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Posts Tagged ‘foreclosure’

Forensic Loan Audits is another tool underwater and delinquent borrowers are using to fight foreclosure. The idea is that you find problems with the mortgage documentation and use this to pressure the lenders into a loan modification or other outcome favorable to you the borrower.

During the height of the housing boom, not only did lenders get careless with who they would lend to, but also with following the RESPA and TILA regulations. RESPA, Real Estate Settlement Procedures Act, mandates improved disclosures (and timelines for those disclosures) for real estate transactions, such as the good faith estimate of closing costs and the HUD statement. The serving transfer notice you get when your bank sells your loan to another is part of RESPA. TILA, the Truth in Lending Act, governs disclosures about the cost of credit, such as the APR (annual percentage rate).

A forensic loan audit may find violations of RESPA and TILA. However an recent article by Marilyn Bowden is finding that even though 98% of loan audits find violations, it doesn’t buy you much. For one thing pursuing this with your lender is a legal matter with all the costs that come with that, including litigation. Another is that the lenders are not really responding to the legal pressure. Think about it, you are in a long line of people threatening to sue the bank.

However, comments on the web indicate some success when the bank can’t produce the mortgage documentation at all. With the dicing and repackaging (securitization) of mortgages done for the now hapless investors, some mortgages may have gotten lost and that might be something worth hiring a lawyer for.

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Bank of America seems to be rather organizationally challenged. I’ve experienced this first hand with their property claims process.

I’ve seen cases where a troubled homeowner has received two completely different letters from them within the SAME WEEK. One threatening to foreclose, the other saying they were working on the “loan workout request”.

When I worked out a temporary forbearance with them due to the fire and rehab, they then apparently fedex’ed some loan modification (??) papers to the property address (I bet the tenants were confused) and then called and told me that they would be doing a loan modification with me to adjust my loan payment to … wait for it .. wait for it .. to exactly the same amount as my current loan payment!

So, some major internal problems. Now it appears they are busy foreclosing on the wrong houses. Below are three cases, the “parrot one” in particular has gotten a lot of press.

Note that in the Angela Iannelli case, B of A first blamed the contractor.

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Troubled homeowners who have gone through a foreclosure or a short sale may have a lurking problem that could cause them problems years down the road. Even though you think you may have put a bad chapter in your life behind you, the lender can still come after you with a deficiency judgment.

A deficiency judgment is when the lender sues you for the difference between the loan amount and the amount they (the lender) realized when the house was sold. Whether it was through a short sale or sold as a bank owned property may not matter.

Yahoo finance published an article that illustrates the problem with several examples. In one, a borrower even signed a document at a short sale closing that gave the lender permission to come after him.

If you are in a short sale, make sure you get agreement (in writing) that the lender will not pursue a deficiency judgment against you. If you have lost a house through foreclosure, whether the lender can come after you will depend on the state the house was in.

If you are in a recourse state, the lender can pursue a deficiency judgment against you. Per The New Republic blog, the non recourse states are Alaska, Arizona, California, Iowa, Minnesota, Montana, North Carolina, North Dakota, Oregon, Washington and Wisconsin. However, even iin these states, a lender may have recourse with second liens and refinanced loans. Regardless, consulting an attorney is needed for advice on your specific situation.

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Short sales would appear to be the best answer to a bad situation. The borrower can’t carry the mortgage payments, the loan is more than the house is worth. With a short sale, the lender agrees to take less than the loan in exchange for a buyer that keeps the house off their hands.

Seems like a better solution all around. Short sales reportedly are not as damaging to a credit rating than foreclosure, the legal costs of a foreclosure are avoided, and the bank typically gets more money (especially when the buyer is a retail buyer) than they would through foreclosing on the property, carrying the property and paying the holding costs, and then selling it as bank owned.

However as Robert B. Jacobs writes, the best solution isn’t always what happens. In one case the lender refused to release the seller from being liable for the difference between the selling price and the loan amount. So the property went through foreclosure instead. While foreclosure laws in each state are different, apparently in the state this foreclosure occurred (probably California), the lender lost recourse to go after the borrower for the difference. The saying “cutting off your nose to spite your face” seems appropriate here.

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Ever notice things happen in waves? The “should you walk away” theme got a new voice in Brent T. White who argues more people should stiff their lender. Predictably the banks were not amused.

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Here’s a statistic I bet you have heard before, one in four mortgages are underwater.  So the question is given that the house is an investment loss, do you walk away?  A  CNN Money article interviewed 5 homeowners and asked that same question.   To homeowners a house is more than a house, it’s a home, and many of them have decided to stick it out and keep the home.   One lone couple has decided to walk away, citing attempts to work with the bank for a principal reduction of $100K, and when that didn’t work letting it go to foreclosure for a $250K loss to the bank..   Hah, banks are not giving out principal reductions .. at least not that I have heard of.  Banks are playing hardball and not giving up much ground, although you would think they would work harder to avoid foreclosure.  After all, who got the bailout money?

I read through the comments, and most of the peanut gallery was upset with the lack of responsibility people are showing by walking away from their homes.    While I sympathize with the sentiment (or may I say jealousy), is it really a lack of responsibility, or just a sober and difficult financial decision?  Let’s see, I could run through all my saving and go broke or I can jettison this asset that the very bank that lends on it caused a credit crisis that caused it’s value to drop beyond all the worse case scenarios I ever considered.

I thought the commenter that professed disbelief at the 50% drop in value was cute.    I recently received an offer of $55,000 for a house that has a $186K note on it.  I should be lucky to only have a 50% drop.

 

 

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A friend of mine sent me this link that compares the foreclosure rate per county between 2004 and 2007.  Check out the shift from the south to our “bubble” states California and Florida.   Also check out the last map that clearly shows where the price declines are occuring.    Gives a whole new meaning to the term “red state”. 

 

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