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Saturday, October 2, 2010
Bank Errors Are Deadbeat Homeowners' Paradise
The Tea Party movements may, when boiled down to their essence, be a reaction to the revelation -- or at least the perception -- of an inherently unfair, rigged economy in which there are two sets of rules.
Another layer in this unfairness is in the process of being peeled back. Just this past week, several major banks -- institutions among the largest and most powerful in the land, and among the largest recipients of involuntary taxpayer bailouts through TARP -- announced they were suspending foreclosures indefinitely in order to get their paperwork in order. Accusations that many lenders, and often their lawyers pushing foreclosures through at so-called "foreclosure mills," are cutting corners in order to speed up the repossession of homes whose previous purchasers defaulted have surfaced in recent months. Now, the housing market may suffer another shock, as title insurance companies are refusing to issue insurance for purchasers against the risk that there are defects in the chain of title, as defective bank and lawyer practices increase the likelihood that there indeed are such defects. This latest development threatens to make foreclosed homes (or REOs) virtually untouchable, or toxic...at any price.
What is the effect? These flawed foreclosures and toxic homes will threaten to severely devalue all surrounding property, inducing a renewed downward spiral in residential real estate values and threatening potential economy-wide deflation as the entire real estate asset class suffers another round of devaluation.
In the meantime, these events and anticipated effects will offer additional validation to the economic-responsibility crowd -- you and I know them as the Tea Party movements. These movements may have little in common but a belief in basic economic responsibility (read: you don't spend what isn't yours) and the fear that the next generation will have a sharply decreasing standard of living in order to shoulder the costs imposed by the spendthrifts of their parents and grandparents.
In the short term, responsible homeowners and borrowers -- many of whom are the small business owners getting squeezed by the credit crunch and hoarding banks, and about to get hammered by ObamaCare's hidden taxes and unfunded mandates -- will feel renewed fury as they subsidize defaulting, irresponsible neighbors who lived high off the hog, buying flat-screen 90-inch televisions and small utility vehicles with home equity that will never be repaid now live rent-free while enjoying the advantages of an unchallenged, accepted victim status.
With banks freezing foreclosures, this means one thing to the responsible homeowners and small business borrowers: They get to continue subsidizing an entire class of deadbeats, who are enjoying preferential treatment from the federal government, the courts and the banks.
Preferential treatment towards one class is the equivalent of discriminatory treatment against another class. What is especially galling is that the class being discriminated against is being forced, by both circumstance and deliberate government policy, to pay for the preferences towards the irresponsible.
Eric Dixon is a New York corporate lawyer who represents small business owners, entrepreneurs, freelancers and others in litigation, government investigations, negotiations and business due diligence matters, including negotiations with banks and investor groups. He can be reached for comment or consultation at 917-696-2442 and by e-mail at edixon@NYBusinessCounsel.com