Foreclosure Shenanigans: Separating Signal from Noise

by Alex Stenback on October 7, 2010

So Minnesota attorney general Lori Swanson has  jumped into the foreclosure fray once again:

‘Swanson sent letters to Bank of America, J.P. Morgan Chase and Minneapolis-based GMAC Mortgage, as well as a dozen other mortgage lenders and servicers she would not identify, asking them to halt foreclosures in the state until they demonstrate that they have safeguards in place to ensure that their foreclosure process “is far and accurate.”‘

I bring this to your attention not because I think it will make a lick of difference to the Minnesota real estate or mortgage market (It won’t.  the foreclosure procedures in Minnesota are generally non-judicial and happen outside of the courts, so the problems identified in other states just are not very relevant here.) but to help you separate the signal from the noise when it comes to this increasingly “big” story.

So far, most reporting has approached this story from one angle:  Big banks who’ve been unceremoniously sticking it to the little guy by shortcutting on paperwork and legal procedures are getting their well-deserved comeuppance (it’s all a massive Fraud! They don’t even own the Loans!)

And it makes a good story, in a sensationalistic, “big banks have screwed us all sort of way,” that is sure garner lots of page views and inspire innumerable clueless blog posts.

But there’s a small fact that often gets lost in the all righteous indignation, and it is an important one:

The borrowers in question are in default on their loans, and cannot pay them.  No amount of procedural due diligence will change that fact, and mustering an army of lawyers to “fight” foreclosures on procedural grounds under the auspices of “defending the little guy” does not really help the little guy at all. 

It simply delays the inevitable and adds tremendous cost to a system already about to tip over, which helps nobody except maybe the lawyers.

Paul Jackson over at housing wire (far from a knee-jerk bank apologist) has a brilliant rant on this – the whole thing is worth a read, but here’s a key point or two to take with you:

“By giving in to sensationalism over robo-signers and who notarized what, we’ve allowed procedural gaffes to substitute for true substance. And we’ve forgotten why those procedures really exist in the first place — not to protect the hapless borrower, who has already defaulted, but to instead protect our nation’s sacred system of land rights. To protect the foundations of our very democracy.”
—-
“By subverting our nation’s real estate law to favor borrowers who have no intention of fulfilling their debts, we risk undermining everything that establishes private property rights in our country — and perhaps the coup de grâce of it all is that the American public will be cheering when it happens.

How very eerily Orwellian of it all.”

PJ sees this as an assault on fundamental liberty and ”the greatest heist in the history of our country” and he may well be right.

But if you don’t go in for the grandiose argument, here’s another way to think about it:

You do not want to pay the costs for this, but you will.

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What Everyone Should Understand About Foreclosures
January 10, 2011 at 3:47 pm

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Jason Sandquist October 10, 2010 at 11:42 am

My point exactly.

Dude (borrower in this case), you got foreclosed on and didn’t pay the mortgage. Get over and move on.

I’m mean, what do people want? To stay rent free for 2 plus years while other people keep paying theirs?

Ria Wise October 12, 2010 at 8:51 pm

It’s really hard to see the more important issue, when hype dillutes the essence of the whole thing. But seriously, there really isn’t a fight when in the first place, it’s a futile issue. The borrowers can’t pay, and we sure don’t need to create heavier tax caps.

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