Foreclosure Scams: Salt in the Wound

Foreclosure Scams: Salt in the Wound

Every single day I speak with people who are in foreclosure. These conversations always have several things in common: A stressed, and frustrated homeowner, a bank that has been utterly useless in terms of making the situation any better, and the one that burns me up more than anything else – someone who has attempted, or worse, succeeded at taking advantage of the homeowner in distress, by attempting to perpetrate any number of scams.

I want to cover three of the most common scenarios I come across so that if you run into any of them, you’ll know to run away from them just as fast as you can.

  1. Upfront Fees I can’t tell you the amount of money that people I speak with have spent on bogus, illegal, upfront fees. It is illegal for anyone – and I mean ANYONE – to ask you for an upfront fees in connection with helping you with a home in foreclosure – particularly for a modification. This includes attorneys. A lot of attorneys will say they are charging you a legal retainer fee for “other services.” If those services really amount to modification services, however, no fees can be charged legally.
  2. Bankruptcy Since I’m on the topic of attorneys … Remember that they are not exempt from dirty, unethical practice. A dozen times a month I talk to people who have read advertising by attorney’s offices that states that they can “get you out of foreclosure,” the implication being that they can truly solve your problem. Clients file bankruptcy thinking that they are safe, not realizing that bankruptcy is only a temporary solution, that buys you some time to figure things out. It is not permanent. If you come across an attorney who leads you to believe that it is the answer to all your questions, try reporting him to the State Bar. And don’t pay him anything.
  3. Short Sale Scams It is illegal for you to receive any benefit from the sale of your home if it is done through a short sale, unless the bank approves it. And unless you are receiving $3500 from the HAFA Program, or the bank has agreed to a nominal amount of “cash for keys” the bank won’t approve it, trust me. A good friend of mine who was substantially upside down on her property had someone approach her and promise to give her $30,000 if she would allow him to “help her” with her short sale. Not only is this unlikely, but if you accept money from an agent or investor who agrees to “share” in the monies earned by them through commissions, you could be breaking the law, and are subject to penalty, fine and imprisonment.

I’ll cover more pitfalls to watch out for in a future post, but if you or someone you know is in foreclosure, these three seem to be some of the most popular. If you should see any shenanigans coming your way, now you will know what to do.

What is a Trial Modification?

What is a Trial Modification?

Last Sunday morning, I sat down with some homeowners to discuss their options relating to the foreclosure mess they were in. Through the course of the conversation, I learned that they had just received a letter stating that they didn’t qualify for a loan modification, after having been in a period of “Trial Modification.” Some of you might have heard of people in Trial Mods. Maybe you are in one yourself. If so, there are some things you ABSOLUTELY need to know about how these things work.

What exactly is a Trial Modification? Simply put, it is a period of time when the bank gives you a new lower payment, without committing to allow you to keep that payment permanently. Presumably, this is to see if you can indeed make the new payment. One would assume that if a homeowner were successful at making the payment for a period of time, that the bank would then agree to make the terms of that modification permanent. But you know what they about saying “assume.” Don’t do it. Especially not in this case, ’cause it just ain’t so.

Here’s the rest of the story about the homeowners I mentioned above. The homeowner’s made their “Trial” payments for 8 months. They struggled. They made them on time. They lived up to what they thought was their end of the deal. But 8 months later they got word from the bank that they didn’t qualify for the payment that they were paying successfully.

This was a big surprise… to them. It wasn’t to me. And you can bet it wasn’t to certain people at the bank.

The story above gets worse. The homeowners found that none of the payments that they had been making had been applied to their mortgage. Instead of showing that they had been making payments, the loan now shows over 8 months of no payments having been made. This means that the bank can now go immediately to the advanced stage of foreclosure, the fast track to losing your home called NTS or “Notice of Trustee’s Sale.” An NTS basically allows the bank to foreclose on your property in as little as 21 days, without any further debate, or discussion.

Could you find a new place to live, pack up your stuff, and move in 21 days?

On top of all this, the homeowners were out 8 months of payments – over $13,000 – that they could have saved, to help start over in a new place. Instead they made payments to the bank in good faith, struggling to do so in the belief that they were working towards saving their home. In fact, they were wasting the little resources they had. And now they don’t even have the typical period of time – 111 days – the bank must wait before they can foreclose, without making mortgage payments, in order to prepare to move.

You might think that this is one of those isolated cases, one of the horror stories you hear about. In fact, this is par for the course with trial modifications. In the government HAMP program for example, as of July, 2010 there were 1,334,117 trial modification started. Of that number 663,538 were cancelled. That my friends, just about equals a whopping 50% failure rate. I guess you could say that it is also a 50% success rate, but in this case, I’m sorry, I have to side with the glass is half empty crowd.

You need to be extremely leery of a Trial Modification offer. There are certain ratios that if you fall outside of, will almost certainly disqualify you from obtaining a permanent mod. Call me and I’ll go over them with you.

And by the way, are you wondering why the bank would set you up in a “Trial” offer that it would seem they should have known from the onset if you qualified for or not, and then pull the rug out from under your feet? If this is bothering you, consider the following two scenarios, one hypothetical, one actual. After that it should all be pretty clear:

  1. First the hypothetical one. The bank could have let the homeowners know up front that they didn’t qualify for a modification. The homeowners could have stopped paying their mortgage for 111 days before the bank could have legally foreclosed on the property, and in the process the homeowners could have saved almost $7000 to help them start their lives over.
  2. Now what actually happened. The bank told the homeowners to begin making $1700 a month payments, while breezing through that mandatory 111 day period I mentioned that the bank had to wait before they could legally foreclose. In the process they collected $13,000+ and now reserve the right to kick the homeowners out in 21 days.

Is anyone still unclear?

How long does it take to foreclose on a house?

How long does it take to foreclose on a house?

It was sensible. It was reasonable. It went something like this: If you didn’t pay your mortgage for 90 days, a Notice of Default was filed. You got 90 more days to pay, and if you didn’t then a Notice of Trustees Sale was published, and if you still couldn’t pay, your home was sold to the highest bidder 21 days later at the county courthouse steps. The total process from the days the NOD was filed took 111 days. Ah, the good old days. If only things were so simple today.

In today’s world there is no obvious rhyme or reason to the manner in which foreclosure is conducted. The average home in foreclosure doesn’t actually go to auction until (Ready for this?) 461 days after the NOD is filed! Some take substantially longer than that. Some people might say that given the overwhelming numbers of people in foreclosure today, and the existence of a genuine crisis for so many, this could be a good thing. It could help someone when they need it most. Although it can feel that way for many people, I couldn’t disagree more.

Although it can indeed be helpful for someone to have an extended period during which no mortgage payment is demanded of them, the real issue arises from the fact that there are simply no rules anyone can count on any more. The average homeowner is lulled into a sense of complacency after 400 odd days of not having made a mortgage payment. And when the bank finally does decide to foreclose it’s akin to a hard unexpected left to the jaw.

I talk to people all the time who literally believe that the bank won’t foreclose. Who could blame them for such a thought? When the original Trustee’s Sale was scheduled, they trembled at the knees, and scrambled for a way out. But the original Trustee’s Sale came and went. And so it was with the 2nd 3rd and 4th extension the bank – for no apparent reason – granted.

After a while, a new Trustee’s Sale Date was old news. It lacked teeth. No one paid much attention until it suddenly it was too late. At the 11 (hundredth) hour, the bank finally got around to doing what they should have done 300 days earlier, and with no uniquely different warning than they had been giving for over a year, they swiped the property out from under the (by now) unsuspecting homeowner’s feet.

Standardized foreclosure procedures, although tough give people something to latch onto. A time frame to work within. Something they can count on at a time filled with chaos.

Now I’m all for the banks giving a little extra leniency during these difficult economic times. But please, let’s dole this out in an at least somewhat uniform manner. People need parameters to work within. And when homeowner’s are lulled into complacency, or worse a false sense of security, no one wins.

Homeowners Lose Equity to Banks

Homeowners Lose Equity to Banks

Have you or anyone you know ever had to deal with foreclosure? If you live in CA 2010, and if you stop and think about it, the answer is probably, “Yes.” If this is the case, then I have some info you need to know. According to ForeclosureRadar.com, within the county of Los Angeles alone, there were 3026 foreclosures in 09. These weren’t your ordinary “I’m sick of hearing about them on every front page” variety foreclosures. No sir. These were special. This unique group of foreclosures represents the worst variety of foreclosure known to man. These 3026 foreclosures were properties that went back to the bank while the owner still had at least 30% equity in the property.

What does this mean? In plain English the people in this group lost between $50,000-$250,000 each when the bank foreclosed. I don’t mean they lost this money on paper. This isn’t money lost because the house dropped in value. I mean that had they simply sold their homes before the bank foreclosed, they could have walked away with between $50,000 and $250,000 hard, cold cash in their pockets.

“Huh,” you say?

Why in the world wouldn’t a homeowner with so much to lose simply sell their home when it looked like there was even a remote possibility that the bank might take it? Why, indeed.

There are 2 primary culprits that lead people into this situation. The first is a combination of good old fashioned ignorance, and fear. People in foreclosure are often in denial. They think the cavalry, the lottery, perhaps God Himself will make an eleventh hour entrance and save the day. I’m not exaggerating. When the reality of the situation is too difficult to face, people often act in illogical ways. People of normally sound judgment, act very differently when their home is on the line.

The second, and in my opinion the worse by far, is that homeowners are lead to believe that they have a fighting chance of keeping their homes, when in fact they don’t. The average homeowner would prefer to stay in his home, and is busy chasing after a modification. The truth though, is that he probably won’t get one – not if the stats have anything to do with it. The number of homeowners that actually end up getting their loans modified to the point where they can realistically stay in their homes for the long term, is abysmally small. Yet banks, politicians, attorneys, and even Oprah would have you believe that you have a fighting chance.

I’m not saying that you can’t get your loan adequately modified. People do every day. The problem is that those people are in a very small minority. Those are the 3 ex fat people on the “Lose 100 lbs in 2 Weeks” infomercial, with microscopic writing underneath saying that “results may vary.” You can’t bet on a long shot when you have a lot to lose should that bet fall through.

And by the way, the bank has far less incentive to cooperate with you when you have equity in your home. If it gets sold, they get all their money. They are more likely to negotiate when you’re upside down passed your ears, and haven’t even thought about making a payment for a while. If they foreclose on someone who is upside down, they are going to lose money. But for the guy with equity, they are going to make money when they sell your home at auction.

Is it any surprise then, when the bank says, “Yes Mr. Homeowner, we will give you a trial modification to see how it goes. They then proceed to collect payments for 3-6 months, and suddenly conclude that you actually didn’t qualify for a modification, and furthermore inform you that they will be foreclosing in 2-3 weeks time.

When all is said and done, the case for selling is a strong one, particularly when you have equity. And if you you really can’t bring yourself to sell, then I’d put my money on the cavalry, the Lottery, or Oprah before I put my money on the banks to come through for me. The results are about the same, and they’re a lot nicer to deal with.

When Loan Modifications become Dangerous

When Loan Modifications become Dangerous

When faced with foreclosure, the first thing most homeowners will do is to call their lender in hopes of obtaining a loan modification. The vast majority of people would like to remain in their home if at all possible, and a loan modification is usually the only way that this can be achieved.

For a very select group of people, loan mods are the answer to their problems. For most however, putting your faith in the success of a loan modification can cause serious problems.

Here are some depressing facts:

  1. More than 98% of loan modifications are still in the “Trial Period”
  2. Right now, less than 2% of loan modifications have been accepted as permanent modifications by lenders.
  3. In 2009 only 66,465 of the 3 Million mortgages in foreclosure were permanently modified.
  4. And here’s the most disturbing fact of all. Nationwide, only 4764 “Permanent Modifications” actually have a 9 month history of successful payments.

Just to put this in perspective, according to ForeclosureRadar.com, as of today, there are currently 47,316 homes in foreclosure in Los Angeles County alone. There are about 4 million households across the country who need help. And in the face of millions of struggling homeowners all across the nation only 4764 people were actually granted permanent modifications. This means that when all is said and done, you have about a .01% chance of success when attempting a permanent, long-term modification.

These pitiful results make it clear that homeowners betting on a loan modification coming through are betting on very poor odds indeed. Even if the bank does make some sort of concession, it is likely that it simply won’t be good enough to allow you to stay in your home indefinitely. This is significant beyond itself, and can in fact be quite dangerous to homeowners, particularly those with equity in their homes to lose.

Let’s look at the following example:

Benjamin Homeowner hasn’t been able to make a payment on his mortgage for 90 days. The bank has sent him a Notice of Default, and now that the threat of foreclosure has become a reality, he knows that something must be done. He fully realizes that he can no longer pay the $250,000 mortgage on his home valued at $500,000.

The obvious strategy is for him to sell the home, collect $250,000 minus various costs, and fees, and move on with his life. Benjamin, however has lived in this home for almost 20 years, and really doesn’t want to move. He is also worried that due to his poor credit, finding a new place to live might be a possibility. He has heard about the banks modifying loans for people, and wants to see if this might be a possibility.

Can Bankruptcy Really Stop Foreclosure?

Can Bankruptcy Really Stop Foreclosure?

Every day I speak with people who are in foreclosure. Every day the answer I receive when I ask about their situation is, “We’ve taken care of it.” Whether it’s because they just don’t want to talk to me, or because they truly believe they have done what needs to be done is a subject for another post. This post addresses the people who really believe that they have indeed “taken care” of their situations, specifically, the ones who believe that they have done so by claiming Bankruptcy.

Bankruptcy is a useful tool when dealing with creditors who call your home and work relentlessly. It can help to put the brakes on a situation that has spun out of control, giving you time to sort things out and to decide what your next move should be. You can think of it like a “Time Out” during the last few minutes of the Superbowl. The whistle blows, everything stops, and you can plan out your next strategy.

One thing that a BK absolutely cannot do however, is to end your foreclosure problem for good. It is a common misunderstanding among people I speak with, that your home can be included in a bankruptcy. It can not. Two debt items that a bankruptcy judge cannot forgive are student loans and mortgages.

What consulting a good bankruptcy attorney can do for you is to put the brakes on, slow things down a bit.  During the final stretch before your home actually goes to auction, BK can be invaluable in stopping the sale. This can give you more time to explore all of your options. It can help determine if the forgiveness, or restructuring of some, or all of your debt, will allow you to stay in your home.

If you truly can’t afford to stay – and this is usually the case – then you will have more time to find a new place to live, clean out your belongings, and move at your own pace, your dignity intact.

The Grand Canyon and your Debt

The Grand Canyon and your Debt

When discussing debt elimination my clients often see their debt as something monumental. In a way, I agree with them. I often think of the Grand Canyon. Think about how the Canyon was created for a moment. A relatively minuscule trickle of water wiped out millions of cubic yards of earth. All that was necessary was consistent energy over time. To imagine that something so large was crated by something so small is mind boggling, and your debts can be wiped out in exactly the same fashion.

The first step in eliminating debt and later to building wealth is by creating a monthly surplus in your cash flow. By “surplus” I literally mean that you are bringing in more income than you are spending. This can be done in a number of ways, some of which are quite obvious. Cutting back on unnecessary, or irresponsible spending habits for example can be an effective, albeit cumbersome way to create the extra cash flow you need to begin the process.

There are other more sophisticated ways, however to accomplish the same end. You can restructure your debt, allowing you to continue living the lifestyle you are accustomed to, and still increase your monthly surplus. By instituting these strategies, you can begin chipping steadily, and strategically at your debt.

It is hard to believe, but I have personally helped clients to create as little as $200 a month in positive cash flow, and used that small amount to begin their debt elimination process. The river that runs through the Grand Canyon took centuries to carve its mark in the earth. The $200 trickle I mentioned above was able to take down a mountain of debt, including credit cards, car loans, AND a mortgage totaling over $600,000… in only 8 years.

Now that’s the kind of physics I like!

Cool Cottages in Janes Village.

Yet another great area in Altadena for those of you who like efficient use of space, and great character architecture.  This video highlights some homes in Janes Village.  In the last 6 months there were 8 Janes cottages up for sale.  They start out at about $650k depending on condition, and the exact lot and structure sizes.  Remodeled homes have recently sold in the low $800k range.  Since these properties were “discovered”  they have been consistently selling at a premium above other comparable “Non-Janes” homes in the area.  I love them because although they are small by today’s standards, they are laid out so well that they feel comfortable inside.  Many were also designed with porches, so neighbors can interact easily in a front yard community environment.

 

Highview Avenue: Mid-Century Moderns in Altadena

Here’s a video for those of you who want to see Ain’s stunning modern development in Altadena, CA but don’t live close enough to visit.  For those who do live in the area, perhaps it will inspire a short walk, bike, or drive.

In the late 1940s, mid-century modern architect Gregory Ain designed Park Planned Homes.  The development consisted of a single block of elegant single-family residences lining both sides of the street.  The concepts of flexible use space, open floor plans, and seamless interaction between indoor and outdoor areas were all introduced during the period in which these homes were built.  Ain’s efforts to achieve these ends manifested itself in features like Post and Beam framing, casement windows, and walls of glass to allow maximum natural light were the strategies.  All of these features can be seen on Highview.

I love that many of the owners are restoring the homes.  Some are buying to resell, and others for their own use.  Either way, the block is looking nicer in recent years, and I it keeps going in that direction.   As of today, nothing is for sale, but recent sales suggest starting prices in the high $700k range.