Archive for November, 2009

Recession forces homeowners to consider defaulting on mortgages.

November 2009

The current global recession and collapse of the real estate market has lead to a new trend of homeowners who can still afford to make payments but instead choose to default on their mortgages and find cheaper housing. With the housing market in South Florida devastated by the mortgage crisis and one of the worst foreclosure rates in the United States this new phenomenon could seriously affect the region’s economy.

Some homeowners in the struggling economy who have found that falling real estate prices have brought the value of their homes lower than the mortgage debt that they owe on their property, known as “underwater” mortgages, have responded to this unusual situation by simply trying to cancel their mortgages and move into more affordable homes.

Many of the debtors who choose to default on home mortgages don’t seem to consider or even realize many of the consequences of this action, especially that they are still responsible for paying the balance of their mortgage even in cases of default and that they cannot simply walk away from their obligations. They are liable to legal action from their creditors if they do not make their payments while actually having fewer legal options than some other debtors.

The threat of legal action is only one of several possible ramifications debtors face for voluntarily defaulting on a mortgage; other adverse affects include ruining their credit and facing the possibility of being forced into filing for bankruptcy to escape their obligations. If you would like to learn more about the issues related to “underwater” mortgages and homeowner’s options please refer to http://online.wsj.com/article/SB125902556993561567.html and if you have any questions or want additional information please visit us at Sidney Turner, LLC.

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Scott Rothstein Using Money From Alleged Ponzi Scheme to Fund Payroll

November 2009

The South Florida Business Journal reported on Monday, November 23, 2009 that former Chairman Scott Rothstein of Broward County’s RRA law firm was using money from his alleged Ponzi scheme – $10 million in one year – to fund his payroll, according to the allegations laid out in an amended federal warrant request filed Monday by the acting U.S. attorney for the Southern District of Florida. This is in addition to the substantial charitable contributions to local charities including hospitals.

Charitable and campaign donations given through the Rothstein Family Foundation, including $800,000 to Joe DiMaggio Children’s Hospital, $1 million to Holy Cross Hospital, and $90,000 to the Republican Party of Florida, which was already turned over to the U.S. government.

These recipients of Rothstein’s largess, mostly in Fort Lauderdale and Broward County may be exposed to and subject to The Bankruptcy Trustee’s power to recover and recapture payments made that can be traced as proceeds from the ill gotten funds. Various theories of law may be applied to achieve this result similar to those being considered in the Madoff case. Please related article in The South Florida Business Journal.

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Rothstein Rosenfeldt Adler

November 2009

Three investors, the required number of creditors, in Scott Rothstein’s alleged Ponzi scheme filed an involuntary petition to put, Rothstein Rosenfeldt Adler, into Chapter 11 bankruptcy.

It is reported that the federal government seized eight properties. Other creditors are lining up to get, obtain liens, replevin property or recover property as not having been properly transferred. The race to the court was on.

A bankruptcy would stay and remove all civil legal action against the firm to the federal jurisdiction of a bankruptcy court. A Broward County Circuit Court judge appointed a receiver last week, to oversee the firm’s finances. The petitioning investors in the bankruptcy are also seeking emergency appointment of a Chapter 11 trustee because of a “continuing risk of loss, concealment, dissipation and/or destruction” of RRA’s property.

The bankruptcy court will be able to centralize all of the asset recovery efforts and manage the equitable distribution of the estate assets. Please see article in the South Florida Business Journal, Wednesday, November 11, 2009,

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Property Lender Files For Chapter 11

November 2009

CIT’s Bankruptcy Filing Expected in Days, the U.S.Government Infusion of $2.3 Billion at Risk. Financial firms such as CIT have historically been sold off or wound down after a Chapter 11 filing; for fear that customers will cause a run on the bank. But CIT expects to have enough creditor support to complete a prepackaged reorganization by year-end, a relatively short period for a bankruptcy case of its size.

This is a classic example of how planning ahead and in particular how you are going to finance the restructuring of your capital structure is an imperative to a successful reorganization. CIT has been working on this specific issue for months.

CIT is preparing a sweeping exchange offer that would eliminate 30% to 40% of its more than $30 billion in debt outstanding, said people familiar with the matter. The plan would offer bondholders new debt secured by CIT assets, as well as nearly all of the equity in a restructured firm. The new debt would mature later than current debt, the impending maturity of which has posed a problem for CIT.

The plan sets up a potential showdown between bondholders with debt coming due soon and those whose debt does not come due for years. If the company doesn’t receive enough bondholder support, it plans to execute the restructuring in bankruptcy court, the people familiar with the situation said.

In a move smoothing its restructuring, the company recently said that it had persuaded billionaire investor Carl Icahn to support its prepackaged bankruptcy plan. Mr. Icahn, who wanted to push CIT into liquidation, failed to persuade other bondholders to derail CIT’s restructuring plan. Please see the link provided to the WSJ article.

One loser from a bankruptcy would be the U.S. Treasury. Late last year it injected $2.3 billion of funds from the Troubled Asset Relief Program to help stabilize the lender, which was weighed down by billions of dollars of bad student loans and subprime mortgages. The government investment is likely to be wiped out, said people familiar with the matter. Common shares would likely drop to zero, too, these people said. To learn more, read the article by  the Wall Street Journal or read the article posted on the New York Times website.

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