Almost every homeowner borrowed money to buy his or her house. Under the US Constitution, there is no right to keep your house in the event of a financial crisis that wasn't your fault. Even though Article 25 of the Universal Declaration of Human Rights recognizes that
Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.American homeowners, in order to obtain a fair interest rate, are forced to agree to surrender possession of the house to the lender upon default. Default means failing to abide by one or more of the many intricate conditions in the loan agreement. The most common default is failing to pay monthly loan installments on time. Upon default, the homeowner has the right of redemption, which means the homeowner has a certain period of time in which to cure the default and save his house. Since the lender has the right to accelerate the loan and declare the entire balance immediately due, the lender can prevent redemption. Once the homeowner has had his shot at redemption, the lender is permitted to foreclose the redemption period. Foreclosure is usually a formal process, and it transfers ownership of the house from the person who lives there to the lending institution.
2. What can a person do to stop a foreclosure?
Very little. The lender, if it wants to, can work with the homeowner to re-negotiate the loan or tack the missing payments on to the end of the loan. No judge or government agency can force them to do so, because it is a private contract. Many lenders have a policy of never working with homeowners. As mentioned before, a homeowner can redeem the property by curing the default within a length of time set by the loan or by law. The homeowner can fight the foreclosure in court in some states.
3. Can I take the bank to court?
Probably not. If you live in Oregon, California and Washington, Alaska, Hawaii, Georgia, New Hampshire, Massachusetts, Rhode Island, North Carolina, Maryland, the District of Columbia, Alabama, Arizona, Colorado, Idaho, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, South Dakota, Tennessee, Texas, Utah, West Virginia or Wyoming, the bank doesn't have to go to court to take your house. You signed away your day in court by granting the bank a "power of sale" (like they gave you a choice!) The power of sale allows the bank to skip court and just sell the house to the highest bidder (usually themselves). You can go and yell at the young lawyer assigned by the bank's lawfirm to go auction off your house to himself, but he won't listen to you unless you have the cash to buy back your own house. Which you won't.
4. Where do the phony signatures come in?
President Obama has decided to veto the Interstate Recognition of Notarizations Act, which is described by sponsors as a law to "help businesses around the nation by eliminating the confusion which arises when states refuse to acknowledge the integrity of documents notarized out-of-state." Translation: Bankers got caught committing fraud and don't want to lose contested foreclosure actions when they should have known better. The fraud was "robo-signing." A little background: The minute the Main Street Bank lent you the money to buy your house, they assigned the loan to someone else (a bigger bank). Assignment means they voluntarily give someone else the right to collect interest from you and make money off of your loan as a substitute lender. They do this for a flat fee. You can't do it, BTW, only them. Originally assignments were thought to be pretty cool, because it freed up the local lender to make more loans and put more people into houses in the boonies. There ended up being many re-assignments for different reasons, including the pooling of ownership of lots of mortgages in order to allow bets on whether they would go bad. TMI. Anyway, state law usually requires that assignments be formal and written, and usually notarized. Why? Because these transactions, unlike buying a bag of pretzels, are IMPORTANT. Families live in houses. So in order to legally transfer a loan, the lender has to sign a formal document in front of a judicial officer (notary public) who then swears that he or she saw that exact person sign it - if they don't know the signer, they have to ask for photo ID. You've probably seen a notary signature with the fancy raised seal imprinted on it. In short, the robo-signers were caught forging other people's names on important assignment documents way after the fact in order to prove ownership of properties during foreclosure proceedings. Plus, the robo-signers were getting the documents notarized in whatever state was convenient for them, in violation of the law of the state where the actual foreclosures were going down. That's where the recent bill comes in. It would have made any state's notarization cool in all 50. The bill would have helped the big banks that held Main Street Bank's mortgages by ensuring they could throw people out of their homes despite breaking the rules. Rules that bankers wrote, BTW.
5. Is there a creepy Alan Grayson video on YouTube that sort of explains all of this?
6. What can I do to stay in my house?
People who work in the financial services industry servicing delinquent accounts (i.e.,"assholes") hide the shame they feel by building up elaborate self-righteous defenses: "Our bank has the right to recover its asset - you shouldn't agree to take the money if you can't pay it back. You're a fucking deadbeat." And that's what they'll tell you to your face. Among themselves, they get ugly about it. But is it your fault, really? Can a person really be expected to predict the next 30 years of income? What about forces beyond your control? Isn't there a moral hazard involved when you are thrown out of your house the same year a banker that ruined the American economy gets a bonus of $10 million? And hey, after filling out all that paperwork and sharing my credit history and personal secrets with the bank, shouldn't they have known I was not going to be able to pay? These are all good questions, but these are assholes we're talking about, remember. They don't care. Which is why it's OK for you to screw them over any way you can! Bankruptcy kills a foreclosure and keeps you in your house. If you are way behind on your payments, your credit rating is already shot, so you should try to file for bankruptcy. Bankruptcy lawyers will charge you a little but it's worth it. Bankruptcy puts you in the driver's seat and requires the lender to go to court and take what the judge decides to give him. Stripping off the debts you owe will probably leave you enough to pay your house note. Another option is to fight the foreclosure in court. Again, you don't get a free lawyer here, but if you can find an activist lawyer or someone willing to do it pro bono (that's snottytalk for 'free') or a decent self-help guide online, you can probably win. In order to foreclose, the lender has to prove they own the loan. This means they have to prove the entire chain of assignments (see above). Now, every state has different laws about foreclosure proceedings, so it's tricky, but it appears that these banks are fudging the rules. Court proceedings are massively anal retentive - detailed rules must be perfectly adhered to.
7. Is there a grown-up non-snarky solution to this problem?
Yes. It's called "Right to Rent" and you can learn about it here. Basically, it would let people having problems stay in their house as renters for up to 5 years while they sort things out. The bank can't foreclose if they pay their rent. Rent is determined by an independent local expert. See. That wasn't so hard.
8. What about changing the whole system of housing finance?
Good idea. Why do we live in a system that allows some families to have billions of dollars and others to be thrown out literally into the street, evicted physically by government officers, for want of $750.00. Please read this again:
Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.That was agreed upon in 1948. Before that, Franklin Delano Roosevelt said this:
We have come to a clear realization of the fact that true individual freedom cannot exist without economic security and independence. “Necessitous men are not free men.” People who are hungry and out of a job are the stuff of which dictatorships are made.
In our day these economic truths have become accepted as self-evident. We have accepted, so to speak, a second Bill of Rights under which a new basis of security and prosperity can be established for all—regardless of station, race, or creed.
Among these are:
The right to a useful and remunerative job in the industries or shops or farms or mines of the nation;
The right to earn enough to provide adequate food and clothing and recreation;
The right of every farmer to raise and sell his products at a return which will give him and his family a decent living;
The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad;
The right of every family to a decent home;
The right to adequate medical care and the opportunity to achieve and enjoy good health;
The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment;
The right to a good education.
All of these rights spell security. And after this war is won we must be prepared to move forward, in the implementation of these rights, to new goals of human happiness and well-being.
America’s own rightful place in the world depends in large part upon how fully these and similar rights have been carried into practice for our citizens.