This is a weekly column by Sandusky attorney Dan McGookey, devoted to telling true stories of homeowners who have been victimized by a lending system that makes it profitable to foreclose.
The one basic principle which I have consistently preached in this column is that in the world of securitized lending, it is profitable to foreclose. It is continually frustrating to me that it is hard for people to grasp this concept, because it runs directly contrary to the universal notion which everyone clings to – your bank want to get repaid on its loan, right? The problem with this logic is that when it comes to a securitized loan, one that is bundled with thousands of others, and sold as a stock certificate on Wall Street at an enormous profit, the logic starts from a flawed premise, and this inevitably leads to a faulty conclusion. With a securitized loan, the bank you are dealing with is not your lender.
Once you understand and accept that basic point, the rest naturally follows. Since the bank you are dealing with is not your lender (i.e. does not own your loan), then it logically follows that it cannot possibly lose a dime no matter how “upside down” you may be on your mortgage. However, it gets worse. The bank you are dealing with is not only not your lender, not owning your loan, thus having nothing to lose in the foreclosure process, but actually has everything to gain. This is so because it has inserted itself in the loan transaction as an interloper; it has taken out insurance or other financial products which will provide an additional source of payment to it if your loan goes into foreclosure. This is akin to someone other than you taking out insurance on your house, burning it to the ground, and then collecting the insurance proceeds after your house is destroyed.
A very dramatic example of the profitability of foreclosure came across my desk recently. I received a phone call from a lady who was being threatened with foreclosure by her bank, even though she was on time with her payments. Her transgression? She bought another home, moved out of the first one with the mortgage on it, and rented it out. The first home was continually maintained well, occupied, and as indicated, the mortgage, taxes and insurance kept up. So what was the bank’s problem? In its threat to foreclose, it cited fine print in the mortgage which it stated required that the home be owner-occupied.
I did not have the opportunity to review the mortgage to see if the bank was correctly interpreting its language. But even assuming it was, clearly it is going way out of its way to claim a breach of the loan terms, thus giving it an excuse to foreclose. Just a little over ten years ago, before private loan securitization, the last thing in the world a bank wanted to do was foreclose. The reason was that then the bank owned your mortgage, and thus was going to lose money through foreclosure. Now just the opposite is true. Please realize this so you can properly protect yourself!
Note from the author: If you have questions or comments regarding this or any Foreclosure Story article, please visit www.mcgookeylaw.com.
Next week: The story of the Warrens, who received notice from a mortgage company claiming that it bought the mortgage on their home. The problem is that the documents do not support that claim.
Copyright 2012 Daniel L. McGookey