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In a long article on Bloomberg News, but well worth the read:
How unscrupulous lenders have used an obscure legal document to wreck havoc against small businesses nationwide.
The lenders’ weapon of choice is an arcane legal document called a confession of judgment. Before borrowers get a loan, they have to sign a statement giving up their right to defend themselves if the lender takes them to court. It’s like an arbitration agreement, except the borrower always loses. Armed with a confession, a lender can, without proof, accuse borrowers of not paying and legally seize their assets before they know what’s happened. Not surprisingly, some lenders have abused this power. In dozens of interviews and court pleadings, borrowers describe lenders who’ve forged documents, lied about how much they were owed, or fabricated defaults out of thin air.
By seizing their bank deposits, Yellowstone had managed to collect its money ahead of schedule(60k on a 38k loan) and tack on $9,990 in extra legal fees, payable to a law firm in which it owns a stake. In about three months, the company and its affiliates almost doubled their money. At that rate of return, one dollar could be turned into 10 in less than a year.
Everyone else involved in the collection process got a slice, too. SunTrust got a $100 processing fee. Barbarovich’s office(NYC Marshal) got approximately $2,700, with about $120 of that passed along to the city. The Orange County Clerk’s office got $41 for its rubber stamps. The New York state court system got $184.
Cash-advance companies have secured more than 25,000 judgments in New York since 2012 worth an estimated $1.5 billion.
It sure explains why my small business gets a ton of loan/cash advance offers.
It should be noted that these letters have been prohibited in some states for over 50 years, and banned nationwide for consumers since 1984. (but even when banned by a state, they pursue it in a state where they are legal.)
(Score: 4, Insightful) by Anonymous Coward on Wednesday November 21 2018, @02:44PM (24 children)
Don't go into debt. Its much better to live within your means and grow your business slowly or via investors. It is not natural to live your life in debt to banks.
(Score: 4, Insightful) by DannyB on Wednesday November 21 2018, @02:58PM
Yes! That!
I use high limit "rewards" credit cards to get huge benefits by doing all of my spending through them -- but I don't borrow a single penny on those cards -- ever. If I want to buy something nice, I save up for it.
The same kind of restraint as not drinking alcohol or smoking. Or always having a bottle of hydrocodone in my pocket, but only taking it on occasion when needed.
The same restraint as not punching certain people in the face.The lower I set my standards the more accomplishments I have.
(Score: 2) by DannyB on Wednesday November 21 2018, @03:01PM (5 children)
Despite my post about personal debt, I don't seem to have a problem with the idea that some businesses may take on reasonable amounts of commercial debt. But do so through a trustworthy commercial lender. Maybe have your business lawyer review things.
The lower I set my standards the more accomplishments I have.
(Score: 2) by RS3 on Wednesday November 21 2018, @04:09PM (4 children)
> Maybe have your business lawyer review things.
Generally I agree, but for a very small business, lawyer fees can be as much as the loan they wanted. And there's no guarantee the lawyer will be right- half of them lose in court every day. Well, roughly speaking; just making a point.
The problem, I believe, is in the fundamental structure of our "system". Clueless legislators in Ivory Towers, who are much too heavily influenced by lobby groups, dream up laws which are now far too complex for anyone to understand or untangle. The courts have to uphold them, and the lawmakers keep making new laws.
As I've commented before (and got modded funny), I believe the legislative process needs to become "agile"- learning and correcting as it goes. And when the laws are ridiculous, such as the concept of signing away rights, the legislature needs to force a correction.
We need an absolute law- a constitutional amendment- clearly stating that nobody can ever sign away the right to a court hearing.
(Score: 2) by suburbanitemediocrity on Wednesday November 21 2018, @04:52PM (1 child)
I've started a few businesses and have never paid more than $300 to lawyers. Hiring a lawyer to fill out your business paperwork is 2-3x this IIRC. Having a lawyer to look over a boilerplate contract is not going to cost that much.
(Score: 2) by RS3 on Wednesday November 21 2018, @05:29PM
That's good news. Maybe you live in a good area lawyer-wise. Around me, the rip-off stories abound. I still say that having a lawyer look over the boilerplate is not a guarantee that you'll be okay come court.
All that said, when I was in college one apartment's lease was very long and all unreadable legalese. One of the dozens of clauses stated that by signing this lease I was giving up my right to a writ of replevin. For those who don't know, it's a court order / process for recovering stolen or misappropriated items. The university had a campus student lawyer, who explained to me that people put all kinds of things in contracts which are not necessarily enforceable.
I wish the courts would not honor the "confession of judgment".
(Score: 2) by DannyB on Wednesday November 21 2018, @06:35PM (1 child)
Next best option then would be a commercial loan from a bank you've done business with, even personal business with, for a long time. If you have any real bank with such a relationship.
The lower I set my standards the more accomplishments I have.
(Score: 0) by Anonymous Coward on Thursday November 22 2018, @08:58AM
Yea! going into debt is awesome if you do it just right!
(Score: 5, Insightful) by JoeMerchant on Wednesday November 21 2018, @03:01PM (14 children)
From some positions, debt makes sense. The "American Dream" of home ownership is a fairly good use of debt. Buy a house that costs 2-3x your annual income, then spend the next 15-20 years paying it off with 20% of your income.
High interest, high fee credit card debt to fill that home with junk that you don't even use? There should be an hour of education every school day from age 7 to 17 explaining the negative impacts of impulse spending and hoarding - most of the teachers will be hypocrites, but that's o.k., even if they're too old to change their ways they can still relate the short term elation and long term misery that consumerism has brought to their lives.
🌻🌻 [google.com]
(Score: 1, Insightful) by Anonymous Coward on Wednesday November 21 2018, @04:12PM (11 children)
I disagree. That's the bank buying a home and letting you live in it for a bit cheaper than rent.
(Score: 2) by PiMuNu on Wednesday November 21 2018, @05:03PM (1 child)
> bit cheaper than rent.
In the UK, buy-to-let means that the rental market always follows the mortgage market. If mortgages get cheaper than rent, people invest in housing and mortgages end up costing the same as rent. Risk is perceived to be very small, and there is return on the housing investment (house prices always go up in UK (haha) ).
(Score: 0) by Anonymous Coward on Thursday November 22 2018, @02:13AM
Risk is typically underestimated by an order of magnitude or two. On the other hand, this schema drives the prices up which makes it unrealistic for a risk adverse person to buy ever.
Personally, I bought my house 12 years ago using honest to god 20% down fixed interest as a good citizen is supposed to. Did not miss a single payment since then. I sill have negative value and can not move because of this which depresses my income tremendously.
(Score: 1) by DECbot on Wednesday November 21 2018, @06:33PM (5 children)
That's still a better deal. If you make all your payments, the bank removes the lien against your house and it is yours completely--ignoring government property confiscation laws and such. The point is, the bank and the rest of the corporate sector has no right to your property and the state usually has no interest in the property if you keep paying your property tax. If you happen to move and sell your home before you pay off the loan, you still get to keep everything the buyer agreed to pay after you pay off your agent/broker, sales tax, and bank. That's a good deal if you home appreciates value (which has been the common trend over the past century with a few years of home value depreciation as an exception).
Renting, on the other hand, you throw all of that money to a person or corporation and after 20 years, you still have to keep paying. By the way, the rent just went up again. A fixed rate loan, the mortgage payment stays the same over 20 years, just the taxes and home insurance rates changes.
cats~$ sudo chown -R us /home/base
(Score: 2) by legont on Thursday November 22 2018, @02:22AM (3 children)
This is a myth. To be successful, one has to pick up a lucky location, which it is way easier to do on financial market where wrong choices could be sold in seconds and right choices diversified.
"Wealth is the relentless enemy of understanding" - John Kenneth Galbraith.
(Score: 2) by RandomFactor on Thursday November 22 2018, @02:35PM (2 children)
By 'lucky location' you mean one in a good school district?
.
As long as there is a next generation, there will be good demand for homes near schools that give good results.
В «Правде» нет известий, в «Известиях» нет правды
(Score: 2) by legont on Thursday November 22 2018, @05:57PM (1 child)
No. Once upon a time I was offered a free (like in free beer) rent in Manhattan with an option to buy. This apartment is valued at $2+ millions now. Since the total US real estate value is just slightly up, there must be places that went total bust (and we all know some of them). This kind of lucky.
As per your school hypothesis, many of my friends home-school their children. Economically speaking, they prefer to pay their wives as opposed to the government. Internet makes it easier by day. I believe the trend will continue and there will be almost no good brick and mortar schools in the future.
"Wealth is the relentless enemy of understanding" - John Kenneth Galbraith.
(Score: 2) by RandomFactor on Thursday November 22 2018, @06:31PM
Hmm, fair enough, I'll concede that over time, school districts will matter less and less and other factors will increase in relative predictive value.
Average home retention (US, circa 2016) is ~10 years. I wouldn't expect school districts to be off the table in that period of time even though they are quite possibly weakening as a factor.
В «Правде» нет известий, в «Известиях» нет правды
(Score: 0) by Anonymous Coward on Thursday November 22 2018, @02:25AM
Not necessarily. When you buy, you are on the hook for all of the maintenance. When you rent, a landlord takes care of it.
Your property value is tied to the local economy.
Houses are expensive and complicated to buy and sell. They make moving harder.
https://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/ [jlcollinsnh.com]
(Score: 1) by nitehawk214 on Wednesday November 21 2018, @06:54PM
But its still better than living in someone else's shithole. I will not live in an apartment again, fuck that shit. And, if I am going to live in a house, why not build up my own equity instead of paying rent to someone else in perpetuity?
Also, you are wrong. Maybe you don't own the house outright, but you have a lot more rights than if you were a renter on someone else's property.
"Don't you ever miss the days when you used to be nostalgic?" -Loiosh
(Score: 2) by RandomFactor on Thursday November 22 2018, @02:31PM (1 child)
Yet still the best investment many (most?) people ever make.
В «Правде» нет известий, в «Известиях» нет правды
(Score: 2) by legont on Thursday November 22 2018, @06:02PM
I suspect it is a survival bias. You see people who invested and still around and don't see folks who went bust and moved away.
"Wealth is the relentless enemy of understanding" - John Kenneth Galbraith.
(Score: 2) by Runaway1956 on Wednesday November 21 2018, @06:32PM (1 child)
Yes, definitely. Some things are so important to life, that they are justifiably financed. But, those things should be counted on the fingers of one hand. Home, transportation, family, health - I can't think of a #5. It would have to be business related. In some cases, education might qualify, but we see where we've arrived with that kind of thinking. Grads who will work the rest of their lives to pay off a debt they never should have incurred.
(Score: 3, Interesting) by JoeMerchant on Wednesday November 21 2018, @07:22PM
A loan is a bridge, to get you from your present cash-strapped state to a better state in the future where you are better off for having made a short term bad deal to get some money when you needed it with very good reason.
I can imagine a case of a 60 year old man/couple with relatively high income wanting to take a loan to finance a vacation or boat or other life experience that they might become too old to enjoy by the time they've saved enough to pay for it outright.
I can't possibly imagine a case where a high-end cell-phone or furniture suite could possibly justify the cost of financing it (vs the option of getting something of equivalent function for 1/4th the price or less...)
Of course, leveraged business is the ultimate loan consumer - especially when a corporation takes the risk of the business not working out and forfeiting their assets to the creditors. Then you get things like vacation cabin and yacht financing that blur the lines between business and personal use... it's a messy world out there, lots of grey near the 50% value.
🌻🌻 [google.com]
(Score: 4, Insightful) by crafoo on Wednesday November 21 2018, @03:04PM (1 child)
Well, according to economists and bankers, debt is there to finance large pulses in growth, capital acquisitions, and in general propel the economy forward by taking up the slack in monetary flow. Of course what it really is is predation on small businesses. It's also a straight % parasite on economic growth. The banks' goal is to own everything in name and essentially lease it to you via usury fees. When your cash flow breaks down for a year or two the take it all and move on.
(Score: 2) by legont on Thursday November 22 2018, @06:05PM
And when banks go bust, the government in one form or another assumes bank's assets. Welcome to socialism.
"Wealth is the relentless enemy of understanding" - John Kenneth Galbraith.