http://www.huffingtonpost.com/2012/05/29/ahmed-abdelfattah-heritage-pacific-financial_n_1553483.html
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Well I thought, that's illegal.
Scumbags pursue second mortgages after foreclosure
By Dan8267 Follow Tue, 29 May 2012, 4:32pm 1,802 views 13 comments
In Boca Raton FL 33433
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Last time I checked, borrowing $ and not paying it back was illegal.
In Obamamerica its the opposite! Collecting on defaulted debt is illegal. (they literally passed a law in CA making it illegal to collect a bad 2nd loan if under 150k!)
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Well,how else can you guarantee the votes that helps keep ones job?
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PockyClipsNow says
Defaulting on debt is not illegal. There are severe repercussions including a trashed credit rating and possible loss of collateral, but all debt holders know and accept the risk of default. That's why you get a return. And the higher the risk, the higher the return. That's the way capitalism works.
Bad mortgage debt is no different than so-called junk bonds. It's not illegal for corporations to default on their debt, and corporations are people. Therefore, it is not illegal for people to default on their debt. Republican logic!
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PockyClipsNow: Last time I checked, debtor's prison has been eliminated.
By the way, if it had not been eliminated, it would be mostly populated by upper-middle-class and wealthy people, since, contrary to popular opinion, it's the people with money who most aggressively abuse the system, and who engage the most in strategic defaults.
The best strategic default that I ever saw was by the Mortgage Bankers Assoc., the trade group that represents mortgage lenders. This same Association spent a lot of time in 2008 and 2009 reminding Americans that it was their duty to keep paying their mortgages. However, just before the bust, the Association had seriously overspend on its Washington, D.C. offices. Rather than suck it up and bear the cost over time, in 2010 the Association simply walked away from its debt. When asked for details, the Association had two words: "no comment."
The comments of Dan8267 are spot-on: it is not illegal to default on a debt. The lender has the remedies that are specified in the loan documents. A loan is a business deal.
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aab says
Taxpayer funded bailout to back up their risks is not written down anywhere in the documents too.
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Dan8267 says
True. But lying on your loan application to obtain the loan is illegal. Calling someone a scumbag before you even fully understand the story doesn't reflect very well on you.
Wouldn't you say you jumped to the conclusion rather soon after reading an article on Huffington post? Those Heritage Pacific guys and whoever funded them with millions of dollars to buy 2nd mortgages must have done their due diligence before going forward with this "collection" business.
I'll wait for several more months to see how things shake out before I put my foot in my mouth. Of course it's just my 2 cents.
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How can one sue for fraud if they weren't "injured" by it? These guys buy a debt for the sole purpose of suing? Is that legal?
If that's legal, then if there were any improprieties on the part of the original lending bank, then the debt buyer can be sued for those, right?
It's gotta work both ways or no way at all.
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E-man says
1. The houses were foreclosed upon, so legally the debt is discharged. That's the whole point of foreclosure. Going after someone for discharged debt and harassing them when you have no legal claim to the debt is being a scumbag.
2. Per the article, the fraud was typically committed by the banks or, in the very least, the banks were willing partners in the lies.
No, I'm not giving sympathy to those who gambled during the bubble. But the parasites who take advantage of them today are no better.
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Dan,
Actually that's only 1/2 correct. In CA, we have one action rule. Either the lender forecloses or sue the borrower for the deficiency. Since the 1st lien holder exercises their right to foreclose, the 2nd is left out in the cold and didn't get a chance to exercise their one action rule. Therefore, they can sue the borrower for the deficiency.
The 2nd lien is severed from the property, not discharged or wipe out like some people think. The borrower will have to face this debt down the road. They can file BK or settle for pennies on the dollar. This is the reason why it makes sense in some cases to short sale because you are being protected by California Senate Bill SB-458. Basically, all the junior lienors cannot come after you ever if they agreed to the settlement on the short sale.
There is another caveat with the $150k limitation in CA. It's interesting that Heritage Pacific only bought 2nd liens below $150k, and decided to pursue the borrowers for "falsifying" their financial statement to obtain the loan.
Even if you're not in the trustee sale business, you may not understand all of the procedures and technicalities. Anyways, I'll wait & see how things shake out.
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Wow ptiemann, I saw a similar case. The guy has the means to pay the mortgage, but decided to fall behind so he could get a loan mod. After 2 years of trying and trying, the lender denied his loan mod. Guess what? He's going to reinstate the loan with over $80k in late fees & missed payment. LOL!!!
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Plenty of people out there are simply trying to skirt their debts, they can't always get away with it if lenders recognize that defaulter has means of paying and is simply refusing.
It's one thing to be down on your luck and unable to pay, it's a whole other story of someone simply refusing to pay because he does not feel like paying.
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Dan8267 says
Not severe enough, since credit rating is only temporarily trashed.
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E-man says
That's good to know. I wonder how many states operate like this and how many don't.
I've always heard that California was a non-recourse state as oppose to Florida, but evidently that's not entirely true as told by LoanSafe.org
In any case, I've read a lot of stories about people setting up companies to go after discharged debts, not necessarily related to real estate. Collection agencies harass people to get money from them after they've been through chapter 7 bankruptcy.
ptiemann says
True, both individuals and companies including banks. It's a cold, business decision.
There are solutions to this problem. For instance, the banks could simply refuse to loan more than a house is really worth, as oppose to it's current market price. That would avoid the problem all together and would have prevented the housing bubble.
If the loaner decides to attempt to maximize profits by gambling on loans because the industry is in a bubble, why have sympathy for the loaner? The whole reason the returns are so high is because the risk is high. That's par for the course.
In non-recourse states, the only collateral is the house itself. Banks should act accordingly. In recourse states, the borrower assumes the risk of falling housing prices -- not values, prices -- and the borrower should act accordingly by not purchasing overpriced houses and insisting on lower lending costs to offset this risk. This is a widely accepted economic principle. The party that bears the risk must be compensated with better returns or less cost.
FortWayne says
Mortgages, at least in non-recourse states, are basically agreements that the bank owns the house until you pay off the mortgage. As such, the borrower isn't reneging on a deal by letting the house go through foreclosure. The deal is simply, either the borrow pays the mortgage or the the bank gets the house and keeps the mortgage payments already made.
It isn't the responsibility of the borrower to ensure that housing prices don't fall leaving the lender with financial risk. That risk should be included in determining the fees and interest rate.
I don't find moral fault in those borrowers for strategically faulting. I just think they should have to go to the back of the line in purchasing via no one lending them money for the next 20 years.
The real moral fault was buying an overpriced house in the first place expecting it to appreciate. That behavior is exactly what drove housing prices out of reach of responsible people. The strategic default, on the other hand, lowers the market price of housing and is a good thing for society as a whole.
zzyzzx says
On that I agree. The credit rating should be impacted for a longer period of time, and defaulting on a mortgage should disqualify you from getting another for at least a decade. However, I wouldn't say permanently because people do need the opportunity to reform and get their financial affairs in order.