Some recent stories on increasing legal and economic pressures being put on struggling homeowners. We’ll need these for the next entry.
- Joe Nocera has a must-read article about how the IRS put a huge investigation into a single borrower and ended up getting him jailed. Meanwhile no arrests have been made on Wall Street for the securitization chains. An IRS agent saw someone running a marathon on TV and thought “how does a guy train for this because most people have to work from nine to five and it’s very difficult to train for this part-time.” He even went as far as sending an “attractive female undercover agent, Ellen Burrows, to meet Mr. Engle and see if she could get him to say something incriminating.” Amazing article.
LS: …In accordance with state law, the lender could initiate litigation to reduce the promissory note to a judgment and satisfy the judgment by utilizing all state sanctioned collection remedies, for example wage or bank garnishments.
HW: Do you think it’s unfair to go after the borrower, even when they are no longer in the property?
LS: While we understand that borrowers may find themselves in difficult financial circumstances, as a lawyer representing the second mortgage holder, my primary focus is to enforce the terms of the binding contract between the lender and the borrower. At LCS Financial, our objective is to ensure that the borrower meets their contractual obligations to our clients, taking into account the borrower’s ability and willingness to repay the indebtedness.
Some lawmakers, judges and regulators are trying to rein in the U.S. debt-collection industry’s use of arrest warrants to recoup money owed by borrowers who are behind on credit-card payments, auto loans and other bills.
More than a third of all U.S. states allow borrowers who can’t or won’t pay to be jailed. Judges have signed off on more than 5,000 such warrants since the start of 2010 in nine counties with a total population of 13.6 million people, according to a tally by The Wall Street Journal of filings in those counties. Nationwide figures aren’t known because many courts don’t keep track of warrants by alleged offense. In interviews, 20 judges across the nation said the number of borrowers threatened with arrest in their courtrooms has surged since the financial crisis began.
- Yves Smith, Beware the Predatory Pro Se Borrower! Smith finds a floating presentation from a law firm about how to identify undeserving defendants. Spoiler alert: virtually all potential defendants are undeserving, and the idea of servicer driven foreclosures isn’t even discussed:
There are some revealing, as well as amusing threads in this presentation. The authors make strong declarations about the motives of borrowers that range from incomplete to biased. For instance, it notes a meaningful uptick in the number of pro se defendants. It blames this development on “negative press….emboldening borrowers to pursue legal action”. It bizarrely makes them sound like the instigators when they are responding to legal action taken against them. And it further contends that many are unwilling to hire attorneys, when the more obvious explanation is they can’t afford counsel and there aren’t enough Legal Aid lawyers to go around.
The presentation also makes a “good defendant/bad defendant” parse, or in this case, “frustrated borrower” versus “predatory borrower”. The only borrowers depicted as having legitimate complaints fall into a short list: those who want a loan modification versus those who are (presumably” trying to get a free house. While there are always scamsters, the idea that there are a significant number of people going to court pro se who are trying to pull a fast one (as opposed to desperate as well as deluded as to their viability with a deep modification) is inconsistent with reports from local courtrooms and foreclosure defense lawyers (including their comments on clients they turn down; they report they see more cases with meritorious defenses than they can handle, and not surprisingly also report that some borrowers simply can’t face the fact that they are too far gone to be salvaged).
Other interesting observations: the document fails to acknowledge servicer-driven foreclosures, which is a non-topic as far as the mortgage industrial complex is concerned.
It’s tough to tell a trend from a series of stories, but the general momentum is towards a more aggressive approach with post-default treatment of debt by the largest four banks.