The Insanity of the Foreclosure Process in New York
Despite all the hysteria in the news media about govt programs designed to stem the wave of foreclosures, here, on Earth, nothing seems to be working. To the contrary, we’re getting more calls than ever about people trying to save their homes from foreclosure and being unable to do so. Here’s why (and you probably know the story):
Typical homeowner is a few months behind on their mortgage payments for a variety of reasons. Typical Homeowner is now getting calls from his or her lender followed by nice letters from the lender. In essence, the letters state that the bank realizes Typical Homeowner (let’s just call him Tim), is behind on his payments and that times are tough. Further, the lender states that it want’s to work with Tim to try and keep him in this house by doing a loan modification. Tim feels relieved. He can stay in his house and not move his wife in children in with his parents (happens much more often than you think). Lender asks Tim to send his last 6 months worth of pay-stubs, last tax return, some bank statements, some miscallenous docs, and a “hardship letter”. The hardship letter is akin to crying on paper and is a horrible and idiotic requirement essentially forcing the homeowner to spell out how he got into this predicament in the first place.
Now the lender gets all of this stuff and asks Tim to wait some time before it gets processed. Tim patiently waits for the lender to call back to hear whether or not he’s going to get a loan mod. Lender never calls. Tim calls the Lender and the Lender says that they are “processing” the application and they need more time. Tim waits. No call. Calls again. Lender asks Tim to resend all of the info since they’re missing a few pages. Tim, quite confused, resends the info, but he is fairly certain he sent all of the paperwork in the first place. After resending the paperwork, Tim calls back a few weeks later. Now the lender informs Tim that Tim’s paperwork is out of date and he needs to resend everything over again (because it’s taken so long for them to process it). Tim grows more confused, but, again, because his house is on the line he resends everything and, again, the lender tells him to wait for their call. The lender never calls. So Tim does. The bank once again states that he has to wait on the paperwork to be processed. In the interim the bank isn’t accepting Tim’s mortgage payments, but, no worry, the loan modification will come in soon enough. Tim again calls and again the bank seems to be missing paperwork. This goes on for a while until one of the following happen:
1. The lender sells the note and now Tim has to deal with another company and re-do everything all over again.
2. Tim gets served with an action for Foreclosure.
3. Tim gives up and stops making payments on the house and calling the bank because he finds it to be fruitless.
This is the disgraceful state of foreclosure in our country today. Talk all you want about moral hazard and people biting off more than they can chew. I don’t care. But at least don’t make the process to correct this look like something Kafka would create.
Ironically, the easiest (and I use this term loosely) way to get a loan modification for many people is to have their house go into foreclosure and deal with this in Court, where a judge orders lenders and homeowners to produce documents and find a way to settle (sometimes).
This mess, and it really is an absolutely absurd mess, is a perversion of what the justice system was intended to do. No one gets a fair shake. Robo-signings, homeowners without representation, banks that don’t have documents. None of this makes any sense nor does it resolve anything at all for either the bank or the homeowner. Until we get this mess in order (and I have absolutely no confidence that will happen), this housing market doesn’t move. Until we get this mess in order, people will continue to lose their homes, not because they cannot pay for them, but because a processor in Indiana forgot to print page 3 and now the homeowner has to send in the documents again. This is not what was bargained for, and it appears government has absolutely no desire to deal with it (ironically, they seem to be the only people who can).
Oh, and to make things crazier, banks are now sometimes paying people to not defend their foreclosure actions. I swear, you couldn’t make this stuff up.