Ground Zero: The Place Where Law And Fact Collide

We’ve all heard that “desperate times call for desperate measures”, and “all’s fair in love and war”. There’s no question that these are desperate times for those who own over-financed real estate. Since many of us are, may we ignore the traditional rules of the repayment of debt, and be insulted when banks and mortgage companies come calling to collect? Does the answer change when the over-financing happened all over America primarily because Wall Street packagers needed inventory, and both paid and were paid outsized bonuses to approve substandard lending? Does the answer change when the mortgage company refuses to “work something out”?

It’s truly hard to have patience with the national mortgagees who led the way into these experimental forests that even they didn’t understand. Yet we all know that if mortgages can’t be collected they will never be made. Every one of us is affected in his lifestyle by the belief that mortgages will be repaid according to their terms. Realtors, many lawyers, and most others need not come to the office if mortgage companies quit making loans.

Last week I got a call from a lawyer from out of this area who said he represented an out of town “broker”. The lawyer offered to pay me to talk to a local person he proposed to be my client, for the purpose of talking the person into signing a deed for the lawyer. The idea was that the owner, who lived here, might as well sign a deed and send it, for nothing, so the lawyer could deal with the mortgage company to attempt a “short sale”. Obviously, the lawyer and his client were working together to attempt to get a “deal” on the foreclosure of a beachfront property. The assurance offered to the owner of the property was that only the mortgage company would get hurt in the deal.

I have said in these articles that without knowing the circumstances we can’t judge the decision when an owner quits making mortgage payments. But I have seen lawyers say, and even advertise, that they can file an answer to a foreclosure suit, even a bad answer, and the mortgage company will be too disorganized to finish the suit in months or years. In the meantime, they advertise, the owner can stay in the house making no payments.

The difficulty with being too critical of the above advice is that it’s absolutely true. Yet traditional legal ethics require a lawyer not to make allegations in legal pleadings that he knows not to be supported by law or fact. We lawyers have to give good legal advice to our clients. That’s what they pay us for. Part of that advice is that we can probably stall mortgage foreclosures, and maybe for a long time. But we can’t do that forever, and we shouldn’t if we could. While we litigate, our duty is to work out modifications, short sales, or whatever works in a fair way. But we do not owe stalling foreclosures just because we can, or because we can get paid to do it.

I have seen more than one person own multiple properties on the rental market who just quit making payments and continue to collect rents. The purpose is not to get the mortgagee’s attention to accommodate a modification or short sale, but to allow the owner to squirrel away money until the mortgage company gets its act together, at which time the mortgagor plans to be many thousands of dollars richer by gaming the system. I know that in parts of the country owners are coming to the conclusion that it’s okay for a foreclosed owner to take the plumbing and electrical fixtures.

So there be no mistake, removal of any part of the house upon leaving is garden variety theft, and should be prosecuted. To fail to maintain the house until the owner no longer occupies it violates the terms of every mortgage and is unfair to the neighbors.

I’m not entitled, or smart enough, to make the rules. But if an owner must quit making mortgage payments, for instance, I want him to put the money aside to help eventually work out the mortgage, or to buy a new house. Let’s don’t create a culture in which our clients expect to live free, or to borrow money with no expectation of repayment. Those would be bad lessons for our profession, and bad for the client. If their budget is stretched because they lost a job, or because the terms of the mortgage ballooned unconscionably, a lawyer should do what he can to change the mortgage. But if the mortgage is merely difficult because of an unsustainable lifestyle, we shouldn’t just change the mortgage, the owner must change the lifestyle.

Realtors and lawyers are probably best positioned to raise our client’s expectations of themselves. No one would respect or tolerate the neighbor who habitually eats (or drinks) everything in sight, just because he can. Nor should we encourage conduct in real estate that follows no rules of ethics, just because we can. Pretend your mother is watching.