Archive for September, 2008

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A 700 Billion Dollar Bailout and what it means to Real Estate Purchasers in New York

Monday, September 29th, 2008

By: Daniel Gershburg, Esq.

So you’re looking to buy your first property in New York during the most uncertain financial period since the Great Depression…what can you expect?

Despite what your recent watercooler conversation would have you believe, banks are still giving out mortgages…for now. The difference is that it will likely become tremendously more difficult to qualify for a mortgage in New York in the near future.

What does this mean if I live in New York City and I have bad credit?

What that means to someone with bad credit is that they will not be able to qualify for mortgages they could have qualified for a few years ago. And that’s a good thing. Not to go on a tangent (and to alienate potential clients) but its about time we stopped lending to many people who, apart from a few exceptions, cannot pay back their loans. That’s not to say that there aren’t people with bad credit in New York City who arent to blame. It simply means that there are many people with bad credit in New York City who ARE to blame. So if you’re one of those people my suggestion is that you continue to work hard to improve your credit score so that when this financial crisis finally passes, you’ll be able to purchase a house you can afford with much better rates.

What does this mean to people in New York with good credit

For people with good credit there will be less of an impact, however the standards that lenders use will become even more stringent. That means if you’re applying for a mortgage to purchase a property in, lets say, downtown Brooklyn, you’ll likely have to put much more down as a down payment. Your finances, employment history, debt to income ratio, liabilities, etc. will be looked at far more in depth. The bank will evaluate and appraise your new condo or single family house much more stringently. The value of the home may be far less than what you suspected, thereby directly affecting the amount the bank will lend you. IN short, you’ll still be able to buy, provided your bank hasnt gone belly up, but it will be much more time intensive and potentially costly.

The Lessons for a Purchaser in New York

There are some lessons to be learned in all of this. It sounds quite paternalistic but it holds true.

  1. Don’t buy what you can’t afford and
  2. Stop “leveraging” already.

I’ve dealt with so many mortgage brokers in New York in the last few years that talk about the concept of leveraging in the consumer world. Its nonsense. What they mean is using your home as an income producing tool by refinancing, taking cash out and then investing in remodeling, a vacation house, or an annuity. Great advice. You should also take out the kids college money and go to Vegas and bet on red (Not legal advice…seriously).

We earn fees on these closings and re-financings. By we I mean lawyers, bankers, mortgage brokers, real estate agents, appraisers, title insurance companies, lenders, New York City, New York state, the Federal government. You tend to speak to any of these people after you’re done with your closing and everyone gets paid? I didn’t think so. I’m not at all suggesting that the above aren’t good people or looking out for your best interests. Its just food for thought.

A house is a house. It’s not a bank account, its not a loanshark, its not a rich grandparent. Its a house. Use it to live in and grow in. Use it to put money in so that you’ll be able to retire one day. But buy one you can afford. Not one you can afford 5 years from now if the market goes up. Not one you can afford if you get that new job. Not one you can afford if you redo the kitchen in granite, put egyptian tile in the bathroom and then flip it for a magical profit. We’ve all gotten a bit ahead of ourselves. Start trusting your gut. If you think you can afford it because you’ve saved up and lived below your means, than buy something you like AND can pay for. But if you’re buying something thats worth fifteen times your annual gross income, and you think its a sure thing that the price will go up…then I have this bridge I’d like to sell you.

Daniel Gershburg Esq., is a Bankruptcy & Real Estate attorney serving clients in Brooklyn, Queens, Manhattan, Staten Island, Long Island and Westchester. Mr. Gershburg has given lectures and presentations to both attorneys and the community at large surrounding Bankruptcy and financial advocacy in the New York City area. He is a proud member of the National Association of Consumer Advocates. Currently he is working on his first book giving practical advice about repairing troubled credit and how to improve credit post Bankruptcy.

Posted in Gersh Blog, New York City Real Estate | Comments

An Example of New York Debt Settlement Company charging absurd fees

Thursday, September 25th, 2008

By: Daniel Gershburg, Esq.

This past weekend I was interviewed by News 12 New York about a Brooklyn debt settlement company who was charging some strange fees to its clients.  What were the fees?  Well lets say someone comes in with about $30,000 in credit card debt.  And lets say this person makes $40,000 a year.  This debt settlement company, like many others, charges, up front, 15% of the total debt amount as their first fee.  That means this woman had to pay $4500 for the privilege of hiring this company to settle her debts.  So she paid more than 10% of her gross annual salary to a company so that a company could try and call her collectors because she didn’t have enough money to pay them.  Not normal.

Now lets move on to the next fee.  A fee of $750/month for the first 2 months for “Processing and Administrative expenses”.  So now were at about $6000 and we havent gotten anything in return yet.  Oh by the way, after the first 3 months, she’s still paying processing fees of about $150 a month.  I don’t know what these people are processing at this debt settlement place in Brooklyn, but its pretty expensive.  

So now you’re up to about 6k and fees and its been a few months…what do you get in return?  Well…based on the time tested principle of stupidity, these Brooklyn debt settlement companies advise you that they are going to put your money aside until you have enough in a reserve fund for them to settle the accounts.  What they don’t tell you is that with the fees these people are charging (which are monthly) it will take years before you have enough to have the companies even entertain settlement.  Moreover, during that period of time the debt settlement company in New York is still charging you their monthly fee.  Oh by the way, creditors also tend to sue if they havent received payments in a particular period of time.  What does your debt settlement company do if you get sued?  Nothing.  Read it again.  Nothing.  They’re not attorneys and if you read the fine print really well you’ll notice that they wont represent you in any court action brought against you.

So lets review this whole process:  You pay thousands and thousands of dollars to a company for the benefit of using them to settle your debts, which you don’t have enough money to pay.  You’re told not to pay your creditors, and to put monthly money aside so that you have a nice lump sum to settle with.  If you get sued…too bad.  If the creditor doesn’t accept the offer from the debt settlement company…too bad.  If you can’t pay your monthly fees to the company…too bad.  

Heres what you get in return:  No guarantee of ever settling any of these debts.  Even if you do settle, you will have likely paid more to to the New York debt settlement company than you would have paid to the original creditor.  You’ll likely be sued, your wages can be garnished and your bank accounts may be frozen.  

Whats my advice?  Negotiate on your own.  Do internet research surrounding do not call letters.  Speak to an attorney who actually knows that he/she is doing.  Do some research on this company.  Save yourself the money and hassle with dealing with people that promise you nothing in exchange for thousands.  

Daniel Gershburg Esq., is a Bankruptcy & Real Estate attorney serving  clients in Brooklyn, Queens, Manhattan, Staten Island, Long Island and Westchester.  Mr. Gershburg has given lectures and presentations to both attorneys and the community at large surrounding Bankruptcy and financial advocacy in the New York City area. He is a proud member of the National Association of Consumer Advocates.   Currently he is working on his first book giving practical advice about repairing troubled credit and how to improve credit post Bankruptcy

Posted in Bankruptcy, Consumer Advocacy, Debt Settlement, Gersh Blog | Comments

New York City Credit Counseling Rip Offs

Tuesday, September 16th, 2008

So you know how I’ve been raving and ranting about Debt Settlement companies and how, in my humble opinion, they did absolutely nothing for you. Well, here come their cousins, the Credit Counseling services. Here’s what a working individual in Brooklyn, a disabled individual in the Bronx, or a mother working full time in Queens can expect when they call a Credit Counseling Agency to deal with their monstrous amounts of debts and the promises that it will all go away. They can expect to be told that they are going to be placed into a Debt Management Plan, whereby the individual in New York sends a lump sum check to the Credit Counseling Agency. That check, the Credit Counseling Agency says, will be used to pay the New York debtors creditors. Sounds great Here are a few things they don’t tell you, the consumer:

(1) They can’t help you when suit has been filed against you.   If a creditor doesn’t want to settle, they don’t want to settle. Thats it. No credit counseling agency can walk into court and stop that Marshall from garnishing your wages.

(2) Through something ingenious called a “Fair Share” system, creditors return to the agencies a certain percentage of the funds that were paid to them. Why in the world would that be? Because many agencies actually were funded by the very credit counseling agencies that are now “helping you” with your massive debt load. Seem a tad unfair or deceptive? Now, after mysteriously deciphering that such a fact may not look so great, creditors have instead handed out “grants” to certain credit counseling agencies, as opposed to just giving them some of the money they were paid to take from you.

(3) There is also a popular misconceptions with some of my Bankruptcy and consumer advocacy clients in New York that consumer counseling agencies are designated as not for profit agencies, so clearly they have descended from Heaven and can cause you no harm. Here is some background to show you just how common this not for profit tag had become. Between 2000 and 2003, 800 agencies applied for tax exempt status (what we call not for profit). 800!!! When the IRS finally began investigating exactly why none of these agencies thought they should make money, it found a few odd things. For one, in May 2006, the IRS announced that it had audited 63 credit counseling agencies, including some of the largest for abuse of this not for profit status. Guess what happened? As of May of 06′, the IRS had finished investigation 41 not for profit credit counseling agencies. Of those 41, the IRS revoked, proposed revocation, or otherwise terminated their tax exempt status.   I’m going to repeat that. Of 41 agencies investigated, 41 had their tax exempt status thrown out. They’re batting 1000% .

Not all of these agencies are bad. But the average debtor in New York City certainly doesn’t have the time and resources to find the good ones. And in full disclosure, I have clients that have hired me to settle their debts for them(not perform credit counseling). I tell them all that they can do this on their own and that the only reason they should hire an attorney to do this is because the case is in court or they don’t have the time to deal with all of their creditors or the case is complex and they need the assistance of an attorney.

Posted in New York City Real Estate | Comments

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