Posted on Tuesday, October 19, 2010
I read that Angelo R.Mozilo of Countrywide Financial fame is paying a $67.5 million fine of which Countrywide is paying $20 million. It reminds me of the old story that lawyers are wont to tell. A petty thief is charged with stealing a watch. He vehemently denies it. He is convicted and sentenced to probation. As he is walking out of court, he turns to his lawyer and says: "Does this mean that I can keep the watch?" I expect that Mr. Mozilo turned to his lawyer and asked: "Does this mean that I can keep the remaining $100 million?"
There is now talk of a foreclosure moratorium and a criminal investigation, because it appears that papers submitted in support of foreclosures have been submitted without verification or valid notarization. Let us start with the obvious. Foreclosure is a devastating event for anyone. Being forced to move from one's home because of the inability to meet payments must be one of the most devastating experiences. However, the reaction to the foreclosure process seems to be a little overblown.
Whoever certifies or swears that a mortgage is in default undoubtedly relies on some computer printout indicating how much is due and how much has been paid. It is difficult to envision how there could be any independent verification, particularly since the mortgages have been bundled, resold and resold. Furthermore, foreclosures do not start with a forced sale of the premises. They are preceded by notices of default, threats, court papers, notices and numerous opportunities to object or defend. The foreclosures of the wrong house or paid mortgage are rare. Borrowers know whether or not they are in default. How much may be a matter of dispute, but not the fact of default.
I certainly do not want to appear as an advocate for mortgage foreclosures in these dire times, and I certainly do not intend to condone the use of false notarizations of signatures nor the submission of inaccurate information to obtain foreclosure judgments, but a moratorium may not be warranted and could make matters worse. If it serves to prompt mortgage holders to renegotiate loans and permit persons to remain in their homes it is a good thing. But if it permits persons to remain in their homes without paying or if it permits abandoned homes to remain unsaleable, it is a bad thing. Although foreclosures bring down surrounding property values, abandoned, unkempt and trashed houses do so likewise. Further, allowing millions of mortgages to continue without payment or foreclosure is certain to cause further economic disaster and possibly more bank failures.
Mortgage holders must strive for accuracy and honesty in foreclosure proceedings. Congress should not stoop to "touching up the X-rays" by making illegal notarizations easier to accomplish, an effort which President Obama pocket-vetoed. It is easy to feel no sympathy for the "evil" banks who granted mortgages to people who could not afford to maintain them. But a person who purchases an auto on time should not be able to keep it without keeping up the payments no matter what the sales pitch, and the same must be true for homeowners. While our hearts may cry out to those who are forced to lose their homes because of their inability to make payments, our economic (and legal) system will collapse if promises made are not required to be kept. If purchase money mortgages were involved (loans made by the seller to the purchaser) we would not hesitate to uphold the seller's right to foreclose. It cannot be different, no matter how angry we are at the banks, because it is an institution rather than a person that holds the mortgage.
Maybe lenders convinced borrowers to take out mortgages they could not pay, or maybe borrowers took out mortgages they knew they could not afford. In either instance, absent a modification by agreement, the right to foreclose cannot be foreclosed. We should do everything humanly and economically possible to aid those who are in danger of losing their homes, but failing that, the dire and sad consequences of a foreclosure are inescapable. A promise is a promise even if made by the good guys to the bad guys.
In the meantime, the guy who stole the watch shouldn't be allowed to keep it, except possibly in
Judge Lee Sarokin Huffington Post