How Conflict of Interest Leads to Foreclosure
When a mortgage is taken out by a homeowner through a bank the homeowner is often unaware that the bank merely acts as a middle man. Banks will often collect monthly mortgage payments and pass them along to large lenders such as mutual funds. When banks create a front for a large investor they are obligated to keep the best interests of the true lender in mind when dealing with borrowers. This is simple enough when borrowers keep up to date with their payments for the bank is spared the trouble of chasing down defaulting homeowners.
The trouble occurs when homeowners take out a second lien from the bank itself and are unable to make either of their mortgage payments. The bank should be asking the borrower to pay the first lien before the second one however a conflict of interest occurs. The bank aims to keep its account books in a state that reflects profits rather than defaulting loans. This conflict of interest persuades the bank to ensure that the second lien is paid off before the first lien despite the first lien slipping into delinquency and then foreclosure.
The governments attempt to balance this conflict has come in the form of laws that allow mortgages to modified which allows homeowners who are at risk for foreclosure to retain their homes. However this law has been ineffective due to the conflict of interest that occurs with banks. The Democratic representative Brad Miller from North Carolina is aiming to fix this blind spot in the law by proposing a new law which will keep banks who act as the middle man for a first lien to become the lender of a second lien to a homeowner. This law, if passed, will eliminate the banks ability to redirect payments to facilitate payments for their bank and homeowners defaulting on their first liens.
If you are having financial difficulty the first bill that needs to be paid is the first mortgage. It should be paid just after your food, the heat and lights but before credit cards or the second mortgage.
Contact the Law Offices of Gregg W. Wagman at:
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New London, CT 06320
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