This past weekend the New York Times did a story titled Owners Stop Paying Mortgages, And Stop Fretting. As a bankruptcy lawyer heavily involved in the world of consumer debt and foreclosure issues, I was stunned and disgusted by the entire piece.
Anyone who’s been awake at all over the past few years knows that the real estate market is in tatters. We’ve got millions of homeowners who bought homes, saw their values erode significantly, and are now screwed, money-wise. But that doesn’t give them license to go to the Hard Rock Hotel and go boating.
I’m calling that just plain absurd. And who wouldn’t?
When you think of someone in foreclosure the picture in your mind is someone who can’t pay the mortgage and is struggling like hell to get by. You don’t picture someone wearing their skipper hat and an ascot, sailing blissfully along the coastline and admiring the view.
If you’re behind on the mortgage and can’t make payments anymore, you go to the lender and try to work out something. Sure, modifications and forbearances are tough to come by – but you try like hell to make it work.
Failing that, you look to get the rest of your debt under control so you can concentrate on the house payments. You try to sell it, maybe do a short sale if you can. And if you want to keep the house and can swing it, you look into Chapter 13 bankruptcy to make the payments manageable.
What you don’t do is take it as a “get out of jail free” card, giving you the chance to spend your money on luxuries. That may or may not be called bad faith in a court of law, but it’s just not the way your parents raised you.
The New York Times article, however, seems to gleefully recount how Alex Pemberton and Susan Reboyras, two Florida homeowners profiled in the piece, are living the Life of Riley in the face of their foreclosure mess. It makes them, and all defaulting homeowners, look like dishonest people who pull one over on the banks.
If I loan you money and you can’t pay me back, that’s one thing. But if I loan you money and you decide to go on a spending spree with the funds and flip me the bird, that’s just not cool. I’d have a right to be angry – really, really angry, in fact.
The real shame of this piece is that it’s not reflective of what people do when they fall behind on the mortgage. Most people fight like hell to catch up, to get out from under the debt, and to do what is by all accounts the honorable thing. They want to hold up their end of the bargain, and fail only because most lenders don’t have the same objectives.
There’s a disconnect in the real world – consumers want to make it right, and lenders just don’t give a crap. Because consumers are real people, and lenders are monolithic corporations with bureaucracies and levels between the font lines and the decision makers.
That’s the reality, but the New York Times went for the sensational. Boo, hiss.
And in the end, someone is going to stand up at a Congressional hearing and hold up this article as proof that American homeowners are dishonest and are the ones who have wrecked the housing market in spite of the best efforts of the lenders. We’ll see the same game play out that we watched in the run-up to the 2005 changes to the U.S. Bankruptcy Code, when creditors claimed that consumer debtors were dishonest and cheating scoundrels.
People who paid their credit card bills stood up and decried the lack of honesty, the sheer gall of others who dared to shrug their shoulders and walk away. They were enraged because those who were paying (the thought went) we subsidizing those who were not.
Of course, that wasn’t true. Still isn’t. But the press sold the American consumer down the river. And in this story, they did it again.
Bookmark this post, folks – this is not the last time you’re going to hear about this story.
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While I hesitate to disagree with a friend and one of the smartest bankruptcy lawyers I know (and Jay Fleischman is both), I think Jay has it wrong when he sides, in this posting, with mortgage lenders in the foreclosure mess. The lenders created the problems by making loans that should not have been made, and were made only because they deceived borrowers in to believing that they could refinance in a couple of years, among other other bad acts. Borrowers do bear some responsibility, of course, but the ultimate reality is that they were sold a bill of goods by lenders and mortgage brokers. Congress didn't help, of course, when it amended the bankruptcy code in 2005 because it didn't permit bankruptcy judges to allow modification of single family homes, but continued to allow investment properties to be modified. It makes no sense, to me.
I'm also a bit perplexed by why it is unfair to refrain from paying mortgages while it's apparently ok to refrain from paying credit cards. Bankruptcy can discharge nearly all debts – secured and unsecured – and people used their credit cards in fundamentally the same way they used money from refinancing. Given that credit cards are way more expensive than mortgages, and that mortgagees have the option of foreclosure, I fail to see what is wrong that the sort of non-judicial bankruptcy/rough justice that these people are practicing. No doubt they will eventually be foreclosed and evicted, but I seen nothing wrong with making the mortgage lenders suffer losses in the same way that homeowners are suffering loses also. What's good for the goose is good for the gander.
What Jay overlooks is that the lenders are flipping borrowers the bird by sticking their heads in the sand and refusing to work with borrowers who want to make it right – and I agree that most borrowers want to do so; it is what I strongly urge my clients to do. But if the lender decides to stonewall and be uncooperative, then as far as I'm concerned, it's a two-way street, and the lenders deserve what they get, especially if it's nothing but a piece of real estate that it can't sell and is expensive to own because after foreclosure, the lender is stuck with maintenance and taxes.
David, I'm not disagreeing at all with you. In fact, we're on the same
wavelength. My point was that the piece painted a picture of the American
consumer as a free-wheeling spender with a boat and a penchant for
frittering away money. The reality is that Americans are going into
foreclosure because they can't get the banks to stop playing a shell game
with their loans, and are frustrated at the lack of real solutions.
Sure, corporations file for bankruptcy all the time while their executives
continue their lavish lifestyles. The stories in the mainstream media about
these things are accurate and should be met with public outrage (and often
are). The problem is that when someone reads the Times article and reacts
negatively, they are not seeing the truth as it currently exists in this
country.
I'm relieved that we are on the same page. I agree that the picture painted by the article is overblown and not typical at all of most borrowers. My point was that I don't think it's necessarily wrong for borrowers to enjoy life when their mortgagee won't be rational; if the lender refuses to take the borrower's money, then the borrower is entitled to use it in some other fashion. Note I said “rational”, not “reasonable”. The executives you speak of are fiddling while Rome burns, and they don't care that Rome is burning. It's just not rational, IMHO. Given that the big sub-prime lenders (like Ameriquest, New Century and Option One) are history now, one would think that the others would learn something. But NOOOOO. Oh well.