We’ve long admired Massachusetts Attorney General Martha Coakley’s ability and willingness to fearlessly tackle big problems with bold actions.
But when it comes to a problem as complex and far-reaching as the ongoing foreclosure crisis, we fear that will, tenacity and initiative are still not enough to overcome the very basic, if brutal, principle of caveat emptor.
We’re compelled to say this up front: In almost every case, taking all available reasonable steps to first try to help homeowners rather than evict them is, we think, the absolute right thing to do.
But just because it’s the right thing to do doesn’t mean it has to be done. Banks and lenders, except in those cases where existing laws were broken or procedural corners were cut, are currently under no legal obligation to offer any help at all. Nor should they be.
Buyers never had to enter into a binding financial obligation with their lender, nor, we hope, did anyone force them to consider buying a home in the first place.
Likewise, lenders themselves never had to agree to underwrite a loan on specific terms based on certain conditions.
To date, the choice of how to deal with the consequences when those terms weren’t met has largely been left in the hands of homeowners and lenders themselves.
Some homeowners chose to quit and walk away. Some chose to fight as hard as they could with whatever means they had to make ends meet. Some chose to work with their lenders and arrange alternative plans. Some went to court. Some were successful. Some more were not.
Some lenders chose to foreclose. Some chose to work with their borrowers. Some lenders, too, went to court.
It wasn’t always fair, and it was almost never pretty, but it also never had to be. As Tom Hagen put it in The Godfather, it was business, not personal. Just because you didn’t like it, didn’t mean it wasn’t legal.
As part of a broader effort aimed at stemming the tide of foreclosures, Coakley is pushing for passage of a loan modification bill aimed at making home loan modifications a mandated part of the foreclosure process whenever possible.
In an op/ed in The Boston Globe, Coakley called for a loan modification program that was both "predictable and enforceable." She also cited, as an example of the kind of avoidable foreclosures she was seeking to stave off, the case of an East Boston homeowner who tried – and failed – to get his loan principal amount reduced to $90,000, only to see his condo sold for $40,000 post-foreclosure.
"It made no economic sense for the bank to put this borrower out on the street," Coakley wrote.
Perhaps it doesn’t make sense to Coakley, or to the borrower – or to any of us. But again, and we can’t stress this enough, it doesn’t have to. It was never our choice to make.
We don’t know what contributed to their decision to foreclose. Maybe the lender just wanted to move on and cut ties with the borrower. Maybe they felt getting $40,000 today was a better business decision than waiting years to collect $90,000. In any case, it was their choice to make, they made it and now they must live with it.
Forcing the lender in this instance to choose modification over foreclosure – regardless of how much sense we think it might make – violates the free-market principles and pro-business policies we’ve all long advocated. As long as rules are followed and existing laws weren’t broken, we don’t think it’s fair to demand that anyone follow a pre-meditated course of action that may not be in their own self-determined best interests. Period.
Caveat Emptor. It’s Latin, and it’s old. But it’s as applicable today as it’s ever been. And no amount of Martha Coakley’s considerable will should change that.
