Bank Business Model is Foreclosure NOT “Repayment”

Living Lies – by Neil Garfield

For many years it has been apparent most observers of the mortgage crisis that the Banks have switched their traditional role of creditor seeking to get paid to something else — a “servicer” or “Trustee” seeking foreclosure. in fact, in multiple cases where the homeowner has had sufficient funds to pay off the “debt” upon proof of ownership and balance, the banks have actually argued in court that they should not be required to accept the money. They argue that is their election to seek foreclosure. Judges did not agree, but they still are pursuing a business model of exactly that — seeking foreclosure rather than payment.  

An important quote from the above article strips the tip off of the iceberg —

When a bank assigns the risk of a loan to the investors of a securitized trust, the “bank” is no longer a traditional bank that gets the benefit when mortgage payments are made.  Instead, the bank has become a servicer that actually benefits disproportionately from foreclosure on a homeowner’s property.

Note the language that says at some point the Banks decide where to assign the risk of loss to investors. It is only after they have sold the loans, obtained insurance payments, Government funds, credit default swap bets, and other things that make every loan a virtual fountain of money. This also suggests that the risk of loss had not been assigned to investors before which means by definition in most cases that the alleged transfer to the trust was an illusion.

[PRACTICE HINT FOR LAWYERS: Given that it may be possible to show that the servicer has an economic interest in the outcome, and that its interest is enhanced by foreclosure rather than modification or settlement, the foreclosure defense lawyer might argue that the servicer is not entitled to the same presumptions that would apply to a “disinterested party.” And that can lead you into forcing them to prove the real facts instead of having the court accept presumed “facts” that are actually false.]

The article states

Most homeowners are unaware that their mortgage banks make more money from foreclosure than actual payment.  Mortgage banks give as few modifications as possible and comply minimally with statutes put in place to protect borrowers, all while employing tricks to “cash in” on homeowners’ defaults, pushing them to foreclosure.  The banks take the risk of litigation because few people sue, but getting legal assistance as soon as possible can make the difference between homeowners asserting their rights or losing their homes while being bulldozed by the bank.

In other words the banks know that they have no right foreclosing and that they are gaming the system pretending to be lenders, servicers or trustees for essentially nonexistent trusts. And they know they will lose some cases. And in some cases the sanctions or punitive damage awards is in the millions of dollars. But it doesn’t matter. The fact remains that they are still successfully pushing through wrongful foreclosures by the thousands for each one they lose. And since it is not their money at risk, this is a perfectly acceptable business model.

So the article points to 6 common tricks that banks sue to push homeowners into foreclosure. These tricks work because on some level most borrowers still trust the bank’s representations of ownership and balance and don’t think to challenge the basic foundation of the party claiming to be servicer or trustee or owner of the debt. There is no default if the alleged debt never existed. That doesn’t mean you didn’t get a loan. But ti does mean that you didn’t get the loan that is referenced in the closing documents including the note and mortgage.

The six tricks:

Bank Trick #1:  Refusing Payments

Bank Trick #2:  Switching Service[r]s During Modification

Bank Trick #3:  Breaching a Modification Contract

Bank Trick #4:  Extra Fees & Escrow Accounts

Bank Trick #5:  False Notices [like including an amount required to reinstate that is completely without any basis]

Bank Trick #6:  Multiple Modifications

Foreclosure is clearly the fattest pot of gold possible and it’s for this reason foreclosure is the bank’s primary goal.

If a homeowner spots any of the above tricks, the best thing to do is immediately seek legal assistance in order to avoid the situation from getting any worse.

Living Lies

8 thoughts on “Bank Business Model is Foreclosure NOT “Repayment”

  1. The bank gets to collect big monthly payments, then when they foreclose gets a big fee for that, then they get to sell the house again. Yeah, what a racket.

    That why I’m lucky as hell, I get paid to live in my house. Yeah, it’s a small box on wheels, but what the hell! It’s a great perk, with a different view every day.

    1. Yep – and they never had any “money” in the first place. Your signature on the loan originating documents creates the value and then they administrate it for you. Seriously a good find Mary. Thanks!

    2. I remember Spike talking about how the bank foreclosed on him……he lost his home to these shysters….and he never missed a house payment (oh boy howdy… I miss that guy)

  2. Learned MY lesson the hard way with CitiBank in ’93.

    Interest rates fell. They wouldn’t refi. 100% current on payments

    Sought a refi through several other companies, qualified. Citi REFUSED to accept the payment in full for the note. I was actually told by another bank “Citi refuses to let go of the note”.

    Another broker asked; “Who holds the note?”


    “awwww jeeeez. Forget it.” (seriously)

    Real estate tanked, my investment partner embezzled the rent money and didn’t pay the mortgage, lost the house. Citi collected over a year’s payments at nearly $4000, took the house and sold it for about $60,000 over the note.

    Nice lil’ racket.

      1. Yep. AND my biz partner walked away leaving me with all the remodeling costs on MY credit card, and as I was the principal borrower, everything came back to me. Tried to pay it off, tried and tried to sell the house. Lost it all in the end.

        And he walked away unscathed and his Trust Fund kept him going.

        The saddest part?

        Late in the game I’d found a CASH BUYER doing an Open House (he couldn’t be bothered), and as I was working full-time, he was supposed to work out the details.

        A year or so later I found he’d squabbled over $5,000 dollars more he wanted (no realtor fees) than the lady’s offer, so we (I, mostly) lost it all for $2500 more each.

        Amazing how some people WILL cut off their nose to spite their face.

        Oh. The Final Irony?

        My associate went on the become a realtor. Embezzles funds from the rental income, becomes a realtor. lol….

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