Foreclosure law can benefit debtors

Tuesday, 14 October, 2008

Everyone probably now knows that the nation's financial institutions have created a mess, mainly through tangled deals in which home mortgages were bundled and sold and resold in mystery surprise packages.

It turns out the institutions themselves don't really know what they own or what its worth. But they do know that with the housing market way down, the bundles are riddled with bad credit loans and others likely to go bad soon.

The spin-off economic effects are huge, and I wish the government luck as it blunders around trying to help.

But on Monday, I heard a twist on all this that just might be oddly good for some people on the verge of losing their homes to foreclosure.

It was in a legal seminar taught by April Charney, a do-gooder lawyer I knew some years ago. Back then, she was often helping semi-destitute Sarasota renters fend off landlords. She has since become something of a nationally known foreclosure law expert.
What she told a room stuffed with 80 lawyers on Monday surprised me. She said many people in shock and grief as they face foreclosure might actually fare far better than they think, if they get good legal help.

"They are victims of economic violence," Charney says of her foreclosure clients, but the law is more on the debtors' side than most now realize, she believes.

I thought she'd talk mostly about ways to renegotiate loans with lending institutions. With so many homes worth far less than when purchased, a deal writing off big parts of the debt can be better for both sides than a forced sale at a garage sale price.

But Charney said efforts to negotiate with lending institutions often lead to a brick wall: There is no one to negotiate with. The way mortgages have been bundled and securitized and sold and resold, the ownership of the debt is often too cloudy.

Charney says she is often left with no choice but to try to use that to her clients' advantage. And that sometimes works very well, she says. That's because some judges are agreeing with her argument that institutions that filed the foreclosures often can't prove that they still have legal standing to do so. And so, many are even on the hook for her client's legal fees as a result of the improper filing, she says.

That was part of Charney's plug to get even the more mercenary lawyers to start taking such cases.

Charney, now based in Jacksonville, is a salaried legal aide lawyer. She can't take all of the cases, after all.

But she has numerous clients, she says, who are still living in their homes and not making payments except for smaller ones sent to a trust account her office keeps for them. Either their cases have been dismissed or are just sitting there while befuddled financial institutions decide what to do.

Some cases have been stalled for years.

No would-be homeowner is happy living in limbo that way, she said, and that is never her aim, but it does beat being out on the street.

But eventually, she says, someone might be established as having clear claim to foreclose, and so, also to negotiate a settlement that works for both sides.

And if not, Charney says, that's probably OK, too. She thinks in many cases where no clear ownership of the mortgage is established, residents would eventually be granted debt-free ownership.

I admit that rankles me just a bit, and not just because it can't bode well for the economy or my 401(k) if lots of people gain too much from not paying their mortgage. There's also this: I'm paying my mortgage and expect to have to do so.

But Charney says I should consider the harm to me and mine if my neighborhood becomes dotted with empty and neglected homes that banks can't sell.

Well, yeah.

Her job is making sure the courts don't forget the other side of the story. Her clients, she says, even ones not suckered in by predatory lenders, bought homes in a super-inflated market that got that way because the financial industry fueled it. People usually borrowed too much for a home because they had to, and they were encouraged to think it wise.

Source: http://www.heraldtribune.com/