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Welcome to the Foreclosure Freedom Network Show!  I’m Connie Saunders and am a licensed California Realtor and have a goal of helping people pull themselves up by their own boot straps by understanding this mortgage crisis better and what the right solution is for you.

Today I’ll be going over an important topic: Short Sale Integrity.  Both Lender Integrity and Your Integrity.

From time to time I like to cover the topic of Ethics, because it is a critical one to confront when viewing a National Catastrophe.  For this situation to become this vast is caused by lapses in Logic, Reason and general Sanity, in short, loss of Integrity.  The term Integrity comes from Middle English meaning Entire or Whole or ‘an unimpaired condition’.

I’ll start off with examples of lapses I’ve seen in the integrity of the property owner in the Short Sale process.

First one is fresh in my mind.  This week I have a Short Sale seller who is ignoring my pleas for him to contribute something to paying off his Home Equity Line of Credit.  He knew he was going to need to come up with ten cents on the dollar for months and didn’t tell me he had no plans of doing this, even though acknowledging me and letting me know that my communication regarding this was understood.

Let me back up here for a minute.  A Home Equity Line of Credit, or HELOC, is a loan gotten out against Equity on the home after its purchase.  Occasionally these are used for home improvements but most often these are used for a new car, a vacation, college or other project(s).  In his case this was money used for education.

Further this was just income property for him, and wasn’t his residence.  Additionally and most importantly he was collecting Rents the entire time his home was being listed which went on for many months.  I have no idea what he spent these Rents on but this is irrelevant.

In most of the country Foreclosure laws will allow the lender of a ‘non purchase money’ loan (like a HELOC) to NOT foreclose and keep the lien as unsecured, similar to a Credit Card at that point.  The idea is to force the first mortgage lender to foreclose on the property UNLESS someone pays them a much greater amount of money than they would otherwise.

Right not first mortgage lenders are paying second mortgage lenders between one thousand and three thousand dollars to encourage the second mortgage lenders to ‘walk away’ and not foreclose but rather allow the Short Sale to occur.  Before they will forgive the balance however, most HELOC lenders want to keep this loan as an unsecured loan.  Then once the Foreclosure is over with the lender ‘writes this off’ and will often sell it for as much as they can to a ‘hard money’ collection agency who buy these loans up for cents on the dollar.  These agencies then badger the borrower, dinging their credit with bad marks, calling with threats of further credit marks for a long enough time that they force the home owner finally just pay them.

Now there really isn’t anything wrong with that, in fact anyone taking their rights to collection of this debt away would at the same time cause all money to dry up.  No second mortgage lenders will loan money where they don’t have recourse to getting this money eventually repaid.  Now that the market has gone this far south it will be many moons before lenders ‘forget’ or relax in controls on this like it was yesteryear, so realize that just because you got these loans does not mean you’ll be able to get them again.  We all need to help to make right this group disaster, not just the lender and not just the borrower.

A key legal tool lenders have in this is when it is an income property.  With this a key tool for lenders is when the property owner gets rents and uses these rents for personal reasons and doesn’t pay the mortgage with them.  Knowledge of their right to recourse makes the HELOC lender much more confident that they will get more money back than the mere pittance the first mortgage lender has as their ‘maximum contribution’ to pay the second off.  HELOC lenders know how to use this and where the profit is greater than costs for legal defense, they will use it.  They can either directly sue or wait until they receive a Bankruptcy notice for a person they have been haggling with.  The cost of this action as just a ‘plea for motion’ in a Bankruptcy action is mostly born by the borrower, so isn’t nearly as much of a legal cost to the lender to use this forum and get fast cooperation.  Then they present things like Supreme Court judgments showing that using Rents for personal reasons on income properties before paying mortgages will be excepted in Bankruptcy and therefore must be paid and won’t be forgiven.  Eventually the lender in this case feels they can get their money, just need some patience. I’ll put the contents of the Supreme Court ruling for this in the State of California on the Blog site as a link for those who go to my blog and listen to the Radio show there (or read the transcript).

Where any listener has income property in Short Sale and is using rents for other purposes and has a second mortgage gotten after the home purchase (as an equity loan), I recommend you save up your profits from the failing property while you Short Sell it.  This way you can use it to reimburse the second mortgage lender at the end of the process - should they otherwise not want to forgive the deficiency.  To do otherwise could wind you up not being able to complete the Short Sale and in the end you have a lender who is committed to hounding you and destroying your credit until you eventually break down and pay.  This is not a pleasant outcome and is so unnecessary.

Meanwhile if you are not planning to do this, please tell your Realtor before they waste dozens of hours going to bat for you!  .

Another way that this can be handled, if (when doing a Short Sale on a property) you are faced with a lender who wants much more of a payoff than you have in cash, is to sign a note to them privately (probably for the entire mortgage amount).  Then you get them to release this mortgage so that this home can be Short Sold.  If you do this you can often get 3K to pay down the second mortgage lender and may even get an agreement from the lender to allow you time to begin paying them, giving you enough time to get enough money together to give them another offer.  Then you don’t have to come up with the 10% now but know that you will likely have to come up with at least 10% later to get this forgiven.

Or, of course, you are free to try your hand at just refusing to play ball with the second mortgage lender and hope that eventually they will go away after the property is foreclosed on.  This gives you a foreclosure on your record though and this can last on credit reports for 10 years.  Again chances are with this you not only will not have any first lender money to put onto handling this debt but the second mortgage lender will be likely to sell this one off.  Again this could be to a more hard core collections entity who is no nonsense.

What happens with these is if you successfully evade the first tier, your loan will be sold to second tier, more hard core.  This can continue on and on, each tier recovering their losses in the sale and causing the next tier to press for a bigger offer to handle them.

In California, even if you declare bankruptcy “to get out of this”, the second lender has the right to the rents that were collected and can petition the bankruptcy court long after the fact of foreclosure to enforce this and keep their lien active.  I’ve got the Supreme Court decision on this saved if you want to read it - so bankruptcy does not always help an income property owner who is banking rents received and not sending these to one of the lenders.  So you can see, allowing the SS to go through by taking on a personal loan or just saving up the rents while the Short Sale is in progress and offering this - will likely free you up from this.   So why not?

My viewpoint on people who are in trouble on their income property who pull tricks like this is that they need to realize that in the end karma will cost them so much more then their short sighted desire for a nickel now will gain them.

Now we’ll take a break and in a minute we’ll return to the next section of the Foreclosure Freedom Network show where I’ll take up a lender point.

Hello again, this is Connie Saunders back with this weeks Foreclosure Freedom Network Show.  In this second half of the show I will be giving an example of Lender Integrity lapses that I’ve seen.  Just tonight I got an email from a person in a small town in California who is in the process of being forced out of his home by a lender who is eager to foreclose because he has equity in the home.  He’s had a combination of difficulties with this.

First after being laid off, he asked for a forbearance and the lender told him he had too much equity and they couldn’t/wouldn’t help someone with that much equity, so he should just sell it or they’ll foreclose.

Then his lender made matters worse by forcing him to make Escrow payments for his property taxes and insurance and raising his monthly payments by $800 per month.  Then the lender told him that he wasn’t making enough money, making only twice the loan amount.

Then they dinged up his credit and because of that he lost his Home Equity Line of Credit, which caused him to lose his low 3.99% interest on his cards.  Following that the rates on his Credit Card debt was then increased to the highest (26.9%), which now costs him another $900 per month just for the minimums.

This is a viscous circle and definitely one can see by this that no lender actually talked to this guy with an eye for solutions.

So how do you handle this?

First of all, the facts given me are completely unverified.  Is there really equity?  Does the person need to get a Credit Counselor to consolidate his Credit Card Debt and get blanket low interest rates for minimums? Most definitely.  What amount will this reduce his expenses by?  Did the Homeowners Insurance get cancelled and the lender took out their own?  If so, this can be easily remedied.  Also did the lender get the figures on the Assessor reduction in property tax amount?  Did the Assessor reduce this?  Some Assessors require a phone call, so this is important to verify as that higher tax rate will mean a higher Escrow payment to cover this.  If all is known, is the lender arbitrarily charging more for some unknown reason.  Again this is relatively easy to handle though vital, as you can see.  How else would a property in a small town such as this have taxes that would shoot an escrow payment up this high for a monthly payment!! For most the initial questions and preliminary situations can be handled in a few weeks or less, so that a smooth loan modification can be applied for.  Others may not be qualified.  Still others may end up with an errant lender who is ignoring all logic and reason.  In the State of California there is Senate Bill 1137 which protects its citizens rights to being able to get a loan modification so long as the net return is higher for the loan modification than it would be for foreclosure.  On top of this if the person is living in their home the lender must consult the homeowner to attempt to give them a modification.  So the law is indeed on your side, but why wait to get foreclosed on to get some help?

and can handle this kind of situation in a week or less.  But none gave him the data; it seems.  So much would need to be done to get this guy prepared to submit an application for a loan modification.

For any listeners who know of someone with a similar situation, I highly recommend you email me or advise your friend to, with the data.  Of course, if you have a Realtor or Real Estate professional who you know or trust and would prefer to go over this with - have at it.  There’s no time like the present!

It has taken a long time for lenders to finally get a handle on what to do and even now many are still somewhat in the dark.  It wasn’t until loan servicers were sitting at the other end of the firing squad arm of Secretary of the Treasury Geithner, a few weeks ago that any real change went into action.  There he explained that errant Servicers (who refused to modify loans) could or would end up having loan servicing rights revoked - if they continued denying loan mods.  The new plan is to turn these Servicers loans over to ones, which will go the mile to modify where possible.   We hope

But the bottom line in this example above is that this gentleman’s servicer failed to help him and failed to let him know that any help was available, yet help has been available for many months if you know what it is or how to ask or where to go.  So please, if you’re lost you can go to my Blog at www.ForeclosureFreedomNetwork.com then hit the Blog button in the left-hand side bar.  There is a gold mine of information in this Blog, or just email me at mailto:connie@foreclosurefreedomnetwork.com and I’ll be happy to steer you in the right direction.  We also specialize both in Loan modifications and in Short Sales in all 50 States and never charge an up front fee for loan modifications.  We don’t charge a fee to the seller for our Short Sales.

So remember to keep your noses clean!  It’s so much better to pull yourself up by your own bootstraps and look forward to blue skys in your future!