Sunday, April 17, 2011

Making a Bad Situation Worse

The Sacramento Bee reports today on the bad idea afflicting a number of Sacramento-area homeowners these days: filing fraud suits against mortgage lenders in an effort to keep their homes. According to the Bee, 250 of these suits have been filed in the Sacramento area in the past six months, a sharp increase on the same period two years ago. These lawsuits generally allege that banks and brokers told borrowers "they could easily refinance their loans before interest rates reset", or that they failed to disclose the loans' true terms, out of a desire to make a quick profit selling the mortgage on a secondary market. Problem is, these claims are almost impossible to prove in court, and the homeowner has to explain their signature on a great deal of relevant paperwork. Of the 24 homeowners who sued their lenders for fraud in a six-month period two years ago, 20 have lost their homes. Of the 13 homeowners who represented themselves in their suits, 12 have lost their homes. So, most of these suits appear to result in homeowners compounding their mortgage debt problem by spending thousands of dollars on lawsuits that fail.

Don't sue us, we just sold you a house you couldn't afford.
These are obviously sad stories: with the exception of the lawyers being paid to pursue these lawsuits, everyone in these foreclosures comes out a loser. But it troubles us, especially after seeing that crappy Inside Job movie, that so much public sentiment on this issue seems to follow the same tired "evil business/victim consumer" template. Lenders almost certainly made many fraudulent claims during the real estate bubble, but what about all the borrowers who lied on mortgage applications in the hopes of flipping a property for a quick profit? And what about personal responsibility? If you're not sure you can afford a purchase on the scale of a house, what on earth are you doing agreeing to it in writing? And if you're one of those unlucky souls whose lost job was the difference between foreclosure and owning your home, that sucks, but that's life sometimes.


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