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The Nonprofit QuarterlyPredatory Lender Successfully Sued by Attorney General
January 5, 2010; The Patriot Ledger | Apparently there is some concern that we may be headed into a second serious dip in the housing market and so we need to make use of every tool available to avoid massive foreclosures. Thus this story: In 2007 Massachusetts Attorney General, Martha Coakley sued Fremont General Services, a California based predatory lender, for unscrupulous practices in sub-prime lending. The suit was recently settled for settled for $10 million, $1.1 of which is being distributed in grants to 18 Housing organizations around the state. Just as important is another element of the settlement which requires Fremont to check in with the Attorney General’s office before starting a foreclosure proceeding. This will allow the AG to determine if the lender is engaging in unfair lending practices. According to Ray Brescia on the Huffington Post, “That office would then have an opportunity to raise an objection to the foreclosure on the ground the underlying loan was “presumptively unfair.” If the Attorney General raised such an objection, the bank and that office had to confer to try to resolve the office’s concerns about the loan; resolution of those differences, it was assumed, would involve the lender refinancing the loan or agreeing to some other concessions with respect to the loan. If the differences could not be resolved, the bank could not foreclose on the property without permission from the trial court.” Brescia cites the suit as an example of government intervention that can lead to meaningful Mortgage relief. We encourage you to read his post. As some of you may recall, Martha Coakley is running for Ted Kennedy’s Senate seat.—Ruth McCambridge

The Nonprofit QuarterlyArkansas Money Woes
January 5, 2010; Arkansas News | The new Arkansas state budget forecast isn’t pretty. Any new idea will need to have an accompanying new money source with it. It’s not impossible—we passed funding for domestic violence shelters in a similar climate in 2003 by tying it to an increase in the marriage license fee—but it does make it a lot harder. The bigger concern is that if the state budget continues declining, where will the state make cuts to balance the budget? The obvious concern is that core programs for education, public health, the environment, low-income supports and others need to be protected. We could end up in a battle to maintain the status quo in the coming year or two if the revenue keeps dropping. States like California and New York have already made deep cuts to education, anti-poverty, health and environmental programs to try to balance their budgets. So far we’ve avoided really tough choices like these, but they may be coming. The other possibility is that this could turn into a debate about taxes. Arkansas taxes poor folks almost twice the rate we tax wealthy people, one of the most regressive systems in the country. During the last budget shortfall and during the Lakeview school reform effort the state raised additional revenue by increasing the sales tax—the most regressive tax we have. There are other options for raising revenue that would be far more fair to working families: closing corporate tax loopholes, rolling back recent corporate tax cuts on income taxes and capital gains taxes, and reducing the number of businesses that are exempt from the sales tax that the rest of us pay (the list of exemptions for special interests is huge). Arkansas’ top income tax bracket is just over $27,000—meaning a majority of Arkansans pay the same income tax rate that Don Tyson and Rob Walton pay, both millionaires many times over. All in all, this is a situation that’s going to require some attention this year to make sure the state maintains the recent gains we’ve made in education and maintains the safety nets that protect our sick, vulnerable, elderly and environment.—Bill Kopsky, The Arkansas Public Policy Panel

The Nonprofit QuarterlyBig Hospitals, Big Cash, Big Business
December 31, 2009; Nonprofit Law Prof Blog
| Contributing editor John D. Columbo is one of several excellent writers on this very important blog. His comment in this posting merited attention: “many nonprofit hospitals (not all, I admit) these days operate simply as big businesses, and the notion they are charities is frankly absurd. There’s really not much to say when Advocate Health Care salts away a $2 billion cash reserve and Rush Memorial spends $1 billion to renovate its west side campus. Not much, that is, other than to wonder why we continue to grant these organizations property and income tax exemptions.” Columbo is commenting on an article from the December 22 Chicago Tribute taking aim at the hospital industry’s lobbyists’ criticisms of health care reform. Looking at Advocate Health, Rush Memorial, Northwestern Memorial, the University of Chicago Medical Center, and others, this Chicago Tribune article describes some extraordinarily robust balance sheets for these nonprofit hospitals. According to a spokesperson from Illinois Citizen Action, “These wealthy hospitals like to march hand and hand with cash-strapped hospitals under the umbrella of ‘all of us walking together,’ but all hospitals are not created equal. A lot of these wealthy hospitals are using their money to gobble up more hospitals.” Illinois is the epicenter of legal challenges to the charity status of nonprofit hospitals, with a case currently in front of the state’s Supreme Court concerning Provena Health affiliated with the Catholic Church. But numbers and behaviors like those in the Trib article can certainly spark the concerns of the Citizen Action activist, who said, tracking the Provena case, “If hospitals are getting tax breaks, we need to know if taxpayers are getting their fair value for their tax dollar.”—Rick Cohen

The Nonprofit QuarterlyPushing the Boundaries of Nonprofit
January 4, 2010; Sacramento Bee
| Over the years, some entire classes of nonprofit activity have come under the scrutiny of the IRS. One big area of abuse that swept through a group of “nonprofits” was the nonprofit credit counseling subsector. An IRS study in the fall of 2009 [PDF] reported that the IRS revoked the nonprofit exemptions of nonprofit counseling agencies representing 41 percent of the cumulative revenues of these organizations, and regarding new applications for exemption, had approved only 3 of 110 applications. More recently, the IRS took aim at nonprofits that provide “seller-financed down payment assistance” to new homebuyers. These nonprofit programs allow homebuilders or home sellers to donate money to charities that provide down payment assistance to purchasers. The sellers pay the charities a service fee, but generally recoup the moneys with higher prices for the homes, according to a GAO study, which also found that these assisted purchasers were more than twice as likely to default or become delinquent on their mortgages as other purchasers. The IRS declared them as less than charitable in 2006, the Federal Housing Administration (FHA) nixed them in 2007 in FHA programs, and the Foreclosure Prevention Act of 2008 took further aim at them. But that doesn’t seem to have stopped them all. The SacBee reports that the Nehemiah Corporation of America, one of the heavily criticized seller-financed down payment assistance groups in these IRS and FHA investigations, is still in operation, linking with for-profit developers under the guise of “economic empowerment and transformative community development.” There is enough breadth in the definitions of “nonprofit” and “tax exempt” to allow for a wide variety of potentially charitable activities. In light of the Great Recession’s real estate bust helped along by partnerships of developers and “nonprofits” that helped purchasers take on mortgages that they couldn’t afford, these seller-financed down payment nonprofits wrapped in new togas of community and economic development merit a great deal of scrutiny from legitimate nonprofits and society at large.—Rick Cohen



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