor who gets served with a lawsuit for debt collection should consult a lawyer before answering. The plaintiff looks for mistakes by the defendant when answering a complaint. If the defendant answers with admissions, the plaintiff can request a judgment on the pleadings. According to Professor Witkin 5 California Procedure, Third Edition Section 973, page 404, "[t]otal failure to deny a material allegation necessarily results in an admission." If a complaint states facts sufficient to constitute causes of action against a defendant, and the answer does not state facts sufficient to constitute any defense, Code of Civil Procedure Section 438(c)(1)(A) is applicable to give the plaintiff a judgment on the pleadings by requesting the court to take mandatory judicial notice of the defendant's answer. The plaintiff may refuse settlement discussions with the defendant because there is unlikely a better result than a judgment.

For the defendant who has a judgment entered against him/her, California Code of Civil Procedure Section 473(b) allows the court to relieve a party or legal representative from a judgment, dismissal, order, or other proceeding through mistake, inadvertence, surprise, or excusable neglect.

For example, when parties in a lawsuit agree or are ordered by a court to judicial arbitration, a third party, who may be a lawyer or retired judge, decides the case. Arbitration is a way to resolve a lawsuit without the expense of a trial.

In San Francisco Superior Court, after arbitration, the arbitrator's award becomes a judgment, unless a party files a request for trial de novo within 30 days after the arbitration award is filed with the clerk. If a party does not request a trial de novo by the deadline, the arbitrator's award will be final and it will be entered as judgment. Copies of a request for trial de novo must be served on all parties. A trial de novo allows the case to go to trial as if the arbitration award was not made.

The 30 day period cannot be extended according to California Rules of Court, Rule 3.826An attorney who misses the 30 day deadline may file a motion to set aside arbitration award, but there is no mandatory relief for negligence in failing to timely request a trial de novo when the party or attorney actual participates in an arbitration hearing. Brown v. Williams (2000) 78 Cal. App. 4th 182, 188-189, 92 Cal. Rptr. 2d 634.

Continue reading "Civil Judgments" »

On December 7, 2009, the United States Bankruptcy Court, Northern District of California, San Francisco Division made an order regarding reporting income in Chapter 13 cases. For Chapter 13 debtors, they are now excused from filing with the court, payment advices or evidence of payment received by the debtor from any employer within 60 days before the filing date of a Chapter 13 petition.

The Chapter 13 debtors are instead to file declarations on income in the forms available on the court's or Chapter 13 trustee's web site at least 7 days prior to the first date set for the meeting of creditors under 11 USC Section 341. The debtor is to serve copies of the declarations to the Chapter 13 Trustee.

If the debtor does not file the declarations on time, the debtor needs to request an extension from the court. If the debtor does not comply to file the declarations, the case may be dismissed by the Chapter 13 Trustee, US Trustee, or any party in interest.

The declarations include declarations on lack of income, employment income, self employment income describing gross income and business expenses, rental income, other monthly income such as dividends and royalties, unemployment compensation, pension and retirement, support.

Continue reading "Reporting Income in Chapter 13 Cases" »

On January 8, 2010, the New York Times reported that Giuseppa Bagnarol, 82, was dying at home in Redwood City when a process server delivered papers that ordered Mrs. Bagnarol and her family to leave. Wells Fargo, formerly Wachovia, formerly World Savings had foreclosed on the property bought in 1994 for $535,000. Wells Fargo had a policy against negative amortization loans, but finds itself dealing with the loans of its predecessors.

A lawsuit has been filed alleging elder abuse from predatory lending. According to the New York Times, the lawsuit argues that Mrs. Bagnarol was pursued to take out new mortgages when Mrs. Bagnarol was in her late 70s, suffering from the onset of dementia. She refinanced the property with a $1.5 million loan in December 2006 with monthly payments rising to $14,541.32 from $5,176.81, skyrocketing to $1,640,000 by December 2008.

Michael Rooney is the San Francisco lawyer representing the family in the lawsuit. The loan terms involved negative amortization and adjustable rate. Negative amortization arises when the payment made by the borrower is less than the interest due and the difference is added to the loan balance. Rooney specializes in contract negotiation and breach, real estate, consumer predatory lending claims, commercial mortgage modification, and makes special appearances on behalf of attorneys of record who cannot appear themselves to court hearings, depositions, arbitrations, and mediations in Marin, Alameda, San Francisco, Contra Costa, and San Mateo counties.

Loans Mrs. Bagnarol received were sold under names like Option/ARM where borrowers made minimum payments that did not cover the entire amount due. The balance was then added back into the loan, increasing the debt.

In 2009, Gov. Arnold Schwarzenegger signed laws making it illegal to write negative amortization loans in California.

Continue reading "Barbary Coast Foreclosure Crisis" »

Financial education is one way to prevent bankruptcy. To assist in financial education, legislation and stock market rules are adopted to provide investors with more timely information on public companies and to regulate financial markets.

In December 2009, the Securities and Exchange Commission (SEC) approved a change to Nasdaq Rule 5250(b)(1) and IM-5250-1 that requires, rather than recommends, that Nasdaq-listed companies notify Nasdaq's MarketWatch Department at least ten minutes prior to the public release of material information. Prior notice must be made through Nasdaq's electronic disclosure submission system. The new rule better enables Nasdaq to consider whether trading in
security should be temporarily halted.

In December 2009, the House of Representatives passed The Wall Street Reform and Consumer Protection Act, H.R. 4173. The bill creates the Consumer Financial Protection Agency, a council of regulators to oversee firms, establish a resolution mechanism for failing non-bank financial firms, and require advisers to private pools of capital to register with the SEC and subject to risk regulation by the Financial Stability regulator.

Consumers should take advantage of earnings conference call archives to get update information on public company earnings. Though, statistically, according to a Forbes.com study of 30 Dow Jones Industrial Average companies in May 2003, 50% archive calls for more than 90 days, 7 offer access for 1 - 2 weeks, 8 offer access for 30 or 60 days.

Regulation G requires public companies that disclose or release Non-GAAP financial measures to include, in the disclosure or release, a presentation of the most directly comparable GAAP financial measure and a reconciliation of the disclosed Non-GAAP financial measure to the most directly comparable GAAP financial measure. In Footnote 61, when financial and statistical information contained in an oral, telephone, webcast presentation is provided on a web site, together with information that would be required under Regulation G, it is encouraged that companies provide ongoing web site access to the information. There is the suggestion that companies provide web site access to the information for at least 12 months on the investor relations web site.

Regulation FD requires an issuer to use a press release to provide the initial broad distribution of information, and then discuss its release with analysts in a subsequent conference call. In Footnote 73, if an issuer is using a webcast or conference call as part of its method of effecting public distribution, it is suggested that it consider providing a means of making the webcast or call available for some reasonable period of time.

Continue reading "Financial Reforms and Education" »

In December 2009, it was reported in the San Francisco Chronicle that Steven Simkin, a real estate partner at Paul Weiss Rifkind Wharton & Garrison sought to renegotiate his $6.6 million divorce settlement with his ex-wife of over 30 years, arguing he paid her more than he would have agreed if he knew of fraudulent investment statements from the Bernard Madoff firm.

Based on Madoff statements, the partner thought he had $5.4 million in an account he now realizes might be worthless. He had agreed to pay $2.7 million to Laura Blank, in cash in a 2006 divorce.

Acting Supreme Court Justice Saralee Evans in Manhattan held that while Simkin's decision to hold on to the Madoff account may have been "improvident," the court did not have an equitable basis to set the agreement aside.

In dismissing Simkin's suit, Evans wrote, "There is no evidence that defendant was unjustly enriched. In 2006, at the time of their agreement, each of the parties received the benefit of his and her bargain."

Simkin's case is an example of the need to periodically take a moment to evaluate different savings and investments plans in contributing to financial security.

For those already participating in 401(k) plans, they should review their asset allocation at least once a year and rebalance if needed. Asset allocation is the process of spreading savings across different types of investments and industries. Market condition changes may affect the balance of asset allocation. Many people lost when they put too many funds into Madoff's firm. Frontline's "The Madoff Affair" unravels the story of how Madoff was able to sustain his Ponzi scheme so long. Some of the interviews show that it was because sophisticated individuals who knew how to make a lot of money did not take care to understand their investments and looked too much at the bottom line at account balances.

Continue reading "Asset Allocation" »

In 2009, Robert W. Murphy, an attorney in Fort Lauderdale, FL gave a talk in San Francisco on consumer debt collection issues.

Of importance to consumers facing debt collection problems is CA Civil Code Sections 1788-1788.32 also known as the Rosenthal Fair Debt Collection Practices Act, and 15 USC Section 1681: Fair Credit Reporting Act.

The California Fair Debt Collection Practices Act was adopted in 1977 to regulate the conduct of "debt collectors." The California statute prohibits deceptive, dishonest, unfair and unreasonable debt collection practices by debt collectors, and regulates communications by collectors to debtors. A "debt collector" is "any person who, in the ordinary course of business, regularly, on behalf of himself or others, engages in ... the collection of consumer debts. A "consumer debt" is a debt "incurred by a natural person in exchange for property, services or money acquired, on credit, for personal, family, or household purposes". Attorneys are subject to professional standards expressed in California's Business & Professions Code, requiring attorneys to comply with the standards expressed in the Fair Debt Collection Practices Act.

In Mallory v. City of College, 678 F. Supp. 703 (N.D. III. 1987), an attorney using a consumer report in litigation that does not concern the collection of a pre-existing debt does not have a permissible purpose in obtaining the consumer report. The attorney does not have the right to obtain a consumer report solely to satisfy desire to know whether litigation is worth pursuing against a tortfeasor.

The federal Fair Debt Collection Practices Act was adopted in 1977, also regulating "debt collectors," but it defines "debt collector" narrower than the California statute. Under the federal statute, a "debt collector" is a person whose "principal purpose ... is the collection of ... debts" or who "regularly collects or attempts to collect, directly or indirectly, debts owed or due [to] another", meaning debts originally owed or due to someone other than the business collecting the debt. Generally, original creditors are not covered by the federal statute. Attorneys must also comply with the federal statute when involved in consumer debt collections.

If a debtor tries to negotiate a debt settlement, the debtor should look out for one-sided prevailing party payments on attorneys fees. In California, the reciprocal attorneys' fee statute applies when a contract contains a provision allowing attorney's fees to a party when he or she is required to take any action to enforce the contract. The court may also allow reasonable attorney's fees to the other party, when that party prevails in any action, whether as plaintiff or defendant, with respect to the contract.

Continue reading "Consumer Debt Collection " »

The Penn Traffic Company, a Syracuse, New York based grocery retailer, filed for Bankruptcy in Delaware on November 18, 2009. This is Penn Traffic's third time in bankruptcy within the last ten years. With annual revenues of $872 million, Penn Traffic is a food retailer in the Northeastern United States that operates 79 retail stores, and provides transportation, warehousing, distribution and retail support for C&S Wholesale Grocers.

On November 15, 2009, Champion Enterprises, in Troy, Michigan, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware. The bankruptcy is the result of an overall decline in the demand for manufactured housing and tightening of credit for potential home buyers. Champion manufactures homes at 22 home building facilities in 13 states, employing 1994 employees.

When reading news on bankruptcy filings, keep in mind that a debtor's most significant asset in bankruptcy may be its preference claims against creditors. The Bankruptcy Code permits a debtor to force a creditor to return the payments the debtor made to the creditor shortly before filing bankruptcy. According to an article by William B. Creim, the managing partner of the Los Angeles office of Bronson, Bronson & McKinnon LLP in 1999, "preference" means: The transfer of an interest of the debtor in property, (a) to or for the benefit of a creditor, (b) for or on account of an antecedent debt owed by the debtor before such transfer was made, (c) made while the debtor was insolvent, on or within 90 days before the filing of the bankruptcy petition (or within one year before the filing if the transferee creditor was an insider), (d) that enables the creditor to receive more than such creditor would have received if the case were a Chapter 7 liquidation proceeding.

For the creditor served with a copy of the complaint asserting a preference claim, do not simply comply by making the requested payment. Consult with its bankruptcy lawyer to determine whether defenses preclude or limit the debtor's ability to require the creditor to return the payment.

One defense is the "ordinary course of business defense". The creditor should detail the circumstances as to the challenged payments during the 90 days prior to the debtor's
bankruptcy filing to establish how and when the debtor normally paid the creditor. If the debtor's payment during the year prior to its bankruptcy filing is consistent with
the payment during the 90 days before filing bankruptcy and consistent with industry
standards, the court will not require the creditor to return the challenged payment.

The subsequent new value defense looks at whether the creditor provided product or services subsequent to its receipt of a payment within the 90 days before the bankruptcy filing. If so, the creditor may not be required to return the challenged payment.

Continue reading "Defending Preference Claims" »

On December 1, 2009, changes to time periods applicable in bankruptcy took effect. Time affects notice a party is required to give before certain actions can be taken or approved by the bankruptcy court as well as deadlines for filings asserting rights.

On May 7, 2009, Congress enacted Public Law No. 111-16, The Statutory Time-Periods Technical Amendments Act of 2009. Each change to the Bankruptcy Code increases the previous time period from five to seven days:

• Section 109(h)(3)(A)(ii) - Time for individual to obtain credit counseling.
• Section 322(a) - Time for a trustee to post a bond with the court to ensure the faithful performance of official duties.
• Section 332(a) -Time for appointing consumer privacy ombudsman.
• Section 342(e)(2) -Time for effectiveness of a creditor's request to receive notices at a specific address in an individual's Chapter 7 or 13.
• Section 521(e)(3)(B) -Time for a court to provide a copy of a Chapter 13 debtor's plan of reorganization to a requesting creditor.
• Section 521(i)(2) - Time for a court to dismiss an individual's Chapter 7 or 13 at the request of a party in interest
• Section 704(b)(1)(B) -Time for the United States Trustee to send a statement to all creditors that an individual's Chapter 7 is an "abuse" under section 707(b) of the Bankruptcy Code.
• Section 749(b) - Prohibition against avoidance of certain transfers in Chapter 7 stockbroker liquidation in which the transfers occurred during a particular time period.
• Section 764(b) -Prohibition against the avoidance of certain transfers in a Chapter 7 commodity broker liquidation case in which the transfers occurred during a particular time period.

Other time adjustments to be aware:

5 days → 7 days: Bankruptcy Rules 2006, 2007, 2008, 2015.3, 6004, 9006 and 9027.
10 days → 14 days: Bankruptcy Rules 1007, 2003, 2015.1, 2015.2, 2016, 3020, 4001, 6004, 6006, 7004, 7012, 8001, 8002, 8003, 8006, 8009, 9015, 8017, 9027 and 9033.
15 days → 14 days: Bankruptcy Rules 1007, 1019, 1020, 2015, 2015.1, 2016, 3015, 4001, 4002, 6004, 6007 and 8009.
20 days → 21 days: Bankruptcy Rules 1011, 2002, 2003, 2007.2, 2015, 2015.3, 3001, 3015, 3019, 6003, 7012, 8002, 9027 and 9033.
25 days → 28 days: Bankruptcy Rules 2002, 3017 and 4004.

Continue reading "Bankruptcy Time Changes" »

Bankruptcy intersects with estate planning when making sense of property ownership and property taxes. In "Change in Ownership under Proposition 13" by Wayne H. Gilbert and Timothy S. Galusha of Lippenberger, Thompson, Welch, Soroko & Gilbert, LLP, Proposition 13 is explained as a property tax change in ownership rules from changes to CA Constitution 7/1/1987.

Proposition 13 turned back property values to 3/1/1975, and makes property tax rates imposed in CA real property 1% of property's assessed value, plus any local ad valorem taxes or special assessments.

Assessed value means fair market value of property as of date there is a change in ownership plus a yearly increase based on inflation. Proposition 13 mandates yearly increases not to exceed 2% of prior year's assessed value, unless there is a change in ownership, new construction, property value decline.

Change in ownership occurs when there is a transfer of present interest in real property, including beneficial use thereof, the value of which is substantially equal to the value of the fee interest.

a. Present interest: Not a contingent interest in a revocable trust. California Revenue and Tax Code Section 61(h), 62(d): Transfer of real property to a revocable trust is not a change in ownership because no present interest transferred. When a revocable trust becomes irrevocable, change in ownership occurs as of date the trust became irrevocable unless exclusion applies.
b. Beneficial use: Not a bank with a security interest, or trustee who holds legal title only.
c. Substantially equivalent to fee value: Leasehold interest of 35 years or more, including renewal options, considered subtantially equivalent to fee value.

Proportional interest transfers are explained in California Revenue and Tax Code Section 62(a): Change in ownership does not include any transfer in which there is a change in the method of holding title to the real property transferred without a change in the proportional interests of the beneficial owners. Example: Transfer from trust to current beneficiaries: Property held in Trust with A and B as equal beneficiaries. Trust terminates and Property transfers to A and B as tenants in common each holding 50% interest in Property. There is no change in ownership.

Interspousal transfers are explained in California Revenue and Tax Code Section 63: All interspousal transfers, including transfers of real property and transfers of ownership interests in legal entities, excluded from change in ownership. Spouses may make the following transfers (during lifetime or at death) without change in ownership: transfer of real property, transfer to trustee of trust for benefit of spouse, transfer to former spouse in connection with separation. Transfers to or from entities not treated as interspousal transfers. Exclusion applies to transfers between spouses, not from spouse to entity or entity to spouse, except in separation. Example: H and W transfer Property, owned as community property, to Corporation, owned by H. Transfer is not excluded. Corporation is legal entity separate from individual so transfer is not transfer between spouses.

Continue reading "Proposition 13 " »

Associated Press reported on January 12, 2010 "More than 6 jobless workers chase 1 opening". With the competition for jobs intensifying as companies are reluctant to hire new workers, there will be more people looking for loan modifications. Loan modifications sometimes lead to litigation when parties are not able to resolve issues through negotiations. The lender may file a lawsuit to foreclose on the property and collect on the loan. The borrower may file a lawsuit alleging unfair loan terms.

Litigation requires persuasion. At the American Association for Justice 2009 Annual Convention, on 7/29/2009, persuasion was defined as an attorney's ability to present a case to a jury. The jury will feel how an attorney feels about his/her client, and how an attorney feels about the case.

A persuasive attorney presents the case theme repeatedly throughout the case. Example: Promises. When people sign contracts, they make promises. A construction company makes a promise to keep job sites safe. Spouses make promises when they marry.

Juries generally do not trust attorneys. Videos may be used to show juries what the witnesses think about the case in their own words. Attorneys use excerpts from video depositions during opening statements to prompt what to say without notes. Jurors learn best with words and pictures. 70% prefer visual. After 3 days, jurors remember 20% of visuals. After 3 days, jurors remember 10% of auditory. People also learn from graphics (e.g. animations), but simultaneous text running with picture is distracting. Pictures and words on the same page, or simple diagrams with readable text remove unnecessary items to prevent distraction, and let jurors know where to focus.

An individual going after a big bank should keep in mind that the attorney will want to discuss the basics first. If required to attend a deposition, a party should be aware that the deposition is not the time to prove the case. The opposing party will gain effective for cross-examinations when the same person gives different answers. Do not get comfortable with background questions. When the opposing party persists to ask questions multiple times do not look at own; it will seem like the witness is asking his/her own attorney how well he/she is doing or whether he/she should answer the question.

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Despite the recession, Cleantech ventures are doing well with government grants. Four technologies might be good investments: smart grid, concentrated solar power, carbon markets, electric cars.

Concentrated solar power systems use solar rays to create steam that produces electricity. On June 6, 2009, The Economist reported that BrightSource Energy, Inc. is constructing a series of 14 solar-power plants that will supply more than 2.6 gigawatts of electricity to serve about 1.8m homes.

Smart grid uses wireless sensor networks, software and other technology to allow devices to transfer packets of information to other devices. Silver Spring Networks is an energy company that allows utilities to track the energy people use without using meter people. The technology allows energy users to see when they are using electricity, how much it is costing. The technology is helpful in letting utilities get back losses from wrongly read meters, or inability to get to areas to read meters.

Carbon markets generate economic incentives to drive greenhouse gas emissions reduction with a carbon price.

Electric cars use electricity stored in batteries rather than traditional combustion engines. Tesla Motors manufactures a 100% electric car that has zero emissions. Unlike hybrids in the market such as the Toyota Prius, the Roadster uses electricity to push the wheels. The Roadster runs for approximately 3 hours before requiring a recharge. It costs $110,000 analogous to other fast performance cars, but Tesla Motors plans to introduce models that will allow consumers to pay $40,000 to $50,000 range with tax credits for electric cars.

The major source for Cleantech funding is the American Recovery and Reinvestment Act of 2009 (Pub. Law 111-5). In July 2009, the Department of Energy announced $30 billion new loan guarantees to help solar, wind, geothermal, biofuel projects. On December 17, 2009, Kenzel Hagaman, Corporate Counsel, BrightSource Energy, Inc. spoke in San Francisco, CA on how new regulations have required the dedication of two attorneys at her company.

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In a speech at the Economic Club of Washington on December 7, 2009, Federal Reserve Chairman Ben S. Bernanke addressed frequently asked questions on Federal Reserve:

1. What has the Federal Reserve been doing to support the economy and the financial system?
2. Will the Federal Reserve's actions lead to higher inflation?
3. How can we avoid a similar crisis in the future?

Bernanke stated improving conditions in housing, consumer expenditure, business investment and global economic activity, but tight credit conditions and a weak job market remain. The Federal Reserve purchased "unprecedented volumes" of mortgage-related securities and Treasury debt.

After Bernanke's speech, on December 8, 2009, the House Financial Services Committee held a hearing entitled "The Private Sector and Government Response to the Mortgage Foreclosure Crisis" to review the results of the federal government's actions in preventing additional mortgage foreclosures and encouraging existing loan modifications. Chairman Barney Frank (D-MA) opened the hearing with frustration of the Committee and the public with the federal government's failure to prevent mortgage foreclosures. Committee Member Ron Klein (D-FL) said the problem with the Making Home Affordable program was the lack of documentation. JPMorgan Chase offered over 560,000 modifications to struggling homeowners through November 30, 2009, and had approved or completed over 112,000 permanent modifications under the Making Home Affordable program. Bank of America had over 160,000 customers enrolled in a trial modification program and, combined with Bank of America's loan modification programs, over 615,000 homeowners modified their loans.

These loan modification concerns raise the issue whether a lender's failure to offer loan modification is privately actionable. California has a loan modification law under Civil Code 2923.6. A district court in Fresno in Nool v. Homeq Servicing, No. 1:09-CV-0885 OWW (E.D. Cal., Sept. 4, 2009), Judge Wanger held that "the language of section (b) belies the imposition of any duty to engage in loan modification discussions, as the provision merely expresses legislative 'intent' that the mortgagee, beneficiary, or authorized agent offer the borrower a loan modification if doing so is consistent with its authority." Another case agreeing with Judge Wanger is Farner v. Countrywide Home Loans, 2009 WL 189025, at *2 (S.D. Cal. Jan.26, 2009) ("[N]othing in Cal. Civ.Code § 2923.6 imposes a duty on servicers of loans to modify the terms of loans or creates a private right of action for borrowers.").

To listen to a bankruptcy audio on mortgage cram downs and strip downs (Teleconference recorded on Dec 13, 2009 with special guest: Leanne Levett, Esq, a foreclosure specialist in Florida), go to: http://www.713training.com/mortgagecramdown/

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