Category Archives: Foreclosure

Government, Bank’s Mistake your Gain (Still)

florida foreclosureAs the summer months wind down and the chillier winds roll in through the fall months and into early winter, many Americans look out their windows at their cold and dismal hometowns. Their neighborhoods, strewn with fallen leaves or dirty snow, strongly fortify dreams of a second—or a first—homes in paradise. But with Florida real estate inventory, and subsequently prices, as conducive as ever to a buyer’s market the dream is as achievable as ever.

We all know the story of the early-2000’s housing bubble. Inflated by banks selling to the subprime mortgage market, a brand new segment in 2002, the bubble got bigger and bigger until it finally popped in 2007. But five years was long enough to do plenty of damage to markets across the country, particularly in Sun Belt areas. And right under the bubble was southwest and the west coast of Florida.

A tool to increase buyer confidence, writing bad mortgages actually didn’t start with the banks. Rather it started with the administration taking initiative to combat the fallout from the 2001 terrorist attacks. And many consumers took the bait in the name of achieving the American dream. The issue with this is many didn’t have the income to support mortgage payments, nor did they have to prove it. This was thanks to a brand new tool called the ‘No Doc’ loan, short for ‘no documented proof required.’

Needless to say, many of these mortgages were foreclosed on, left as bank-owned properties. As a matter of fact, in 2006 right before the bubble burst, 21% of subprime mortgages went into default. This compares to the prime loan statistic of less than 1%. Of these, most were in Florida– where statewide there were nearly 325,000 subprime mortgages issued.

Fast forward to 2015, and Florida still has the highest rate of late mortgages. Statewide, over 18% mortgage holders are late or about to face foreclosure. And when banks foreclose, they are not looking forward to sitting on excessive supply; they want to turn and burn to the highest bidder. And with an inventory glut the highest bidder typically isn’t bidding too high lately.

Updated mortgage-aid program aims to pick up slack

PHILADELPHIA – April 5, 2012 – After months in the works, HARP 2.0 is available to Fannie Mae and Freddie Mac borrowers who want to refinance but owe more on their mortgages than their houses now are worth.

HARP 2.0 – HARP stands for Home Affordable Refinance Program – is being billed as an improvement over the three-year-old version that just about everyone acknowledges didn’t help anyone.

The reason for that failure: The original program had limits on loan-to-value ratio, the amount of a mortgage as a percentage of the appraised value of a property. If the balance of a mortgage exceeded the appraised value – say, $300,000 versus $150,000 – the borrower wasn’t allowed to refinance.

Recognizing that none of the borrowers the program was intended to help would be able to qualify, the limits were dropped when the new version of HARP was heralded in October.

Does that mean all lenders have agreed to no limits?

“I have lenders that have limited the loan-to-values. Some have even differentiated between attached and detached homes,” said Philadelphia mortgage broker Fred Glick, who has launched a blog,, to update consumers. “They still are limiting what they will do” with loan-to-value ratios of 150 percent and no more.

“All in all, it is a great way to get people’s rates down in spite of low values,” Glick said. “This will decrease the supply of homes for sale and increase values over the long run.”

As with all these programs, the months since HARP 2.0 was announced have been spent trying to get lenders on board – no easy task since Fannie and Freddie loans are pooled as mortgage-backed securities that are owned by many investors. All the investors need to agree before borrowers can apply to reduce monthly payments to today’s low fixed interest rates, which remained under 4 percent for many months but now are beginning to increase as bond yields rise in an apparently improving economy.

As of March 17, HARP 2.0 has been in place to help keep homeowners above water. About four million Fannie Mae and Freddie Mac borrowers nationwide owe more on their mortgages than their homes are worth.

The government has a website,, (link) that has details about HARP 2.0 and other information.

Underwater loans might also be eligible to refinance under provisions of the recent National Mortgage Settlement. That applies to loans neither owned by Freddie or Fannie nor insured by the Federal Housing Administration, which has its own streamlined refinancing under a program announced in January. Details of that settlement are being worked out, and eligible borrowers will be notified by the five participating lenders – Wells Fargo, Bank of America, JPMorgan Chase, Ally Financial, and Citibank – at some point.

To be eligible for HARP, homeowners must be current on their mortgage. That means paid in full up to date, with no late payments in the past six months and only one in the past 12. They also need to show that they can afford the new payments gained through refinancing without any trouble.

Borrowers must have closed on their current mortgage on or before May 31, 2009, and cannot have refinanced through HARP before. In addition, mortgages must fall under current “conforming-loan limits,” which vary by region.

One thing both Fannie and Freddie want to see is whether borrowers refinance to loans with terms shorter than 30 years. They call this “movement to a more stable product.”

Borrowers with an interest-only loan will be urged to refinance to a mortgage product that provides amortization of principal and accumulation of equity in the property.

Those who have an adjustable-rate mortgage will be encouraged to refinance to a fixed-rate loan that eliminates the potential for payment shock, or to an adjustable with an initial fixed period of five years or more and equal to or greater than the existing mortgage.

Homeowners with a 30-year fixed-rate mortgage will be advised to refinance to a 15-, 20- or 25-year fixed that offers, in Fannie Mae’s words, accelerated amortization of principal and equity building. But borrowers won’t be allowed to cash out equity under this refinancing “except for closing costs and certain allowances to cover items such as association fees, property tax bills, insurance costs and rounding adjustments.”

Plus, borrowers may not satisfy subordinate financing in the form of a home-equity line of credit or a closed-end second mortgage with the proceeds of the refinance mortgage.

Balloon mortgages and convertible adjustable-rate mortgages are eligible for HARP 2.0 if the conditional right to refinance the balloon or convert the ARM was exercised by the borrower and “redelivered” to Fannie Mae before June 1, 2009.


• To determine whether Fannie Mae or Freddie Mac owns your mortgage, check at and

• To access Fannie Mae’s frequently asked questions file, go to

• Many of the rules and regulations outlined in the latest information from Fannie and Freddie are far beyond the understanding of the typical homeowner, and, as the government warns, scam artists are already hovering above borrowers, waiting to pounce. For information about mortgage-assistance-relief scams, visit

• Some underwater homeowners will qualify for assistance under the Mortgage Settlement. The Center for Responsible Lending has a downloadable consumer’s guide for that program at

Copyright © 2012 The Philadelphia Inquirer. Distributed by MCT Information Services.


Deadline on foreclosure deal pushed

Millions of borrowers who could have their foreclosure cases checked for errors – and possibly get restitution – are passing up the chance.

Federal banking regulators announced Wednesday that they’ll extend an April 30 deadline for consumers to request such reviews to July 31.

Only 89,000 people have asked for reviews even though more than 4 million got letters from the government late last year telling them that they could, says Bryan Hubbard, a spokesman for the Office of the Comptroller of the Currency.

Consumer groups say promotion was flawed by letters that were too legalistic and text-heavy advertisements that weren’t eye-catching.

“They’ve done a pretty lousy job on public outreach,” says Ira Rheingold, director of the National Association of Consumer Advocates.

The reviews are part of last year’s federal settlement with 14 mortgage servicers and affiliates who manage home loans. They’re separate from the $25 billion settlement that states and the federal government reached last week with some of the same servicers.

Borrowers hurt by foreclosure abuses could receive help under both settlements.

Under the first, auditors hired by the servicers but approved by regulators will review cases. The consumer letters included a 13-question form asking people to describe how the foreclosure process financially harmed them.

The letters “looked like what you’d get from a loan scamming company. A lot of them probably got tossed,” says Deborah Goldberg, of the National Fair Housing Alliance.

The OCC, overseeing the settlement with the Federal Reserve, has not estimated how much the settlement will cost servicers. In addition to examining the cases of borrowers who ask for reviews, auditors are sample-checking 100,000 other foreclosure cases, Hubbard says.

The settlement covers people who were harmed in foreclosures in 2009 and 2010, if their servicer is part of the settlement. More information is at

With the $25 billion settlement, $1.5 billion will go to up to 750,000 consumers – payouts could be about $2,000 depending on borrower response. Payouts won’t require loan reviews.

A settlement administrator will send claim forms. The process is expected to take months. See for details.

© Copyright 2012 USA TODAY, a division of Gannett Co. Inc.

New rules aim to simplify refinancing for troubled homeowners

If you are a troubled homeowner hoping to refinance, pay attention next Tuesday as details come out on a new federal program that could make it easier starting in late December or early in 2012.

In the meantime, be sure you keep up with your mortgage payments so that you can qualify for the new deal.

Even if you missed payments in the past, it can help to be current going forward, said Kathy Conley, housing specialist for GreenPath Debt Solutions in Farmington Hills.

The revised Home Affordability Refinance Program (HARP) could apply to a broader base of people.

If, for instance, you owe $100,000 on a house that would appraise at just $50,000 – too deep underwater for a conventional refinancing – you might be able to refinance under the new HARP. That was not true under the old HARP, launched in 2009, which had a 125 percent maximum on loan-to-value ratio.

The new plan is expected be a big help for many homeowners in states that have been hard hit by drastic drops in home values, such as Michigan, Florida, California, Arizona and Nevada, according to Greg McBride, senior analyst for

Seeing mortgage rates hover near record lows – around 4.23 percent for a 30-year fixed and 3.48 percent for a 15-year – has many folks wondering whether it’s time to refinance.

In this tough housing market, what do you need to know? How can you save money by refinancing and make those low rates work for you?

Even with interest rates low and a revised federal program coming, refinancing is not for everybody who wants – or needs – a better deal on their home and some extra cash.

Some homeowners could face surprising hurdles, even if they’re not underwater and are current on payments.

“Everybody who is really hurting – and everybody who needs the help – can’t take advantage of the rates,” said Kip Kirkpatrick, CEO of Shore Mortgage Services in Birmingham, Mich.

What’s your credit score? How solid is your income? Got a lot of debt?

To refinance, the borrower needs a predictable level of recurring income – so such things as pension income would count, as would Social Security, your regular paychecks, alimony if expected to last three years or more, and interest on investments.

“You will need to provide a full accounting of your income,” said Bob Walters, chief economist for Quicken Loans in Detroit.

Lenders are going to look at how much money you owe on the mortgage and other loans relative to what you’re making.

“A reduction in income can lead to a higher ratio of debt payments to monthly income,” said Greg McBride, senior analyst for “A high debt-to-income ratio makes lenders nervous. The borrower is just one unplanned expense away from problems.”

As a general rule, it becomes more difficult – but not impossible – to qualify for a mortgage or refinance when a person’s total debt – to income ratio exceeds 40 percent to 45 percent, Walters said.

Your credit score counts. Lenders generally want a FICO of 680 or higher to qualify for the best rates in a conventional mortgage. A FICO of 620 tends to be the cutoff that often defines who can, and who can’t, get a mortgage.

Walters noted that there are exceptions to the 620 cutoff, especially when utilizing Federal Housing Administration programs with some lenders.

Credit scores also could have more wiggle room under the new federal Home Affordable Refinance Program. Gerri Detweiler, personal finance expert for, said consumers who are in the process of a refinancing don’t want to go out and borrow money to get new furniture, buy a car or even get holiday gifts. Lenders are likely to look at your credit even the day before or the day of closing on that new mortgage, Detweiler said.

“If you’ve done something stupid with your credit, you could lose the loan,” she said.

So what if the house you bought for $280,000 and mortgaged for $260,000 is now worth $150,000?

Right now, you can’t do a thing with it.

For a conventional refinancing, the lender wants at most an 80 percent loan-to-value ratio. So if your home is worth $100,000 and you owe $70,000, you could qualify.

The new HARP 2.0 plan is going to address the underwater mortgage issue further.

“Anybody who thinks they’re underwater, I would say just hold off until the new program comes out,” said Brian Seibert, president of Watson Group Financial, a mortgage banker in Waterford, Mich.

The old HARP program had a maximum 125 percent loan-to-value ratio. But that cap is removed under the new plan.

“It’s easier to refinance through HARP than a conventional refinance,” Conley said.

But remember to stay current with mortgage payments.

Under HARP 2.0, the borrower would have to be current with the mortgage payment for the past six months and have no more than one late payment in the past 12. But Conley and others recommend that even if you were late in the past, you can try to be current now if you want to try to qualify for HARP 2.0.

“Definitely don’t skip the mortgage payment so you can go Christmas shopping,” Detweiler said.

Though the old HARP promised far more than it delivered – fewer than 900,000 refinancings and just 72,000 of them underwater – experts say consumers should avoid being discouraged. The revised program, which will run through 2013, could be an improvement.

The program would lower payments but would not reduce principal, so borrowers would still hold mortgages for more than their homes are worth. But they could avoid foreclosure.

Consumers who want to refinance should prepare paperwork, keep up payments, consider the new option and avoid the desire to give up.

“You feel the frustration that people have,” McBride said, “but sitting back and doing nothing is not going to solve the problem.”

Some homeowners, who can afford the mortgage, still default

She has a sales job with a six-figure salary. He owns a successful tech company. And they are in foreclosure.

But unlike countless other Americans faced with losing their homes, this couple could make the $5,200 monthly mortgage on the waterfront property in Pompano Beach that they bought for $585,000 in 2004. Foreclosure was their decision – not the bank’s.

They crunched the numbers: $525,000 outstanding on their first mortgage and a $245,000 second mortgage on a home now worth about $319,000. His business was way down, her company was laying off workers and other investments had tanked. It made no sense to hang on to their underwater home. So they stopped paying their mortgage and waited for the foreclosure notice. It came in October.

It is called strategic default – borrowers who have enough money to make their mortgage payments but do not. They owe so much on a home that is now worth so little, that they decide to walk away.

It is not an easy decision. But it is not the inevitable blow to their credit score that troubles some strategic defaulters. It is the ethical dilemma of refusing to repay a loan when they are able to and worrying about what the neighbors will think.

“It felt like such an awful thing to do,” the woman said, who spoke on the condition of anonymity. “I got a car loan at 14 and paid $35 a week until I paid it off when I was 16. “

How prevalent are strategic defaults?

Although the exact number is unknown, half the homeowners in a study conducted by the Federal Reserve Board walked away when they owed twice what their home was worth. A Palm Beach Post analysis of foreclosed homes purchased since 2006 found 72 percent – about 4,124 homes – are worth less than half of the original loan.

In the business world, strategic default is a common tactic – considered a savvy move for financially troubled companies. However, “consumers have been browbeaten and trained to believe that it’s not honorable to not pay your debts,” said Margery Golant, a Boca Raton attorney who represents the Pompano Beach couple in default. “Why should it be any different for consumers?”

Last year, Morgan Stanley walked away from a $1.5 billion mortgage on five buildings in San Francisco despite record-breaking profits in 2009. Real estate giant Tishman Speyer Properties strategically defaulted on $4.4 billion in loans on two housing developments in New York after the properties lost $2.2 billion in value. The company had billions of dollars in assets, including Rockefeller Center and the Chrysler Building, which it could have leveraged to meet its loan obligations.

Even the Mortgage Bankers Association, whose president chastised homeowners who strategically default for the “message” it would send to their “family, kids and friends,” dumped its Washington headquarters in a short sale. After working out a deal with its lender, the MBA sold the building for $41.3 million last year. In 2007, the group purchased it for $79 million.

Ethicist OK with decision

“No, it’s not wrong,” said Randy Cohen, author of the weekly Ethicist column in The New York Times. Although homeowners are emotionally attached to their property, a house is still an investment.

“I don’t understand why you would be asked to make a decision on this investment any differently than you would on any other,” Cohen said. “Why should homeowners be held to a higher ethical standard?”

In many strategic default cases, the moral imperative is self-imposed. Among the arguments: Walking away from a mortgage will depreciate your neighbors’ property values. If all underwater homeowners walked away, the housing market would crash.

“Most people considering strategic default come to me and want my permission,” said Ronald Kaniuk, a Boca Raton foreclosure defense lawyer. “People who cannot pay their mortgage are apologetic. For people who can afford their mortgage or can just barely afford their mortgage and see it as a losing investment, they want absolution.”

They should not get it, according to Luigi Zingales, an economist and professor at the University of Chicago’s Booth School of Business, who became embroiled last year in a debate over the morality of strategic default.

“When you borrow money you make a commitment to pay it back,” Zingales said. “If you walk away because it’s in your interest to do so, you are violating the letter and the spirit of the law.”

Zingales wanted to know why it had become so easy for upside down homeowners to walk away. The answer was simple.

“The stigma is very much a function of how many people do it,” Zingales said. “Once you think it’s socially acceptable, it becomes easier to do.”

Expect more defaults

But there are consequences, including the long-term health of the housing market, Zingales said. Zingales predicts we will reach a tipping point where getting rid of a bad investment outweighs the damage to neighbors’ property values and the borrower’s reputation. In other words, expect more defaults.

“We’re not there yet,” Zingales said. “Clearly this creates a tension in society.”

On one side are homeowners who did not lose their jobs or live beyond their means and are now struggling to make their mortgage payment. Next door are neighbors who have stopped paying their mortgages and are living largely free until they are booted from their homes. “It’s a legitimate resentment,” Zingales said.

“We never bought cars or jewelry,” the Pompano Beach woman said. The second mortgage they took out on their home went toward purchasing and renovating a condominium as an investment rental property. When her husband’s business lost its best client and her company began layoffs, they decided to get out from under all their debt.

There will be consequences. They will lose the $65,000 in loan payments. The lender could get a “deficiency judgment” to go after the couple for repayment of the defaulted loan.

Their credit score will take a hit, but at least with a strategic default they won’t be homeless.

After liquidating some assets and scraping together what they could, the couple bought a new house – down the street and nearly identical to the old house – for $353,000. They walked away from $770,000 in debt.

“It felt like such an awful thing to do,” she said. “When this is all over I’ll feel like I made a good choice.”

Lenders may be not-so-fast to foreclose

After a pivotal court ruling last Friday in Massachusetts, lenders are likely to be more willing to help homeowners who are struggling to make their mortgage payments.

Last Friday, the Massachusetts Supreme Judicial Court ruled that two foreclosures in the case were invalid because the banks didn’t follow proper steps to show they had the authority to foreclose on the homes.

The case likely has set a precedent for the rest of the nation’s lenders to follow: Before you foreclose on a homeowner, make sure you have authority to do it.

“What banks are going to have to do is make sure they’ve dotted their I’s and crossed their T’s before going through with a foreclosure,” says Stuart Rossman, director of litigation at the National Consumer Law Center.

This could mean an even slower pace for foreclosures as banks take extra caution on their paperwork, says Roy D. Oppenheim, senior partner at Oppenheim Law in Weston, Fla.

Experts say the court ruling was a positive for homeowners who are in the middle of the foreclosure process, those trying to work out modifications, refinance, or do a short sale. They say that reaching a deal with lenders may become easier.

“I am expecting the banks to do fewer foreclosures and to engage in serious conversation in pre-foreclosure with borrowers,” Oppenheim says. “We’re already seeing [some] modifications that included for the first time principal reduction.”

Source: “Foreclosure Ruling May Be Good News for Homeowners,” MarketWatch

Foreclosure mess creates more havoc for Pinellas-Pasco courts

CLEARWATER The temporary freeze on foreclosures by big lenders such as Bank of America is rippling through the Pinellas-Pasco court system.

In the past few weeks about 50 percent of foreclosure hearings have been canceled. It’s a significant setback because the courts are already dealing with a backlog of 33,000 foreclosure cases, said J. Thomas McGrady, chief judge of the 6th Judicial Circuit. “Our goal was to reduce that number by 62 percent within a year,” McGrady said. “Particularly with the cancellation of hearings and the numbers, we’re not going to reach that goal.”Bank of America, GMAC, JPMorgan Chase and other big banks put a moratorium on foreclosures after questions were raised about fraudulent paperwork. Several have resumed foreclosure proceedings this week, but must re-schedule canceled hearings. Also, once the cases are back on the docket, McGrady said judges will have to scrutinize documents. “In all these cases with affidavits, the lenders themselves have questioned … are they going to submit new affidavits? Are they just going to rely on the old affidavits? As a court we’re going to have a look at each one on a case-by-case basis,” he said


As more homeowners walk away, experts fear for nation’s morals

Americans have taken a sharp slap in the face from the housing crisis, financial crisis and jobs crisis. Now, some wonder if the residue of those harsh realities is an ethical crisis.

For the first time in the nation’s history, bankers say, people are walking away from mortgages they can otherwise afford to pay. The phenomenon known as strategic default was once unthinkable. It represents a calculated decision to hand over the keys to a home without making good on a loan, reasoning that it makes no sense to keep paying the monthly mortgage when the home is worth thousands of dollars less than the obligation.

Jeff Horton, a 33-year-old Orlando, Fla., technology manager, is among those who recently decided to take the step. He told his lender that he’s done making payments on the condo he bought in 2005 and the home he bought in 2007, because he wants to move from Florida and can’t sell or rent the properties at a price nearly high enough to cover his payments.

“Life is too short,” said Horton, who has mortgages totaling about $400,000 with Bank of America – about twice as much as he thinks he would get if he could sell the property. He says he has little choice because the bank has refused to refinance the mortgages or adjust original terms.

Strategic default is a symptom of a housing market that suddenly turned from “American Dream” to financial trap. With the Norman Rockwell-like images of homeownership decimated by a 30 percent plunge in prices, some fear America is also losing its grip on another idyllic notion: that people will live by the slogan, “My word is my bond.”

Morgan Stanley recently estimated that about 18 percent of defaults will be strategic. In a recent Pew Research Center survey, 36 percent of Americans said that walking away without paying a mortgage is acceptable, at least under certain circumstances. Fifty-nine percent said the practice is unacceptable.

The saying “My word is my bond” was first posted in the London Stock Exchange in the late 1920s to convey living up to promises. Now, after the worst financial disaster since that period, people such as Horton say they have no such image of Wall Street or large banks as trustworthy institutions, and that has allayed guilt about walking away from mortgages.

“I felt guilty at first,” said Horton. “It all stopped when I saw them take $90 million in executive bonuses. They take bailout money and do nothing for the little guy. They wouldn’t do anything for me.”

Most people walking away from homes see little choice, says John Maddux, chief executive of UWalkAway, a Web site that provides advice on the strategic-default process. “They bought the house thinking of it as an investment in their future,” he said. “For some, it was to be their retirement; for others, it was seen as forced savings, and now it’s bleeding them dry.”

Overburdened with mortgages, people conclude they won’t be able to send their children to college, save anything for retirement or move to a place where they can find a job. But as they go through the soul-searching and guilt connected with walking away, Maddux noted they often point to a sense of betrayal.

He said he frequently hears: “I don’t feel bad for the banks. They let this happen. Banks made the mistake of giving a loan to anyone if they had a pulse. Their loose lending standard led to a bubble, and the regulators should have controlled this.”

Banking expert E. Philip Davis sympathizes with that point of view, but he also points out the implication of homeowners walking away from a commitment.

“It makes them as bad as the bankers,” said Davis, a Baptist minister in the United Kingdom who teaches courses on fostering stability in the financial system.

The erosion of the ethic of keeping promises “will be a cancer for society,” said Davis, who was with the Bank of England and is now a fellow at the U.K.’s National Institute of Economic and Social Research.

On the surface, one consequence is evident: If bankers don’t trust that people will pay off their loans, banks will demand higher interest and other assurances before lending in the future.

In fact, there’s research behind the concern, says Tom Donaldson, a University of Pennsylvania Wharton business ethics professor. And it shows that both bankers and borrowers are at risk if trust erodes.

“We’ve known for decades that trust is critical to successful business,” said Donaldson. “Studies have shown that if one party cheats on one end, the other party feels more entitled to cheat. It’s not the most noble way, but it is human nature, and it becomes a race to the bottom.”

Research into strategic default by University of Chicago Booth School of Business professor Luigi Zingales shows what he calls “the contagion effect.” “The stigma goes down once you see someone else do it,” he said.

Lenders go after money lost in foreclosures

By Dina ElBoghdady
Washington Post Staff Writer
Wednesday, June 16, 2010

After the bank foreclosed on Fernando Palacios’s Gainesville home in March, he thought he was done with what he described as the most stressful financial situation of his life.

The bank sold the home for far less than Palacios owed on it, as often happens with foreclosures. What Palacios did not see coming was the letter from his lender demanding that he pay the shortfall: $148,064.02. “I really thought I was through with this house,” said Palacios, who fell behind on payments when the economy soured and his cleaning business stumbled.

Over the past year, lenders have become much more aggressive in trying to recoup money lost in foreclosures and other distressed sales, creating more grief for people who thought their real estate headaches were far behind.

In many localities — including Virginia, Maryland and the District — lenders have the right to pursue borrowers whose homes have sold at a loss to collect the difference between what the property sold for and what the borrower owed on it, also called a deficiency.

Before the housing bust, when the volume of foreclosures was relatively low, lenders seldom bothered to chase after deficiencies because borrowers had few remaining assets to claim and doing so involved hassles and costs. But with foreclosures soaring, lenders are more determined to get their money back, especially if they suspect borrowers are skipping out on loan they could afford, an increasingly common practice in areas where home values have tanked.

Palacios said he was committed to staying in his house, which he bought in 2005. He sunk $20,000 into improving it and hoped to raise his children there. But his lender refused to modify his loan, he said. To avoid personal liability for the deficiency, Palacios is filing for bankruptcy protection, as many people do who are in similar situations, said Nancy Ryan, his bankruptcy attorney.

“I am definitely seeing more people come through my door who walked away from houses a year or two ago and thought they were as free as the dead,” Ryan said. “They’re stunned when they realize they’re not.”
Several lenders contacted for this story declined to say how often they pursue deficiencies. But many said they try to collect the debt if they conclude the borrower can repay all or part of it.

“Lenders are not going after people who face a hardship,” said John Mechem, a spokesman for the Mortgage Bankers Association. “If they can’t pay their mortgage because they have a loss of income, there is no point in going after them.”

Those who had a second mortgage, such as a home-equity line of credit, in addition to their primary mortgage may find themselves particularly vulnerable, especially if they tapped into the equity line for cash.

Second lenders are last in line to get paid when a distressed property is sold. There’s usually little or no money left over for them, making it more likely that they will pursue large deficiencies, several attorneys said.

Gretchen Somers said she and her husband understood the risks last year when they completed a “short sale,” a transaction that allowed them to sell their Manassas home for about $150,000 less than they owed on it. But they felt they had no other options.

Somers said her family hung onto the house as long as possible. They tried but failed to sell it when her husband was transferred to Arizona for his job in early 2006, just as home prices were softening. They moved back into the house then tried to sell it again in 2008, after their adjustable-rate mortgage reset and their monthly mortgage payment nearly doubled. But home prices had plunged further by then, making it even tougher to sell.

Last year, their first lender and their home-equity line lender granted permission for the short sale. But the second lender reserved the right to come after the couple. Six months later, a collection agency called demanding $85,000 for related losses.

In hindsight, Somers said she and her husband should have just walked away from the house. “We took care of the house because we wanted it to sell,” Somers said. “If they were going to come after us anyway, we shouldn’t have done them the favor of making sure it looked good and cutting the grass even after we moved out, We should have mailed them the key and said: ‘Here you go.’ ”

Carlos Cortez and his wife managed to escape that fate after their second lender came after them for $70,000 when their short sale was completed on his Manassas Park townhouse in 2008.

Cortez knew that was a possibility, but he went through with the sale because his real estate agent said the lender was engaging in scare tactics.

James Scruggs, an attorney at Legal Services of Northern Virginia, said the lender appears to have backed off after Cortez argued that that the loan officer falsely qualified him and his wife for a home-equity line by fabricating key details about their finances.

A handful of states do not allow lenders to pursue deficiencies, nor does a federal program that took effect April 10. Lenders participating in that initiative are paid for approving short sales and as a condition, they cannot go after outstanding debt.

In many states, lenders can go after deficiencies, though laws vary widely, said John Rao, an attorney at the National Consumer Law Center. Some states limit how long the banks have to file a claim or collect the debt. Others may calculate deficiencies based on the fair-market value of the house, Rao said. For instance, if a home sells for $200,000 yet its fair market value is $250,000, “the borrower who owes $240,000 on the mortgage would not have a deficiency,” he said.

Borrowers should get a waiver in writing from their lenders to protect themselves, said Diane Cipollone, an attorney at the nonprofit Civil Justice. “Nobody should assume the deficiency is forgiven,” she said.

Crowds likely at ‘Save the Dream’

A record number of desperate borrowers have registered for a traveling mortgage relief marathon that “sounds too good to be true.”

The Neighborhood Assistance Corporation of America’s Save the Dream Tour opens 9 a.m. Thursday at the Miami Beach Convention Center, offering thousands of struggling homeowners a chance to modify their loans – at no cost.

The event, which offers free counseling and face-to-face contact with lender representative, runs 24 hours a day. Doors close at 8 p.m. on April 19.

Bruce Marks, CEO of the Boston-based nonprofit, said Wednesday morning that a company record 15,000 had already registered for Thursday’s event.

“We’ve had a huge response,” he said, even though the tour made a stop in West Palm Beach just last February.

Darren Duarte, spokesman for NACA, said the overwhelming number of people who showed up for help in Palm Beach County led the tour, which makes stops around the county, back to South Florida.

“During the last day the crowd was extremely large and we got to see a lot of people but there were a lot of people we didn’t get a chance to see,” Duarte said about the February event. “So we saw there is still a need here and a demand here.”

More than 24,000 applied for mortgage relief at the Palm Beach County event, leading to nearly 11,000 modifications, Duarte said.

Greg Calley said he was among those who benefited. The American Airlines mechanic said he was poised to short-sell his Jupiter townhome after a year of trying unsuccessfully to work with Chase to modify his loan, which he struggled to pay.

Then he heard about Save the Dream.

“I thought it was too good to be true,” he said, echoing a common skepticism about whether the nonprofit really can help mortgage holders receive a free, same-day loan modification.

But Calley said that by the time he left the Palm Beach event, his monthly payment was $1,000 cheaper and his interest rate reduced by 4.5 percentage points.

The tour’s arrival in South Florida comes on the heels of a month that set a new South Florida record for property repossessions in March, with 3,707 in Broward, Miami-Dade and Palm Beach counties, according to a report by real estate consulting firm CondoVultures Realty.

Those who attend the workshop are encouraged to register and are urged to bring pay stubs, tax forms and other financial documents.

More info:

Home Affordable Modification Program – Is Help On Its Way?

If you are like many American’s who purchase or refinanced their home during the heat of the real estate boom this could be the program that was designed to help YOU! Over the past 2 years I’ve been working to help many clients who have found themselves upside down and need financial help to correct their housing situation. It’s been a long and hard road for many of these good people whose lives have changed in one way or another.

Finally it looks like our government has taken a step in the right direction to streamline the process of helping these good hardworking people.

There are two program: The first is called HAMP, and this is how it works:
The Home Affordable Modification Program is designed to help as many as 3 to 4 million financially struggling homeowners avoid foreclosure by modifying loans to a level that is affordable for borrowers now and sustainable over the long term. The program provides clear and consistent loan modification guidelines that the entire mortgage industry can use.

Borrower eligibility is based on meeting specific criteria including:
1) borrower is delinquent on their mortgage or faces imminent risk of default
2) property is occupied as borrower’s primary residence
3) mortgage was originated on or before Jan. 1, 2009 and unpaid principal balance must be no greater than $729,750 for one-unit properties.

After determining a borrower’s eligibility, a servicer will take a series of steps to adjust the monthly mortgage payment to 31% of a borrower’s total pretax monthly income:

•First, reduce the interest rate to as low as 2%,
•Next, if necessary, extend the loan term to 40 years,
•Finally, if necessary, forbear (defer) a portion of the principal until the loan is paid off and waive interest on the deferred amount.
Note: Servicers may elect to forgive principal under HAMP on a stand alone basis or before any modification step in order to achieve the target monthly mortgage payment.
The Home Affordable Modification Program includes incentives for borrowers, servicers and investors.

If you can’t complete the HAMP program for one or a number of reasons than you maybe (should be able to) go in to the second program call HAFA.

Here is the info on HAFA: How HAFA Can Help

The Home Affordable Foreclosure Alternatives (HAFA) Program was designed to complement the Home Affordable Modification Program (HAMP) by helping current homeowners with mortgage debt who are eligible for HAMP but still cannot keep their home.

When a borrower applies for help from HAMP, not everyone succeeds with the program. Sometimes their lender is unable to approve a loan modification. Other times the borrower declines the terms of the loan modification. Some borrowers are approved and accept the terms of the modification, but fail to complete the program for various reasons. Before HAFA, these borrowers were usually headed for foreclosure.

HAFA gives those borrowers a viable alternative to foreclosure. If they have or want to find a buyer for their home, they may request approval for a short sale with pre-approval short sale terms and minimum acceptable net proceeds. If not, they may request approval for a deed-in-lieu . When a borrower applies for help with one of the HAFA solutions, the program already has their financial and hardship information from their HAMP application.

HAFA also imposes limits on the lender to help the borrower. Under the terms of this program, a lender must release the borrower from all future liability for the first mortgage debt. The lender may not ask the borrower for cash or a promissory note, and the lender may not ask a court for a deficiency judgment. The program also prohibits the lender from asking the listing real estate agent to discount their commission at the closing of a short sale.

All documents have been standardized and procedures, time frames, and deadlines have been streamlined under HAFA to make the process easier for both borrowers and lenders.

HAFA also provides financial incentives for both borrowers and lenders to participate in the program. Borrowers are entitled to receive $1,500 in relocation assistance , to be paid at closing. Lenders or loan servicers may receive up to $1,000 to help with administrative costs. There are also financial incentives for the lender or investor on the first mortgage to allow some of the proceeds from the sale of the property to be paid to subordinate lienholders.

Finally, participation in the HAFA program puts the foreclosure process on hold for the borrower. The lender may initiate the foreclosure process, but if the borrower is in the middle of the application process, or if any approved short sale or deed-in-lieu agreement has not been completed or reached its deadline, the lender may not complete the foreclosure process.


There are a lot of people who need this information so please forward to a friend or RT on twitter

Default can spur revenge desire

There was an article in the Tampa Tribune today called “Default can spur revenge desire”

This is a great article of what we as Realtors are seeing out there today. People destroying they homes as an act of revenge on the banks and financial institutions who loaned money to borrowers to achieve the American dream of home ownership.

I’ve lost count of the number of homes I’ve shown that A/C systems, appliances, doors, locksets etc. have been removed. It’s a disgrace that this type of stuff is going on and it seems that people are getting away with it.

There are some options that the government has just put in place to help homeowners who are behind on their mortgage payments or they are going to end up behind on payments in the near future. The 1st program call HAMP is designed to help people reduce their mortgage payments to a maximum of 31% of their income, here is a link to the program HAMP (Home Affordable Modification Program)

If this program isn’t enough to get you on the right path, after completing the HAMP program you can ask to be enrolled into the HAFA program read about it here (Home Affordable Foreclosure Alternatives)
If you found this information useful please forward to a friend or RT on twitter.

SFR certified (Short Sale & Foreclosure Resource agent)

I’m a pleased to announce that in addition to successfully negotiating and closing over 40 short sales in the past 24 months, I’ve also completed the “Short Sale & Foreclosure Resource course” The only course approved by the Board of Realtors. I’m now SFR certified, yes…

Over the past 2 years I have developed a system to help my clients through this changing market, often I’m referred clients from other real estate agents both at Coldwell Banker and other offices because of my proven track record and success in negotiating short sales. There are still many agents who don’t know what they are doing or don’t want to deal with short sales. I didn’t want to pass off my clients to someone else, and I love a challange and wanted to do all I can to help people in need.

So don’t loose your home to foreclosure and suffer the huge credit hit and the inability to purchase a home for 5 years or more, with our holp we can help you keep your credit and put you in a position to purchase a home in just 24 months taking advantage of the low home pricing I feel will still be around.

Don’t hesitate to contact us to schedule a confidential consultation today.

Housing bargains abound, but try closing the deal quickly! Short Sales and pre-foreclosures are painful

If you are like many home buyers who are trying to break into the real estate market in Tampa Bay, you know there are some amazing deals out there. Homes that sold in 2005 for over $200,000 are now selling for $100,000 or less in some areas! This makes buying a home a lot of fun today, you would think!

Many buyers are frustrated, 70% of the homes sales in recent months in the Tampa Bay area are distressed properties, short sales and pre-foreclosures. Getting these homes closed it just too much for some buyers. Often by the time it takes to get a short sale or pre-foreclosures approved by the seller’s lender, 50% of the buyers have walked before getting lender approval.

Most short sale deals take at least four months or more to get approval from the seller’s bank and if they have a PMI or MI insurance, a second mortgage or HELOC you could be looking six to twelve months or not getting approved at all! After the seller gets the lenders approval, the seller than has to agree to the lenders terms of the short sale. Which could include them signing a note for the balance or bring cash to the closing table. If the seller isn’t willing or able to accept these terms the deal could be dead! The buyer is then out 4-6 months of waiting.

Adding to this, homes under $100,000 are now starting to see bidding wars. Buyers used have been able to think about a home overnight but these days you need to move quickly to snatch up a good deal!

Home sales in the Tampa, St. Petersburg, and Clearwater areas rose 28 percent in the fourth quarter of 2009, and the median sales price hit $138,800. That’s down 42 percent since prices peaked at $239,600 in June 2006.

Time is also running on federal tax credit for 1st time and move up home buyers, putting a short sale under contract at this point and getting it closed in time to meet the dead lines may not be possible. Buyer’s must be under contract by 4-30-10 and close no later than 6-30-10 to get the tax credit.

I’m telling my buyers at this point they need to make a decision, if the tax credit is the big reason they want to buy a home this year they many need to focus on REO (bank owned properties) or look for homes where the seller has equity so they can close in time.

If you don’t care about the tax credit, and you are focused on just getting the right home for you and your family as the market is returning from the bottom then short sales and pre-foreclosures should be on your list.

If you are looking for a newer community, taking the trip across the Skyway Bridge could get you more than you could dream of. I’ve been showing property in Manatee County over the past few weeks, where newer homes that were selling in the $500,000 range that can be purchased at a 50% discount. I’ve shown property built in 2005 with 4 beds 2.5 baths 2 car garage and 2,500 sqft selling for only $180k. Pulte Homes will build you a new 3,000 sqft home for just $212,000 WOW!

Let me know if I can help you with your home search!

Banks are forcing values down by using Short Sales What are the banks thinking today? Banks are more conservative than ever and are forcing property values down in stable neighborhoods.

I understand banks trying keep their equity position high and prevent further losses, but allowing appraiser to use “Short Sales” as comps in a an arms length transaction is crazy.

Buyer’s who buy short sale homes are looking for a deal and they often get one, discounts as much as 10-30% or more in some cases, I’ve seen banks sell homes to investors who then flip the home and make a profit so I know what is going on. Freddie Mac has a policy that they will accept an offer on a short sale if it’s within 77% of the BPO or appraisal value, which is great for the buyer who has waited 4-9 months to get an answer from the seller’s bank.

Where this breaks down is the poor homeowner next door, who has been paying his mortgage on time for years, and now, his property value just got flushed because appraisers are told to uses these short sales and not make adjustments.

Banks are missing the big picture, right now homeowners who maybe upside down with their property values, but are making payments are thinking and being advised to stop making payments, take a hit on their credit and get out why so many others are doing the something!

Appraisers need to not use short sale or make an adjustment anywhere from 10-30% so they don’t bring down values of non short sale homes anymore!

What you should know about home foreclosure

The Story below is something that isn’t just an isolated case, I’ve heard of people’s financial advisors advising clients it makes more sense to walk away and take the hit on their credit than wait 10-15 years to get their home value back to their mortgage amount. Something needs to be done to help more underwater homeowners from feeling this is the only way out.. But before you walk away you need to have all the answers. See below.

WEST PALM BEACH, Fla. – Feb. 24, 2010 – After more than six months of wrangling with her bank to get a reduced mortgage payment through a federal loan modification program, Debra Jacobs has had enough.

The West Palm Beach resident is walking away from her home of 14 years.

“I’m just going to wait here until they put a padlock on the door,” said Jacobs, 58. “I’m so over it, I have to let it go. It’s too painful.”

As homeowners grow increasingly frustrated by the nation’s struggling foreclosure prevention programs, more may consider walking away as a viable alternative.

But there’s more to it than just stopping your mortgage payments and handing over the keys.

Boca Raton real estate attorney Marlyn Wiener says there’s no “right way” to walk away from a home.

Knowing the consequences, however, will at least help the borrower make an informed decision, she said.

“There is an analysis that each homeowner should do to find the best way for them to proceed,” Wiener said. “There isn’t a speed lane.”

The biggest gamble in walking away is whether a lender will try to seize a borrower’s assets to pay for its losses, Wiener said. Lenders have up to 20 years in Florida to collect a deficiency judgment.

But banks are more likely to go after borrowers who strategically default – a term meaning the homeowner can afford the mortgage but decides to stop paying because the home is no longer a good investment.

Moral dilemmas aside, Wiener said it can make financial sense in some situations to “pull the plug and regroup” if the mortgage is underwater.

Scott Haft, who oversees the mortgage modification and foreclosure defense division at the law firm LaBovick & LaBovick, said some lenders are willing to forgive a mortgage debt if a borrower voluntarily turns over the home without going through a lengthy court foreclosure.

“We say, ‘We’ll give you the keys on Monday, but you have to waive your right to pursue my client in the future for deficiencies,’ “ said Haft, whose company has offices in West Palm Beach, Boynton Beach and Palm Beach Gardens. “Many times, the lender is only interested in regaining the property.”

Another concern is whether the homeowner will have to claim forgiveness of debt on tax returns for the amount of money owed the lender.

The Mortgage Debt Relief Act of 2007 temporarily exempts people who lose their primary residence from having to claim the canceled debt, but the act is scheduled to sunset Dec. 31, 2012, and can’t be applied to investment properties.

“Everybody’s relationship with their properties and their loans is different,” Wiener said. “People need to take a look at where they are in life before they decide to walk away.”

One thing Wiener asks clients is whether they will need good credit in the near future to secure a car or student loan. A foreclosure can knock up to 300 points off a credit score – damage that can take years to repair and will stay on your report for seven years.

Lenders have recently stepped up efforts to ease the foreclosure process and avoid the complications when a homeowner walks away.

Citigroup launched a program this month that allows some borrowers to stay in their homes for six months without paying. In return, the homeowner turns in the keys at the end of the time period and keeps the home in good shape.

The federal Home Affordable Foreclosure Alternatives Program, announced in November, gives lenders incentives for offering deed-in-lieu of foreclosure and for approving short sales.

But for Jacobs, the alternatives are “too little too late.”

“Not only do I not know the options, I don’t care anymore,” she said. “It’s really sad it’s come to this.”

A year later, reality sets in on housing loan mods

About 116,000 homeowners have had their loans modified to reduce their monthly payments, the Treasury Department said Wednesday. Only about $15 million in incentive money has been paid to more than 100 participating mortgage companies. That’s 0.02 percent of the $75 billion available.

Unemployment soared to 10 percent, and home prices continued to fall, especially in some states. 16 million homeowners nationwide now owe more to the bank than their properties are worth, according to Moody’s

Low interest rates and tax incentives have boosted home sales, but are ending soon. The $1.25 trillion program created by the Federal Reserve that has helped keep rates low is scheduled to end next month. The tax credits run out on April 30.

Obama’s plan had two main strategies: The government would channel $75 billion to banks to prod them into modifying the terms of mortgages for up to 4 million borrowers by the end of 2012. It would also relax rules to let up to 5 million homeowners refinance at lower interest rates.

Under the modification plan, borrowers can get their mortgage rates reduced to as low as 2 percent for five years and have the term of their loan extended to as long as 40 years. Borrowers must make three payments on time before the modification becomes permanent. Monthly payments for borrowers in the program have fallen to a median of about $835, down by about $520 a month.

Since the program started in March:

• 1 million people have entered the modification program, and almost 12 percent, or 116,000, have completed the process.

• A third of homeowners who made the three monthly trial payments on time have now fallen behind.

• More than 61,000 homeowners have dropped out, and hundreds of thousands more are expected to do so in the coming months.

• About 220,000 homeowners whose homes have plummeted in value have refinanced.

The process has been time-consuming, bureaucratic and fraught with communication mistakes. Borrowers often feel lost in a maze. When denied by their bank, they often don’t get a clear explanation of why.

To qualify, borrowers need to provide two pay stubs and a letter describing the reason for their hardship. They must give the Internal Revenue Service permission to give out their tax returns to their mortgage company.

Faced with poor results last summer, the Obama administration pressured mortgage companies. Treasury officials summoned key executives from lenders, including Bank of America, Wells Fargo and JP Morgan Chase, to Washington. The industry was given strict orders: Sign up at least 500,000 borrowers by Nov. 1.

To meet that goal, most companies allowed homeowners to enroll in the program without proof of income. That was the same low standard that lenders used when they made some of the riskiest loans that fueled the housing frenzy.

Getting the documents in advance would have been a better idea, Heid said. That’s because lenders have struggled to get homeowners to complete all the required documentation. Many don’t comply, despite repeated phone calls, mailings and even in-person visits by notaries.

It’s a problem that has perplexed and frustrated industry executives. “Borrowers didn’t understand that if they didn’t send the documents in, they would fail to qualify,” said Sanjiv Das, Citigroup’s top mortgage executive.

Last month, the Obama administration made key changes. It reduced the paperwork requirements and announcing that homeowners will be required to provide proof of their incomes upfront starting June 1.

Are you living the American Nightmare! Why others Profit?

The Problem:
►Wall street got too greedy.
►ARM, Alt-A ARM, Option ARM, Prime ARM, Sub-prime ARM, these adjustable rate
mortgages will continue reset to higher monthly payments which many homeowners will
not be unable to afford.
►Millions of mortgage brokers originated these types of loans across the nation.
►Now the banks are literally overwhelmed and don’t have enough people to clean up
the mess.

The Numbers:
►More than $250 billion in 2008 another 350 billions in 2009 and another $700 billion
will reset in 2010 and beyond, this is according to a First American study.
►Now here is the recipe for disaster.
►It’s estimated that 60% of all arms borrowers pay only the minimum payment and can
not afford a higher payment.
►According to Freddie Mac 62% of all loan modifications become delinquent within 60
days after a modification takes place.
►Loan modification is a disaster; it’s PROVEN it doesn’t work without principal
►Right now according to credit Suisse banks have approximately 900 thousands
properties in their books. Not listed for sale with an agent.
►As per Credit Suisse banks and GSE’s must avoid foreclosure in 4.2 million loans
until the end of 2010 in order to have a recovery.
►Highest unemployment rate in over 30 years.

The FDIC is selling off failed Bank and making crazy deals with the new owners, like this deal with failed IndyMac Bank to OneWest Click to Watch This Video Why would these banks want to help the average homeowners who is fighting to keep their homes when they can make more money doing short sales. Does this seem right to you?

Let me know your thoughts.

Indian Rock Beach Fl, waterfront townhome

Moor your sail boat at your door! Gorgeous town home, builder’s own unit with ALL the extras. Wood floors, crown molding, built-ins, granite-WOW factor! Deep water slip allows for yachts or sailboats. Loads of storage + a 2 car side by side garage! French doors open to private balconies overlooking a gorgeous landscaped yard. Perfect for BBQ’s! Enjoy boating in the pristine Gulf waters. Walk 1 block to white sandy beaches, restaurants & shops or relax on your private roof top terrace with endless views of Gulf and Intracoastal. Located on the best beach-Indian Rocks. This is a home worthy of all this fabulous community offers! “Sale is subject to seller’s lender’s approval”.

Fannie to offer closing cost aid on foreclosures

WASHINGTON – Feb. 1, 2010 – Fannie Mae, the largest provider of residential home funding in the United States, announced on Friday that it would start to pay closing costs for buyers of foreclosed homes in its inventory. Buyers of qualified properties will get up to 3.5 percent in closing costs or an equivalent amount for the purchase of new appliances.

Fannie wants to clear out the nearly 50,000 properties it has in inventory – listed on, the Web site created by Fannie Mae last year to sell the growing number of foreclosed homes. The offer is available to any owner-occupant who closes on the purchase of a property listed on before May 1, 2010. Applicable properties can be found on, along with property descriptions, photographs, community and school information, and more.

In addition, some Fannie Mae-owned properties are eligible for special HomePath Mortgage and HomePath Renovation Mortgage financing, which offers qualified homebuyers the ability to purchase with as little as 3 percent down.

“Attracting qualified buyers to the market and reducing inventory of vacant homes is critical to stabilizing neighborhoods and helping the market recover,” Terry Edwards, executive vice president for credit portfolio management, said in a statement.

I think this is a great opportunity for any buyer. Check out the homepath website and see what homes are available in your area!

Short Sale investors flipping homes – Good or Bad?

Over the past couple of years since “Short Sales” have been the hot topic in the real estate market I’ve been contacted by several mortgage brokers and investors/firms looking to get access to my clients who need to sell properties and who are upside down in their homes value.

These people offered to help my clients by making an offer on their home. (Banks are only willing to talk about a short sale if we have an offer) They will negotiate the short sale on behalf of the client and purchase the home (if they can get a good deal).

I was quite interested when I heard this the first time, because I know how hard it can be to find a buyer who is willing to wait 3-9 months before they can close on a home (these mortgage brokers who weren’t making money by financing homes now wanted to make a living from people’s hardship) It was pitched to me that I would make the commission on the listing side and on the buying side. After the bank approved the sale I would then market the home below fair market value to find a buyer quickly. (Banks typically give us 30-60 days to close the transaction once they have given us their approval) I would then get the commission on the listing side and maybe the buying side for the investor. WOW that could be as much as 12% commission for one deal! Who wouldn’t be interested in that?! (not me if it’s hurting someone)

After further questioning, I discovered these “white knights” looking to help my sellers get out of their homes make offers at 65% below fair market value minus repairs and tie up the home for several months negotiating with the bank. They had no intention of buying the home unless they can sell the bank on accepting this lowball offer, then finding an end buyer who will pay market value for the home. Once they find an end buyer they use a “Hard Money Lender” to close on the property, then resell the home the same day to the end buyer making a huge profit.

If no end buyer can be found or the bank doesn’t accept the low ball offer the seller could end up in foreclosure, plus during the time the home was under contract with the investor any real buyers miss out on these homes. These investors are not helping the turn around of the real estate market they are just taking advantage of desperate sellers and banks, ultimately you and I as tax payers are fitting the bill for these guys because its our tax paying money that has been bailing out the banks from their losses.

Example: At the end of last year a client of mine made an offer on a home in Crescent Heights, we received a counter offer where the sellers name was scratched out and an investment firms name was in its place. The investor had gotten the seller to sign a contract which allowed the investment firm to control the sale as described above. We did come to terms on a sales price after going back and forth for a couple of days. At the closing the investor walked away with over $13,000. The seller could still be on the hook for any unpaid balance of the mortgage.

I feel the banks and/or the government need to set rules to prevent these investors from taking advantage of our down turned real estate market.

High court: Mediate on foreclosure

TAMPA, Fla. – Jan. 5, 2009 – Florida homeowners facing foreclosure may soon get one last chance to negotiate with lenders trying to take back their homes.

The Florida Supreme Court issued an administrative order last week that requires a third-party mediation program with all new foreclosure lawsuits involving primary residences.

The goal of the order, written by Chief Justice Peggy Quince, is to help handle the state’s glut of foreclosures. An estimated 456,000 foreclosure cases statewide are clogging the court system, she said.

Florida has the third-highest mortgage delinquency rate in the nation, according to the order. “The crisis continues unabated,” Quince wrote.

The order backs a recommendation made in August by the Supreme Court’s residential task force. The court asked the task force to study the problem and offer guidance.

“I’m pleased the court recognized the need of what the task force asked for,” said Alan Bookman, a task force member and former Florida Bar president. “This is going to force lenders and borrowers to talk to each other. They may not be able to work something out, but it’s a start.”

Lenders have spoken out against mandatory mediation and said it would cause even more delays. Alex Sanchez, president and CEO of the Florida Bankers Association, told the Tribune in August that lenders already are in constant touch with borrowers and file foreclosure cases as a last resort.

Sanchez could not be reached for comment Monday.

The mediation order will be executed through the chief judges of Florida’s 20 judicial circuits. Bookman said he expects the program to be in place by mid-February.

The program requires sending all cases involving primary residences to mediation unless the plaintiff and borrower have already done so or both parties agree to opt out.

The cost of mediation is not to exceed $750, according to the order. Lenders would pay the fee initially, though they could recoup some costs if mediation fails and a foreclosure lawsuit is filed in court.

It’s unclear on what date the mediation requirement kicks in, but it does not apply to cases already in the pipeline, Bookman said.

The order likely will apply to cases filed after the chief judges sign orders for each circuit, Bookman said. However, the chief judges could assign a different date.

“They could make it affective for cases filed this week, when the order was signed,” Bookman said.

Most areas of Florida continue to see a rise in foreclosure filings.

However, the Tampa-St. Petersburg-Clearwater metro area recently saw overall foreclosure filings slow. The November number dropped 9 percent year-over-year and 1 percent from the previous month, according to RealtyTrac, a California company that tracks mortgage activity.

Even so, the area has been rocked by foreclosures. The category of filings known as new foreclosure lawsuits increased in November, from 31,380 the month before to 32,276.

Deficiency Judgments: The Real Risk

There are numerous websites showing the legal and theoretical possibilities of being sued after foreclosure. Many so-called “foreclosure experts” threaten homeowners with the possibility of being sued after foreclosure, and having their wages garnished, cars repossessed, or given enormous tax bills from the IRS. Since so many state foreclosure laws do allow deficiency judgments, there is always the danger of being sued after foreclosure. However, most of the foreclosure advice being given to homeowners is wildly inaccurate. In almost every single case, what usually “actually” happens is…

The bank, after the foreclosure, would have to sue the former foreclosure victims for the deficiency judgment if one even exists. This means the bank would have to hire lawyers, pay attorney fees and court costs, and would simply have a judgment against them. There is no expectation that they would ever be able to collect on that judgment, and banks are aware that homeowners go into foreclosure because they run out of money. So, if they know homeowners have experienced a financial hardship and do not have any money, and the mortgage company has already lost money on the loan due to the foreclosure, there is little reason for them to sue again. They just move on with attempting to sell the property on the open market and recoup some of their losses.

When a homeowner sells the property before the foreclosure and sells it at a lower amount than what is owed on the loan, this is called a short sale, and is one of the most common ways that homeowners can stop foreclosure on their homes. In this case, the homeowners would get a 1099 at the end of the year, since the bank is forgiving the difference in the loan amount. Forgiven debt is counted as income. But this is only a possibility when a homeowner has worked out a short sale with the bank and a buyer, and the home has actually transferred ownership through the short sale.

When the house is sold at sheriff sale for a loss, this is not forgiven debt. It is merely a sale of the house, and homeowners do not get a 1099 if they do not receive any profit from the sheriff sale and if no debt is forgiven. The house is just taken from them to pay the bank and the bank gets the property back because that was pledged as collateral on the original loan. The legal mechanism of foreclosure allows for the sale of the property at a public auction, but has nothing to do with forgiving any portion of the actual debt represented by the foreclosure judgment.

So that is what actually happens in the vast, vast majority of foreclosure situations. Banks rarely pursue deficiency judgments unless they know the homeowners have a lot of cash and other assets that would make it worth suing them. This is not the case in most foreclosures, though. While literally hundreds of online resources and charlatans will threaten homeowners with the possibility of a deficiency judgment and all of its ill effects after foreclosure, the banks themselves are wise enough to recognize that suing their former clients is not in their best interests in all but the most extreme cases. In fact, most lenders would gladly give former foreclosure victims another loan, if they met the qualifications; so there is no reason to turn away future business due to an unfortunate financial hardship that led to the foreclosure.

Limitations on Deficiency Judgments After Foreclosure

Homeowners are often worried that the foreclosure process will never end. The bank will sue them, publish their personal financial problems in the newspaper, take their home back, evict them, and then sue them again for any deficiency from auctioning the property. With the anticipation of a deficiency judgment, borrowers may feel like they will never be able to restart their lives and move on after foreclosure.
However, this is most often simply not the case. The potential for a deficiency judgment, while it exists, can be microscopically small. For a variety of reasons, banks do not pursue homeowners after foreclosure, even if there is a deficiency. As well, there are numerous state and local statutes and court decisions that place limits on how much money a bank can even obtain from this type of lawsuit.

First of all, many lenders decide not to sue for a deficiency judgment because they know that homeowners are unlikely to have any other assets with which to pay the debt. Most borrowers default on their home due to financial hardships such as a job loss or major medical expense. It is probably safe to assume that families in this position do not have the income or assets to pay a judgment for tens of thousands of dollars.

In many cases, the bank, in order to obtain such a judgment, will have to spend several hundred or thousand dollars out of its own pocket. Court fees must be paid if another lawsuit is to be brought into court, and attorney costs will be paid out of pocket by the bank to proceed with the deficiency lawsuit. After losing so much money from the foreclosure and auction of the home, banks most often cut their losses instead of look for a deficiency.

State statutes regarding deficiency judgments also come into play and can dramatically affect how much the bank is able to sue for or recover from the former homeowners. However, borrowers should also be aware that most anti-deficiency judgment statutes apply only to purchase-money mortgages, and second mortgages or refinances may not be affected by these particular laws.

In fact, some states have simply banned deficiency judgments against borrowers when the foreclosure was done nonjudicially through a power of sale clause in a deed of trust. Borrowers in these states can be completely safe from being sued after foreclosure. Although the nonjudicial process affords the fewest legal protections during the foreclosure, it may offer the best chance of avoiding being sued again after the auction.

Other states place restrictions on how much a lender can recover from a deficiency by limiting the amount of the judgment. This is done by giving borrowers a credit for the “fair value” of the property. The fair value is determined by figuring out what the property is actually worth, and this will most often be defined by the statute itself. It may not mean the sales price at auction or the market value of the home, so it is important to read to the state law on the issue.

Another restriction that has been placed on banks seeking deficiency judgments is strict time frames in which the judgment can be initiated. If banks were able to wait years before suing the former owners, it may be nearly impossible for the family to get on with its financial life. Instead of having borrowers live with the threat of a lawsuit, states have decided that deficiency judgment suits must be pursued almost immediately after foreclosure, or the opportunity to do so is eliminated.

Lenders may also have procedural restrictions placed on their ability to sue borrowers after foreclosure. In some cases, the bank may have to provide additional notices to the owners informing them of the intent to seek a deficiency judgment. As well, the bank may be required to seek a determination of deficiency in the original lawsuit, rather than bring a lawsuit seeking the judgment after the sheriff sale has been conducted.

Many of these restrictions may come into play at the same time, while banks will run into one after another in other foreclosures. These limitations and additional requirements, along with the likeliness of never being able to collect on the judgment, ensure that the majority of homeowners are safe from being sued for a deficiency. While it is not impossible to be sued by the bank, the legal hurdles to overcome in pursuing this lawsuit make it somewhat rare in the world of foreclosures.

Why the Bank Will Not Pursue a Deficiency Judgment & Wage Garnishment

Homeowners are often worried about further collection attempts after a foreclosure has been completed. After losing their homes, they worry about seeing their car repossessed, bank accounts levied, or wages garnished. But in most cases, there is little chance of a deficiency judgment or future collection attempts due to the numerous obstacles in the path of the bank.
This is the factor that most borrowers do not consider when worrying about the possibility of a deficiency judgment. It is often not in the bank’s interest to spend its time and resources pursuing previous foreclosure victims who found it difficult to pay back their original loans. It costs money and takes time to hire attorneys and proceed with another lawsuit in the court system, and there is little incentive to do so against defendants who proved they do not have the financial ability to pay a judgment.

There are at least five considerations that banks have to take into account before they proceed with suing and attempting to collect on a deficiency judgment. These considerations are as follows:

Does the law allow a deficiency judgment?
Was there a deficiency at the sheriff sale?
What is the fair market value of the home?
Is there a reason to expect the borrowers can pay?
Is the judgment likely to be discharged?
These five issues are discussed in more depth in the paragraphs following.

The first consideration homeowners have to take into account is, does their state allow deficiency judgments after foreclosure? They should immediately look up their state foreclosure laws to find out if this is even a possibility, let alone probably. If they are not allowed, then there is no danger of garnishment. If yes, other factors will have to be met before collection efforts can resume.

Second, if the state allows a deficiency judgment, was there actually a deficiency at the sheriff sale? A deficiency is when the house sells for less than what the borrowers owe on it. If they owe $140,000 and the property is auctioned for $130,000, there is a $10,000 deficiency. Unfortunately, due to rapidly declining home values, many foreclosure auctions end with a deficiency.

Third, what is the fair market value of the home? Many courts will allow a deficiency judgment only for up to the actual value of the house. Using the example in the previous paragraph, if the house auctioned for $130,000 and the homeowners owed $140,000, but the fair market value is $135,000, courts may limit the deficiency to a maximum of $5,000. That is the fair market value ($135k) minus the sales price at auction ($130k).

Fourth, if the state allows a deficiency and there is one that is above the fair market value of the home, what gives the lender the incentive to go after the judgment? Many lenders will not bother with a deficiency judgment because they know that homeowners in foreclosure are strapped for cash. It costs more in attorney fees and court costs than the lender will ever be able to recover from most borrowers, so what is their incentive to sue for a deficiency?

The final consideration when examining the possibility of wage garnishment for a debt after foreclosure is that deficiency judgments are dischargeable in bankruptcy. If the bank gets a judgment against borrowers and tries to garnish wages, the former owners can file a Chapter 7 and have it eliminated, if they meet the other requirements for a Chapter 7 bankruptcy. So even in the worst case scenario, homeowners might be able to avoid wage garnishment.

Thus, unless many of these considerations work out in favor of the bank, there is little chance of a deficiency judgment. This does not mean that there are no such judgments, as some states allow the request for a deficiency to be included in the original lawsuit. However, it does mean that many lenders have decided not to pursue homeowners after the foreclosure is over and the home sold, regardless of whether the bank was completely paid back by the auction or not.