Their point:  some people may own their home free and clear, because the bank messed up.

First, some clarification: Greg Abbott does have the authority to halt foreclosures, even though Texas is a non-judicial foreclosure state — that is, banks do not have to go to court in Texas to foreclose on a property. Non-judicial is irrelevant, says Jacob A. Decker and Daniel Herrin, attorneys with Allmand & Lee. The Texas AG has authority because these violations may have occurred under Texas Deceptive Trade, Texas Debt Collection Act, Texas Penal Code, Texas Property Code, Texas Government Code (article 16, section 50) and rule 736 (1) of the Texas Rules of Civil Procedure. If a foreclosure in Texas violates any one of these laws, it could be invalid. So I asked Decker and Herrin, could this mean that if I bought a foreclosed property the sellers (who were foreclosed on) could come back and evict me out of my home?

No, they said. What it means is that the wrongfully foreclosed could have a cause of action against the bank/mortgage company. The banks would have to make them whole, which usually means forking over some bucks.

More bank stocks flushing. They could well end up eating some of these messes.

But now for the second part. What if, as the gentlemen propose,  the internal procedures at these banks spilled over not to just the foreclosure but the actual modifications and re-financing that swept the country? 10,000 foreclosures processed per month? Some mortgage officers were once processing a hec of a lot of refi’s. This could mushroom into finding other errors and if there are enough, there could be major class actions and even wilder money damages down the road. COULD be.

“The banks talk on the phone to homeowners in arrears and some are being deceptive,” says Herrin.

Like they tell people, you cannot qualify for an Obama mortgage modification until you are three months’ behind on your mortgage. Then after the homeowner is three months behind on their mortgage, the banks come in and foreclose. Basically, they are jacking around with some borrowers who end up in foreclosure because of advice that the mortgage companies refuse to put in writing. One department’s giving advice while in another, the attorneys hired by the same company foreclose.

Decker and Herrin know because they are seasoned bankruptcy attorneys, and bankruptcy weeds out creditors.

“Bankruptcy puts into action an automatic stay that stops all foreclosure efforts,” says Decker. “It puts the power in your hands and affords you an opportunity to place the burden on creditors to basically say, OK, prove that I owe you money.”

And if the bank has been sloppy on paperwork, they  may not be able to prove that you owe them that mortgage.

Neither Decker nor Herrin advise filing a Chapter 13 just to see if your mortgage company has dotted i’s and crossed t’s, unless, of course, you are behind on your mortgage. Bankruptcy is a serious endeavor that affords good people a second chance to recover from what they see as deceptive practices of big and powerful mortgage companies.

Paul Jackson at HousingWire, who is rapidly becoming my favorite expert on the mortgage/banking industry, is also growing weary of the games. He warns the procedures designed to protect our nation’s property rights are now being used as a weapon against us:

“…a host of well-intentioned but ill-fated policies have done nothing except prolong pain — not only for banks, who are still playing hide-and-seek with bad assets on their balance sheets, but also for borrowers, who are being lied to by our government and by the very consumer advocates who claim to wish to help them.”

It ain’t getting that much better out there: Federal Reserve data shows that as of Sept. 22, U.S. commercial banks held $592.1 billion in revolving home equity loans — essentially unchanged from August of 2009, when banks held $605.2 billion. And these loans are not worth what they are booked at. Fasten your seatbelts, folks: this bumpy ride is not over yet.

Say your home gets foreclosed on. What then? Your options are to file for bankruptcy or pay off the deficiency balance, which is the amount you are liable for on the note after the foreclosure sale. But what many people don’t know — in fact, I learned this just at dinner last night — that figure can usually be reduced to pennies on the dollar outside of filing bankruptcy IF you hire an attorney to negotiate with the mortgage company. And the mortgage companies are getting so bankruptcy weary, they are in a more negotiating mood, says Jacob A. Decker, an attorney with Allmand & Lee.

“The large five mortgage companies are really talking turkey now, ” says Decker. “Last week, I settled one deficiency balance of $65,000 for less than $5,000.”

The trick, he says,  is to work with a bankruptcy law firm that deals with the creditors on a daily basis in a bankruptcy context. That way, the lenders know that if they do not settle for a  pennies on the dollar, the next step will be a bankruptcy filing where they will likely get zilch. A couple thousand versus zero? Decker says the lenders will almost always take the money.

Toss in cash-strapped tenants who are filing to wriggle free of long-term leases, bankruptcy attorneys are busier than they have ever been, says Decker. He’s also seen a significant increase in creditors’ willingness to settle other debt — renegotiate auto, student loan and even credit card debt. Bankruptcy attorneys are raking it in. Full disclosure: I have first-hand knowledge of how hard they’re working and am not complaining one bit: Decker is my new son-in-law!

Meantime, Tamarack in Idaho is under, while Credit Suisse is fighting to hang onto first lien status with uber-exclusive Yellowstone Club, which is just a mess , bankrupt and smarting from bad press due to the nasty divorce of it’s great-looking founders, Tim Blixeth and his ex (?), Edra. Also pulled in: luxury second home big boys Discovery Land Co. Interim lender CrossHarbor Capital Partners is trumping and may end up owning the joint because Credit Suisse apparently could not cough up enough cash for a debtor-in-possession loan:

“While it is highly unusual for a major lender to be pushed out of the first lien position in a bankruptcy, Credit Suisse may turn out to be too late with its latest plan.”

About this time last year I tried phoning YC to write up  properties as Hot Props in D Home — they acted as if I needed a security clearance and was trying to find the president’s war-time bunker. We ended up in Big Sky.

But Dallas Addison, who develops second home properties in east and south central Texas, as well as Hawaii, tells me the second home market is still pretty strong. (Posting his story soon: Dallas tells me that Hawaii’s Big Island gets so crowded with residents’ private jets they have to haul them off to other islands for parking.) Glad to hear it: I haven’t been on a Lear in forever.