WEBVTT 00:00:00.000 --> 00:00:02.279 Welcome back to the Deep Dive. Our mission here 00:00:02.279 --> 00:00:06.980 is to take these really complex, often dense 00:00:06.980 --> 00:00:09.199 topics, you know, the stuff that keeps lawyers 00:00:09.199 --> 00:00:11.880 employed and policymakers, well, confused, and 00:00:11.880 --> 00:00:13.800 just break them down. Right, into the essential 00:00:13.800 --> 00:00:15.820 knowledge you need to be truly well -informed. 00:00:16.019 --> 00:00:18.079 And today we're diving into a subject that I 00:00:18.079 --> 00:00:20.879 think most people only really understand in the 00:00:20.879 --> 00:00:23.140 abstract. We're talking about foreclosure. It 00:00:23.140 --> 00:00:25.500 sounds simple, right? Someone misses a few payments. 00:00:25.640 --> 00:00:29.000 The bank takes the house. But the reality is. 00:00:30.399 --> 00:00:32.719 Forclosure is less about a simple transaction 00:00:32.719 --> 00:00:36.280 and more about executing this massive, heavily 00:00:36.280 --> 00:00:38.679 regulated and sometimes, frankly, archaic legal 00:00:38.679 --> 00:00:40.979 process. So this deep dive is going to explore 00:00:40.979 --> 00:00:44.460 the mechanics, the surprising varieties in just 00:00:44.460 --> 00:00:46.759 the U .S. system alone, and, of course, the profound 00:00:46.759 --> 00:00:49.020 human cost that's often hidden. Exactly. We've 00:00:49.020 --> 00:00:51.280 put together a staff of sources, legal analyses, 00:00:51.439 --> 00:00:54.179 a lot of economic studies, policy papers to guide 00:00:54.179 --> 00:00:55.920 us through this. And I think the very first thing 00:00:55.920 --> 00:00:57.579 we have to nail down is the fundamental legal 00:00:57.579 --> 00:01:00.100 function. I mean, what is foreclosure beyond 00:01:00.100 --> 00:01:03.420 just getting a debt paid? So formally foreclosure, 00:01:03.500 --> 00:01:08.700 it's the legal process where a lender. The mortgagee 00:01:08.700 --> 00:01:11.260 or, you know, the secured creditor forces the 00:01:11.260 --> 00:01:14.000 sale of collateral like a home. To recover the 00:01:14.000 --> 00:01:16.140 money. To recover the outstanding loan balance 00:01:16.140 --> 00:01:19.719 after a borrower defaults. But, and this is the 00:01:19.719 --> 00:01:21.959 key, the core legal action we're really focused 00:01:21.959 --> 00:01:24.780 on is the termination of the borrower's equitable 00:01:24.780 --> 00:01:27.019 right of redemption. Okay, let's unpack that 00:01:27.019 --> 00:01:29.200 because that right there feels like the aha. 00:01:30.159 --> 00:01:32.400 Nugget, the equitable right of redemption. It 00:01:32.400 --> 00:01:33.840 sounds like something out of a Dickens novel. 00:01:34.060 --> 00:01:36.980 It's very old. It's deeply historical. So what 00:01:36.980 --> 00:01:39.219 is this? Right, exactly. And why does a lender 00:01:39.219 --> 00:01:41.959 need this whole long formal process just to get 00:01:41.959 --> 00:01:43.879 rid of it? Well, you have to go back centuries. 00:01:43.959 --> 00:01:46.159 Courts of equity recognize that loans were often 00:01:46.159 --> 00:01:49.359 these highly asymmetrical relationships. The 00:01:49.359 --> 00:01:51.879 lender held all the power. So they decided that 00:01:51.879 --> 00:01:54.500 even if a borrower defaulted on the specific 00:01:54.500 --> 00:01:56.980 repayment date, they should still have the ability 00:01:56.980 --> 00:01:59.239 to pay the full debt plus costs and get their 00:01:59.239 --> 00:02:02.040 property back. So even after default. Even after 00:02:02.040 --> 00:02:04.780 default. And that ability is the equitable right 00:02:04.780 --> 00:02:07.760 of redemption. For the lender, it acts as this 00:02:07.760 --> 00:02:11.659 permanent nagging legal risk. So let me get this 00:02:11.659 --> 00:02:14.349 straight. Even if the borrower misses payments 00:02:14.349 --> 00:02:17.430 for, say, six months and the bank technically 00:02:17.430 --> 00:02:20.229 has a right to take the house, this historical 00:02:20.229 --> 00:02:24.289 right, it just sort of hangs over the property. 00:02:24.449 --> 00:02:26.530 It hangs over the property. Exactly. As long 00:02:26.530 --> 00:02:29.090 as that right exists, it creates what lawyers 00:02:29.090 --> 00:02:32.009 call a cloud on title. A cloud on title. The 00:02:32.009 --> 00:02:34.150 lender might possess the property, but they can't 00:02:34.150 --> 00:02:36.889 guarantee full, clear ownership to a future buyer. 00:02:37.250 --> 00:02:39.509 I mean, imagine trying to sell a car where the 00:02:39.509 --> 00:02:41.710 previous owner could legally show up a year later 00:02:41.710 --> 00:02:44.050 with cash and demand it back. Right. Nobody would 00:02:44.050 --> 00:02:46.530 buy it. It's an impossible sale. You'd never 00:02:46.530 --> 00:02:49.370 get a clean sale. So that clarifies it. The whole 00:02:49.370 --> 00:02:51.909 complex foreclosure process isn't just about 00:02:51.909 --> 00:02:55.069 starting a sale. It's a required legal mechanism 00:02:55.069 --> 00:02:58.539 specifically designed to... What? Extinguish 00:02:58.539 --> 00:03:01.240 that historical right? Determinate it, yes. Once 00:03:01.240 --> 00:03:03.460 the process is complete, the lender finally gains 00:03:03.460 --> 00:03:05.639 both the legal and equitable title in what's 00:03:05.639 --> 00:03:08.360 called fee simple. Meaning undisputed, clear 00:03:08.360 --> 00:03:10.909 ownership. They can sell it without worrying 00:03:10.909 --> 00:03:12.770 about that old owner coming back. Precisely. 00:03:12.770 --> 00:03:15.250 It's the legal clearance process. If a lender 00:03:15.250 --> 00:03:17.789 tries to just bypass the proper foreclosure steps, 00:03:18.050 --> 00:03:20.710 they risk a huge lawsuit later from the original 00:03:20.710 --> 00:03:23.629 borrower claiming their equitable right was never 00:03:23.629 --> 00:03:26.370 properly extinguished. Which would void the sale 00:03:26.370 --> 00:03:28.590 to a new family. It would void the sale. It would 00:03:28.590 --> 00:03:31.349 be a catastrophe for everyone. And crucially, 00:03:31.430 --> 00:03:33.889 this isn't just about the big banks and residential 00:03:33.889 --> 00:03:36.550 mortgages, is it? That's a key point people often 00:03:36.550 --> 00:03:39.710 miss. Foreclosure is the remedy for any secured 00:03:39.710 --> 00:03:42.310 debt tied to the property. It applies whenever 00:03:42.310 --> 00:03:44.069 a lien holder needs to get their money back. 00:03:44.210 --> 00:03:46.520 So who else are we talking about? Well, mortgages 00:03:46.520 --> 00:03:49.340 are the common example, sure. But you could face 00:03:49.340 --> 00:03:52.680 foreclosure from, say, a government agency for 00:03:52.680 --> 00:03:55.900 overdue property taxes, a contractor who puts 00:03:55.900 --> 00:03:58.080 a mechanics lien on your house for an unpaid 00:03:58.080 --> 00:04:01.180 kitchen remodel. Or even your HOA. Or, and this 00:04:01.180 --> 00:04:03.000 is increasingly common today, your homeowner 00:04:03.000 --> 00:04:05.199 association for overdue dues or assessments. 00:04:05.580 --> 00:04:08.099 Any lien can trigger it. Okay, so now that we 00:04:08.099 --> 00:04:09.800 get the core function, it's about clearing the 00:04:09.800 --> 00:04:12.860 title. Let's dive into the fascinating variability 00:04:12.860 --> 00:04:15.370 within the U .S. system. Right. Because our sources 00:04:15.370 --> 00:04:17.949 confirm the flavor of foreclosure you experience 00:04:17.949 --> 00:04:20.629 depends almost entirely on which state you live 00:04:20.629 --> 00:04:23.850 in. We've identified three primary legal types. 00:04:24.050 --> 00:04:28.269 Yes. And the U .S. system is split, really, between 00:04:28.269 --> 00:04:32.009 court -involved and non -court -involved methods. 00:04:32.430 --> 00:04:34.310 Let's start with the one that provides the most 00:04:34.310 --> 00:04:36.470 oversight, the one that's mandatory in almost 00:04:36.470 --> 00:04:39.189 half the country, judicial foreclosure. Judicial. 00:04:39.310 --> 00:04:42.439 This one sounds like it is, well... A full -blown 00:04:42.439 --> 00:04:45.019 lawsuit. It is. It absolutely is. The process 00:04:45.019 --> 00:04:47.500 requires a sale under direct court supervision. 00:04:47.860 --> 00:04:50.980 The lender initiates it by filing a civil lawsuit 00:04:50.980 --> 00:04:53.420 against the borrower, naming them as the defendant. 00:04:53.759 --> 00:04:55.540 And the court is involved every step of the way. 00:04:55.620 --> 00:04:57.819 Every major step. It's available in every state, 00:04:57.920 --> 00:05:00.300 but it's the only required method in about 20 00:05:00.300 --> 00:05:03.180 states, including huge population centers like 00:05:03.180 --> 00:05:06.139 Florida, Illinois, and New York. So for the borrower, 00:05:06.319 --> 00:05:08.420 what are the practical implications of a judicial 00:05:08.420 --> 00:05:13.160 process? More time, more rights. Both. The borrower 00:05:13.160 --> 00:05:15.519 gets due process. They're formally served with 00:05:15.519 --> 00:05:17.319 the complaint. They have the opportunity to file 00:05:17.319 --> 00:05:19.040 defenses, which we'll definitely get into later. 00:05:19.480 --> 00:05:22.000 And the process is lengthy. I mean, it often 00:05:22.000 --> 00:05:24.399 takes 18 months or more from the first missed 00:05:24.399 --> 00:05:27.399 payment to the final auction. And a judge or 00:05:27.399 --> 00:05:29.720 some kind of court official oversees the actual 00:05:29.720 --> 00:05:32.579 sale? Yes. A judge or an appointed referee makes 00:05:32.579 --> 00:05:34.939 the final decision, supervises the sale, and 00:05:34.939 --> 00:05:36.879 then manages the distribution of the proceeds. 00:05:37.319 --> 00:05:39.579 Okay, let's talk about that distribution. Who 00:05:39.579 --> 00:05:41.680 gets paid first? It's not just the bank, right? 00:05:41.879 --> 00:05:44.519 No, lien priority is absolutely key here. The 00:05:44.519 --> 00:05:47.079 proceeds are distributed in a very strict order. 00:05:47.360 --> 00:05:49.800 First, the costs of the sale and court fees get 00:05:49.800 --> 00:05:52.300 covered. Makes sense. Second, the mortgage that 00:05:52.300 --> 00:05:54.540 started the whole thing gets paid off. Third, 00:05:54.740 --> 00:05:58.040 any junior lien holders think second mortgages, 00:05:58.240 --> 00:06:01.360 HEO fees, those HOA liens, they get paid in the 00:06:01.360 --> 00:06:04.079 order they were recorded. And if, by some miracle, 00:06:04.300 --> 00:06:06.850 there's money left over. If there's any surplus 00:06:06.850 --> 00:06:09.209 at all, only then does it go back to the borrower, 00:06:09.250 --> 00:06:11.589 the mortgager. The whole thing is designed for 00:06:11.589 --> 00:06:15.490 transparency, but that delay, it adds significant 00:06:15.490 --> 00:06:18.269 costs. OK, so let's contrast that with the system 00:06:18.269 --> 00:06:20.269 that's really common in the Western U .S. and 00:06:20.269 --> 00:06:23.529 a lot of the Sunbelt, nonjudicial foreclosure. 00:06:23.930 --> 00:06:26.470 People also call it foreclosure by power of sale. 00:06:26.629 --> 00:06:28.790 And this is the favored system of lenders, and 00:06:28.790 --> 00:06:31.689 for a very good reason. It authorizes the sale 00:06:31.689 --> 00:06:33.910 of the property by the mortgage holder, usually 00:06:33.910 --> 00:06:36.110 through a third party trustee, without needing 00:06:36.110 --> 00:06:39.180 court supervision. So no judge, no lawsuit. No 00:06:39.180 --> 00:06:42.819 judge. But it's only possible if the loan documentation, 00:06:43.139 --> 00:06:46.139 either the mortgage or more commonly what's called 00:06:46.139 --> 00:06:49.319 a deed of trust, specifically includes a power 00:06:49.319 --> 00:06:51.519 of sale clause. This sounds less like a state 00:06:51.519 --> 00:06:54.060 action and more like a private contractual remedy. 00:06:54.339 --> 00:06:56.379 That's exactly how the courts view it, which 00:06:56.379 --> 00:06:59.180 has massive implications for borrower defenses, 00:06:59.399 --> 00:07:01.660 as we'll see. For the lender, the benefit is 00:07:01.660 --> 00:07:03.959 just undeniable. It's generally much faster, 00:07:04.180 --> 00:07:06.819 sometimes done in as little as 90 to 120. days 00:07:06.819 --> 00:07:08.980 and it's way cheaper. They avoid all the court 00:07:08.980 --> 00:07:11.639 filing fees and the long legal battles. And lenders 00:07:11.639 --> 00:07:13.779 have been pushing for this for a while. Oh, yeah. 00:07:13.860 --> 00:07:17.000 They began pushing for this reform way back in 00:07:17.000 --> 00:07:19.819 the mid 19th century. Their argument was that 00:07:19.819 --> 00:07:23.000 judicial foreclosure was, quote, clogging state 00:07:23.000 --> 00:07:26.540 dockets. Today, in states like California, Texas 00:07:26.540 --> 00:07:30.399 and Washington, this nonjudicial process is absolutely 00:07:30.399 --> 00:07:32.819 the standard. OK, and then there's a third, you 00:07:32.819 --> 00:07:35.399 said, a highly specialized and pretty rare version. 00:07:36.109 --> 00:07:38.470 Strict foreclosure. Right. Strict foreclosure 00:07:38.470 --> 00:07:41.110 is a bit of a historical anomaly. It's only really 00:07:41.110 --> 00:07:43.029 used in a handful of states like Connecticut 00:07:43.029 --> 00:07:45.689 and Vermont. So what makes it so different, so 00:07:45.689 --> 00:07:48.129 strict? What makes it unique is that if the lender 00:07:48.129 --> 00:07:51.170 wins the case, the court orders the borrower 00:07:51.170 --> 00:07:54.069 to pay the entire debt within a specific, very 00:07:54.069 --> 00:07:56.410 short period. We're talking maybe 30 or 60 days. 00:07:56.689 --> 00:08:00.189 If they fail to pay, the lender just gets full 00:08:00.189 --> 00:08:02.449 title to the property. Wait, they just take the 00:08:02.449 --> 00:08:04.589 title? There's no public auction? How does that 00:08:04.589 --> 00:08:06.250 work if the property is worth way more than the 00:08:06.250 --> 00:08:08.870 debt? That's the crucial point. Because there 00:08:08.870 --> 00:08:11.709 is no sale, the lender keeps the property and 00:08:11.709 --> 00:08:14.269 any equity in it. They are not obligated to pay 00:08:14.269 --> 00:08:16.310 the borrower the difference. That seems unfair. 00:08:16.449 --> 00:08:19.029 It would be. And to protect the borrower's interest, 00:08:19.410 --> 00:08:22.089 courts will generally only permit strict foreclosure 00:08:22.089 --> 00:08:24.490 when the value of the property is definitively 00:08:24.490 --> 00:08:27.310 less than the debt owed. In other words, when 00:08:27.310 --> 00:08:31.350 the property is underwater. Got it. So if there's 00:08:31.350 --> 00:08:34.120 substantial equity, the court would be... almost 00:08:34.120 --> 00:08:37.230 forced to order a judicial sale instead. Almost 00:08:37.230 --> 00:08:39.870 always. They have to, to ensure that equity is 00:08:39.870 --> 00:08:41.929 protected and potentially returned to the homeowner. 00:08:42.049 --> 00:08:44.289 It's a very limited tool for a very specific 00:08:44.289 --> 00:08:46.549 situation. That really sets the geographical 00:08:46.549 --> 00:08:49.450 stage for the process. But before the sheriff's 00:08:49.450 --> 00:08:51.750 auctioneer or the trustee can even start prepping 00:08:51.750 --> 00:08:55.129 the sale, a huge administrative step has to happen. 00:08:55.230 --> 00:08:58.230 And it's governed by what is probably the most 00:08:58.230 --> 00:09:01.070 powerful piece of fine print in your entire mortgage. 00:09:01.389 --> 00:09:03.769 The acceleration clause. Acceleration is. It's 00:09:03.769 --> 00:09:06.509 the nuclear button in the lender's arsenal. sign 00:09:06.509 --> 00:09:09.230 that, you know, that huge stack of papers for 00:09:09.230 --> 00:09:11.470 your mortgage, typically in Section 16, 17 or 00:09:11.470 --> 00:09:13.649 18 of the standard document, you agree to this. 00:09:13.789 --> 00:09:16.809 And what did I agree to? You agreed that if you 00:09:16.809 --> 00:09:19.309 break a term, a covenant of the mortgage, the 00:09:19.309 --> 00:09:21.789 lender doesn't just ask for the payment you missed. 00:09:21.929 --> 00:09:24.629 They declare the entire debt immediately due. 00:09:24.769 --> 00:09:26.490 This is where it gets really interesting. So 00:09:26.490 --> 00:09:31.899 I miss my, say. to $2 ,500 monthly payment. Without 00:09:31.899 --> 00:09:35.879 acceleration, I owe $2 ,500 plus late fees. With 00:09:35.879 --> 00:09:39.320 acceleration, what happens? It immediately declares 00:09:39.320 --> 00:09:42.580 the entire payable debt due. So if you had $300 00:09:42.580 --> 00:09:45.039 ,000 left on your mortgage principal, you now 00:09:45.039 --> 00:09:47.899 owe $300 ,000 plus all the accrued interest, 00:09:48.200 --> 00:09:51.299 late fees, property inspection costs, attorney's 00:09:51.299 --> 00:09:54.360 fees. You owe it all. Right now. Right now. It 00:09:54.360 --> 00:09:56.879 transforms what was a manageable, if difficult, 00:09:57.000 --> 00:10:00.519 cash flow problem into an instant financial impossibility 00:10:00.519 --> 00:10:02.659 for most people. And it's not just missing payments 00:10:02.659 --> 00:10:04.519 that can trigger this, right? What are some of 00:10:04.519 --> 00:10:07.100 the other maybe sneakier breaches that can cause 00:10:07.100 --> 00:10:10.120 acceleration? Any action that attempts to transfer 00:10:10.120 --> 00:10:12.500 ownership or an interest in the property without 00:10:12.500 --> 00:10:15.120 the lender's written consent. is often a trigger. 00:10:15.279 --> 00:10:17.419 Why is that? Well, it's all about protecting 00:10:17.419 --> 00:10:20.000 the lender's collateral. So examples would be 00:10:20.000 --> 00:10:23.159 executing a lease option agreement where your 00:10:23.159 --> 00:10:25.139 tenant agrees to buy the house down the road 00:10:25.139 --> 00:10:28.980 or entering into a land contract, even transferring 00:10:28.980 --> 00:10:30.980 the title to a family trust without permission. 00:10:31.139 --> 00:10:34.159 The lender needs to maintain their priority against 00:10:34.159 --> 00:10:37.080 you, the borrower they vetted, any ownership 00:10:37.080 --> 00:10:39.200 change without telling them breaches that trust 00:10:39.200 --> 00:10:42.570 and bang. acceleration. So once the lender decides 00:10:42.570 --> 00:10:45.490 to pull that trigger, the clock starts ticking 00:10:45.490 --> 00:10:49.350 very, very loudly. What are the formal mandatory 00:10:49.350 --> 00:10:51.870 documents they have to serve to let the borrower 00:10:51.870 --> 00:10:54.250 know this is happening? The first and most crucial 00:10:54.250 --> 00:10:57.210 document is the notice of acceleration. It's 00:10:57.210 --> 00:10:59.450 also called a demand letter or a breach letter. 00:10:59.649 --> 00:11:01.529 And what does it have to say? And it's to state 00:11:01.529 --> 00:11:03.529 the breach precisely, whether it's missed payments 00:11:03.529 --> 00:11:05.950 or an unauthorized transfer. And it must state 00:11:05.950 --> 00:11:08.669 the exact time period the debtor has to reinstate 00:11:08.669 --> 00:11:11.350 or cure the loan. What are the typical cure periods 00:11:11.350 --> 00:11:13.009 and how do they make sure the borrower actually 00:11:13.009 --> 00:11:15.409 gets this critical document? It's not just an 00:11:15.409 --> 00:11:18.909 email, I assume. Oh, no. While it varies, the 00:11:18.909 --> 00:11:21.389 standard minimum cure period is usually 30 days 00:11:21.389 --> 00:11:24.149 for residential mortgages. For commercial properties, 00:11:24.330 --> 00:11:26.870 it can be as short as 10 days. And to satisfy 00:11:26.870 --> 00:11:29.269 the legal requirements, these letters have to 00:11:29.269 --> 00:11:31.870 be sent by both certified mail, which gives the 00:11:31.870 --> 00:11:34.110 lender proof of attempted delivery, and regular 00:11:34.110 --> 00:11:37.330 mail to all the relevant addresses for... every 00:11:37.330 --> 00:11:40.350 single person who signed the original note. And 00:11:40.350 --> 00:11:42.450 they have to provide a specific financial breakdown 00:11:42.450 --> 00:11:44.730 of what is owed, which, as you mentioned, is 00:11:44.730 --> 00:11:46.429 more than just the principal, right? Absolutely. 00:11:46.929 --> 00:11:49.429 The lender must include a comprehensive payoff 00:11:49.429 --> 00:11:52.289 quote, typically estimated 30 days from the date 00:11:52.289 --> 00:11:54.649 of the letter. This is often packaged within 00:11:54.649 --> 00:11:57.049 an initial communication letter, which is mandated 00:11:57.049 --> 00:11:59.549 by the Fair Debt Collection Practices Act, or 00:11:59.549 --> 00:12:02.509 FDCPA. Okay, let's define that for everyone. 00:12:02.669 --> 00:12:05.389 What is the FDCPA and why does it matter here? 00:12:05.759 --> 00:12:08.700 The FDCTA is a federal law. It's designed to 00:12:08.700 --> 00:12:11.399 eliminate abusive and deceptive collection practices. 00:12:11.740 --> 00:12:14.820 It requires debt collectors, which a foreclosure 00:12:14.820 --> 00:12:16.840 attorney or a servicing company becomes at this 00:12:16.840 --> 00:12:19.480 point, to provide specific disclosures to the 00:12:19.480 --> 00:12:21.539 debtor within five days of that first communication. 00:12:21.919 --> 00:12:24.019 And the payoff quote is part of that. It is. 00:12:24.100 --> 00:12:26.580 And it details not just the principal and interest 00:12:26.580 --> 00:12:30.299 due, but also any outstanding unpaid property 00:12:30.299 --> 00:12:33.580 taxes, forced place insurance, and all the accumulated 00:12:33.580 --> 00:12:36.779 delinquent payments. So the final bill the borrower 00:12:36.779 --> 00:12:40.019 sees is almost always way higher than they were 00:12:40.019 --> 00:12:42.600 expecting because it's rolling in all these third 00:12:42.600 --> 00:12:45.320 party fees and taxes the bank had to cover to 00:12:45.320 --> 00:12:48.100 protect its interest. Precisely. If the borrower 00:12:48.100 --> 00:12:50.379 tries to cure the loan, they're not just paying 00:12:50.379 --> 00:12:52.820 back a few missed mortgage payments. They have 00:12:52.820 --> 00:12:55.360 to pay the full accelerated balance or what's 00:12:55.360 --> 00:12:57.779 more common during the cure period, pay everything 00:12:57.779 --> 00:13:00.399 except the remaining principal to deaccelerate 00:13:00.399 --> 00:13:02.000 the loan and get back on the original payment 00:13:02.000 --> 00:13:05.460 schedule. We briefly touched on older or maybe 00:13:05.460 --> 00:13:07.679 specialized mortgages that might not have this 00:13:07.679 --> 00:13:10.139 powerful acceleration clause. If they don't have 00:13:10.139 --> 00:13:13.179 it, how paralyzed is the lender? They are severely 00:13:13.179 --> 00:13:15.019 limited. I mean, if there is no acceleration 00:13:15.019 --> 00:13:17.399 clause, the lender can only sue the borrower 00:13:17.399 --> 00:13:19.360 for the payments that are currently past due. 00:13:19.480 --> 00:13:21.919 They can't demand the whole loan back. So what 00:13:21.919 --> 00:13:24.419 are their options? Their options are pretty bad. 00:13:24.860 --> 00:13:27.039 They either have to wait years until the loan 00:13:27.039 --> 00:13:29.139 naturally matures and all the payments come due, 00:13:29.299 --> 00:13:31.860 or they have to try and convince a court to force 00:13:31.860 --> 00:13:34.000 the sale of only a small piece of the property 00:13:34.000 --> 00:13:37.039 to cover the past due payments. I see. That explains 00:13:37.039 --> 00:13:39.919 the need for it from their perspective. It's 00:13:39.919 --> 00:13:42.059 hard to run a lending business if you have to 00:13:42.059 --> 00:13:44.580 wait 20 years to get your money back from a defaulting 00:13:44.580 --> 00:13:47.580 borrower. The acceleration clause is really the 00:13:47.580 --> 00:13:50.279 necessary prelude to the entire modern foreclosure 00:13:50.279 --> 00:13:53.480 landscape. And speaking of speed and efficiency, 00:13:53.820 --> 00:13:56.879 this whole push for immediate debt recovery through 00:13:56.879 --> 00:14:00.039 acceleration is exactly why lenders then focused 00:14:00.039 --> 00:14:02.840 on changing the judicial system itself. This 00:14:02.840 --> 00:14:06.120 leads us right to the rise of non -judicial foreclosure 00:14:06.120 --> 00:14:08.840 starting back in the mid -19th century. Right. 00:14:08.940 --> 00:14:10.980 The sources show the financial industry's reasoning 00:14:10.980 --> 00:14:13.820 was twofold. First, they wanted to lower the 00:14:13.820 --> 00:14:16.360 cost of credit by avoiding these long drawn out 00:14:16.360 --> 00:14:18.460 court battles. And second. Second, and this is 00:14:18.460 --> 00:14:20.240 interesting, they argued it would be less traumatic 00:14:20.240 --> 00:14:22.960 for defaulting borrowers by avoiding the interim 00:14:22.960 --> 00:14:25.539 effects, the terror effects of being formally 00:14:25.539 --> 00:14:27.700 sued and dragged through the civil court system. 00:14:28.059 --> 00:14:30.320 Let's break down the actual steps of that nonjudicial 00:14:30.320 --> 00:14:33.179 process, the statutory procedure you'd see in 00:14:33.179 --> 00:14:35.240 a place like California. How does the process 00:14:35.240 --> 00:14:38.409 go from that breach letter to the sale? without 00:14:38.409 --> 00:14:41.009 a judge ever getting involved. So once that cure 00:14:41.009 --> 00:14:43.610 period we talked about expires, the mortgagee, 00:14:43.610 --> 00:14:46.909 or often a private foreclosure trustee, gives 00:14:46.909 --> 00:14:50.090 the debtor a formal notice of default, the NOD, 00:14:50.190 --> 00:14:52.409 and a notice of their intent to sell the property. 00:14:52.669 --> 00:14:55.830 And this NOD is a public document. It is. This 00:14:55.830 --> 00:14:58.610 NOD is a state -specific document, and it's recorded 00:14:58.610 --> 00:15:00.730 against the property with the county recorder's 00:15:00.730 --> 00:15:02.870 office. That recording acts as the public announcement 00:15:02.870 --> 00:15:05.690 that a sale is coming. So who's the state supervisor 00:15:05.690 --> 00:15:08.289 here if there's no judge? In the majority of 00:15:08.289 --> 00:15:10.549 non -judicial states, virtually the only government 00:15:10.549 --> 00:15:12.909 involvement is the county recorder, and their 00:15:12.909 --> 00:15:15.820 role is purely ministerial. What does that mean, 00:15:15.919 --> 00:15:18.279 ministerial? It means they just record the NOD 00:15:18.279 --> 00:15:20.460 and the eventual trustee's deed of sale. They 00:15:20.460 --> 00:15:23.019 make sure the format meets basic legal standards. 00:15:23.240 --> 00:15:25.500 They are specifically denied the power to decide 00:15:25.500 --> 00:15:27.779 whether the sale should proceed. It's basically 00:15:27.779 --> 00:15:30.639 a contractual execution, not a state -mandated 00:15:30.639 --> 00:15:33.960 judicial action. That said, our sources did flag 00:15:33.960 --> 00:15:36.860 one notable exception, where a government official 00:15:36.860 --> 00:15:40.740 is involved, even in a non -judicial state. Colorado. 00:15:40.740 --> 00:15:43.379 Colorado is unique. It requires the use of a 00:15:43.379 --> 00:15:45.840 county public trustee who is a government official 00:15:45.840 --> 00:15:49.340 to carry out the whole foreclosure process instead 00:15:49.340 --> 00:15:52.399 of a private corporate trustee. It adds a slight 00:15:52.399 --> 00:15:55.019 layer of public accountability, but the legal 00:15:55.019 --> 00:15:57.879 basis is still that nonjudicial power of sale. 00:15:58.039 --> 00:16:00.539 So once all the notices have been served and 00:16:00.539 --> 00:16:03.419 the time periods have run out, the process culminates 00:16:03.419 --> 00:16:05.950 in the foreclosure auction. This is where the 00:16:05.950 --> 00:16:08.389 competitive balance gets, well, fundamentally 00:16:08.389 --> 00:16:12.789 skewed by one simple rule, the credit bid. It's 00:16:12.789 --> 00:16:15.450 a huge, huge operational advantage for the institutional 00:16:15.450 --> 00:16:18.350 creditor. The auction is public, but the lender, 00:16:18.470 --> 00:16:20.769 the secured creditor, is the only party legally 00:16:20.769 --> 00:16:23.580 allowed to make a credit bid. Okay, explain the 00:16:23.580 --> 00:16:25.740 practical reality of a credit bid versus a cash 00:16:25.740 --> 00:16:27.759 bid. So let's say the borrower owes the bank 00:16:27.759 --> 00:16:31.740 $300 ,000. The bank can bid up to $300 ,000 without 00:16:31.740 --> 00:16:34.500 spending a single dime of actual cash. They're 00:16:34.500 --> 00:16:36.259 bidding with the outstanding debt they already 00:16:36.259 --> 00:16:38.980 hold. And everyone else. Everyone else, investors, 00:16:39.279 --> 00:16:42.539 individuals, speculators, they have to present 00:16:42.539 --> 00:16:45.340 cash or a cash equivalent like a cashier's check 00:16:45.340 --> 00:16:48.080 immediately to the auctioneer the second they 00:16:48.080 --> 00:16:50.480 win the bid. This severely limits who can compete, 00:16:50.659 --> 00:16:52.720 and it often just ensures the lender gets the 00:16:52.720 --> 00:16:55.159 property back if the price doesn't go above what 00:16:55.159 --> 00:16:57.399 they're owed. So if an outside investor wins, 00:16:57.679 --> 00:17:00.679 they pay cash and that cash pays off the debt. 00:17:00.919 --> 00:17:03.700 But if the bank wins with its credit bid, they 00:17:03.700 --> 00:17:06.160 just take ownership and wipe the debt off their 00:17:06.160 --> 00:17:08.980 books against the value of the asset. Precisely. 00:17:09.160 --> 00:17:11.700 The highest bidder takes ownership and the new 00:17:11.700 --> 00:17:14.220 owner gets the property clear of the former borrower's 00:17:14.220 --> 00:17:17.160 interest. However, as you rightly flagged earlier, 00:17:17.380 --> 00:17:19.500 they don't necessarily get it free of all leasing. 00:17:19.500 --> 00:17:21.559 Right. So what kind of leasing can survive a 00:17:21.559 --> 00:17:24.210 foreclosure sale? Any leasing that is superior 00:17:24.210 --> 00:17:26.769 to the lien being foreclosed on will survive 00:17:26.769 --> 00:17:28.990 and stay on the property, which the new buyer 00:17:28.990 --> 00:17:31.190 then inherits. What are the common ones? The 00:17:31.190 --> 00:17:33.509 most common examples are unpaid property taxes. 00:17:33.730 --> 00:17:37.029 Those always maintain priority. Or a senior mortgage 00:17:37.029 --> 00:17:39.430 if the foreclosure was started by a junior lien 00:17:39.430 --> 00:17:42.529 holder, like a second mortgage. That's why cash 00:17:42.529 --> 00:17:44.950 bidders have to do a ton of title research before 00:17:44.950 --> 00:17:46.789 they ever raise their hand. This brings us to 00:17:46.789 --> 00:17:49.720 borrower defenses. For those borrowers who try 00:17:49.720 --> 00:17:52.099 to fight the process, their success rate and 00:17:52.099 --> 00:17:54.099 even the kinds of arguments they're allowed to 00:17:54.099 --> 00:17:57.180 use are entirely dependent on which legal system 00:17:57.180 --> 00:17:59.900 they're in. It creates this huge legal disparity. 00:18:00.299 --> 00:18:03.200 In judicial states, the borrower has the powerful 00:18:03.200 --> 00:18:05.440 standing defense available to them. Standing 00:18:05.440 --> 00:18:08.299 meaning the right to sue. Right. Because the 00:18:08.299 --> 00:18:10.900 lender is a plaintiff in a civil suit, they have 00:18:10.900 --> 00:18:12.880 to prove they have the right to be there. We 00:18:12.880 --> 00:18:14.819 saw numerous successful dismissals in judicial 00:18:14.819 --> 00:18:17.940 states like Ohio and in certain Colorado courts 00:18:17.940 --> 00:18:20.180 where the alleged lender just couldn't produce 00:18:20.180 --> 00:18:22.359 the original promissory note. They couldn't prove 00:18:22.359 --> 00:18:25.359 they were the real party in interest. Which makes 00:18:25.359 --> 00:18:28.240 sense given how rapidly loans were being securitized 00:18:28.240 --> 00:18:30.420 and sold all over the country. Sometimes the 00:18:30.420 --> 00:18:32.579 bank filing the suit isn't actually the bank 00:18:32.579 --> 00:18:35.220 holding the note. Exactly. It's a fundamental 00:18:35.220 --> 00:18:37.640 failure of due diligence on the lender's part. 00:18:38.559 --> 00:18:41.779 But now switch to the non -judicial states. There, 00:18:41.980 --> 00:18:44.279 the borrower often tries to invoke the due process 00:18:44.279 --> 00:18:47.000 argument, claiming the process violates their 00:18:47.000 --> 00:18:49.839 constitutional right to fair treatment. And courts 00:18:49.839 --> 00:18:52.140 in those non -judicial states like California, 00:18:52.380 --> 00:18:56.069 they largely reject that argument. Why? Because 00:18:56.069 --> 00:18:58.589 the constitutional right to due process only 00:18:58.589 --> 00:19:01.150 applies when there is a significant action taken 00:19:01.150 --> 00:19:03.970 by a state actor. A government entity. A government 00:19:03.970 --> 00:19:07.230 entity. Since the nonjudicial process is executed 00:19:07.230 --> 00:19:10.150 privately by the lender or a trustee, with the 00:19:10.150 --> 00:19:12.630 county recorder just acting in that ministerial 00:19:12.630 --> 00:19:14.990 role, courts have repeatedly ruled that there 00:19:14.990 --> 00:19:17.109 isn't enough state action to trigger constitutional 00:19:17.109 --> 00:19:20.190 protection. They argue the borrower willingly 00:19:20.190 --> 00:19:22.829 agreed to the power of sale clause in the deed 00:19:22.829 --> 00:19:25.130 of trust. So just by agreeing to that clause 00:19:25.130 --> 00:19:28.269 in the paperwork, the borrower essentially waived 00:19:28.269 --> 00:19:30.369 their constitutional offense against the process 00:19:30.369 --> 00:19:33.230 itself. That is the legal reality in those jurisdictions. 00:19:33.609 --> 00:19:36.289 Courts have been quite clear. If debtors desire 00:19:36.289 --> 00:19:38.829 the additional protection of the formalities 00:19:38.829 --> 00:19:40.990 of judicial foreclosure, they should have secured 00:19:40.990 --> 00:19:42.890 a loan that didn't include the power of sale. 00:19:43.029 --> 00:19:46.299 Wow. OK, now let's talk about the paradox that 00:19:46.299 --> 00:19:49.380 really highlights the institutional bias in these 00:19:49.380 --> 00:19:51.960 systems. Yeah. The tender rule. This affects 00:19:51.960 --> 00:19:54.980 states like California, Georgia and Texas. The 00:19:54.980 --> 00:19:58.160 tender rule is just. It's astonishing in its 00:19:58.160 --> 00:20:00.720 effect. It's based on this old legal maxim. He 00:20:00.720 --> 00:20:04.420 who seeks equity must first do equity. OK. What 00:20:04.420 --> 00:20:06.859 it means is if a borrower wants to legally challenge 00:20:06.859 --> 00:20:09.680 an allegedly wrongful foreclosure, say based 00:20:09.680 --> 00:20:12.640 on fraud or improper notice, they must first 00:20:12.640 --> 00:20:15.420 make legal tender of the entire remaining debt 00:20:15.420 --> 00:20:17.880 balance prior to the sale. Wait, hold on. You 00:20:17.880 --> 00:20:20.140 have to pay off your entire mortgage in full. 00:20:20.589 --> 00:20:22.589 just to reserve the right to sue the bank for 00:20:22.589 --> 00:20:24.750 improperly trying to take your house. That seems 00:20:24.750 --> 00:20:27.049 fundamentally contradictory. It is the ultimate 00:20:27.049 --> 00:20:30.349 catch -22. As legal critics have noted, if the 00:20:30.349 --> 00:20:32.390 borrower had the cash available to promptly pay 00:20:32.390 --> 00:20:34.710 off the entire balance, they wouldn't be facing 00:20:34.710 --> 00:20:36.509 foreclosure for missing payments in the first 00:20:36.509 --> 00:20:39.630 place. It makes legal challenges basically impossible 00:20:39.630 --> 00:20:42.529 for the very people the law is supposed to protect. 00:20:42.769 --> 00:20:44.890 The people without deep pockets, exactly. And 00:20:44.890 --> 00:20:46.930 if they don't comply, even if they can later 00:20:46.930 --> 00:20:49.420 prove the bank was fraudulent, courts... are 00:20:49.420 --> 00:20:52.480 just unsympathetic. Highly unsympathetic. Courts 00:20:52.480 --> 00:20:54.660 have repeatedly rejected attempts by borrowers 00:20:54.660 --> 00:20:57.079 to recover losses from a subsequent fire sale, 00:20:57.339 --> 00:21:00.200 arguing the borrower failed to fulfill the prerequisite 00:21:00.200 --> 00:21:03.000 of tendering the debt. It just solidifies the 00:21:03.000 --> 00:21:05.700 power of the institutional creditor against the 00:21:05.700 --> 00:21:07.599 individual property owner who's trying to get 00:21:07.599 --> 00:21:10.980 redress. So assuming the house is gone, the auction 00:21:10.980 --> 00:21:13.180 block is cleared, the financial consequences 00:21:13.180 --> 00:21:15.720 for the borrower, they don't necessarily end 00:21:15.720 --> 00:21:18.170 there. This brings us to the dreaded deficiency 00:21:18.170 --> 00:21:20.730 judgment, and this depends entirely on whether 00:21:20.730 --> 00:21:23.910 the debt is recourse or non -recourse. A deficiency 00:21:23.910 --> 00:21:26.829 judgment is the lender's mechanism for clawing 00:21:26.829 --> 00:21:29.930 back the remaining loss. If the property sells 00:21:29.930 --> 00:21:31.769 at auction for less than the remaining mortgage 00:21:31.769 --> 00:21:35.130 balance, so the borrower owed $300 ,000 and the 00:21:35.130 --> 00:21:37.829 house sold for $250 ,000, the court may enter 00:21:37.829 --> 00:21:40.589 a deficiency judgment for that $50 ,000 difference 00:21:40.589 --> 00:21:44.009 against the mortgager. And that $50 ,000 is no 00:21:44.009 --> 00:21:47.150 longer secured by the house. It's now a personal 00:21:47.150 --> 00:21:50.450 debt. Correct. It transforms into a separate, 00:21:50.609 --> 00:21:53.349 unsecured judgment, which creates a lien on the 00:21:53.349 --> 00:21:56.670 borrower's other assets. The lender can now pursue 00:21:56.670 --> 00:21:59.589 collection efforts against wages, bank accounts, 00:21:59.849 --> 00:22:02.630 any other property the borrower might own. This 00:22:02.630 --> 00:22:04.750 is where that distinction between recourse and 00:22:04.750 --> 00:22:07.569 non -recourse debt becomes a critical lifeline 00:22:07.569 --> 00:22:10.289 for a lot of homeowners. What makes a debt non 00:22:10.289 --> 00:22:13.440 -recourse? Non -recourse debt legally prevents 00:22:13.440 --> 00:22:15.799 the lender from pursuing the borrower's other 00:22:15.799 --> 00:22:18.680 assets to get that deficiency loss back. They 00:22:18.680 --> 00:22:21.079 are limited strictly to the collateral, the house. 00:22:21.200 --> 00:22:23.660 That's it. And is that common? In states like 00:22:23.660 --> 00:22:26.200 California, original purchase money mortgages, 00:22:26.240 --> 00:22:28.240 the loan you use to buy your own or occupied 00:22:28.240 --> 00:22:31.000 home, are often automatically non -recourse by 00:22:31.000 --> 00:22:33.359 state law. The lender just accepts that loss 00:22:33.359 --> 00:22:35.779 as part of the risk of the loan. But the sources 00:22:35.779 --> 00:22:38.279 warn that refinancing completely changes this 00:22:38.279 --> 00:22:41.099 equation. It's the biggest trap. While your original 00:22:41.099 --> 00:22:43.640 loan might be non -recourse, if you refinance 00:22:43.640 --> 00:22:45.619 the property or take out a home equity line of 00:22:45.619 --> 00:22:49.160 credit, a HEOC, those new loans are often recourse 00:22:49.160 --> 00:22:51.799 debt. So what does that mean in practice? It 00:22:51.799 --> 00:22:54.039 means if the property sells for less than the 00:22:54.039 --> 00:22:56.539 debt, the borrower is still personally on the 00:22:56.539 --> 00:22:58.900 hook for any deficiency on those refinanced amounts. 00:22:59.579 --> 00:23:01.579 The average person doesn't realize they've lost 00:23:01.579 --> 00:23:04.299 that non -recourse protection just by consolidating 00:23:04.299 --> 00:23:07.460 their debt. And speaking of other debts, what 00:23:07.460 --> 00:23:10.549 happens to the junior lands? The second mortgages, 00:23:10.569 --> 00:23:14.410 the HLOCs, the HOA fees, they were wiped out 00:23:14.410 --> 00:23:16.750 by the primary foreclosure. Are they just gone? 00:23:16.970 --> 00:23:19.589 The lands on the property is gone, yes. If the 00:23:19.589 --> 00:23:22.009 foreclosing land is senior, all junior lands 00:23:22.009 --> 00:23:24.130 are extinguished from the property's title. So 00:23:24.130 --> 00:23:25.829 the bank that held the second mortgage is now 00:23:25.829 --> 00:23:28.210 an unsecured creditor. They no longer have collateral. 00:23:28.470 --> 00:23:30.849 But the debt isn't gone. The debt is not gone. 00:23:30.990 --> 00:23:32.650 They have to decide if they want to sue for a 00:23:32.650 --> 00:23:34.829 personal deficiency judgment against the borrower. 00:23:35.210 --> 00:23:37.769 If that second mortgage was also recourse debt, 00:23:37.910 --> 00:23:40.630 the borrower still owes that balance. But now 00:23:40.630 --> 00:23:42.670 the second lender has to fight for payment just 00:23:42.670 --> 00:23:44.690 like any other credit card company or collections 00:23:44.690 --> 00:23:47.230 agency. And if the lender decides, you know what, 00:23:47.269 --> 00:23:49.450 it's too expensive or too... difficult to pursue 00:23:49.450 --> 00:23:52.670 a deficiency judgment, the IRS might step in. 00:23:52.890 --> 00:23:56.269 That's the complex tax consequence. If the lender 00:23:56.269 --> 00:23:58.950 chooses to forgive the remaining debt, that $50 00:23:58.950 --> 00:24:02.390 ,000 difference, that amount may be considered 00:24:02.390 --> 00:24:05.670 forgiven debt by the IRS. Which is then potentially 00:24:05.670 --> 00:24:08.430 taxable as income to the borrower. Right. So 00:24:08.430 --> 00:24:10.950 you lose your house, and then the federal government 00:24:10.950 --> 00:24:12.930 sends you a tax bill for the debt you couldn't 00:24:12.930 --> 00:24:15.470 pay in the first place. Before reaching this 00:24:15.470 --> 00:24:18.109 catastrophic outcome, many homeowners try to 00:24:18.109 --> 00:24:21.069 find alternatives. What were the mechanisms widely 00:24:21.069 --> 00:24:23.950 available after 2008 to avoid the final option? 00:24:24.250 --> 00:24:26.890 Well, historically, things like refinancing were 00:24:26.890 --> 00:24:29.329 key, especially programs like the government 00:24:29.329 --> 00:24:31.690 -supported Home Affordable Refinance Program. 00:24:32.160 --> 00:24:34.859 ARCP, which was designed to help homeowners whose 00:24:34.859 --> 00:24:37.019 property value had dropped. And short sales. 00:24:37.200 --> 00:24:39.519 Short sales, exactly, where the lender agrees 00:24:39.519 --> 00:24:42.039 to accept a sale price that's less than the total 00:24:42.039 --> 00:24:44.700 debt just to avoid the cost of foreclosure. And 00:24:44.700 --> 00:24:46.480 of course, you saw foreclosure prevention services 00:24:46.480 --> 00:24:49.099 offering fast cash sales pop up everywhere to 00:24:49.099 --> 00:24:51.640 help homeowners bypass the legal quicksand. After 00:24:51.640 --> 00:24:54.519 the 2008 crisis. The focus really shifted to 00:24:54.519 --> 00:24:57.319 loan modification where banks would renegotiate 00:24:57.319 --> 00:25:00.400 the terms. But the data on how often banks actually 00:25:00.400 --> 00:25:04.019 agreed to modifications is, well, it's pretty 00:25:04.019 --> 00:25:05.720 startling. It's profoundly disappointing data. 00:25:06.119 --> 00:25:09.059 A Federal Reserve study from 2009 looked at seriously 00:25:09.059 --> 00:25:12.039 delinquent borrowers and found that only a tiny 00:25:12.039 --> 00:25:15.960 fraction, a mere 3%, actually received a modification 00:25:15.960 --> 00:25:20.039 or a successful renegotiation. 3%. 3%. And this 00:25:20.039 --> 00:25:22.420 was regardless of whether the loan was securitized 00:25:22.420 --> 00:25:25.720 and sold off or held by a single bank. Why the 00:25:25.720 --> 00:25:27.660 massive reluctance? I mean, wouldn't a modification 00:25:27.660 --> 00:25:30.359 seem economically smarter than a long, costly 00:25:30.359 --> 00:25:33.049 foreclosure sometimes? Well, one theory from 00:25:33.049 --> 00:25:35.210 the sources points to internal bank modeling. 00:25:35.450 --> 00:25:38.009 The banks often expected to make more money through 00:25:38.009 --> 00:25:40.690 foreclosure than through modification. They feared 00:25:40.690 --> 00:25:42.750 redefault that the modified borrower would just 00:25:42.750 --> 00:25:45.190 miss payments again soon or something they called 00:25:45.190 --> 00:25:47.269 self -cure, meaning the borrower might eventually 00:25:47.269 --> 00:25:49.849 recover and pay without the bank having to give 00:25:49.849 --> 00:25:52.589 up anything. So foreclosure, even with the costs, 00:25:52.750 --> 00:25:54.490 was a more predictable and quicker financial 00:25:54.490 --> 00:25:56.650 recovery for them than the uncertain risk of 00:25:56.650 --> 00:25:59.680 modification. It was a known quantity. And this 00:25:59.680 --> 00:26:02.640 inherent distrust and profit motive led to one 00:26:02.640 --> 00:26:04.700 of the most ethically questionable practices 00:26:04.700 --> 00:26:07.640 that emerged during that time. Dual tracking. 00:26:07.900 --> 00:26:10.299 Dual tracking. What was that? Dual tracking was 00:26:10.299 --> 00:26:13.819 truly corrosive to the borrower's trust. Lenders 00:26:13.819 --> 00:26:16.180 would assign one department and negotiate a loan 00:26:16.180 --> 00:26:18.660 modification with the homeowner, giving them 00:26:18.660 --> 00:26:20.460 the impression that a solution was right around 00:26:20.460 --> 00:26:23.559 the corner. While simultaneously, another department 00:26:23.559 --> 00:26:26.039 would be moving full steam ahead with the foreclosure 00:26:26.039 --> 00:26:28.119 sale process. So the borrower thinks they're 00:26:28.119 --> 00:26:30.619 saving their home. only to get a letter saying 00:26:30.619 --> 00:26:34.119 the house was sold last week. Exactly. Borrowers 00:26:34.119 --> 00:26:36.240 were just blindsided. They believe they had a 00:26:36.240 --> 00:26:38.420 tentative modification agreement, they're gathering 00:26:38.420 --> 00:26:40.619 final paperwork, and then they find out their 00:26:40.619 --> 00:26:43.039 property was sold at auction. This practice was 00:26:43.039 --> 00:26:45.859 so egregious and so misleading that several states 00:26:45.859 --> 00:26:48.450 felt they had to act. California, for instance, 00:26:48.730 --> 00:26:51.230 enacted the Homeowner Bill of Rights in 2013 00:26:51.230 --> 00:26:54.710 specifically to prohibit dual tracking and try 00:26:54.710 --> 00:26:56.769 to provide some basic fairness during negotiation. 00:26:57.109 --> 00:26:59.329 We spent a lot of time dissecting the legal machinery, 00:26:59.569 --> 00:27:02.849 but we need to pivot now to the human cost because 00:27:02.849 --> 00:27:05.930 the socioeconomic impact of foreclosure is immense. 00:27:06.230 --> 00:27:09.269 And as the data shows, it is not evenly distributed 00:27:09.269 --> 00:27:13.200 at all. The statistics are clear and painful. 00:27:14.019 --> 00:27:16.759 Foreclosure is a profoundly inequitable event. 00:27:17.359 --> 00:27:19.900 Minority households are grossly overrepresented. 00:27:20.279 --> 00:27:22.640 Our sources confirm that African -American buyers 00:27:22.640 --> 00:27:25.640 are 3 .3 times more likely than white buyers 00:27:25.640 --> 00:27:28.579 to be in foreclosure. 3 .3 times. Latinos are 00:27:28.579 --> 00:27:31.599 2 .5 times more likely and Asian buyers are 1 00:27:31.599 --> 00:27:33.859 .6 times more likely. That raises an important 00:27:33.859 --> 00:27:36.839 question. What do the sources suggest are the 00:27:36.839 --> 00:27:39.299 underlying factors causing this disproportionate 00:27:39.299 --> 00:27:41.519 impact? It's not just about being in a minority 00:27:41.519 --> 00:27:44.279 group. No, it's a combination of systemic issues. 00:27:44.519 --> 00:27:47.079 A large percentage of these groups were disproportionately 00:27:47.079 --> 00:27:49.900 targeted and steered toward risky subprime loans 00:27:49.900 --> 00:27:52.240 during the housing boom, even when they could 00:27:52.240 --> 00:27:54.220 have qualified for prime loans. And on top of 00:27:54.220 --> 00:27:56.339 that. On top of that, you have the racial wealth 00:27:56.339 --> 00:27:58.819 gap, which means these households often have 00:27:58.819 --> 00:28:01.539 fewer financial buffers, less savings, less family 00:28:01.539 --> 00:28:04.880 wealth to absorb an unexpected shock like a job 00:28:04.880 --> 00:28:08.420 loss or a medical emergency. It just makes default 00:28:08.420 --> 00:28:11.140 inevitable. And speaking of shocks, what were 00:28:11.140 --> 00:28:13.359 the primary personal reasons people cited for 00:28:13.359 --> 00:28:16.349 default? Beyond job loss, studies consistently 00:28:16.349 --> 00:28:18.910 point to severe medical conditions and the lack 00:28:18.910 --> 00:28:20.950 of comprehensive health insurance as a primary 00:28:20.950 --> 00:28:23.829 reason for default. A major health crisis often 00:28:23.829 --> 00:28:26.309 results in massive debt, which forces homeowners 00:28:26.309 --> 00:28:28.569 to choose between medical care and mortgage payments. 00:28:28.890 --> 00:28:31.309 It just highlights how financially vulnerable 00:28:31.309 --> 00:28:34.049 so many families are to unexpected health costs. 00:28:34.309 --> 00:28:36.869 Now let's look at the financial fallout. We know 00:28:36.869 --> 00:28:39.430 the credit score takes a hit, but how bad is 00:28:39.430 --> 00:28:41.690 the immediate damage compared to just being late 00:28:41.690 --> 00:28:45.269 on payments? foreclosure is a catastrophe for 00:28:45.269 --> 00:28:47.170 your credit worthiness. It typically results 00:28:47.170 --> 00:28:50.630 in a credit score reduction of 85 to 160 points. 00:28:50.789 --> 00:28:54.170 By comparison, being 30 days late while bad results 00:28:54.170 --> 00:28:57.690 in a smaller reduction of 40 to 110 points. Foreclosure 00:28:57.690 --> 00:29:00.230 makes future borrowing for years virtually impossible 00:29:00.230 --> 00:29:03.730 or extremely expensive. And beyond just the finances, 00:29:04.009 --> 00:29:08.109 a 2011 Federal Reserve Board study tracked household 00:29:08.109 --> 00:29:11.009 stability post foreclosure, and the findings 00:29:11.009 --> 00:29:13.609 about family life are really revealing. Yeah, 00:29:13.650 --> 00:29:15.329 what's fascinating here is that the disruption 00:29:15.329 --> 00:29:18.890 goes way beyond just the address. The study found 00:29:18.890 --> 00:29:21.309 that only 17 % of individuals who went through 00:29:21.309 --> 00:29:23.589 foreclosure maintained the same number and composition 00:29:23.589 --> 00:29:26.869 of household members one year later. Only 17%. 00:29:27.309 --> 00:29:30.289 Compared to? Compared to 46 % of a control group. 00:29:30.529 --> 00:29:32.849 This suggests foreclosure doesn't just disrupt 00:29:32.849 --> 00:29:36.309 housing. It forces the rapid breakup or drastic 00:29:36.309 --> 00:29:39.390 reconfiguration of the family unit itself, maybe 00:29:39.390 --> 00:29:41.529 through divorce or having to move family members 00:29:41.529 --> 00:29:43.630 out to live with others. And what about the actual 00:29:43.630 --> 00:29:46.109 physical movement? How common is it to relocate? 00:29:46.190 --> 00:29:48.450 And do people generally end up in significantly 00:29:48.450 --> 00:29:50.630 worse conditions? Relocation is very common. 00:29:50.710 --> 00:29:53.349 The study noted 23 % of those experiencing foreclosure 00:29:53.349 --> 00:29:55.769 moved within a year of the process starting versus 00:29:55.769 --> 00:29:57.980 just 12%. in the control group. But there was 00:29:57.980 --> 00:30:00.759 a slight silver lining. A slight one. The study 00:30:00.759 --> 00:30:02.799 found that the majority of these post -foreclosure 00:30:02.799 --> 00:30:05.259 migrants did not move to what they defined as 00:30:05.259 --> 00:30:07.880 substantially less desirable neighborhoods, so 00:30:07.880 --> 00:30:11.940 areas with a 25 % lower median income. About 00:30:11.940 --> 00:30:14.880 70 % managed to stay in similar economic conditions, 00:30:14.960 --> 00:30:17.259 which suggests some resilience, even though they 00:30:17.259 --> 00:30:19.779 lost all their home equity. The impact of a single 00:30:19.779 --> 00:30:22.140 foreclosure also ripples out into the entire 00:30:22.140 --> 00:30:25.380 community, leading to what analysts call negative 00:30:25.380 --> 00:30:28.420 externalities. What are the measurable effects 00:30:28.420 --> 00:30:30.619 on a neighborhood with high foreclosure rates? 00:30:30.720 --> 00:30:33.890 The effects are immediate and visible. When foreclosed 00:30:33.890 --> 00:30:35.869 homes become vacant and abandoned, they attract 00:30:35.869 --> 00:30:38.529 crime and theft. They're often stripped of copper 00:30:38.529 --> 00:30:40.769 wiring, appliances. You see trash accumulation 00:30:40.769 --> 00:30:43.630 and sometimes an increase in localized illegal 00:30:43.630 --> 00:30:46.630 activity like drug use or prostitution, which 00:30:46.630 --> 00:30:48.670 really destabilizes the immediate surrounding 00:30:48.670 --> 00:30:50.750 area. And financially, it just dries down the 00:30:50.750 --> 00:30:53.279 value of all the surrounding properties. Absolutely. 00:30:53.440 --> 00:30:56.900 It creates a devastating domino effect. Foreclosures 00:30:56.900 --> 00:30:58.920 negatively impact neighboring housing sales, 00:30:59.160 --> 00:31:01.339 leading to these significant declines in property 00:31:01.339 --> 00:31:03.980 values that just extend the housing crisis beyond 00:31:03.980 --> 00:31:07.059 the one defaulting borrower. Research shows this 00:31:07.059 --> 00:31:09.559 negative impact is greatest when the foreclosures 00:31:09.559 --> 00:31:11.819 happen closer in time and physical proximity 00:31:11.819 --> 00:31:15.359 to the homes trying to sell. The blight is contagious. 00:31:16.359 --> 00:31:18.160 And finally, we have to acknowledge the psychological 00:31:18.160 --> 00:31:20.680 and mental health toll of losing a fundamental 00:31:20.680 --> 00:31:23.140 source of security and wealth. The mental health 00:31:23.140 --> 00:31:26.039 crisis is measurable. One study of participants 00:31:26.039 --> 00:31:28.579 who had undergone foreclosure found that a staggering 00:31:28.579 --> 00:31:32.180 36 .7 % met the screening criteria for major 00:31:32.180 --> 00:31:34.740 depression. Over a third. And it's not surprising, 00:31:34.859 --> 00:31:37.099 given the stress, the shame, the loss of control. 00:31:37.420 --> 00:31:39.519 Furthermore, for the children involved, the forced 00:31:39.519 --> 00:31:42.440 instability often means changing schools. And 00:31:42.440 --> 00:31:44.519 studies show these students, on average, enter 00:31:44.519 --> 00:31:46.980 schools with lower overall performance and test 00:31:46.980 --> 00:31:49.140 scores than their previous schools, potentially 00:31:49.140 --> 00:31:51.680 impacting their long term education. Let's broaden 00:31:51.680 --> 00:31:53.599 our lens now, starting with some of the U .S. 00:31:53.599 --> 00:31:56.180 macro trends that emerged after the 2008 collapse, 00:31:56.400 --> 00:31:58.259 and then we'll move into the global context. 00:31:59.079 --> 00:32:02.059 In 2009, when the U .S. housing market was just 00:32:02.059 --> 00:32:04.779 melting down, there was this big political fight 00:32:04.779 --> 00:32:07.240 over how to fix it. There was consensus that 00:32:07.240 --> 00:32:10.539 intervention was necessary, but a total disagreement 00:32:10.539 --> 00:32:13.200 on the methodology. You saw a stark divide. What 00:32:13.200 --> 00:32:15.920 was it? Democrats generally advocated for targeted 00:32:15.920 --> 00:32:18.420 aid aimed directly at people in the greatest 00:32:18.420 --> 00:32:21.299 distress, so helping delinquent homeowners modify 00:32:21.299 --> 00:32:23.759 their loans. Republicans, on the other hand, 00:32:23.759 --> 00:32:25.980 favored brawner aid aimed at stabilizing the 00:32:25.980 --> 00:32:28.220 whole housing market by supporting almost all 00:32:28.220 --> 00:32:30.380 homebuyers. The rising tide lifts all boats theory. 00:32:30.599 --> 00:32:33.279 Exactly. And this disagreement just paralyzed 00:32:33.279 --> 00:32:36.440 any truly aggressive unified action for a while. 00:32:36.539 --> 00:32:39.430 Despite the debates. By 2011, the banks seemed 00:32:39.430 --> 00:32:41.670 to revert to their old aggressive habits. They 00:32:41.670 --> 00:32:44.710 absolutely did. By 2011, banks became extremely 00:32:44.710 --> 00:32:47.089 aggressive in their recovery efforts. They were 00:32:47.089 --> 00:32:50.329 set to repossess over 800 ,000 homes. They sped 00:32:50.329 --> 00:32:52.910 up the foreclosure process, recognizing the legal 00:32:52.910 --> 00:32:55.450 efficiencies they had, especially in those nonjudicial 00:32:55.450 --> 00:32:58.369 states. And looking at the data from 2010, the 00:32:58.369 --> 00:33:00.450 foreclosure crisis wasn't spread evenly, was 00:33:00.450 --> 00:33:02.849 it? Not at all. The highest filing rates were 00:33:02.849 --> 00:33:04.769 clustered in the metropolitan areas that had 00:33:04.769 --> 00:33:07.329 seen the biggest housing bubbles. Places like... 00:33:07.309 --> 00:33:10.769 Las Vegas, Fort Myers, Modesto and Miami. What's 00:33:10.769 --> 00:33:13.009 fascinating is the complex correlation between 00:33:13.009 --> 00:33:16.849 unemployment and foreclosure rates. I mean, logic 00:33:16.849 --> 00:33:19.430 would suggest high unemployment equals high foreclosure, 00:33:19.529 --> 00:33:21.930 but that wasn't always the case. That's a key 00:33:21.930 --> 00:33:24.529 insight into the market's complexity. Some cities 00:33:24.529 --> 00:33:26.950 with the lowest rates of foreclosure, like Rome, 00:33:27.170 --> 00:33:30.250 New York or Tuscaloosa, Alabama, actually had 00:33:30.250 --> 00:33:32.269 some of the highest unemployment rates in the 00:33:32.269 --> 00:33:34.509 nation. So what does that tell us? It demonstrates 00:33:34.509 --> 00:33:37.789 that job loss isn't the sole driver. Foreclosure 00:33:37.789 --> 00:33:40.009 is driven by the combination of job loss and 00:33:40.009 --> 00:33:42.309 excessive debt that was tied to inflated asset 00:33:42.309 --> 00:33:45.349 values. So areas where debt loads were lower, 00:33:45.509 --> 00:33:48.529 even with high unemployment, sometimes fared 00:33:48.529 --> 00:33:51.130 better. Regardless of the nuances, the crisis 00:33:51.130 --> 00:33:53.490 continued well into the middle of the last decade. 00:33:53.900 --> 00:33:58.160 Indeed. By August of 2014, the national foreclosure 00:33:58.160 --> 00:34:01.359 rate was still stubbornly high at 33 .7 percent 00:34:01.359 --> 00:34:04.259 above baseline, with significant increases concentrated 00:34:04.259 --> 00:34:07.400 in those densely populated high cost areas like 00:34:07.400 --> 00:34:09.960 New York, New Jersey and Florida, where the judicial 00:34:09.960 --> 00:34:12.360 process just added more complexity and delay. 00:34:12.639 --> 00:34:14.619 OK, let's leave the U .S. system behind for a 00:34:14.619 --> 00:34:16.159 minute and look at the international contrast, 00:34:16.420 --> 00:34:18.599 because they show radically different philosophies 00:34:18.599 --> 00:34:21.280 on how to balance debt recovery with homeowner 00:34:21.280 --> 00:34:23.960 protection. Let's start with Spain. which offers 00:34:23.960 --> 00:34:26.619 arguably the harshest outcome. Spain's system 00:34:26.619 --> 00:34:29.079 is brutal in terms of debt liability. In the 00:34:29.079 --> 00:34:31.639 US, the foreclosure sale often settles the debt, 00:34:31.739 --> 00:34:34.539 especially if it's non -recourse. In Spain, the 00:34:34.539 --> 00:34:36.559 homeowner remains responsible for the full amount 00:34:36.559 --> 00:34:38.599 of the loan, plus all accrued penalty interest 00:34:38.599 --> 00:34:41.179 and court fees, even after the bank has seized 00:34:41.179 --> 00:34:43.239 and sold the house. So if they have a deficiency, 00:34:43.480 --> 00:34:45.840 a shortfall, that debt is essentially a life 00:34:45.840 --> 00:34:49.219 sentence. It can be. Bankruptcy is explicitly 00:34:49.219 --> 00:34:51.960 excluded as a resolution for mortgage debt in 00:34:51.960 --> 00:34:54.659 Spain. This means foreclosure often marks the 00:34:54.659 --> 00:34:57.119 beginning, not the end of the borrower's financial 00:34:57.119 --> 00:35:00.710 trouble. It can initiate a lifetime of debt obligation 00:35:00.710 --> 00:35:03.630 to the bank, which is particularly devastating 00:35:03.630 --> 00:35:06.070 given Spain's historically high unemployment 00:35:06.070 --> 00:35:08.789 rate in the eurozone. OK, so let's move to the 00:35:08.789 --> 00:35:11.010 United Kingdom, which has a much stronger emphasis 00:35:11.010 --> 00:35:14.369 on consumer protection. Right. The UK uses a 00:35:14.369 --> 00:35:16.630 system of mortgage possession rather than true 00:35:16.630 --> 00:35:19.389 foreclosure as we define it. If the property 00:35:19.389 --> 00:35:21.909 is sold and there's a surplus, the consumer gets 00:35:21.909 --> 00:35:24.920 those funds. More importantly, if there's a shortfall, 00:35:24.940 --> 00:35:27.260 a deficiency, the remaining debt typically becomes 00:35:27.260 --> 00:35:29.960 unsecured. Meaning? Meaning if the borrower enters 00:35:29.960 --> 00:35:32.500 bankruptcy, that deficiency is treated the same 00:35:32.500 --> 00:35:34.760 as any other unsecured credit, like a credit 00:35:34.760 --> 00:35:37.460 card bill. The borrower doesn't face that crushing 00:35:37.460 --> 00:35:39.760 targeted deficiency judgment that can follow 00:35:39.760 --> 00:35:42.800 them for decades. And the UK system also mandates 00:35:42.800 --> 00:35:45.360 collaboration before even going to court. Yes. 00:35:45.800 --> 00:35:48.760 The UK system requires lenders to adhere to strict 00:35:48.760 --> 00:35:51.840 pre -action protocols. Mortgage companies must 00:35:51.840 --> 00:35:54.019 actively work with homeowners to find resolution 00:35:54.019 --> 00:35:57.239 payment plans, modifications, before they're 00:35:57.239 --> 00:35:59.420 even allowed to initiate formal court proceedings. 00:35:59.760 --> 00:36:02.760 This forced delay and negotiation is designed 00:36:02.760 --> 00:36:05.480 to help borrowers avoid losing their home entirely. 00:36:06.059 --> 00:36:09.420 Now moving to maybe the most protective model 00:36:09.420 --> 00:36:13.420 globally, New Zealand, where the very concept 00:36:13.420 --> 00:36:16.480 of foreclosure is prohibited by law. It's a complete 00:36:16.480 --> 00:36:18.940 legal inversion of the U .S. system. Foreclosure 00:36:18.940 --> 00:36:21.780 is prohibited. Instead, lenders realize their 00:36:21.780 --> 00:36:24.360 security through a statutory regulated mortgagee 00:36:24.360 --> 00:36:26.820 sale. And critically, the lender never actually 00:36:26.820 --> 00:36:29.019 gains the fee's simple title. They only gain 00:36:29.019 --> 00:36:31.280 the right to compel the sale under specific legal 00:36:31.280 --> 00:36:33.820 oversight. So it removes that whole U .S. objective 00:36:33.820 --> 00:36:36.000 of terminating the equitable right of redemption. 00:36:36.320 --> 00:36:38.679 Exactly. It ensures the process remains consumer 00:36:38.679 --> 00:36:41.099 focused and highly regulated. What about China? 00:36:41.260 --> 00:36:43.480 With such a vast and rapidly developing market, 00:36:43.639 --> 00:36:46.320 how do they handle mortgage default? China uses 00:36:46.320 --> 00:36:48.900 a strict judicial foreclosure as a debt enforcement 00:36:48.900 --> 00:36:51.900 measure. However, their banking system builds 00:36:51.900 --> 00:36:55.059 in these fascinating safeguards to try and prevent 00:36:55.059 --> 00:36:57.619 defaults in the first place. Like what? Things 00:36:57.619 --> 00:37:00.059 like requiring mandatory secondary security. 00:37:00.300 --> 00:37:03.559 So collateral beyond just the house and the maintenance 00:37:03.559 --> 00:37:06.260 of borrower accounts at the lending bank, which 00:37:06.260 --> 00:37:08.360 can be automatically used to cover defaults without 00:37:08.360 --> 00:37:10.889 even telling the borrower first. The judicial 00:37:10.889 --> 00:37:13.150 process itself is designed to be streamlined, 00:37:13.469 --> 00:37:16.730 aiming for finalization within six months. And 00:37:16.730 --> 00:37:19.449 finally, circling back to North America, let's 00:37:19.449 --> 00:37:22.250 look at the lengthy, owner -favored process in 00:37:22.250 --> 00:37:25.989 Canada, specifically in Alberta. Alberta's foreclosure 00:37:25.989 --> 00:37:28.769 process is famously slow and multi -stepped. 00:37:29.079 --> 00:37:31.380 It often takes a year or even longer to complete. 00:37:31.739 --> 00:37:34.159 The courts there have a very strong tendency 00:37:34.159 --> 00:37:37.099 to favor the property owner over the bank. They're 00:37:37.099 --> 00:37:39.500 cautious about approving sales, especially if 00:37:39.500 --> 00:37:41.199 there's any indication the property is being 00:37:41.199 --> 00:37:43.639 sold below market value. So the banks themselves 00:37:43.639 --> 00:37:46.519 actually slow it down. In a way, yes. Knowing 00:37:46.519 --> 00:37:48.820 the court's preference, the banks tend to extend 00:37:48.820 --> 00:37:50.860 the process themselves to make sure they never 00:37:50.860 --> 00:37:53.679 sell under value. It often turns into a very 00:37:53.679 --> 00:37:57.300 lengthy, drawn -out negotiation. This deep dive 00:37:57.300 --> 00:38:00.139 has really confirmed that foreclosure is not 00:38:00.139 --> 00:38:03.619 a simple, single event. It is a highly technical, 00:38:03.880 --> 00:38:07.619 multilayered process involving specialized contractual 00:38:07.619 --> 00:38:10.800 clauses, vast statutory requirements that vary 00:38:10.800 --> 00:38:13.659 wildly by state, and this inherent legal tension 00:38:13.659 --> 00:38:16.059 between corporate efficiency and individual rights. 00:38:16.320 --> 00:38:18.360 It's a perfect case study in how the legal system 00:38:18.360 --> 00:38:21.019 attempts, and often struggles, to balance the 00:38:21.019 --> 00:38:23.539 commercial needs of institutional lenders who 00:38:23.539 --> 00:38:25.440 need to recover collateral to keep the credit. 00:38:25.480 --> 00:38:28.000 market stable with the fundamental human necessity 00:38:28.000 --> 00:38:30.559 of the borrower to retain their primary residence. 00:38:30.840 --> 00:38:32.639 As we've seen, whether you're dealing with acceleration 00:38:32.639 --> 00:38:35.039 clauses in California, judicial requirements 00:38:35.039 --> 00:38:38.800 in Florida, or lifetime liability in Spain, geography 00:38:38.800 --> 00:38:41.199 truly is destiny in the world of debt recovery. 00:38:41.400 --> 00:38:44.360 It really is. Absolutely. The speed and the legal 00:38:44.360 --> 00:38:46.219 certainty that's afforded to the lender through 00:38:46.219 --> 00:38:49.139 that non -judicial power of sale is such a stark 00:38:49.139 --> 00:38:52.940 contrast to the lengthy, formal, and defense 00:38:52.940 --> 00:38:54.980 -heavy process you find in judicial. states. 00:38:55.159 --> 00:38:58.039 It just shows how much power that initial agreement 00:38:58.039 --> 00:39:00.559 really holds. And this leaves us with a final 00:39:00.559 --> 00:39:02.480 provocative thought for you to consider long 00:39:02.480 --> 00:39:04.980 after this deep dive concludes. We dedicated 00:39:04.980 --> 00:39:07.320 time to discussing the paradox of the tender 00:39:07.320 --> 00:39:10.519 rule in certain U .S. states requiring the borrower 00:39:10.519 --> 00:39:13.460 to pay the entire debt just to challenge a wrongful 00:39:13.460 --> 00:39:16.019 foreclosure. The ultimate catch -22. Exactly. 00:39:16.119 --> 00:39:19.360 So if the only reliable legal defense against 00:39:19.360 --> 00:39:22.019 improper institutional action things like fraud 00:39:22.019 --> 00:39:24.780 or inadequate notice requires a massive injection 00:39:24.780 --> 00:39:27.239 of cash that the homeowner almost certainly lacks, 00:39:27.519 --> 00:39:30.239 does the system fundamentally protect institutional 00:39:30.239 --> 00:39:32.760 creditors against accountability more than it 00:39:32.760 --> 00:39:34.380 protects the property rights of the individual 00:39:34.380 --> 00:39:36.820 homeowner? It's a question worth mulling over 00:39:36.820 --> 00:39:38.900 as you navigate the complex world where finance 00:39:38.900 --> 00:39:39.699 meets the law.