How Big Dealers Deal With Foreclosure

In fairly remote areas (at least for this kind of money) wheeler-dealers began breaking ground on high end investments.  From McCall, Idaho to Big Sky, Montana, developers created special enclaves for the wealthy like The Yellowstone Club (Bill and Melinda Gates own property there) and Tamarack, in Idaho.  The Yellowstone Club boasted that you could only become a member if your net worth was over several million, then of course you had to spend hundreds of thousands every year in fees, much less what it cost to design and build your faux McMansion Log Cabin.  

These resorts carved golf courses, private ski areas, ponds, re-shaping the physical landscape as well as the economic topography of the regions.  Enormous wealth quickly sprung up in small towns across the Mountain West, such as Bozeman and McCall, where carpenters, plumbers, and log home contractors became instant celebrities and luscious magazines like Western Interiors tripped over themselves to show the world that the West was finally on the map with taste and wealth.

But as we know from physics, what goes up must come down, almost every one of these resorts are now in bankruptcy.  And the only ones making money are lawyers, expensive bankruptcy lawyers who fly in from New York, San Francisco, Chicago, to represent the lenders trying to figure out how to satisfy the investors who actually hold the promissory notes on the loans.  In other words, litigation is flying all over the place.  Of course, "the help," the carpenters, plumbers, and even the log cabin builders, all who are unsecured creditors, are left figuring out how to pay their own bills much less hire attorneys.

Meanwhile, these fancy resort bankruptcies show one thing.  While Congress continues to debate whether to reinstitute the ability of  bankruptcy judges to modify the terms of individual home owner's loans (called cram down provisions) which would help individuals maintain their homes, allow lenders to continue making a profit, these high powered borrowers have always been able to have judges modify their loans.  Why?  Because they are not individuals.  Corporations and owners of second homes do have the right to seek modifications.  But not an owner of a primary residence!  

Are you choking on your coffee, yet?

So instead of lessons about moral hazard which lenders argue is the problem with allowing individual cram downs, perhaps we out to be looking at the lessons of when the so-called wealthy file bankruptcy.  Where is the moral outrage?