Amir Efrati of the Wall Street Journal asks the question “Are Borrowers Free to Lie?” in an article about a court case in California. A bank sued Cecelia and Norman Hill for lying on a mortgage application. What makes the case unusual is that the Hills have already been through bankruptcy.
Even though the Hills’ debts had already been dealt with during the bankruptcy, the bank argued that the Hills should still be responsible for their mortgage because they lied on their application.
This case illustrates the abuses that went on during the housing bubble. No matter which party you focus on, they deserve to lose.
The Hills deserve to lose for lying. However, they have already faced the significant financial pain that comes with bankruptcy. Anything more would seem to be piling on.
The bank deserves to lose because they ignored their own rules about checking the accuracy of loan applications. The application listed the Hills’ occupations as a delivery driver and an employee for an auto-parts distributor with a combined income of $191,000. Someone wasn’t trying very hard to find fraudulent applications.
The Hills claim that the inflated incomes were filled in by their mortgage broker and the bank. If this is true, then the mortgage broker deserves to lose as well.
In the end, the court did the only reasonable thing which was to say that the Hills don’t have to pay anything to the bank beyond what was awarded during the bankruptcy. But, it would have been nice to see all parties lose, including anyone who made a commission or bonus from the mortgage.
To answer the question asked in the article “Are Borrowers Free to Lie?”: yes, they are if the bank is stupid, the mortgage broker corrupt, and the borrowers are content to go through bankruptcy after their financial lives blow up.