Foreclosures, Random Thoughts

Foreclosure Clash of the Titans: Banks, Lawyers and Investors

October 26, 2010 by · 1 Comment 

Godzilla & King KongThe banking industry, distressed homeowners and investors are taking their issues to the courts for a colossal legal smack-down over real estate foreclosures.

On one side we have the banks claiming to be victims of those thousands of dead-beat homeowners squatting in homes they have stopped making payments on. Instead of receiving regular monthly payments–the liquid assets that enable a bank to function–their  money is tied up in empty and distressed properties.

On the other side are the real estate attorneys hired by those homeowners.  As the number of cases has grown, delinquent and defaulted homeowners are growing more rebellious against their lenders. Frustrated by what they see as poor loan service, the major corporate banks are easy targets for growing consumer backlash. Rather than taking an eviction as unfortunate destiny, borrowers are using legal tactics to delay the procedures, force bank administrators to validate every aspect of the foreclosure, and forestall the day of reckoning with their own accounting of unsettled grievances:

  • difficulty getting modifications and short sales processed
  • inability to work-out satisfactory terms
  • lost paperwork, missing documents, mismanagement of case files
  • an unresponsive bureaucracy with an agenda to dump people rather than find solutions

As horror stories spread, such the family evicted in a sheriff sale while their bank was simultaneously giving the homeowner a green light on their loan modification, the unfavorable public sentiment toward banks is swelling toward a political movement. Borrowers are starting to fight back, challenging the “robo-signers” and picking apart the documents used to prosecute their judgments. Sorting out the charges and counter-charges a new field of legal practice, “foreclosure defense” is being born. Due to the scale of the problem, sensation and drama will be protracted and profound.

A third lead character in this three-act monster movie are thousands of bond-holding institutional investors and their millions of clients. These investors–the nation’s big institutions, are made up mostly of pension funds, mutual funds and insurance companies who purchase mortgage backed securities for safe, secure, investment. Allegations that these bonds were deceptively manipulated; good mortgages diluted with junk-quality loans, strikes to the heart of how these traditional relationships are supposed to be played. If Wall Street banks intentionally robbed “widows and orphans” of their nest eggs it is a fundamental systemic malfunction which rocks trust in the US economy. The major banks will suffer more embarrassment and be at even greater financial risk if they are forced by court order to pay back the bondholders.

As the real estate meltdown evolves into the foreclosure showdown, we now enter the time of cleanup, the finger-pointing phase. The courts have plenty of work to do as each of these cases are unraveled, each bit of mortgage and security paperwork examined for shortcuts taken and best-practices violated.  Experts are predicting class action lawsuits will be required to settle blame and damages. Let the cage-match begin.

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Steve Cardwell

Steve Cardwell is an Indiana Realtor working with residential buyers and sellers throughout Northwest Indiana. He likes to stay current on the housing market by analyzing real estate trends with a focus on the towns of Highland and Munster Indiana. His broker affiliation is Red Key Realty Leaders in St John, Indiana. Learn more about Steve and visit

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One Response to “Foreclosure Clash of the Titans: Banks, Lawyers and Investors”
  1. Foreclosures are a natural part of the real estate cycle and need to be able to function properly. To continuously delay or stall the process is no better solution than ignoring the underlying causes of why families fail to make their payments.

    As a homeowner, dragging out the process can only add more costs to those who continue to pay their mortgages on time. Enough is enough. Let the housing industry finally purge itself of these foreclosures so that the real estate industry can finally heal.

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