Oct 7

What To Do When The Banker Comes Knocking?


Foreclosure is the legal process through which a bank or other lender sells collateral to collect on all or part a debt.  This type of debt is known as a secured debt. The debt in most cases is a promissory note and the collateral is something of value, usually a car or house.  The legal process is different depending on the type of collateral.  Thanks to irresponsible lending practices over the last decade where lenders reaped enormous profits and often intentionally hung borrowers out to dry, the end result is often the foreclosure of someone’s home.  This is an appalling situation, and the burden of such predatory and irresponsible lending practices should not be borne solely by the borrower but also by the lenders who made huge profits making loans that they often knew could not be repaid by those they were lending to.

In California home loans are secured in two ways.  One is a mortgage and the other is a deed of trust. By far the most common way to secure a loan for a home purchase is a deed of trust in fact, in today’s lending environment mortgages are few and far between.  This is because a mortgage is much more difficult to use to take and sell someone’s home.  Lenders have opted for the quick and easy way of doing business and deeds of trust fit the bill, but they come with some downsides to the lender, downsides often times overlooked in the rush to make a quick buck.  Deeds of Trust and mortgages are different from one another in legal effect, but practically speaking, as far the homeowner, debtor, or borrower is concerned the result is the same.  The big legal difference is that the mortgage does not transfer title to the property but places a lien against it.  The deed of trust on the other hand transfers to a trustee the right to sell as long as there is a valid and enforceable loan against the property.  Both the deed of trust and the mortgage are written agreements recorded in the land records of the county recorder in the county where the land is located and both are a cloud on the title of the land until the underlying loan is discharged.

There are many legal hurdles to jump through before a bank or lender can foreclose on someone’s home.  Along with the irresponsible, careless, predatory and unsupervised lending practices that developed over the last decade, defenses and methods of help and relief against foreclosure have also begun to develop.  This area of the law is new and constantly growing, evolving and changing.  Because people are often desperate to save their home, Loan modification and foreclosure relief has become a fertile field for misrepresentation and fraud against homeowners in need. There have not been that many successful loan modifications rising out of new government programs, in part because it all has to do with the lender’s willingness to negotiate and modify the original loan.  Others contend that even the government is not interested in really helping people who now suffer because of the fake markets created by governmental policy and lack of oversight because to do so would mean to admit participation in a giant fraud against the American public and would result in the loss to big business of trillions of dollars worth of blue sky that never ever was real value.  Let’s face it, even in the rough and tumble worlds of Football, Soccer or Rugby there are rules and referees to make sure the rules are followed so the game is fair, and the fans get righteously angry when the referee does not enforce the rules.  But according to government policy, there were no rules or referees needed when it came to the games played in the capital markets and the little guys, the borrowers whose blood sweat and tears went into making mortgage payments that the lenders often knew when the loan was made would never result in ownership, got and continue to get creamed. Lenders to date have proven to be very unwilling to change in any meaningful way the loan which has left most borrowers in hot water. The excuses used by the banking, lending and investment communities have been endless and just as full of blue sky as the value of the housing market they created.

There appear to be several legal theories that may apply to loans made in the last decade that might just give lenders a real incentive to renegotiate their loans.  As things stand today, these legal theories are just that, theories.  To press these theories will require courage and tenacity by the borrower.    However, if they can be carefully presented they could bring unwilling lenders to the negotiation table and show those lenders that they have something to lose if they do not begin to negotiate in good faith.

This blog simply contains my thoughts and ruminations on certain subjects.  They are thoughts in general and not intended to be given or taken as legal advice.  If anything in this entry piques your interest or seems to apply to your situation please do not hesitate to contact us through our website at http://www.schinzelaw.com/ or directly by telephone at (760) 510-4900.

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