A reader emailed to ask why I wasn't all over last week's HuffPo "expose" about Bank of America "suing itself" in a foreclosure action. Since I've teed off on BofA on occasion for foreclosure missteps, my correspondent wondered why I wasn't picking this low-hanging "snark fruit." The reason is simple: it's a non-story.
Bank of America, as the servicer of a first loan owned by a third party, commenced a foreclosure action on a first mortgage loan. The bank, in its individual capacity, had a second lien loan on the same property. Since the foreclosing servicer must name all junior lien holders in the foreclosure proceeding if it wants to extinguish the junior liens, it named the bank. The bank is agent for the owner of the first lien loan and is also the owner, in its individual capacity, of the second lien loan. It has to name itself. This is "Foreclosure 101."
The allegations of Professor Alan White are absurd. It strikes the professor that this set of facts is "classic robo foreclosure." He further mocks the attorneys and paralegals who worked for the bank of this matter.
"It is a little bit mindless on the part of the lawyer," White said. "They don't need to sue themselves."
The only thing relatively "mindless" is a law professor who touts himself as a predatory lending expert and who either doesn't understand basic foreclosure law or, if he understands it, mischaracterizes what "must" be involved.
A commenter identified as "InkMiser" sums up the problem with the article quite well.
The bank is perfectly correct in naming itself in the case because of its second mortgage interest. Professor White obviously knows nothing about foreclosures, land titles, and the ABSOLUTE statutorily mandated need to name as defendants all persons with an interest in the property. Although there may be robo-signing involved in the case, it has nothing to do with the requirement for BOA to sue itself. What the article misses is WHY BOA had a second mortgage. It had a second mortgage because (and although I'm guessing, it is an educated guess) the when the property was purchased, the buyer did not put down sufficient money to avoid paying private mortgage insurance. The first mortgage is for (usually) 80% of the purchase price and the second mortgage is for the balance of the price. The other thing this story missed is the nuance in paragraph 5. BOA is filing suit, but it admits it doesn't own the loan. It is only servicing the loan for its "investor." There are many things very wrong with the mortgage industry in America. A bank naming itself as a defendant in a foreclosure case in which it has an interest in the property is not one of them.
Other knowledgeable commenters make similar points, and also discuss various reasons why the bank as junior lender may be "hanging in there" as opposed to merely releasing the junior lien. One of those potential reasons may have to do with the adverse tax effect on the borrower of debt forgiveness. Admitting that there may be a method to the madness doesn't fit the ideological agenda of either HuffPo or Professor White, who blogs at Credit Slips. That blog is known as the former hangout of Liz Warren and a purveyor of fevered screeds that bash banks with arguments that don't pass the smell test. Obviously, he's the kind of "go to" talking head HuffPo loves.
So, dear correspondent, I've now offered a post about the story. How do you like it so far?