Do you know what the qualification ‘in a sense’ means? It’s a strong indication that I didn’t mean that homeowners were ‘defrauded’ in a literal legal definition.
Friend** Frylock **points out some of the ways people are decieved, and do not understand what they are signing. But there are banks and appraisers who assigned absurd values to properties that they knew could not be justified. No appraiser would actually believe that real estate values were increasing at 1% per month, but had no problem recording a value based on that. Municipalities also cashed in on the phenomena through reassessments based on these inflated values. The government is essentially at fault for failing to regulate these activities, and has done little to so.
I believe (but don’t know for sure) that bankruptcy may be changed, and applied without regard to the bankruptcy laws in place at the time a debt is incurred.
Buyer: Why is this left blank?
Seller: Oh that section isn’t actually important to our agreement. We just leave it blank. Standard procedure.
Buyer: {thinking} I’ve seen plenty of forms with sections to be left blank in the past. This sounds like the same kind of case. It’s possible, I guess, that there’s some kind of massive fraud going on here but that’d be crazy–the bank would just be asking for trouble, from the government or other banks or whatever–don’t really know how all that works. Don’t need to know–you don’t need to know how the economy works at large just to buy stuff. Anyway, it’s time to sign the line and buy this house!
I oppose deficiency judgments for two reasons. Firstly because they encourage sloppy lending by pushing all of the risk onto the least financially sophisticated party in the contract. Secondly because in most cases they will simply turn a defaulted mortgage into a defaulted judgment and not actually recover much of anything, while tying up court resources.
The fact of the matter is that both parties agreed to the value of the loan and the value of the asset offered as collateral. Banks insist on mortgage insurance, title searches, surveys, and independent appraisals before they’ll issue a secured loan on a property. Why do we allow the lender to have no skin in the game? They set the rules, but their losses are triple guaranteed by the collateral, mortgage insurance, and a possible deficiency judgment? They get to stack the deck by setting the conditions a loan will be offered, enforce credit rating standards, check for title problems, inspect, survey and assess the house(usually up front and on the borrower’s dime), AND require the borrower to pay for their mortgage insurance, which should cover this loss, but still come after the borrower if they take a loss? How many different ways does the bank expect to be able to shield itself from risk? And what does that say about the incentives in this system?
That sounds like fraud to me, if it happened. The difficulty lies in proving that it did.
Like they say, ‘a verbal contract isn’t worth the paper it is written on’, and rightly so. What’s written and signed and notarized takes precedence over what one party claims and is contradicted by the other. If you didn’t read it (or have it explained to you by someone trustworthy) but signed it anyway, the more fool you. Not because taking advantage of the stupid and naive isn’t a Bad Thing, but because there is only so much that can be done to protect people from making bad decisions.
There is no “mortgage cram-down” law currently in any state. If they are instituted, I assume they will be retroactive (since just instituting that going forward is not going to be in any way effective).
I am sorry, anyone who sees “After 60 months, the interest on the remainder of the loan is going to rise to _____%” and doesn’t think that the blank should be filled before he signs the agreement deserves what he gets.
I would tend to agree, except in cases where it can be demonstrated* that an institutionalized practice of verbal misrepresentation can be established. On a case-by-case basis, it’s going to boil down to he said/she said.
*Not saying that I know any such instances exist, but just if they did, that might lend itself to prosecution.
I agree that it is not strictly fraud until it gets so proven in court. In many of the cases the fraud was perpetuated on the buyers of the mortgage instruments or the bank receiving applications with incorrect information - though in some cases it appears that the banks colluded with the mortgage brokers. The lawsuits the banks fear are from investors who were misled, not from former homeowners.
Not being a lawyer, I don’t know if verbal assurances about something combined with an attempt to keep the signer from reading the document counts as fraud or not. In this case, giving the documents the day before closing might count.
I agree with your sentiment, but the reason the banks are seeking deficiency judgments for defaulted mortgages on second properties is that those borrowers are more likely to have some money available to pay, like the guy current on his primary residence but in default on his vacation home. If they were completely insolvent the banks/collectors wouldn’t bother getting the deficiency judgment.
That said, I am in support of bankruptcy cramdowns. The banks shouldn’t be allowed to profit from the mess they created.
I’m not saying it is impossible to prove fraud in the teeth of a signed document, nor that if they lied to you about what the contract said, you should still be blamed. But it is difficult to prove, and, in the absence of proof, the one with the signed document is likely to prevail.
I could see some rogue broker testifying under oath “Sure, I did that all the time - upper management made it clear that non-native English speakers were fair game” or something similar. And like John Mace says, once you establish the pattern that goes a good long way towards showing that no valid contract really existed.
But just the general assertion “Sure I signed, but I didn’t know what it said” does doodly-squat towards getting you off of paying for your upside-down house. IMO.
Let’s take a different tack. You said this person “deserves whatever they get.” So are you saying that the lender, or whoever is persuading the buyer to sign the document, also deserves whatever they get?
If you can walk away from a mortgage that is way overvalued, and get into one that you can afford ,why would you not?
The banks do not want to re-evaluate the house . The higher price makes their assets look like they are larger than they are. That allows the bankers to make huge bonuses .
See how well we are doing. look at our assets, millions of homes worth a gazillion. But you can not sell them for the price they assign them. The banks are really in more perilous condition that they appear.
If you have to take care of your family, how can you justify paying an overpriced mortgage for the next 3 decades? If there is an out, you should take it.
That is what the banks did on their buildings that they decided they were overpriced. http://tpmcafe.talkingpointsmemo.com/talk/blogs/p/r/problem_is/2009/12/wall-street-banks-defaulting--.php
A lot of mortgage “fraud” consisted of lenders or brokers saying something like, “The bank wouldn’t approve the loan if they didn’t think you could pay it,” while simultaneously falsifying the application information to get the loan approved. It may not be a legal defense, but it is not outside the bounds of common sense for people to rely on more sophisticated agents and institutions like that. Not everyone has the education and intelligence to judge for themselves. In fact, everyone, down to Ivy League law professors relies on that kind of advice from time to time.
In most cases, the literal defrauded party was the underwriter, or the party purchasing the loan, when they were lied to by some combination of the lender/buyer/broker. But even then, in the cases I’ve seen, you get the sense they knew what was going on and turned a blind eye, knowing that they were just going to bundle and resell.
IMO, the people that got most legitimately fucked without any real responsibility for the calamity were the Asian investors and other end-of-the-line financiers buying up the final tranches from overseas. They had no reason to know they were being actively or passively defrauded by everyone down the line.
I pretty much agree. Trying to prove fraud to avoid foreclosure seems expensive and risky. Now, one mortgage business in the Bay Area was shown to have consistently had non-English speakers sign English contracts (which is against the law in California). They were shut down and perhaps sent to jail. I don’t know what happened to the homeowners in that case. I don’t know of any cases where a homeowner was allowed to keep a house because of proving fraud on the grounds of the mortgage company.
We do know cases where the homeowner was allowed to keep the house because the supposed owner of the mortgage couldn’t prove it due to cutting corners and shoddy paperwork.
Many people bought homes because ‘house prices always go up’ and they planned on making a huge profit - or at least having an asset that was worth much more than they paid. Did they plan on sharing the profit with the lender? There are people who can easily afford to pay their mortgage but simply don’t want to because the house is worth less than their loan. I even saw a news story about people who where buying houses at cheap prices and defaulting on their current house - waiting to default until after their new mortgage was approved. (sorry - no cite, it was a while ago)
If you live in a non-recourse state I guess it’s a matter of the lender should know the law and the borrower has the legal right to default.
If you live in a recourse state then the lender has the legal right to come after you and they should. If you cannot afford your house for any reason there is already a law that will allow you to walk away - it’s called bankruptcy.
I know! It was so wrong for these teachers, factory workers, and plumbers to play upon the relative naivete of bank loan officers. It’s not like the loan officer has any kind of experience with valuing real estate, at least not when you compare it to the insider knowledge that an auto mechanic has.
Then, when a deli owner approaches a loan officer with an offer to accept $300,000 of the loan officer’s money to buy a vacation home, what choice does the officer have? It’s not like he can say no, the guy has a rock solid business plan called “prices always go up”.
Anyway, it’s not like you can make profit by loaning money and charging interest, right?
Ever since this real estate bubble popped, I have been on the side of the banks and yes, my girlfriend and mother both lost their homes.
Go online to any mortgage calculator. Type in the principal and interest rate of the house you are interested in. Assume a 30 year (360 month term). Hit “calculate”. There is your monthly payment. The least amount of research tells you that this number should not be more than 34% of your net income. Divide your paycheck by 3. If this number is less than the number the mortgage calculator came up with, YOU CANNOT AFFORD THE HOUSE!!!
Most of the people I know who lost their home kept refinancing to pull out equity. So here is my question to them, why do you buy a home? Is it a long-term investment e.g. hold on to it for 10 years until the kids go to college? Is it your residence i.e. stay in it until (or after) retirement? Is it a cash cow (churn and burn baby)?
Very few people were defrauded by the mortgage companies. That line is to satisfy most Americans who refuse to accept responsibility for their own actions. I had mortgage brokers begging me to buy homes in Los Angeles at the height of the bubble but $72000/yr cannot afford a $2000/mo mortgage payment. Not being able to read legal documents? Not buying it because except for a few sleezeball operators, the contract match exactly what the bank said.
Americans are functionally illiterate when it comes to consumer math. Not the bank’s fault. With rare exception, when you turn 18, it is assumed you can function as an adult. When some guy tells you that you can afford a McMansion on $40K a year, it’s your job to implement caveat emptor protocol. Instead of bitching about how math is hard, read #1 and have your calculator divide by 3. All of the math is done for you.