When you take out a mortgage on a home, you are assuming risk. What if something happens so that you can’t pay back the home loan? You could then lose the house. All the money you “put in” the house will be gone.
But you aren’t the only one assuming risk. The bank is also taking a chance since they are hoping to make money off you. At least that used to be true. In this century banks began selling the loans rather than keeping them as their own investments. The point that this was all risky got lost in a fog of stupidity and deceit.
When the housing bubble collapsed, many people found themselves unable to afford their homes and owing more than their home was now worth. Many had to give up and take the hit by allowing the bank to foreclose on their homes. They lost everything and had to start over as renters hoping to rebuild.
Except many have discovered they are not permitted to start over. According to CNN:
“In these “zombie foreclosures,” borrowers move out after their bank schedules a foreclosure auction only to learn months or years later that the auction never took place or the bank never transferred the deed. That means the borrower still technically owns the house and is on the hook for property taxes, fees, and homeowners’ association dues.”
CNN reports that foreclosure was started with 2 million homes but never completed. These people, after thinking that they have done what they were supposed to do, find that the bank never actually took back ownership of the house, or an auction never took place. The lenders, in some cases, “delay taking possession to save on taxes and other costs that then stay under the borrower’s name.” They never tell the person who has “lost” their home that they are continuing to accrue expenses even while they are paying to live somewhere else.
Sometimes it is not only the fees, the debts themselves continue.
“Bill Purdy, a real estate attorney in Soquel, Calif., said borrowers can’t always trust lenders to file foreclosure paperwork properly. In November 2011, when his client Christopher Warner’s Felton, Calif., home was auctioned off, his mortgage debt was fully extinguished — standard practice based on California law. Warner’s lender, however, recorded $120,000 on its books as debt — the difference between what he owed and what the house sold for — and gave it to a collection agency. The debt has lowered Warner’s credit score by an additional 100 points, he estimated. ‘It nearly put me into bankruptcy,’ he said. He has hired Purdy to get the debt collectors off his back.”
Typically, government action “on behalf” of people going into foreclosure, has resulted in some money for the government but no actual relief for the people the government claimed to care about.
“In a $25 billion settlement with the state attorneys general last spring, the nation’s five largest mortgage lenders agreed to inform borrowers of any decision to forgo or delay a foreclosure. But victim’s attorneys said the banks have not been careful about following that policy.”
What incentive do lenders have to abide by their agreement? The bottom line is that people who are struggling financially don’t have lobbyists. The government will make noise about “doing something” to make some headlines, but it isn’t motivated to do much at all. Yet these debts are toxic. Until we put them behind us, not only these people, but the national economy, are blocked from recovering.