Asset Management Newsletter: Mortgage Foreclosure Thoughts
Author: Peter J. Gravina
Recently, there has been quite a bit of press coverage regarding the halting of foreclosures because of short comings in the documents filed to prove the loan ownership and the amounts due on the foreclosed loan. “Robo-signing” the name adopted for the apparent practice by some of executing affidavits with no firsthand factual knowledge has been highlighted as an abuse of process by the Courts. It has somehow been morphed by the media’s presentation and some of my fellow practitioners into a legal excuse for not honoring the terms of a contract voluntarily entered into. Lenders, as well as borrowers should have the benefit of their contractual agreements. It is hard to see the equity of leaving a borrower in a home purchased in large part with the lender’s funds when that borrower is not honoring the repayment terms of the borrower’s contract with its lender.
With that said, this is not to suggest that Judges should not demand proof of ownership of the note and mortgage but also reasonable proof of the amounts outstanding. However, the equities cannot support the borrower remaining in the home without repaying its debt according to its contract unless the borrower can identify some predatory lending practice involved in the procuring of the loan. Let us not forget that people were, after their own analysis, clamoring to get into the real estate ownership game in 2004 and 2005 (with stragglers buying at the top of the market in 2006) due to a belief that they would be able to enjoy double digit home appreciation and choose between tapping that never ending supply of equity to pay for purchases or selling the property and realizing a profit.
The term “moral hazard” has been used in the media quite frequently since the financial crisis of 2008. The concept is simple enough – if people do not have to deal with the negative consequences of a decision, most will be less hesitant to throw the dice and hope to hit the jackpot. Bailing out institutions like banks, insurance companies, and the auto industry can arguably be justified as necessary to preserve the economy for the overall good of the nation, but it sows and reinforces the seeds of moral hazard in individual’s expectations. How many times have we heard the indignation of an individual negatively impacted by the economic downturn who asks “where is my bail out?” While understandable from a fairness point of view, it nevertheless illustrates in a backhanded way the importance that consequences need to be real and be allowed to take their toll on business decisions that work out poorly. In most cases, the borrower borrowed the money because he or she thought it was the smart thing to do. The responsibility for that decision should remain with the party who made it.
A borrower should of course, if they wish to remain in the house, pursue discussions with the lender regarding the possible modification of the note and mortgage to make the payments affordable. Consulting with the lender and reviewing rights under the HAMP Program (Home Affordable Modification Program) are important options for the homeowner who in good faith wishes to stay in the home. But the reality is often that so much equity has evaporated in the property that the lender is not willing to modify nor is there hope of qualifying for the HAMP Program.
The borrower should always demand that the ownership of the note be proved in a foreclosure case as legal niceties involving the assignment of notes and mortgages were often overlooked in the heyday of the housing boom. Consider hiring a lawyer to make sure that the lender does everything that is required of it in the foreclosure proceeding which can potentially allow a borrower time to find alternate financing, a job that will support the payments, or encourage a modification with the existing lender or some combination thereof resulting in a settlement that is mutually beneficial. Bankruptcy also remains an option for those who simply can’t repay their debts and need a fresh start.
However, Judges presented with foreclosure cases however need to keep in mind that a lender should be required to demonstrate its ownership of the mortgage and note in a reasonable fashion and the borrower can contest those matters if the lender provides incorrect information. The Courts need to continue to do their part to clear the system of foreclosures. While a “rocket docket” might suggest insufficient time to consider the circumstances of each case, nonetheless, in the majority of foreclosure cases the borrower is simply not repaying the indebtedness and at least a “race car docket” would allow the market place to absorb and clear the distressed inventory and expedite the return to a more normal economic state in Southwest Florida.
Pavese Law Firm can help you analyze your commercial or residential mortgage situation. We have a number of lawyers with the expertise to assist in negotiations with your lender and when appropriate represent you if you have been taken advantage of in the loan transaction or if your lender has failed to honor its contractual or legal obligations.