Raising Cane
By Rob Perez
Sunday, December 2, 2001
Bankruptcy scams
Homeowner tips
prey on struggling
homeownersPicture a sinking ship.
Then picture a pirate storming aboard and robbing the ship owner just before the vessel goes under.
That is an apt analogy for what is happening to financially struggling Hawaii homeowners who are being sucked into bankruptcy scams costing them hundreds or even thousands of dollars, plus their homes.
"These people are already sinking, and they're being victimized once more before they go down," said Big Island consumer attorney George Zweibel.
The problem lies with some unscrupulous bankruptcy petition preparers. They persuade desperate homeowners who are delinquent on their mortgages to file for bankruptcy, believing such action offers the best hope for saving the homes from foreclosure.
The homeowners pay high fees to get help in filling out the petitions, yet the paperwork typically is incomplete.
The victims, though, usually don't know any better. They get bum legal advice. Their bankruptcy cases eventually are dismissed. Their credit is ruined. And the lenders frequently end up seizing the homes anyway.
People who can't afford attorneys sometimes turn to preparers, many of whom do their jobs legitimately and within the rules, to help with bankruptcy filings.
But the problem of unethical preparers preying on financially strapped homeowners is increasing in Hawaii, although no one knows for sure how widespread it is. Like with other scams targeting distressed homeowners, many of the dishonest practitioners operate on the fringes, escaping the attention of authorities.
Underscoring the growth of the problem, the U.S. Bankruptcy Court in March permanently barred Anthony S. Alonso from serving as a preparer, the first time such an action has been taken here. The Hawaii court has since issued bans against two others, Irma Sai and Warren H. Mijo, in separate cases.
And the Office of the United States Trustee, which oversees the administration of bankruptcy proceedings, is investigating about half a dozen other cases, according to Gayle Lau, assistant trustee in Hawaii.
"It's definitely a problem, something we're trying to fight," Lau said.
The case of Angela Villarin is fairly typical.
After Villarin and her husband fell behind on their mortgage, they hired Sai in 1998 to help resolve the problem and agreed to pay her $500 a month, according to a complaint filed in Bankruptcy Court by Lau's office.
Sai told the couple they had a valid claim under federal truth-in-lending laws and instructed them to stop paying their mortgage, the court documents say.
Villarin also was told not to mention the $500 payments to anyone and was advised to file for Chapter 13 bankruptcy protection, according to the complaint.
(A bankruptcy filing automatically halts the foreclosure process, and it usually takes at least a month for the lender to get the process back on track.)
Although Sai instructed Villarin on what information to put on the bankruptcy petition, she did not put her name on the document as required by the court and failed to disclose the fees she was paid, another requirement.
Her services harmed, not helped, the Villarins, the complaint said.
For violating court rules, bankruptcy Judge Lloyd King in October fined Sai $1,000 and ordered her to repay Villarin $6,600. He also permanently enjoined Sai from serving as a petition preparer and from providing legal advice without a license.
Sai denied doing anything wrong and said the Trustee Office has a vendetta against nonattorneys wanting to help homeowners. Sai said she assisted the Villarins after they came to her begging for help, but she told them to hire a lawyer if they wanted to fight the foreclosure in court. She also denied telling Villarin not to mention the $500 payments.
Sai, who closed her consulting business about a year ago because of health problems, said she doesn't plan to abide by King's ruling because the court has no jurisdiction over her as a subject of the Hawaiian Kingdom, which she believes still exists.
"I'm operating as a Hawaiian subject, and none of those rules are under our laws," she said.
Mijo and Alonso, the other two who have been banned as preparers, could not be reached for comment.
Bankruptcy petition preparers don't have to be licensed or meet any kind of minimum education requirements. Anyone can be one.
The rules governing preparers were adopted by Congress in the early 1990s in response to widespread abuses occurring on the mainland.
Only in the past several years have abuses become more evident in Hawaii, attorneys say.
Filing for bankruptcy can be a legitimate option for a homeowner buried in debt but wanting to work out a solution and get a fresh start financially.
Abuses occur when people have no intention of repaying their mortgages but use the bankruptcy system to forestall foreclosures.
"That creates additional expenses and inappropriate delays," said Susan Tius, a lender attorney.
When several people are on the mortgage, for instance, one will file bankruptcy, and when that petition is dismissed, another will file and then another until they have taken full advantage of the system. People who have abused the system by filing multiple bankruptcies are considered serial filers and are banned from filing additional petitions for as many as 240 days.
Nearly 50 people in Hawaii are on the court's list of serial filers. Many are believed to have followed the advice of unethical petition preparers.
Zweibel, the Big Island attorney, said delaying the foreclosure process actually could backfire for the homeowner.
Once a foreclosure starts, the homeowner has only so much time to fight the action in court, and the further into the process the case gets, the harder it becomes for the person to get his day in court, Zweibel said.
"The sad part is that seeking legal help earlier might have prevented loss of the home," Zweibel said.
If you plan to use a petition preparer instead of an attorney to help you file for bankruptcy, keep in mind preparers are bound by certain court rules: Homeowner tips
>> They cannot give legal advice.
>> They cannot file your bankruptcy petition and pay your filing fees for you.
>> They are paid only for helping to prepare the documents.
>> They must sign the petition and disclose to the court how much they were paid.
Star-Bulletin columnist Rob Perez writes on issues
and events affecting Hawaii. Fax 529-4750, or write to
Honolulu Star-Bulletin, 500 Ala Moana Blvd., No. 7-210,
Honolulu 96813. He can also be reached
by e-mail at: rperez@starbulletin.com.
