Archive for November 28th, 2010

Strategic Default – real stories from real homeowners

The following is a comment posted on this website from a frustrated homeowner, in response to my blog about Strategic Default and Depleting Savings / Retirement Accounts.  I think the comment contains a powerful message, so I posted it here, below.

The entire comment is worth reading, but check out this sentence in particular:

I can see no reason for me to use the last few dollars of my savings after having depleted my retirement, in order to satisfy a bank that cannot and will not produce the note, has placed me in a mortgage that is impossible to maintain and illegal, and continue to pay for a property that by the preplanned ponzi scheme perpetrated by the banks, is continually decreasing in value.

If you’re in the position of having to deplete savings/retirement monies to pay a mortgage on a home that’s already underwater, I’d think long and hard about this entire comment and this sentence in particular.  As you do, bear in mind – these aren’t my words.  These are the words of a frustrated Florida homeowner.  Unfortunately, he’s one of many who have shared horror stories like this with me.   


I have tried for 4 years to negotiate with the servicer on my mortgage. Initially I asked them to waive the pre-pay penalty so I could sell the house without having to pay to do so. I was denied on the basis that the pre-pay penalty was 3 years at 3.5%. in 2007 the property values fell so drastically that I again asked my lender to recast the note and lock in the rate, since they had put me into a flex pay mortgage which I was not informed of until I noticed the principle increasing when I made what I thought was the required mortgage payment. They refused telling me I would have to requalify and based on my current working situation, being 1099 my income would not support the refinance, plus all the fees added on to a mortgage that was already higher than the value of the house.
In September of 2010 after almost depleting my savings and 401K. I again approached the servicer firstly requesting they produce the note, since in looking over my loan package, I had not been given one single copy of any document I supposedly had signed. All the documents were blank. They replied telling me I would need to submit a total of $185.00 for them to produce a note that I should have been given at signing. I refused. In october I received along with this letter requesting payment, a letter from the servicer, telling me my interest rate had dropped to 3.5% from 4.25% and the index had been reduced by half, yet my mortgage payment had increased by $115 per month! Immediately I called them assuming there had been a mathematical error. I was informed they had recast the note (as the docs which I don’t have indicate it can be done every 5 yeears) and shortened the term in order in increase the payment thereby increasing profitablility! I was completely outraged. I’m 60 years old and struggling to make a payment as it is and in reality I am no longer in any type of good health to maintain their property. Up to that point, I was current. I informed them I would no longer be making any payments as I had recast my budget and it was no longer financially feasible for me to be paying them for the privilege of maintaining their property. Henceforth, they could pay ME to maintain it or it could simply fall into disarray. I had been postponing moving back to Canada to take care of my aging mother and a sister who is terminal in the effort to take care of this house. Now I am moving back to Canada, I’ve rented the house, and I’ve strategically defaulted on my mortgage. I can see no reason for me to use the last few dollars of my savings after having depleted my retirement, in order to satisfy a bank that cannot and will not produce the note, has placed me in a mortgage that is impossible to maintain and illegal, and continue to pay for a property that by the preplanned ponzi scheme perpetrated by the banks, is continually decreasing in value.
I will need an attorney I am sure, and I will certainly call on Mark for this service. I am impressed! It is refreshing to see there are attorneys out there who truly defend and represent their clients and expect the letter of the law ot be adhered too.
Thank you for this blog..I will be calling your office on monday!

Mark Stopa

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A Short Sale is not a cure-all

This article from USA Today addresses a common misconception among homeowners facing foreclosure and the public at large.  Quite simply, even if you sell your home in a short sale, that may not be the end of your problem.  In Florida, like many other states, if you owe $250,000 but your home sells in a short sale for only $150,000, you still owe the remaining balance (called a deficiency) to the bank.  

There are exceptions, of course.  After all, the bank may agree to waive the deficiency and accept the short sale price as payment in full.  However, most short sale contracts are not set up this way.  In fact, most contain language that enable the bank to pursue the deficiency at a later date.

With this in mind, homeowners should think about what they are accomplishing by consenting to a short sale.  If the bank can pursue you for the deficiency, I’d argue you gain nothing at all by consenting to a short sale.  In fact, I believe you hurt yourself, as: you lose any leverage you may have had to negotiate with the bank (ownership of the home).  

I don’t want to pick on realtors, but many realtors either don’t know the full ramifications of a short sale or don’t care.  After all, they get their commission regardless of whether the homeowner remains on the hook for a deficiency.  

This are not hypothetical concerns.  I’ve seen this dynamic at play in my foreclosure defense practice, and USA Today is writing about it.   

Here’s the article…

PHOENIX — Some former homeowners who went through short sales to avoid foreclosure are finding they are still in debt to their lenders.Because the short-sale concept, which allows people to sell their homes for less than they owe, is designed specifically to help homeowners avoid having to pay their lenders more money, some sellers have been careful to negotiate their deals so the lender, by contract, can’t later seek payment. Those who haven’t done so are at risk.

“I know that there is a great deal of confusion and uncertainty about this issue,” said Michelle Lind, general counsel for the Arizona Association of Realtors. In Arizona, many people thought they were covered by a law that bars lenders from seeking payment from a borrower after foreclosure if a bank cannot sell a property for as much as was owed.

“The law is unclear,” she said, “and there are many variables that factor in.”

Tricia Goldblatt sold her Phoenix home through a short sale last year after losing her job as an executive assistant at an engineering firm. A few months ago, she started receiving calls from a collection agency.

“They are telling me I owe $10,000. I did a short sale to get out from under my mortgage,” she said. “I don’t have that money. I had to move in with my mom.”

Goldblatt said she thought the documents for her short sale specifically stated her liability for both her first and second mortgage would be terminated. But the collection agency said it bought the note on her home-equity loan from her lender and wants to be paid.

Home-equity loans, or second mortgages, appear to be the biggest pitfall.

Plunging home values in across the country left many homeowners unable to sell their homes for enough money to cover what they owed on their first mortgages, let alone a second mortgage.

Some can work out deals to close their second mortgages. Often, lenders who issued a home-equity loan will accept $2,000 to $5,000 to let the homeowner walk away from the debt.

Other lenders seek to recoup more of the debt, requiring sellers to sign promissory notes to pay a portion later.

But many sellers think that once the short sale is completed, they are free of liability. That’s when the unwelcome calls can begin.

There usually is a lag between a short sale and when a lender will try to collect on unpaid debt or sell it to a collection agency. It was almost a year after Goldblatt’s short sale when she was contacted by the collection agency.

Many real-estate agents working with homeowners on short sales refer them to lawyers or make sure the deal calls for the dismissal of all the debt related to the house. The sales require more paperwork and negotiations and are still relatively new to many agents. And, with short sales at record levels nationally, lenders are continuously updating their guidelines.

“It’s tough to figure out who owes what to whom in a short sale,” said Margie O’Campo De Castillo, a Phoenix real-estate agent. She said she advises sellers to visit a lawyer before closing their deals.

Real-estate agents and attorneys say some lenders are forgiving all portions of mortgages not covered by the home’s resale. But homeowners shouldn’t count on it.

“But it’s still important to get it in a signed contract,” said Kevin Kauffman of Keller Williams Arizona Realty.

“My warning is that short sales are very dangerous for the seller,” said Diane Drain, a Phoenix real-estate lawyer. “They must get legal and tax advice from someone who does not profit from the short sale.”

Mark Stopa

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