Love's Real Stories

Answering all the real estate questions you never knew you had.

Category: Foreclosure

May 22, 2014

Out of the Shadows

A “shadow inventory” of new buyers is infiltrating the real estate market.

This “shadow inventory” of buyers is made up of people who lost their homes through distress sales, such as foreclosures or short sales, and are ready to jump back into homeownership. These buyers have worked hard to get back on their real estate feet, but they are also lucky. New loan programs have sprung up recently, allowing them to qualify to buy again, despite the heavy hit they took on their credit when they lost their homes.

Traditionally, if you lost your home through foreclosure your credit would suffer enough damage that you couldn’t qualify for a real estate loan for up to seven years afterward. A short sale would set you back at least three years. If you also declared bankruptcy, your credit damage was that much worse.

Now lenders are giving new consideration to distress-related credit damage. The hard times in the Great Recession were so bad, and so many people lost their jobs and their homes, that lenders have created new loan programs to accelerate their re-entry into the market.

FHA launched the “Back-to-Work-Extenuating Circumstances” loan program which cuts the waiting period for loan-qualifying down to one year after a foreclosure, a bankruptcy or a short sale. The borrower has to prove that they suffered a 20 per cent drop in income for six consecutive months due to job loss or another economic event, and they must have 12 months of on-time rent payments.

Sean and Anita Burkes recently bought a new home through the FHA Back-to-Work-Extenuating Circumstances loan program.

“It’s a great program,” said Anita, “but it’s not easy.” She made hair-pulling motions as she described the amount of paperwork involved in getting the loan. Then she held her hand two feet above the table top. “A stack this high,” she said.

Sean laughed. “The only worse paperwork nightmare I’ve seen was our short sale when we lost our house a year and a half ago,” he said. He held his hand as high as he could reach above the table. “A stack this high,” he said.

“We’re so thankful, though,” said Anita. “We were really down and out. But Sean got a new job, and now we own our new home. It feels good that a lender will take a chance on us again.”

Sean nodded. “And it feels good to come out of the shadows.”

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May 15, 2014

The Czar

I could have saved us all millions of dollars if I had been appointed the Real Estate Czar of the United States, if only there really was such a position as the Real Estate Czar of the United States (RECUS).

If I were RECUS, I would be in charge of all the banks and I would compel them to handle their foreclosures and short sales the right way, instead of their way, which is inept and idiotic, and causes people to shake their heads, pull their hair out, and blow their tops.

The President of the United States (POTUS) should have appointed me RECUS when it was needed the most, back in 2006 when the housing bubble burst and the Great Recession was on the horizon.

My first act as RECUS would have been to notify every bank that I am in charge of all sales; that I have direct access to POTUS and therefore, all bank bailout funds. Then I would have issued the following directive:

“RECUS’ New Short Sale and Foreclosure Rules”

  • Banks may no longer refuse a short sale for no good reason. If in RECUS’s opinion, the seller has a legitimate hardship necessitating a short sale, and the price offered by the buyer is Fair Market Value, the bank must approve the sale.
    For every short sale refusal for no good reason, RECUS will direct POTUS to subtract $10,000,000 from the bank’s bailout money (BOM).
  • Banks may no longer demand 40 pounds of paperwork to be submitted “for the bank’s sole perusal in settling the aforementioned sale” and then claim “non-receipt of the aforementioned documentation”.
    For every pound of paper required by the bank over one single pound, RECUS will direct POTUS to subtract $10,000,000 from the bank’s BOM.
    Additionally, the bank will be charged $1,000,000 for every use of the word “aforementioned” more than once.
  • Banks may no longer refuse a short sale, then foreclose on the property, and subsequently sell the property for less than the short sale price the bank had in hand in the first place. For every dollar less than the original offered price the bank accepts, RECUS will direct POTUS to subtract $10,000,000 from the bank’s BOM.
    Additionally, if the property deteriorates during the bank’s ownership after foreclosing, $10,000,000 will be subtracted from the bank’s BOM for every dollar needed to bring the property back to the same condition in which the bank received it.

Actually, I wouldn’t have saved us millions; make that billions.

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December 17, 2013

The Deal

Twenty-five billion dollars used to sound like a lot of money. But next to the trillions we’ve seen thrown around in bank bailouts, tarp funds, and mortgage scandals, it’s no surprise we barely lifted an eyebrow and had to stifle a yawn at the new National Mortgage Settlement. The government has settled with the five biggest banks for a collective fine of $25 billion as compensation for mortgage and foreclosure fraud. The money is supposed to go to homeowners who were wrongly foreclosed upon or wrongly denied loan modifications.

Depending on which politician, consumer advocate, or analyst you listen to, the deal is either a boon or a bust.

Version one, boon:

The government has finally gotten somewhere with their commitment to justice by nailing the banks for their fraudulent loan practices. This is the biggest money settlement in our nation’s history, and it’s just the beginning. The banks are also obligated to open up loan modifications in the form of principal reductions for hard-working people who are “underwater” in their homes, whose loans are more than their homes are worth. If the banks don’t play this right, they will be whacked for more fines. This will break the back of the foreclosure crisis, our economy will straighten up, and home values will rise.

Version two, bust:

The big bank boys are slapping each other on the back, lighting big cigars, and clinking their drinks together in celebration of being let off the hook once again. For the equivalent of a parking ticket in their big-buck world, they are absolved of high crimes against the people of our country. No banker has been brought to justice in this scandal, and they have just been given a new “Get Out of Jail-Free” card. Now with no fear of lawsuits they will drop the hammer on foreclosures they’ve been stalling, which will further depress home values.

Twenty-five billion is a big number. Get out the calculator and start dividing. Please, let’s figure out who gets how much, and if it will make a difference.

No yawning.

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December 5, 2013

Bad Breaks and Good Luck

The big banks that got busted for bungling foreclosures paid billions for their bad business, through a settlement with the U.S. government. Eight-and-a-half billion dollars was paid to the feds, to be distributed to homeowners who were incorrectly foreclosed upon. Unknown is exactly who will receive the money, how much they will be given, and when they will get it.

There are people here in the North Valley who might be eligible- people who were in the process of a loan modification, for instance, who were told by the bank they were qualified for the modification, were days from closing the modification, and the bank abruptly foreclosed. It’s as if the left hand of the bank was holding a pen above the paperwork, ready to sign final documents, when the right hand appeared at lightning speed, seized the documents and fed them through a shredder, then slammed down the hammer of foreclosure. Bad break. No loan modification, no more home, time to pack it up and go.

After people packed it up and went, it was discovered the bank didn’t own some of the loans they foreclosed upon. Faulty and fraudulent paperwork stunk up the bank’s processing departments like rotten eggs. Too late though, the home has someone else living in it now.

Other people got the boot without being given proper notification, without correct paperwork, or disclosure of their rights. Mere technicalities one might say; but procedurally illegal nevertheless.

Amidst the foreclosure wreckage and the bad breaks, there are some good luck stories to be told.

One homeowner (who wishes to be unnamed) had a loan against his property of $375,000, and the house was worth around $225,000. The homeowner lost his job and quit making payments, and the bank began foreclosure proceedings. The homeowner packed, and prepared to hit the road.

Three days before the foreclosure was finalized, the bank confessed their paperwork on the loan was faulty, and they no longer claimed ownership of the loan at all. No one else did, either.

Eureka! The homeowner-who-wishes-to-be-unnamed now owns his home free and clear. He pulled the “Get-Out-of-Jail-Free” card; the “Bank-made-an-error-in-your-favor” card. Lucky break.

He also got his job back.

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November 14, 2013

Government Website

“That government website is ridiculous! I kept filling out the online application, and the website kicked me back to the beginning,” said John McFairlane. “I called to talk to a ‘qualified representative,’ sat on hold forever, and then got the run-around!”

That was one year ago, and the website McFairlane was referring to is the “Keep Your Home California” website.

The “Keep Your Home California” program began when the state received billions of dollars in Federal bailout money to help struggling homeowners and prevent foreclosures. To qualify for assistance, people must have suffered a hardship such as job loss; cut in pay; divorce; or heavy medical bills. The assistance is in the form of money for people on unemployment; principal reduction on home loans; money for catch-up on late payments; and money for relocation expenses.

The program was a disappointment initially, the website performed poorly, and far fewer people were approved for help than originally estimated.

McFairlane was injured on the job, couldn’t work, and lost his income. He received disability payments, but it wasn’t enough money to keep up his home loan payments.

“Then came the paperwork,” said McFairlane. “I spent hours and hours on it. And I was denied!”

But there has been a change over the last year with Keep Your Home California. Rules for qualification have been relaxed, and the website is streamlined. People are being approved for assistance at a faster pace.

“On the advice of a buddy of mine, I took another shot at it a month ago.” said McFairlane. “The difference was like night and day. My online application went smoothly, and when I called, I spoke with a real human- a nice one!”

McFairlane’s loan payment was cut in half. “I just can’t believe it,” he said. “I get to keep my house. It’s a miracle, a dream come true.”

McFairlane thanks his friend for urging him to try again, and he passes on the sentiment.

“Don’t give up. There is help for people who need it,” he says.

“You just gotta keep an eye on those government websites.”

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