foreclosure category archives

If you’re working with your bank to do a loan modification, be aware the bank might also have your home on a parallel path to foreclosure.

That’s what happened to an Arizona couple who thought their trial loan modification with Chase was approved and they were safe. They were making their payments on time and thought the worse was over — that is, until a foreclosure notice was slapped their front door and the fun began.

Chase says it was their fault and will work with both sides to remedy the situation.

Bottom line: If you are undergoing a loan modification, make sure the bank is not selling your home as a foreclosure, too.

Last June, we wrote a blog post “Foreclosure Fighting Words: Produce the Note.” The post was met with glee from hurting homeowners while others said it was illegal to do and still others felt you signed the mortgage papers, so it’s your obligation to pay up.

Today, I see the Huffington Post is plastering its home page with a similar article, “Who Owns Your Mortgage? Produce the Note Movement Helps Stall Foreclosures.”

“You wouldn’t imagine that the lenders would be that slovenly that they would not be able to produce adequate documentation of the debt,” said House Financial Services Committee member Rep. Brad Miller (D-N.C.). “But apparently a lot of times they really have been unable to.”

And, in a recent study by visiting professor Katherine M. Porter from the U.C. Berkeley law school, she found that “…in 40 percent of cases creditors foreclosing on borrowers did not show the note. It’s what consumer rights advocates and strict judges are seizing on.”

There is actually a bill in Congress (sponsored by Rep. Marcy Kaptur (D-Ohio) that would prohibit foreclosures unless lenders “produced the note,” but that bill is presently stuck in the House Financial Services Committee.

I had a great comment on my blog about shorts sales.  I felt both the questions and answers deserved their own blog post.

Question: How much was paid to the homeowner to contract the rights to buy a house facing foreclosure to try to pre-sell it to someone else for profit?

Answer: Why do you assume that the homeowner was paid anything?  When a Realtor negotiates a short sale placing the home in a listing agreement, what do they compensate the homeowner?  To the best of my knowledge the compensation is simply getting out from underneath the house without having the home foreclosed on.

Question: By marketing houses at a higher price then that required by the bank they are increasing the chance that no buyer will be found and the house will foreclose.? The compensation to the homeowner for this is?

Answer: Why would marketing the house at or below market value increase the risk of foreclosure?  LMSG is negotiating the short sale based on their cash offer.  If they cannot get the bank to accept a cash offer for below market value then no short sale occurs, no different than when a Realtor takes a listing in hopes of negotiating a short sale.  If the bank won’t accept the offer the sale doesn’t go through.

Question: Technically, contracts are legal and binding if they offer a benefit to both parties. A normal RE agent contract for a short sale covers listing and bank negotiation processes. What is the compensation to the homeowner for contracting LMSG to have rights to sell their property and is the compensation fair relative to the increase risk of foreclosure?

Answer: I am not an attorney…nor did I sleep at a Holiday Inn express last night (anyone think I can get paid for product placement on my blog?).  But my understanding of a binding contract is that it consists of 3 elements: competent parties, consideration and mutual assent.  Your questions seems to revolve around what the seller gets in return for the services provided by LMSG and I see no difference between what the sellers receive from a realtor that lists and closes a short sale.  They get out from underneath the mortgage.

Question: Aren’t there laws in effect about presenting all sales offers to sellers (and selling banks) and not hiding some for personal gain?

Answer: Again I am not an attorney, so without a doubt, consult one…but the seller not the bank is the owner of the home.  The seller has accepted LMSG’s offer to purchase the home in a short sale, provided one can be negotiated.  I don’t see why the bank would need to be made aware of any offers made to LMSG to purchase a property that neither currently own.

Question: My experience is that most times banks do not allow compensation to the homeowner in a short sale.

Answer: You seem to be looking for a smoking gun….in that the seller is being compensated in some way other than simply getting out from underneath a mortgage they cannot afford.  I have been doing the same thing since the first deal was brought to my attention.  I am a skeptic at heart but can’t find the problem with the business model.

Despite signs of an improving housing market, homeowners continue to be under financial stress.  According to Reuters, the 30-day mortgage delinquency rate increased again in August, reaching a new all-time high.

The chart above shows significant year-over-year increases in the delinquency rate.  The August ‘09 rate of 7.58% increased 55% versus the August ‘08 rate of 4.89%.  Month-to-month, the rate increased 3.6% versus the July ‘09 rate, which was 7.32%.

This delinquency rate is an important number to watch, as it is a leading indicator of home foreclosures and personal bankruptcies.

Looks like we’re not out of the woods yet.

You’ve probably heard of the car companies that are offering job-loss protection to induce new car sales: buy a car and if you lose your job in the next few months you can return the car. Some homebuilders have offered job loss payment protection plans too, offering employment assurance programs to spur sales. Now Uncle Sam is thinking about getting in on the act, and is considering leaning on lenders to allow homeowners who lose their job skip some monthly mortgage payments.

With unemployment now above 12% in states like California, Nevada, and Michigan, it’s easy to understand the political appeal of such a proposal. It’s less clear why loan servicers would be willing to do this. After all, they have a contract with the borrower which says they’re owed their monthly mortgage payment. From the lender’s perspective, it’s not their problem whether or not the borrower has a job. As one of Tony Soprano’s guys might say when collecting a debt: “Tell it to someone who cares.”

Alas, despite what you may have read, lenders aren’t bad people. They empathize when their borrowers hit hard times. However, it’s not altruism that’s driving their interest in this potential program. It’s the realization that banks don’t want to foreclose on any more homes than they have to. A bank would much rather have their borrower fall a few months behind on their mortgage, or modify the loan, than foreclose on the home. It’s still too early to know whether the proposals being considered will go into effect, but the advice for now is clear: if you hit hard times and are struggling to pay your mortgage, pick up the phone and call your lender. It’s a difficult call to make, but it just might allow you to keep your home.

I got an e-mail yesterday asking: What is a 203K loan?  Every once in awhile I need to remember that I sometimes use acronyms and assume everyone knows what I am talking about.  The reality is…in many cases the acronyms do more to confuse folks than to clarify.  So I am going to take a step back and explain a little about the “203K” loan.

This loan program can be used for the purchase or refinance of a property that needs work.  It allows you to borrow the funds you need to purchase and renovate the property.  These loans are not new but took a back seat to other ways of financing the cost to renovate.  With property values no longer increasing by double digits, and with equity loans being capped at 70-80% of current values (rather than 100% you could get just a few years ago), the options for financing renovations are limited.  I started a thread on Zillow asking how folks are paying for home improvements.  Inquiring minds want to know! 

In addition to the FHA 203k program similar programs are offered by Fannie Mae and Freddie Mac.

I have been in mortgage lending since 1993, and until recently, I had never actually had a short sale close successfully.

One of the real estate agents I work with regularly, Rachel Hillman of Realty Executives, introduced me to Mike Ouellette of Loss Mitigation Specialist Group ( LMSG). For those that have followed me on Zillow, I am a bit of a skeptic when it comes to these types of things.
Rachel called me about a deal she had that was falling apart and she was hoping that I could pull the deal back together.

Basically, the way this company works is that they sign an agreement with the current owner of the home to essentially buy the home in a short sale. The current owner gives them permission to deal with the current lien holders. While they are negotiating with the current lien holders the property is being marketed. In most cases the property is listed and marketed by the agent that has introduced the seller to LMSG.

Unlike most short sales with this company LMSG actually buys the property after negotiating the short sale, then turns around and sells the property to a third party — the best offer that the listing agent is able to find.

The reason that Rachel called me in on this transaction is that many lenders have adopted the FHA anti flipping rule and are requiring 90-day title seasoning.

Reducing the length of time they need to hold the property increases the profit margin but also allows them to list and market the property at a more competitive price generating more interest and multiple offers.

Nobody works for free and I don’t begrudge anyone for making a living. Many lenders shy away from these transactions, some will even say that Fannie Mae and Freddie Mac have the same title seasoning requirements that FHA have.

Currently that is not the case. The concern is fraud and you can read Fannie Mae’s guideline on these transactions here and Freddie Mac’s here

Essentially both agencies have the same concern that the sales price is over inflated. It is critical that the underwriter and the loan file support the sales price from LMSG to the end buyer.

It is no secret that is costs the banks real money to foreclose on a property.t is also no secret that the property value is…. what it is! The bank has no guarantee, that if they foreclose on the property, that they will be able to sell the property for its current value.

If you know what you are doing you can essentially cut a deal with the bank for an amount less than the property is worth and likely a little more than what the bank estimates it will cost to foreclose on the home.

If the bank agreed to a short sale, before they foreclosed, and sold it for $195,000 rather than the $250,000 they would reduce their losses by $5,000 and eliminate the risk of the property value decreasing further and increasing the banks losses. For this to work you have to know what it costs the bank to foreclose, I just told you so that’s not such a big deal.

The real trick is knowing who to call and how to negotiate the short sale or you end up in lender limbo waiting for a response that you may or may not ever get! All the while stressing about what is going on!

I have closed 2 of these transactions and it almost seems too good to be true! These are the real numbers….

Property One: Purchased for $207,000 Appraised for: $225,000
Property Two: Purchased for $220,000 Appraised for: $255,000

Both appraisals were done post-HVCC so I know if anything, these appraisals are on the low side.

How many transactions have you seen recently that are appraising 15-20 thousand more than the sales price?

If you want more info on short sales you can read Mike’s Blog. Mike works with Realtors, Lenders, Attorneys, and Sellers.

Well….I figured I would give YouTube a whirl… I finally got around to putting some before and after photos together from a K loan I closed on 12/28/2008.

Purchase Price $192,000

Cost of Renovation $32,642

After Improved Value $260,000

Equity After Renovations $35,000+…..$33,000 can make a HUGE Difference!
I sent my clients a link to my blog when I posted it….This was her response:
“Wow, so cool that you used my pics :)   A month ago another lady was driving by and said she was an appraiser using my house as a comp.  She came in to see the improvements and then when we queried her on what she thought we’d be able to get for this house today she hemmed and hawed, then said, prices have dropped since we bought so we’d probably lose money…. because she can see we’ve put in a ton of money (not true, but that’s what she thought).   Then she said in this market with the economy so bad, I’d be able to get $350,000
That made me very happy :)”     -Owner of the home in the video

It is not just people who own a home that are becoming victims to the foreclosure problem, people who are currently renting a property are beginning to see foreclosure impact their lives as well.

Is your landlord in foreclosure?

Are you sure?

According to the National Low-Income Housing Coalition, one in five homes in foreclosure nationwide is occupied by a tenant.

One of the common stories about landlords in foreclosure that is happening all across the US is where the landlord allows a property to go into foreclosure and then the tenants are “surprised” when they find out they have to move.

Thanks for a federal law that was passed on May 20th, in some states, the lender will be forced to honor a lease agreement of a tenant, but not in all cases. For example, if a lender forecloses on a property and then sells the home to someone who will occupy the property as their primary residence, the tenant in place then has 90 days to vacate the property.

But no matter what, if your landlord goes into foreclosure, you will incur extra moving expenses that you are not likely to get back from your landlord.

Foreclosures can create expenses for tenants, such as moving costs. If the foreclosure forces you to move before your lease expires, you can demand that the landlord pay your moving expenses. If the landlord refuses, you can sue in small-claims court, said Janet Portman, managing editor of legal self-help publisher Nolo Press and author of several books on landlord-tenant law.

Finding out if your landlord is in foreclosure is easy to do - once. But going back and keeping an eye on your landlord by seeing if a foreclosure notice has been filed can be time consuming. At least one new startup has a solution to this problem - LemonLandlord.com — where you can monitor whether or not your landlord has had foreclosure proceedings start.

More About Landlords in Foreclosure:

• Tenants evicted because of landlords being foreclosed upon
• Renters too can face the hit of foreclosure
• Tenants suffer when landlords are in foreclosure