So in Chapter 11 for the big boys they address reality and treat the value of the property the way it is. But in individual little guy petitions for relief in bankruptcy court, they stick you with the entire amount of the Note even if the security is only worth 20% of the “principal.” And it’s not like the bank comes out any better. They still only get the value of the property. The ONLY thing accomplished by treating the property AS IF it were worth the amount of the principal due on the note is that the homeowner gets to be evicted.

Editor’s Comment: REALITY is not just a concept. Property values went artificially high and finally went into a correction period that is still not over. So the owners of the multibillion dollar residential Stuyvesant Town decided to drop off the keys and walk away. They bought the place for $5.4 billion, didn’t use their own money, and then decided that the place was only worth $2 billion now and would never recover because the price they paid was based upon artificially high appraisals. Sound familiar?
So the banks and investors (mostly the investors) take the hit for the loss and the intermediaries walk away with all the money they made while they owned the deal.
And while I am on the subject of double standards, the one in bankruptcy court is simply stunning. Any fool knows that if you lend someone $100 and you get a bicycle as security, then you have security up to the value of the bicycle. So if the bike is worth $50, you have $50 worth of security and the other $50 is obviously secured by nothing. Chapter 11 proceedings for the big boys recognize this when they do “lien stripping.”
If property is worth only $1 million and the mortgage note is for $5 million, the creditor’s claim is stripped into two parts — the secured part ($1 million) and the unsecured part ($4 million). The same holds true if you are a land speculator by profession and you have multiple houses. But if you are average Joe or Josephine you can’t strip the lien. Why? Because congress said so, that’s why.Speculators and big boys get the treats.
So in Chapter 11 for the big boys they address reality and treat the value of the property the way it is. But in individual little guy petitions for relief in bankruptcy court, they stick you with the entire amount of the Note even if the security is only worth 20% of the “principal.” And it’s not like the bank comes out any better. They still only get the value of the property. The ONLY thing accomplished by treating the property AS IF it were worth the amount of the principal due on the note is that the homeowner gets to be evicted.
Of course that IS the point. They want the homeowner out. They want the loan in default. Because the defaulted loan is worth far more in insurance dollars than it is in fair market value on sale. And the bonus is they get the house too even though they didn’t put up a nickle for the loan.
January 26, 2010

Wide Fallout in Failed Deal for Stuyvesant Town

In the beginning, investors and lenders could not get enough of the record-breaking $5.4 billion deal to buy the largest apartment complexes in Manhattan: Stuyvesant Town and Peter Cooper Village.

Now, three years later, they cannot get away from it fast enough.

The partnership that bought the 80-acre property on the East River announced on Monday that it was turning the keys over to its lenders after it defaulted on its loans and the value of the property fell below $2 billion.

Yet in walking away, the partners, Tishman Speyer Properties and BlackRock Realty, have left tenants in limbo and other investors with far bigger losses.

Many of the other companies, banks, countries and pension funds — including the government of Singapore, the Church of England, the Manhattan real estate concern SL Green, and Fortress Investment Groups — that invested billions of dollars in the 2006 deal stand to lose their entire stake.

“At the time, it looked like a sound investment,” said Clark McKinley, a spokesman for Calpers, the giant California public employees’ pension fund, which bought a $500 million stake in the property. “When the market tanked, we got caught.”

Calpers, he added, has written off its investment. So has Calsters, a California pension fund that invested $100 million, as has a Florida pension fund that put $250 million into the deal.

Even though nearly all of the attention and blame surrounding the default has been directed toward Tishman Speyer, it will lose only its original investment of $112 million. (BlackRock will also lose $112 million.)

Any collateral damage to Tishman Speyer, which manages a $33.5 billion portfolio of 72 million square feet of property in the United States, Europe, Asia and Latin America, was expected to be minimal; real estate experts said that Tishman’s reputation might suffer, but that the firm would still be able to put together deals and raise capital.

“This is a big black eye for them,” said John McIlwain, a senior fellow for housing at the Urban Land Institute. “But it’s not the end of Tishman. They own a lot of property. It’s a dent, but not the end.”

For decades, Stuyvesant Town and Peter Cooper Village were an oasis for middle-class New Yorkers; they were built in the 1940s by Metropolitan Life, which received tax breaks and other incentives in exchange for keeping rents low, initially for the World War II veterans who were the first tenants.

With rents and condominium prices skyrocketing in 2006, MetLife put developments on the auction block. A partnership formed by Tishman Speyer and BlackRock paid $5.4 billion. The acquisition cost was actually $6.3 billion, because the partnership had to raise $900 million for reserve funds to cover interest payments, apartment renovations and capital improvements.

The rental income did not cover the monthly debt service. But the two partners were betting that they could turn a healthy profit over time as they replaced rent-regulated residents with tenants willing to pay higher market-rate rents. But their plan fell apart when they could not convert enough apartments to the higher rents as quickly as they had planned. And in the past two years, average rents in New York have fallen sharply, along with property values.

Last year, analysts predicted that Tishman Speyer and BlackRock would default. That prediction intensified when New York State’s highest court ruled in the fall that the partnership had improperly deregulated and raised the rents on 4,400 apartments. The partners were forced to roll back rents and they have been in negotiations on rebates owed to tenants. (The eventual owners, not Tishman Speyer and BlackRock, are expected to inherit liability for the $215 million in rent rebates.)

On Jan. 8, the owners defaulted on $4.4 billion in loans ($3 billion in senior mortgages and $1.4 billion in secondary loans). They had also raised $1.9 billion in equity. The problem was that the latest appraisal put the value of the complexes at about $1.9 billion.

“It’s the poster child for the entire housing bubble,” said Daniel Alpert, managing partner of Westwood Capital. “There’ll be some other spectacular blowups, but this will be at the top of the pecking order.”

Mr. McIlwain said it may take a decade or more for the prices to reach the levels they did in 2006.

“You’re talking about a prime deal at the top of the market when money was fast and free,” he said. “You’re not going to see money that is fast and free until bankers’ memories fade, which typically takes 10 years.”

In the meantime, real estate analysts said the collapse of the Stuyvesant Town deal would send ripples throughout the real estate investment community.

“The fact that they have given the keys back is going to have a chilling effect,” said Keven Lindemann, director of real estate for the research firm SNL Financial, which covers publicly traded real estate. “This was such an enormous transaction that it looks like most, if not all, of the equity is going to be wiped out.”

The Government of Singapore Investment Corporation, which made a $575 million secondary loan, and invested as much as $200 million in equity, stands to lose all of that.

CWCapital, the company that is negotiating with Tishman Speyer and BlackRock on behalf of the mortgage holders, declined to comment. With Tishman Speyer stepping down as manager of the 11,227 apartments, CWCapital has talked to both the LeFrak Organization, which owns and manages thousands of apartments in Queens and elsewhere, and Rose Associates, the Manhattan company that had managed the two complexes before Tishman Speyer took over.

This month, several of the secondary lenders sent letters to Tishman Speyer and BlackRock threatening foreclosure because of the default. The partners tried unsuccessfully to craft a new deal that would have involved them putting up “several hundred million dollars,” in return for restructuring the loans, according to one real estate executive briefed on the negotiations.

The secondary lenders, he said, had “overplayed their hand” in the hope that they would get back some of their investment. Instead of being forced into bankruptcy, Tishman Speyer and BlackRock will walk away sometime after a new manager is in place.

Fannie Mae and Freddie Mac may be in the best position of anyone involved in the deal’s financing. They acquired over $2 billion in securities backed, in part, by the $3 billion Stuyvesant Town mortgages. Fannie and Freddi Mac have to be paid before any other debtholders, but they are not parties to the negotiations over the property.

They may well become an integral part of the solution. In a report issued Monday, Deutsche Bank suggested that CWCapital’s most likely action will be to wipe out the existing mortgage and attempt to sell the complexes. “Given the size of the properties and an asking price likely to be well in excess of $1 billion, a sale may necessitate Fannie Mae and Freddie Mac providing financing to a potential buyer,” the report said.

Foreclosure Offense and Defense: Changing the Bankruptcy Laws

A helpful article:

WASHINGTON (MarketWatch) — For many people, filing for bankruptcy is seen as a scary, worst-case scenario, but consumer advocates say this last resort could be a real help for beleaguered homeowners.

There is no shortage of proposals in Congress to address the housing crisis: the Depression-era Federal Housing Administration is up for a makeover, and there are other plans to ease the stress of pricey mortgages. Under veto threat is a proposal that consumer advocates see as key to helping more people stay in their homes: allowing bankruptcy courts to modify troubled mortgages on primary residences.

Under current Chapter 13 bankruptcy law, courts cannot modify the mortgage on a principal residence, though they may for vacation or second homes. Consumer advocates and others see bankruptcy, which is meant to adjust debt and make it easier for people to repay creditors over time, as an efficient and established method for troubled homeowners to make good.

“The marketplace is designed so that it will protect owners of vacation homes and second homes, but yet a consumer who is struggling to make their mortgage payments cannot include their home,” said David Berenbaum, executive vice president with the National Community Reinvestment Coalition.

A major strength of court-supervised modifications, consumer advocates say, would be their ability to help people who have “piggyback” loans, which are second mortgages taken on homes at the same time as a first mortgage. Struggling homeowners are often urged to seek a loan modification from their lenders, but many second-lien holders won’t allow loans to be modified without being paid out, said Mark Zandi, chief economist of Moody’s

“Second-lien holders are mucking up the process, they don’t want to be subordinated,” Zandi said. “The other limitation is that some mortgage investors are not allowing these modifications to go through because they don’t think it’s in their best interests.”

Generally, a first mortgage gets paid in full, followed by the second, so the holder of the second mortgage has no incentive to support a modification that could cause it to face a 100% loss, said Eric Stein, senior vice president with the Center for Responsible Lending.

“The holder of the second is better off waiting to see if a borrower can make a few payments before foreclosure,” Stein said. And, he said, dealing with two servicers is a “negotiating challenge that most borrowers cannot surmount.”

About 40% of home-purchase mortgages in the first nine months of 2006 involved piggyback loans, according to a report last year from Credit Suisse. That figure jumps to more than 60% in some markets such as Los Angeles, Las Vegas, and Sacramento, according to the report.

Battle over bankruptcy law


  • Changing bankruptcy law to enable loan modification faces strong opposition from President Bush and may have a tough time in Congress. “Amending the bankruptcy code in this manner would undermine existing contracts, leading to contraction in mortgage credit availability and affordability,” according to an administration policy statement. “These and other bankruptcy-related provisions in the bill would rewrite long-standing tenets of bankruptcy law in ways that would fundamentally alter the expectations of parties to hundreds of thousands of home purchases after the fact.”
  • The Mortgage Bankers Association said a bankruptcy proposal currently in the House of Representatives would give “judges free rein to rewrite these contracts without statutory or economic restraint.” The MBA also said the prospect of the bill’s enactment could prompt more foreclosures. “In the short term, lenders will likely move quickly to foreclosure to ensure that they are not covered by the onerous provisions of this bill,” according to MBA.
  • However, CRL’s Stein said bankruptcy changes could act as an incentive for servicers and investors to refinance more loans because they may feel they can get a better deal.
  • “It will induce some investors to go and accept a refinance program, and it will also get others to agree to modifications outside of bankruptcy,” Stein said.
  • Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies, said bankruptcy reform should be considered, noting that the infrastructure already exists.
  • “Particularly, if you look at alternatives like a large federal program,” Retsinas said. “For any new initiative, the government rulemaking will take months or longer.”
  • The Congressional Budget Office estimated that the House proposal could encourage some to file for Chapter 13 bankruptcy, resulting in a 4% to 5% increase in annual filings. But there would not be a run to file for bankruptcy, said NCRC’s Berenbaum.
  • “Most American homeowners understand the long-term impact of filing for bankruptcy. You have to wait before you can apply for a mortgage again. It impacts your credit,” Berenbaum said.
  • Speaking Thursday, Sen. Barack Obama, D-Ill., offered his support for the modification of loans to avoid foreclosure or bankruptcy.
    • “It’s also time to amend our bankruptcy laws,” Obama said, “so families aren’t forced to stick to the terms of a home loan that was predatory or unfair.”

Ruth Mantell is a MarketWatch reporter based in Washington.

Mortgage Meltdown: Foreclosure Offense and Defense: Cram Down and Adversary Proceedings in Bankruptcy Court

Here is an email I sent to a victim of the mortgage crisis:

So you are in Chapter 13. Do you have a lawyer?

There are some options in bankruptcy court that might be available under current law. The two that I have in mind for you, without any details, are the availability of “cram down” and the use of an adversary proceeding. “Cram down” refers to a process wherein a creditor has terms crammed down his throat that he otherwise wouldn’t accept. There are many theories and bases for cram down but I can tell you it is used consistently in bankruptcy. 

Cram down is always an option in Chapter 11 so you might have to convert from Chapter 13. I am not an expert on BKR law anymore so I would go to your lawyer or as a starting point. It involves equitable and legal factors and if the right case is made, the Court will order it.

Second is an adversary proceeding in which you sue the lender and include everyone in the pipeline who got you into this mortgage and note and the terms that were presented to you as “good terms.” The counter-argument that you signed the documents, that there was adequate disclosure in the documents etc., will fall flat in the context of the vast mortgage meltdown which the bankruptcy judges, trustees, and trustee’s counsel are now very familiar with. Everyone wants to help you. But YOU have to give them a legal reason to hang their hat on. 

The combination of the adversary proceeding, the conversion to a proceeding that allows cram down and the well written brief to cram down the new terms against the lender, will certainly slow things down if there isn’t already a timeline that can’t be moved. Remember that the proceedings, while designed to protect the debtor are also there for the protection of the creditors. And you must take steps to present your cram down proposal to the creditor(s) for their vote. In most cases their rejection will not be presumed — it must be shown on record. 

So when you submit your proposal, you want to submit something that shows that it is in the best interest of EVERYONE to have it done even if they don’t agree. This can only be done by demonstrating that your proposal is the best one you can come up with given your particular circumstances, that you have rights against the creditor(s), that the creditor(s) might not have legal standing to make a claim (because of the sale using documents that did not perfect the sale), and that the creditor is not being cut out of the process and losing everything (even though under TILA and RICO and other laws he might be at risk for exactly that).

But rather, that you have a plan to reduce the principal amount of the mortgage for purposes of amortization, that the lender has contingent equity rights when the property is refinanced at a higher amount than the cram down amount, and that the creditor and other parties have a right to show the mortgage as reinstated and therefore no requirement of a write-down in value is required on their balance sheet. This will preserve not only the due process and property rights of the lender but might actually go to assisting the lender in staying afloat. 

It is even possible that the lender and the holders of CDOs (CMOs) might see the logic of this which requires no expenditure of new money and gets the conflict off the table. 

Mortgage Meltdown: For People Already in Trouble

We received the following plea for help. I have changed the name to protect privacy. But both the plea and the answer are applicable to many people, which is why we are publishing the Garfield Handbooks. I will shortly publish a way for you to down load the books and forms and purchase the book on line or in hard copy. 

“hello my name is John Smith i am currently in chapter 13 bankruptcy countrywide has currently forclosed on my property the bank brought it back and is currently moving to evict me i beleive there were bogus fees and my atorney did not want to argue the issue , my payments went from $1900 to $2800 to $3850 within 18months adjusted twice please send me info so i can fight back”

First thing you need to do is calm down because allowing yourself to be overtaken by anxiety will lead to bad judgment, unclear thoughts and strategies that could make your situation worse.

Second thing is it would be nice if you would order the Garfield Handbook for Borrowers in the Mortgage Meltdown Crisis by sending a money order for $19.95 payable to General Transfer Corporation and address it to Neil F. Garfield, 4980 S Alma School Rd., A-2, Suite 124, Chandler, Az 85248. I will send you via email the  current manuscript and give you free updates for 60 days. If you want it in hard copy, send $29.95 including shipping and handling. Whether you do or don’t buy the book (which helps defray the costs of servicing the thousands of people stuck in your position), I will help you as much as I can right here and right now. 

Third thing you should do is consult a lawyer that is local and knows the ropes. After reading this email a lawyer might be willing to help you without a retainer because of the possibility of getting paid by Countrywide or even in a class action. The lawyer should consider joining one of the many class action lawsuits that have been filed. Make sure you join one that is for borrowers and not for investors in CDOs. If you must proceed on your own, here are some tips that other people are doing:


  1. Contact the Office of the Attorney General of your State. Do the same in your county and your city. You might find that an investigation is already underway against Countrywide and lenders in general in this massive fraud — and they might even intervene for you. You are a victim and not a bad guy, so don’t get put off by anyone telling you that you should have known better when you signed the documents. Remember, the largest criminal investigation in the history of economic fraud is currently underway in many states and there is plenty of talk behind the scenes about what to do for people like you. 
  2. Contact the Judge’s office in the bankruptcy case and file a copy of whatever you send to the Judge with the clerk of the bankruptcy court. Use letter sized paper, double-spaced with numbered paragraphs. Make sure you send copies of whatever you have sent to the Judge to the Trustee to whom you were supposed to make your payments. Do not expect the Trustee to intervene for you. Adversarial proceedings are expensive and unless you can offer to pay up front, the Trustee is in all probability not going to help you.
  3. You might want to ask for a conversion to Chapter 11, which is available for individuals and which allows for certain “cram down” features that are more likely to get you relief that you might get in Chapter 13 or Chapter 7. But the filing fee in Chapter 11 cases is very high. You might want to get  request leave of court to spread the payment out over time. 
  4. If the bankruptcy court won’t hear you then try everything below in the State Court in your jurisdiction. The clerk of the court will generally be helpful. 
  5. Generally a good time to contact the Judge in person is on a Friday afternoon when the Judge dispenses advise and punishment to lawyers who screwed up in his court that week. At that time you can present your papers (if the Judge lets you) and literally plead with the Judge to help you. 
  6. The Judge on the other hand is seeing a geometric increase in these cases and most bankruptcy judges are (a) not pleased with the change in bankruptcy laws passed by congress and (b) don’t like these foreclosures based upon crazy payment re-sets and (c) would offer some relief as long as they were not inventing law, just enforcing and deciding it. So don’t get crazy with your demands, because the Judge will probably not be receptive to what you have to say. 
  7. Be respectful and not argumentative withe the Judge. You can show your emotion but make absolutely certain it does not come across that you are angry or ready to fight with the Judge. That can lead to handcuffs and spending a night behind bars to cool off.
  8. Do not assume the Judge knows anything about your case (in terms of who you are, where you live, when this case started, when you bought, or what happened when you bought — these are all things you must say in writing, and if you given the chance, out loud in court); but by all means you can assume that the Judge knows the law — better than you do and better than 99% of the attorneys that appear before him or her. In fact, appearing pro se (without counsel) might put you at an advantage because the Judge is likely to use his own knowledge or her own knowledge, to your advantage.
  9. Do not assume the Judge is against you if he/she asks you questions or says things that seem to favor the other side. A Judge is supposed to be objective, not automatically in your favor because of your good looks or the severity of the penalty you are experiencing. 
  10. Be very scrupulous in obeying all time limits and all other instructions of the court. Don’t think you can play fast and loose with ANYTHING. Bankruptcy Court is Federal Court and Federal Court is a lot tighter on rules than you usually find in State Courts. 
  11. Ask the Judge on paper and orally if you get the chance, for a stay or temporary injunction, preventing Countrywide from enforcing the mortgage, filing eviction, or getting an order that would allow  or order law enforcement to come to your house and literally remove you. Do not remove yourself. You might be surprised how long it can take before a sheriff does the eviction. They don’t like this situation anymore than you do, and they are aware of the criminal investigations going on against Countrywide and other lenders.
  12. Ask the Judge to allow you to file an “Adversary Proceeding”. You will get instructions in the local rules from either the Judge or his clerk. 
  13. Tell the Judge in your paperwork and orally, if you get the chance that you want to challenge the mortgage and the note in that they were not computed properly, that the adjustments were not computed in accordance with law, that the amount demanded from you is wrong (too high) and that you have been defrauded by Countrywide and other co-conspirators) on all of the following grounds:
  14. Fraud in the inducement: Countrywide entered into a conspiracy to defraud you and millions of other people to believe that you could, with their help, afford a house that you otherwise believed you could never pay for. You were presented with terms you were led to believe you could afford, but the entire arrangement amounted to bait and switch because the terms being enforced against you now are the not the same terms you started off with. They inflated the price of the home, enlisted an appraiser to verify the value, enlisted a mortgage broker to guide you into a mortgage you could not afford, intentionally distracted you from disclosures that might have alerted you to problems with the mortgage terms and note, and then led you to believe that you had been approved by a financial institution with far superior  information, and upon whom you reasonably relied to verify the value of the home, the reasonableness of the terms of the mortgage, and the lack of any need for an attorney. [Needless to say, if anything here does not apply to you don’t say it]. As a result, you went to a closing where you presented with a pile of papers that you did not understand but which were explained to you by a title agent that was enlisted to tell you the terms of the mortgage and note in such a manner that you would be distracted from understanding that you could not possibly pay for the house, that the house might not be worth what you were paying for, and that the mortgage terms only benefitted the co-conspirators, none of whom assumed any risk in the transaction because they sold the risk to third party investors who were similarly lied to and defrauded. As a result you have been deprived of living arrangements that you could have afforded but which are no longer available, you have spent money improving and furnishing a house that you cannot afford if the price and mortgage terms are maintained, and are faced with the expense and costs of moving, including the threat of literally moving out onto the street and becoming one of the hundreds of thousands of homeless persons displaced by this massive fraud.
  15. Fraud in the execution: You were led to believe by the co-conspirators and third parties that you were signing papers that were the same as what you were originally told by the developer, who probably received a rebate on the yield spread premium, the mortgage broker who also received a rebate, the title agent who received a high closing fee, and the appraiser who also received a fee in excess of the amount that the marketplace would have awarded if the transaction had not been fraudulent. 
  16. Rescission — only if they can give you back everything they took from you.
  17. Usury: The net effect of this scheme was to acquire title to property and sell it at prices that would allow the lender to secure a return that would otherwise be in violation of usury laws.
  18. RICO racketeering: This was an interstate scheme involving co-conspirators from many states and perhaps other countries as well. The scheme violates criminal statutes and cicll statutes. Accordingly the case should referred for criminal prosecution and you are entitled to treble damages and attorney fees.
  19. TIL (Truth in Lending): The co-conspirators intentionally misled you by distracting you from the real terms of the transaction and as a result violated local, state and federal truth in lending laws.
  20. Discovery: The Clerk might help you with this. You want to file requests for Production, requests for Admission, Interrogatories, and a demand for access to the main and ancillary computers containing emails, correspondence and policies of Countrywide for dealing with your case and cases like yours. Get access to emails, correspondence etc. dating back before the loan and relating to the creation of the loan product the borrower eventually was sold. Same for what they know of the other players — developer/seller, mortgage broker, appraiser, relations with investment bankers showing they knew they would not be carrying he risk of the loan ( shows they had not interest other than closing the deal without concern as to whether the deal went bad for borrower or lender). Get screen shots of websites and see if you have copies of web pages that were printed during the loan and sales process. Check for differences. If someone has been fired at the lender for the events leading up to the CDO and mortgage meltdown, get their deposition. Demand copies of drafts of documentation before it was presented to the borrower along with any emails or inter-office memos. Find out if anyone has consulted counsel for criminal exposure, employment litigation, or civil exposure. You can’t get the content of the conversation but you can get the answer to that question if you phrase it right
  21. See my other posts on for more allegations that might be applicable.

Neil F. Garfield, Esq.<>

This is not a solicitation for legal services nor legal advice in your particular situation. I do not know what jurisdiction you live in, I have not interviewed you, you have not retained me, and I am not your lawyer. These matters are complex and generally require the services of competent legal counsel experienced in bankruptcy, foreclosures and lender liability. You should consult with local counsel before doing anything. The information contained in this email is general information that may or may not apply to your situation. 

This transmission may be protected by attorney client privilege and attorney work product privilege if it contains legal advice or opinions, and it contains information that are private, trade secrets, protected by non-disclosure and non-circumvention agreements between the parties and is therefore confidential and privileged. It may also be for the sole purpose of compromise and settlement only if it contains an offer and may not be used in any judicial or quasi-judicial or administrative proceeding without the express written consent of the sender. 

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