[quote=SD Realtor] . . . BG your posts make it sound like principal reductions do not exist. If you actually were practicing in the field in this decade or two decades, I may have a bit inclination to take seriously what you write. However clearly posting online takes much more of your time then whatever your profession is. Personally I wouldn’t make implications about things that I didn’t have hands on (in recent years) experience with, but I guess that is what the internet is all about. I have never been involved with one (principal reduction) but in my mind they would make absolute common sense for the investors holding the paper. The investors have one of three choices as I see it:
1 – Let the buyers default and then sell the home on the open market incurring the cost of the foreclosure process.
2 – Let the buyers short sell.
3 – Work out a program where the buyers get to keep the home and forgive a portion of the original loan amount.
It seems to me that in each of the 3 choices the bottom of bottom lines is that the investors lose money. In either case the home is going to get sold at market value, (even in case number 3) so the investors take a haircut. The real choice here is do the investors think that the buyer is credit worthy and worth the risk? If not then take avenue 1 or 2.
I think trying to pin someone down to every nitty gritty detail about a forgiven loan is ridiculous. I havent seen one personally but I have talked to a few different people who have claimed to have gotten them. I didn’t ask them for their loan docs. Maybe they were bullshitting me and maybe not.
In my mind, it doesnt really matter.[/quote]
Except YOU, (as a former trustee’s deed buyer?) have never seen them in practice, lol . . .
SDR, you act here as if your 3 choices are cast in stone and have been in practice since the dawn of time. In fact, only option 1 was in use until the recent “millenium boom.” There were (very few) short sales taking place during the “gulf war malaise” (’90-’92) but they were NOT approved if the borrower had 2nd (or subsequent) TDs filed against their property. The shorts were for minimal amts ($7-$15K) and the borrower was promptly issued a 1098 from their lender in the forgiven amt for this “phantom income” taken for the tax year in question (as it SHOULD be).
Your options 2 and 3 are currently in widespread use solely due to lender malaise and the ill-thought-out advent of CA Civil Code section 2923.5 (for “millenium boom” borrowers only). This increases the non-judicial foreclosure process for them from 111 days (min) to 141 days (min). It reads, in pertinent part:
2923.5. (a) (1) A mortgagee, trustee, beneficiary, or authorized agent may not file a notice of default pursuant to Section 2924 until 30 days after initial contact is made as required by paragraph (2) or 30 days after satisfying the due diligence requirements as described in subdivision (g).
(2) A mortgagee, beneficiary, or authorized agent shall contact the borrower in person or by telephone in order to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure. During the initial contact, the mortgagee, beneficiary, or authorized agent shall advise the borrower that he or she has the right to request a subsequent meeting and, if requested, the mortgagee, beneficiary, or authorized agent shall schedule the meeting to occur within 14 days. The assessment of the borrower’s financial situation and discussion of options may occur during the first contact, or at the subsequent meeting scheduled for that purpose. In either case, the borrower shall be provided the toll-free telephone number made available by the United States Department of Housing and Urban Development (HUD) to find a HUD-certified housing counseling agency. Any meeting may occur telephonically. . . .
(i) This section shall apply only to mortgages or deeds of trust recorded from January 1, 2003, to December 31, 2007, inclusive, that are secured by owner-occupied residential real property containing no more than four dwelling units. For purposes of this subdivision, “owner-occupied” means that the residence is the principal residence of the borrower as indicated to the lender in loan documents.
(j) This section shall remain in effect only until January 1, 2013, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2013, deletes or extends that date.
(emphasis added)
Your options 2 and 3 are clearly not in a lender’s best interest. Lenders are screwing themselves royally by allowing FB’s to squat in their properties for many months and often years. As they do so, their losses build up to ridiculous proportions and we ALL pay for this one way or another.
As you are well aware, acc to CA law, lenders are to file a notice of default on a property after its payments are 90 days late in accordance with CA CC sec 2924. Then they are to adhere to a publication schedule laid out in CA Civil Code 2924f and post a Notice of Sale on the property, setting forth a sale date at least 20 days after the the Notice of Default is filed.
Lenders who conduct proper and timely non-judicial foreclosure in CA suffer far less loss compared to the other choices you mention here. Prior to the era of “loose lending,” a 2nd TD holder (investor) who desired to protect their position would typically appear at the courthouse steps at the time of trustees sale and bid one penny over the opening bid (and they very often did)! This bid amount consisted of the principal balance owing + 3-4 mos interest + 3-4 mos late fees + trustee’s fees. Upon the filing of the trustee’s deed in their favor, this (formerly 2nd TD holder) would take on the foreclosing lender’s note “subject to,” and usually evict the defaulted borrower and ready the property for sale. NO ONE PAID ANY WALKING $$ or “KEY $$!” Upon an eviction order, the (then) marshal’s office was sent out to evict the occupants and change the locks! No occupants died or fell off the face of the planet when eviction loomed. They all KNEW THEIR TIME WAS UP and many moved out to friends, relatives or a rental before the eviction date was set (often leaving behind household goods and junk when they had no place to store it).
I myself watched these (lunchtime) auctions regularly for a good many years in the 1980’s.
If all these (more recent) FB’s properties had been dumped on the market as REOs as they became available thru foreclosure (even many at once) and resold to new buyers between 2007 and 2010, ALL RE owners would have been able to see the light at the end of the tunnel by now. As it stands, lenders are coddling these FB’s and allowing them to support lifestyles they have become “accustomed to” but have never been able to actually afford. This is keeping values down for EVERYONE affected by RE values in this state, including longtime owners, free-and-clear owners and honest owners who bought what they could afford with a substantial downpayment and may be sacrificing to keep their payments current.
Many FB’s are now “working the current (failed hodgepodge) system” to get as much “free rent” as possible and also qualify for “key $$,” lol. It’s BS and they don’t deserve it. When word spreads thru word-of-mouth and the internet on the how-to’s of stiffing your lender(s) to the nth degree (even if you can afford to pay your mtg(s)), it just exacerbates the problem.
(yawn) … Nothing has changed. People have always wanted to live in areas they can’t afford and many want as much “cash out” as they can get from their property. It’s just human nature.
The failed practice of “short sales” and “mods” should go by the wayside in favor of non-judicial foreclosure, as it has ALWAYS been, IMO. As UCGal mentioned, that’s what borrowers “signed up for” when they signed the papers to buy properties which were out of their league or signed their (refi) 1st TD, 2nd TD or HELOC to take “cash out.”
