A new associate at a leading Westchester bankruptcy firm, attorney Seohee Kong had seen firsthand the ravages of the nation”™s home mortgage crisis in her previous practice in Detroit, Mich. Still, she was not prepared for the volume and complexity of work she has done for New York clients, who come to Rattet Pasternak L.L.P. in Harrison to seek legal help in holding on to their mortgaged properties.
“I see so many people now,” she said recently at the firm”™s Mamaroneck Avenue office. “I work with four or five people a day” who are struggling with mortgage payments or facing foreclosure. “Next week I have three clients coming in to sign in with us.”
“The types of clients are completely different” from those she represented in Michigan, said Kong. In Westchester, she is seeing “very well-educated” homeowners, many with masters and doctoral degrees, including professors and financial services professionals. Some are real estate investors who bought multifamily houses at the peak of the housing market and have seen their values plummet.
Specializing in corporate bankruptcy, Rattet Pasternak in January expanded its business in consumer debt relief and loan modifications in response to Westchester”™s less-visible mortgage crisis that afflicts the middle class. The firm”™s private program is in step with and makes use of state and federal court programs that started in the wake of the Obama administration”™s three-year-old Making Home Affordable Program for mortgage relief.
Promoted in radio ads, Rattet Pasternak”™s recently launched westchesterhope.com website, which offers visitors free initial consultations, has brought in clients in numbers three times higher than the firm”™s projections, said managing partner Robert L. Rattet.
Historically, the 17-year-old firm has helped bankrupt businesses wind down and close out their financial affairs, said partner Dawn K. Arnold. But since 2008 and the recession, the firm has had more requests from clients to represent them in personal bankruptcies.
“After the real estate crash and people were losing their jobs,” said Arnold, “it made a lot of people who thought they would never be in the position, investigate what they could do with their debts” and how they could keep their homes.
Attorney Julie Cvek, recently named a partner at Rattet Pasternak, said consumer bankruptcies have accounted for 10 to 20 percent of the firm”™s business from 2005, when federal bankruptcy law was changed to require an income means test for filers, to 2009.
As real estate property values dropped significantly in 2009, the firm”™s attorneys began filing more Chapter 13 petitions in U.S. Bankruptcy Court, which allow debtors with regular income to repay debts on multiyear payment plans.
“Between 2009 and 2010, people realized availability to credit wasn”™t going to be there,” Cvek said. “People saw their credit lines were being shut down. They saw their retirement accounts weren”™t going to be there.” Westchester consumers changed their spending habits.
As a result, said Cvek, attorneys are not seeing debtors “with a lot of credit card debt. The problem they”™re facing now is mortgages.”
“Our clients are just people who cannot afford their houses,” she said. “A lot of them should never have been given a mortgage loan.”
Arnold, who oversees the firm”™s new loan modification department, said she has been surprised at the number of mortgages of more than $1 million in the county, At “the very beginning” of the mortgage crisis, she said, a client came in who had been sold a house in Westchester for $750,000. He was trying to keep up the mortgage payments on a caddy”™s income at Sleepy Hollow Country Club.
“A lot of the scams that we”™ve uncovered are the mortgage brokers who improperly reported assets” of home buyers, Arnold said.
Cvek agreed. “A lot of people were sold mortgages they couldn”™t afford, and now they”™re going into foreclosure. They were sold the American dream, and now they”™re losing their house.”
In Westchester, though, it is not low-income people saddled with ballooning subprime mortgages who account for Rattet Pasternak”™s surge in business. “There are a ton of middle-income families here,” said Cvek. “Those are the people who are having their problems.”
Cvek said the firms”™ typical client for a mortgage modification is a married couple earning $250,000 a year, “but they can”™t pay their bills. And they”™re not overspending. That”™s the cost of living in Westchester. It”™s your average middle-income households.”
Some struggling homeowners have been given bad advice or have been stalled by lenders when requesting mortgage modifications, according to the attorneys.
Kong said one client since 2010 tried to lower a $200,000 mortgage directly with the lender, but only recently received the required loan modification package. The lender agreed to knock off $50 on the mortgage.
Arnold said some clients were falsely advised by lenders that they could not modify their mortgage loan if they were not behind on payments. They were told to stop payments for three to four months, leaving them at greater risk of foreclosure.
“We hear the same story over and over and over,” Arnold said.
“In some cases, the first package they receive is foreclosure,” said Kong.
Arnold and Cvek said the most effective option for mortgage relief is through the bankruptcy process and a federal loss mitigation program that was started as a pilot program about two years ago in U.S. Southern District Court in Poughkeepsie by Chief Judge Cecelia G. Morris. The program, which has been adopted by U.S. Eastern District Court on Long Island and by federal courts in New Jersey, Rhode Island and Florida, requires banks to provide loan and mortgage documentation, they said. The attorneys said lenders have been less cooperative outside the federal court.
“Chapter 13, in our opinion, is for most people the best,” said Arnold. “It puts the onus on the bank to make that proof.”
“The downside of all this is filing bankruptcy, which damages their credit score,” she added.
At Rattet Pasternak, Cvek estimated that consumer bankruptcies now make up 30 percent of the firm”™s legal work. By the end of the year, that business likely will have grown to half of the firm”™s business.
The firm”™s attorneys in March filed about ten Chapter 13 cases, Cvek said. “We used to file one per month.”
“I just don”™t see the market recovering in the next five years,” Cvek said. “I think seven to 10 years is more realistic. I think it”™s just the cyclical nature of the global economy.”
Meet the Artist:
John Ashton Golden
Never without pen and paper in hand since age 3, John Ashton Golden, an upstate New York native, graduated from the Rochester Institute of Technology with degrees in illustration and graphic design. Working from his Chicago studio, he provides freelance illustration and graphic design services to myriad clientele. In his down time, JAG can be found developing original graphic novels, fine art, and music for two rock bands. He shares a drafty apartment  with three cats and a comedian.Â
