Begos & Horgan LLP
From The Firm — Press Release
Local Advisors Team Up to Address Credit Problems
WESTPORT, CT., Apr. 9, 2008 – As credit problems spread from sub-prime mortgage loans to all sectors of the economy, and as the dreaded "R-word" – Recession – is heard more frequently, two local firms have formed an alliance to help businesses and consumers reduce their increasing financial burdens. The two firms, Begos Horgan & Brown LLP and Omni Solo, Inc., are providing comprehensive legal assistance and financial planning services to business and consumer borrowers who are experiencing credit and financial difficulties.
The two firms have a long history of working together to help companies and individuals in debt. Begos Horgan & Brown is a law firm that has prosecuted predatory lending disputes and represented both borrowers and lenders in mortgage foreclosures. Its founder, Patrick Begos, began his legal career representing banks and other creditors who were faced with large numbers of defaults after the 1987 stock market crash. In the last ten years, he has represented both borrowers and creditors in a wide variety of disputes. "We bring perspective from both sides of table – the borrower's and the lender's sides," says Begos. "By understanding how a creditor approaches a 'troubled debt,' and by using a combination of negotiation and litigation, we have been able to help many clients through financial difficulties."
Omni Solo is a consulting firm specializing in restructuring consumer and business debt. Founded by Joseph L.A. Tesoriere in 1976, the firm's strength is in strategic planning for businesses and individuals. For over 30 years, the firm has worked with individuals on asset protection and recovery, debt reduction, insolvency challenges and in achieving financial freedom. The firm's experience helping companies in financial risk analysis and management, turnarounds, debt reduction and liquidations also gives it the know-how to help individuals with complex debt issues. "Whether it's a business or an individual, we bring in our experience in analyzing and dealing with all aspects of financial needs. We like to say that our firm turns the most challenging assignments into successes," says Tesoriere.
The alliance came about because the two firms were seeing different aspects of the credit crunch impacting a variety of people. They were concerned that realistic and ethical solutions were not being offered by newly minted services promising to repair credit problems. "We were alarmed at the number of people offering 'quick fixes' and promising to make debt problems magically disappear. It's not that simple, and those one-size-fits-all credit counselors have the potential to do more harm than good," says Begos. "How can someone solve a borrower's problem without first taking the time to learn what that problem really is? A borrower who has experienced a temporary financial setback – such as an illness or loss of his job – likely will need a solution that is different than a borrower who took out a loan that he knew he couldn't afford," Begos continues. "Together, our firms are providing realistic resolutions to debt problems. We will aggressively find and pursue legal claims to minimize or eliminate debts, but we won't promise an outcome that we can't deliver. We'll help clients find the best possible solution to their problem."
"These kinds of problems need a team approach," points out Joseph L.A. Tesoriere, the founder and president of Omni Solo. "To successfully deal with credit problems, you need a combination of financial and legal help. Because of our companies' different backgrounds and experience, we approach these problems with diverse mindsets and skills." Says Tesoriere, "For example a borrower, whether it's a business or an individual will often need financial assistance to survive on their limited resources while their debt is being litigated. It's like the old line about the operation being a success, but the patient dying: If a client can't stay afloat for the length of time the lawyer needs to fight a bad loan, then the litigation is not going to help." On the flip side, says Begos, "The best financial advice in the world may be worthless unless foreclosure can be slowed down or stopped."
This alliance brings both specialties to bear on a complex problem. "Together we can give people better outcomes than if they worked with one or the other specialty alone," says Tesoriere. Atty. Begos concurs, saying: "Approaching t a complex problem from different angles almost always produces better results."
The credit crunch, the collapse of the real estate market, and the economic slowdown, have created a perfect storm for debt-laden businesses and consumers that made the team approach a necessity. "As recently as a year ago, many people considered their home to be their safety net. If they needed money for a personal emergency, or to bridge a cash-flow shortfall in their business, they could access the equity in their house by taking out a home-equity loan or selling the house and moving into something less expensive," says Begos. "But today, people are in houses they can't afford and which aren't worth what they paid for them. They simply can't sell for enough to pay off their mortgage, let alone generate enough cash to fix their other financial problems." A lawyer can't solve that problem, says Begos. "A lawyer is really only able to help his client negotiate or litigate the existing debt. But clients also need help with designing a financial 'exit strategy,' which would include prioritizing their financial needs, analyzing their resources, and determining what they can afford. In short, borrowers also need the skills of a turnaround financial analyst; someone who's job is to help businesses and consumers navigate tough financial situations; someone like Joe. He can design the exit strategy for the borrower and help him or her move on."
There have always been people who had problems with debt, but the current credit crunch is hitting a different group of people. "Many people who haven't defaulted on a debt in their lives are experiencing problems. They are dealing with more extensive debt than ever before," points out Tesoriere. "They are well-established, often with well-paying jobs, but the glut of credit opportunities during the past decade enticed them into taking on more debt than they could handle. They borrowed against the ever-increasing equity in their homes to supplement their incomes, to expand their business, or to fund investments. It may have been a reasonable decision when housing prices were escalating, but given the real estate downturn, they may not have any equity left. And the credit crunch means that they might not be able to borrow any more even if they have more equity. Despite this, the cash needs that caused the borrowing in the first place have not changed. They're left between a rock and a hard place."
The problems facing borrowers today are different than anything in the past. "It's a financial history lesson," says Begos. "When I first started working with banks in the 1980s, most would lend their own money, and then hold the mortgage for the life of the loan. The bank knew its own money was on the line, and its attitude was 'I'm entering a long term relationship and I want to make sure it's going to end happy for both of us.' In the mid-1990s that all changed. Banks weren't holding as many mortgages. They were selling them on the secondary market. As that market grew, new lenders and mortgage brokers came on the scene who had no interest in maintaining relationships with borrowers. They made money by originating as many loans as possible. For years, there was a glut of money chasing borrowers. Lenders were competing to lend money with zero down-payments, adjustable rates, negative amortization loans and loans that required little or no income verification. All of these 'innovations' were designed to make it easier for people to borrow more money than they previously could qualify for. This let people buy more expensive houses, or buy a house for the first time. It became a seller's market, with dramatic price increases. You'd hear people saying 'I bought my house for $500,000 last year and the one next door sold for $600,000. Now, I've got $100,000 in equity in my house.' The lenders who were hungry to make loans were only too happy to make a home equity loan. Now those loans have dried up because of banking crisis, housing prices have dropped, and everything's come to a halt, leaving people in more debt than they ever imagined."
Who are the people this alliance expects to help? Financial consultant Joe Tesoriere gives a few examples. "People who have been using home equity loans to supplement their income will most likely need our help. Also, those who have taken out multiple home equity loans or have been taking money out of their homes to invest in the stock market. Since the stock market's in a slump as well, these people are probably caught in a financial bind."
He offers some examples of people who have been especially hard hit:
High credit card debt – "Let's take the case of a couple with high credit card debt. We've seen some with $50,000 or more. A mortgage broker told them that they could pay off that high-interest debt with low-interest, tax deductible money, by refinancing their mortgage or taking out a home equity loan. Now they've suffered some financial problem --like a medical crisis or a lost job -- and they can't pay that mortgage. Instead of a credit card company calling for a payment, they have a mortgage lender foreclosing on their home."
Divorces – No matter what side you're on, a divorce has a drastic effect on your finances. You might end up with new debts like alimony or child support. Or, you might get the house and its accompanying debt. "No matter which way things end up, divorce is usually a tremendous financial burden," points out Tesoriere.
The No-Doc or Lo-Doc Borrower – The overheated mortgage and real estate market coupled with Wall Street trading in bundled mortgages threw more money at more borrowers than any time in history. Borrowers were essentially able to state their income at any level they needed without the need to verify it. Why? "Because the value of the real estate was being pumped up so fast that lenders believed it would always skyrocket enough to cover the debt," says Tesoriere. "They would tell debtors, 'You're going to get an adjustable mortgage and in three years your house will be worth more so you'll refinance it to take into account the greater equity. We'll pay off the first loan with a second.' Unfortunately, things couldn't continue that way. The collapse of the real estate market and the impact of the subprime crisis mean that these borrowers simply can't get that next mortgage. The whole process was based on an unrealistic home values and the premise that, when all else failed, you could always sell your house. That's no longer an option for many people, and they're stuck with mortgages they can't pay for homes they can't sell. Drastic measures are needed, but the borrowers have no idea where to begin."
The problems are not limited to consumers, Begos explained. "Business owners who were looking to raise cash often found that the 'cheapest' money came out of their houses. Whether they took a business loan that required a personal guarantee and a mortgage as security, or they just borrowed money on their house and put it into the business, the result was the same. They're now faced with a situation where a downturn in their business can immediately put their home in jeopardy. And the current economic situation is going to cause financial problems for a lot of businesses. Someone in this situation may need help with his business operations in order to protect his home."
The alliance was formed to help the borrowers through these kinds of crises with a combination of legal assistance and financial guidance. "We know how to talk to the lenders. We know who to negotiate with and we give our clients realistic strategies to get them through the tough times," Tesoriere explains. "We're not promising quick-fix or pain-free solutions. But we expect, together, to help people through their problems and give them advice that will help them avoid getting into this position again no matter what the market does next."
For more information about the alliance and its work helping businesses and consumers deal with financial burdens contact Patrick Begos at (203) 226-9990 or pwb@begoshorgan.com or Joseph Tesoriere at (203) 226-5800 or jlat@omnisolo.com
About Begos Horgan & Brown LLP
Begos Horgan & Brown is a full-service law firm representing businesses and individuals. They engage in sophisticated business, financial and insurance related litigation, trials and appeals in all courts, state and federal, in New York and Connecticut as well as securities arbitrations before the New York Stock Exchange and NASD. Their practice areas include general commercial and corporate disputes, foreclosure cases, securities litigation, debtor/creditor disputes, insurance coverage disputes, real estate litigation, employment-related litigation, real estate purchase and sales and trust and estates. They have offices in Westport, CT and Bronxville, NY. For more information see www.begoshorgan.com
About Omni Solo Inc.
Omni Solo Inc. is a business advisory firm in strategic planning. Since 1976 their advisors have been serving as financial and operational consultants to owners of small and medium size businesses. The firm analyzes, qualifies and finalizes all aspects of financial and business needs. Their office is in Westport. For more information see www.omnisolo.com
From The Firm | Debtor/Creditor
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