I know you’ve heard it before – “Don’t sweat the small stuff.” This truism applies to every facet of our lives. We often make the mistake of over dramatizing issues in our personal relationships – between spouses, between partners and between parents and children. Most of the time – it’s a situation where for one reason or another, we allow the moment or the event to take on greater significance than we should. In personal matters – this often gives rise to hurt feelings, family quarrels and anguish. From one event to the next, the mistake is commonly repeated until we learn or experience a greater trauma that causes us to snap back to reality. We say to ourselves – “Gee, I have to chill out and just be thankful for the boring, mundane days when there is nothing monumental and adverse going on in my life.” The lesson – don’t let the “small stuff” govern your life.
I find this issue also arises frequently in the context of how people assess their financial situation and the options presented to them when it comes to strategies to shed debt and preserve future income. In this instance, what is the “small stuff?” The “small stuff” in the context of shedding debt and preserving future income is “your credit score.” Let me repeat – the “small stuff” is your credit score. There are differing views. The banking industry wants you to believe that your credit score is “your most valued asset” – and that your world will crumble if your credit score tumbles. It is true that if you short sale a home, go through a foreclosure, file a bankruptcy or settle your credit card debt for pennies on the dollar – your credit score will take a hit. The fallacy is – in the context of the gain you will realize by getting out from under debt and the outrageous never ending interest – the credit score is a short term decline that is insignificant in the context of the big picture.
I tell clients, over and over, “When you’re 75, would you rather have lived your last 30 years with a 790 credit score and have $40,000 in the bank to retire along with the paltry social security you will receive or would it be better if your credit score took a 75-100 point hit for about 1 ½ years, and at 75 you have $950,000 in saving to live off of with social security? The numbers are simple – if you pay off $100,000 of debt at $2,500 per month with interest at 26%, you will pay $235,000 over the 94 month period. Instead, if you could settle this debt for $30,000, by using the$ 2,500 per month you would pay the first year, and then invest $2,500 per month for each of the next 82 months, tax deferred at 6%, you will have $300,566. If you then allow this savings to accumulate for another 10 years, you will have $546,849. Better yet, if you continue to save $2,500 per month during the last 10 years, you will have $958,596. This is “big stuff.”
Being afraid to make the right move because of concern over your credit score, is worse than “sweating the small stuff” – it’s letting the “small stuff” steal your future. You still need to plan. For example, if you have a short term need for credit – such as buying a car – then buy the car before making your move. In all events, you should resist the effort to be brainwashed by an industry that earns billions advancing this myth. Simply look at the numbers – that’s the big stuff and plan your future.
Ken Gross is an attorney with Thav Gross and host of The Financial Crisis Talk Center, a radio program that airs weekly at 10:00 AM on Saturday mornings on Talk Radio 1270 WXYT AM.Don’t Sweat the Small Stuff (2.1.12)
The Goal – Preserve Future Income for You and Your Family – So that you cash goes in the Bank and NOT to the Bank.
Learn the latest new in the Housing Market – Short Sale? Loan Modification? Principal Reduction? What to do….
What do you do if your house is under water? If you owe $300,000 on your home and today it is only worth $170,000. Are you just going to “stay the course” and pay for the house over the next 20 years – paying $130,000 plus interest for air? If you have $50,000 of credit card debt, at 19.9% interest – are you going to just “stay the course” and pay the interest and payments over the next 19 years and 3 months (that is if you make the minimum payments) paying a total of $99,109 to payoff the debt. THIS IS WHAT THE FINANCIAL INDUSTRY WANTS YOU TO DO. If you do this, your credit score may be 725 now and 725 every day for the next 20 years – but you’ll have nothing in the bank for savings and retirement. There is an alternative – by exiting the house underwater and shedding the credit card debt – you can put yourself in a position that rather than “staying the course” you “create your course” – the result – you begin to save the $2,000 per month you were paying on the credit card debt and you bank the $1,000 per month you will save by reducing your housing costs so that you are paying for housing based on TODAY’s market values. You must realize that 2008 values – are in the words of the great, Ernie Harwell, “Lonnnnng Gone.” Saving the $3,000 per month over 20 years, with a modest return will yield you over $1,000,000 in savings.
The choice – a reduced credit score for 1-2 years and becoming debt free and having a savings account of $1 Million – or reaching 70, with nothing in the bank (but, oh yes, a perfect credit history). When you need food to eat or shelter when you’re 72, just try and pay for it by giving them some of your credit score points! Sound harsh – this – is the reality of today’s world. This economy, as miserable as it is – does create opportunity. The hard part for many – is recognizing the reality and taking action.
If you want to learn how to do this – attend the FCTC and THAV GROSS’s free Financial Crisis Management Seminar on Wednesday, February 29, 2012 at 7 PM. Sign up on the Website or call our offices at the numbers listed.
THIS IS YOUR CHANCE TO RECLAIM YOUR FUTURE – SO THAT YOU PRESERVE YOUR FUTURE INCOME FOR YOU AND YOUR FAMILY
Thav, Gross, Steinway & Bennett, P.C., Bingham Farms
Education: Wayne State University Law School, 1982
Specialty: Financial crisis management, business law, estate planning
Kenneth L. Gross, co-founding shareholder of Thav, Gross, Steinway & Bennett, P.C., puts a lot of people back on their feet after they’ve had the financial rug pulled from underneath them.
In the process, he’s evolved the law practice that he and Charles Thav founded 29 years ago, the day after Gross graduated from law school.
For many years, he said, Thav Gross “was a normal business practice.” The bulk of the work was mergers, new companies, contracts and commercial disputes.
Then, in 2008, the national economy melted down, unemployment shot up, and the real estate market crashed.
“A lot of people connected to the real estate market were put out of work,” Gross said.
In response, he led the firm to a new type of practice: financial crisis management.
“We had a tax collection defense and bankruptcy practice, so we rechanneled the focus and expanded it from a standpoint of what’s going on the economy,” he explained.
“The real estate developers, the mortgage brokers, the trade workers, the suppliers — all those people have suffered horrendous losses as a result of the housing crisis. They’re fighting for survival. They’re trying to save their homes. They’re trying to figure out how to put food on the table.”
This troubled Gross. He also was frustrated by “the arrogance and the lack of practically the banking industry has displayed with regard to the mortgage crisis.”
When homeowners are underwater with their mortgage and their income drops, “it would make more sense to renegotiate the principal and let the people stay in there,” he said.
“But the lending market and the banking industry absolutely refuses to recognize any concept of principal reduction.”
So Gross views his advocacy as if “it’s almost a war, an ‘us versus them’ mentality in terms of the banking industry.”
But, he added, “what’s incredibly interesting is all of the possible ways to improve a bad situation that we’ve learned by doing.”
Gross’ approach is to assess a client’s particular circumstances and determine which creative combination of the available tools — bankruptcy, debt settlement, loan modification, short sale tax relief — will work best to resolve the client’s problems.
This approach has worked well for his clients in many instances.
Gross’ business strategy has worked well for his firm.
Due to the slow economy, fewer clients seek “pure” business services and many more clients seek help with their personal financial circumstances.
Gross is invigorated by the shift in focus, saying, “I used sit there sometimes and say, ‘Is there any good that I do as a lawyer?’
“When I’m engaged from a pure business standpoint, I’m doing good for my client. But when you start moving into this financial crisis area, where you’re trying to help and solve people’s problems on a long-term basis, it is more inspiring and in some respects it’s more fun.
“I think I’m more charged-up about practicing law now than I’ve ever been,” he said.
Though he admitted feeling guilty at times about being too impatient to bring about the result he’s after, “I’ve learned over the course of time that you need some level of impatience to stay on track.” By Ed Wesoloski, Esq.
Listen here to Aliza Zee – The Alisa Zee Fan Club ‘s interview of Ken Gross from The Financial Crisis Talk Center on the current state of the Financial Crisis – Banks, houses underwater and credit card debt are covered. This interview aired on Sunday, December 5, 2010 on on WOMC, WYCD, WXYT-AM, 97.1 and 98.7 AMP – Part 1Part 2
For many entrepreneurs, phoning an attorney summons images of a ticking clock and mounting bills. Now law firms are trying to win new customers by offering deep discounts for start-ups.
Some firms are offering small businesses a flat monthly fee rather than charging them by the hour. Others offer flat rates for certain services, such as handling the paperwork for starting a company.
Many small companies say the discounts are a big help at a time when budgets are tighter than ever. Ray Case, a plumbing contractor in Ann Arbor, Mich., says flat fees from attorney Ken Gross proved precious as he journeyed through bankruptcy court, folding one company and forming another. He paid $10,000 total for at least 100 hours of work, and estimates he saved at least $15,000 over typical hourly rates.
“When you’re basically out of money,” says Mr. Case, “you can’t give an attorney a blank check.”
Born of Necessity
The impetus for these deals is simple: Lawyers need to drum up more business, but many entrepreneurs can’t afford traditional payment plans these days. “The economy has melted down, and a lot of work we’re doing is for people on a tight financial budget who can’t commit to an hourly fee schedule,” says Mr. Gross, managing partner at Thav, Gross, Steinway & Bennett PC in suburban Detroit.
Mr. Gross, whose firm started offering flat rates to small businesses in 2005, says his small-business clientele in the first half of 2010 was quadruple that in the same period of 2005. “You have situations where people got buyouts and had little nest eggs of money,” he explains. “They’re trying to replace income from the jobs they lost.”
Sadly, he says, there’s another reason demand is booming: Many small-business clients, like Mr. Case, need help with debt resolution and bankruptcy-related matters, rather than with starting up.
The deals are springing up across the country. In New York, MasurLaw offers small businesses a flat rate, starting at $500, for services such as help with launching a company. Senior partner Steven Masur says that “when the recession hit, we felt that predictable pricing would take the guesswork out of legal fees,” raising the comfort level of potential clients and fostering continuing relationships with them through their early days.
In Blacksburg, Va., Creekmore Law Firm PC introduced a plan last year that charges small businesses a flat rate of $75 a month, after an initial fee of $750. “Some small-business owners would come in for an initial consultation, find out our hourly fees and wouldn’t come back,” says Keith Finch, an associate at Creekmore. “They’d just disappear.”
Proceed With Caution
To be sure, there are some potential hazards for small businesses in going this route. Joseph DeWoskin, chair of the American Bar Association division that specializes in issues facing small law firms, advises entrepreneurs to check references and get promises in writing. Be careful, he says, of “the bait and switch, where they tell you they can do it for this price and then say they can’t.”
What’s more, you can’t expect attorneys to do everything for a flat rate. Most lawyers who offer these deals set limits for what the discounts cover. For example, Mr. Finch excludes some potentially time-consuming legal work from his small-business price, such as suing or defending against litigation, and giving tax advice.
Further, some law firms insist that their discounted services for entrepreneurs be conducted on the phone, rather than consultations in their offices, to speed up the conversations. Others want much of the work to be done via email. That might make for a distant relationship between lawyers and clients.
Some entrepreneurs, however, say that they don’t mind, since they’ve gotten used to dealing with customers that way to save time. Rafe Steinhauer, president of Benefeast LLC, a White Plains, N.Y., company that raises funds for nonprofit organizations, says long-distance contact works fine once a sound relationship is established.
“You don’t have to keep making special trips to the lawyer’s office,” he says.
Mr. Johnson is a writer in Roanoke County, Va. He can be reached at reports@wsj.com.
This infomercial is currently running on the WOW Network and ION Networks. The crew of the Radio Show is assembled together for this Infomercial. Ken Gross, David Einstandig, Brian Small and Eric Glick. Find out how to use the Tools of Financial Crisis Management to preserve your future earnings for you and your family.
Help for Homeowners – announced last year, has, unfortunately, evolved into nothing more than government acronyms. HARP (Home Affordable Refinance Program) and HAMP (Home Affordable Modification Program). HARP permits a refinance of a home if the homeowner but the homeowner must be current for the last year and meet normal underwriting criteria. The only benefit to the program is that the lender can refinance up to 125% of the market value of the home. In practice, the government mandated appraisals have been on the low side of market so that few properties can fit within the 125% framework. Worse than that, this program affords no help for people who have sustained financial hardship because if they were 30 days late on a payment in the last year, they are not eligible.
The HAMP program allows modifications to reduce the mortgage payment down to 31% of the Gross Monthly income of the homeowner. This program helps people who have sustained a reduction in their income so that if their present payment exceeds 31% (i.e. Monthly Income is $7,000 per month, Mortgage Payment $4,000; the reduction could go to $2,170 if all other program requirements are met) they are able to obtain a reduced monthly payment. The problem with this program is that the participating lenders have not made the effort to adequately process the modifications applications. Homeowners are told to fax papers in, and then weeks pass and they are informed that the paperwork is missing – so refax. When you call a lender, such as Bank of America, they will not even allow you to speak to a negotiator for the modification. All you can get is a status report. As an attorney, we want to speak with someone to make sure they are properly evaluating the file – but that is impossible because they refuse to come to the phone. End result – of the estimate 4,000,000 people who to be helped, few modifications have been put in place – with only 66,000 permanent modifications in place as of January of this year.
The poor outcomes of HARP and HAMP are not the big story. The biggest problem facing our country – is an economy that is undermined by high unemployment and nonexistent stimulus for the growth of small business. What Washington has missed, is understanding that the dismal real estate market is the underlying problem that must be solved in order to stimulate small business growth.
It does not take a Rhodes scholar to understand the process. Consumer spending drives our economy. Consumers cannot spend if they are unemployed. Even employed consumers will not spend if they have no available credit from the credit card companies and live in fear of losing their jobs. We all recognize to correct this problem, small business must begin to thrive – thereby employing more people, offering more goods and services and driving our GNP. Small business, however, will not and cannot thrive unless banks make credit available to businesses. Banks, however, are not lending. The reason – banks require collateral to underwrite loans. The collateral typically pledged is inventory and accounts receivable and real estate. Real estate is acceptable collateral ONLY if and to the extent there is an “Equity Cushion” in the property.
Here lies the problem. The “Equity Cushion” on residential and commercial real estate has been lost in the Financial Crisis. Because there is no equity in real estate, the banks will not accept it as collateral and therefore ½ of the historical collateral used to support lending is gone with the result that the banks will not lend due the lack of adequate collateral. You can scream and holler all you want about how the banks have improperly conducted themselves in the context of executive bonuses, credit card abuses and everything else. It is not going to matter – unless there is equity in real estate to support lending, you are not going to see lending occur, which means continued virtual no growth for our economy.
So where does the solution lie? The answer is we must return to an economy where there is equity growth in real estate. Right now, ¼ of all homeowners are underwater in their homes. This statistic was revised from 1/3 based on a change in accounting assumptions – but the reality is that there is virtually no Equity Cushing that homeowners have in their residential homes that can support a second mortgage to finance the start up costs of a new business. The commercial sector is even worse off.
The return of an Equity Cushion in real estate will come from only two outcomes. The foreclosure process is one. The other is modification of mortgages that include a reduction in the principal balance of the loans. Equity in real estate will not return if we modify mortgages that only reduce interest rates and extend mortgage terms to 40 years. This is what HAMP allows and what the banks are pushing. The modification process, as it presently is situated, is in reality a method which hampers our return to and Equity Cushion in real estate and therefore delays the goal of returning to a vibrant economy.
Another obstacle to a return to an Equity Cushion that has evolved is the problems that are occurring nationwide in completing short sales on homes facing foreclosure. The short sale, if approved by the lender, accomplishes the task of transferring the property to a new buyer at fair value, thereby giving the new buyer equity in the real estate and future growth. The problem that has occurred, however, is that lenders are refusing to release the selling homeowner from the deficiency on the first mortgage arising from the short sale. The result of this intransigence by the lenders is that the short sale process is far too slow and a selling borrower would be well advised to refuse to a short sale unless the lender gives the release of the short liability as part of the deal.
The clear solution is that our government must intercede to expedite the return to the creation of an Equity Cushion in real estate so that banks will then loan money based upon valued collateral. The foreclosure process take too long and the current effort to modify mortgages without principal reduction only serve to delay the process longer and thereby extend the time it will take for a true recovery. To correct this, we must shift the modification process to mandate principal reduction of the property to within reasonable estimates of fair market values. The “Cramdown” legislation that was voted down by the Senate last April, which allowed a cramdown of the mortgage in a Chapter 13 bankruptcy of a borrower’s primary residence to the fair market value of the home, would have accomplished this goal. Accomplishment of the goal would have occurred not as much through the actual bankruptcy process but by virtue of giving the homeowner’s the leverage of the “threat of bankruptcy” as a means of bringing the lender to the bargaining table to voluntarily reduce principal. This legislation was advocated by the President during his campaign. Unfortunately, with Health Care and the many other items on the agenda in 2009, the banking lobby pervaded on the issue and the Administration did not push for the passage of the bill when it hit the Senate floor last year. This legislation should be reintroduced and pushed forward. Alternatively, the government needs to adopt a mandatory Modification With Principal Reduction Program.
The gist of the opposition to principal reductions to mortgages as enunciated by the banking industry is that there is a “fear” that people who can afford to pay their mortgages on homes underwater would use this process as a means to reduce their mortgage. This argument is the fiction that needs to be resolved. If you accept that the critical goal is that we need to return to an Equity Cushion in real estate, as a critical component of banks lending money and thereby allowing our economy to grow, then there is no need for this alleged “fear” because the better result would be for all underwater mortgages to be modified.
The Banks, of course, fear this result because they will have to absorb greater losses. The Banks, however, are nearsighted. Eventually, the banks will realize that they cannot make money merely by charging usurious interest rates on credit cards, bank overdraft fees and renewal fees – but that they have to loan money to people and businesses. (Isn’t that what banks are supposed to do?) It may be true that in the end the banks do have to take the loss on the real estate that is underwater. It was, however, their lending practices and greed that drove us to where we now sit. So let them take the loss they deserve. Their stock value may decline, but we know it will return. Once this occurs, we will all, including the banks, be in a position to grow.
Ken Gross is a the Managing Shareholder at Thav, Gross, Steinway and Bennett, P.C. The firm is gaining national notoriety for its Financial Crisis Management strategies. Mr. Gross is host of the Financial Crisis Talk Center which airs at 8:30 AM, Saturdays, on Detroit Sports Talk Radio 1130 AM, www.detroitsportstalkradio.com, in the Metro Detroit market.
