Getting Your Foreclosure Rescinded

  • November 2, 2010 8:56 pm

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?

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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  Many (former) owners hope to put their loan mod or short sale back on track and have the foreclosure rescinded.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  If a mistake truly has been made, then the foreclosure often gets rescinded in fairly short order, within a week or two typically.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But yes, it happens – foreclosures do get rescinded when mistakes are made.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.

 

Cash for Keys: Fun and Games

  • July 22, 2010 9:38 am

So a few weeks back, my favorite REO client assigned me a new property. So I waited a few hours before going out to do the occupancy check, because on weekdays I like to go in the early evenings, hopefully after people have come back from work. When I knocked on the door, it was answered by a friendly looking-and-sounding guy, and I delivered him the news, as tactfully as a diplomat, that unfortunately the home had been foreclosed on.

He explained that he was a tenant and he had no idea the home had been foreclosed on. The home had been listed as a short sale a few months back, and he had no idea why the listing had been cancelled, the owner didn’t tell him anything about it. I asked him if he had a lease; he said he did not, that they were on a verbal month-to-month arrangement. I got his phone number, and said I’d be in touch after finding out what the bank wanted to do, now knowing that the property is tenant-occupied.

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As I’m driving back home, I got a phone call, from a woman who identified herself as “Lily” (names have been changed to protect the guilty!). Lily explained that she was the owner’s sister, that the owner had asked her to call me – she was kind of agitated, denying the home had been foreclosed on, etc. I asked her, why are you calling me, instead of the former owner? “Uhh…I don’t know, she just asked me to call you.” Hmmm.

And, a day or two later, the former owner did call me. I asked her why she had Lily call me. “She’s the lady I hired to do a loan mod for me,” she replied. Oh. “She said she is your sister,” I told her. “No, she’s not my sister…” OK, at least we’re clear on that. So I said, “You know, it’s a bit funny that you even qualify for a loan mod, since you don’t live there.” She had an answer for that, too: “Oh, but I did live there when I started the loan mod process.” Hmm, sounds a little fishy, since the tenants indicated they had lived there for over a year. I asked her if she had actually paid this woman Lily some money to help her – oh yes, she had. I let her know that there are a lot of scammers in the loan mod business, and that California is cracking down on this, and that these loan mod consultants can’t collect money up front. Perhaps unsurprisingly, she hadn’t heard any of this.

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The former owner was interested in having the foreclosure rescinded – this happens all the time, and it’s not really my department, but it does tend to muddy up the Cash for Keys negotiation, as the owner usually tells the tenant not to plan on moving since this issue will be resolved in a few days or weeks, etc. Fortunately, the tenants told me within a few days that she former owner had given up on the loan mod, and so they were clear that they’d need to be moving out.

As it happens, though, the occupants had received a letter from the bank explaining their options – I’d actually also delivered the same letter to them as the client requires me to, and a copy in Spanish as well (the wife/tenant only spoke Spanish). The occupants said hey, we like the 90 Day Option – per current law, tenants in foreclosure get 90 days to remain in the property in the absence of a valid lease. I explained that yes, that’s true, but the bank would prefer they move sooner than that and may be able to help them out with some cash if they can move out before then.

The rental market in the area is very tight – so I indicated I would also try to help find them a place to move to. I do that, sometimes – whatever it takes, that’s my motto. So I’m keeping the eviction coordinator back at the bank apprised of all this, how I’m working to find them a place to move to, etc – and earlier this week he sends me an e-mail saying that the loss mitigator on the file has said that the former owner claims that she is living in the property – so how come I said that it is tenant-occupied?

Why indeed? There are several reasons for that – that’s what I was told by the tenants being first among them. So I called up the tenant and spoke with the wife (as I usually do – I’m completely fluent in Spanish). I said, hey – the bank tells me that the owner says she lives there at the house, is that true? “Oh yes, yes it is” she said. Hmmm. “But when I asked you who all is living at the house, you said it was you, your husband, and you daughter…?” A little pause, “Oh, I thought you meant who in OUR family lives there.” Which is not what I meant – I remember this specifically, asking is there nobody else living there, no members of the military? She thought that was an odd question, but I always ask, since the Service Members Civil Relief Act gives active service members special protections in foreclosure.

“But when I talked to the former owner, she gave me a different phone number than the one you gave me for the house,” I continued. She tenant replied, “Oh, that must be her cell number.” Well, it wasn’t – it had a land-line prefix, and she had said, “This is my home number.” Well, I didn’t want to give her the third degree, so I let it by.

There’s a great web site I use for researching former owners and occupants, pipl.com – you can find out all kinds of interesting things about people there, but it’s also handy for doing reverse lookups of phone numbers, or putting in a property address to see who might live there, etc. So I plugged in the phone number the former owner had given me saying it was her home phone number. In a few seconds, I find that the phone number was connected with a different address in the same city. So I looked up the tax records for that other house, and sure enough – owned by the same person, the former owner of the subject property.

I reported all this back to the eviction coordinator. I told him my suspicion is that the Lily, the “loan modification consultant” had probably told the former owner that in order to get a loan mod, she would have to tell the bank that she lives in the property, and that the former owner in turn told the occupants that if they told me that she lived in the property, she would not lose the house to foreclosure and that they would be able to continue to rent there (which I know they really did not want to move). I also informed the eviction coordinator that all this looks to me like a fraud is being perpetrated here, and asked if there was any more information he needed or if there is anything further I could do.

This morning, he writes back and said that after review, they had determined that no loan workout options exist for the borrower – but that I still need to figure out who exactly is living there so he knows how to proceed.

So let the fun and games begin anew – although I’m pretty sure I know what’s going on here, there may be more to the story than I’m aware, and I need to get to the bottom of it. Working out a cash-for-keys deal is sometimes a breeze, and sometimes, there’s lots of hoops to jump through. It’s all a part of a job which, for all its warts and blisters, is at the very least very rarely boring.