You see, the notes have been assigned, sliced up and bundled into securities and collateralized debt obligations so many times that it’s difficult to locate the note or even determine who actually owns the debt. Until recently, banks just rolled over borrowers without following the rules.
The defense is most easily raised in states that require foreclosures to be done judicially; in other words, a court administrates the process. Here in the West by contrast, foreclosures are carried out non-judicially. That is, banks simply use the “power of sale” provision in the deed of trust which, after serving the notice of default, notice of trustee’s sale, etc., allows them to auction the home on the courthouse steps. (I should clarify that in these states a lender may file a judicial foreclosure, but I’ve yet to see one.)
Why is it easier to raise the defense in the judicial foreclosure context? In a pending foreclosure action, the borrower is already in court and she may fairly readily file a motion to force the bank to comply with the requirement. (It cuts both ways, though: the bank is already in court, too, and can easily file a motion for a deficiency judgment against the borrower after the foreclosure, whereas in a non-judicial foreclosure state, the bank has to file a brand new lawsuit to obtain such a judgment, which is rare.)
The hurdle for borrowers in non-judicial foreclosure states, Nevada, California, Arizona, among them, is that generally a borrower must file a lawsuit to force the issue. Of course, if you’re financially strapped to the point where you’re facing foreclosure, you’re just not able to do it.
Banks are acutely aware of that. They count on it.
I’ve written previously about Nevada’s new law, AB 149. (Please see the following article.) A wonderfully equitable requirement of the statute is that the lender must bring the original promissory note to the mandated mediation. This gives the borrower substantial leverage that he previously could not easily bring to bear.
Where before, without filing an injunction in the brief window of time it takes the foreclosure process to run its course, the borrower had absolutely no way of knowing whether the lender could produce the note.
By virtue of AB 149, if the representative of the bank doesn’t show up at the mediation with the original note in hand, the borrower has his answer. This alone should bring the bank to the realization that it has a major problem, which will alone give the borrower a powerful negotiation tool which he heretofore did not possess.
If, then, the bank remains obstreperous, at least the borrower goes into court knowing she has a very promising shot at a favorable outcome.
by Michael Radmilovich, Esq.
The trumpeted programs engendered by the federal government and the big banks that have been rolled out to help distressed borrowers stave off foreclosure have thus far been all but impotent. Shamefully so.
Studies have shown that up to now only three percent of borrowers have received a loan modification that reduced their monthly payments and only eight percent of distressed borrowers received any modification at all. In his recent column in The Atlantic, author Richard Posner posited his views on why. Based on data culled from small pools of mortgages representative of larger classes, banks have pre-determined that mortgage modifications are likely to be unprofitable insofar as the only means to a successful modification end is a substantial write-down of a borrower’s loan principal. And if banks do it for one borrower, other underwater and low-equity borrowers will expect the same and may intentionally default, or at least threaten to do so.
Then too, as home values continue to decline, since the assumption is that modifications don’t work, it’s better to foreclose straight-away and get the properties back on the market as soon as possible. And consider this position: though foreclosing and putting the property on the market is a de facto write-down of principal without difference to the bank, it’s better to do that than simply write it down for the distressed homeowners because they are considered high risk. Which ranges somewhere between cynical and malevolent because the homeowner is distressed solely because the lending industry tore down the market in the first place and squandered trillions of dollars of homeowner equity. And don’t forget, these very banks were given billions of dollars of bailout money from taxpayers, many of whom are of course distressed homeowners.
So the Nevada Legislature’s enactment of Assembly Bill 149 is propitious even if does only one thing -- prevent the detestable propensity of lenders and mortgage servicers to foreclose on homeowners while the parties are ostensibly in loan modification negotiations. You see, this happens all the time. Once foreclosure proceedings have begun the distressed borrowers have -- generally -- roughly four months to save their homes, depending on the alacrity of the given lender or loan servicer.
Now, while the institution is demanding documentation from the borrower and then losing it on account of its own abject negligence or willful intransigence, the clock is ticking. Typically, as the trustee’s sale date is looming, the bank will offer a modification which will not fundamentally help the homeowner -- but take it or leave it, the foreclosure date is two days away. Or the foreclosure agent, a separate entity entirely, simply may not have been instructed by the lender that negotiations are pending and the sale date should be postponed but, because one hand knows not what the other is doing, it forecloses anyway.
AB 149 mandates that the beneficiary of a deed of trust (lender) participate in mediation before the trustee of the deed of trust may exercise the power of sale and the borrower’s home is foreclosed.
Only a handful of states have, or are contemplating, mandatory mediation. Nevada being the most hard hit state, it stands to reason that it should be on the forefront of borrower relief and AB 149 is the most logical program that’s come down the pike thus far in this implacable housing crisis.
By way of the mandatory participation imposed upon the lender, it accords, in essence, a temporary restraining order in favor of the borrower, precluding foreclosure until mediation is had.
Very, very briefly, the program works like this:
Once a homeowner receives a notice of default -- after July 1st; unfortunately for those in the maw of the process before then, the legislation is not retroactive -- she may request, within 30 days, mediation with her lender.
Importantly, the default notice must include contact information from the lender or servicer for the person with authority to negotiate a loan modification on behalf of the lender, which is critical: if you can’t get through to someone with authority, all effort is futile.
The mediation must occur within 90 days after the notice of default is recorded. It’s worth noting that the representative of the lender must produce the original, or a certified copy, of the deed of trust, the promissory note and each assignment of either. For some loans, this may be problematic; so many of them were bundled into securities and collateralized debt obligations, determining who the actual owner of the note is is not necessarily a simple chore.
Finally, if a borrower believes that the lender has participated in bad faith, she may file a petition for judicial review once the mediation is concluded.
Now mind you, mediation is an alternative form of dispute resolution in which no opinion on the merits of either party’s position is rendered, nor does it result in an enforceable judgment.
Nevertheless, with the precipitous decline in fair market values easing somewhat and the implementation of this relief program, with a little luck, new foreclosures will be reduced, the current inventory of bank-owned homes will be absorbed and, finally, the market might return to a semblance of normalcy.
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The hyped programs engendered by the federal government and the big banks that have been rolled out to help distressed borrowers stave off foreclosure have thus far been all but impotent. Shamefully so.
So the Nevada Legislature’s enactment of Assembly Bill 149 is remarkable for its logic and teeth -- namely the requirement that the beneficiary of a deed of trust (lender) participate in mediation before the trustee of the deed of trust may exercise the power of sale and the borrower’s home is foreclosed.
Why remarkable? Because, at a minimum, it should prevent the detestable propensity of these financial institutions to foreclose on homeowners while the parties are ostensibly in loan modification negotiations. You see, this happens all the time. Once foreclosure proceedings have begun the distressed borrowers have -- generally -- roughly four months to save their homes, depending on the alacrity of the given lender or loan servicer. Now, while the institution is demanding documentation from the borrower and then losing it on account of its own abject negligence or willful intransigence, the clock is ticking. Typically, as the trustee’s sale date is looming, the bank will offer a modification which will not fundamentally help the homeowner -- but take it or leave it, the foreclosure date is two days away. (Why? Banks make more money foreclosing on homes than they do modifying loans.) Or the foreclosure agent, a separate entity entirely, simply may not have been instructed by the lender that negotiations are pending and the sale date should be postponed but, because one hand knows not what the other is doing, it forecloses anyway.
Banks know that the only way a borrower can stop the exercise of the power of sale is by way of a court-ordered injunction, but what borrower on the brink of losing her home has the wherewithal to retain an attorney, file a complaint, obtain a temporary restraining order then bankroll the hearing at which time the judge will or won’t enter a preliminary injunction? Then too, because the borrower has been strung along during the process, even if she could afford to go to court, it’s simply too late.
Assembly Bill 149, by virtue of mandatory participation imposed upon the lender, accords a de facto temporary restraining order in favor of the borrower.
To be sure, it cannot be denied that to date loan modifications, a thrown bone, have had abysmal success rates. Lenders’ concessions on principal balances are extremely rare, arrearages may simply be rolled in to the modified loan and one out of two borrowers is in trouble again six months down the line. The close-fisted banks’ and mortgage backed security holders’ unwillingness to meaningfully compromise is a big factor. Ironic since the only reason these exotic investments still live is a result of charitable taxpayers, you and me, who bailed out the financial industry in the first place. (Thanks very much Countrywide, Wall Street, investment bankers, et al.) And at bottom, the borrowers most likely to benefit from a loan modification program are the least likely to be foreclosed in the first place.
But this legislation seems propitious.
It’s administrated by the Nevada Supreme Court, Justice Hardesty being its overseer. When a homeowner receives a notice of default from the trustee vested with the power of sale after July 1st -- unfortunately for those in the maw of the process already, the legislation is not retroactive -- he or she may request a mediation with his or her lender which will be overseen by a senior judge, Supreme Court settlement conference judge or a designee.
Importantly, the default notice must include contact information from the lender or servicer for the person with authority to negotiate a loan modification on behalf of the beneficiary of the deed of trust, which is critical: If you can’t get through to someone with authority, all effort is futile. If you haven’t had the pleasure of experiencing the loan modification process, you couldn’t possibly fathom the intentionally impenetrable layers the loan servicers and banks put between you and those with decision-making authority who determine the fate of homeowners.
The homeowner must notify the trustee of the deed of trust of her intent to mediate within 30 days of service of the notice of default. The mediation must occur within 90 days after the notice of default is recorded. Also of note, the representative of the lender must bring to the mediation the original, or certified copy, of the deed of trust, the promissory note and each assignment of either. Either party may seek a determination that the other participated in bad faith and sanctions may be imposed by the district court.
The costs are reasonable: the compensation of the mediator is $400, split equally by the parties to the mediation.
The legislation appears to be the most equitable that’s come down thus far in this implacable housing crisis. But if it does only one thing, curb the all too common and abominable custom of banks that actually foreclose on borrowers’ homes while negotiating a loan modification, it’s a victory.
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If say a corporation or limited liability company borrows money to purchase real property, a lender will typically insist that an individual or individuals (or another well capitalized company with a solid credit history) guarantee that the debt will be repaid. Not all lenders, mind you, will require this but certainly the ones who aren’t fool hardy enough to rely on an entity that may be under-capitalized or an entity that initially had sufficient assets but became insolvent. (You’d be surprised however how many creditors fail to seek to back-stop their risk. Then again, we advise our debtor clients to avoid guarantee agreements at all costs and advise our creditor clients they would be wildly remiss not to have one.)
If you’ve signed a guarantee, the question you have to consider is whether there are defenses to invoke if the primary debtor is in default and the creditor looks to you.
The fact of the matter is, anti-deficiency judgment statutes which preclude a lender from seeking to recover from a borrower the difference between the loan balance and the amount recouped at foreclosure, extant in some states, don’t necessarily apply to guarantors. (Typically, a lender has a limited period of time after the foreclosure sale to initiate a deficiency action; after that, it’s barred.) The point being, if the underlying security, i.e., the real property, is worth substantially less than the loan balance -- exceedingly common these days -- a creditor could forego the right to foreclose and simply file suit on the guarantee for the full amount of debt or, more likely, foreclose and sue you concurrently.
What’s more, while the “one-action rule” applies in the context of a guarantee, it’s common for the rule to be waived by the guarantor in the written agreement. In some states though, for instance Nevada, by virtue of statutory law, the provision may not be waived by a guarantor if the lien secures an indebtedness for which the principal balance of the obligation was never greater than $500,000. NRS 40.495.
The rule stands for the proposition that “but one action” may be had for the recovery of debt or for the enforcement of any right secured by real estate. Notwithstanding what it implies -- it’s not actually an either/or design -- the one-action rule requires a lender to exhaust the security before recovering from the debtor personally. If the rule is violated, the lender could lose its right to foreclose on the real estate. A guarantor, however, without the protection of the one-action rule, is not afforded the benefit of time it takes to foreclose before the creditor may file suit against him.
The crux of a compelling defense to enforcement of a guarantee is establishing that it was required simply to avoid application of the one-action rule or anti-deficiency limitations which are statutory and generally cannot be waived by a borrower. For example, if a lender requires the sole shareholder of an S corporation or the sole member of an LLC to execute a guarantee, it could very well be deemed an ill-conceived hedge. Which makes sense: if an individual does business through an entity merely to shield himself from personal liability and doesn’t follow corporate formalities or comingles personal and company accounts, under the “alter ego” theory the corporate veil may be pierced resulting in personal, unlimited liability. If, then, an entity is truly autonomous, sufficiently capitalized and adheres to corporate conventions, why should a creditor be allowed to hold shareholders or LLC members personally accountable by way of pretext?
Historically, there were other bases to attempt to defeat enforcement of a guarantee but they’ve gradually been worn away. The tried and true defenses of failure of consideration, unconscionability, mistake, etc., will invariably have to be waived by the guarantor, as will the requirement that the creditor exhaust its remedies against the “primary” debtor and foreclose on the property first.
When the terms of the underlying obligation are changed without the knowledge and consent of the guarantor, certainly leverage against the creditor may be brought to bear. Then too, a guarantor should not be held liable for a greater amount than the underlying obligation of the primary debtor. Although a well-drawn guarantee can dispel some defenses, they are certainly arguments a guarantor should pursue.
You may be at this point contemplating what, then, is the difference between a guarantor and a co-signer and, at bottom, your suspicion that there’s not much anymore is correct. Just as with a co-signor, a guarantor’s credit record will reflect the obligation and affect credit worthiness.
“A mortgage casts a shadow on the sunniest field,” so be smart.
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So here we are: several million homeowners across the country are living with the distinct prospect of losing their homes through foreclosure, thousands of them right here in Nevada where nearly one out of two homes is under water -- that is, the amount of the mortgage balance exceeds the fair market value of the home.
I’m peculiarly aware of borrowers in extremis because a portion of my firm’s practice is committed to assisting, or attempting to assist, them in avoiding foreclosure. Our experience is this: The hyped government sponsored homeowner assistance programs are impotent and the taxpayer funded bank bailouts seem designed to ensure that the moribund real estate market collapses utterly. Of the billions of dollars spent in the effort to rescue the financial institutions responsible for digging the hole in the first place, none of it is trickling down to distressed homeowners.
Each bank has a loss mitigation department that’s presumably supposed to benefit both lender and borrower. I’ve worked with many clients whose loans are owned by various banks, for instance let’s call one Wells Fargo, and the process typically goes like this: getting through to speak to a live person is the first hurdle; prepare for quarters of an hour of recordings and waiting. If you are working on behalf of a borrower, you are directed to send an authorization letter to the bank by fax only -- no e-mails. After faxing one letter half a dozen times to three different numbers provided by several different live persons, it probably won’t get into the banks “system” in due time, if at all.
Now mind you, the foreclosure sale may be impending because the homeowner has already wasted a lot of time and $1,500 to $3,000 she gave to an unregulated loan modification “expert” who did absolutely nothing that she couldn’t have done herself. By the time she gets to us, she only has a week or ten days before the sale and the employees of the bank or the loan servicer are so poorly trained and indifferent, a borrower can lose a home simply by virtue of the bank’s own abject disorganization. I do not believe this is inadvertent; I believe a decision was made at the top to resurrect Rube Goldberg and implement methods designed to not only not help the homeowner but to humiliate her in the process. You’ll speak with Shawntee, who will transfer you to Nsgu, then on to Ny Lynn and, if you’re indignant enough, to the supervisor, Denise. None of them respond substantively because the letter has been secreted in a hard drive in the bank’s catacombs. Moreover, the phone answerers have virtually no authority to make any decision -- they are phone answerers and that’s about it. They also suffer a lot of verbal abuse from near hysterical homeowners on the brink of losing their homes.
Make no mistake, contrary to logic and everything you’ve heard or read, the bank wants your home; after foreclosure, it will profit by way of originating a new loan regardless of the purchase price.
It boils down to this: taxpayers have contributed billions upon billions to the financial sector which has run the economy in general and particularly the housing market into the ground. As a result, trillions of dollars worth of homeowner equity has evaporated and foreclosed homes all over the country sit unoccupied, saturating the real estate market and driving down property values. Homeowners whose properties are under water and have little hope of building up equity in the foreseeable future are asking, Why not just walk away? And the banks are answering, Why don’t you just walk away? And the same people who brought us the crisis and whom each and every one of us are giving hard-earned money to, are the same ones who are mercilessly giving homeowners the boot.
It looks a lot like a death spiral -- an iniquitous, sickening one.
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In many states the lenders (or, in future years, those bottom feeders who buy such judgments for ten cents on the dollar) will pursue the borrower for a deficiency judgment. Meaning if you owed $400,000 on the loan and at the foreclosure sale the lender only received $100,000 back, you still owe $300,000. Years later you will still have someone chasing you for the money and your problems will continue long past turning in the keys on a failed investment.
It is now becoming clear that your best strategy is to fight a foreclosure. Hire an attorney to enjoin the foreclosure sale or, even better, to negotiate with the bank before foreclosure becomes imminent. There are many defenses to be asserted, including a developing theory of “predatory” or “unfair” lending practices. As well, there are many appropriate procedural tactics which can be used to delay a foreclosure. When lenders run up against an aggressive defense, they are much more open to yielding to the demand of a loan modification workout or negotiating a settlement. This is made none to clear by the recent monumental settlement between state attorneys general and Bank of America, whom acquired Countrywide Financial Corp. Countrywide is notorious for having engaged in unfair and deceptive practices and Bank of America has, as a consequence, agreed to modify the terms of subprime loans taken out by hundreds of thousands of borrowers. While you won’t benefit directly from that settlement, it provides substantial leverage for you and your attorney to force concessions on loan terms. Lenders don’t want to spend a great deal of time or money on one case that has become a “problem” for them. And as we know, they have a lot of cases to work on these days.
We are hearing of instances from around the country where lenders are becoming frustrated with defendant challenges to their foreclosure actions. Frequently, deals are struck whereby in exchange for the borrower allowing the foreclosure sale to proceed, the lender agrees not to pursue a deficiency judgment and further agrees that the property value equaled the loan amount, thus avoiding the tax on forgiven debt. Borrowers are thus able to truly walk away from a property without the nagging concern of someone later pursuing a deficiency judgment or Uncle Sam later wanting money for debt forgiveness taxation. The attorney’s fees of between $2,000 to $5,000 in most cases are a small price to pay for getting clear of tens to hundreds of thousands of dollars in continuing obligations.
The time has come to stand up and fight foreclosures. Gain the leverage you need to release yourself for years of liability.
In other states you will want to locate a competent real estate litigator in your area. Good luck.
]]>Most commonly in the context of subprime loans, lenders employ unscrupulous methods such as teaser rates and pay option loans which are responsible for a substantial portion of foreclosures in America. Many of these abusive tactics target borrowers who, in reality, could actually qualify for a regular prime loan. It’s estimated that about fifty percent of subprime, refinanced loans could have been prime loans and saved homeowners thousands in interest and fees.
What is predatory lending?
Chapter 598D, et seq., of the Nevada Revised Statutes, “Unfair Lending Practices,” offers guidance in order to recognize acts which are considered predatory, such as when lenders:
(a) Require a borrower, as a condition of obtaining or maintaining a home loan secured by home property, to provide property insurance on improvements to home property in an amount that exceeds the reasonable replacement value of the improvements.
(b) Knowingly or intentionally make a home loan, other than a reverse mortgage, to a borrower, including, without limitation, a low-document home loan, no-document home loan or stated-document home loan, without determining, using any commercially reasonable means or mechanism, that the borrower has the ability to repay the home loan.
(c) Finance a prepayment fee or penalty in connection with the refinancing by the original borrower of a home loan owned by the lender or an affiliate of the lender.
(d) Finance, directly or indirectly in connection with a home loan, any credit insurance.
The federal Office of the Comptroller of the Currency has issued an advisory letter of practices that also may constitute unfair or deceptive acts, including:
Loan “flipping” -- frequent refinancings that result in little or no economic benefit to the borrower and are undertaken with the primary or sole objective of generating additional loan fees, prepayment penalties, and fees from the financing of credit-related products;
Refinancings of special subsidized mortgages that result in the loss of beneficial loan terms;
“Packing” of excessive and sometimes “hidden” fees in the amount financed; Using loan terms or structures -- such as negative amortization -- to make it more difficult or impossible for borrowers to reduce or repay their indebtedness; Using balloon payments to conceal the true burden of the financing and to force borrowers into costly refinancing transactions or foreclosures; Targeting inappropriate or excessively expensive credit products to older borrowers, to persons who are not financially sophisticated or who may be otherwise vulnerable to abusive practices, and to persons who could qualify for mainstream credit products and terms; Inadequate disclosure of the true costs, risks and, where necessary, appropriateness to the borrower of loan transactions; The offering of single premium credit life insurance; and The use of mandatory arbitration clauses.
In Nevada, predatory lending is a misdemeanor but civil penalties are equally compelling. A lender may be held liable to a borrower in an amount equal to the sum of three times the amount of actual damages sustained plus costs and attorney’s fees attendant to bringing an action. A court may also cure any existing default and cancel any pending foreclosure.
What’s more, the borrower has a defense against the unpaid obligation of the home loan to the extent of any amount awarded by a court.
The federal Truth in Lending Act (TILA) is also consequential in instances of lender failure to sufficiently disclose loan finance charges relating to non-purchase money home–secured loans.
In addition to actual and statutory damages, TILA gives a right to rescind the transaction for up to three years, in some cases, for material violations of the Act. Rescission voids the security interest (i.e., in Nevada, a deed of trust) in the home and discharges the obligation to pay interest or other finance charges. Rescission is an indisputably effective defense to foreclosure.
Finally, the failure to fight foreclosure results not only the loss of the home, a borrower may as well be subject to a deficiency judgment, a monetary award in an amount representing the difference between the extant loan balance and the amount earned by way of the trustee’s sale. In Nevada, the lender has six months from the date of the foreclosure sale to file a collection action.
]]>By Michael Radmilovich
Part 1: How We Got Here
“ May you live in interesting times” is a subtle but trenchant Chinese curse. These are , to say the least, interesting times for the real estate industry as home foreclosures are at record levels, the highest in a generation. Then again, prior to the great swoon of aught six, for generations housing was the best long term investment going.
And there is a school of thought which espouses that real estate remains an excellent long term investment. The question is, will the market turn around any time soon? To be sure, it’s anybody’s guess at this point; but there is cause for optimism. There better be: without it the economy is in an ineluctable downward spiral that could reverberate for decades, rivaling the Great Depression which many argue could never be repeated.
The bubble was incipient in 2001 but that was the year, roughly, when it began. Not coincidentally, it was just about the time that the dot.com bubble burst. As with all monumental economic debacles, the real estate crash was a function of irrationality -– banks making unsafe loans, borrowers acquiring mortgages with very little money down, adjustable rate mortgages and interest only loans. In more parts of the country than not, speculation was rampant, with people buying second homes as investments. Then too, of course, Bear Stearns, among others, was bundling home loans into so-called mortgage backed securities. With the same lack of regulation which gave us the savings and loan implosion, the Countrywides of the lending world were allowed to make “stated income” loans -– loans based on no verification of a borrower’s financial state whatsoever.
Mortgage brokers who played fast and loose in arranging loans between borrowers and lenders are now fiercely opposing the push for new regulation, which of course is peculiarly disingenuous: The same people who brought us the crisis are now contending that any new regulation would hinder their ability to continue making loans – and commissions -- which they urge will help the market recover.
While the result was almost unthinkable, the causes were commonsensical: With the technology stocks crash people who still had money to invest -– a lot; the dot.commers who had amassed illusory fortunes were a relatively limited group -– were looking for some place to put it. And there were few places: two or three percent returns on CDs were unsatisfactory, the stock market in general was frightening and bonds weren’t appealing, which didn’t leave much choice.
Real estate seemed like a safe harbor -– which it was in the first instance -– until everybody got on board the boat.
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What to do? Get back in the real estate market? That’s a function of whether the market has hit bottom yet. At this point, the conventional wisdom says no. Most markets are saturated with distressed or foreclosed properties and until the surplus is sold off demand will remain underwhelming. The New York Times ran an article in mid-January pointing out that until 2000, the relationship between home prices and rents, disposable income and mortgage rates was steady. It’s analysis indicated that in California , Nevada and Florida , home prices would have to fall another 30% to return to historical norms -- 20% for other parts of the country.
In Northern Nevada , a typical home in the range of the arithmetic mean, which peaked at $395,000, has a fair market value of roughly $289,000.00 now. According to the Times at least, home prices needn’t have to decrease much more to reach normal levels. The S&P Case/Shiller index pegs the Las Vegas metro price plunge at 22.8% over the last 12 month period, alone. An S&P spokesman, however, argues that there is no sign of the bottom, yet.
Really? If you consider the bus tours of foreclosed properties organized by realtors across the country and the web sites urging buyers to get in now, along with interest rates at a comparatively cheap 6%, it may very well be a good time to cherry pick the inventory for the best possible deal you can make. Is it pennywise to hold off for the market to fall another 5 or even 10 percent, when, all things considered, now may be as propitious a time as any? Even if prices do decline a bit, when the market turns it shouldn’t take long to gain it back.
Then too, federal initiatives, while rightly not bailing out lenders and borrowers who engaged in silly, high risk transactions, should lead to the extension of more credit by government lenders, easing credit tightfistedness. And in diametric contrast to the S&P position, Moody’s chief economist notes that, even though home buyers are watching prices slump, holding off in anticipation of further declines and a better bargain, “Sales are close to bottoming.”
So go ahead; be an economic patriot; buy a distressed property now and help turn the market around -– this country’s and maybe the world’s.
Which begs the question: do you hop on the bus and compete with other bargain seekers for one of the tour homes, or can you find distressed property on your own? Definitely the latter.
]]>The paradigm of old, beating the paths of subdivisions looking for apparently unoccupied homes overgrown with sage and shrubs, asking a next door neighbor who owns it, then tracking him or her down and relying on her for information regarding existing mortgages and other indicators of possible equity, is just that, an old paradigm. The internet makes it a far less daunting proposition.
Start at the local county recorder’s website. When a borrower becomes delinquent on the mortgage for a period of a month or two or three, the first thing the lender does is record a Notice of Default and Election to Sell indicating its intent to foreclose if the loan is not immediately brought current. Which is how you find out who the owner is. Most websites allow you to refine your search specifically to certain documents, such as a default Notice, and a survey of a typical county in Northern Nevada with a population of 400,000 evidenced 307 recorded Notices of Default three months ago, in December, some 423 in February, 2008, and 474 in March. (The foreclosure rate in this county is up a phenomenal 600% over last year.)
The Notice of Default usually doesn’t contain the address of the property, only the tax Assessor’s Parcel Number. The information gap is easily overcome by cross-referencing the APN in the county tax assessors’ website which lists the actual address. You can as well confirm the homeowner’s name, and review all the typical information that the assessor compiles, including square footage, the year the home was built, the number of bedrooms and bathrooms, assessed value, of course, and many times even a picture of the property. It also contains a history of transfer tax payments for the home, which lists the sale price every time a taxable transfer occurred.
With that information, you can get an idea, a remarkably good idea, of whether there exists any equity in the home. With the homeowner’s name and the Assessor’s Parcel Number in hand, return to the recorder’s site and plug it in to the grantor/grantee index and every deed of trust, as well as tax liens, mechanics’ liens and any other potential encumbrance, is listed.
There is certainly no shortage of operators out there who will for a price provide you a list of potentially distressed properties but they at best offer cursory information. So why would use such an intermediary when you can get the same information they would provide on your own and, with the method outlined above, far more? No need to get on the bus either; you can do the research from home, then take a leisurely drive at your convenience.
It takes roughly 120 days from the time the Notice of Default is filed until the property is actually auctioned off on the steps of the courthouse. The most advantageous approach it to work with the lender and the owner to acquire the property prior to the sale.