Medicare ‘Open Enrollment’ Scams

Medicare ‘Open Enrollment’ Scams

November 5, 2015


Colleen Tressler

Consumer Education Specialist, FTC

The 2015 Medicare open enrollment period runs from October 15 to December 7. It’s the time when Medicare recipients can comparison shop and make changes to their plans. It’s also a time when scammers take advantage of older consumers with ruses like these:

  • Someone calls and says you must join their prescription plan or you’ll lose your Medicare coverage. Don’t believe it. The Medicare prescription drug plan (also known as Medicare Part D) is voluntary and does not affect your Medicare coverage.
  • Someone calls or emails claiming they need your Medicare number to update your account, get you a new card, or send you Medicare benefit information. It’s a scam. If you need help with Medicare, call 1-800-MEDICARE or go to
  • Someone claiming to be a Medicare plan representative says they need “to confirm” your billing information by phone or online. Stop. It’s a scam. Plan representatives are not allowed to ask you for payment over the phone or online.
  • Dishonest companies may offer you free medical exams or supplies. Be wary. It may be a trick to get and misuse your personal information.

Whenever someone asks for your bank account number or your Medicare number, stop. Only give personal or financial information when you have verified who you’re talking to. Call 1-800-MEDICARE to make sure you’re talking to a legitimate representative.

If you believe you or some you know is a victim of Medicare fraud, report it to the U.S. Department of Health and Human Services. Call 1-800-447-8477 or visit

If you gave out personal information, call your banks, credit card providers, health insurance company, and credit reporting companies immediately. The FTC’s website has more information on health care scams and medical identity theft.

Need help deciding on a plan? For free personalized counseling services, contact your State Health Insurance Assistance Program at or call 1-877-839-2675.

If you need additional help, please call Attorney Linda Fessler at 213-446-6766 for a free consultation.

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Wells Fargo Agrees to $82M Settlement of Mortgage Probe

Wells Fargo Agrees to $82M Settlement of Mortgage Probe

By Jacob Passy
November 5, 2015

Wells Fargo has agreed to pay $81.6 million to settle a federal investigation into its alleged failure to properly notify homeowners of increases in their mortgage payments.

The Justice Department’s U.S. Trustee Program alleged that Wells Fargo violated bankruptcy laws that require timely payment-charge notices and analyses of escrow accounts. Wells Fargo reportedly failed to timely file more than 100,000 payment-charge notices and to timely perform more than 18,000 escrow analyses for about 68,000 accounts, between December 2011 and March this year.

About $53 million of the settlement will be used to compensate homeowners whose payments increased after Wells Fargo failed to timely file a notice. Homeowners will receive the funds as a lump sum, averaging about $1,254 per homeowner, in their mortgage accounts.

In addition to the payment, Wells Fargo will make internal changes to its procedures, including improvements to its computer platform and employee training and the implementation of quality control processes. Wells Fargo’s compliance will be subject to oversight by an independent compliance reviewer, Lucy Morris of the law firm Hudson Cook in Washington.

The settlement terms are subject to court approval.

“Wells Fargo has acted responsibly by accepting accountability for its deficient bankruptcy practices, agreed to compensate affected homeowners for those deficiencies and committed to making necessary improvements in its bankruptcy operations,” Cliff White, director of the U.S. Trustee Program, said in a news release.

Michael DeVito, executive vice president of Wells Fargo Home Mortgage, said the bank has made the necessary improvements.

“We believe we have made the necessary investments and improvements in our systems and processes to ensure that payment change notices for the bankruptcy court and escrow analyses for customers in bankruptcy are properly prepared and delivered in a timely fashion,” DeVito said in a news release.

“We will work with the U.S. Trustee’s office and an independent reviewer to demonstrate the effectiveness of our improvements and to provide payments to customers, as required,” DeVito said.

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Debts of the Deceased

Debts and Deceased Relatives, authored by the FTC
After a relative dies, the last thing grieving family members want are calls from debt collectors asking them to pay a loved one’s debts. As a rule, those debts are paid from the deceased person’s estate.
According to the Federal Trade Commission (FTC), the nation’s consumer protection agency, family members typically are not obligated to pay the debts of a deceased relative from their own assets. What’s more, family members – and all consumers – are protected by the federal Fair Debt Collection Practices Act (FDCPA), which prohibits debt collectors from using abusive, unfair, or deceptive practices to try to collect a debt.
Under the FDCPA, a debt collector is someone who regularly collects debts owed to others. This includes collection agencies, lawyers who collect debts on a regular basis, and companies that buy delinquent debts and then try to collect them.
Does a debt go away when the debtor dies?
No. The estate of the deceased person owes the debt. If there isn’t enough money in the estate to cover the debt, it typically goes unpaid. But there are exceptions to this rule. You may be responsible for the debt if you:

  • co-signed the obligation;
  • live in a community property state, such as California;
  • are the deceased person’s spouse and state law requires you to pay a particular type of debt, like some health care expenses; or
  • were legally responsible for resolving the estate and didn’t comply with certain state probate laws.

If you have questions about whether you are legally obligated to pay a deceased person’s debts from your own assets, talk to a lawyer.
Who has the authority to pay the deceased person’s debt out of his or her assets? 
The person named in a will who is responsible for settling a deceased person’s affairs is called the executor. If there is no will, the court may appoint an administrator, personal representative, or universal successor, and give them the authority to settle the affairs. In some states, others (or other people) may have that authority, even if they haven’t been formally appointed by the court.
Whom may a debt collector talk to about a deceased person’s debt? 
Under the FDCPA, collectors can contact and discuss the deceased person’s debts with that person’s spouse, parent(s) (if the deceased was a minor child), guardian, executor, or administrator. Also, the FTC permits collectors to contact any other person authorized to pay debts with assets from the deceased person’s estate. Debt collectors may not discuss the debts of deceased persons with anyone else.
If a debt collector contacts a deceased person’s relative, what can they talk about? 
Collectors are allowed to contact third parties (such as a relative) to get the name, address, and telephone number of the deceased person’s spouse, executor, administrator, or other person authorized to pay the deceased’s debts. Collectors usually are permitted to contact such third parties only once to get this information. The main exception is if a collector reasonably believes that the information provided initially was inaccurate or incomplete, and that the third party now has more accurate or complete information. But, collectors cannot say anything about the debt to the third party.
Even if I am authorized to pay a deceased person’s debt, can I stop a debt collector from contacting me about the debt? 
Yes. To exercise this right, you must send a letter to the collector stating that you do not want the collector to contact you again. A telephone call is not enough. Make a copy of your letter for your files, send the original by certified mail, and pay for a “return receipt” so you can document what the collector received and when. Once the collector gets your letter, he cannot contact you again except to confirm that there will be no further contact or that he or the creditor plans to take a specific action, like filing a lawsuit to collect the debt. Keep in mind that even if you stop collectors from communicating with you, you are still responsible for the debt.
For Complaints and More Information 
Report any problems you have with a debt collector to your state Attorney General’s office at and the Federal Trade Commission at Many states have their own debt collection laws that are different from the federal FDCPA. Your Attorney General’s office can help you determine your rights under your state’s law.

If you have further questions about whether you are legally obligated to pay a deceased person’s debts from your own assets, call Attorney Linda Fessler at 213-446-6766 for a free consultation.

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Glossary of Credit Terms

In interpreting your credit report, it might be helpful to define certain terms that may appear on your report.

Glossary of Credit Terms

Adverse Action Notice
A notice sent by a lender after denying a person’s request for credit based on information in the person’s credit report.
The amount owed on a credit obligation.
A proceeding in U.S. Bankruptcy Court that may legally release a person from repaying debts owed, or reduce the amount owed over a few years. Credit reports normally include bankruptcies for up to 10 years.
A declaration by a lender, generally for tax purposes, that an amount of debt is unlikely to be collected, which can happen when a person becomes severely delinquent in repaying a debt. The lender reports to the consumer reporting agencies that it has taken a loss, but the borrower is still responsible for paying back the debt. Also known as a “write-off.”
Attempted recovery of a past-due credit obligation by a lender’s collection department or a separate collection agency.
Consumer Reporting Agency (CRA)
See Credit Bureau.
Credit Account
A specific lending arrangement between a creditor and borrower that provides the borrower with a loan or a revolving instrument such as a credit card, with an obligation to repay the creditor. Sometimes referred to as a credit obligation.
Credit Bureau
An agency that collects and stores individual credit information and sells it for a fee to creditors so they can make decisions on granting loans and other credit activities. Typical clients include banks, mortgage lenders and credit card issuers. Also commonly referred to as consumer reporting agency (CRA), credit
reporting agency or credit repository. The three largest credit bureaus in the U.S. are Equifax, Experian and TransUnion.
Credit Bureau Risk Score
A credit score calculated by a credit bureau, based only on the credit history from the person’s credit report. FICO® Scores are the leading brand of credit bureau risk scores.
Credit File
The credit records at a credit bureau regarding a given individual. The file may include: the person’s name, address, Social Security Number, credit history, inquiries, collection records, and public records such as bankruptcy filings and tax liens.
Credit History
A record of a person’s credit accounts and activities, including how the person has repaid credit obligations in the past.
Credit Limit
The amount of credit that a financial institution extends to a borrower. Credit limit also refers to the maximum amount a credit card company will allow someone to borrow on a single card. Credit limits are usually determined based on the applicant’s FICO® Score and information contained in their credit application.
Credit Obligation
See Credit Account.
Credit Report
A detailed report of an individual’s credit history as stored in an individual’s credit file, prepared by a credit bureau and used by a lender when making credit decisions. Most credit reports include: the person’s name, address, credit history, inquiries, collection records, and any public records such as bankruptcy filings and tax liens.
Credit Risk
The likelihood that individuals will not pay their credit obligations as agreed. Borrowers who are more likely to pay as agreed pose less risk to creditors and lenders.
Credit Score
A statistically-derived number that provides a snapshot of a person’s credit risk. FICO® Scores are credit scores and rank-ordering tools—higher scores will correspond to better credit risk than lower scores.
Credit risk is the likelihood that the person, compared to other people, will default on a credit obligation.
A credit score is usually based only on a person’s past and current credit information. Lenders use the scores when making credit decisions at different points in a person’s credit lifecycle.
When a debtor (or borrower) is unable or unwilling to meet the legal obligation of debt repayment.
Usually an account is considered to be “in default” after being delinquent for several consecutive 30-day billing cycles.
A failure to deliver even the minimum payment on a loan or debt payment on or before the time agreed.
Because most lenders have monthly payment cycles, they usually refer to such accounts as 30, 60, 90 or 120 days delinquent.
Equal Credit Opportunity Act (ECOA)
Federal legislation that prohibits discrimination in credit. The ECOA originally was enacted in 1974 as Title VII of the Consumer Credit Protection Act.
Fair Credit Reporting Act (FCRA)
Federal legislation that promotes the accuracy, confidentiality and proper use of information in the files of every “consumer reporting agency”. The FCRA was enacted in 1970.
FICO, formerly known as Fair Isaac Corporation, is the company that invented FICO® Scores. Starting in the 1950s, FICO sparked a revolution in credit risk assessment by pioneering credit risk scoring for credit
grantors. This new approach to measuring risk enabled banks, retailers and other businesses to improve their performance and to expand consumers’ access to credit. Today, FICO® Scores are widely recognized as the industry standard for measuring credit risk.
FICO® Industry Score
A type of FICO® Score offered by all three U.S. consumer reporting agencies—Equifax, Experian and TransUnion—that ranges from 250 to 900 and is used by some lenders to address specific types of lending products, such as auto loans or credit cards.
FICO® Scores
Credit bureau risk scores produced using scoring models developed by FICO. FICO® Scores are used by lenders and others to assess the credit risk of prospective borrowers or existing customers, in order to
help make credit and marketing decisions. FICO® Scores only use credit report information that has proven to be predictive of credit risk. FICO® Scores are available through all three major U.S. consumer reporting agencies (credit bureaus).
FICO® Score NG
A type of FICO® Score offered by all three U.S. consumer reporting agencies—Equifax, Experian and
TransUnion—that ranges from 150 to 950 and is used by some lenders.
An item on a person’s credit report indicating that someone with a “permissible purpose” (under FCRA rules) has previously requested a copy of the person’s credit report or credit score. FICO® Scores only consider inquiries by lenders resulting from a person’s application for credit; all other inquiries are ignored.
Installment Debt
Debt to be paid back at regular intervals over a specified period. Examples of installment debt include
most mortgages and auto loans. Sometimes referred to as an “installment account” or an “installment loan.”
Late Payment
A failure to deliver a loan or debt payment on or before the due date. Also see Delinquent.
Permissible Purpose
The Fair Credit Reporting Act (FCRA) prohibits a consumer reporting agency (credit bureau) from furnishing an individual’s consumer report unless there is a permissible purpose. Permissible purposes include the use of the consumer report in connection with a credit or insurance transaction, for employment purposes, and for account review. The consumer reporting agency may also furnish a consumer report if a consumer gives his or her consent.
Revolving Credit/Debt
A line of credit that the borrower can repeatedly use and pay back without having to reapply every time credit is used. Bank credit cards are the most common type of revolving credit account. Other types include department store cards and travel charge cards.
Risk-based Pricing
The practice of setting credit terms, such as interest rate or credit limit, based on a person’s credit risk is referred to as risk-based pricing. Creditors that engage in risk-based pricing generally offer more favorable terms to borrowers with good FICO® Scores and less favorable terms to borrowers with poor FICO® Scores.
The numeric output from a predictive scoring model. The most common type of score used by lenders is a credit risk score such as a FICO® Score. Also see Credit Score.
Score Factors
Delivered with a consumer’s FICO® Score, these are the top areas that affected that consumer’s FICO® Scores. The order in which the score factors are listed is important. The first factor indicates the area that most influenced the score and the second factor is the next most significant influence. Addressing some or all of these score factors can help a consumer more responsibly manage their financial health over time.
Scoring Model
A mathematical formula or statistical algorithm used to predict certain behaviors of prospective borrowers or existing customers relative to other people. A scoring model calculates scores based on data such as information on a consumer’s credit report that has proven to be predictive of specific consumer behaviors.
The proportion of the balance owed on revolving accounts divided by the available credit limit(s).
Utilization is an input used in determining a person’s credit score. Typically it is the amount of outstanding balances on all credit cards divided by the sum of their credit limits, and it’s expressed as a percentage.
For example, if you have a $2,000 balance on one card and a $3,000 balance on another, and each card has a $5,000 limit, your credit utilization rate would be 50%. This ratio may also be calculated for each credit card individually.
See Charge-off.

© 2013-2015 Fair Isaac Corporation. All rights reserved.

If you have any questions, please call Attorney Linda Fessler at 213-446-6766 for a free consultation.

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What is a time-barred debt?
It’s a debt that’s too old for a debt collector to sue you to make you pay. Debt collectors have a limited number of years – called the statute of limitations – to sue you to collect on money you owe. Statutes of limitations vary by state, and by type of debt.

What can I do if a debt collector calls about an old debt?
Debt collectors can contact you about time-barred debts at any time. If you get a call from a debt collector, they might come right out and say they can’t take you to court to make you pay a time-barred debt. If a debt collector doesn’t tell you this, which is most often the case, ask him for the date when you made your most recent payment. Ask him to send you a validation notice – a legally required letter detailing the amount owed, and the name of the creditor. Once you receive the notice, send a letter back within 30 days explaining that you are ‘disputing’ the debt and that you want to ‘verify’ it. Debt collectors must stop trying to collect until they give you verification.

What if I am sued for an old debt?
Do not ignore it. Defend yourself. Consider talking to an attorney in order to prove that the debt is time-barred, and have the lawsuit dismissed. Sometimes for a relatively small amount an attorney can call or write the collector and get him to dismiss the case before you need to file an answer in response to the complaint. To do this, you may be asked to provide a copy of the verification from the collector, or any information you have that shows the date of your last payment. Many times, even if the debt is not time-barred, you can get the complaint dismissed. Because there have been so many bank mergers, many times the collector cannot provide the original document you signed to obtain the credit. This is especially true of credit cards. If you get the case dismissed you can ask for attorney fees, or if you are representing yourself, you can get your costs.

Do I have to pay a time-barred debt?
It’s up to you. Here’s what can happen:

  • Pay nothing. Not paying a debt may lower your credit rating. So check your free credit report by going to first to see if a time-barred debt has been reported. If the debt appears on your credit report, this could make it harder and more expensive for you to get credit. Debts stay on your credit report for seven years after you stop paying. Although debt collectors can no longer sue you for a time-barred debt, it won’t make it go away. Debt collectors can keep contacting you to pay because you still owe the money. If you want them to stop, send a cease communications letter.
  • Partially pay. If you make, or promise to make, a debt payment, the statutes of limitations clock may reset and your debt will no longer be considered time-barred. A debt collector can then sue you for the full debt amount, plus interest and fees.
  • Pay it off. Before making a full payment, get a signed letter from the debt collector saying that your entire debt is being settled to release you from further obligations.
Debt collection issues on your mind? Please call Attorney Linda Fessler at 213-446-6766 for a free consultation.


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Bankruptcy and your future credit

If you are thinking about filing a bankruptcy  you probably wonder if you will ever be able to buy another house or car or have a credit card.

There are options available to begin re-building your credit rating after a bankruptcy, such as secured credit cards.

Mortgage lenders

A bankruptcy will remain on your credit reports for 10 years and, during that time, it will have some degree of a negative impact on your credit score.

This doesn’t mean that you will have terrible credit scores for a decade after filing bankruptcy. It will have less and less effect as time goes by. Some lenders will consider you for a mortgage 2 to 4 years after the bankruptcy is discharged.

Auto lenders

It is sometimes possible for you to qualify for a subprime auto loan within just a few months of his bankruptcy discharge.

You may find yourself paying interest rates on an auto loan in excess of 20%, which will make your financing options extremely expensive almost to the point where it is not worth it.

In addition, just because you can qualify for an auto loan shortly after bankruptcy does not mean that you should purchase a new vehicle. If a consumer truly needs a new vehicle and can afford the monthly payment then adding a new auto loan to his budget might not be a bad idea.

Credit cards

There are plenty of options, if you want to pay outrageous fees and interest rates north of 30%. Having a $30,000 credit limits at 12.9% is a long way from happening after a bankruptcy.


If you have numerous debts and see no way of paying them, you probably should file for bankruptcy. Your credit will recover faster after the bankruptcy, then if you have those numerous debts still appearing on your credit rating for 7 years.


If you have any questions about filing a bankruptcy, please call Attorney Linda Fessler at 213-446-6766 for a free consultation.

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If credit card bills are dragging down your budget each month, paying them off as quickly as possible can create some much-needed breathing room. When you’re trying to get out of debt, sheer willpower alone won’t cut it; you also need to have a plan for how you’ll pay it down.

Consolidating your credit cards allows you to streamline your payments so you can cross the debt-free finish line that much faster. While consolidation may not be right for everyone, there are some excellent reasons to consider it if you’re tired of handing over you cash to creditors each month.

Reason #1: You want to save money

By and large, the biggest advantage of consolidating your credit cards is the fact that it can potentially save you a tremendous amount of money. If you’ve got four or five cards that you’re paying 10, 15 or even 20 percent interest on, you’re going to have a hard time digging your way out of debt, especially if you’re not able to pay much more than the minimums each month.

Consolidating multiple cards, either through a balance transfer, personal loan, or home equity line of credit, gives you a shot at scoring a lower rate. That means more of what you pay each month goes to the principal, which speeds up your progress and cuts down on what you’re spending for interest.

Reason #2: You’re trying to boost your credit score

Your credit score is based on a number of factors, including how long your accounts have been open, the types of credit you have and how good you are at paying your bills on time. Late payments and the total amount you owe have the biggest impact so if raising your score is the goal, consolidating your credit cards may work in your favor.

Your credit utilization ratio is the amount of debt you owe versus your total credit line. For instance, if you have five cards that have a $5,000 limit and you’re using $1,000 of your available credit on each one, your credit utilization ratio is approximately 20 percent.

If you were to open up a new credit card with a $5,000 limit and transfer your balances to it, that would increase your total credit line to $30,000 and your credit utilization would drop to 17 percent. As long as you keep your other accounts open and don’t create any additional debt, you should see an improvement in your score.

Reason #3: You own a home

If you’ve built up some equity in your home, shifting your credit card balances onto a home equity loan or line of credit can yield some significant benefits at tax time. The IRS allows taxpayers to deduct the interest they pay towards their primary mortgage but this rule can also be extended to second mortgages.

As of 2015, you can deduct the interest on a second mortgage loan up to $100,000 or up to $50,000 each if you’re married and file separate returns. The catch is that you do have to itemize to claim the deduction so if you normally go the standard route, you may be better off exploring other ways to consolidate your debt.

If you need more info, please call Attorney Linda Fessler at 213-446-6766.

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Last year’s $2.9 million verdict in Parr v. Aruba Petroleum, the so-called “first fracking trial,” garnered attention throughout the country. It was significant in that not only did the plaintiffs succeed on their private nuisance claim, but also because the verdict provided a publicly available measure of damages for litigation alleging health issues related to the fracking. Unfortunately, when cases are settled, the settlement is often conditioned on the plaintiffs not disclosing the amount of money that they receive.

The Parr verdict remains on appeal and may be modified or overturned, but it is far from the only case in which landowners have made health-related personal injury claims due to alleged exposure to hazardous gases and industrial chemicals from neighboring oil and gas activities.

At least 26 such cases have been brought in federal and/or state courts in Arkansas, Colorado, New York, Ohio, Oklahoma, Pennsylvania, Texas and West Virginia. Two have been dismissed on the merits, four have been dismissed for failure to join a necessary party or lack of subject matter jurisdiction, eleven have been settled, and nine remain pending. Based on a review of these cases, the following trends have emerged:

  • The majority of the litigation has been in Arkansas, Pennsylvania and Texas.
  • The most frequently asserted causes of action are negligence, nuisance, trespass, strict liability, medical monitoring and violations of the Pennsylvania Hazardous Sites Cleanup Act.
  • The factual allegations are strikingly similar, generally alleging that defendants caused releases, spills and discharges of combustible gases, hazardous chemicals and wastes from its oil and gas facilities causing health injuries, damage to property, loss of use and enjoyment of property, emotional distress, loss of quality of life, and other damages.
  • The most common reason for a case to be dismissed is settlement.
  • In addition to drilling facilities, plaintiffs have alleged identical injuries from operations at natural gas compression and transmission stations and disposal wells.

Since most of the additional cases have been settled, it remains to be seen if any additional cases will reach a jury verdict.


If you think you have such a case, please call attorney Linda Fessler at 213-446-6766.

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If you are ready to become a home owner but you cannot qualify for a traditional mortgage, you may still be able to buy a home. There are a few ways to finance a home purchase that do not involve going to a bank.

  1. Buy on contract

When you’re financially able to afford a home but your credit is a barrier to getting a loan, buying on contract may be the answer. When you buy a house on contract, you make monthly payments to the seller. The seller holds on to the title until you’ve paid the agreed-upon purchase price in full.

In a contract for deed scenario, the seller is essentially financing the home to you so the bank never gets involved. That’s a definite plus if your credit is not good. You may also have a bit more leeway with the down payment, since some sellers may be willing to accept less than the standard 20 percent down. However, you may end up paying a higher interest rate.

  1. Take out a margin loan

If you have invested and earned some decent returns, you could leverage those investments into a new home. Brokerages will allow you to take out what’s known as a margin loan, which basically means you will be borrowing against the value of your portfolio. Typically, a person can borrow up to half of what your investments are worth and they serve as your collateral for the loan, instead of the property.

There are pros and cons. On the one hand, you will not pay any closing costs, you will not be required to have your new home appraised and you will not get a prepayment penalty if you pay the loan off early. There is no set repayment schedule, although you should at least pay the interest each month.

On the other hand, you will not receive the mortgage interest deduction. You can, however, deduct the interest you pay on the margin loan. The interest rates are usually higher than what you’d get with a traditional mortgage and if your portfolio loses too much value, you may have to deposit cash into your brokerage account to make up for the difference. You need to weigh the pros and cons.

  1. Ask friends and family

Taking out a loan from your parents or a friend allows you to avoid the bank and not worry about your credit rating. It is essential that you agree on the loan terms before any money is given or accepted. Drawing up a formal contract or at the very least, signing a promissory note gives the person who is lending the money a tangible guarantee that you are planning to make pay back the loan. A contract should include, at the very least how much you are paying and what the interest rate is in writing.

As long as the money is a loan and not a gift, the lender should not be taxed. You, on the other hand, will lose the mortgage interest deduction.


If you need help in reviewing or preparing a contract, call Attorney Linda Fessler at 213-446-6766.

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Justice goes after smaller bad guys


More Regional Banks to Face Probes of Shoddy FHA Loans

by Kate Berry

AUG 7, 2015 3:52pm ET

Banks are still haunted by bad underwriting of mortgage loans from the last housing boom, and the nightmare could endure for months to come.

M&T Bank’s disclosure Thursday that it is in settlement talks with the Justice Department for not complying with underwriting guidelines on Federal Housing Administration loans has renewed fears that more lenders will be the targets of probes and possible litigation.

The $97 billion-asset bank M&T, in Buffalo, N.Y., joins a growing list of large and regional banks currently in litigation or settlement discussions with the government for allegations of shoddy underwriting.

Wells Fargo, Quicken Loans, PNC Financial Services Group, Regions Financial and BB&T all have outstanding investigations of FHA loans, according to company filings.

What is unique about M&T’s case is that it is not a top-20 mortgage lender. Most of the top banks including Bank of America, JPMorgan Chase, Citigroup and U.S. Bancorp have already reached settlements so there is a sense that the government is moving further down the list of lenders.

“We could see some others that haven’t faced this issue yet,” said Frank Schiraldi, a managing director at Sandler O’Neill. “I think if you do see more regional banks announce disclosures [of probes], you’re going to most likely see more settlements as opposed to the banks fighting the government on this.” …

Lenders have been particularly galled by the Justice Department’s use of the False Claims Act, a Civil War-era law that allows the government to collect triple damages for fraud. Lenders have argued that underwriting is subjective. Moreover, FHA has encouraged lenders to make affordable loans to low- and moderate-income borrowers, many with low credit scores who by their very nature have higher defaults.

Most of the investigations into FHA lending began in 2012 or 2013, though the FHA loans in question could have been originated as far back as 2001 and up to 2010.

Theoretically lenders are required to indemnify FHA for loans that have mistakes or are defective, essentially self-insuring the loan so taxpayers are not on the hook for potential losses. In many of the cases, the Department of Housing and Urban Development paid insurance claims on defaulted loans that it later found had significant material violations of its underwriting guidelines. …

Both Wells Fargo and Quicken Loans are fighting the government’s allegations. Wells is currently in the discovery phase of litigation after settlement talks broke down last year. The $1.7 billion-asset San Francisco bank, the largest U.S. mortgage lender, raised its “reasonably possible” loss disclosure for litigation to $1.4 billion in the second quarter, up from $1.2 billion in the first, said Brian Foran, an analyst at Autonomous Research. …

JPMorgan Chase settled a probe for $614 million in February 2014. …

If you need more info, call Attorney Linda Fessler at 213-446-6766.

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