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Comment by michaelcampbell | Hacker News Reader

> subsequently forclosed a lot of homes that should not have been forclosed on

I don't understand this bit; what, other than non-payment of mortgage, makes a house a "should have been foreclosed on" as opposed to "should NOT have been foreclosed on"?

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I know someone who owned a ton of different houses. Let's say they bought 20 of them for $500k each on avg and put $80k down as deposits.

Once the recession hit, the market value of these homes dropped like crazy. Instead of being worth $500k each, they were valued at $300k. This meant that the loan on the homes were more than the market value of the homes and apparently there was a clause in the bank contract that allows them to call the entire amount of the loan if the loan amount is more than the market value of the house.

That is exactly what they did, which seems crazy to me as he had really good tenants in each of the homes and they all continued paying on time so he was actually making ALL his payments on time for all houses.

This is one way that a bank could forclose on a house even if non-payment isn't an issue. Contract details are crucial.

Wow, thanks; I have never heard of such a contractual clause.

My understanding is that those clauses (or similar ones) are standard. We have one on our house. The point is, the bank doesn't gain anything, usually, by foreclosing. They are (at least in theory) better off receiving the payments they are certain to get rather than trying to find someone new to make them (for probably a smaller loan amount- because the property wouldn't sell for as much).

> My understanding is that those clauses (or similar ones) are standard. We have one on our house.

Really? Where and what originating financial institution?

I read my notes and I don't remember anything like that. (I found a lot of other things that I wasn't happy about.)

They call it "acceleration." It's applicable as a "remedy" for certain acts the lender doesn't like. My latest was with GMAC, FWIW.

For example, his friend may not have, by law, owned the houses, but may have transfered rights to his business. If the lender somehow knew this and didn't like it (not a "natural person), it may have triggered an "acceleration."

Don't know his contract details, just a possible scenario.

Exactly, so what is the point of such a clause? Just to give them a reason to take away the property whenever they want to if such a condition exists?

Yes. Not only are you working for the bank, they can fire you whenever they want for no reason.

I honestly couldn't believe that my friend, who is a very street-smart, intelligent man who built literally an empire in the construction business, would agree to crazy conditions like this. He said that it never seemed like a possibility for him as he was paying down the loans much faster than loan required. I'm really not sure why the banks would do something this stupid to loans that were getting paid on-schedule. My friends theory (just a theory) is that were going to be able to write-off the loan and get part of it back through TARP funds. This way, they'd be able to cash-out faster without loosing much and build up a cash-reserve for uncertain times. I'm not sure what the real story is on why they would pull this kind of nutty behavior.

Something similar happened to me: I had a house that I bought for $490K had put 80K down and had equity of something like 70K.

I made all my payments on time - had a credit rating of 750 was never late or missed a payment.

One day - I went to make my payment online and the payment button was missing of the page.

Everything else was the same on the sie - just the make payment button was gone.

I called the bank and inquired. They stated very matter-of-fact "Oh, that's because we sold your loan. Your loan is no longer with us - you need to call your new lender"

WTF?!

I had no indication, no notice, no letter.

I said "Who did you sell it to?" They claimed they had no idea - that it was sold "with a whole bunch of other loans - they have no idea who has it now, the new lender should have contacted me."

They hadn't.

For more than 6 months this went on - no notice from my lender, no contact from the supposed new lender. At first - I was calling my lender every day - then every week - continually asking. No info.

Then after six months - I got a notice of foreclosure and a statement saying I needed to pay $30K

I didn't have $30K - and other situations had changed as well (change of job, divorce, change of income level).

The new lender refused to work with me on the delinquency stating "I did not make enough money to qualify for a refinance"

They ended up taking my home and ruining my credit - I still haven't recovered financially, and emotionally form the experience. My credit rating is now poor - and I cant seem to fix this.

As I mentioned, I had a great credit rating of 750 - and had zero debt (I have made it a choice to not carry credit cards) and after this incident I could not get a credit card now that I would need one.

It has totally fucked over my life and I dont see how I can fix this part.

Curious when this happened. My parents just bought our first home in fall of 2010 and I'm scared to death that Wells Fargo will try to pull this sort of thing.

It seems the only recourse in this type of situation is to contact your local representatives in Congress for help and to bring attention to your situation, because of the bureaucratic nightmare these mortgage backed securities that your house was rolled into are.

This happened in 2008

I admit to being out of my depth here, so this really is just a question and not an assertion. But wouldn't the right thing to have done there would be to continue putting the entirety of your mortgage payment, every month, into an escrow account with your local clerk of court? I know this is the proper thing for a renter to do when there's a grevience with a landlord that could result in him filing eviction. I'd imagine a judge seeing this, when they file foreclosure, would look favorably upon your good-faith efforts to pay a debt you obviously owe.

I did keep the money that I was paying on my mortgage - until I lost my job and was going through a divorce.

My circumstances were farked in multiple ways... The amount I was making on my income was less than required for all my bills - as we had joint income of around ~250K.

After we split, and then later I lost my job - I had to make decisions on what to pay: utilities/food/gas etc.. which took away from what I had saved for the mortgage - when I was finally contacted, via the foreclosure notice - which was the first and only communication from the new lender - I didn't have the total amount and was farked.

What would have happened if your original bank did not sell your loan and kept asking you for monthly payment as usual?

Well, for one - I would have paid until I lost my job and split - and I would likely have had a better "relationship" with the bank as I had never missed a mortgage payment or made it late in the 4 years i had the place.

However - I was obviously just some number to the bank given that they heartlessly sold my loan as some lump sum group of loans out without notification or explanation - so I can only speculate....

Did you offer them ~$20K (instead of full $30K you owed) in exchange for restructuring your debt? If yes - what did they reply?

@dennisgorelik :

Yes, I offered them everything I had, asked to refinance - filled out all their forms for refi - got a re-appraisal - sent them new employment info once I got a new job and they refused to work with me.

They said, quote:

"You make too much money for us to help you" - but with divorce, bills, child-support - I couldnt affor the 3600 a month mortgage any longer.... Now I can only afford about 1400 a month.

So now they got foreclosure on their hands?

@dennisgorelik :

They said, quote:

"You make too much money for us to help you" - but with divorce, bills, child-support - I couldnt affor the 3600 a month mortgage any longer.... Now I can only afford about 1400 a month.

You can only forclose on a home on which you hold a lien. One of the big problems associated with this mess is that banks couldn't figure out which bondholders owned which mortgages. The junk mortgage companies (one of which BOA acquired) were as good with record keeping as they were with underwriting. (That is, really bad)

Many homeowners skated through this mess with a free house because the banks could not actually prove that they have a valid lien on the home. The downside for these folks is that they are trapped in the home, as the title isn't clean.

It's also worth noting that while they couldn't track down the lien, they probably didn't screw up and foreclose on anyone who didn't deserve to be foreclosed upon.

At least, that's what the Fed's audit (of a sample of foreclosures, not all foreclosures in the US, obviously) said.

http://www.huffingtonpost.com/2011/03/10/fed-reports-finds-n...

The bondholders are the real victims in this mess.

I can't speak to the numbers, but I've read about foreclosures thrown out of court by judges in the WSJ and Economist, so it has happened -- at least in the early days of the mess.

As you noted above, a foreclosure might fail for more reasons than simply foreclosing on someone who doesn't deserve it. Every case I've read about has simply involved the bank screwing up paperwork and a real estate speculator being permitted to keep the house even though they failed to make payments.

If I screw up the paperwork on my end, the bank slaps me with 20k in legal fees at the drop of a hat. Just for reference.

That was based on a review of only 500 selected mortgages. At the same time, the Defense Department is pursuing JP Morgan for incorrect foreclosures on military personnel overseas. There have been lots of cases (anecdotal) of foreclosures on mortgages that have already been paid off or houses that weren't even mortgaged. It's been a massive, massive screwup.

You will find the following read illuminating.

I’ve been in contact for with attorneys involved in foreclosure defense. One thing they stress is that a significant number of their clients facing foreclosure has made every single mortgage payment. Read that again.

Now how can that be? It’s actually very simple.

http://www.nakedcapitalism.com/2010/11/servicer-driven-forec...

One number that stood out for me:

Thompson estimates that servicer-driven foreclosures represented about 50% of the cases she handled.

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