Thomas Jefferson - Revisited

Services for Real Estate Pros with Law Offices of Louis J. Esbin

Back in February 2009, Congress had the opportunity to pass sweeping bankruptcy reform that would have allowed judges to modify the terms of mortgages on home residences.  The House passed the legislation, but the Senate never took up the debate and the amendments died!  At the same time, the financial industry was bailed out, along with the insurance and auto industries; all in the name of too big to fail.  But, millions of Americans have seen their lives and families destroyed in the interim.  All in the name of preserving the financial industry.

Jefferson's words are as true today as they were in 1802: "I believe that banking institutions are more dangerous to our liberties than standing armies.  If the American people even allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake up homeless on the continent their fathers conquered."  Thomas Jefferson, 1802.

They are that much more prophetic as it relates to the power of banks today upon our elected officials through lobbying and political contribution, and when coupled with those of the Founding Fathers in the Declaration of Independence, should give each of us cause to be concerned that: "Governments are instituted among Men, deriving their just powers from the consent of the governed, – That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shown, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.”

There is a Constitutional mandate that Congress enact uniform laws on Bankruptcy (and Immigration).  The first bankruptcy laws were enacted in 1800 and repealed in 1803, coincidentally during Jefferson's term in office.  Several other enactments followed in response to interim economic panics prior to the enactment of the 1898 Act, followed by the 1978 Code, and the 2005 BAPCPA.

Now that the financial industry seems to be bouncing back nicely, is it time to revisit bankruptcy reform to give the average American family an equal break?

Comments (33)

Kari Battaglia, PA
Veterans Realty Inc - Venice, FL
Who You Work With Matters!

I love Thomas Jefferson - even visited his home in Virginia on several occassions.  Great man.  I too need to do more research on bankruptcy and agree that reform is needed. I am sure that the banking industry will be lobbying against any type of reform.  I also did not realize that everyone else can get their loans modified during bankruptcy - expect for the american homeowner.  That is just wrong.

Jul 09, 2010 10:15 AM
Louis Esbin
Law Offices of Louis J. Esbin - Santa Clarita, CA

In response to Post No. 7:  You gratuitously state that a bankruptcy can be filed without an attorney!  A simple credit card case maybe can be filed without counsel.  But take a homeowner who bought a home (through maybe through you) without fulling understanding the economic realities of the loan documents and documentation; i.e., option ARMS, negative amortization, etc., and the bankruptcy case becomes much more complicated.  What happens, for example, if the homeowner's income exceeds the Median Income in their statistical area?  What happens if had the homeowner filed before a short sale they would have qualified for Chapter 7 relief, but after they cannot?  Should they have had counsel before the Short Sale closed?  What about the difference between Capital Gains and Debt Forgiveness?  They are not treated the same by the taxing authorities.  Does the Realtor have any liability for receiving a commission for a Short Sale, where the homeowner receives nothing, and cannot obtain Chapter 7 relief?  Does the Realtor, notwithstanding the CAR disclosures have liability to the homeowner who must now pay several thousands of dollars during a Chapter 13, rather than receiving a discharge in a Chapter 7?  Are you not advising clients that they need to seek bankruptcy counsel, because your husband assisted in some simple cases - maybe by luck!  What would have happened if the United States Trustee audited the file?  What would your husband advised those people then?

Please, before you give advice that bankruptcy can be filed without counsel, consider all of those people who can ill afford a home in the first place and can ill afford to be paying over a 5 year commitment period in a Chapter 13 case, because they were led to believe a Short Sale would be better for their credit!

As I advise Realtors for whom I provide lectures and lecture materials, stay within your expertise, and refer your client to my office for a $100 consultation on their alternatives and strategies BEFORE closing on a Short Sale.  Their lives are already turned upside down, they do not need to have their lives turned inside out too!

Best regards.  Lou Esbin

Jul 09, 2010 11:26 AM
Louis Esbin
Law Offices of Louis J. Esbin - Santa Clarita, CA

Response to Post No. 12:  Please refer to my website, where you will find articles that I have written and where I have posted a really great video produced by the US Courts.  Also, where you have a question, send me an email, and I will try to answer within 48 hours.

Best regards.  Lou Esbin

Jul 09, 2010 11:28 AM
Patricia Aulson
Realtor - Portsmouth NH Homes-Hampton NH Homes

Thanks for the post today, good read.


Jul 09, 2010 12:51 PM
Patricia Aulson
Realtor - Portsmouth NH Homes-Hampton NH Homes

Thanks for the post today, good read.


Jul 09, 2010 12:51 PM
Jerry Murphy, CRS, SRES
Long Realty West Valley - Anthem, AZ
Anthem, Phoenix, and Scottsdale AZ Real Estate

Thanks for the post Louis.  When congress revised the bankruptcy laws in 2005 they made it more difficult for individuals to escape the clutches of their creditors.  Most folks don't qualify for Chapter 7 so they are only left to file Chapter 13, which you noted above, is unaffordable for most.  I agree with you.  When dealing with legal/financial matters people should consult professionals.  The money and time saved by their expertise is worth MORE than the fee they charge.  Great post and best of luck to you.

Jul 09, 2010 01:35 PM
Curt Hess
ExecuHome Realty - Annapolis, MD
Luxury Home Consultant, Team Leader & CEO

Damn right...but the guys who have a vested interest in shafting the average working family have bought/paid-for those people who make laws. Compound the overall unfairness of the new bankruptcy laws with the fact that more than 60% of all bankruptcies are caused by healthcare bills not covered by the people who REALLY run our nation's healthcare system: Insurance Companies!

Jul 09, 2010 01:39 PM
Lane Bailey
Century 21 Results Realty - Suwanee, GA
Realtor & Car Guy

I respectfully disagree about cram-downs.  There is a very good reason that all of the entities that you mentioned, aside from residential homeowners pay substantially higher interest rates for their loans...  there is more risk to the bank.  It is also more difficult to qualify for those loans...AND finally, the downpayment requirements are significantly higher. 

If you put it in front of a consumer, how do you think they will answer?

  • Choice A) 5.5%, no cramdown, 3.5% down payment ($1095.83, $7k down)
  • Choice B) 6.5%, cramdown capable, 25% down payment ($948.10, $50k down)
  • Choice C) 8.5%, cramdown capable, 5% down payment ($1460.94, $10k down)

I can tell you that the VAST majority are going to pick option A.  And also, for the VAST majority, it will be a better choice because they won't go through a bankruptcy. 

In effect, the buyer is making an insurance payment of $350+/mo that will pay off if they get a modification in bankruptcy...  (rates are for illustration only)

Jul 09, 2010 02:52 PM
Lina Robertson
AMAX Real Estate - Springfield, MO
REALTORĀ® Serving Springfield, Nixa and Ozark, MO

As a former trial paralegal, #7 really scares me.  This can be construed as practicing law without a license and can hold serious consequences.  I ALWAYS advise my clients facing a short sale to visit with their attorney beforehand.  If they do not have an attorney, I have one who will provide an initial consultation for free.  We have too much liability in this business to be handling it so frivolously.

Jul 09, 2010 03:42 PM
Morgan Evans
Douglas Elliman Real Estate - Manhattan, NY

What a collection of ideas here, I don't know where to start. 

Jul 09, 2010 04:37 PM
Chris Olsen
Olsen Ziegler Realty - Cleveland, OH
Broker Owner Cleveland Ohio Real Estate

Hi Louis -- Very insightful.  It is startling and very disconcerting the power large financial institutions have over our legislators and individual lives.

Jul 09, 2010 04:57 PM
Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

Louis, Thomas Jefferson was not only a genius, he was incredibly prophetic in his writings. I love to visit his home whenever I can. Very informative post, thank you.

Thomas Jefferson's Monticello

Thomas Jefferson's Monticello

Jul 09, 2010 05:33 PM
Louis Esbin
Law Offices of Louis J. Esbin - Santa Clarita, CA

So, it seems that we have a consensus, but not 100% agreement that things are not what they should be.  And, it is as a result of Jefferson and the other Founding Fathers that we can have these discussions; agree in some respects and disagree on others.  But, they also gave us direction through the Declaration of Independence on what our duties are when we find our governance usurped by despots, such as today's financial industry.

Jul 09, 2010 06:00 PM
Tim Maitski
Atlanta Communities Real Estate Brokerage - Atlanta, GA
Truth, Excellence and a Good Deal

I was thinking about it and saw Lane's comment in #21 to be a good thought.  I don't like big banks but Lane does make some good sense.

I never thought about it, but maybe that's why investor loans are so much more expensive and require much more down.

I never like changing the rules after the fact.  Maybe they could change the cramdown rule for primary homeowners going forward on homes bought after today.  Then banks and their money investors could price that into the loans going forward.  It would be interesting to see how that affected rates.

Things like that seem to  affect interest rates.  I think one of the reasons that mortgage rates are cheaper in Georgia vs. California is because it's much easier and quicker to do a foreclosure.  I think most people are happy with that tradeoff.

Jul 10, 2010 12:39 AM
Gregory Bain
Mezzina Real Estate & Insurance - Little Egg Harbor, NJ
For Homes on the Jersey Shore

As long as we have the Party of NO (Hell, NO!) we will have NO reform.

Jul 10, 2010 03:39 AM
Bill Burchard
3B Realty: 951-347-3818, CA - Murrieta, CA
Broker, Realtor, Representing Buyers and Sellers

A very thought provoking (and  thoughtful) post and comments, Louis. Thanks!

Jul 10, 2010 04:53 AM
Louis Esbin
Law Offices of Louis J. Esbin - Santa Clarita, CA

In response to No. 27:  Actually, interest rates are slightly higher in California because California is an anti-deficiency state.  The hoopla that has surrounded HAFA about the lenders not pursuing the deficiencies has been the case in California for purchase money loans since the Great Depression.  And, in California, we have what is referred to as the "One Action Rule," which prohibits a foreclosing lender from pursuing a borrower after they have pursued nonjudicial foreclosure.  Traditionally, nonjudicial foreclosure in California would take 110 days from beginning to end.  That has changed since July 2008 with requirement of preforeclosure letters.  I have not seen good research and statistics on the impact of possible cramdown on interest rates, although the financial industries yells loudly about it.  Honestly, I do not believe the spector that wholly undersecured seconds or HELOCs had any negative impact on lending during the "Bubble."

Jul 10, 2010 07:20 AM
Rob Magnotta
Huntington Beach, Newport Beach, Seal Beach, Irvine REALTOR - Huntington Beach, CA
Huntington Beach & Newport Beach Coastal Specialist

Lots of great ideas. These are the types of posts and comments that make us better understand our industry, even when we don't agree.


Jul 11, 2010 10:25 AM
Noel Sheppard

Do Jefferson's words concerning this matter translate well more than 200 years later? How well were banks tied into colonial America as compared to today?

Were they huge employers? Doubtful.

Did people need them to be able to mail funds in order to pay their bills? No.

It is likely that a rather small percentage of early Americans had much dealing with banks. As such, it was easy to castigate them as they really weren't needed.

Today, the overwhelming majority of Americans couldn't live without the services of a bank or credit union.

So, let's be careful before we do more to undermine them. As we saw in the financial industry collapses of 2008 and 1929, our economy dies without such institutions. 

Jul 18, 2010 05:38 PM

I appreciate the concern which is been rose. The things need to be sorted out because it is about the individual but it can be with everyone.


Repossession Mortgage

Aug 09, 2010 01:31 AM