This is a continuation of yesterday’s post, which was my layman’s attempt at an explanation of the foreclosure process in Maryland.  As we saw, even without including a full list of the necessary documents and the legal hoops lenders must go through to foreclose on a home, it’s still a lengthy process that takes (at absolute minimum) six months.  During this time the borrowers are in essence living rent free -- and they are even technically able to live in the house after it has been bought by a new owner until they are legally evicted, which is itself a complicated legal process, albeit a quicker one than foreclosure.

The question is: how much easier do we want to make it for people to keep their homes when they aren’t paying for them?  I understand that sometimes people need some assistance, and not everyone is fortunate enough to have a safety net to help them during tough times.  But this doesn’t change the fact that we are all supposed to be responsible, live within our means, and enter into long-term loan agreements only if we are confident that our long-term earnings will allow us to comfortably make the payments.

If your house is in foreclosure because you lost your job in the recession and now are unable to make the payments, my heart goes out to you.  But banks are generally quite willing to work with borrowers who don’t simply miss their payments and then act like nothing’s happening.  Especially in cases where a home has lost a significant amount of its value (quite common during this recession), banks realize that working out a deal with the homeowner is often preferable to watching them walk away from the loan entirely.

The foreclosure process is long and complicated for this exact reason: both borrowers and lenders can agree that working out some sort of a deal is better than going through with a foreclosure sale.  Banks generally lose a good amount of money on the deal and individuals are faced with a credit rating that will stop them from buying a home again anytime soon, even if they find a job that pays more than their old one did.  The six months of legal hassles encourage such a deal.

Foreclosures often call to mind situations like The Grapes of Wrath -- a destitute family working themselves to the bone just to make ends meet is tragically evicted and forced to move on to an uncertain future.  Assuredly, there are some cases like this, but America (and Maryland) is seeing more and more cases not of tragedy but of strategy.  Many people -- researches estimate around one in eight --  have stopped paying their mortgages not out of insolvency but just because they don’t want to pay for a house that has declined in value so drastically.

Now we’ve gone from attempting to give homeowners who find themselves in an unfortunate situation a second chance to telling people it’s okay to walk away from a bad investment and make someone else clean up the mess.  They may say, “It’s the bank’s problem now,” but money lost on bad loans becomes the problem of every one of that bank’s stakeholders.

Admittedly, it was the bank’s job to find borrowers who weren’t bad risks -- people who might actually think twice before walking out on an agreement (Farmer, the “victim” in the Baltimore Sun article has walked out on three homes to date).  Yet instead of forcing them to learn their lesson we have propped up many irresponsible lenders with bailouts while simultaneously treating them like the bad guys with situations like these, where the state orders lengthy and costly reviews of their processes.

We have to ask ourselves: whose side are we on here?  The myriad of conflicting laws, bailout payments, and legal investigations that have been this administration’s response to the recession are both rewarding and punishing every loosely-involved party simultaneously.  In fact, the only people who aren’t getting both encouraged and chastised are folks like me: average citizens who live within their means, pay their bills on time, and have no outstanding debt.  I wonder how long that will last before someone in our government decides that I need to be rewarded (or punished) for not getting involved.

Probably until I can’t afford health insurance.