08 February 2011

Heaping It On

These "credit-bid" sales are frauds.  They should not be permitted in the first place, and are a big part of the scam that is going on with bank balance sheets.
Here's how it works:
You lose your house to foreclosure.  You owe $300,000 on the house at the time, but the only reasonable comparables in your area have sold for $150,000.  You either have lost your job or walked off; it doesn't really matter in this instance.
The bank puts the property up for auction.  But it refuses to take less than the balance owed, because doing so causes an immediate mark-to-market on the property and hits their balance sheet.  So it "bids" the entire outstanding balance - in this case, $300,000.
The bank obviously gets the house back.  It shouldn't be able to bid at all, as this is not an "arm’s length" transaction, but the counties don't care.  A bid is a bid, even if it’s a sham bid.  The problem is that no money changes hands, because the actual holder of the note did the bidding (the proper way to do this, incidentally, is to set a reserve price and refuse to sell at less.)

So, there is even more fraud being committed by the banks.  First they lied on loan applications by over representing income and assets on some applicant’s loans, many times without the applicant’s explicit knowledge or permission (the banks have admitted to this, by the way).  Then they foreclosed on houses they didn’t have the right to foreclose on.  Now they’re trying to fraudulently hide the fact that the assets listed on their balance sheet are grossly overvalued.

The banks are running roughshod over the entire concept of rule of law, and the government is allowing them to do so.  If left unchecked, this will not end well at all.  Therefore, the question that everyone needs to ask every single one of their elected officials is, “where are the handcuffs?

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