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Mowing the foreclosure’s lawn

By Jay MacDonald · Bankrate.com
Monday, April 11, 2011
Posted: 9 am ET

Who's paying to mow the lawn at that foreclosure down the block? If you own a life insurance policy, chances are it's you, mate. Not only that, but you're probably getting hit for twice what the guy doing the mowing is pulling down.

A recent interview in the St. Petersburg Times with a 45-year-old Dallas lawyer named Talcott Franklin takes aim at the ongoing shenanigans by mortgage middlemen. If you've been wondering why more loan modifications aren't happening, read on.

In Franklin's view, institutional investors, such as life insurance companies that sank billions into residential mortgage-backed securities, have two things in common with distressed homeowners: they would both benefit if those middlemen started offering loan mods and even forgave principal rather than foreclose, and they'd both like to see the banks that created this mess man up and take some responsibility.

Franklin, who has written two books on securitization, represents a growing number of investors who hope to pressure banks to move this sorry parade along. Until they do, the middlemen who service these foreclosures continue to dine on the carcass of our flat-lined housing market at the expense of frustrated investors.

"One of the tricks, according to the (Federal Trade Commission), is for the servicer to have an affiliate hire somebody to mow the lawn (on a foreclosed house). That $75 cost is billed back to the affiliate, who marks it up to $150 and passes it along to the servicer who then tries to bill the borrower. The borrower can't pay, so they pass it through to the investors," Franklin says. "One of the biggest problems investors have is there is really no effective way to monitor these servicers."

Try as they might, it would be a stretch for investors to pursue claims against banks, since they would have to somehow mobilize 25 percent of their ranks to do so. Franklin's clearinghouse offers the next best thing. He currently has 3,000 cases where he represents that magical 25 percent of investors.

Banks claim investors should have read the fine print on their mortgage-backed securities, especially the subprime ones. Franklin says that's hogwash.

"These investments came with warranties (from the bank) that basically said, 'If the borrower committed fraud, I'm going to buy the loan back.' You hear people saying, 'These are people who bought a Vega who are now saying they bought a Mercedes.' That's not true at all. The Vega and the Mercedes both come under warranty and the maker of the Vega has to make good on the warranty."

Franklin maintains it would ultimately be in their best interests for banks to pull their heads out of the sand.

"The question I have for those who refuse to make good on these warranties right now is, 'Who is going to buy a loan again from you next time?' Investors are not going to trust you."

On Wednesday, more than 50 national organizations urged banking regulators to withdraw proposals that allow mortgage servicers to flout the law and escape repercussions for illegal foreclosures.

Until they do, we're all just pouring money into those fraudulent lawnmowers.

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9 Comments
eric
June 07, 2011 at 8:24 pm

If milk became 40k i'd say its time to take the million dollars and buy a cow...

Sean
May 15, 2011 at 6:12 pm

@Micheal - if the government gave a million dollars to everyone, the price of milk the next day would be $40,900 instead of $4.09 that it is today. And the price of milk would stay at $40,900 until everyone's money ran out. A car would be a 6 figure investment. A house, impossible to buy. The only conceivable way this would work would be for the government to seize all businesses and fix all prices. In other words, become communist.

God luck with that idea.

Judas
May 12, 2011 at 10:26 pm

Wanna do something about this find out where the bankers like and drive up with your mover! Thats right I bet they will start talking and explaining this whole thing if a few thousand people show up with mowers running in their faces. The banks need to pay for this they screwed it up and its time to pay the piper I know its a bitch but it has to be done and it will take Americans to make it happen

surroundedbycriminals
May 07, 2011 at 9:56 pm

its hard to keep making that mortgage payment each month when everything I purchase is increasing in price and the rate of pay has not went up in 5 years.

kenhp1
April 21, 2011 at 12:45 pm

I keep seeing Obama's name regarding this crisis. Bush was the one who came on national television and said HE was authorizing TARP. Bush also advised if WE did not bailout AIG the economy would fall into a depression. Obama should have taken a different route, however, he was a new president and had to learn the circumstances of the bailout. Obama also advised he would end the war until he learned important intelligence that changed his strategy. Obama should not have made that promise
It is just amazing to me that we have so many closed minded people that focus on one person instead of telling the whole story or showing their ignorance for all to read. Both have made mistakes. However, some blame only one of them and that is wrong to do.

M. Parker
April 20, 2011 at 5:38 pm

Somehow, this is still surprising and yet not. It's sad when more money for some when allowing a home to foreclosure than to pass a loan modification. The whole purpose of a loan modification is to give the borrower a new start -- not foreclose and fill the pocket of a lawn mowing scam. I completely agree that there should be serious repercussions for these illegal foreclosures.

michael
April 20, 2011 at 1:02 pm

The criminal banks will reap what they have sewn and alienate many that have had former faith in their institution. Obamas empowered further the banks by giving them money to further criminal activitites rather than investigate. The system in America has failed four times in US history from goverment failures and bankers greed.Although speculation from propagandized media reports from these entities has put forth a bright future of recovery there will be none found as the people they have alienated and thrown to the streets and put the burden on their backs yet again.The wells run dry and investment is pointless.The goerment caused this and allowed criminalities to happen and flat refused to help in the crisis. Obama would have served America by the trillions he put us in debt for, by giving each citizen a million dollars and thereby would have had an boom economic structure. While some think this idea is ludicris, its yeild unto the US would have made prosper buying and selling and the taxes reaped would have been enormous but yet again an illiterate non business minded man has no forsight. Talk is cheap Obama and what he has done is sunk America into a non recovery mode that would take at least 15 years to recover from.America is a business nowadays and it takes a smart businessman to be the chief.Unfortunately this man has not a clue. Freezing all foreclosures would have made a difference until each case was investigated. Who is controlling the criminal banks to ensure safety of the economic structure? Seems no one is and our current goverment is illiterate and while speaking loud of care, the reality is none shall be found.A bad manager can ruin a nation as well as a business.

Troy Funk
April 13, 2011 at 7:31 pm

Ultimately it seems that the tax payers are going to have to absorb all this. There is so much efficiency and waste. If there was more incentive for homeowners to complete a Short Sale, there would be less vacant homes and fewer lawns to worry about. I write for the http://www.SarasotaShortSaleBlog.com and appreciate your information.