Calif. considers loan for troubled Modoc County

The Associated Press
Friday, July 23, 2010; 12:43 AM

SACRAMENTO, Calif. -- California finance officials will consider Friday whether to loan as much as $12.5 million to Modoc County as the rural, cash-poor municipality prepares for the possibility of filing for bankruptcy protection.

Other California cities and counties have seen steep slides in tax revenue during the recession, but Modoc County's trouble stems largely from another problem: For more than a decade, the county has been funding its hospital using money that was intended for other purposes, such as education and transportation projects.

An audit last year by the state controller's office determined that the county was violating state law by shifting dollars away from their intended purpose, prompting the current financial crisis. The county has hired a bankruptcy attorney in case it needs to declare itself insolvent, said Dan Macsay, chairman of the Modoc County Board of Supervisors.

"We don't want to go bankrupt," he said Thursday. "It does nothing for us - it doesn't help the state, it doesn't help anybody. But what we're doing is preparing for the worst."

He said it's unclear whether Modoc County will have enough money to pay expenses for the current fiscal year that began July 1, considering it must repay millions in debt. The county borrowed $12.5 million from special funds to support the hospital for about 15 years, but never repaid the money.

Modoc County is in California's far northeastern corner, a sparsely populated region of forests and wind-swept plains that is tucked between the Oregon and Nevada borders. In January, the state listed its population at 9,777.

On Friday, the state treasurer, controller and others will discuss proposals to help the county stay afloat. The county has requested a loan from the state's Pooled Money Investment Board, which oversees a portfolio that was worth $69.4 billion as of June. But California has its own financial troubles and is facing a $19 billion deficit.

State officials say they also want Modoc County to avoid bankruptcy.

"When a local entity files for bankruptcy protection, it has a ripple effect on the reputation of the state," said Tom Dresslar, spokesman for state Treasurer Bill Lockyer. "It creates headlines that do not serve the state well when it, for example, tries to sell bonds."

Municipal bankruptcies are rare in California. The most high-profile one was Orange County's bankruptcy filing in 1994; the San Francisco Bay area city of Vallejo filed for bankruptcy protection in 2008 amid a revenue crisis.

Yet helping Modoc County by providing a loan comes with its own dangers. If one financially strapped municipality gets a loan from the state, it could prompt other local officials to ask for handout, too. Dresslar said if the state does issue a loan, it would want to make clear that it's not setting a precedent.

Dresslar also said a loan would carry strict conditions, such as allowing the state to intercept other tax money destined for the county.

"We don't think any county will be chomping at the bit to place themselves under the scrutiny and conditions that this kind of loan would carry with it," Dresslar said.

One question that must be answered immediately is whether Modoc County can use the money it has to pay its bills or whether it is legally obligated to use that money to repay debts, said state Assemblyman Jim Nielsen, R-Yuba City, who represents the region. It remains unclear whether the county will be able to deliver the next paycheck to its employees until that is resolved, he said.

Meanwhile, Modoc Medical Center has had to stop offering services such as minor surgeries and delivering babies, said Macsay, the county supervisor.

The hospital used to deliver about 35 babies per year, he said, but could no longer do so because it can't afford to keep an anesthesiologist on staff.

"The fact is that they have a limited audience to capture," Macsay said. "They were offering services that they really couldn't afford."

Instead, Modoc County residents will have to drive more than two hours to hospitals in Redding or across the Oregon border to receive those services. Calif. considers loan for troubled Modoc County

House Probe Finds 153 VIP Loans Went to Fannie Employees -


Countrywide Financial Corp.'s controversial "VIP" mortgage program made 153 loans to employees of Fannie Mae, the giant federally backed financial institution that helped fuel Countrywide's growth, according to a letter released Tuesday by Rep. Darrell Issa.

Another 20 such VIP loans, which often provided mortgages on terms more favorable than those available to the general public, went to employees of Freddie Mac, another big government-backed buyer of mortgage loans, the Issa letter said.

While it has been reported that VIP loans went to some top Fannie Mae officials, the latest information indicates that the activity was more widespread.

In an interview Tuesday, Mr. Issa, of California, said the new information provides further evidence that Countrywide Financial was improperly trying to "curry favor and get an edge" by passing out financial favors. He says the dealings between Countrywide and Fannie Mae in particular contributed to the downfall of those firms and to the broader problems in the mortgage industry.

In 2008, Fannie Mae and Freddie Mac were taken over by the federal government, which has spent about $145 billion to keep them afloat. Also in 2008, Countrywide was purchased by Bank of America Corp. The House Oversight and Government Reform committee, on which Mr. Issa is the ranking Republican, last fall subpoenaed the records of the now-defunct VIP program.

Mr. Issa's letter went to the Federal Housing Finance Agency, or FHFA, which oversees Fannie Mae and Freddie Mac. It is the latest salvo in a two-year-old investigation of the VIP program spearheaded by Mr. Issa. Last week he released a letter saying that 30 VIP loans had gone to U.S. Senators or Senate employees. He says the investigation is ongoing and is also turning up information on loans to others in government.

A Fannie Mae spokesman declined to comment on the Issa letter. A Freddie Mac spokeswoman deferred comment to the FHFA. An FHFA spokesperson said the agency had received Mr. Issa's letter and "will respond to him promptly."

House investigators Tuesday also released an internal 2001 Countrywide email regarding a loan made to Daniel Mudd, who served as Fannie Mae's chief operating officer and later as its chief executive. The email spoke of the need to "understand the sensitivity of this deal. We already are taking a loss, it would be horrible to add a service complaint on top and lose any benefit we generate." While Mr. Mudd's refinancing of a home loan with Countrywide had been previously reported, the internal details from the company about it hadn't.

Mr. Mudd, now chief executive of Fortress Investment Group, New York, said Tuesday in a statement that he "did not seek any preferential treatment." He said that he had a financial adviser obtain loan quotes from several lenders and that Countrywide was offering "competitive" terms. Mr. Mudd said the loan was obtained through a local Countrywide retail branch.

Mr. Issa's letter to the FHFA said the subpoenaed Countrywide records show that the Mudd loan went through the VIP program. It didn't say whether Mr. Mudd knew which Countrywide unit was handling the matter.

The Issa letter said that a cluster of VIP loans to Fannie Mae employees came in 1998, a year before Fannie Mae agreed to buy billions of dollars of Countrywide loans. If Fannie Mae or Freddie Mac employees accepted discounted loans or other preferential treatment, they might have violated the enterprises' conflict-of-interest policies, Mr. Issa wrote.

The Issa letter listed loans to 42 individuals, but in most cases provided only job titles, including several directors and vice presidents as well as lower-level positions. The only names provided were those of a few former senior officials, such as Mr. Mudd, who had previously been identified publicly as Countrywide borrowers.

The number of individuals receiving VIP loans was less than the number of loans given, sinceSome people received more than one loan. For instance, if a person took out a Countrywide loan and later refinanced it, that would be counted as two loan transactions.

Retirees' Bankruptcy Protection Act Trumps ERISA, 3rd Circuit Rules

In a huge win for labor, a federal appeals court has ruled that a corporation in bankruptcy cannot terminate its retirees' health and life insurance benefits -- even if its ERISA plan explicitly reserved its right to unilaterally terminate such benefits -- unless it can show that doing so is a necessary part of its reorganization plan.

The 95-page decision from the 3rd U.S. Circuit Court of Appeals in In re Visteon Corp. promises to alter the playing field in big corporate bankruptcies by mandating compliance with Section 1114 of the Retiree Benefits Bankruptcy Protection Act without exception.

It marks the first time that any federal appeals court has squarely addressed the scope of Section 1114 and, by demanding a plain reading of the law, could reverse a strong trend among bankruptcy and district court judges to avoid the requirements of Section 1114 whenever the debtor corporation would have been free to terminate retiree benefits prior to the bankruptcy.

"We hold that Section 1114 is unambiguous and clearly applies to any and all retiree benefits," Chief U.S. Circuit Judge Theodore A. McKee wrote. The lower courts that have refused to apply Section 1114 broadly have reasoned that doing so would produce "absurd" results by giving retirees more rights in the bankruptcy context than they would have enjoyed before.

But McKee found that Congress was setting out to protect retirees during the high-pressure period of a bankruptcy reorganization and that the use of very broad language in the statutory test was designed to provide a wide umbrella of protection.

In Section 1114, Congress provided both procedural and substantive protections for retiree benefits during a Chapter 11 proceeding.

The law says that the bankruptcy trustee must attempt to reach an agreement with the retirees regarding modification of retiree benefits before it can ask the bankruptcy court to modify or terminate them. In doing so, the trustee must also provide the retirees with information about the company's financial situation to allow for informed evaluation of the proposal.

The law also says a bankruptcy court should grant a motion to modify retiree benefits only if it finds that doing so "is necessary to permit the reorganization of the debtor and assures that all creditors, the debtor, and all of the affected parties are treated fairly and equitably, and is clearly favored by the balance of the equities."

Section 1114 also provides additional protection for retiree benefits by giving them priority they would not otherwise have. Any payment for retiree benefits required to be made during a Chapter 11 proceeding has the status of an "allowed administrative expense" rather than the general unsecured status that would otherwise apply.

Visteon's lawyers successfully argued in both the bankruptcy and district courts that applying Section 1114 would make no sense since the company's ERISA plan gave it the power to terminate retiree benefits unilaterally. Giving retirees more rights in bankruptcy court would be absurd, they argued.

But the 3rd Circuit flatly rejected that argument.

"Despite arguments to the contrary, the plain language of Section 1114 produces a result which is neither at odds with legislative intent, nor absurd," McKee wrote in an opinion joined by Judges Marjorie O. Rendell and Walter K. Stapleton.

"Disregarding the text of that statute is tantamount to a judicial repeal of the very protections Congress intended to afford in these circumstances. We must, therefore, give effect to the statute as written," McKee wrote.

McKee said he recognized that "the majority of bankruptcy and district courts that have addressed this issue have concluded that Section 1114 does not limit a debtor's ability to terminate benefits during bankruptcy when it has reserved the right to do so in the applicable plan documents."

But that view is mistaken, McKee found, because Congress made room for no such exceptions.

"Section 1114 could hardly be clearer. It restricts a debtor's ability to modify any payments to any entity or person under any plan, fund, or program in existence when the debtor files for Chapter 11 bankruptcy, and it does so notwithstanding any other provision of the bankruptcy code. There is therefore no ambiguity as to whether Section 1114 applies," McKee wrote.

"By using the word 'any' three separate times, Congress ensured that the statute would apply to all benefits," McKee wrote. "We are, therefore, unpersuaded by the suggestion that failure to specifically address benefits that could be unilaterally terminated outside of bankruptcy somehow breathes ambiguity into the word 'any.'"

The ruling is a victory for attorneys Thomas M. Kennedy and Susan M. Jennik of Kennedy Jennik & Murray in New York, who filed the appeal on behalf of the Industrial Division of the Communications Workers of America.

About 2,100 retirees objected when auto parts supplier Visteon Corp. terminated their health and life insurance benefits without following the procedures set forth in Section 1114.

But U.S. Bankruptcy Judge Christopher Sontchi ruled in March that Visteon was free to do so, and the retirees lost their first round of appeals when U.S. District Judge Michael M. Baylson, on special assignment to the Delaware court, refused to disturb Sontchi's ruling.

An expedited appeal to the 3rd Circuit followed and the retirees have now emerged victorious with a ruling that breathes new life into Section 1114 by mandating that its protective provisions apply in every case where the debtor corporation seeks to terminate retiree benefits.

McKee's opinion includes a lengthy discussion of the law's legislative history, beginning with a highly controversial bankruptcy in which 78,000 retirees lost their benefits, and shows that Congress was setting out to establish a mechanism that must be followed in any bankruptcy to ensure fairness to workers who often agreed to forgo raises over decades in return for the promise of lifelong benefits.

The widespread trend to ignore Section 1114, McKee concluded, stemmed from misunderstandings of the law's purposes and mandates.

"Courts that have concluded it is absurd to apply Section 1114 to benefits that could be terminated outside of bankruptcy have often misinterpreted the rigidity of the section's protections, and therefore the extent to which the statute is in tension with ERISA," McKee wrote.

"Section 1114 does not prohibit the termination of benefits during a bankruptcy proceeding. Rather, it creates an equitable procedure through which the debtor can argue the economic necessity of doing so, and the retirees can counter with their own arguments about economics, fairness, and equity," McKee wrote.

For the most part, McKee said, "all Section 1114 guarantees retirees is a voice, and some minimal amount of leverage, in a process that could otherwise be nothing short of devastating to them and to their families and communities."

Visteon spokesman Jim Fisher declined to comment except to say that the company was "disappointed by the ruling" and is "assessing an appropriate course of action."

June Foreclosure Report - Mixed for California

Discovery Bay, CA, July 13, 2010 - ForeclosureRadar (, the only website that tracks every California foreclosure and provides daily auction updates, issued its monthly California Foreclosure Report for June 2010. Foreclosure activity was mixed in June after being down across the board in May. Filing of new foreclosure notices rose, while foreclosure sales dropped. The number of foreclosure sales that were cancelled hit an all time record in June, but the increase was primarily driven by just one lender JP Morgan Chase, and it's acquisitions including Washington Mutual. Although the number of properties purchased by 3rd parties at auction dropped significantly, they purchased nearly the same percentage of the total properties sold, and at a better discount to market value then we've seen in months.

Education: More California school districts edging closer to insolvency, state says -

An increasing number of California school districts are edging closer to financial insolvency, state officials reported Tuesday.

One immediate effect has been teacher layoffs — probably in the thousands, although neither state officials nor the California Teachers Assn. have final numbers.

Since the beginning of 2010, the number of school systems that may be "unable to meet future financial obligations" has increased by 38%, according to the state Department of Education.

Read more:

Education: More California school districts edging closer to insolvency, state says -

Negotiator in Rangers' bankruptcy case being threatened | Sports News | News for Dallas, Texas | Dallas Morning News

FORT WORTH -- Frustrated fans have apparently decided to target the negotiator appointed to work out a deal to lift the Rangers out of Chapter 11. William K. Snyder, 51, has suggested that the bidding be reopened at a new auction.

Security at the courthouse was stepped up after Snyder received threatening phone calls, U.S. Bankruptcy Judge Michael Lynn said Monday.

Snyder declined comment on the threats.

Security was stepped up at the federal courthouse Friday, when Snyder attended a Rangers bankruptcy hearing. A Federal Protective Service vehicle was parked conspicuously in front of the entrance, and the number of guards on duty was more than doubled.

"I don't know anything more than that Snyder has received threatening calls," Lynn said in an e-mail relayed from the bench.

Although a source close to the case said the calls were serious enough to alert federal officials, Lynn downplayed any potential danger. No one would describe the content of the threats or say how many have been received.

"I am not particularly worried about them," the judge said. "After all, we do get those e-mails from disgruntled fans who believe -- as, I understand, do some sports writers -- that I should construe the Bankruptcy Code as wished for by the fans.

"I don't expect anyone to shoot at him or me," he said. "A baseball through my window is another matter."

Negotiator in Rangers' bankruptcy case being threatened | Sports News | News for Dallas, Texas | Dallas Morning News

It’s “Chapter 66” as U.S. States Face De Facto Bankruptcy :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website

A number of U.S. states are facing bankruptcy – in fact if not in name – with Illinois and California leading the way.

When an individual goes bankrupt in the United States, it’s usually a Chapter 7. When a business goes under, it’s Chapter 11. Farmers have a Chapter 12, and there is a more complex individual option known as Chapter 13.

But what do you call it when a U.S. state goes under? There’s no official “chapter” for that. But it’s looking more and more like there should be. Your humble editor proposes “Chapter 66,” in honor of a famed stretch of interstate.

U.S. Route 66, also known as “Will Rogers Highway,” “Main Street of America” and “the Mother Road,” was one of the original routes in the U.S. highway system. Opened up to cars in the year 1926, it originally ran 2,448 miles, from Chicago, Ill., to Los Angeles, Calif.

Route 66 was also a major path for westbound migrants, seeking relief from the “dust bowl” conditions of the 1930s.

It’s fitting that Illinois and California were the termination points of that iconic road, because “Chapter 66” is a dark and looming reality for those two states now – with a number of others on the same path. As America endures a sort of new financial dustbowl, the “state of the states” looks grim.

Amber Waves of Debt

The Globe and Mail describes the situation as “red ink, from sea to shining sea.”

“Forty-eight of 50 states face budget shortfalls this year,” they further report. “Many shortfalls amount to more than 20 percent of planned spending. The plunge in state tax revenue is the worst on record.”

(Budget shortfalls may be in the news, but it's not the only thing moving the market right now. If you’re looking for additional market analysis, sign up to read fellow editor Adam Lass' latest on financial market trends and investment commentary.)

How did we get to this sorry spot? By and large the same way Greece did… by spending money we didn’t have, and ignoring the consequences as long as possible.
Oh Boy, Illinois

Illinois is something of an idiot poster child for how bad things have gotten… and how tough the fix will be.

“It is getting worse every single day,” the Illinois state comptroller laments. “We are not paying bills for absolutely essential services. That is obscene.”

Illinois is facing a $12 billion deficit and a $5 billion budget shortfall. To add insult to injury, the state’s pension system is 50% underfunded by conservative estimates.

It has reached the point where the state has, quite literally, stopped paying bills. This means that jobs are getting cut, paychecks are getting delayed, and businesses are being shut down. There is simply – and again, quite literally – no more money.

Meanwhile, the state’s pension shortfall is no longer a potential catastrophe. It is a guaranteed one. According to Fitch, one of the big three ratings agencies, “Their pension is the most underfunded in the nation… they can’t grow their way out of this.”

So what is the Illinois governor’s response to all this? Why, spending more money of course. Staff members have reportedly received 43 salary increases at an average of 11.4%. And 40,000 union workers in Illinois have successfully rammed through a pay raise of 14%.

The politicians and union bosses running Illinois are not just rearranging deck chairs on the Titanic. They are cheerily giving themselves pay hikes even as the iceberg heads straight for them.
California Dreamin’

California is another poster child for impossible foolishness.

“People think we’re becoming a third world country,” says Arnella Sims, a Los Angeles County court reporter. “We are on the verge of system failure,” warns the executive director of the California Budget Project.

“California’s fiscal hole is now so large,” The Globe and Mail further adds, “that the state would have to liberate 168,000 prison inmates and permanently shutter 240 university and community college campuses to balance its budget in the fiscal year that begins July 1… Mass layoffs, slashed health and welfare services, closed parks, crumbling superhighways and ever-larger public school class sizes are all part of the new normal.”

In an effort to fight back the tide, California governor Arnold Schwarzenegger – the “governator” – took a bold step last week, ordering 200,000 state workers to take a temporary pay reduction to $7.25 per hour, the federal minimum wage. The state comptroller balked.

It would be amusing if it weren’t so tragic. This is the kind of stuff that happens when you run out of money, courtesy of spending what you don’t have for years or even decades at a time.
Growth Won’t Do It

In the past, the prevailing belief was that economic growth would cover all sins. No matter how foolishly federal and local governments spent, no matter how recklessly the money was squandered, a tide of rising prosperity would ensure there would always be more. The great American growth engine would keep the coffers filled.

Sadly, it is exactly that attitude that brought us to where we are now. The terrible debt crisis that America faces was brought on precisely through a mixture of laziness and overconfidence. No matter how much was earned, the belief was always that things could be even better if we just leveraged up that prosperity by a factor of X.

Like the man who thinks that becoming a millionaire entitles him to spend like a billionaire, that mindset was always guaranteed to end in tears. And now we have reached that terrible point in the cycle where economic growth – the very thing we have always relied on in the past – is being choked off by mountainous levels of accumulated debt.

As Hunter Thompson once said: “The Edge... there is no honest way to explain it because the only people who really know where it is are the ones who have gone over.”

We were bound and determined to find the edge. And now we are in the process of going over. Be prepared.

Don't forget to follow us on Facebook and Twitter for the latest in financial market news, investment commentary and exclusive special promotions.

Source :

By Justice Litle

Justice Litle is the Editorial Director of Taipan Publishing Group, Editor of Justice Litle’s Macro Trader and Managing Editor to the free investing and trading e-letter Taipan Daily. Justice began his career by pursuing a Ph.D. in literature and philosophy at Oxford University in England, and continued his education at Pulacki University in Olomouc, Czech Republic, and Macquarie University in Sydney, Australia.

Aside from his career in the financial industry, Justice enjoys playing chess and poker; he enjoys scuba diving, snowboarding, hiking and traveling. The Cliffs of Moher in Ireland and Fox Glacier in New Zealand are two of his favorite places in the world, especially for hiking. What he loves most about traveling is the scenery and the friendly locals.

Copyright © 2010, Taipan Publishing Group

Pasadena Playhouse Emerges From Bankruptcy - ArtsBeat Blog -

JULY 8, 2010, 3:45 PM
Pasadena Playhouse Emerges From Bankruptcy

The Pasadena Playhouse has emerged from Chapter 11 and plans to mount a production this fall, the theater announced on Thursday.Two months after it filed for bankruptcy protection, the playhouse’s reorganization plan was approved on Wednesday by the United States Bankruptcy Court in Los Angeles.

In February, the playhouse laid off its entire staff of 37 and scheduled to close its doors because of deep debt. During its 90 years in operation, the playhouse has presented productions — most recently “Looped,” starring Valerie Harper — that have moved to Broadway, but it has also closed and filed for bankruptcy before. News of the playhouse’s struggles led to a $1 million matching pledge from anonymous donors, which helped to put the theater on better footing.

The city, along with the theater’s board, staff and advisers, “have all combined to create a plan to resurrect the Playhouse from years of unbearable debts,” the executive director, Stephen Eich, said in a statement. “Although we will be moving slowly in the future to ensure financial responsibility and stability, we will in fact be back.”

In the next weeks, the theater will announce plans for at least one production, a spokeswoman said, but there will not be a full 2010-2011 season. “The plans are to get back to work,” the artistic director, Sheldon Epps, said in a telephone interview on Thursday.

Pasadena Playhouse Emerges From Bankruptcy - ArtsBeat Blog -

CA Update: Foreclosure Is Valid Because MERS Has Power to Designate New Trustee under Deed of Trust

The following is a recent case update by Professor Dan Schechter, Loyola School of Law.

Foreclosure Is Valid Because MERS Has Power to Designate New Trustee under Deed of Trust,

Even Though It Holds No Interest in Underlying Note.

A district court in California has held that MERS had the power to designate a new trustee under a deed of trust (thus validating the designee's foreclosure), even though neither MERS nor the designee held any interest in the underlying promissory note. [Lane vs. Vitek Real Estate Industries Group, 2010 Westlaw 1956707 (E.D. Cal.).]

Facts: Two borrowers filed suit against their mortgage lenders and Mortgage Electronic Registration Systems, Inc. ("MERS"), claiming that the defendants had wrongfully conducted a nonjudicial foreclosure sale of the borrowers' home. MERS had been initially designated as the "nominal beneficiary" under the deed of trust and had then executed a substitution of trustee in favor of another entity, following the borrowers' default.

As part of the borrowers' wrongful foreclosure claim, they asserted that the foreclosure was improper because none of the parties to the foreclosure were beneficiaries of the underlying note and instead held interests in the deed of trust. MERS moved to dismiss that aspect of the borrowers' claim.

Reasoning: The court ruled in favor of MERS, holding that MERS and its assignees could foreclose on the deed of trust, even though MERS held no interest in the underlying note:

Under California Civil Code section 2924(a)(1), a “trustee, mortgagee or beneficiary or any of their authorized agents” may conduct the foreclosure process. Under California Civil Code section 2924b(4), a “person authorized to record the notice of default or the notice of sale” includes “an agent for the mortgagee or beneficiary, an agent of the named trustee, any person designated in an executed substitution of trustee, or an agent of that substituted trustee.” . . . . There is no stated requirement in California's nonjudicial foreclosure scheme that requires a beneficial interest in the Note to foreclose. Rather, the statute broadly allows a trustee, mortgagee, beneficiary, or any of their agents to initiate nonjudicial foreclosure. Accordingly, the statute does not require a beneficial interest in both the Note and the Deed of Trust to commence a nonjudicial foreclosure sale.

This interpretation is consistent with the rulings of this court, along with many others, that MERS has standing to foreclose as the nominee for the lender and beneficiary of the Deed of Trust and may assign its beneficial interest to another party.

AUTHOR'S COMMENT: Although there is some disagreement across the country on this issue (see below), the emerging trend in California is to validate the role of MERS as a nominee. The court in Lane relied primarily upon the wording of the statute to reach that result. However, Stephen Dyer (one of my four co-authors of California Real Estate Finance) has alerted me to a possible contractual glitch resulting from Paragraph 24 of the standardize Freddie Mac form, used throughout California, which provides: "Lender, at its option, may from time to time appoint a successor trustee to any Trustee appointed hereunder by an instrument executed and acknowledged by Lender and recorded in the office of the Recorder of the county in which the Property is located . . . . This procedure for substitution of trustee shall govern to the exclusion of all other provisions for substitution." [Source:]

The problem, of course, is that MERS is not identified as the "lender" in that form, and the "lender" is defined as the originating lender itself. Therefore, although the statute would appear to empower an agent (such as MERS) to execute a substitution of trustee, the current wording of the contract itself seems more restrictive, empowering no one other than the originating lender to execute a substitution of trustee.

Ideally, the Freddie Mac form should be amended to make it clear that MERS is authorized to appoint a successor. Admittedly, an amendment would not retroactively solve the problem under the existing documentation. My guess is that if a California court were presented with this contractual argument, the court would probably use the wording of the statute to empower MERS, as the agent of the lender, to act on its behalf, even if the document itself did not say so. The only caveat is that there are a few bankruptcy courts, primarily in Southern California, that have subjected MERS transactions to very strict scrutiny; those courts might not rescue the lender from the effect of the Freddie Mac language.

For discussions of other cases involving MERS and its standing as an agent or nominee, see:

-- 2009 Comm. Fin. News. 103, Assignee of Mortgage Lacks Standing to Foreclose Because Assignee Failed to Show That MERS Assigned Underlying Promissory Note, Along with Mortgage.

-- 2009 Comm. Fin. News. 72, Senior Lienholder's Failure to Give Notice of Foreclosure to MERS Did Not Affect Validity of Senior's Foreclosure Because MERS Was Merely a Nominee.

-- 2009 Comm. Fin. News. 59, Assignees of Mortgages Cannot Enforce Unendorsed Notes in Their Possession Because MERS Documentation Does Not Expressly Authorize Assignment of Notes.

These materials were written by Professor Dan Schechter of Loyola Law School for his Commercial Finance Newsletter, published weekly on Westlaw. Westlaw holds the copyright on these materials and has permitted the Insolvency Law Committee to reprint them.

Former Kiss Guitarist Loses Bankruptcy Appeal - Bankruptcy Beat - WSJ

AP Photo/Dr. Pepper Snapple
A television ad for Dr. Pepper features Kiss band member Gene Simmons.

Former Kiss guitarist Vinnie “Wiz” Vincent has lost his bankruptcy appeal, paving the way for his former band mates to sell his Kiss songwriting copyrights for payment of a judgment they won against him.

A three-judge bankruptcy panel for the 6th U.S. Circuit Court of Appeals has affirmed a ruling by a Tennessee bankruptcy judge that Vincent filed his most recent bankruptcy — his third Chapter 13 bankruptcy filing in three years — in bad faith and barred him from seeking Chapter 13 bankruptcy protection for two years.

Vincent, whose real is Vincent John Cusano, is trying to block Kiss from selling his copyrights in such songs as “Lick It Up” and “Young and Wasted” to pay off an $82,000, according to a judgment in a separate California lawsuit.

That judgment is the result of attorneys’ fees due to Kiss members Gene Simmons, Paul Stanley and others after Vincent unsuccessfully sued them for unpaid royalties and defamation. The band members want to sell Vincent’s copyrights to pay off the judgment.

Last year, Vincent’s lawyer at the time argued such a sale would “absolutely” leave the musician “destitute, as the property sought to be sold constitutes the debtor’s life’s work.”

The appellate panel also shot down Vincent’s argument that any mistakes made in his case were inadvertent and because of the facts that he fired his bankruptcy lawyer and was representing himself pro se, a legal term meaning representing yourself.

“We cannot excuse a lack of good faith based on debtor’s pro se status, particularly when the debtor was in fact represented by counsel or had retained counsel during the vast majority of his time in the bankruptcy court but failed to follow counsel’s advice,” the panel said in court papers.

In 1982 Vincent, a onetime staff writer for the TV show “Happy Days,” was hired by Kiss for $2,000 a week to replace original guitarist Ace Frehley. He served as the lead guitarist for the band from 1982 to 1984, playing on the “Creatures of the Night” and “Lick It Up” albums.

Dubbed the “Ankh Warrior” for his Egyptian-style face paint during the end of Kiss’s original makeup-wearing days, Vincent was also part of the band’s first nonmakeup lineup. But within a year of taking off the makeup, Vincent was out of the band, reportedly fired for “unethical” behavior.

After Kiss, Vincent, formed the over-the-top glam-metal outfit Vinnie Vincent Invasion, which released a pair of albums in the late 1980s. According to court papers Vincent, 56, now lives in the Nashville area. He couldn’t be reached for comment.

Former Kiss Guitarist Loses Bankruptcy Appeal - Bankruptcy Beat - WSJ

Printable version: State's bankruptcies soar despite overhaul

Printable version: State's bankruptcies soar despite overhaul

State's bankruptcies soar despite overhaul
Tom Abate, Chronicle Staff Writer
Sunday, July 4, 2010

Five years ago, bankruptcies soared to record levels as debt-strapped consumers raced to seek court protection before Congress changed the law to curb what had been considered an epidemic of filings.

For a while, filings dropped, but the recession has forced so many people into dire straits that bankruptcies in California are setting new records.

"The states with the most acute housing crises have had the most elevated filing rates," said Sam Gerdano, president of the American Bankruptcy Institute.

The volume of filings nationwide also is approaching 2005 levels, as the Bush-era reform bill that raised fees and eligibility standards is rendered moot by rising joblessness and sinking home values.

"The laws of economic gravity are more powerful than the laws of Congress," Gerdano said.

The upward trend in filings rekindles the debates that occurred five years ago over whether irresponsible consumers or predatory lenders are primarily to blame for bankruptcies, and whether the current law is the right fix or an unfair burden for debtors seeking a fresh start.

Scott Talbott, with the Financial Services Roundtable, an industry group that backed the changes, said the recession-induced surge of filings proves that the reforms have not prevented overburdened debtors from getting a court-ordered fresh start.

"The fact that the numbers are up means people still have access to the bankruptcy courts," he said.

ongress' balancing act

Henry Sommer, past president of the National Association of Consumer Bankruptcy Attorneys, which opposed the 2005 law, called the changes unfair.

"There are a lot of people who are in a really bad way who can't come up with the money to file," he said.

The Constitution empowers Congress to establish "uniform laws on bankruptcies throughout the Unites States," putting lawmakers on the teeter-totter between debtors and lenders forever eager to tip the scales of justice toward their cause.

Bankruptcy law tilted toward consumers in 1938 when the Depression-era Congress allowed federal bankruptcy courts to completely absolve borrowers from certain obligations and give them a clean slate.

Congress pushed the balance back toward lenders in 1978 when it differentiated between two types of consumer bankruptcies: Chapter 7 filings that continued to allow eligible debts to be completely erased, and Chapter 13 pleas that required debtors with the ability to make partial repayment to do so under court supervision.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 further favored lenders by raising filing fees and tightening the requirements for getting a clean slate under Chapter 7 with an eye toward steering more applicants toward Chapter 13.

The effects of the new law are debatable given that the recession is thwarting the reformers' goal of capping a long, steady rise in bankruptcy filings.

dded expenses

One thing is clear: It costs more to go belly-up.

The Government Accountability Office, the nonpartisan watchdog agency of Congress, told lawmakers in June 2008 that the 2005 law boosted Chapter 7 expenses from about $914 to $1,477, including legal, filing and counseling fees.

That office did not put a figure on the more complex Chapter 13 filings, but said that in most cases the attorneys fees charged to debtors had risen

55 percent or more.

Lois Lupica, a law professor at the University of Maine, is in the middle of a multiyear study to get a better fix on costs and address an even more important but contentious question - do these changes keep some debtors who may qualify for bankruptcy from seeking the protection of the courts?

Lupica, who refused to speculate before finishing her study in the next year or so, framed her objective this way: "Are there people for whom bankruptcy has become too expensive?"

E-mail Tom Abate at

This article appeared on page D - 1 of the San Francisco Chronicle

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Educational Resources U.S. Courts - great for kids

Enlivening Court Literacy with Real-Life Experiences -- great information for kids

These materials are ready for immediate classroom and courtroom experiences. They are designed to be the focus of a high school class visit to a local federal courthouse, however, they also can be used effectively in classrooms.
The events have the following characteristics in common. They are:

* Participatory, true-to-life courtroom simulations.
* Hosted by federal judges with local attorneys.
* Inclusive of all students as active jurors and lawyers.
* Based on recent Supreme Court cases that have an impact on young people.

Check it out!