There’s a common refrain I hear from (former) owners of foreclosed houses: they were working on a short sale, or a loan modification, they thought everything was going along fine, and all of a sudden, I show up at the door and tell them the house has been foreclosed on, and are they interested in Cash-for-Keys?
It’s actually a pretty rare event these days when someone hasn’t been in the process of working with the bank to somehow avoid foreclosure at the time the property gets sold at the trustee’s sale.
There’s often several angst-filled days as the (former) owner makes calls to the loss mitigation department and tries to find out what happened to their short sale or loan mod. Often times, the borrowers are able to reach the right someone with the lender and the foreclosure is reviewed – as you have perhaps read in the headlines lately, mistakes can happen. Many (former) owners hope to put their loan mod or short sale back on track and have the foreclosure rescinded.
Does this happen? Yes, absolutely! It can happen. If a mistake truly has been made, then the foreclosure often gets rescinded in fairly short order, within a week or two typically. And then I close the book on that file and go along my merry way, waiting for my next REO assignment or, more like it, busily servicing the ones I already have.
Sometimes it can take weeks or months for a lender to finish reviewing the case however, in which case I as the REO agent will hang back and wait for further instructions from the client. That must be fairly agonizing for the (former) owner, I imagine – after months dealing with the loss mitigation department to now stand at the precipice and wait…and wait…and wait some more, sheesh, I don’t envy these folks.
Sadly enough, in almost all cases, the loan modification or short sale was denied, however the denial was not communicated to the borrower, and the file was sent without a murmur to the trustee’s sale. Usually the borrower is notified, but sometimes it happens that they don’t receive the notice that their home is to be sold at the trustee’s sale, and that’s why it’s often such a rude shock when I show up to do the occupancy check.
But yes, it happens – foreclosures do get rescinded when mistakes are made. If you ask me, though, the foreclosure may not be the worst thing that could happen, particularly for people who are doing loan modifications. Loan modifications, to me, seem to be kind of a raw deal for the borrower. Yes, the payments get lowered, but very few loan modifications result in any meaningful principal reduction. To lower the payment, lenders will lower the interest rate, stretch out the loan term, or add a fat balloon payment. In most cases, the mortgage payment is still going to be higher than it would be to rent a similar property – except that the borrower is still going to be stuck owing dozens or hundreds of thousands of dollars more than the property is worth. If we were on the verge of rapid price appreciation, it might make sense to lock yourself (again) into a long-term obligation for massive debt; however, most market watchers are saying that any significant price appreciation is years away.
At least with a foreclosure, the borrower typically escapes that crushing debt, and it’s a chance to start over, live cheaper, and start saving for the future. Getting your foreclosure rescinded and into a loan mod may seem like victory of sorts, but it’s a pyrrhic victory if you ask me. In most cases I think folks would be better off cutting their losses and moving on. So if you find yourself working to get your foreclosure rescinded, I invite you to think twice, since the foreclosure itself may well be a blessing in disguise.