Posted by JPiper on March 28, 2001 at 02:42:17:
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Seller not sure of implications of FORECLOSURE - Posted by Monique
Posted by Monique on March 27, 2001 at 07:23:57:
We haven’t been very successful buying from people who are weeks away from foreclosure. Frankly, we have found these sellers to be, well, delusional. But, I’m stubborn. I’ll keep trying to crack the code.
Here’s the question … What are the more likely consequences to the seller if they allow their house to go to foreclosure?
- Clearly, their credit will be ruined. But, for how long?
- They might get hit with a deficiency judgment by their 2nd mortgagee since it is the 1st that is foreclosing. But, how likely is that? That is, do most lenders, as a matter of process, go this route. Or, do most lenders simply write the loss off?
- Their private situation will be made public through the newspaper Legal Notices. But, hey, they can live with that, right??!?
I have a seller who sees letting their house go to the steps as being bad, but not as bad as dealing with the house given all the other things going on in their life. We’re under contract and we’re supposed to close today. They’re thinking that maybe it would somehow be the lesser of two evils to simply not deal with it right now.
Without stepping over the line, I want to give them some things to think about before they do something they will regret.
Thanks, in advance, for your input!
Monique
PS: Up until now, these folks have been the most rational pre-foreclosure sellers I’ve dealt with so far. Maybe I’m getting closer to cracking the code after all.
Re: Seller not sure of implications of FORECLOSURE - Posted by WilliamGA
Posted by WilliamGA on March 27, 2001 at 14:45:58:
Monique,
I had a seller last week that was referred to me by his listing agent (a minor miracle in itself) after he could not seem to get the house sold.
The house had a 65k first on it, was 2500.00 in arrears on the mgt plus 600.00 in back association dues and needs about 2k in cosmetics. FMV on the house is only about 80k so it wasn’t an especially good deal but the saving grace was the 6% loan on it with a low payment and only 20 yrs left on it.
The agent offered to GIVE me the deal and release the listing so he would have NO commission due (another miracle, 2 in one day even) because he felt sorry for the guy who has moved out of state and is scheduled for foreclosure next month.
I spoke with the seller on the phone (he called me), went out and took a look, called the seller back and told him I would take the deal and even offered him a little cash thinking I was being a nice guy. He told me that he would rather let it go back to the bank than be taken advantage of by a scummy, worse than ambulance chaser investor. 
I took the high road and told him that I was sorry he felt that way and if he changed his mind to give me a call back.
You never know with these people. Never had this happen to me before and I have purchased several preforeclosures. I tried but there was no reasoning with this guy.
Who knows, maybe the foreclosure fairy WILL show up and bail him out. Guess I will find out come the first Tuesday in April.
See you Thursday,
WilliamGA
help with archives or other… - Posted by AnnNC
Posted by AnnNC on March 27, 2001 at 14:09:53:
This is just a question re to explain realistic impact of F/C which I know someone posted a long time back. I looked in archives, legalwiz.com and nothingdown.com (site down)but I thought there was a post that listed all the horrors
to come, One was, if the F/C house sold for more, (?)
that there was some tax implication to the owner being foreclosed upon. NOT saying this is true, but the post had a lot of compelling reasons not to FC, and that sellers were quite unaware of. It was a good list, and I can’t explain it, not being an expert, but perhaps someone recalls the post.I don’t have it in my files.
It’s worse than that . . . - Posted by JoeKaiser
Posted by JoeKaiser on March 27, 2001 at 11:35:42:
I haven’t applied for a conventional mortgage in years, but I do recall back in the day the question on the HUD application that asked “have you EVER (emphasis added) lost a house to foreclosure?” (I may be paraphrasing).
Can someone confirm if that particular item is still on the standard form?
If it is, it means foreclosure not only stays on your credit record for 7 years, it affects your ability to get another home for the rest of your life . . . as in - forever. “Forever” issues have a way of getting their attention, and I tell this story to reluctant sellers facing foreclosure at least twice a month.
“It’s not 7 years, it’s not 10 years, it’s FOREVER.”
Joe
Re: Seller not sure of implications of FORECLOSURE - Posted by Todd (MO)
Posted by Todd (MO) on March 27, 2001 at 10:32:48:
True, a majority of people who are in foreclosure are in denial. They have become so overwhelmed with the situation and simply cannot let themselves believe that they will actually lose their home. They tend to think that the problem will just go away, or they will somehow get the money from a relative or win the lottery. Or perhaps the lender will be kind hearted and let them stay in the home and pay rent. Not so.
These people are “delusional” and you would be surprised at how many calls I have gotten from people that I contacted weeks earlier, who call me up the day before the auction wanting me to bail them out. Sometimes I can, other times I have other commitments that keep me from it.
The key is you have to create a picture of what will “really” happen that overrides the picture they have of what they imagine could happen. They WILL have a foreclosure on their credit record for 10 years. They WILL lose all their equity and interest in the home. They WILL be evicted from the home by the lender or new owner.
What can you offer them in return? Comfort! I let the owner know that I can stop the foreclosure and all they will end up with is some late pays on their credit. If their is sufficient profit to be made, I will offer to help the owner move by putting up the deposit and first months rent on an apartment, help with moving cost, and maybe give them a little cash in their pocket. Offering to eliminate the hassles they will face in relocating can mean more to them than merely offering them cash. And often cost less out of pocket.
One word of advice, I would not recommend buying the home and renting it back to them. They have not been paying the bank, and they will likely not pay you either. Especially when the pressure is off them and they start thinking about how much money you made off the sale. I know of several investors who use leasing the home back to the owner with an option to purchase as a tactic to entice the owner to do the deal with them. When in reality the investor is counting on the owner not to pay them so they can take control of the property and then evict them when they don’t pay. Not ethical.
Continued Success
Todd
Re: Seller not sure of implications of FORECLOSURE - Posted by phil fernandez
Posted by phil fernandez on March 27, 2001 at 08:36:39:
Monique,
From my experience more often than not these people are big time procrastinators. That’s how that probably got themselves into their current situation. I am working with a woman now that is close to a tax sale even though she’s current with her mortgage. I sent her two letters, one in Dec. 2000 and the last one on 3/3/01. She finally contacts me wanting me to help her out. tax sale is right around the corner now after not paying taxes for 1998 - 2000. Until they are faced with a short deadline it’s often difficult to rationalize with them.
Some banks don’t go forward with deficiency judgements. Some lenders do.
I would try to impress upon them that they should guard their credit at all costs. Good credit will make their lives much easier in the future and keep doors of opportunity open to them. Try the opportunity thing on them.
Good luck with it and let me know the progress of your deal when you see me down in Atlanta in a couple of days.
Re: Seller not sure of implications of FORECLOSURE - Posted by ScottE
Posted by ScottE on March 28, 2001 at 13:42:28:
William,
If the seller has ANY trust in the agent, why not let him right an offer from you or your company that is a nothing deal for the seller? The agent may be have a better angle and appeal to his client such that he quits being stupid and takes your deal!
Scott
Re: help with archives or other… - Posted by Stacy (AZ)
Posted by Stacy (AZ) on March 27, 2001 at 15:42:36:
Ann, the following URL has some interesting info.
http://www.cccssacto.org/mortgage/workout.htm
Stacy
Re: It’s worse than that . . . - Posted by JPiper
Posted by JPiper on March 27, 2001 at 13:40:41:
On my 1003 application there are actually two questions that would apply:
c. Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years.
e. Have you directly or indirectly been obligated on any loan which resulted in foreclosure, transfer of title in lieu of foreclosure, or judgment?
The first question refers to the last 7 years, the second question has no time limit at all.
This is in Part VIII of the standard 1003 application.
JPiper
OPPS!!! My mistake… - Posted by Todd (MO)
Posted by Todd (MO) on March 27, 2001 at 13:24:58:
…it is 7 years for a foreclosure. I always get BK and foreclosure mixed up.
Todd
Re: It’s worse than that . . . - Posted by NestorNJ
Posted by NestorNJ on March 27, 2001 at 13:06:49:
My seller who is in a preforeclosure realized just last week that his only recourse was to get a savings grace on his credit. He was ready to quit claim the deed to me after i requested the sheriff department to postpone the sale for two weeks, until April 6th. Here are the facts: Comps- $83k, first mortgage amount
$50k(balance of $36k plus back payments and penalties,) second of $10k, retaxes of $3000. House needs work, estimate of $8k. If i am going to cure the loan, cash outlay will be $14- $20k including attorneys fees and sheriffs commission? On the other hand , i am not sure if bank will sell me the property after foreclosure for the loan amount of $36k. I have a buyer, a seller financed candidate who has $7600.00, not enough to cure the loan. which means i have to put in more money. If i cure the loan, i can possibly buy the second for .01cent to a $1. Still there is not much to
move around. What is the best recourse here? Seller had filed for Chapter 13 previously, would that skew things?
READ MY LIPS!!! - Posted by Todd (MO)
Posted by Todd (MO) on March 27, 2001 at 23:31:32:
I believe I am speaking english here…right?
For the 3rd time…I never said it was unethical to rent to the owners, just that it was not a good idea.
What I said was unethical was not if you rent to them and they can’t pay. But enticing them to turn the home over to you and telling them they can buy it back when you know they do not have the means to keep up payments and you PLAN on kicking them out the first time they are late. What is unethical is LYING to them to get control of the house when you are going to jump on the first chance to toss them out. Premeditated eviction is where I have a problem.
Yes, if they do not pay they should be out. But they should also be prescreened like any tenant and if they do not have the income to pay, then don’t let them think they will get their home back.
Hey, I’ve played the foreclosure game for years and make a fortune at it. I didn’t create their situation and I have not problem making a huge profit from it. I have also done my share of evictions. I just don’t agree with the investors out there who mislead the owners with promises of getting their home back when their real intent is to get them out of the home. I am talking about intent.
I just believe in running an honest business, if you know there is no way the owners can keep up on payments, then don’t falsely dangle the aspect of them getting their home back in front of them. Just my personal opinion.
Is everyone clear on this now?
Thanks,
Todd
What Do You Mean Not Ethical ??? - Posted by phil fernandez
Posted by phil fernandez on March 27, 2001 at 12:58:15:
Todd,
I beg to differ with you saying that it’s unethical to bail out an owner facing foreclosure and than renting the house back to them. What’s the unethical part ?
The former owner created his own problem. I go in and resolve the owner’s problem, save his credit, give him a place to live and maybe even give him the chance to repurchase his old house if he can straighten out his financial problems. And for doing this I’m unethical. Come on.
So delusional is the right word - Posted by Monique
Posted by Monique on March 27, 2001 at 11:39:48:
Tom,
In a sick kind of way, I’m comforted that you and Phil have found the same sort of
seller psyche in pre-foreclosure.
I did not realize that a foreclosure stays on the credit report for TEN years.
It’s worse than BK.
Any observations about lenders filing deficiency judgments in your market?
Monique
Re: Seller not sure of implications of FORECLOSURE - Posted by Monique
Posted by Monique on March 27, 2001 at 11:08:48:
Phil,
Thanks for the feedback.
I’ll definitely focus on the potential for lost opportunity. Given Tom’s comments above, a foreclosure stays on one’s credit report for ten years. Yikes.
Looking forward to meeting you this weekend. I may not have good news about this deal, but I’ll definitely have news. … On to the next one!
Monique
There you go . . . - Posted by JoeKaiser
Posted by JoeKaiser on March 27, 2001 at 23:38:40:
Just tell them the foreclosure follows them the rest of their lives and bring along a copy of the 1003 application as a handy visual aid.
Thanks Jim.
Joe
I’m Clear Todd LOL nt. - Posted by phil fernandez
Posted by phil fernandez on March 28, 2001 at 06:07:30:
nt.
I Agree - How’s It Unethical? - Posted by TJ
Posted by TJ on March 27, 2001 at 18:52:16:
If someone is going into foreclosure anyway, they have nothing to lose. Whether the same morbid denial that makes them think they’ll somehow avert foreclosure makes them think they’ll pay the rent when they won’t is their problem. But they are no worse off if they are evicted instead of foreclosed on. In fact, they’re better off because I’d rather have an eviction that a foreclosure on my record. If you rent to them , at least you’re giving them a chance when they’ve already run out of chances with the bank. If they default on the rent, you didn’t mislead them; they misled themselves. It’s then just a matter of who gets the house, the bank or you.
Re: What Do You Mean Not Ethical ??? - Posted by Terry (Houston)
Posted by Terry (Houston) on March 27, 2001 at 14:26:26:
If you stay the foreclosure, I will assume taken subject to, and they don’t pay then do you evict them?
I would think that could turn out messy. Just curious.
My thoughts would be if they have not shown an inclination to pay in the past and I cannot verify that has changed, would I want to let them stay.
Can I get your thoughts because I am probably missing something.
Thanks
Terry