Tax Resolution Scams

 

Tax resolution firms are a misnomer.  They exact high fees from unassuming consumers and seldom resolve anything.   These firms are a relatively recent development, and they are becoming a serious problem for consumers in our country.

Tax resolution scams advertise heavily, offering to settle Federal tax obligations for a fraction of the amount owed, even for “pennies on the dollar.”  I have heard ads announcing a “special IRS program” to compromise tax balances, available for only a “limited time.”   One firm claims to have saved “tens of thousands of taxpayers tens of millions of dollars.”

These ads are, of course, false.   The IRS rarely accepts an offer in compromise.  There are much better ways of securing relief from a threatened or actual levy (seizure) of a taxpayer’s wages or bank account.  But the unsophisticated people targeted by the ads do not know this.   Many taxpayers are facing IRS levy of their wages or bank account.   A taxpayer who calls the tax resolution firm is connected with a high-pressure salesperson, and maybe with two of them.   The taxpayer is assured that the firm will settle and resolve the taxpayer’s tax obligations. The salespeople earn commissions and large bonuses.  Tax resolution firms take large retainers, typically $5,000-$10,000.  The taxpayer somehow comes up with the retainer money.   It is unlikely that an offer in compromise will even be submitted to IRS on the taxpayer’s behalf.

 Employees of the tax resolution firm send the taxpayer form letters requesting information by artificial deadlines.   When there is no response to the letters, the tax resolution firm does not bother to call the taxpayer.  Instead the tax resolution firm deems the matter concluded and closes its file, the taxpayer realizing no relief.   If the taxpayer requests a refund of fees paid to the tax resolution firm, the firm relentlessly refuses.   All of this is pursuant to fine print in the retainer agreement which the tax resolution firm required the taxpayer to sign.  That fine print also undoubtedly has language exculpating the tax resolution firm from liability to its client.

The taxpayer still owes his balance to the IRS.  In fact the balance is now higher with additional accrued penalties and interest.  And the taxpayer is out the fees paid to the tax resolution scam.

Not surprisingly, there is much litigation against tax resolution firms.  J.K. Harris & Co., of Charleston, South Carolina is the largest such firm, with 325 local offices and $100 million in annual revenue.   CPA John K. Harris founded the firm in 1997.   The firm has been sued numerous times throughout the country.  In 2007 it settled a class action brought in Charleston County, South Carolina Circuit Court for $6.2 million.  In 2008 it settled a suit brought by the attorneys general of 18 states for $1.5 million.

Attorney Roni Deutch, of North Highlands, California, opened her tax resolution firm in her condo in 1991.  Today it enjoys $25 million in annual revenue.  Deutch advertises heavily on TV, especially in California, where she is known as “the Tax Lady.”  Deutch has been the object of much litigation.  In 2007 she settled a suit brought by the New York City Department of Consumer Affairs agreeing to pay $200,000 restitution to consumers and $100,000 in fines to the City.  On August 25, 2010, the California Attorney General sued Deutch in Sacramento County Superior Court seeking $33.9 million in restitution, civil penalties, and a permanent injunction.   The pleadings and exhibits are eye-opening.   To view them go tohttps://services.sacourt.com/publicdms2/DefaultDMS.aspx and enter the case number―34-2010-00085933.

Founded by CPA Patrick Cox just a few years ago, Houston’s TaxMasters, Inc. sold its stock in a public offering in 2009.  No doubt the proceeds of the stock offering fund TaxMasters’ national advertising campaign.  On May 13, 2010, the Texas Attorney General sued TaxMasters on behalf of over 1,000 consumers.

The Better Business Bureau has issued its lowest rating of “F” to JK Harris, Deutch, and TaxMasters.   The California Attorney General’s Complaint alleges that, by August, 2010, 69% of clients who retained the Deutch firm in 2006, 67% of clients who retained the Deutch firm in 2007, 63% of clients who retained the Deutch firm in 2008, and 51% of clients who retained the Deutch firm in 2009 had either cancelled the firm’s services or been terminated as a client of the firm.  Quite a business model.

I find that tax collection cases can be  resolved to the client’s satisfaction.  Usually that involves entering the client into an installment agreement with the IRS or having the client posted as CNC.  Sometimes it involves litigation with the taxing authority.  Once in a great while it involves making an offer in compromise.  Currently I am doing an offer in compromise for a client who suffers chronic heart disease and diabetes and is permanently disabled from working.   He has difficulty talking because of shortness of breath.

Taxpayer lawsuits against tax resolution firms have a beneficial effect.  The Federal Trade Commission should also act against tax resolution firms.  The firms advertise nationally across state lines.  The FTC is uniquely able to investigate tax resolution firms and bring them to justice.

The IRS has been inexplicably, shamefully quiet about tax resolution firms.  These firms enrich themselves with funds that should be used to pay taxes, to the detriment of taxpayers and the Federal treasury.

Lack of professional regulation of tax resolution firms is a large problem.  The IRS allows only Enrolled Agents, licensed CPAs, and licensed attorneys to represent taxpayers before it.  But the IRS rarely exercises its disciplinary authority over representatives of taxpayers.

Enrolled Agents pass a test administered by IRS and are qualified to represent individuals and small businesses in routine matters before the IRS.

CPAs are trained not to represent taxpayers in tax controversies but to audit companies’ financial statements.  Even a CPA with an MS in Taxation does not possess the skills of advocacy.

Neither Enrolled Agents not CPAs can litigate.  In a tax controversy, it important for the taxpayer that IRS personnel understand that there is potential that the case will go to litigation.

Taxpayers are best served by a reputable tax lawyer—CPA, JD, and LLM in tax law is the best group of credentials.   Lawyers know law, and how to research it and argue it.  They are trained in the art of advocacy.  Lawyers are subject to disciplinary authority of their state bar.

Communications between a client and his lawyer are privileged, meaning that neither the client nor the lawyer can be compelled to divulge those communications, unless the privilege has been waived.  There is no privilege in Federal practice for communications between a client and an accountant or between a client and a tax consultant.

Many of the people who work taxpayer files at tax resolution firms are not subject to any professional regulation at all.  These include salespeople and clerical personnel who send out letters to clients requesting information and who close files the case when the requested information is not received.

According to the California Attorney General’s Complaint against the Deutch firm, Deutch pays employees who work on taxpayer files as little as $12 per hour.  But in justifying refusal to refund any part of a taxpayer’s retainer, Deutch claims as much as $300 per hour for such employees’ time.

The California Attorney General’s Complaint alleges that when a client fails to make a scheduled payment due to the Deutch firm, collection personnel of the firm call the client and use aggressive, rude, and harassing language to collect the balance, including screaming  and cursing at the client.

As already noted, an offer in compromise is rarely in a taxpayer’s best interests.  About the only time the IRS accepts one is when the taxpayer is permanently disabled from working.  The making of an offer in compromise tolls the 10-year statute of limitations on collection of the tax.   If the offer is for a lump sum, and the taxpayer’s income is above what IRS considers the poverty level, the taxpayer must pay a deposit of 20% with the offer.  When the IRS rejects the offer it keeps the deposit.

When the IRS issues a notice of intent to levy or a notice of levy against a taxpayer, the taxpayer’s representative should call IRS collections and inform them that the taxpayer wishes to enter into an installment agreement with the IRS or that the taxpayer qualifies to pay nothing to the IRS (this is called being posted as “currently not collectible” or “CNC”).  The representative  should request a hold on collection action to give the representative time to submit a Form 433-A to IRS for the taxpayer.  The IRS will generally grant two weeks for this purpose.  More time can be requested if necessary.

 The California Attorney General’s Complaint alleges that when a client fails to make a scheduled payment due to the Deutch firm, collection personnel of the firm call the client and use aggressive, rude, and harassing language to collect the balance, including screaming  and cursing at the client.

As already noted, an offer in compromise is rarely in a taxpayer’s best interests.  About the only time the IRS accepts one is when the taxpayer is permanently disabled from working.  The making of an offer in compromise tolls the 10-year statute of limitations on collection of the tax.   If the offer is for a lump sum, and the taxpayer’s income is above what IRS considers the poverty level, the taxpayer must pay a deposit of 20% with the offer.  When the IRS rejects the offer it keeps the deposit.

When the IRS issues a notice of intent to levy or a notice of levy against a taxpayer, the taxpayer’s representative should call IRS collections and inform them that the taxpayer wishes to enter into an installment agreement with the IRS or that the taxpayer qualifies to pay nothing to the IRS (this is called being posted as “currently not collectible” or “CNC”).  The representative  should request a hold on collection action to give the representative time to submit a Form 433-A to IRS for the taxpayer.  The IRS will generally grant two weeks for this purpose.  More time can be requested if necessary.

 A Form 433-A is a detailed, six-page personal financial statement.    I review  it with the taxpayer, request information from them, and complete it for them.  It is important that the Form 433-A be completed accurately and in good faith, as the taxpayer signs it under penalty of perjury.   Moreover, the Form 433-A serves as the basis of the IRS’ determination of the amount of the taxpayer’s installment payment, or whether to post the taxpayer as CNC.

One of my clients, an attorney, is embarrassed that he has unpaid tax obligations.    He is practicing on his own after parting ways with his firm in the down economy.    As he is an attorney, I sent him a blank Form 433-A to complete and send back.  I know that he had been struggling financially. When the Form 433-A came back, the client had erred on the side of overstating his income and the value of his assets.  This was human nature—a matter of personal dignity.  It certainly would not help his situation with the IRS.  I called the client and went over the Form 433-A with him.  We came up with a realistic Form 433-A, which the attorney and his wife signed and we submitted to the IRS.

An installment agreement can be either formal or informal.   In an informal installment agreement, the taxpayer promises to make monthly payments in an agreed amount which will pay off his balance within two years.  A formal installment agreement is a written agreement in which the taxpayer promises to make, and IRS agrees to accept, monthly payments in a specified amount.  A taxpayer can allocate payments, such as against the trust fund portion of employment taxes, under an informal installment agreement but not under a formal installment agreement.

IRS collection personnel are generally reasonable people.  If an IRS collection employee sets a taxpayer’s installment payment at an amount which the taxpayer’s representative believes is too high, the representative can speak with the collection employee’s manager.  If the representative is unable to resolve the amount of the employee’s installment payment by talking with the collection employee’s manager, he can appeal the matter to the IRS appeals office.

Once IRS enters into an installment agreement with the taxpayer, or posts the taxpayer’s account as CNC, the IRS removes the taxpayer’s account from collection status.  If the IRS has already issued a notice of levy against property of the taxpayer, the IRS will issue a discharge of it.  But a discharge of levy has prospective-only effect.  Thus, a discharge will stop a continuing wage levy.  But once a levy attaches to a bank account, the IRS owns the balance then in the account, notwithstanding a discharge of the levy later issued by the IRS.

The 10-year statute of limitations on collection continues to run while an installment agreement is being negotiated and while it is in effect, and while an account is in CNC status.  During that time the IRS will seize any Federal tax refunds due the taxpayer, and it may record a notice of Federal tax lien against the taxpayer in the local register of deeds office, but will not take any other collection action again the taxpayer.

Once the IRS enters into an installment agreement with a taxpayer or posts his account as CNC, it is important that the taxpayer timely file all of his Federal income tax returns and pay all tax reported on those returns.   Noncompliance by the client will void his installment agreement or CNC posting and return his Federal tax account to collection status.

Once the statute of limitations on collection of a Federal tax account expires, the IRS can no longer lawfully collect the tax, notwithstanding the unpaid balance of an installment agreement.

John K. Harris refers to the tax resolution “industry.”  Let’s prove him wrong.  Let’s get out the word and bring an end to this terrible scourge upon consumers.

Ocwen partners with NAACP to help struggling homeowners

Ringleader of massive, brazen mortgage modification fraud scheme pleads guilty

Ringleader of massive, brazen mortgage modification fraud scheme pleads guilty

Joins co-conspirators in admitting guilt

Prison jail bars

The supposed ringleader of a massive mortgage modification fraud scheme pleaded guilty earlier this week to charges that he and others conspired to defraud struggling homeowners by falsely promising mortgage loan modifications they did not actually provide.

According to the U.S. Attorney’s Office for the District of Connecticut, Aria Maleki joins Mehdi Moarefian, who is also known as “Michael Miller,” and Daniel Shiau, who is also known as “Scott Decker,” in pleading guilty to charges stemming from a scheme that resulted in more than 1,000 homeowners suffering losses of more than $3 million total.

Moarefian and Shiau pleaded guilty last month to their involvement in the scheme that included the group operating a series of California-based companies that falsely purported to provide home mortgage loan modifications and other consumer debt relief services to numerous homeowners in Connecticut and across the United States in exchange for upfront fees.

And now, Maleki has pleaded guilty as well.

According to court documents, the group did business under at least 30 different company names, including several that closely resembled the names of legitimate businesses in the mortgage finance space, most notably Green Tree Servicing and Nationstar Mortgage. For instance, company names included Green Tree Financial and Nation Star Financial.

Court documents showed that the group also did business as First Choice Financial Group, Inc., First Choice Financial, First Choice Debt, Legal Modification Firm, National Freedom Group, Home Care Alliance Group, Home Protection Firm, Hardship Center, Network Solutions Center, Inc., Premiere Financial Center, Premiere Financial, Rescue Firm, International Research Group LLC, Hardship Solutions, American Loan Center, Loan Retention Firm, Clear Vision Financial, Enigma Fund, Inc.,“National Aid Group, Southern Chapman Group LLC, Save Point Financial, Best Rate Financial Solutions, and Nation Star Fin Group.

According to court documents, the group cold-called homeowners and offered to provide mortgage loan modification services to those who were having difficulty repaying their home mortgage loans.

Homeowners were charged fees that typically ranged from approximately $2,500 to $4,300 for their services.

In order to induce homeowners to pay these fees, the group made a series of false representations, including: stating that the homeowners already had been approved for mortgage loan modifications on “extremely favorable” terms; stating that the mortgage loan modifications already had been negotiated with the homeowners’ lenders; stating that the homeowners qualified for and would receive financial assistance under various government mortgage relief programs, including the Troubled Asset Relief Program and the Home Affordable Modification Program; and promising that if, for some reason, the mortgage loan modifications fell through, the homeowners would be entitled to a full refund of their fees.

But, the homeowners had not been pre-approved for mortgage loan modifications with lenders, mortgage loan modifications had not been negotiated with the lenders, homeowners had not qualified for and did not receive any financial assistance through government mortgage relief programs, and homeowners did not receive a refund of their fees upon request.

According to the U.S. Attorney’s Office, Maleki presided over the entire structure of this scheme, and pleaded guilty to one count of conspiracy to commit mail and wire fraud, an offense that carries a maximum term of imprisonment of 20 years.

Maleki also agreed to pay restitution of approximately $3 million. Maleki’s sentencing is scheduled for June 14, 2016.

Maleki also has agreed to forfeit approximately $350,000 that investigators seized from various bank accounts, approximately $362,000 seized from a Bitcoin account, a $100,000 cashier’s check, and a 2013 Ferrari 458 Italia, which carries a Kelly Blue Book suggested retail price of approximately $245,000.

Corinthian Students Face Tough Choice to Discharge Loans

Image: Makenzie Vasquez of Everest College

Makenzie Vasquez, of Santa Cruz, Calif., poses for a picture in Washington, Monday, March 30, 2015. Former and current college students calling themselves the “Corinthian 100” say they are on a debt strike and refuse to pay back their student loans. Manuel Balce Ceneta / AP

Students at the abruptly shuttered Corinthian Colleges campuses have some tough choices to make in the coming weeks. The 16,000 affected students can seek debt forgiveness for their student loans, but to do so, they have to walk away from the time and money they already invested in their education.

Through the Department of Education’s closed school discharge, current students and others who withdrew within the past 120 days can apply to have their federal student loans dismissed — but only if they don’t transfer their credits and complete a comparable program at another school.

“Do they decide to continue on in coursework they may have started or do they decide to step away and get a fresh start from debt?” said Ben Miller, higher education research director of the education policy program at think tank New America.

For instance, if a student who was enrolled in a nursing assistant program transferred credits to a community college and got a nursing assistant certification there, he or she wouldn’t be eligible for a loan discharge. But if that nursing student got to the community college and decided to be a radiology technician instead, it’s likely the loans could be discharged. Most students are unlikely to transfer credits they’re not able to use if they plan to switch fields of study.

The situation has students frustrated and confused. “I would like to know if I am allowed to transfer my credits, if the credits even mean anything,” Dominique Avila, 35, who withdrew from Heald College’s campus in Roseville, Calif., late last year, told The Associated Press. Avila is trying to get her transcripts transferred to another school. “What does that mean as far as my debt goes?”

The Attorney General of California, where many of the closed schools are located, has a page on itswebsite with resources for students seeking relief from student debts they incurred at Corinthian. California also has a student tuitionrecovery fund that provides relief from private student loans, and advocacy group the National Consumer Law Center has a list of other states with similar funds.

Corinthian College Closings Leave Students Without Schools1:41

California is one of nine states whose attorney generals sent a letter earlier this month to Secretary of Education Arne Duncan, urging him to waive all Corinthian students’ loans after an investigation found the school gave students false information about their job and earnings prospects. Student advocacy groups also are arguing for the loans to be waived.

Some current and former students have gone on a student loan “strike,” holding off payments in protest.

“The issue that we and others have raised is for students who are at Corinthian campuses that did not close today…those students are not being offered closed school discharges,” said Pauline Abernathy, vice president of The Institute for College Access and Success. “Given the widespread evidence of fraud and the use of bogus job placement rates…those students also deserve the option of a federal student loan discharge,” she said. The National Consumer Law Center also has a petition urging the department to waive Corinthian students’ debts.

No easy road

Even the students who have the option to discharge their debts won’t have an easy road forward. The process can be confusing, and the burden of figuring it out is largely on students’ shoulders, Miller said. “That’s really the challenge. There is a clear process for students at these campuses to get these loans discharged, but the question is, how good is the advice going to be…and how easy or difficult will the process be?”

Since student loans have a six-month grace period, Robyn Smith, of counsel at the National Consumer Law Center, said students shouldn’t panic and make any decisions without doing their research. They should especially be leery of solicitations from other for-profit schools, she said.

The Department of Education plans to participate in transfer fairs with Corinthian. The goal would be to match students up with other schools where they can transfer their credits and complete their education, but there’s no guarantee this will be successful for many students, since most nonprofit institutions won’t accept credits from for-profit schools.

“For-profit credits are largely not transferrable,” Smith said.

It might not be financially smart for students to get some of their credits accepted, she warned. “If you even transfer one credit, you won’t be able to get a closed school discharge.”

Applying for a loan discharge has other financial implications for students who want to start from scratch earning a degree. For-profit schools aggressively pursue and enroll financially vulnerable populations like single moms, veterans and minorities, many of whom qualify for federal Pell Grants. These don’t need to be repaid, but there’s a lifetime cap.

“Unfortunately, under current federal law, they don’t get those back,” Abernathy said. “If they used up their allotment… the clock doesn’t turn back on their Pell Grants.” Students who relied on these grants in the pursuit of a virtually useless Corinthian degree will have to complete their education without that assistance the second time around.

Ex-Students With ‘Income-Based’ Loan Payments Face Crushing Tax Bil

Michael Hulshof left the University of La Verne in 2012 with his law degree and $145,000 in student debt. Today, that figure is about $220,000 and, by the time he’s 55, he figures it will be around $400,000. That’s when his real problems could begin.

Hulshof, a 33-year-old attorney in Antioch, California, entered into a payment plan for graduates who took out federal student loans and who have low income-to-debt ratios. The plan, known as “income-driven repayment,” is intended to help graduates who can’t afford to pay off their loans within 10 years.

On his income of $90,000 a year, Hulshof pays about $575 per month toward hisstudent loans. It’s an affordable payment, but it doesn’t come close to covering the $1,500 a month the loans accrue in interest at rates ranging between 6.5 and 8.5 percent.

Under the repayment plan, Hulshof’s remaining debt will be forgiven after 25 years. But there’s a catch: That forgiven debt is considered income by the Internal Revenue Service, which means he and his wife will face a big tax bill when they finally get out from under the debt cloud.

“Me and my wife talk about it all the time, how we’ll deal with it at that point,” Hulshof said, estimating that he could owe upward of $175,000 in taxes. “It’s incredibly depressing to think about, that bankruptcy may be your only option … to start over at 55 when you worked so hard to get an education to better yourself and society.”

Income-based repayment was originally passed by Congress in 1994, but it was mostly unused until the introduction of new plans between 2009 and 2015. Today, there are five different income-based repayment plans and more borrowers than ever before: As of Sept. 30, more than 4.2 million borrowers of federal direct student loans were enrolled in one of the plans, an increase of more than 50 percent from the year prior and an increase of more than 160 percent from 2013, according to the U.S. Department of Education.

What’s the Best Way to Save for College? 0:42

The plans do offer lower payment options to graduates who otherwise would likely default on their loans. But critics, including borrowers, student advocacy groups and their supporters in Washington, D.C., say they need to be adjusted to insure that borrowers don’t face massive tax bills at the end of their repayment periods.

“Programs such as the income-based repayment program have helped in a small way to ensuring that students can continue to pursue their dreams and get on with their lives while they responsibly pay off their student debt,” Rep. Jim McDermott, D-Wash., said in a statement to NBC News. “However, slamming students and families with a massive tax bill after they have played by the rules is just wrong.”

McDermott introduced legislation last year to address the problem, either by allowing borrowers to refinance student loans at lower rates so that repayments would reduce the principal or by exempting the retired debt from federal income taxes. Neither approach passed muster with the House Ways and Means Committee. (A spokesperson for the committee did not respond to requests from NBC News for comment.)

The Obama administration also proposed changing the tax code to exempt the forgiven debt from taxes, but the provision did not make it into the final budget agreement passed by Congress and signed by President Obama in December.

mocrats are trying again this year. Legislation introduced on Jan. 21 by Sen. Elizabeth Warren, D-Mass. — the Reduce Student Debt, or REduce Student (RED) Act — would allow debtors to refinance their loans at between 3.86 and 6.41 percent, depending on the type of repayment plan they are on.

The varying rates are indicative of a confusing array of income-based repayment plans.

Hulshof’s repayment plan is called income-contingent repayment, the first plan passed in 1994. The plan lowers monthly payments to 15 percent of discretionary income and forgives the debt after 25 years.

The Consumer Finance Reform bill passed in 2009 introduced a new income-based repayment plan, capping payments at 15 percent and forgiving the debt after 25 years. Since then, the government has introduced three other variations, including a new version of income-based repayment.

The differences among them can get confusing.

Which colleges give best bang for your buck? Princeton Review says… 3:45

“All this stuff is part of the problem,” said Natalia Abrams, executive director of the group Student Debt Crisis. “We have five different programs with different dates and different set-ups and it creates confusion for the student loan borrower.”

That confusion extends to the retirement of the debt, she said. Many borrowers don’t understand the tax bill that awaits them upon forgiveness.

“When we talk to any borrower now, we say, think about the fact that you will pay a tax bill,” she said.

While Abrams and other advocates for relief wait to see if Congress will act, they are waiting to see how the IRS handles borrowers who face tax on their forgiven debt: Those who signed up for income-driven repayment in 1994 — the first year it was available — will be first to face the potential consequences in 2019.

Joshua Cohen, a lawyer specializing in student debt, said that the high number of students in the program and the likelihood that few will be able to pay taxes suggests the IRS may just look the other way.

“How (is the IRS) going to get the manpower to collect on all this?” he said.

Indeed, the IRS has in the past chosen not to pursue taxes that it could have collected, says Alice Abreu, a professor at Temple University School of Law.

However, those instances — such as its decision to not tax frequent flier miles or hotel reward points earned on hotel reward points — are rare and usually involve ambiguous statutes that give the agency some leeway.

“In this particular case, I would be shocked if the IRS took such action,” Abreu said, noting that an existing statute explicitly exempts forgiven debt from taxation for borrowers who work for a qualifying government agency or nonprofit.

How Bad is the Student Debt Crush? 1:39

That leaves debtors on an income-driven repayment plan with little choice but to make the reduced payments and hope that lawmakers come up with a solution before the tax bill comes due.

Cohen, the student-debt attorney, is himself is on an income-driven repayment plan and currently owes about $200,000 on a loan at a 6.3 percent interest rate.

“What I tell myself is the same thing I tell my clients: The tax bill is still less than what you would owe” if you paid the loan in full, he said.

In the meantime, he urges them not to drive themselves crazy working two jobs or cutting expenses to the quick to try and pay down the loan principal.

“You go to school to live,” he said. “You don’t live to pay your debt

Even Well-Off Black Students Carry More Loan Debt

That black college students bear a greater student loan debt burden than their white peers is no surprise, but a new academic paper published in the March issue of the journal Race and Social Problems finds that this imbalance continues all the way up to top income levels. Higher education experts say this has significant implications for these young adults’ financial futures, and magnifies the risk that the next generation of African-Americans could slip out of the middle class.

“We’re in an environment where college opportunity isn’t something that everyone can count on equally… even among well-prepared students,” said Lauren Asher, president of The Institute for College Access and Success.

Student-loan debt saddles generations in families 2:12

African-American students who earn bachelor’s degrees are more likely tograduate with loans, and have higher average loan balances than white students who take on debt to finance their education.

The discrepancy goes all the way to the top, the new research found. Even in the highest slice of the income spectrum, the families of African-American college students have a lower average net worth, with less home equity, retirement savings and other assets. As a result, the study’s authors conclude that parental wealth helps insulate white students, but not black ones, from the effects of debt.

Read More: Ex-Students With ‘Income-Based’ Loan Payments Face Crushing Tax Bill

Although black families in the top quintile of income distribution had an average of about $2,000 more invested in college savings accounts than white families in the same income bracket, they also had an average of roughly $92,500 in home equity and $92,000 in retirement savings, compared to just under $155,000 and $117,000, respectively, for wealthy white families.

The researchers drew on data compiled by the Bureau of Labor Statistics.

“The wealthiest blacks — they’re doing well, but they’re also trying to secure their own financial standing,” said Fenaba R. Addo, assistant professor of consumer science at the University of Wisconsin-Madison, and one of the study’s authors.

“The people that are able to give, do give to their children,” she said, but added that this ability to fund a child’s education was more constrained for African-American parents. “There are such large inequalities in wealth … the amount you’re able to give may be significantly lower.”

Aside from the lower average net worth among even well-off African-Americans, Addo said the type of wealth these families hold plays a role in student debt accumulation.

“Most of the wealth is held in homeownership, in home equity, rather than having these accessible financial assets like stocks,” she said. White families in the top fifth of the income distribution also had roughly $35,000 more in financial assets such as savings accounts.

“The transfer of wealth from one generation to the next seems to be greater for white households than black households,” said Beth Akers, fellow at the Brookings Institution’s Center on Children and Families. “Historically, home equity was easy to tap into as a source for college, but that’s not the case anymore.”

“Black students aren’t benefitting as much from their parents’ wealth,” she said.

Student loans piling up? Here’s how to save serious cash 3:53

On average, 86 percent of African-American students who obtained a bachelor’s degree graduated with debt, and the average debt load was just over $33,000, according to TICAS. Among all bachelor’s degree earners, 71 percent graduated with debt, and the average debt load was $29,395.

This continues to hurt students after they graduate. At 25, white young adults had an average net worth of just under $37,200, some $17,000 more than their African-American peers, and earned an average of about $5,000 more annually.

Addo said discriminatory hiring and employment practices that push even well-educated young African-Americans into underemployment makes it even harder for them to catch up and eliminate that lingering debt.

“It’s not just how much you owe, but the kinds of loans you have and your economic prospects,” Asher said. “We’ve had a long time of states disinvesting in public higher education … but the impact of those costs varies by what resources your family has access to.”

Addo said the racial gap in student debt burdens is representative of a new socioeconomic divide that could potentially have far-reaching consequences.

“It’s an indication of how inequalities are established [and] for recent cohorts of young adults, how racial disparities are starting to be created,” she said. “Even if you are wealthier or have wealthier parents, your status as a black child might not be as secure, even though you’re following all the right steps

Millennials Looking for Student Loan Reimbursement From Employers

Millennials Looking for Student Loan Reimbursement From Employers

CAREERS

POSTED BY TERRI WILLIAMS ON MARCH 11, 2016 AT 5:05 PM
Millennials Looking for Student Loan Reimbursement From Employers

While installing a climbing wall, relaxing the company’s dress code, or serving organic food may make one company sound cooler than the competitors, it turns out that millennials would prefer to receive help with the real-life challenges that they face.

Student loan debt is a burden that college graduates carry long after they’ve left the hallowed halls of academia. And this ever-present weight affects various aspects of their lives, including employment decisions. According to a recent survey by Beyond, a career network, student loan reimbursement is a very attractive benefit to job seekers.

According to survey results:

  • 89% of job seekers with existing debt think student loan repayment should be a part of a company’s benefits package
  • 81% would be more likely to stay with a company that offers student loan repayment
  • 67% are “absolutely” more willing to accept a job offer that includes a student loan repayment benefit
  • 20% say student loan debt negatively affects their ability to pay living expenses
  • 10% think student loan repayment is a more important benefit than paid vacation time

The findings are consistent with an earlier survey by the National Association of Colleges and Universities, which revealed that student loan reimbursement was one of the two most desired benefits of college students entering the workforce, barely edged out by the desire for more than two weeks of vacation time.

So how did the respondents in the Beyond survey prefer to have the repayment benefit handled:

  • 59% would prefer to receive small increments in each paycheck
  • 20% would prefer a negotiated amount at the end of each year
  • 13% would prefer a lump sum after they reach a specified work anniversary

ECONOMY, TUITION COSTS HURT MILLENNIALS’ ABILITY TO REPAY STUDENT LOANS

So why is student loan reimbursement so popular among job seekers? GoodCall went straight to the source and spoke with Joe Weinlick, senior vice president of marketing at Beyond. “Millennial workers faced the double whammy of rising tuition costs and a slow job market when they graduated from college,” says Weinlick. And he believes the combination of these factors made it difficult for many young workers to repay their student loans.

However, as the job market becomes more competitive, Weinlick says, “Some companies are starting to offer student loan reimbursement as a meaningful perk that will help them attract and retain the talent they need.”

And former students can definitely use help since many are drowning in student loan debt. Howard Dvorkin, CPA and chairman of Debt.com, tells GoodCall that there are money mistakes, and then there are “cash-tastrophes” that can ruin a millennial’s credit and decimate their savings. “For the millennial generation, the cash-tastrophe has been student loans, which averages nearly $30,000 per graduate and it’s not their fault the system was rigged against them – the cost of a college education skyrocketed precisely at the moment the job market tanked.”

But he says there have been numerous student loan debt horror stories that may affect how the current crop of job seekers may view their own loans. “Many of those millennials simply stopped paying their loans, leading to a record number of wage garnishments.”

And this debt has hindered college graduates in more ways that one. Robert R. Johnson, Ph.D., CFA, founder and CEO of The American College of Financial Services, warns that the student loan crisis is the next financial crisis that will affect Americans. “The burden of student loan debt prevents many college graduates – particularly those who used the borrowed funds to finance less marketable degrees – from purchasing a home, saving for retirement, or even establishing a household,” explains Johnson.

And that’s why this benefit is so attractive to so many young job seekers. But, will it really make a difference? It depends on the employee’s salary and the amount the company pays in reimbursement. For example, example, Apple, Ford, AT&T, and the Home Depot are some of the companies that pay roughly $5,000 a year, which is $20,000 for four years of school. However, if a job seeker is choosing between a job that pays $30,000 plus student loan reimbursement versus a job that pays $40,000 without the reimbursement benefits, the latter is obviously a better choice.

6 lies you’ll hear from the student loan assistance companies:

Because of the huge number of people in distress over student loans hundreds of so called Student Loan Assistance programs have opened. While some may no good work most  are simply companies that do poor work , tell lies and use high pressure sales tactics.

 6 lies you’ll hear from the student loan assistance companies:

  1. You MUST consolidate to get on the income driven plans. NOT TRUE: FFEL loans qualify for IBR. If your loans are all Direct Loans, you can have PAYE and REPAY without consolidating
  2. You MUST work with us to make sure you’re on the right payment plan. NOT TRUE: You want to check and double check the available plans, but you can do this for FREE through your servicer. This is actually their JOB! Make them do it.
  3. You can qualify for PSLF if you work with us. LIE: You can qualify for PSLF if you work for a government or 501(c)(3), your loans are Direct Loans, and you’re on the right kind of payment plan. If you’re missing any of those, you can’t qualify.
  4. We can lower your interest rate. LIE: There is no way to lower your Federal Loan interest rate. Interest is set by Congress, there is no shopping around. If you consolidate, you get a weighted average of the loans you consolidate.
  5. We can qualify you for the Obama Forgiveness Plan. LIE: THERE IS NO SUCH THING!!!
  6. We work with or for the Department of Education. LIE: No they don’t!

There are times when you might need or want assistance with your federal student loans, but it’s never a good idea to hire and pay a scamster assistance company.

Talk to your servicer first. If you want a second opinion from a knowledgeable professional, contact a student loan lawyer.

A reputable attorney will review your situation to determine whether there’s a problem. We’re regulated by our state bar, whereas student loan assistance companies aren’t subject to any regulation or oversight whatsoever.

If you think you’ve been the victim of a scamster, contact the CFPB, your State Attorney General, and a student loan lawyer who can help fix your issue.

Wells Fargo to Pay 1.2 Billion for mortgage fraud

Wells Fargo to Pay 1.2 Billion

index(en.wikipedia.org)

Settling claims that stem from an intense period of mortgage fraud, Wells Fargo has agreed to pay 1.2 Billion dollars in the wake of a major US Lawsuit. The Lawsuit, filed in Federal court details misconduct riddled throughout the counties largest mortgage lender and the subsequent practices they implemented during a period of time between 2001 and 2005. The “reckless” underwriting policies include a failure to report over 6,000 loans from 2002 to 2010 that simply did not meet regulatory standards. Failure to review these deals led to a slew of early payment defaults. Brought to court by Preet Bharara of Manhattan, this is just one of the many similar suits following the fallout from mortgages insured through the Federal Housing Administration, or FHA.

Banks including Bank of America, Citigroup and Dutsche Bank AG have had resolved similar claims, issuing hundreds of millions of dollars. According to Wells Fargo, the settlement was reached on February 1st and would simultaneously resolve claims by the US Attorney’s Office in San Francisco and the U.S. Department of Housing and Urban Development. Aside from naming the Large Mortgage Lender as a defendant, the civil lawsuit has named a Kurt Lofrano. Mr. Lofrano, a vice president at the Wells Fargo is said to have played a critical role in not disclosing the loans. At this point in time it is unclear if the settlement terms applied to Mr. Lofrano, Mr. Bharara commented in a letter the deal resolves “all claims in this matter.”

“The case is U.S. v. Wells Fargo Bank NA, U.S. District Court, Southern District
of New York, No. 12-07527.”

Liens on my Home, will they be removed in Bankruptcy?

In brief, the liens will almost certainly delay or prevent the sale of your home. As well, while it may be possible to remove the liens, you will need to hire a lawyer.

The main thing to understand is that liens survive the bankruptcy process unless special action is taken with the court. In a  Chapter 7 for example , while your creditor debt was discharged, your liens were not. You will need an attorney, familiar with the process in your state, to remove the liens.  The American Bankruptcy Institute says so, too.

Some  liens are  the removable kind, but not all are. If the lien is a judgment resulting from credit card debt, it may be removable if the equity in your house is not too great. If you have too much equity, then the lien might have to be paid before you can sell the property.

A mechanic’s lien, on the other hand, is not removable at all, even if you have limited equity in your home.

For example, a home repair company placed a lien on my client’s property after placing aluminum siding on the house and never receiving payment in full for the work. If my client sells the property before paying off the lien, the lien will be paid at the time of the sale and the appropriate amounts credited to the home repair company.