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Recently Forbes published an article by John  Wake entitled “Congress Could Have Prevented 500,000 Foreclosures During The Great Recession But Chickened Out.” Echoing what Elizabeth Warren and Katie Porter have been advocating for years, it points out that cramdowns best preserve real loans in which both sides take a hit, but neither side gets a windfall.

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To be clear, cram-down is the process by which the debt that the petitioner must pay in the bankruptcy plan is reduced to the value of the property. Business entities do it every day, often with full cooperation of lenders. Lenders benefit when there is a market downturn by preserving the loan account, albeit at a reduced balance due, but still earning interest. The equation usually balances out such that the lender comes out almost even.

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Cramdown is a method of dividing the risk and loss from a negative economic event — like a crash in real estate prices where re al estate is collateral for loans.

In the context of transctions with homeowners, if it really is  a loan, then the onus of an accurate appraisal of the value of the collateral (homestead) is on the lender, not the borrower who is not expected to know all the nuances of a market in which the “lender” has performed thousands of transctions. That responsibility and ther esponsibility for viability of the “loan” is clearly spelled out in the Federal law governing lending (TILA).

I would argue that since that provision is in TILA, the clear implication is that in a bankrutpcy filed by the homeowner with a plan for repayment, the right to cramdown is implied — or else the provision would in most cases have no effect. Usually it is years past the short limitations period for TILA actions that the homeowner realizes the appraisal was inaccurate.

This highlights the main point about these false claims that the loan accounts were created and then securitized.

The compnies that were named as “lender” had no interest or stake in the fulfillment of the promise elecited from the homeowner to make payments. They were being paid fees either away. The larger the deal the more they got paid. So they were incentivizied to make sure the appraisail came in at the highest possible number.

And this is why I have rerpeatedly alluded to the fact that this is a RICO scheme. Except for the vitim homeowner, everyone benefited from violating the laws and rules governing lending. Everyone also beenfited from the fabrication of documents that contained false recitals of transctions that had never occurred.

An assignment that siad that $10 dollars and other valuable consideration was paid was merely advancing a lie to create the illusion of an enforcable liability against homeowners.

Wall Street does not oppose cramdowns for businesses. It opposes it for homeowners. A loan is a loan, and the economics are the same regardless of whether the borrower is a person or a business. And under Citizens United, business entities are persons too. So why the opposition?

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Clearly, the epic wave of foreclosures drove prices down even further making it even more unlikely that “borrowers” would or could pay for an asset that was worth a fraction of the amount “borrowed.” Lenders were surely being foolish by destroying the value of their collateral. There is no other way to look at it — unless Wall Street is hiding something.

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Cramdown works first by a motion to value the property and second by the claim’s value. It’s not the claimed amount it is the value of the claim —  i.e., the balance due in the unpaid loan account as shown by the production of that account as represented on the accounting ledger of the claimant.

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So there you have it. Cramdown procedures would reveal the absence of any legally recognized claim. Unless there is a human being who can testify that they have personal knowledge of the transaction by which his/her employer acquired the implied (but never stated) unpaid loan account, there is no foundation for the introduction of any “payment History” or “Statement” or Notice.”

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Wall Street doesn’t want cramdown available to homeowners because cramdown eliminates the liability entirely. And nobody wants that, right? We want the Wall Street players and their sham intermediaries to generate as much revenue as possible in both (a) the issuance of certificates and (b) the enforcement of the liens, even if they have no risk of loss, they have been paid off completely and they have no unpaid loan account.

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It wasn’t just Congress that screwed this up by listening to Wall Street threats of armageddon, it was four successive presidential administrations evenly divided between Republican and Democratic.

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I would add that W. Bush’s first reaction was entirely correct and would have led the way to an entirely different result than the 2008 recession. He thought that the banks did it, and if they are in trouble, let them fail. Had he not been persuaded by his treasury secretary Hank Paulson Former Goldman Sachs CEO) we would have all learned the truth — that there was no loss suffered by Wall Street because they were operating with “other people’s money” (OPM).

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The ensuing absence of foreclosures would have allowed the economy to rebound far easier and faster than what happened. Look at Iceland which recovered in 3 months versus 15 years alter, we are still dealing with the meltdown.

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As it turned out in the history of TARP, there was no loss suffered by the investment banks. They have been illegally acting like commercial banks and were seeking extra profits and revenues that they called “bailout” despite the absence of any losses.

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Ignorance of the real facts at the highest levels of Federal and state governments showed its ugly face as Obama Secretary Geithner scrambled to protect his former employers and “land the plane.”

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Troubled assets evolved, as information was received, from “losses” due to homeowner defaults to losses from the devaluation of certificates, and finally to the truth: hedge instruments wherein the counterparty needed a bailout to protect the profits of the like of Goldman Sachs. Even the hedge product was fraudulent and should never have been paid.

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The proposal for cramdown was both reasonable and appropriate. It would have allowed for reforming the agreements such that some entity would be responsible as though it was really a successor lender, maintaining home values, and reducing the amount due from homeowners.

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To be sure, everyone would have taken a hit, but there would have been a division of risk instead of forcing the homeowners to absorb an insurmountable loss.

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PRACTICE NOTE: I THINK IT IS HIGHLY PROBABLE THAT THE SAME ANALYSIS APPLIES TO AUTO LOANS.

see Congress Could Have Prevented 500,000 Foreclosures During The Great Recession But Chickened Out

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Neil F Garfield, MBA, JD, 75, is a Florida licensed trial and appellate attorney since 1977. He has received multiple academic and achievement awards in business, accounting and law. He is a former investment banker, securities broker, securities analyst, and financial analyst.
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FORECLOSURE DEFENSE IS NOT SIMPLE. THERE IS NO GUARANTEE OF A FAVORABLE RESULT. THE COMMENTS ON THIS BLOG AND ELSEWHERE ARE BASED ON THE ABILITY OF A HOMEOWNER TO WIN THE CASE NOT MERELY SETTLE IT. OTHER LAWYERS HAVE STRATEGIES DIRECTED AT SETTLEMENT OR MODIFICATION. THE FORECLOSURE MILLS WILL DO EVERYTHING POSSIBLE TO WEAR YOU DOWN AND UNDERMINE YOUR CONFIDENCE. ALL EVIDENCE SHOWS THAT NO MEANINGFUL SETTLEMENT OCCURS UNTIL THE 11TH HOUR OF LITIGATION.

But challenging the “servicers” and other claimants before they seek enforcement can delay action by them for as much as 14 years or more. In addition, although currently rare, it can also result in your homestead being free and clear of any mortgage lien that you contested. (No Guarantee).

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