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Sunday, October 31, 2010

Was Tyler Clementi Murdered?

The Tyler Clementi tragedy gets stranger as more facts emerge.

The lawyers for the two former Rutgers University students, Dharun Ravi and Molly Wei, accused of cyberbullying have now announced that the purported video of Clementi's romantic encounter may be exactly that, and nothing more, meaning that there was no sexual encounter captured on video.

Assuming this announcement to be factually correct, this makes one question not just the rush to judgment to throw Dharun Ravi and Molly Wei in prison and throw away the key, but also the supposed premise behind Tyler Clementi's suicide -- if it even was a suicide.

Does this add up?  Does a young man, 18 years old, suddenly go to college and within weeks, "discover" his sexuality and then, upon that fact supposedly being discovered by others, jump off a bridge?  Does it make sense that Tyler Clementi reportedly contacted school residence hall advisors within a day of the supposed videocam broadcast and had the presence of mind to request a roommate change, and then within days of those actions decided to commit suicide?  If this is true, where is the sign of the trauma, the humiliation that would spark such a drastic action?   Instead, we see methodical, logical actions that show a young man, perhaps angry but seemingly "in control."  Suicide just does not seem like the next step in the real chronology here.

Something "just does not fit" in this version of events.   

Perhaps it is plausible to consider whether the "other man"  -- perhaps a predator of sorts, perhaps an older man more schooled in the ways of seduction, deception, manipulation or pure vice -- had something to hide?

The facts, as reported by the news media thus far and not including some probably very relevant facts which are -- I trust and presume -- being kept appropriately confidential by the investigating authorities so as to preserve and protect an ongoing investigation, just do not "add up" regarding the suicide theory.   I wonder whether, behind the scenes and without official comment, the Tyler Clementi tragedy is really a homicide investigation.

Eric Dixon is a New York lawyer who handles investigative and other special matters.  He is available for comment at 917-696-2442 and accepts inquiries by e-mail at edixon@NYBusinessCounsel.com.

Friday, October 29, 2010

Crisis Beats Webcam Duo Leaving Rutgers

The two students accused of cyberbullying, in the tragic case of Tyler Clementi, reportedly have left Rutgers University.


Their leaving the school is a prime example of people caught in a crisis who are not able to handle the stress.


Admittedly being in a press fishbowl, and among some hostile students and professors, is not easy for anyone. Rare is the 18-year-old who can handle such pressure, let alone to do so with grace.


Crises occur and misfortune strikes without warning. Such is the case with people who are sued or investigated. These people are unprepared for the crisis, and unprepared to handle and survive lawsuit stress.


The role of litigation stress management is to manage the process of daily living, within the context and confines of a major external stress event. These two kids need litigation stress management. So may their families.


While their reported actions should not be glossed over, the reaction amongst the university community, prosecutors and mainstream media has been one of near-hysteria in which there has been a manic rush to judgment and a near-total disdain for these two students.


It is apparent that no one has stepped up to the plate to defend or support either Dharan Ravi or Molly Wei. Many may be scared by the intimidation, ostracization and retaliation which their defenders may anticipate receiving.


My message is this: A crisis like this can be won, through careful planning, fortitude and training. These two students should not have to enter the equivalent of federal Witness Protection in order to go to college.


Eric Dixon is a New York lawyer and president of Eric Dixon LLC. Mr. Dixon advises on litigation stress management and lawsuit stress counseling. He is available at 917-696-2442 and by e-mail at edixon@NYBusinessCounsel.com.

Who Is The Tea Party?

The mystery of the Tea Party movements continues.

The "Tea Party" is not one movement.  It is merely a phrase, a moniker, used by disparate groups to attract somewhat like-minded reformers to advocate for reform -- however that is defined.  Usually, there is a central theme of restoring government accountability to the people, in the form of fiscal responsibility.  That term, in turn, is generally assumed to mean a visceral distaste for almost all types of government spending and, to a lesser extent, a disdain for taxes.   As for non-fiscal issues, some Tea Party organizations stay far away from the issues which could splinter their groups and concentrate solely on economic and legislative responsibility (like this incorporated organization in New York), while others do not hesitate to embrace positions typically held by paleo-conservatives, neo-conservatives, traditional Ayn Rand conservatives, libertarians, reactionaries and so-called constitutionalists.

There is no licensing body, no organization which gets to "approve" who is a Tea Party or even who can use the phrase.  Anyone can be in a Tea Party, and as democratic as that concept is, the openness is also an invitation for every political mischief-maker, infiltrator or quick-buck fraudster to come on in. Therefore, the Tea Parties risk having their name, image and mission compromised by hostile outsiders and a mainstream press whose members mainly think that Tea Party activists are the great, unwashed, stinking masses, the rubes of the early 21st Century.

That is why the efforts by "the mainstream media" to characterize, understand and label the "Tea Party" are hilarious.  If media members have a preordained opinion and are looking for someone, anyone, to quote or videotape in order to validate their storyline, it is real easy to find marks for the task.

But all of these perceptions miss the point.  In my opinion, the Tea Party movement is a strong reaction to the erosion of the belief that we are considered equals under our social, political and economic systems.  The beliefs in fairness and justice were freshly eroded in 2008 -- incidentally, before President Obama took office -- when the massive government bailouts and regulatory creations began rolling out.  It is as if people finally realized that the mirage of a level playing field had been revealed for the fraud that it was.

In short, the Tea Party movement can be viewed as nothing less than a manifestation of a massive crisis of confidence in the very institutions that shape our nation.   This destruction of confidence goes hand in hand with a loss of faith in the belief that average people can assume they will be treated fairly.  It is as if millions of people woke up one day about two years ago and realized they were playing a rigged game.

If American institutions are indeed suffering from a crisis of legitimacy, then one ought not to think that one mid-term election and any shift in power in either house of Congress will do anything to assuage this popular discontent.  It is a serious mistake to view politics as a larger version of the conflict in "West Side Story."  This is not the Jets versus the Sharks.  This is not Democrats versus Republicans, donkeys versus elephants.  This is about a much larger struggle, one which may ultimately transcend race, economic strata, educational background and any conventional ideology.

If that is the case, the Tea Party movements may just be getting started.

Eric Dixon is a world-class strategist and the president of Eric Dixon LLC.  Mr. Dixon has been a practicing lawyer in New York City since graduating from Yale Law School in 1994.  Mr. Dixon may be reached for comment or consultation at 917-696-2442 or at edixon@NYBusinessCounsel.com.
 



Wednesday, October 27, 2010

Suarez Acquitted on Corruption Charges

Breaking: Ridgefield, NJ mayor Anthony Suarez was acquitted on federal corruption charges today. The jury believed Suarez, who testified in his own defense (good for him! Guts win out!), over notorious admitted felon Solomon Dwek. This investigation was launched under the stewardship of then-U.S. Attorney Chris Christie (a/k/a the next President of the United States), who had no apparent qualms in using a very suspect, tarnished, admitted criminal as an informant (or embellisher) and in order to reward his "cooperation," ignoring a host of Dwek's other crimes.


This case may also be a lesson to the FBI to take much more care in handling and preserving evidence. There is still a question as to where some allegedly-missing text message records went. Those messages could well have had exculpatory evidence; in fact they might have contained evidence that could have dissuaded the grand jury or even persuaded the prosecutors to decline to pursue this particular case.


Perhaps the authorities will now become much more judicious in selecting their informants.

Note:  Suarez's co-defendant, Vincent Tabbachino, was convicted on two counts.

Tuesday, October 26, 2010

Voter Fraud Hysterics

The voter fraud silly season has arrived.

A report in Wednesday's New York Times blames various Tea Party groups for planning voter intimidation, vote suppression (particularly in minority areas) and other disenfranchisement tactics with the goal of reducing Democratic voter turnout and helping more Republicans win on Tuesday, November 2nd.

Challenging voters on the basis of their legitimacy to vote is, well, perfectly legitimate. It should be done more often. Plenty of voters are ineligible, whether on the basis of citizenship (must be a citizen to vote), residency duration or domicile, or parolee status. Ineligible voters can often tip the balance in elections, and that disenfranchises everyone.

Voter fraud is a nonpartisan, uniform problem. The solutions -- greater popular vigilance and greater enforcement by boards of elections -- are also nonpartisan.

The Tea Parties are this year's bogeymen. That is merely because voters presumed to be conservative and hence likely to vote Republican (if they don't vote for protest candidates) are far more energized than many Democratic voters, and especially more energized that the "progressive" vote.

It is unfair to tarnish the Tea Parties, however. Many miscreants have tried to infiltrate these groups, precisely to destroy the brand. (This nonsense is common in politics.). And remember that many Tea Party groups have overtly disavowed anyone claiming their endorsement -- like the Republican candidate for U.S. Congress, 5th District, New York, who lied about being so endorsed -- while others are openly nonpartisan.
With the Tea Parties, remember that there is no licensing body or "Better Business Bureau" to certify them. That lack of credentialing just leads to mischief and brand erosion. Don't be fooled by the frauds pretending to be reformers, using the Tea Party as a disguise and exploiting its name.

Undoubtedly there will be overzealous efforts to fight voter fraud. One law professor, Wendy Weiser (who was a year behind me at Yale Law, if memory serves me correctly), is correct when she says that efforts to challenge voters -- without a reasonable basis -- are improper and sometimes illegal. But there are times when that reasonable basis is very present.

Pre-emptive strikes, such as the threatened accusations of illegal behavior, and the inferred threat of subsequent criminal prosecution, should likewise not be used to chill election day whistleblowers and bully ordinary citizens who see illegal immigrants and out-of-state residents voting into silence.  Tactics like these, when used against witnesses in civil and criminal cases, can constitute witness intimidation and obstruction of justice. 

Our society does enough to deter whistleblowers and others from reporting misdeeds, illegal or unfair conduct. Does the "stop snitching" movement have to extend to the ballot box and, by extension, to all participation in public life?

Eric Dixon is a New York election lawyer who has represented about two dozen political campaigns, from presidential campaigns down to party state committee campaigns, and party organizations as a lawyer since graduating from Yale Law School in 1994.  Mr. Dixon is the president of Eric Dixon LLC. He is available for comment or consultation at 917-696-2442 and at edixon@NYBusinessCounsel.com.

Monday, October 25, 2010

Hunting for 50,000

Various political parties in New York State are hoping their gubernatorial and lieutenant gubernatorial candidates get at least 50,000 votes next Tuesday.  Hitting that threshold will allow those parties to become official under New York Election Law.

Prediction:  At least three "independent" ballot lines will attract enough votes.  I believe the Taxpayers Party (Carl Paladino), Freedom Party (Charles Barron) and -- I kid you not -- the Anti-Prohibition Party (former Eliot Spitzer "Client 9" madam Kristen Davis) will all have candidates who pass the 50,000 mark.

Hello To Our Russian Fans

For some reason, traffic on this site from Russia has skyrocketed.   One wonders if this has anything to do with (a) the benching of hockey superstar Ilya Kovalchuk by the New Jersey Devils this past Saturday night, or (b) various groups in Russia which are reputed to engage in what the American law enforcement authorities call cybercrime, or (c) both.

If any of you former Soviets ever are subject to American jurisdiction and need a criminal trial lawyer, I will be happy to refer you to some very good and honest lawyers (as I will confine my representation on such matters to constitutional and appellate matters and research and investigation). 

More Laws, Less Results

In the wake of the Tyler Clementi cyberbullying tragedy, an anti-bullying bill has been introduced in the New Jersey State Assembly to combat various forms of bullying and intimidation in schools.  The proposal would allow schools to suspend or expel students determined to have been bullying.


This bill (A.3466, text inexplicably not available on state website) is a political goldmine. Bullies are indefensible and considered politically unpopular, so the bill will have a real chance of enactment. The problems are in the bill's implementation, its definitions of terms like "bullying" and "intimidation" (which cannot be evaluated yet because the text of the bill has, interestingly, not been provided to the public) and its unintended consequences.

My concern -- just like your concern -- is not the issue of stopping or deterring bonafide harmful bullying.  My concern revolves around the abuse of such definitions to give the legal cover for people to intimidate others into silence or non-involvement in civic, political or public affairs under threat of false accusations of bullying or intimidation.


In the real world, bullies tend to be popular, protected and given the benefit of the doubt. (As to the definition of popular, that might reflect the tendency to try to ingratiate oneself with the bully in order to insulate oneself from abuse.) This is an issue, when false accusations start flying.  An anti-bullying law can easily become a weapon by which the more powerful can -- well, bully -- the less powerful, the less popular and the less able to defend themselves.  This law may give the malicious and powerful, particularly in New Jersey's warren of small hick towns, a new tool to coerce compliance.   There is enough corruption in New Jersey, and this law could actually provide new avenues for the abuse of power to flourish.  

The new bully tactic may become: Submit to our wishes, or be accused a bully and face expulsion.

Get it?  Understand how this works?  Think this is about protecting the weak?  Or giving legal and PR cover to the manipulators out there, who are already working to proactively defend themselves? 


We don't need more laws against bullying. We need more supervision, more eyes actually watching, more ears actually hearing, and more people being concerned and active and working to protect our kids.  People who already break the rules won't be impressed -- much less deterred -- by more laws.  They will only respect the power that comes from bonafide vigilance.

More laws won't cure the problem of absentee parents and indifferent, overpaid school administrators.


Eric Dixon is the president of Eric Dixon LLC, headquartered in New York City.  Mr. Dixon has been a New York lawyer since graduating in 1994 from Yale Law School.  Mr. Dixon handles litigation counseling and litigation stress management for those who are the subject of lawsuits, have been threatened or expect to be sued or investigated.  Mr. Dixon has extensive knowledge of corporate governance, the federal securities laws (including the many anti-fraud provisions and related issues) and election law, and significant experience in representing businesses and their owners and managers in litigation, government investigations, settlement negotiations, complex due diligence investigations and business formations.  Mr. Dixon has also represented over two dozen political campaign committees and candidates for public office, including presidential and gubernatorial campaigns, on ballot access issues.  Mr. Dixon may be reached for a confidential consultation and case assessment at 917-696-2442 or via e-mail at edixon@NYBusinessCounsel.com.

Friday, October 22, 2010

Lawsuits to Come From Board of Election Mistakes

There will be a lot of litigation on federal subject matter -- read: Constitutional -- grounds arising from the various foul-ups and other institutional incompetence of the New York City Board of Elections this fall.

First there were some more-than-scattered problems with the new scanner machines for voting on Primary Day this past September.   Then, absentee ballots to overseas servicemen were not sent out on time -- a sure disenfranchisement if there ever is one.  Now, we see that the form of ballots is obviously confusing and risks distorting the vote results on Election Day.

The last two mistakes risk more than affecting the winners of certain strongly-contested races.  Various political parties are arranged on the ballot according to the success of their gubernatorial candidate.  Anything affecting the number of votes their nominee receives -- or is credited with -- will in turn affect where that party ends up in comparison to the other parties.   These assorted Board of Election mistakes -- which warrant some heads rolling, both in terms of people losing their jobs and possibly being prosecuted for criminal wrongdoing -- jeopardize these parties getting the required 50,000 votes for their gubernatorial candidate.  Federal litigation on Constitutional grounds (based on an infringement of the core freedoms of speech of political speech and the freedom of association) should be expected if any gubernatorial candidate fails to get the required 50,000 votes.  In addition, one should expect the Justice Department to inquire very carefully about the Board of Elections practices in light of the fact that most of New York City remains in so-called "covered districts" as defined under the federal Voting Rights Act of 1965, meaning that any change in election mechanics or ballot access that could disproportionately and adversely affect any minority groups must be "pre-cleared" by the Justice Department prior to and as a precondition for its implementation.

In addition, there are no less than six independent candidates -- meaning, candidates not nominated by parties which are "official" under New York's Election Law.  (The candidates are the Libertarian Party's Warren Redlich, the Anti-Prohibition Party's Kristen Davis, the Freedom Party's Charles Barron, the Green Party's  Howie Hawkins, the Rent is Too High Party's Jimmy McMillan and the Taxpayers' Party's Carl Paladino.)  Several of these candidates are serious contenders to get at least 50,000 votes on Election Day, in which case they can then -- through a convoluted process too complicated to explain here, although I am happy to represent candidates in this matter -- be eligible to form a political party that would be recognized by the State Board of Elections under the state's Election Law. 

Such political party recognition would allow the party to run candidates in all elections across the state for the next four years.   All candidates endorsed by the party, or who are members of the party, would have to do in order to run is to get enough valid signatures from other voters in their district who are enrolled members of the party.  As new parties, there would be virtually no voters enrolled in the party, so the number of required signatures -- which is typically a pretty high number -- would be very small.  (The requirement for the small, low-enrollment parties is signatures equal to at least five percent of the enrolled number of voters in that party in that district.) 

Here's the advantage.  Say you want to run for City Council in 2011.  The typical requirement is 900 valid  signatures from residents within the district who are members of your party.  However, say the Freedom Party has only 50 enrollees in a particular district next year.   The five percent threshold means that an enrolled member of the Freedom Party could run under that party's ballot line with just three signatures.   Compare that number with the number of signatures you would need to run for City Council as an independent, unaffiliated candidate not running under any party's ballot line.   That number is 2,700 (that's two thousand seven hundred). 

Now do you see why ballot access is so important?  It allows third party candidates to have a much easier time getting on the general election ballot. 

Eric Dixon is a New York small business lawyer who specializes in election law and ballot access issues.  He is a 1994 graduate of Yale Law School and the president of Eric Dixon LLC.  Mr. Dixon is available for consultation or comment at 917-696-2442 and at edixon@NYBusinessCounsel.com

Thursday, October 21, 2010

So-Called Tea Party Racism Victimizes Tea Party and All Reformers

A new report by the NAACP accuses the Tea Party movement of harboring racist and extremist elements within its ranks, showing links between certain Tea Party factions and acknowledged hate groups.   

The report has been used by various mainstream media outlets to justify sensationalist, provocative and unwarranted attacks on the Tea Party movement.  In fairness, the prologue to the report begins with the following text:
"We know the majority of Tea Party supporters are sincere, principled people of good will."

The report identifies various pernicious and repugnant characters who have inhabitated the political and social fringe for some time.  What the report fails to do, in my opinion, is identify these characters' M.O. -- their method of operation or modus operandi -- as rank opportunism, trying to use the greater popularity of a larger political/social/economic protest movement to advance their different and abhorrent agendas. 

The report also fails to identify the true victim of these political parasites:  the Tea Party movement itself, and the larger cause of economic and political reform.

Infiltration and other forms of political espionage and disinformation are nothing new, either domestically or abroad.  Often a sign of a movement's potency is its tendency to attract "free riders" and other political parasites who wish to use the movement's legitimacy or acceptance among the media to publicize, promote and advance their own, distinct agenda.  These people should not be associated with the larger movement which they wish to exploit.  A skilled observer will be able to identify some -- but not all -- of the frauds and phonies in the midst of a real movement or organization. 

The report also correctly calls on Tea Party organizations to police their ranks.  While the specter of background checks for fellow "activists" is naturally offensive, and ought not to be required nor compelled, the practical wisdom is that such reform-minded organizations should be "vetting" their membership to ensurue that rogue, extremist elements are not trying to surreptitiously enter and control their organizations.  

I have personally witnessed rogue members attempt to discredit the Tea Party and Stop the Ground Zero Mosque movements by displaying offensive signs at events, and especially when the news media is ready to pounce for sound bites and photos.  To their credit, both movements' members made sure to pull down such signs and expel their carriers in a matter of seconds.  Such vigilance is as necessary as it is unfortunate, but the sanctity of reform movements and the sanity of civiilized political discourse demands it. 

Eric Dixon is a New York small business and investigative lawyer who has represented several dozen political candidates, campaigns and organizations in matters involving election law compliance, due diligence and opposition research.  Mr. Dixon has been practicing law since graduating from Yale Law School in 1994.  Mr. Dixon is available for comment or consultation at 917-696-2442 and via e-mail at edixon@NYBusinessCounsel.com.
 

Tuesday, October 19, 2010

Rangel Lawyering Up?

A legal source tells me longtime Congressman Charles Rangel (D-Harlem) was in the lobby of 1285 6th Avenue this morning; the building houses the Paul Weiss law firm in which top white-collar criminal defense lawyer Ted Wells practices. Wells and a team of others most recently represented (and may still represent) Gov. Paterson. Wells also represented former Cheney chief of staff Scooter Libby a few years back.
Might Rangel be recruiting criminal defense counsel to handle any of several rumored investigations, either civil or criminal?   Might Rangel be under criminal investigation?

Eric Dixon is an investigative lawyer and the president of Eric Dixon LLC.  Mr. Dixon is very experienced in issues involving election law and works on matters involving political campaigns, government investigations, regulatory investigations and corporate investigations.  Mr. Dixon's speculation here constitutes protected opinion speech.  Mr. Dixon is available for comment or consultation at 917-696-2442 and by e-mail at edixon@NYBusinessCounsel.com.
nse in a legal matter yet to be announced?

Monday, October 18, 2010

DioGuardi's Attorney Desecration

Tonight, a member of one honorable profession smeared a U.S. Senator -- and a member of another profession -- on the basis of her profession and employment in a large Manhattan law firm.


Republican challenger and former Congressman Joseph DioGuardi tried to tar and feather Senator Kristi Gillibrand for "defending" the "tobacco" interests on the sole basis that she was an attorney at the Davis, Polk & Wardwell law firm, which firm -- among many others in the nation -- has done legal work for the Philip Morris corporate conglomerate.


This is an unwarranted smear against lawyers. Big firms handle a variety of legal work for all sorts of clients. Work on one type of matter does not mean that one is working on "defending" that same client's disapproved practices in another arena. Far from it.


There is no evidence that Gillibrand has been involved in defending tobacco companies regarding the health effects of their primary product. There is also nothing wrong with defending a corporate client or assisting it -- and hy extension, its shareholders -- in asserting its rights.


The ad hominem attack on lawyers conveys a dangerous, and unAmerican message: The unpopular have no rights. Such a message would be abhorrent to John Adams (who defended the redcoats who were shooters in the Boston Massacre) and the Founding Fathers.


Besides, DioGuardi boasts of his own background as a CPA at Arthur Andersen. Perhaps DioGuardi should be mindful of that firm's involvement as auditor for the infamous Enron Corporation. Andersen was driven out of business by the federal government's criminal indictment of the firm. How many innocent men and women lost their jobs, pensions and careers?


DioGuardi and other politicians should be aware of the innocent people they smear, in their professional envy and ambitious zeal to win elections.


Eric Dixon is a New York small business and investigative lawyer. He can be reached at 917-696-2442 and at edixon@NYBusinessCounsel.com.

Friday, October 15, 2010

Defaulting Homeowners Living For Free Are Not Foreclosure Fraud Victims


The Newark Star-Ledger has again shamed itself with a hysterical, poorly-researched and troubing editorial on the mortgage crisis, today suggesting that there are many mistaken foreclosures.
This editorial ignores one fact: Homeowners being foreclosed upon have not been making their payments.  The vast majority have no real prospect of being able to meet "modified" (reduced) payments.  As the average time between first default and eviction is nearly 18 months, that means the average homeowner in foreclosure has lived "rent-free" for more than one year and sometimes much longer.
There are some cases where fraud -- or horrific mistakes -- has resulted in homeowners who have been totally current on payments have faced foreclosure.  These cases are very, very few; if there were many, you would be seeing press reports recounting them. 
The mortgage servicing and foreclosure processing fiasco represent gross systematic problems and are the product of greed, where various parties chose to cut corners in order to maximize profits at the expense of getting it -- meaning, legal procedures -- right.  Absolutely inexcusable.  However, the inalienable truth remains that 99%-plus of foreclosures are on homes whose owners have not been current on their payments for a long time.  Any characterization of these long-term defaulting owners as "victims" implies that these owners are entitled to live, rent-free, in homes next door to other homeowners who bought smaller homes, fewer fancy gadgets, didn't buy the new car or SUV, ate out at fancy restaurants less (or not al all) and generally lived within their means. 
It is nothing less than insulting to homeowners who were responsible, who did live within their means and who have paid their bills on time (even, in many cases, despite periods of unemployment or other hardships), to hear that other spendthrift homeowners who bought more home, more gadgets and jazzier cars are now the "victims" who are entitled to the "compassion" from those who were responsible.  While there is no excuse for the banks' shoddy paperwork -- mistakes which, by the way, will have a cost that will be borne by other bank depositors (in the form of even lower interest rates and higher fees) and business borrowers (it wll be even tougher to get any loan and it will be given with higher rates and other conditions) -- those mistakes (or fraud) do not excuse or negate the defaults.  When the cost of some people's irresponsibility is passed on to other people, there is nothing to deter the irresponsibility from continuing; in fact, this will encourage the previously responsible to become irresponsible because there is no penalty for it.  Is it any surprise there is no end in sight to the economic decline?
There are victims in this foreclosure crisis.  Those victims just aren't the people who haven't been paying their mortgages!
Eric Dixon is a New York lawyer.  He is available for comment or consultation at 917-696-2442 and at edixon@NYBusinessCounsel.com.


Tuesday, October 12, 2010

Contracts Not Respected By Obama Administration

An interesting op-ed today about the trend of eroding respect for the sanctity of contracts.  This trend has become increasingly obvious with courts more inclined to show "compassion" towards various parties breaking contracts at will and expecting -- and receiving -- leniency from the courts. 
 
We told you first.  Crime, Politics and Policy  was among the first to remark on this trend back in March 2010 when the Obama Administration was pushing mortgage forbearance, and more recently in September 2010 (about NHL opposition to the Ilya Kovalchuk contract),
 
The uncertainty over whether a country's legal system will honor contracts is one of the distinguishing features of Third World countries or totalitarian regimes which have trouble either attracting foreign investment and capital, or retaining their own.  The growing American trend of having the same type of uncertainty will discourage capital investment and at least some degree of ordinary business activity.
 
In addition, unintended consequences are likely to include businesses refraining from more and more activities -- like hiring people -- which carry any risk of being sued.  
 
In short, the trend away from the enforceability of contracts is a scoundrel's dream.  Con artists, ripoff artists and those who enter contracts, with no genuine desire to abide by them and every malevolent desire to induce their counterparty's performance (that is, to get their victim to honor the contract) will love this.
 
Society benefits when contracts are enforced.  Encouraging people to disregard or break contracts will undermine our entire economy and create another moral hazard whereby responsible parties are left vulnerable to the dishonorable behavior of the irresponsible. 
 
Eric Dixon is the president of Eric Dixon LLC, headquartered in New York City.  Mr. Dixon has been a New York lawyer since graduating in 1994 from Yale Law School.  Mr. Dixon handles litigation counseling and litigation stress management for those who are the subject of lawsuits, have been threatened or expect to be sued or investigated.  Mr. Dixon has extensive knowledge of corporate governance, the federal securities laws (including the many anti-fraud provisions and related issues) and election law, and significant experience in representing businesses and their owners and managers in litigation, government investigations, settlement negotiations, complex due diligence investigations and business formations.  Mr. Dixon has also represented over two dozen political campaign committees and candidates for public office, including presidential and gubernatorial campaigns, on ballot access issues.  Mr. Dixon may be reached for a confidential consultation and case assessment at 917-696-2442 or via e-mail at edixon@NYBusinessCounsel.com.
 

Monday, October 11, 2010

Their Compassion With Your Money

There are more calls for a national foreclosure freeze.  This mistaken major newspaper editorial cites the need for compassion. 
 
Some homeowners are trying to pay their mortgages as best they can, and the banks should be encouraged -- but not required -- to recognize the honest efforts of those people who are responsible but victims of circumstances. There are many other homeowners who have defaulted either because of strategic defaults -- meaning they can pay and have chosen not to -- or such severe circumstances that no modification short of forgiving most of the principal and all of the unpaid and accrued interest would keep them in those home.  It is not wise, as a policy matter, to try to keep people in homes when they cannot afford the mortgage on those homes, in any circumstance; in fact, such a suggestion amounts to a gift to a special class.
 
The one problem with all of these solutions is that other people pick up the tab, and are compelled to do so involuntarily.
 
To compel people to pay for the profligacy of their neighbors is insulting enough.  To then exhort those people to show further compassion is only adding insult to injury.
 
Then again, it is easy to demand compassion when it would be shown...with other people's money.
 
Eric Dixon is the president of Eric Dixon LLC, headquartered in New York City.  Mr. Dixon has been a New York lawyer since graduating in 1994 from Yale Law School.  Mr. Dixon handles litigation counseling and litigation stress management for those who are the subject of lawsuits, have been threatened or expect to be sued or investigated.  Mr. Dixon has extensive knowledge of corporate governance, the federal securities laws (including the many anti-fraud provisions and related issues) and election law, and significant experience in representing businesses and their owners and managers in litigation, government investigations, settlement negotiations, complex due diligence investigations and business formations.  Mr. Dixon has also represented over two dozen political campaign committees and candidates for public office, including presidential and gubernatorial campaigns, on ballot access issues.  Mr. Dixon may be reached for a confidential consultation and case assessment at 917-696-2442 or via e-mail at edixon@NYBusinessCounsel.com.
   

Saturday, October 9, 2010

Foreclosure Freeze, But Still Not Paying

The essence of the problem with the growing foreclosure moratorium is captured by a one-line quote from a foreclosure auction referee, Jerome Patterson, in New York State Supreme Court, Queens County:

"You can say the documents aren't properly notarized but these people still aren't paying their mortgages."

This indicates the problem with all of these mortgage modification government initiatives that are premised on being adjusted for a borrower's reduced ability to pay.  A modification means the bank holding and servicing the mortgage agrees to take a lesser payment, to reduce its own income and perhaps even to take a loss (factoring in the anticipated lifetime of payments on the loan, if paid), while still retaining all of the risk on the loan if the borrower defaults again.  This explains why the banks have been dragging their feet on modifications.  Absent what is a worse idea -- a government subsidizing modifications by means of a one-time "loss protection" payment to the banks to offset a principal reduction, which would then allow for a reduction in monthly payments, the modification makes no sense to the banks.  Even with a principal reduction subsidized in such a manner, we have, at best, a relatively small benefit (with a reduced monthly payment) to a homeowner whose future ability (or willingness) to make the smaller payments is still in doubt, while the government -- that means the taxpayer, you and I -- makes a large payment to offset the principal reduction.  The upfront cost being substantial, one fails to see the corresponding benefit, and sees only the illusion, the hope, of a long-term benefit.

Whether it is the government, or the judicial system, allowing or encouraging defaulting, nonpaying borrowers to remain in their homes for free, such a system will only transfer the losses.  First, banks will get -- and have been, you can be sure -- hammered on lost mortgage servicing income (monthly payments).  Then, the banks will seek to recoup those losses, either through government subsidies, generating income from other sources or reducing their loss exposure elsewhere. 

If you follow this logic, can you see how anything that stalls a meaningful housing recovery will hold up any meaningful economic recovery?

Eric Dixon is the president of Eric Dixon LLC, headquartered in New York City.  Mr. Dixon has been a New York lawyer since graduating in 1994 from Yale Law School.  Mr. Dixon handles litigation counseling and litigation stress management for those who are the subject of lawsuits, have been threatened or expect to be sued or investigated.  Mr. Dixon has extensive knowledge of corporate governance, the federal securities laws (including the many anti-fraud provisions and related issues) and election law, and significant experience in representing businesses and their owners and managers in litigation, government investigations, settlement negotiations, complex due diligence investigations and business formations.  Mr. Dixon has also represented over two dozen political campaign committees and candidates for public office, including presidential and gubernatorial campaigns, on ballot access issues.  Mr. Dixon may be reached for a confidential consultation and case assessment at 917-696-2442 or via e-mail at edixon@NYBusinessCounsel.com.

Friday, October 8, 2010

National Foreclosure Moratorium On The Way

Bank of America announced earlier today that it is suspending foreclosures in all 50 states.

This development is the latest in a series of events over the last week which have seen one major bank after another suspend its foreclosure efforts because of processing or paperwork errors.  When the paperwork is in the course of litigation, it becomes a serious matter and can raise entirely valid questions as to the presence of fraud, forged or false notarizations and other irregularities that go to the issue of whether homeowners received adequate due process. 

The banks' failures -- whatever the cause -- are inexcusable, particularly given their receipt of ample taxpayer bailout funding and record profits in the last year.  The banks had the money -- the wherewithal -- to hire the people and create, implement and maintain the processes to ensure that foreclosures would be processed correctly and fairly, and to hire lawyers to do the same. The banks may have been very negligent should these errors prove to be widespread and systematic, as opposed to one-off mistakes or other anomalies contained to specific offices or supervisors.

As for the effect on the national residential housing market, an effective national foreclosure moratorium (which legislators like New York's Congressman Edolphus Towns already have proposed) will have several effects:

(1)  More strategic defaults.  A moratorium of indefinite duration will embolden homeowners otherwise able to pay their mortgages to consider defaulting, using strategic defaults to cut their losses, live rent-free for an extended period of time (the average time between default and eviction being estimated at over 18 months) and pocket the savings for an excellent, risk-free and tax-free return on investment.  This moral hazard should not be surprising given the combined presence of a financial benefit from defaulting with the lack of enforcement of any penalty for defaulting.

(2)  Appraised values will plummet.  A house already in foreclosure will be unsaleable at any price, at least for the short term.  (Here is my theory, published last Saturday, October 2, 2010, speculating why.)  Appraisals work on comparable sales and often account for extenuating factors to adjust estimated values up or down.  A foreclosed, unsaleable home may have an effective current price of zero -- as it cannot be sold at any price if the buyer requires a mortgage and cannot get the requisite title insurance to satisfy a mortgage underwriter.  The appraisal may not necessarily use the implied zero price, but will likely have every reason to apply a steep discount to all other data that would have been used previously.  How much of a decline in appraised values do you expect?  10%?  20%?  50%?

(3)  A new capital crisis.  What happens when banks finally mark to market  the value of the mortgages they hold on all of these underwater -- and now, going to be much more underwater-- homes?  This will drive down the banks' balance sheets (reducing assets) and put pressure on them to raise real capital.  Think the banks were hoarding cash before?  Think it was tough getting a loan before?  You ain't seen nothing yet.

Eric Dixon is the president of Eric Dixon LLC, headquartered in New York City.  Mr. Dixon has been a New York lawyer since graduating in 1994 from Yale Law School.  Mr. Dixon handles litigation counseling and litigation stress management for those who are the subject of lawsuits, have been threatened or expect to be sued or investigated.  Mr. Dixon has extensive knowledge of corporate governance, the federal securities laws (including the many anti-fraud provisions and related issues) and election law, and significant experience in representing businesses and their owners and managers in litigation, government investigations, settlement negotiations, complex due diligence investigations and business formations.  Mr. Dixon has also represented over two dozen political campaign committees and candidates for public office, including presidential and gubernatorial campaigns, on ballot access issues.  Mr. Dixon may be reached for a confidential consultation and case assessment at 917-696-2442 or via e-mail at edixon@NYBusinessCounsel.com.

Please Don't Coach The Witness


An interesting development this morning in the Anthony Suarez corruption trial in Newark federal court. (This is one of a series of corruption cases, part of the "Bid Rig" corruption investigations, starring felon-turned-government-witness Solomon Dwek.  After Dwek's testimony earlier this week that he committed "more than" 500 crimes and may have committed more than 1,000 crimes, perhaps his new code name will be the "Man of A Thousand Crimes.")
There are text messages for which the contents of said messages were apparently erased from an FBI server.  This leads to the possibility, one among many possibilities, to be fair, that a conscious decision was made to erase the texts because they contained exculpatory statements (so-called Brady evidence) that would help the defense establish the "reasonable doubt" which if found by jurors is supposed to lead to an acquittal.
It now appears that various FBI agents were going to give contradictory testimony.  One agent, now stationed in Afghanistan, testified via phone that the texts were erased because witness Dwek recorded the meetings.  (This raises a different question: who made the bright decision to entrust the credibility and sanctity of important evidence to a repeat felon?)  Suarez's lead defense counsel followed a federal prosecutor outside and witnessed the prosecutor informing another FBI witness and agent about one fact to which the first FBI agent-witness had testified on the phone.  The defense counsel, Michael Critchley, appropriately objected to what amounts to witness coaching, which is impermissible and, in this corner's opinion, not far from the crime of suborning perjury.
Whether this amounts to government misconduct, or just sloppiness, incompetence or arrogance, remains to be seen.  However, it is disappointing to see that when someone's freedom -- never mind his reputation -- are at stake, our government seems awfully cavalier about the collateral damage caused by its mistakes or misconduct. 
  
Eric Dixon is the president of Eric Dixon LLC, headquartered in New York City.  Mr. Dixon has been a New York lawyer since graduating in 1994 from Yale Law School.  Mr. Dixon handles litigation counseling and litigation stress management for those who are the subject of lawsuits, have been threatened or expect to be sued or investigated.  Mr. Dixon has extensive knowledge of corporate governance, the federal securities laws (including the many anti-fraud provisions and related issues) and election law, and significant experience in representing businesses and their owners and managers in litigation, government investigations, settlement negotiations, complex due diligence investigations and business formations.  Mr. Dixon has also represented over two dozen political campaign committees and candidates for public office, including presidential and gubernatorial campaigns, on ballot access issues.  Mr. Dixon may be reached for a confidential consultation and case assessment at 917-696-2442 or via e-mail at edixon@NYBusinessCounsel.com.


Innocent and Wrongfully Accused? Getting Ready to Fight

The two 18-year-old students at Rutgers University, Molly Wei and Dharan Ravi, may be facing months of uncertainty over whether their intermediate-term future will revolve around a criminal prosecution for a hate crime, in the wake of the tragic suicide of Tyler Clementi.

People who are completely innocent, as well as people who were simply "in the wrong place at the wrong time," meaning they were close enough to something bad happening to end up within what I call the "circle of suspicion," can and routinely do end up under suspicion by the authorities for having committed, or being involved in, some sort of crime. 

The chances of a person coming within a circle of suspicion increase as one is more sociable, and particularly if one engages in community affairs or politics, or runs a business.  One risk factor is having a "profile," and this doesn't mean a Facebook profile; it means having some sort of stature in one's community or industry.

Our continuing economic troubles increase your risk.  Those who make up "the authorities" are public employees and, as such, are under constant fear of losing their jobs due to "budget cuts."  Your policemen, investigators and prosecutors often feel pressure to justify their continued employment.  The easiest way to prove their usefulness is to boost their "numbers" - that is, the number of people being arrested and convicted.

This should help you understand how actual innocence can become irrelevant to your chances of avoiding trouble.  Actual innocence may make it harder for the authorities to ultimately convict you, but it is little more than a speed bump for an ethically-challenged, financially-pressured public servant -- and especially one who may have some racial or ethnic bias or other animosity (perhaps fueled by jealousy or envy, two particularly toxic and permanent emotions) towards you.  Innocent people get arrested, investigated, threatened, convicted and jailed every day.

This scenario presents people like Molly Wei and Dharan Ravi with tremendous uncertainty.  While most people can go about their daily business relatively certain that they will escape many troubles and can "take for granted" how their lives will unfold over the next few weeks and months, Wei and Ravi are faced with indefinite uncertainty.  The prospect of being criminally prosecuted, and especially in a politically-charged, witch-hunt atmosphere, creates grave uncertainty for them both in the short term and the long term.

Wei and Ravi -- and all those threatened with prosecution -- must fear being charged, as well as all the bad dominoes which could fall in their doomsday scenario.  Should everything go wrong, Molly Wei and Dharan Ravi could be charged, tried in court, convicted, jailed and thereafter stigmatized.

Even if everything goes right from this point on, and assuming neither Wei nor Ravi are prosecuted on the relatively mild state charge of invasion of privacy, their reputations have been damaged and their relative anonymity has been replaced by a degree of notoriety.  Regardless of what happens, there is no "going back," no return to the "status quo ante," for these two.

In this maelstrom of stress and worry, it is useful to have a skilled lawyer who can help someone cope with these emotions and develop the courage and inner strength to fight unfair and unfounded charges.  There are many innocent people who plead guilty to crimes they did not commit, to escape crushing emotional or financial pressures.  Such a decision is unnecessary, completely reckless, and can be disastrous for one's future.  For a short-term respite from pressure -- and I would argue, something which would only be the illusion of a respite -- one would risk one's entire future and reputation.

It is crucial for the innocent, the wrongfully accused and the unfortunates "in the wrong place and the wrong time" who were close enough to a bad act to get dragged into a prosecution, to have the mental strength to assert one's legal innocence and withstand these pressures.  If you are reading this and are in such a situation, I can help you get ready for the battle of your lifetime. 

Eric Dixon is the president of Eric Dixon LLC, headquartered in New York City.  Mr. Dixon has been a New York lawyer since graduating in 1994 from Yale Law School.  Mr. Dixon handles litigation counseling and litigation stress management for those who are the subject of lawsuits, have been threatened or expect to be sued or investigated.  Mr. Dixon has extensive knowledge of corporate governance, the federal securities laws (including the many anti-fraud provisions and related issues) and election law, and significant experience in representing businesses and their owners and managers in litigation, government investigations, settlement negotiations, complex due diligence investigations and business formations.  Mr. Dixon has also represented over two dozen political campaign committees and candidates for public office, including presidential and gubernatorial campaigns, on ballot access issues.  Mr. Dixon may be reached for a confidential consultation and case assessment at 917-696-2442 or via e-mail at edixon@NYBusinessCounsel.com.

Homophobia Claim Hides Real Danger of Technology

A community meeting in northern New Jersey Thursday night became the latest example of the shameless exploitation of Tyler Clementi's suicide by those pushing the cause of, for lack of a better phrase, gay empowerment.
 
The suicide may have a connection to Clementi's sexuality -- whatever it was, considering he was barely 18 years old and hence presumably more vulnerable to emotional manipulation.than most adults. Despite the reports that he was engaged in romantic encounters that were recorded and transmitted by means of a webcam or other recording device, it is not clear that Clementi was gay.  It is possible that he was "experimenting," or that he was pressured into an activity that did not reflect his inclination.
 
These theories -- which must be explored and fleshed out, because any hate crime prosecution of roommate Dharan Ravi and fellow freshman Molly Wei requires that the crime victim, Clementi, be gay -- will not be entertained by the gay liberation / gay empowerment crowd which, despite the less than conclusive evidence, rushed to claim Clementi as one of their own. Many empowerment movements, especially those whose members are connected by membership in a shared protected class (or victim class), love to embellish their claims that "there are many of us." Never mind that these people were nowhere to be found when Clementi was allegedly seeking solace and support, before he allegedly ended his life.
 
The real issue with the Rutgers webcam suicide tragedy is not sexuality, or homosexuality.  Not by a long shot.
 
The true issue is our society's growing tolerance of technology and its misuses, whether by government authorities, major institutions such as colleges and universities, corporations or fellow citizens. The misuse of technology has eroded our privacy and encouraged those in power to push for further erosions of our basic Constitutional rights.
 
The powers that be will not mind all the commotion over sexuality and the claims of homophobia.  It serves a role, as a diversion, a distraction.  The more people talk about Tyler Clementi being gay (or not), the less people will be talking about why computers come equipped with all sorts of eavesdropping and surveillance technologies and are making our grade-schoolers into little Inspectors Gadget.
 
Eric Dixon is a New York small business lawyer and member of the New York City Bar Association's Science and Law Committee and its subcommittee on Technology and Regulation, which are hosting a symposium on technology and privacy scheduled for November 2010.  For more information on the symposium, contact the New York City Bar at www.nycbar.org or Mr. Dixon at edixon@NYBusinessCounsel.com.  Mr. Dixon writes regularly on issues involving technology, privacy, regulation and civil and constitutional rights. 
 
 


Thursday, October 7, 2010

Increased Search and Seizure Powers Coming?


Our Fourth Amendment is supposed to protect us from "unreasonable" government searches and seizures without "probable cause" and a "particular" description of the place to be searched and the things to be searched for.
The jurisprudence over the Fourth Amendment is vast.  What is interesting is the subtle creep of attempts by government, at all levels, to be able to make these searches and get away with it...whether or not the practice gets evaluated in a court of law. 
There is no formal proposal yet, no bill pending to evaluate, but there are reports (such as this one by Nat Hentoff calling for the Tea Party to get more active on constitutional rights) that the Obama Administration is planning to require communications providers to unscramble encrypted messages upon government request.  (Disclaimer:  For all we know, this is fearmongering rumor.) 
The trend towards the government use of technology to compile personal information is unmistakable.  The required searches of electronic devices at United States border crossings effectively compromises the confidentiality of attorney-client communications that are indicated (if not detailed comprehensively) on those devices.  Now, the attorney-client privilege means that material covered by the privilege cannot be admitted into evidence, not without a waiver, but therein lies related questions: 
Does carrying the data on a portable device across the border constitute a waiver by the attorney and imputable to the client?
Does the lawyer whose device contains the data compromise his client?  Does the lawyer commit malpractice by potentially endangering his client?
Is there an expectation of privacy when one attempts to cross the border?  (Implicit in an answer to the negative is the principle that the protections of the Constitution extend only to, and not at, the border.  But then, if the jurisdiction of the Constitution stops before the border, because it is not effective at the border, then isn't it a contradiction to be subject to the jurisdiction and power of the federal government's Executive Branch at that same border?)
There are some basic and unavoidable facts.  Our lives have become increasingly subject to being chronicled.  The data may be disparate and most undoubtedly benign -- although possibly embarrassing.  However, doesn't it become increasingly obvious that our personal security, privacy, financial security and our legally privileged communications have become increasingly dependent on the mere obedience to the law of anyone with access to that data? 
Many commentators and government officials take the attitude that the public should -- no, in fact, it is obliged -- to trust in the obedience to the law of those in power or with these powers.  Questions, skepticism or opposition to this attitude is often met with the most powerful word to invoke in America today:  Terrorism.   The mere mention of that word or its derivatives (e.g., terroristic, terrorist), or its use in a phrase, implies and imputes to the questioner the lowest of motives, such as being treasonous, a terrorist sympathizer or, at the very least, someone soft on crime.
But if such obedience could be taken with a grain of salt, we would not need an ever-growing corpus of laws at all levels to presumably deter misconduct or criminal activity, including many statutes specifically prescribing crimes for official misconduct by the growing armies of people working within our government bureaucracies, would we?
Eric Dixon is a New York lawyer and president of Eric Dixon LLC.  He has been practicing law since graduating from Yale Law School in 1994.  Mr. Dixon handles litigation, mediation and negotiations for small businesses and individuals and consults on other legal matters including business due diligence, government investigations and regulatory investigations, of which many involve issues of civil rights and constitutional rights.  Mr. Dixon is available for comment or consultation at 917-696-2442 and via e-mail at edixon@NYBusinessCounsel.com.
Government inquisitiveness  


Hevesi To Admit Guilt in Huge NY Pension Pay-to-Play Scam


Breaking...courtesy of the New York Daily News report here...
Questions:  Is Hevesi "cooperating" with authorities -- meaning, has he agreed to provide information and testify against others who are allegedly involved, such as noted political campaign strategist Hank Morris (previously indicted)?  This New York Times report cites sources who say Hevesi will cooperate.

Will we learn the names of other placement agents involved in how public employee pension funds were allocated and invested, and how fees were generated? 

Is Hevesi's own deal related to a deal to spare either or both of Hevesi's sons (Andrew Hevesi, Dan Hevesi), both of whom have been active in New York City and State politics, further investigation or their own risk of prosecution -- as reported weeks ago by most New York papers?
Eric Dixon is a New York lawyer and president of Eric Dixon LLC.  In addition to legal services for clients in connection with civil, business and estate litigation, he handles government investigations, regulatory investigations and business due diligence.  Mr. Dixon has extensive knowledge of the federal securities laws and corporate governance.  Mr. Dixon is available for comment or consultation, in complete confidence, at 917-696-2442 and via e-mail at edixon@NYBusinessCounsel.com.


Wednesday, October 6, 2010

The Coming Housing Price Crash

Disclaimer:  This is neither investment advice nor legal advice. You are solely responsible for the investment decisions you make.

Residential real estate could be in for another nasty crash.

Treasury bond prices are at incredibly high prices while their yields (the annual return they pay out) continue to fall.  Short term bond yields are approaching zero.  All in a flight to what people hope is quality.

When the "bond bubble" bursts and bond prices crash, and bond yields take off in an inverse relationship, interest rates that banks will charge for capital will follow.  This will mean that mortgages will no longer be available at record-low rates (the 30-year-fixed mortgage rate has been well below five percent for some time.)

Housing has fallen an average of about 40 percent since the residential real estate bubble began deflating in 2005-07 (depending on your location).  This price crash has reflected the reduction in credit for new purchases, that is, credit in the form of mortgages.  Mortgage financing became much more difficult to get, relative to the period between 2001-07, and generally banks have wanted lower loan-to-value ratios (requiring larger down payments) to guard against anticipated price declines.  Yet the interest rates have fallen since those years.

For those who can still get mortgages, on any terms, the low interest rates have kept the affordability of real estate relatively low, as measured by monthly payments, and the significant price declines have made real estate more affordable for many than was the case five years ago.

What happens when mortgage rates skyrocket?

Take a homeowner who wants to buy a $400,000 house with a 20% down payment, let's assume that a $320,000 mortgage (30-year, 5% fixed rate) plus property taxes and homeowners' insurance would result in a monthly payment of $2,200.  

Now, if we simply change one variable -- the interest rate -- and move it up a few notches to a 7% rate, that causes a $533 increase in the monthly payment.  If that first mortgage above was granted by the bank on the basis of affordability as measured by the ability to pay the monthly payment, you have to keep that amount constant to determine the amount of the mortgage the purchasers would qualify for.  My math says the homeowners would only get a $240,000 mortgage -- an $80,000 decrease, or 20% of the purchase price.  (That decrease, coupled with the average national price decline since the 'height' of the residential real estate market, would produce an average price drop in excess of 50% from the peak.)

If purchaser affordability drops just due to interest rate hikes and is not offset by bank lending policies (and there is no sign that will change), it is reasonable to expect a further and significant price decline.

Interest rates have been near historical lows and I would think they are much more likely to revert to the mean -- the historical levels -- than to stay at the current, depressed, record levels. 

What happens when inflation becomes an issue again?  What happens when the central banks, including our Federal Reserve, no longer can control inflation -- or its wicked stepsister, deflation?  

What happens if our political leaders decide one day that the solution to America's debt crisis is to inflate our way out of debt?

If these things happen, those low mortgage rates will be a thing of the past.  So will home prices seen anywhere in the last 15 years. 

Eric Dixon is a New York lawyer who comments frequently on legal, economic and policy issues.  This article is not intended to be legal advice.  Mr. Dixon is available for further comment and consultation, on various legal, economic and strategy issues, at 917-696-2442 and via e-mail at edixon@NYBusinessCounsel.com.
 

Why Housing Is Going to Zero


Halting foreclosures due to faulty paperwork -- or even fraud -- is procedurally sound.  However, freezing the foreclosure process will ultimately, and quickly, hurt everyone except the defaulting borrower.
The revelations that banks are not submitting correct or accurate affidavits or otherwise have problems proving that they actually own the house being foreclosed upon are giving politicians  -- like New Jersey's Senator Bob Menendez -- an issue to use for their political advantage and to cast themselves as the defenders of the downtrodden, the victims, if you will. 
The foreclosure freezes, accompanied by a growing reluctance by title insurance companies to issue title insurance on any foreclosed home, threaten to set in motion a series of falling dominoes that will hurt virtually everyone except for deadbeat homeowners.

The current average time between the first payment default and actual eviction is estimated by the Mortgage Bankers Association to be approaching two years.  This means that defaulting homeowners are now able to live, rent free and without paying their property taxes, for that period of time.  At a modest mortgage payment of $2,500 per month, a defaulting homeowner could save close to $60,000 by simply defaulting.
If you ask me, that sounds like a great, tax-free -- and riskless --  return on investment, doesn't it?   Think that doesn't beat the stock market?

From an economic point of view, this makes sense.  Especially in non-recourse states (like New York and New Jersey) where lenders cannot go after borrowers' personal assets.  Why stay current on a declining asset -- whether or not you are underwater -- when you can stop paying, live in the house rent free for years and pocket the difference? 

The extreme moral hazard this situation threatens to create should be obvious.  And the pain is going to be felt by everyone...

First, the banks will suffer losses, both in reality and on paper when they finally have to realize losses on their mortgages they kept on their books.  The banks will seek to recoup those losses from every other aspect of their operations.  That means soaking their other customers.  That means the spread between what they charge you for a loan (or credit card) and what they offer on a bank savings account or certificate of deposit will increase; any fees they can charge will also increase while services will be cut to the bone.  This will hurt every other aspect of the economy, including most businesses. 

Homeowners will be hurt as well.  The value of their properties will decline, because they will have nearby "comparable" homes owned by defaulting "owners" which, due to the foreclosure freeze, will have an effective price of near-zero.  If title insurers will not issue policies on those houses, no future lender will grant a mortgage on the home.  Unless future owners -- and more likely, vulture investors willing to buy for pennies on the dollar -- agree to take the risk that their title will get challenged, that house becomes unsaleable.  In that situation, the bank then has no incentive to foreclose, because taking possession adds responsibilities to the bank but results in no revenue gain.

This is what will happen if you have a neighbor who has defaulted...and is now likely to be allowed to stay in that home rent-free, indefinitely, because his house has become toxic and essentially unsaleable at any price.
Now that there is (at least for the time being) no penalty for default in a non-recourse state, a responsible homeowner has every right to ask why he should still pay his mortgage.

Eric Dixon is a New York small business lawyer and president of Eric Dixon LLC.  Mr. Dixon is a 1994 graduate of Yale Law School and has practiced law for more than 15 years, representing people in litigation, negotiations, government investigations, regulatory investigations and various transactions.  Mr. Dixon also performs strategic analysis, crisis management and litigation stress management for clients.  He is available for consultation or comment at 917-696-2442 and edixon@NYBusinessCounsel.com.