In two separate cases in the past two months, borrowers have had their mortgages wiped out by judges that are taking a stand against what they see as terrible injustice.
Issue 1: Can't Prove Claim
The last decades' habit of parceling portions of mortgages into mortgage-backed securities is coming back to bite the banks in a big way. Since so many groups own these mortgages, and oftentimes paperwork might not have been accurately completed, it's nearly impossible to figure out who owns what. It's been hurting borrowers because many banks aren't even authorized to negotiate for a mortgage modification on the very loans they are servicing. Thankfully, it's finally hurting the banks as well.
According to the New York Times, on October 9th, a federal bankruptcy court hurled a "smackdown" at a lender that failed to produce the appropriate documentation for their foreclosure claim. Judge Drain wiped out the more than $461,000 claim.
Good for him! It is not that I don't believe in paying debt. To the contrary, I believe very strongly in personal accountability for all. If I went into a court claiming that my neighbor owed me money, the court would require more than just my word, as it should be for foreclosure proceedings. The fact that banks can issue foreclosure proceedings and damage someone's credit record without the proof to back it up makes me livid! In my book, the lender is lucky that the Judge just wiped out the debt and didn't issue additional punitive damages for filing a false claim.
Issue 2: Refusal to Cooperate
One of the most difficult things I have seen has been the underhanded practices of mortgage lenders and their absolute refusal to cooperate with (in fact, their attempt to profit from) people who are trying to stay in their homes. My folks are seeking a mortgage modification, and actually received a phone call from the lender to discuss the status of their mortgage. They were offered a forbearance: a six month period that they could pay their mortgage at half price "until they could work out a modification." My family is lucky that my mother is a meticulous pit bull when it comes to legal documents.
If they had signed that and sent it back to the lender, they would have been stripped of all of their legal rights in the foreclosure process. Nevada requires the lender to send a mediator out to work with the homeowner before a foreclosure can be completed. The paperwork stripped them of their right to have an attorney or moderator handle their request, put the lender under "no obligation" to look for a potential solution to the claim, and removed any right for the homeowner to sue the lender for any wrongdoing. Needless to say they didn't sign, but I shudder for anyone who did.
It turns out the public isn't the only one that frustrated with some lenders tactics with homeowners. The New York post reported:
It is odd to think that in some cases the banks would rather sit with empty homes, than make any sort of agreement with a homeowner. The answer, it would seem, comes down to the balance sheet. A property is an asset; a homeowner is a liability. Hopefully this decision will get banks to come to the table with homeowners, get them to change their view of the best way to run their business."(Judge) Spinner excoriated OneWest for repeatedly refusing to work out a deal, for misleading him about the dollar amounts at stake in the case, and for its treatment of the couple over months of hearings.
OneWest's conduct was ''inequitable, unconscionable, vexatious and opprobrious,' Spinner wrote.
He canceled the debt because the bank 'must be appropriately sanctioned so as to deter it from imposing further mortifying abuse against [the couple].'
We certainly have not seen the end of the mortgage meltdown. Lenders and homeowners will continue to be at odds as neither has any concern in the other's interest. However, sometimes the little guy needs to feel a victory, sometimes even two.
