A family was packing up as a foreclosure loomed in the not to distant future.  The home had been in the family since at least the 1950′s.  While going through the basement they find 8 or 9 comic books.

One happened to be the first appearance of Superman in Action Comics #1.  That issue has sold for upwards if $1.5 million but the article guesses that their copy could go for $250,000.  I am guessing it wasn’t in great condition if they didn’t even know it existed.

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Much larger map here.

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I may not agree with their final analysis. The bank could make tons of profit by just approving all short sales now.  But what they show in this video is one heck of a sweetheart deal that is just ridiculous.

Video from ThinkBigWorkSmall.com

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I talked to a friend who wants to keep his house and he asked me for advice.  I told him that a previous client had gotten a loan modification at the final hour but that there were companies that could help him if he didn’t have the time. I have no idea how good they are or if they are legit though.  I checked in with him today and he said someone was assigned to his case but that they get 15,000 -20,000 requests a month for loan modifications. Wow. This isn’t even the biggest bank out there.

The Motley Fool posted an article about loan mofications. Of the eligible mortagages JPMorgan Chase (it should include WAMU) and GMAC only granted 20% of them a trial loan modification.  I don’t see in the article what the difference between a trial and real loan modification is.

• Citigroup 15%
• Wells Fargo 6%
• Band of America 4%

They list their theories why so few banks are modifying loans when the federal program pays them $4000 for every successfully modified mortgage.

• They lose money when the loan modification doesn’t go through.
• After 90 days most modified loan redefault. This just postpones foreclosure in a sliding market.
• They make fees on you being behind.

An issue not addressed is that on most loans the bank has no control.  They have sold the loans to investors which is part of the reason it touched the global economy.  They have to get permission from the investor to modify the loans.  I wrote about this many times but it bears repeating so people understand why this is as simple of a solution.

Last year one bank said it modify all of the loans it controlled.  It was only about 50,000 loans.  They sold many times more than that into the market.

Loan modifications happen but you need to be diligent with the bank. Call them as you can easily slip through the cracks.  Understand you have zero power with them to threats and harsh words will backfire.  Ask them when you should contact them. Some will appreciate it, some might not.

If it looks like you aren’t going to get the modification to go through, do a short sale.  It will save your credit from a foreclosure. You will have enough issues without tacking that on there as well.

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From the Washington Post,

“I have even begged them for a foreclosure,” delinquent mortgage-holder Charlotte Jensen said. When she realized she couldn’t save her Glen Allen home last year, she filed for bankruptcy, packed up her family and moved out. Nearly a year later, Bank of America has yet to take back the home.

I have seen homes staying on the delinquent list longer and longer.  So far I have had one client stay in their home for over a year with making a payment.  Some have gone ever further.  You can’t bet on how long it will take but it leads us to hope that banks are going to be more flexible on their offers.

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Banks Likely to Ramp Up Foreclosures

More borrowers are expected to lose their homes to foreclosure as the nation’s largest mortgage companies lift their internal moratoriums on home repossessions and start to determine which troubled borrowers cannot be helped.

The mortgage companies say the Obama administration’s housing plan has given them a better idea of which borrowers they should assist, but their actions could be politically sensitive because some lenders received funds from the federal government’s financial stimulus program.

An increase in foreclosures could lead to a further decline in residential prices and put more pressure on the earnings of banks as they write off troubled loans. 

via Realtor.org

The banks have been patient lately, even going so far as to give a two month postponement on a verbal request.  I have heard of many uncharacteristic moves by the bank giving people extra time and playing nice.  If that is over and they go back to their old ways it will get messy.

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I have been working with short sales and sellers trying to avoid foreclosure in the last 12 months.  I have also spoke to friends and friends of friends that were going through it and I have seen similar symptoms in many cases while trying to save their home.  This is how I came up with the name Seller’s Short Sale Syndrome.

You can also call it Foreclosure Fatigue.  After months of trying to figure out how to either keep the house or sell it, the seller just throws the towel in.  The situation feels hopeless and the constant worrying gets to them.  In one case a seller was using an agent that did not really understand the short sale process.  She was 14 days from foreclosure and I told her that if she had her agent do some things differently she could probably get an offer.

I heard something in her voice that sounded like fear or despair.  The idea of the process dragging on weighed on her even more.  She took my suggestions and said she would talk to her agent.   I checked in about a week later and she admitted that she just wanted this to be over and hadn’t made any changes.

I have heard that again and again.  The fatigue of the constant battle inside their head as they try to figure it out. “What if I sold this?”  ”What if I got a third job?”  ”Should I keep making my payments?”

And the constant “What if…”  That is the probably the hardest to deal with – hindsight in this case is beyond 20/20.

• “What if I didn’t get an adjustable rate mortgage?”
• “What if I didn’t take the new job where I lost some seniority?”
• “What if I didn’t rely on overtime?”
• What if…What if…

I expect to see a flood of short sales, foreclosures and bankruptcies coming our way in part to the this Syndrome.  Often these sellers keep just a few people in the loop, if anyone, to what is happening to them.  It is embarrassing regardless of what their “What if…?” was.   The less support, the more likely the fatigue will set in.

If you are going through this then understand the ups and downs, the highs and lows of hope.  If you know someone who is going through it, lend a ear and maybe help them stay on task, moving forward with a short sale or loan modification.  The idea of losing your home, possibly followed by a bankruptcy, while wondering how far you got in the last 5, 10, or 15 years as it seems to get flushed away can make even the most stoic pause for reflection.

To those who are angry that people are getting bailed out for their bad loans while you are stuck with negative equity, remember, that in every case that I am familiar with, the homeowner had to be late in their payments to get a loan modification or show a hardship to get a short sale.  Missing payments on your home is the last thing that a creditor wants to see on your report.  If the seller loses the house to foreclosure it will be a long time before they get a good credit score.  And good doesn’t even cut it any more.  Some banks are requiring 740.

Keep trying, even miracles happen.  A client, at the end of his deadline, decided to try a loan modification one more time.  “What the hell”, he thought.  The bank hadn’t given him a second thought when he tried four months ago.  This time they gave him two months postponement to gather paperwork.  Two months is the longest I have heard for a postponement.  Typically they give a month with a short sale offer.  Don’t give up.

While dealing with Seller’s Short Sale Syndrome or Foreclosure Fatigue, it does help to remember this one thing, “This too shall pass.

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The stratedy is called Prove-The-Note.  I wrote about this last March and it may be even more common now.   Banks sell loans to other banks, plus in the last two years 300+ banks have either closed or been bought, and those original notes were lost in the transfer process leaving them on shaky legal ground.

If the original note that gave you the house and the bank the mortgage rights is not to be found then it is up to judge to say whether they have the authority to foreclose.  In my post last year the guy had lived in his house payment free for years.

“This is an army of lawyers getting out there to stop foreclosures so we can get to the serious business of creating solutions,” Charney said. “Nothing good is going to happen as long as we continue to bleed homeowners.”

Democratic Rep. Marcy Kaptur of Ohio endorsed the strategy in a fiery speech on the House floor during debate on the federal bank bailout last month.

There are two real benefits to this strategy besides living in a home for free according to the article.

1. This may cause the bank to be more flexible in negotiating a loan modification.  Though it would seem that if you are arguing they don’t have the right to foreclosure they may not be so forthcoming in a modification.
2. Bide some time to get back on your feet, though if you are getting too far behind it may be too late to catch up.

I haven’t met anyone who has invoked this strategy yet nor a lawyer who does it but I think it will be soon that we will see someone try it.

Photo via http://www.flickr.com/photos/makelessnoise

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After opening up the search page you can toggle to search for short sales and foreclosure homes.  It uses keywords and an algorithm to pick them out of the RMLS.

Another fun search that should yield a list of motivated sellers is this one.

You can search by days listed and, this one surprises me, you can search by the price drops.  Transparency grows and grows in real estate.  Nothing proves this point more than the recent decision of the RMLS to allow addresses to be shown in IDX feeds.

There are some agents that don’t want addresses so easily available to the public but I disagree.  I don’t want to represent both sides of a transaction because it means I really represent no one and I don’t that is explained very well to the clients.

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I have come upon this question a lot from people facing a short sale.

Though I have seen it take longer, usually the bank will set a foreclosure date within 90 days after your first missed payment. They usually have the right to do that after 30 days but it is industry standard to wait longer. The foreclosure date is 3 to 4 months after the notice.

So some ask if they can try to have the sale closer to the forclosure date so they can live for free to save up some money. There are two major problems.  The first, which is the least of the two, is that 6 to 9 months of missed mortgage payments on your credit is going to severely damage your credit score.  Extending the short sale until the end will leave massive damage on your credit while we are in a climate where banks are nervous to dole out credit.  

Understandably you may say that you are done with credit but things happen.  Your car may break down beyond the line of reasonable repairs and you need a replacement.  Insurance companies have been trying to link credit scores to your insurance rates which I think is ridiculous.  Someone I know was asked my their insurance agent to opt in to the program because he had high credit scores.  In the last 10 months he has had a reversal of fortune and will be slammed on his rates.

Secondly if you wait too long you may lose the opportunity to actually sell your home.  They don’t always come together.  Specifically with all of the bad news about the economy and the stock market, few are willing to take the calculated risk that this is a good time to buy.  People are doing it but you don’t want to wait it out as long as you can.   

I am currently working on a short sale where I only had 5 weeks to find a buyer.  If I start at too low of a price the bank may feel that I didn’t give a fair shot to market price.  If I can show the bank that I notched it down over time then it helps to establish a going price.  We were lucky to have a buyer pop up 3 days before the foreclosure date and the bank postponed it.  But the buyer got nervous with the recent stock market news and backed out.  We are coming up on another deadline and I don’t know if we will make it.

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