SAN FRANCISCO — Eleven days after losing his home to foreclosure, Jorge, a Napa construction worker, received an ominous letter in the mail. It said he still owed $78,000 on his home’s second loan.
“I was afraid and felt pressured,” said Jorge, who asked that his name be withheld because he is embarrassed about his situation. “I called them to say I had already lost the house in a foreclosure,” he said, speaking in Spanish through a translator. “They told me it doesn’t matter, you have to pay the money anyway.”
Jorge’s experience is being mirrored elsewhere. Debt collectors are starting to hound people who lost their homes to foreclosures or short sales over their second mortgages.
In California, a foreclosure generally wipes out the borrowers’ obligation on the main mortgage but not necessarily on other home loans.
“We’ve seen a lot of folks coming to us, saying, ‘I was foreclosed on, now these people say I owe $150,000 for my second loan; I thought everything was going to go away, what do I do now?’” said Noah Zinner, an attorney with Housing & Economic Rights Advocates in Oakland.
Some experts think the trend will accelerate, causing foreclosure pain to linger.
“I think the other shoe is going to drop soon,” said Shannon Jones, a real estate attorney in Danville who gets several calls a day from people concerned about their liabilities post-foreclosure. “In the next two years we will see a huge volume of (debt collection on) second loans. We’re seeing a number of lenders start filing suit or turn them over to collection companies.”
California is a nonrecourse state, meaning lenders cannot pursue borrowers for unpaid balances on home-purchase loans. However, home loans not used for the purchase — home equity lines of credit and second loans taken out after purchase — are recourse loans, which means lenders are legally entitled to collect the unpaid balance. Depending on the type of loan, they have four to six years to pursue borrowers, Jones said.
Refinanced mortgages do become recourse loans, but in California a nonjudicial foreclosure — the most common kind — eliminates the borrower’s liability to the lender that carried out the foreclosure, which is generally the main lender. A second lender for a non-purchase loan, however, still has “recourse,” or the right to pursue the borrower.
In Jorge’s case, he took out the second loan to buy his house, so it is nonrecourse debt, and he cannot be sued for the unpaid balance. A debt collector can, however, ask him to pay “voluntarily.”
For several months, Jorge continued to receive letters and phone calls from both his bank and a debt collector asking him to pay.
“The servicer says there is nothing that prohibits the borrower from voluntarily paying us,” Zinner said. “There is no question it’s sneaky, but it’s not illegal for them to do that. If they were to threaten to sue, that would clearly be illegal.”
“I suspect they’re just dealing with volume,” said Maeve Elise Brown, executive director of the Oakland group. “(Debt collectors) buy the debt for 10 cents on the dollar and figure they’ll browbeat a certain percentage of homeowners into paying them, whether the money is lawfully due or not.”
Housing & Economic Rights Advocates has partnered with attorney Will Kennedy of Santa Clara to represent Jorge and plans to pursue a class-action case on behalf of other borrowers with nonrecourse loans whose lenders dunned them for that debt.
“Many people are in Jorge’s situation and don’t realize they’re under no obligation to make any more payments after a foreclosure,” Kennedy said.
But millions of borrowers do have recourse loans that they took out after purchase, which means lenders have a legal right to pursue them for unpaid balances.
In California during the boom real estate years — 2005 to 2007 — homeowners took out 2.88 million home equity lines of credit and 1.18 million non-purchase second loans, according to First American CoreLogic, which tracks loan data. The total was 4 million such recourse loans totaling $485.3 billion.
Some experts think lenders may pick whom to pursue by probing defaulted borrowers’ net worth.
Rick Harper, director of housing at Consumer Credit Counseling Services of San Francisco, which staffs the federal HOPE for Homeowners hot line, said his workers tell borrowers who are considering default that their second loans could make them liable to debt collection.
“Depending on what the holder of that note wants to do, it can make their (the borrowers’) life miserable,” he said. “Most of the (lenders) do an asset test to see if there’s anything there. They can run credit reports, use investigative services, get their hands on the applications they used when they applied for a loan.” Applications for loan modifications and short sales also require disclosure of assets.
At Wells Fargo, Mary Berg, a spokeswoman for the Home Equity Group, said in an e-mail: “On a case-by-case basis, after a review of the borrower’s situation, we do sometimes pursue deficiency balances in states that allow this type of activity. We only pursue deficiency judgments if we determine that the borrower has the ability to repay the entire or a portion of the balance.”
Wells, Bank of America and JPMorgan Chase hold the lion’s share of U.S. second liens, according to Inside Mortgage Finance. BofA has $147 billion, Wells $124 billion and Chase $118 billion, it says.
Chase wrote off about $4.6 billion in home equity loans in 2009, and has said it expects to write off up to $5.6 billion of the loans this year.
Chase declined to comment. BofA did not return requests for comment.
Jones, the Danville real estate attorney, said she’s turned down some second-loan clients.
For instance, one Bay Area man had borrowed $52,000 on a home equity line of credit for a home that ended up in foreclosure.
“The lender filed suit against him and he asked me to defend him,” she said. “I said, ‘You don’t have a defense. You borrowed the money, you spent the money. You signed a promissory note and said you would pay it back.’”
Often, such borrowers end up settling with the lender for pennies on the dollar, Jones said. “You can’t get blood from a turnip,” she said.
Margot Saunders, an attorney with the National Consumer Law Center, said bankruptcy may be the best option for some people to wipe out liability for their second loans.
“People with a second mortgage who are facing foreclosure should go to bankruptcy to get rid of the unsecured second-mortgage note,” she said. “They should do it as soon as they’re foreclosed upon, because that’s when they’re at rock-bottom, not when they’ve started to rebuild (their finances).”
Other attorneys said borrowers should try to discharge their second liens before a foreclosure or short sale by offering the lender a percentage of the amount due.
Home Affordable Modification Program, the government’s foreclosure-prevention plan, recently added provisions encouraging lenders to settle or modify second loans. If adopted by lenders, that could help people who lose their homes in the future avoid pursuit by debt collectors, but it won’t do anything for the millions who already lost their homes in recent years.
“It will be hard for people in our state to start over again, if they sometimes lawfully and sometimes unlawfully end up getting pursued for pretty significant-sized debt,” Brown said.
The mayor of Morgantown, W.Va., who like Durham Mayor Bill Bell, is trying to convince Google that his city should become Google’s ultra-wired community, has endorsed the Bull City in its quest.
But he’s doing so reluctantly.
Bell and Mayor Bill Byrne of Morgantown, where West Virginia University is located, placed one of those “friendly wagers” on the NCAA men’s Final Four semifinal in which Duke University clobbered the Mountaineers. The bet: The mayor of the losing city would endorse the winner’s city’s application for the Google project.
Bell has received a copy of the letter of endorsement sent to Google CEO Eric Schmidt supporting Durham’s application. The letter cites Byrne’s “…enthusiastic endorsement of Durham’s Google application guaranteed pay day loans.” Byrne goes on to write, “Having made a pact with the Devils themselves, I willingly express this sentiment.”
The Morgantown mayor couldn’t resist some subliminal pitches for his own city, alluding to the “substantial creative planks” of Morgantown’s application and a sly promise that when the Mountaineers win against Duke in next year’s championship, the game ball would land in the hands of Google.
Google plans to pick one or more locations across the country, promising Internet service that’s more than 100 times faster than what most Americans currently have. Google will announce its decision by year’s end.
ST. LOUIS — A Budweiser Clydesdale clopped into a packed gymnasium at a San Diego naval hospital last December and was greeted by 300 people — injured servicemen and women surrounded by their families and hospital staff. It was a "wounded warriors" holiday party. The Clydesdale was a hit. People posed for photos with the horse. Children rushed to pet it.
"Cost numbers never came up," said Riley Nelson, athletics coordinator for Naval Base San Diego. With a shoestring budget, he was relieved Anheuser-Busch paid for the Clydesdale.
But it could be the last time the wounded warriors — or other small charitable events and nonprofits — can afford a Clydesdale visit.
Earlier this month, Anheuser-Busch quietly started charging a $2,000-per-day fee for public appearances by its Budweiser Clydesdales, ending the decades-long practice of the brewer absorbing almost all of the cost of showcasing its iconic horses before adoring crowds.
A-B described it as asking for "increased participation" to offset the $8,000 per day it costs to have a hitch team on the road. Previously, beer wholesalers and event organizers were expected to chip in only for stabling and feed costs, which were typically nominal.
The Clydesdales are considered corporate ambassadors so revered they have evolved into almost symbols of America; appearing, for example, in two presidential inaugural parades. The horses make more than 900 appearances at 200 different events each year. Hitch teams, consisting of eight horses pulling the red Budweiser beer cart, travel the country for months at a time. The horses march in parades. They visit festivals. They attend rodeos and air shows.
Keith Levy, A-B marketing vice president, said the new fee should not reduce the number of events for the Clydesdales because demand for the horses far outstrips the supply of available dates. "They’ll still be extremely visible, as visible as they ever were," he said.
Levy declined to provide the annual budget of the Clydesdale program but said the fee was not aimed at generating revenue. He pointed out that the brewer still pays the bulk of the cost and that "the value (of an appearance) exceeds the cost of showcasing them," even with the new fee.
But that price is still too high for small events like wounded warriors, Nelson said.
"It probably would be something we wouldn’t do," he said. The Clydesdale visit "is nice, but $2,000 is a lot of money."
The Clydesdales also could be missing from next year’s St. Patrick’s Parade in Atlanta. Nancy Logue, president of the nonprofit that organizes the 128-year-old event, said she was delighted to have a hitch team in last month’s parade. The nonprofit and a local beer distributor divided the cost of paying for stable space, feed and overnight security for the horses. But Logue said she doubted the Clydesdales would be back next year due to the new fee.
"In this economy, it’s tough," Logue said.
But Old Town entertainment complex in Kissimmee, Fla., said it likely would pony up the money to have the horses return again after their last visit in January.
"We love them. It’s definitely something we would consider," special event manager Tracy Parkinson said. "The Clydesdales are very, very popular."
Handling of the brewer’s 250 Clydesdales is a sensitive issue for Anheuser-Busch, especially since it became the U.S. subsidiary of Belgium-based InBev in 2008. The official merger agreement specifically requires the combined company — renowned for tough cost-cutting — to continue to support the Clydesdales operations. After all, the horses have been a part of company lore since 1933, when a team of Clydesdales were used to deliver the first post-Prohibition beer brewed in St. Louis.
A-B has made some changes to its Clydesdale program since the merger. Last year, it closed its Clydesdale breeding center in California and opened a massive new breeding farm in Boonville, Mo., with its own veterinary lab, 34 stalls and state-of-the-art equipment. While the farm is closed to the public, A-B will open the adjacent Warm Springs Ranch for tours on April 30.
A-B also has consolidated hitch teams spread across the country to just three locations: Boonville, St. Louis and Merrimack, N.H.
Earlier this year, A-B ran into some public grief for its initial decision not to include a Clydesdales commercial among its Super Bowl TV ads. The brewer changed its mind.
The decision to charge for Clydesdale appearances presents a difficult calculation for A-B, said Derek Rucker, marketing professor at Northwestern University’s Kellogg School of Management. The fee is a way to curb costs — a fee that the consumer is not likely to know anything about.
But there is a risk.
"Where it could become a problem is if (the decision to charge a fee) becomes strongly associated with the brand," Rucker said.
Beer industry consultant Tom Pirko said he agreed with the decision to charge for the Clydesdales. He said the brewer should even consider a fee on its now-free brewery tours. Value is reinforced if people pay for it.
"They are more appreciated if they are not free," Pirko said.
But not all Clydesdale visits face the $2,000 fee. Levy said A-B would continue to cover the cost of supplying hitch teams to major events such as the baseball All-Star Game.
And that includes the Budweiser Clydesdales scheduled to parade around Busch Stadium today before the Cardinals home opener. A-B plans to pick up the tab for the appearance.
Microchip Technology Inc. has completed its purchase of Silicon Storage Technology Inc., closing the nearly $300 million deal.
Chandler-based Microchip (Nasdaq:MCHP) finalized is acquisition of SST (Nasdaq:SSTI) after shareholders approved the deal in a special meeting on Thursday.
We are pleased to have completed this transaction,” said Steve Sanghi, Microchip president and CEO, in a prepared statement. “Through this acquisition, we gain access to SST’s SuperFlash technology and extensive patent portfolio, which are critical building blocks for advanced microcontrollers. We expect that SST will also enhance our ability to customize technology variants, thereby adding an advantage over competing technologies.”
Microchip sought SST’s technology as a way to build its presence in the memory market and add to its own patent portfolio. Microchip twice upped its bid for the Sunnyvale, Calif.-based manufacturer after rival bids were submitted to its board.
“We are confident that SST will flourish as a part of Microchip,” said Bing Yeh, co-founder and CEO of SST. “As part of a larger, more diversified company, we believe that SST will be better positioned to deliver the superior service and innovative NOR flash and embedded flash solutions that our customers expect.”
Today will mark the last day that SST’s stock trades. Owners of the stock will receive $3.05 in cash as part of the sale.
Sangamo BioSciences Inc. appointed APT Pharmaceuticals Inc. chief Stephen Dilly as a director, increasing the size of the board from six to seven members.
The Richmond-based company, best known for its “zinc finger” DNA-binding proteins, said Dilly will receive standard fees for non-employee directors: an annual cash retainer of $30,000 and $1,000 per board meeting, if the board meets more than 10 times a year.
Dilly also will receive an option to buy 50,000 shares of common stock at an exercise price of $5.42 per share. Sangamo stock closed last week at $5.42 per share.
Dilly is president and CEO of Burlingame-based APT, which is developing inhaled cyclosporine to treat chronic rejection of lung transplants. The treatment is in a Phase III trial.
Dilly previously was chief medical officer and senior vice president of development at Chiron, leaving after the company’s purchase by Novartis. He also held senior management positions at Genentech Inc., including vice president of development sciences, from 1998 to 2003, and worked in drug development with SmithKline Beecham.
Chalk up a legal victory for developer Paul McKee and his $8.1 billion NorthSide plan to remake 2 square miles northwest of downtown St. Louis.
Cole County Circuit Judge Patricia Joyce has dismissed the suit that challenged the constitutionality of the state’s Distressed Areas Land Assemblage tax credit. On Dec. 31, the state gave McKee $19.6 million of the credit.
Two St. Louis residents, Barbara Manzara and Keith Marquard, had filed a suit claiming that the never-before-used tax credit was unconstitutional.
Joyce ruled Monday that the law passes constitutional muster. She rejected the plaintiffs’ claim that the credit awarded to McKee shifts the risk of loss away from his project and represents improper use of public money. Instead, the sale of the tax credit benefits the redevelopment area, the judge ruled.
McKee’s lawyer Paul Puricelli said Wednesday that Joyce "covered all the issues" in finding the law valid. "The primary basis for her opinion was that the statute makes it explicit that any proceeds from these tax credits have to be used for the underlying redevelopment," he said.
The plaintiffs’ lawyer, Irene Smith, said she will appeal. Smith said that a tax credit intended merely to assemble property for redevelopment falls short of a legitimate use of taxpayer money.
"It’s the use of public money in a reckless way," she said.
State lawmakers designed the land-assemblage credit in 2007 to encourage lending on speculative projects such as NorthSide. The credit allows full reimbursement for money spent on interest and loan fees to buy at least 50 acres of land in low-income neighborhoods and a 50 percent reimbursement for the cost of land itself.
McKee sold his tax credit in January and used the proceeds to pay down much of his debt to the Bank of Washington, Mo., his main lender so far on the NorthSide project.
"The notion of the land assemblage tax credit is to acquire land," Puricelli said. "It’s appropriate to use the credit to pay off land assemblage costs."
Still pending is a suit claiming the Board of Aldermen and St. Louis officials failed to follow procedure in approving NorthSide’s $390 million tax increment financing, the largest ever in the city. The matter awaits a ruling by St. Louis Circuit Judge Robert Dierker, who finished hearing testimony about a month ago.
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