Lessons of the Great Depression : Or - how are we getting out of this mess? Is the Past Prologue?

It has been almost 80 years since we, as a country, have faced such a challenging economic environment. As history is prone to repeating itself, the causes of our current crisis share some similarities to the former. In the 1920’s banks and lenders, speculating that the market would continue to rise, knowingly lent money to investors for the purpose of purchasing stocks. This in turn kept rates low and pushed stock value higher, an odd and damaging version of the “house on sand” metaphor. Similarly, bankers fueled the current crisis by building on a foundation of weak credit, although this time, literally, for houses. By offering unsound amounts of credit to would-be real estate buyers, lenders created a situation that wreaked havoc upon our economy at the first signs of a downturn.

But while the Wall Street shot callers may have been ignoring lessons of past as they got us into this current era of economic distress, we can certainly can benefit from history’s insight as we try to cope with the after-effects. Challenge builds character, and the struggles of the Great Depression, from the personal to the collective, built a wealth of knowledge and understanding we can draw upon as we understand how to best survive. Beloved Chicago native and author, historian, actor, and broadcaster Studs Terkel lived through the Great Depression, and his sharp perspective yielded what I think to be some valuable insights into what living through the worst economic period in American history taught him.

The lessons of the Great Depression? Don’t blame yourself. Turn to others. Take part in the community. The big boys are not that bright…Hope dies last – ‘la esperanza muere ultima’ Without hope, you can’t make it. And so long as we have that hope, we’ll be okay. Once you become active helping others, you feel alive. You don’t feel, ‘It’s my fault’. You become a different person. And others are changed too.

Terkel, who lived a long, fruitful life, died last October, just as the current economic collapse was beginning to gain momentum. His words clearly still resonate though, perhaps more now than ever. By taking a closer look at Terkel’s lessons of the Great Depression, we see valuable parallels that, I think, offer some answers and insight into our own present struggles.

Don’t Blame Yourself (But Don’t Be Afraid of Self-Improvement)
First and foremost, “don’t blame yourself.” You certainly cannot blame yourself for the state of the economy and you had no control over the derivatives market or the auto industry. You only have control over your own life, income and expenses. You can’t blame yourself for the decrease in values in the housing markets or falling unemployment. If you have recently lost your job, are being foreclosed upon, or feel like your life is spinning out of control because of unmanageable debt, it is neither helpful nor fair to beat yourself up over it. There are many forces at work directly affecting your life that are out of your control.

But (and this is very important) this does not mean that you are incapable of having control over your finances. This is a challenging time, but is also an opportunity for self-improvement. To begin, you must ask yourself a few questions and be prepared to give honest answers. Have you used your credit wisely? Were you talked into “can’t-miss” deals that ended up failing? Did you make decisions based on an expanding economy that made no sense as the economy changed (as it always will)? It is important to examine what was done wrong and how to fix it going forward and assure that it doesn’t happen in the future. Being excessively hard on yourself can be harmful, but using tough times as an opportunity for self-improvement by critically examining your lifestyle and financial choices can be both helpful and necessary.

Turn to Your Community
“Turn to others. Take part in the community.” While this is good advice for all times, it is especially relevant and vital during times of economic hardship. For those struggling financially, remember that you are not alone. No one wants to admit they are having financial troubles, in fact more people than you think put on a happy face and fake it. Of course you don’t need to tell everyone your problems, but being part of the community means being open and willing to accept support. This makes it easier for friends, family and professionals to help you get back to where you want to be. Remember, businesses, social services, religion, and family can all be sources of support.

You Don’t Want to Follow the Jones’
Terkel next reminds us that, “the big boys are not that bright.” Anyone who has witnessed the collapse of AIG, Lehman Brothers, and dozens of other Wall Street investment houses knows that this certainly still rings true. One of the most interesting stories I heard was from Michael Lewis, the author of “Liar’s Poker: Rising Through the Wreckage on Wall Street”. He said that once the investment houses started turning these huge profits, even though they knew something was wrong, they couldn’t stop – because the investment house down the block or higher in the building was turning those kinds of profits. If you couldn’t give the returns the other boys were giving, your investors would go to them. In fact, money market managers were going to companies and demanding a certain return or threatening to cash in their investments, so companies started cooking the books, or insisting upon unrealistic profits without worrying about the day of reckoning.

So what does this say about us as individuals and what can we learn from this era of irresponsibility and unrealistic returns? For one, if it looks and sounds too good to be true, it most likely is. (This isn’t as easy as it sounds . Just look at how many really intelligent, sophisticated people Bernard Madoff was able to scam). Also, seriously consider making decisions based on what you need, not what your neighbor has. One of the most important lessons from this recession is that the Jones’ just might not be as well off as they appear to be on the surface. Base your financial decisions on what will be healthiest for you, not on what others are doing.

Hope Prevails Above All
“Hope dies last… Without hope you can’t make it. And so long as we have that hope, we’ll be okay.” Several people who lost their saving to Bernie Madoff committed suicide, and the housing market collapse has claimed at least two local real estate agents. While the emotional toll of losing a life’s worth of work or facing utter financial failure is certainly traumatizing, there is always, always hope. All clichés aside, hope is the basis for all progress, and improvement is only possible if you can manage to keep a strong faith in yourself and the possibility of better times. (Think Trump)

Look at your skill set and think creatively. More millionaires are created during a bad economy than at any other time. Surround yourself with the people who support you and help you with solutions. And don’t dismiss people who are not telling you what you want to hear. Make sure you are open to listening to ideas that are outside of your comfort zone – and explore them.

The Need for a Strong Foundation
By almost every standard possible, the Great Depression dwarfs the struggles our nation currently faces. Our parents and grandparents survived though, and with the values and lessons of the past fresh in their minds they ushered in one of the most fruitful eras in American history. Both individually and collectively, we possess the potential to come out of these challenging times stronger than ever, but we have to apply the lessons of the past and learn from our mistakes in order to build a strong foundation.

© Copyright Erica Crohn Minchella, 2009

Foreclosure Defenses Part II – The Process

One of the first things I try to do when beginning a foreclosure defense is to determine the expectations of my client. Some just want to buy time so they can consider their options. Others are interested in pursuing a short sale, or trying to keep their home at any possible cost. Right now, if a homeowner did absolutely nothing to defend a foreclosure, they could stay in their home, rent free for nine months to a year. If you consider that most mortgage payments average $1,200 to $2,500 per month, that could be a pretty solid amount saved over the course of the foreclosure. The process has a number of steps that amount to about 10 months from the first missed payment until the time a homeowner must give up their home. That’s more time than most of my clients think they have if they’ve fall behind on payments. From the first missed payment to the ability to evict is minimally 10 months and can be more.

Well, you have a lot more options than you might think. I’ve found that in the flurry of lending that went on in 2004 to 2007, there were some major errors made on the part of the lenders. Since these lending errors might release the borrower from his obligation to pay – or may render the property free of a mortgage, checking to see if there is a defense to a mortgage, rather than just assuming that nothing can be done, is important. But beyond defending a foreclosure, the mere fact that the case is filed, opens up a number of different solutions for the homeowner.

The standard way that a foreclosure in Cook County works is as follows:

1. After 30 days of default the lender is required to send a notice to a homeowner who resides in the property and has never filed a bankruptcy proceeding during the life of the loan advising them of their right to seek HUD counseling. If the HUD counselor advises the lender that they are working with the homeowner, there is an additional 30 days to see if a solution can be reach. (See 735 ILCS 5/15-1502.5). This time can run concurrently to the 3 months that most lenders wait before filing any foreclosure action.
2. At the end of thirty days, the foreclosure suit will generally be filed.
3. The sheriff has thirty days to serve the homeowner. Once the homeowner is served the homeowner’s “Appearance” (the document filed with the Clerk of the Court to initiate the homeowner’s involvement in the case) needs to be filed within 30 days. Of course, if the homeowner isn’t served by the sheriff in the first 30 day period, the time frames just get expanded.
4. If the Appearance is not filed, the lender can “default” the homeowner and seek the entry of a Judgment. At this point it is approximately 6 months since the first mortgage payment was missed. Of course, if the homeowner files an Appearance, that mere act can delay things an additional 30 to 60 days.
5. If the Judgment is entered, there is approximately a ninety day time period to “redeem” the property – that is, pay off the loan – and the Sheriff’s Sale or Foreclosure Sale can be conducted any time after that. (An amendment to the Mortgage Foreclosure statute will extend that time to 120 days once signed by the Governor). After the Sheriff’s Sale is conducted, the Court must approve the Sale and if the homeowner has not already moved, the Lender may seek an Order of Possession and have the homeowner evicted.

© Copyright Erica Crohn Minchella, 2009

The Many Options in Foreclosure

The economy has created the need for a new specialty amongst lawyers – Foreclosure Defense. With foreclosure filings up a staggering 338% in 2008 over the prior year (and with 13,196 cases filed in the first three months of 2009 alone), it is no surprise. You might wonder if there is any way to defend someone who can no longer afford to pay their mortgage. After all, if you can’t make your monthly payments, how many options could you have?

Well, you have a lot more options than you might think. I’ve found that in the flurry of lending that went on in 2004 to 2007, there were some major errors made on the part of the lenders. Since these lending errors might release the borrower from his obligation to pay – or may render the property free of a mortgage, checking to see if there is a defense to a mortgage, rather than just assuming that nothing can be done, is important. But beyond defending a foreclosure, the mere fact that the case is filed, opens up a number of different solutions for the homeowner.

1: Buy Time for a Short Sale

Sometimes people want to have the time to seek a short sale or a loan modification. Given the time frames for getting approval of a short sale or loan modification, sometimes ten months is just not enough. However, for the sake of a homeowner’s credit, it is often worth trying to stave off the entry of a default judgment to accomplish a short sale or loan modification. It may or may not have an impact on one’s credit to have judgment entered. If it is worth it to the homeowner not to have judgment entered and the homeowner is seeking alternatives, it is often not difficult to hold off the entry of judgment for an additional thirty to ninety days.

2 : Defend Against Foreclosure

When a client comes to see me about a foreclosure defense, I always ask them to provide me with their closing documents. In order to determine if there were any mistakes made in the lending process, I have to know the specifics of the loan. Not surprisingly, during the flurry of lending that went on during the sub prime lending years, things were done hastily and carelessly. I have found these circumstances have led to a wide range of scenarios.

In some instances the loan has not been properly documented, allowing my clients to defend the foreclosure and have the lender seek compensation from the Title Company that insured the loan, and keep their property free and clear. On the other end of the spectrum are instances where my client allowed incorrect information to be included on their loan application, making any defense impossible. I will not defend a foreclosure where the possibility of my client being charged with fraud – even if it was unintentional – is substantial.

Another defense to a foreclosure is that the mortgage document and the Note do not match, that is, the parties who signed the note are not the same parties or party who gave the mortgage or owned the property. If the property is owned by a company, the Note and Mortgage must be signed by an Officer – in his corporate capacity – not as an individual, even if the individual is guaranteeing the debt. The principal may sign a guarantee, but the Note and Mortgage must match. Because there can be legitimate defenses to a foreclosure, I always ask the lender to provide me with the closing documents before I will file an Answer to the Foreclosure Complaint, in case there is an opportunity to file a Motion to Dismiss instead.

3 : Other Options

Forbearance – In a forbearance agreement the Lender agrees to allow the homeowner to pay off the arrearage in payments along with keeping current with each new monthly payment. The Lender will decide over what time period they will carry the arrearage out over. A forbearance agreement can be entered into even if a foreclosure suit is pending – the Lender will just advise their attorney to stop the proceeding to see if the homeowner can successfully fulfill the agreement.

Chapter 13 Bankruptcy – In a Chapter 13 the Debtor is generally given 24 months to cure a mortgage arrearage and can also address other outstanding debt. The foreclosure suit is stayed or enjoined without any further action on the part of the homeowner other than filing the chapter 13. As long as the homeowner makes his current mortgage and chapter 13 payments, he will be allowed to cure the arrearage and manage outstanding debt.

Loan modification – A loan modification will address the loan by lowering the rate, thus lowering the payment and recapitalizing the arrearage. This too can be done while the foreclosure is pending and generally the Lender will stay the proceedings themselves, without the need for the homeowner to appear in Court. Loan modifications will be the subject of my next newsletter.

Having a foreclosure filed against you is scary. Armed with information on your alternatives should help to navigate through the options. The worse thing you could do is nothing – unless it’s used as a strategy.

© Copyright Erica Crohn Minchella, 2009