Claiming that Wells Fargo has engaged in a “…pervasive pattern and practice of placing Black Americans at a disadvantage in comparison to White Americans with respect to their applications for mortgage loans,” attorneys from DannLaw and the Zimmerman Law Offices filed a class action lawsuit against the giant bank in the United States District Court for the Eastern District of New York on Tuesday, April 6, 2022. The pleading in the case may be viewed here: Ifemoa Ebo v Wells Fargo.
Wells Fargo’s disturbing discriminatory behavior was documented in an extensive story published by Bloomberg in March. According to the report only 47% of Black homeowners who completed a refinance application with Wells Fargo in 2020 were approved, compared with 72% of White homeowners. By comparison other lenders had much smaller disparities in approval rates ranging from 7% to 12%. Bloomberg also noted that “Wells Fargo approved a greater share of applications from low-income White homeowners than all but the highest-income Black applicants, who had an approval rate about the same as White borrowers in the lowest-income bracket.”
Wells also discriminated against Blacks who applied for new mortgage loans. A review of publicly available data collected by the CFPB reveals that the bank approved applications submitted by Blacks at a rate 21% lower than those submitted by Whites. The disparity in approval rates at other lenders, including Chase, Quicken, United Wholesale Mortgage was approximately 10%.
Ms. Ebo’s case puts a face to Bloomberg’s reporting. In late 2021 she began searching for and found a new home in Brooklyn’s East Flatbush neighborhood. After signing a purchase agreement for $900,000 she submitted a mortgage loan application to Wells. At the time her credit score was approximately 800, her annual salary was $178,000, and she had no significant debt.
On November 1, 2021, Wells preapproved her for a loan of $883,698. The preapproval was set to expire on February 24, 2022. Ms. Ebo then immediately began working with the bank to secure final approval of the loan. She submitted all documentation requested by Wells, including W-2 forms, paystubs, and bank account statements in a timely fashion. On December 29, 2021, she received a “Commitment Letter” notifying her the application had been approved and advising her that she only needed to submit some additional documentation “in order to complete the final underwriting and funding of” the loan.
Things immediately went off the rails. In January and February Wells again asked for additional information much of which she had already submitted. She was also asked to provide items that were, according to the lawsuit, unnecessary, unduly burdensome, and irrelevant. For example, she was asked to explain why she made a monthly credit card payment of $290 to her own account and for a bank statement for a bank account that did not exist.
As Wells’ unnecessary and duplicative information requests continued into late February and March Ms. Ebo told the bank she was concerned her preapproval would expire before she received her loan even she was highly qualified and had supplied all documentation they had requested.
Her concern was justified. On March 22, 2022, the seller of the property cancelled the purchase contract with Ms. Ebo because Wells had not approved her financing and it was unclear if they ever would. She informed Wells of the seller’s decision that same day and accordingly, did not and never will receive the loan.
This is not the first time the lender has been accused of engaging discriminatory behavior. In 2012, the bank entered into a consent decree with the U.S. Justice Department to resolve claims it had unfairly steered Black and Hispanic borrowers into subprime mortgages and charged higher fees and interest rates than they did whites. At the time Wells paid $184 million to thousands of borrowers and agreed to adopt new compliance policies.
“Wells’ treatment of Ms. Ebo is unconscionable, illegal, but not surprising in light of the company’s history, Bloomberg’s reporting and the conversations we’ve had with others who were subjected to the bank’s outrageous practices,” DannLaw’s Javier Merino said. “Clearly, Wells has not been deterred by the laws that prohibit discrimination. Perhaps being held accountable in court will motivate them to change their ways and treat all applicants, regardless of race, equally and fairly in the future.”
The lawsuit seeks actual damages, statutory, and punitive damages, attorney fees and costs. For more information please contact Marc Dann at 330-651-3131.
DannLaw Founder and former Ohio Attorney General Marc Dann today expressed satisfaction with the $12.9 million settlement that has been reached in the firm’s class action lawsuit against Well Fargo Bank, N.A. Judge Timothy Black of the Federal District Court for the Southern District of Ohio signed an order approving the settlement on January 25, 2022. More than 1,800 class members will receive between $1,000 and $19,000. While Wells agreed to the settlement, the company admitted to no wrongdoing in the matter.
DannLaw’s complaint in Ethan Ryder et. al. v Wells Fargo may be viewed and downloaded here1413000-1413765-wells complaint (2)
DannLaw and a number of other firms filed the suit in August 2019 on behalf of thousands of homeowners who qualified for but were not offered a home loan modification or repayment plan under the U.S. Department of Treasury’s Home Affordable Modification Program (HAMP) due to what Wells Fargo termed a “glitch” in the computer software the bank used to evaluate applications.
“In addition to being a major victory for consumers, this case underscores the importance of the fee-shifting provisions of the federal laws and regulations that govern the mortgage industry,” Dann said. “Those provisions enable us to fight for working-and middle-class families by holding big banks accountable when they act irresponsibly. Without fee shifting, clients like ours would be left with little or no recourse when lenders and servicers break the rules.”
Dann also noted that multi-million-dollar settlements strengthen consumer protection laws by deterring bad behavior in the financial services industry. “State and federal regulators simply don’t have the manpower or resources to pursue all the bad actors in the financial services sector,” Dann said. “The civil justice system empowers DannLaw and other consumer protection firms to police the industry and secure justice and just compensation for people who have been abused—no matter how many challenges we encounter or how much time and effort it takes to win.”
Dann praised the work of DannLaw Managing Partners Brian Flick, Dan Solar, and Javier Merino as well as the firms that co-counseled on the case. “I’m incredibly proud of our performance and our total commitment to our clients,” the former Ohio AG said. “The fact that a team of talented, tireless consumer lawyers can take on the biggest ‘white shoe’ law firms in the country and win demonstrates why the American legal system is the best in the world and why we will continue to use it to protect homeowners and consumers for years to come.”
It seems like just weeks ago we saw bright light at the end of the COVID-19 tunnel. Turns out that thanks to people who refuse to be vaccinated and the resultant spread of the highly contagious Delta variant of the Coronavirus that light may once again be an oncoming train that puts both lives and the nation’s economic recovery at risk. To eliminate that risk, we encourage everyone who has not already been vaccinated to roll up their sleeves and get their shot ASAP.
Unfortunately, the economic slowdown, more than 400,000 people a week are now filing new jobless claims, combined with Ohio Mike DeWine and other governors’ decision to rescind federally funded unemployment benefits leave millions of people at risk for losing their homes via eviction or foreclosure.
With that in mind, this update includes vital information about evictions, forbearance, and foreclosure…
First, a few updates on what we’ve been up to:
DannLaw Leads the Fight to Restore $1 Billion in Federal Benefits that Governor Dewine turned down for Unemployed Ohioans
You may have read about our effort to have the supplemental unemployment benefits restored to over 330,000 Ohioans. We argued in court that Governor Dewine lacked the legal authority to refuse benefits made available to unemployed Ohioans by the Federal Government. While we lost the first round in Franklin County Court we are urging that the 10th District Court of Appeals to reverse the trial Judge’s decision. We are optimistic that our legal arguments on behalf of over 330,000 Ohioans will prevail. This is important not only to unemployed people but also to all of us. Those benefits will (and would have) pumped over $100 Million a week into Ohio’s economy. That money would be spent to support small businesses and employed workers throughout the state.
Ryder v. Wells Fargo Class Action Settles for $12 million: DannLaw Leads the Way
DannLaw and its co-counsel recently helped their clients resolve a class-action lawsuit against Wells Fargo related to glitches in the bank’s loan modification program: Ryder v. Wells Fargo Bank N.A., No. 1:19-cv-00638-TSB (S.D. Ohio). Through the settlement, roughly 1,830 class members will receive over $ 9 million in direct cash payments. No claim forms are required–checks will be issued directly to the class members. The rest of the settlement amount will be used to pay settlement administration fees and expenses, attorneys’ fees and expenses, and class representatives’ incentive awards. A copy of the settlement agreement may be found here and Plaintiffs’ Unopposed Motion for Preliminary Approval, filed on July 2, 2021, may be viewed here.
Foreclosure Moratorium Ends
The federal government’s foreclosure moratorium ended on July 31, 2021. Under new rules issued by the Consumer Financial Protection Bureau, foreclosure actions may proceed if the borrower:
- Has abandoned the property.
- Was more than 120 days behind on their mortgage before March 1, 2020.
- Is more than 120 days behind on their mortgage payments and has not responded to specific required outreach from the mortgage servicer for 90 days
- Has been evaluated for all options other than foreclosure and it is determined that foreclosure is unavoidable.
While foreclosure proceedings may begin, foreclosure is not necessarily a done deal. DannLaw’s experienced foreclosure defense attorneys have helped hundreds of families save their homes and their financial futures. We know how to use the law to protect borrowers and to hold lenders who violate the rules accountable.
If you were in foreclosure when the moratorium went into effect last year or believe your servicer or lender is about to begin proceedings to take your home, do not delay, contact DannLaw today to arrange a no-cost, no-obligation foreclosure defense consultation.
If you even suspect that a foreclosure will be initiated or reinstated Do not delay, contact us TODAY! Click here to schedule an in-person, video conference, or telephone appointment or call us at 877-475-8100.
In Forbearance? Now is the time to begin planning your exit strategy…
There is also good news for homeowners in forbearance. The CFPB recently issued new rules designed to protect homeowners as mortgage forbearance programs and the moratorium on foreclosures end. The CFPB said the regulations, which take effect August 31, 2021, will give borrowers who stopped making their mortgage payments time to explore their options and require servicers to “redouble their efforts to work to prevent avoidable foreclosures.”
Among other things, the new rules will:
- Give borrowers a meaningful opportunity to pursue loss mitigation options. To ensure that borrowers can pursue foreclosure avoidance options, servicers must meet temporary special procedural safeguards before initiating foreclosures through the end of the year.
- Allow mortgage servicers to help borrowers faster.Servicers can now offer streamlined loan modifications to borrowers without making borrowers submit all the paperwork for every possible option. These streamlined loan modifications cannot increase borrowers’ payments and have other protections built into them.
- Tell borrowers their options.Servicers will be required to increase their outreach to borrowers before initiating foreclosure and tell borrowers key information about their repayment or other options when they communicate with borrowers who are exiting forbearance or struggling to make mortgage payments.
Along with issuing the new rules, the federal government is also:
- Extending the application deadline for homeowners who have not previously requested forbearance from July 1, 2021 to September 30, 2021. Six months of forbearance is available for new filers.
- Providing homeowners who entered forbearance between July 1, 2020, and September 30, 2020, one additional three-month extension that will allow them to recover financially before resuming mortgage payments.
Now is the time to begin planning your forbearance exit strategy.
Remember: forbearance is not forgiveness. At some point, borrowers will be responsible for missed payments, taxes, and other fees. The phase-out of the forbearance program and end of the foreclosure moratorium means now is the time for borrowers to plan and execute an exit strategy.
Fortunately, the CFPB’s new rules provide a clear roadmap to the future for many homeowners. Let’s take a look at the options available based on the type of loan you have. As always, the experienced legal team at DannLaw is available to help assess your situation and select the path that is right for you and your family. To arrange a no-cost, no-obligation consultation please complete and submit our contact form. We are eager to help you.
Generally speaking, borrowers whose loans are backed by the federal government have four ways to repay balances that accumulated during forbearance:
This option might be right for you if…
You can afford to pay more than your regular mortgage payment for a few months.
How it works
A portion of the amount you owe will be added to the amount you pay each month.
Deferral or Partial Claim
This option might be right for you if…
You can resume your regular payments but can’t afford to increase your payments.
How it works
These options will either move your missed payments to the end of your loan or put them into a subordinate lien repayable only when you refinance, sell, or terminate your mortgage.
This option might be right for you if…
You can no longer afford to make your regular mortgage payment.
How it works
Your payment can be reduced to an affordable amount and your missed payments will be added to the amount you owe. Your monthly payments could also be lower, but it could take longer to pay off your loan.
This option might be right for you if…
You want to pay back all of your missed payments at once.
How it works
For most loans, servicers cannot require you to pay a lump sum. So, if you only hear about a lump-sum repayment, ask about other options.
Now let’s look at the options available by the type of loan:
Fannie Mae/Freddie Mac.
Fannie Mae and Freddie Mac do not require a lump sum payment at the end of forbearance and offer repayment plans, deferrals and partial claims, and loan modifications. Your servicer should reach out to you about 30 days before your forbearance plan ends to determine which program is best for you.
HUD/FHA does not require lump sum repayment at the end of the forbearance. Servicers will determine if the borrower is eligible for FHA’s COVID-19 Recovery Standalone Partial Claim home retention option no later than at the end of the forbearance period. This program is for homeowners able to resume making their monthly mortgage payments and places arrearages into a subordinate lien that is repaid only when the home is refinanced, sold, or the mortgage is terminated. This lien does not accrue interest.
Borrowers who cannot resume making existing monthly mortgage payments may be eligible for the COVID-19 Recovery Modification which extends the term of the mortgage to 360 months at a fixed rate and targets reducing the monthly principal and interest portion of monthly mortgage payments.
USDA Rural Housing Service
USDA does not require a lump sum payment at the end of the forbearance. Borrowers able to resume making regular payments should be offered an affordable repayment plan or term extension that defers arrearages to the end of the loan. Servicers should determine if borrowers unable to begin making regular payments qualify for other loss mitigation options.
Servicers of VA loans cannot require borrowers to make a lump sum payment at the end of forbearance. VA currently offers repayment plans and loan modifications and is now evaluating other options that may be made available in the future.
An important note for borrowers with private loans.
Homeowners whose mortgages are held by private lenders are especially at risk at the end of forbearance. If you are in forbearance, please stay in regular contact with your servicer because they have the ability to change the terms of your plan at any time. They can also require you to make a lump sum payment when forbearance ends. In addition, it is highly likely that any repayment options they offer will be designed to maximize their profit at your expense.
DannLaw’s experienced legal team knows how to deal with and hold private lenders accountable. If you have a private mortgage, don’t hesitate to contact us to arrange a free consultation so we can assess your situation and help ensure that your home and your finances don’t become victims of the pandemic.
For comprehensive information about forbearance, repayment options, and other COVID-19-related mortgage issues please visit the CFPB’s Help for Homeowners webpage.
The good news: on Tuesday, August 3, the Centers for Disease Control and Prevention (CDC) extended the eviction moratorium that had expired on July 31 until October 3, 2021. The eviction ban is in effect for areas of the nation experiencing “substantial and high levels of community transmission” of the coronavirus. That means 90% of the nearly 11 million people behind in their rent are protected.
According to the Biden administration, the extension will give renters and landlords time to access the more than $46 billion in aid that has been approved by Congress. To date only $3 billion has been disbursed. That means lots of dollars are available to pay for rent, late fees, utilities, and moving costs. You can learn more about the assistance programs here.
If you are behind in your rent payments, we strongly urge you to take the following steps:
- Determine if you are eligible for assistance. To be eligible you must have an agreement to pay rent for your home or mobile home lot. You don’t need to have a signed lease, and your home could be an apartment, house, mobile home, or other place. In addition, these factors must apply to at least one member of your household:
- They did or should qualify for unemployment benefits;
- They lost income
- They owe large expenses or had other financial hardships
- They are experiencing housing instability, which means they are at risk of becoming homeless or would have trouble finding a stable place to live.
Eligibility is also determined by household income based on where you live. For detailed information about eligibility click here then select your state, territory, or tribe from the pulldown menu.
- If you are eligible, apply TODAY! Do not wait, take advantage of the help that is available as soon as possible by clicking here then select your state, territory, or tribe from the pulldown menu.
- Communicate with your landlord. If you are behind in your rent, please communicate with your landlord. If you have applied for aid tell them. If you are not eligible, keep them advised of your situation and explore the possibility of working out a payment plan that will enable you to stay in your home when the moratorium ends.
- Do not ignore letters or summonses issued by a court. When and if you receive an eviction notice or are summoned to court, you must respond. Ignoring letters or failing to appear practically guarantees that you will be evicted.
Thanks for taking the time to read this important update, and as always feel free to contact us should you have questions or need our help. https://calendly.com/mdann
A lot has happened since we issued our first COVID-19 on March 13. In our tenth update we’ll take a look at recent developments, discuss impending challenges and opportunities, issue a couple warnings, and dispense some sage advice…
Involuntary Forbearance can threaten your financial future
Let’s start with a cautionary tale about involuntary mortgage forbearance. As we’ve said repeatedly, while it can be a lifesaver for people who are facing financial disaster as a result of the pandemic, forbearance is NOT forgiveness. Homeowners will eventually have to make the interest, principal, and escrow payments they have been delaying.
In addition, forbearance may jeopardize court-approved bankruptcy repayment plans and could make it difficult to buy a new home or refinance an existing loan. That’s why we urged homeowners to think carefully before taking advantage of the forbearance programs made available by the CARES Act and many private lenders.
Unfortunately, a number of banks and servicers didn’t give borrowers a choice. Back in May we warned that a number of banks and mortgage servicers were putting homeowners into forbearance by “mistake.” One of the offenders, and I’m sure this will shock no one, was Wells Fargo. According to a CNBC report, borrowers who called servicers seeking information about forbearance and other relief programs were put into forbearance without their consent by swamped call center workers.
At that time we doubted that Wells, perennial winner of the worst bank in the world award, was really doing this by accident. Turns out we were right. NBC News reported on July 16 that Wells was purposely placing borrowers into forbearance without seeking or receiving their permission.
The story focused on Troy Harlow of Buchanan, Virginia who filed personal bankruptcy in 2017 after a kidney transplant put him on permanent disability. Troy never missed a house payment because his primary goal was to stay in his home.
That didn’t matter to Wells. Without his knowledge or permission, on April 29 the bank told the bankruptcy court overseeing Harlow’s payment plan that he had asked to pause his mortgage payments because he had been hurt by COVID-19. Harlow who never even thought about asking to be placed in forbearance continued to forward the full amount owed on his mortgage to Wells.
Harlow’s attorneys soon learned that he wasn’t the only victim. Wells had played the same dirty trick on homeowners in 11 states.
That news set off alarm bells here at DannLaw and led us to launch an investigation to determine if borrowers in Ohio and New Jersey have been scammed by Wells and other lenders. With that in mind, we’re asking homeowners to do two things:
First, contact your lender to determine if they have placed you in forbearance without your permission.
Second, if they have you should contact us right away so we can help rectify the problem and determine if we should file a class-action suit on behalf of every borrower who has been abused by Wells and other lenders. You can reach us by calling 216-373-0539 or filling out and submitting our contact form. Please do this right away because involuntary forbearance can cause real problems for years to come.
Is it time to take your loan out of forbearance?
If you chose to place your loan in forbearance, it’s time to start thinking about an exit strategy. If you haven’t been able to make payments because you lost your job or were laid-off when the COVID-19 crisis cratered the economy but are now back to work you should consider taking your loan out of forbearance before the amount of delayed interest, principal, and escrow you owe becomes unmanageable.
To determine if you should begin making your house payment again, consider the amount you owe on your home relative to its value. If your home is worth more than your mortgage balance it is an asset that you should protect. If it is worth less than you owe it is a liability so your mortgage payment should be viewed as a housing cost and compared to alternatives like paying rent. You should also evaluate other factors including the state of the housing market in your neighborhood, the company that owns your loan, and whether you intend to sell your house sometime in the next few years.
The moratorium on foreclosures is about to end
The moratorium on foreclosures imposed at the beginning of the COVID-19 crisis are coming to an end in some Ohio counties and will lapse for federally backed mortgages at the end of August. That means sheriff’s sales will resume soon.
If you were in foreclosure when the pandemic struck you should contact your attorney right away. If you have not retained a lawyer contact us to arrange a no-cost consultation so we can review your case and discuss ways we may be able to help save your home. To learn more about the options available to you click here to visit the Foreclosure Defense page on Dannlaw.com.
Evictions set to resume
Today it is estimated that more than 8 million Americans, including tens of thousands of Ohioans, are behind on their rent payments and may soon be evicted from their homes. This number could rise substantially when the CARES Act’s Pandemic Unemployment Insurance payments sunset at the end of July.
While distressing, the situation is not hopeless if renters and landlords communicate with each other and work together to overcome the challenges caused by the pandemic. Here are some important steps to take:
- Renters should communicate in writing with their landlords about their ability to pay, partially pay, or not pay rent. Both renters and landlords are trapped in a dilemma they did not cause, so landlords may be willing to work out payment arrangements. No one benefits from a vacant apartment.
- Check this list to determine if your landlord has a federally backed mortgage and is therefore prohibited from evicting tenants. If you are a landlord with a federally backed mortgage you may apply for forbearance if your tenants are unable to pay their rent. The eviction moratorium/forbearance program will end in late August unless Congress extends it.
- If you reach an agreement with your landlord regarding late or partial payments put it in writing. We will soon post a form on our website that will make it easy to create written versions of tenant/landlord agreements.
- Do not ignore letters or emails you receive from a court and always attend hearings when ordered. While there are legal defenses available to renters and strict procedures that must be followed before a landlord can evict a tenant, ignoring notices and/or failing to appear just about guarantees that your belongings are going to end up on the street.
- Retain legal counsel. If you cannot afford an attorney call your local legal aid office. As a service to people impacted by COVID-19, we are making DannLaw’s Cleveland and Cincinnati offices available if you need a computer or internet access to participate in a virtual eviction hearing. A member of our legal team will also be on hand to answer general questions about evictions.
- I and Jeff Watson, General Counsel to a number of real estate investor groups will conduct a virtual seminar for landlords and tenants on Thursday, July 23 at 8:00 P.M. This informative session, titled, “The Eviction Tsunami: Facts and Strategies that Lawyers, Landlords and Tenants Must Know,” will feature a discussion of the growing eviction crisis as well advice and strategies that will help landlords avoid insolvency and tenants escape homelessness. To register for the seminar click here.
Collection firms are up to their old (dirty) tricks
While debt collectors are typically shameless, there has been noticeable slow-down in activity since the onset of the COVID-19 crisis in March. But as states take steps to restart their economies and courts begin to reopen, we’ve received reports that collection lawyers, debt buyers and creditors are ramping up operations. That means debtors must be on the lookout for and pay close attention to any legal notices they receive.
As we noted in our discussion about evictions, the quickest way to lose a case and have a judgement entered against you is to ignore the problem. Trust me, it’s not going to go away simply because you toss a letter in File 13 or don’t show up for court. So please, respond in writing to communications you receive and appear in court when ordered.
In addition, you should contact us to arrange a no-cost consultation. We’ll be happy to discuss your situation and your options. We’ll also determine if debt collectors have violated any of the laws and rules that protect consumers. If they have, you may be entitled to financial compensation. Here’s a brief overview of the rules that govern the collections industry:
- The Fair Debt Collections Act (FDCA). Enacted in 1978, the FDCPAis the most well-known federal consumer protection statute. Its primary purpose is to prevent third-party debt collectors from using abusive, unfair, false, or deceptive practices to collect debts. To put it simply, collectors may not lie to or mislead consumers in the course of attempting to collect a debt. Violators of the Act may be liable for statutory damages, actual damages, and attorney’s fees.
- Telephone Consumer Protection Act (TCPA) The TCPAlimits the use of automatic telephone dialing systems (ATDS) and artificial or prerecorded voice messages by telemarketers. Since its passage in 1991, the TCPA has been expanded to cover the use of ATDS’s and voice messages by debt collectors and now applies to cell phones if an affected consumer does not have a landline. Under the law collectors may not call a cell phone unless the owner gives consent. That means it’s important for consumers to deny consent verbally during the initial call and then to immediately withdraw consent in writing.
Statutory damages under TCPA range from $500.00 to $1,500.00 per call and may be applied to each and every call made if it is found that a debt collector willfully violated the Act. The ability to “stack” damages serves as an effective deterrent and provides just compensation for consumers who have been victimized by aggressive debt collectors who willfully violate the law.
Check Your Credit Report Weekly
The CARES Act allows you to obtain copies of your credit reports from annualcreditreport.com on a weekly basis. You should take advantage of this opportunity because a number of state unemployment computer systems have sustained massive data breaches. DannLaw has filed class-action lawsuits in Ohio and Arkansas related to those breaches.
In addition, several provisions of the CARES Act are inconsistent with the Fair Credit Reporting Act. Please reach out to us right away if you notice inaccuracies on your credit report because you can sue credit reporting agencies and entities that furnish information to them if they refuse to correct mistakes.
The Con Premieres August 5
Finally, I would like to extend a personal invitation for you to join me on August 5 for the premiere of “The Con,” a four-part series about the 2008 fraud and corruption-fueled collapse of America’s housing market. I’m both proud and humbled to say the series highlights the steps I took as Ohio Attorney General and at DannLaw to hold those responsible for the crisis that led to 10,000,000 families losing their homes accountable for their actions. The series provides a lesson for the risks we face as we hurtle toward a pandemic-related recession.
“The Con,” like all movies being released in the midst of the pandemic, is being released direct to video via independent theatres. To receive your invitation to the free live premiere, click here and then click on “Follow” above the video. If you like The Con on Facebook, you’ll be invited to the free live premiere on August 5. We’ll be posting more news about “The Con” in our blog and on our Facebook page in the weeks to come.
I was mildly enthusiastic about the CARES Act immediately after it was passed because it appeared to be substantially different from the stimulus plan crafted by the federal government during the Great Recession of 2008.
That package funneled trillions of dollars to the big banks and Wall Street speculators whose unfettered greed nearly destroyed the world’s financial system but did relatively little to help working and middle-class families devastated by the collapse of the housing market. By the time the economy began to turn around 10,000,000 of them had lost their homes.
By contrast, the CARES Act appears to direct $937 billion in aid to where it’s needed most: into the pockets of the more than 20,000,000 million Americans who are now unemployed and the bank accounts of small business owners who are literally hours away from losing everything they have built.
Sure, Congress doled out hundreds of billions of dollars to corporate America, including the airlines who have been ripping off travelers for decades, but the stimulus checks, enhanced unemployment benefits, and small business loan programs funded by the Act will help millions of people weather the Covid-19 storm—at least for the next couple months.
While it appears that Congress got a few things right, there are holes in the legislation that could negatively impact consumers, homeowners and small business owners. In this update I’ll identify the gaps and provide advice on who to deal with or avoid them.
Problems with the Paycheck Protection Program
As I mentioned earlier, hundreds of thousands of small businesses across the nation are about to go under. The Paycheck Protection Program (PPP) is designed to help keep them afloat by providing forgivable loans owners can use to pay expenses including employee wages, rent, and utilities.
In concept the program is great. In practice, not so much.
That’s because the nationally chartered banks and SBA approved lenders charged with administering the program are permitted to pick and choose which applications to accept and in what order. As a result, they’ve been playing favorites. Business owners who have an existing relationship with a PPP lender go to the front of the line. Those who don’t, including minorities, are shoved to the back—if they’re able to apply at all. I’m sure you won’t be shocked to learn that Wells Fargo and other large financial institutions are telling smaller customers to hit the road and “try other banks.” Publically owned Ruth’s Chris Steakhouse just announced that they alone sucked up $20 Million of the funds appropriated.
This type of discrimination is especially troubling in light of the fact that Congress did not appropriate enough money to meet the needs of all the small businesses that are in trouble. When the money runs out, thousands of hard-working entrepreneurs and their employees will be doomed simply because they couldn’t access the help they were promised and desperately need.
We launched an investigation into this situation after being contacted by frustrated and infuriated small business owners. If you think something is wrong with the way a lender is handling or, more to the point, not handling your PPP application, please give us a call or email me at firstname.lastname@example.org
On the positive side, a number of clients have told us that smaller community banks are eager to process PPP paperwork. We’re not surprised. Over the years we’ve learned that community banks are extremely responsive to the needs of small borrowers. If you’ve been unable to make headway with a large lender, I encourage you to contact one of the community banks listed here.
Stimulus Checks can be hijacked by Judgment Creditors and banks
Stimulus checks funded by the CARES Act are already being deposited in the bank accounts of millions of Americans. That’s the good news.
Here’s the bad news: The Act doesn’t prohibit private debt collectors from garnishing stimulus money. That means if you’re behind on debt payments and have an outstanding court judgment, a private debt collector can grab your stimulus check. Attorney Javier Merino, head of DannLaw’s New Jersey office, along with consumer lawyers Josh Denbeaux and Ira Metrick just published an op-ed in the New Jersey Law Journal dealing with this issue.
If you fall in this category you should keep a close eye on your bank account and withdraw the money as soon as it is deposited. To stay one step ahead of judgment creditors you can track your stimulus payment here.
Here’s more bad news: if you owe money to the bank where your stimulus payment is being direct-deposited the bank can grab it. For example, if you have a bank account that’s been overdrawn, and your stimulus payment is deposited into that account, the CARES Act does not prevent the bank from taking part or all of the stimulus payment to pay back the debt. So far J.P. Morgan Chase and Wells Fargo have said they will not seize stimulus funds. Bank of America, Citibank, and U.S. Bank have yet to clarify their positions.
Waiver of Federal Student Loan interest is in doubt
Federal Student Loans servicers have not been completely transparent about how they are going to implement the six-month zero interest, zero-fee forbearance included in the Act. In addition, some observers speculate that Navient, Greatlakes, and Nelnet don’t have the technology needed to properly track accounts. If you are taking advantage of the forbearance program please pay close attention to your loan statements and contact DannLaw or other attorneys if you notice a discrepancy in your account.
The CARES Act does not provide relief for federal loans originated before 2005 and private student loans
The CARES Act does not provide forbearance for federal student loans originated before 2005 that were not consolidated or private student loans. If your loan falls into these categories you must continue to make your payments. If you are unable to do so, contact your servicer in writing and request a modification, forbearance or another type of accommodation.
Monitor your credit if you are taking advantage of the mortgage forbearance provisions of the CARES Act.
As we’ve noted in previous updates, the CARES Act provides for up to 12 months of payment suspension/forbearance for borrowers with federally-backed loans owned by Fannie Mae, Freddie Mac or insured by the FHA, VA and the Department of Agriculture. To determine if you have a qualifying loan send a request for information (RFI) to your mortgage servicer. We’ve drafted a simple RFI you can use. To obtain a copy email us at email@example.com.
Please remember forbearance isn’t forgiveness. That means you may be subject to higher mortgage payments, escrow payments, and other fees when you begin making your payments after the forbearance period. If you do take advantage of the Act’s forbearance program you should look closely at your monthly statement to make sure it is correct. You should also subscribe to a credit monitoring service and check regularly to make sure your servicer is not entering negative information on your credit report. If you notice discrepancies contact us at firstname.lastname@example.org so we can help protect you and determine if you have legal claims that may entitle you to financial compensation.
Bankruptcy may be the solution to your financial problems
My parents always encouraged me to hope for the best but prepare for the worst. Today, their advice is more valuable than ever before because the COVID-19 emergency is causing unprecedented damage to our economy and levels of unemployment not seen since the Great Depression. Study after study has shown that a majority of Americans would have a difficult time meeting their obligations for more than a month or two if they lost their source of income. The ongoing crisis has validated those studies.
The $1200 stimulus checks and small business loans may ease the pain in the short term, but when that money is gone many business owners and individuals will be forced to consider filing bankruptcy in the months ahead. And while many people are loathe to do so, bankruptcy protections may provide the best option for dealing with the devastation caused by the crisis—a crisis none of us created or could have anticipated.
The fact that the courts and collection activity are essentially shut down gives business owners and individuals a unique opportunity to closely examine their financial situation and begin planning for the future—including a future that includes bankruptcy. Doing so will put you in a good position to move forward once the crisis ends if you don’t have to file and will help ensure that bankruptcy provides the maximum protection for your family and your business if filing proves to be the best alternative.
If you would like to schedule a phone or video conference with one of our experienced bankruptcy attorneys to discuss your financial future and the options that are available to you, please email email@example.com We are here to listen, to advise, and to help.