Archive for September 13th, 2011

Unjust Enrichment – a Complete Defense to Mortgage Foreclosure

Suppose I get drunk, drive, get into an accident, and seriously hurt an innocent pedestrian.  Suppose I hurt the pedestrian so badly that the damages to which he is entitled equal $1,000,000.  If that happened, would I have to pay $1,000,000?  Before you answer, think about insurance.  If my liability insurance pays the claim, and/or his insurance covers the claim, such that he is paid $1,000,000 from insurance, do you think he’d still get to collect $1,000,000 from me?  Of course not.  No matter how heinous my conduct, he would have been made whole by the $1,000,000 payment from insurance, and he cannot collect more than the amount he’s been damaged.

It may be that an insurance company has a right to subrogation from me, i.e. an insurance company has a right to get reimbursed the $1,000,000 from me, but as between me and the pedestrian, no money can change hands. 

If this sounds odd to you, then this is a dynamic that has transpired countless times in courtrooms throughout the United States.  Every lawyer and every judge knows that a personal injury plaintiff cannot collect twice if he/she has already collected from an insurance company – the double recovery is barred under the law under a doctrine called “unjust enrichment.”  That defense is just what it sounds – a plaintiff cannot be unjustly enriched by a double recovery.  In other words, the law lets a plaintiff recover the amount of its damages – nothing more, nothing less. 

This same dynamic should exist exactly the same way in mortgage foreclosure cases.  Many times, when a homeowner takes out a mortgage, there is an insurance policy in place if the homeowner defaults.  Often, this results in an insurance company paying the bank in full.  Hence, if the homeowner defaults, and an insurance company pays the bank in full, the bank has no right to collect again.

That may sound odd, but it’s the same principle of law as my personal injury example.  If the homeowner defaults, and still owes $250,000, and the bank collects $250,000 from an insurance company, then the bank doesn’t get to go to court and foreclose on the homeowner or collect more money.  As between the bank and the homeowner, the bank has been paid in full, and any additional recovery would be barred by the doctrine of unjust enrichment. 

Personally, I’m tired of seeing banks get unjustly enriched to the expense of mainstream America.  It’s time this stopped.  It’s time everyone asked, in every foreclosure case, “was this debt paid by an insurance company?”  If the answer is “yes,” then the bank’s requested foreclosure should be denied. 

This article is a good start to stopping the banks’ unjust enrichment.  But we all need to spread the word about this dynamic to make it stop.  After all, if we can all agree that personal injury plaintiffs don’t get to collect twice (and I know all lawyers and judges agree with that), then banks shouldn’t get to do so, either.

Mark Stopa

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