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So Who Benefits From Protracted Foreclosures? Servicers!

One of the many themes being used to cultivate class warfare in foreclosure-land is the idea that people who are losing their homes are getting an unfair break. Many of them have learned that banks are moving very slowly on foreclosures and so they stay put until the sheriff evicts them. One culprit is crowded court dockets, which are often blamed on borrowers who are gumming up the works by fighting foreclosures. But that’s an exaggeration; the vast majority of borrowers don’t contest foreclosure filings. And as we have heard at some length in Congressional testimony this week, borrowers that do seek to stay in the home typically fall into one of three categories. First is that they are in a mod program (and became delinquent at the urging of the bank) but find the foreclosure is moving apace, despite the bank saying otherwise. Second is that they believe that they are not in arrears, that the bank has been charging unwarranted fees. Third is that they filed for a Chapter 13 bankruptcy (meaning they are holding all their creditors at bay while working out a repayment plan) and the bank is still improperly trying to take their house.

So borrowers getting to live rent free until they are told to depart is hardly their fault; the timing is entirely under the bank’s control. And this extra time is no freebie: banks can and do seek deficiency judgments when the proceeds from the home sale fall short of the mortgage balance, so the borrower in many cases could be pursued for the mortgage payments due during the extra months, which would be added to the principal balance.