Archive for June 8th, 2013

Foreclosure-World, Where Bankrupt Creditors Don’t Exist

There are many aspects of foreclosure-world that are drastically different than other areas of law … things a lawyer would never see in any other practice area.  Rocket dockets.  Senior judges.  Two-minute trials.  But one aspect of foreclosures that nobody ever talks about is how the concept of a bankrupt creditor just doesn’t exist in foreclosure-world.

No, I’m not talking about bankrupt debtors.  We all know many homeowners facing foreclosure utilize Chapter 7 or Chapter 13 bankruptcy to get rid of debt and give themselves a fresh start.  I’m talking about bankrupt banks.

Yes, I know.  Many banks have gone bankrupt in recent years.  In fact, I’d say at least 90% of the lenders who issued the loans on the cases I defend no longer exist, so I’m quite familiar with the concept of banks going bankrupt.

What makes foreclosures so different than any other area of law, though, is that when a bank goes bankrupt, there’s seemingly always another bank which steps into the picture to claim ownership of that mortgage.

Do you think this concept exists in any other area of law?  Pfft.  No way.

Think about it.  Suppose you hire a roofer to put a new roof on your home, the roofer finishes the job, you don’t finish paying the bill, and the roofer goes out of business.  Do you think there’s another company who will chase you down for payment in the place of the first roofer?  Heck no.  That company is out of business, so you got lucky.  You don’t have to pay the debt.  It might still be owed, but as a practical matter, nobody is ever going to pursue payment.

This dynamic exists virtually any time you sign a contract with a company for any type of service and the company goes bankrupt and/or out of business.  You got lucky, and you don’t have to fulfill your contractual obligations.  Well, technically, I suppose you do, but nobody is ever going to call you out if you don’t.  The obligations are just … POOF.  Gone.  In the wind.

I see this dynamic all the time in normal lawsuits.  In recent months, for example, I’ve had clients go out of business.  No, not foreclosure clients; I’m talking in normal litigation cases.  These clients were owed money from various third parties and insurance companies, but they went out of business.  Do you think anyone is going to pursue payment from those insurance companies or third parties?  Heck no.  That’s the reality of the law … the reality except in foreclosure-world.

In the land of foreclosures, banks go bankrupt all the time.  We’ve all seen it.  Yet there always seems to be another, active bank claiming ownership of the bankrupt bank’s mortgages.  There’s seemingly never a time when some bank isn’t willing to say “yeah, that original lender might not exist any more, but we own that mortgage now.”

Some may argue it’s wrong to complain about this.  “You borrowed the money, you shouldn’t complain that you have to pay it back.”  I think that explanation is just wrong.  Sometimes, there absolutely should be a free house because the mortgage company went out of business.  It happens in other areas of law, why not foreclosures?



Mark Stopa

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