03 Apr More Mortgage Companies Are Refusing To Foreclose When the Borrower Stops Paying.
Susan Saulny, a New York Times reporter, recently interviewed me to inquire about why mortgage companies are refusing to foreclose on properties when a debtor does not pay the mortgage payment.
I explained to Susan that mortgage companies are abandoning homes left and right instead of choosing to foreclose on the property. Yes that sentence was not a typo. I explained to her that the mortgage companies are the ones walking away and not the debtors.
This concept is very hard to wrap one’s mind around because why would the mortgage companies walk away from a property? They lent money to the borrower to purchase a home and now the borrower is not making payments. It only seems logical that the mortgage company would want their property back. In today’s economy logic does not enter the equation.Quite frankly logic did not even enter the equation when the mortgage companies made the original lending decision. The mortgage companies have issued so many loans that should have never been issued. This fact becomes more evident as each day passes. Those lending decisions are now haunting everyone from the debtor through the chief executive officer of the sub prime lenders and regular lenders alike. There are currently more than 3.6 million homes on the market. Ongoing foreclosures would only increase the number of homes on the market today.
When there is an increase of homes for sale a condition described as a glut occurs. So if you were a mortgage lender what would you do if the borrower stopped paying? Would you harass the borrower into paying? Although this was effective in years past the nagging calls of collectors fall on deaf ears these days.
So would you waste even more money by paying some attorney to sue a non-paying borrower? Chances are the borrower is not only unemployed but also has cashed out or sold every asset he or she has. Or would you just ignore the fact that the borrower is not paying the mortgage?
In today’s market the mortgage company is probably going to ignore the fact that the borrower has not made the payments. The amount of time that the lender will ignore the non-payments will depend on several factors. What condition is the house in? If the property is in poor condition or has a small value then the mortgage company will be less likely to foreclose because they do not want to take care of the property. How many properties are being sold in that particular area? If the properties are not moving than the mortgage company is less likely to foreclose because this reduces their chances of selling the property to a third party. What is the amount of the taxes due and owing for the property?
Keep in mind that mortgage company wants to make money on the deal, not lose even more money by paying the back property taxes. So the mortgage company will delay as long a possible to foreclose hoping that the borrower will pay the back taxes or that the taxes will be paid if the property is sold to a third party.
Now if you would ask the lender why they do not foreclose on a property they will deny the very thoughts outlined above. There is no way that the lender is going to admit that they are purposely and systematically refusing to foreclose on a property. To admit that they are refusing to foreclose would be to admit that they made fiscally irresponsible loans to borrowers.
So what is the end result from refusing to foreclose? The county continues to collect taxes and hold the debtor responsible. After three years of non-payment the county, generally, can foreclose on the property but the nice mortgage company sometimes will come to the rescue and pay one to two years of the taxes that are due and owing. Why? Because the mortgage company does not have to buy back the property and it stays in the hands of the borrower. In addition to the taxes the property management remains the responsibility of the borrower. This is main reason I believe of why the lenders are not foreclosing.
If the mortgage company forecloses on the property they will more than likely have to purchase the property back themselves because no one else will. Therefore if they purchase the property, the mortgage company will be responsible to cut the yard, keep yard waste picked up and make sure no one vandalizes the property. Why? Because if they don’t the city where the property sits may issue a code violation to the mortgage company who is now the recorded owner of the property. The most common code violation is noxious weeds. Noxious weeds occur when the yard grows out of control from neglect.
Keep this point in mind. It is a critical point to get across to borrowers especially those who file for bankruptcy and surrender their property. The borrower enters the bankruptcy court to eliminate his or her debt by surrendering their primary residence only to wind up in municipal court or jail for code violations on their primary residence that they walked away from thinking they were debt free. All because the lender refuses to take responsibility by foreclosing. Bankruptcy only eliminates the debt related to the property. Only a foreclosure or a sale will eliminate the responsibility related to the property.
Some of my clients that have surrendered their properties have faced the situation of the mortgage company refusing to foreclose. I have one client who lived rent free for over a year only having to pay the utilities and housing association dues. Another client is going on seven months of no payments and the mortgage company keeps threatening to foreclose but to date has not begun the process. Another client surrendered his home over a ear and half ago. We have brought an action before the bankruptcy court requesting assistance in forcing the mortgage company to foreclosure. This is because Countrywide refuses to foreclose even though their counsel and myself have requested that they begin this process. Unfortunately the judge said that there is nothing in the law or the mortgage contract that would give him the ability to order a foreclosure on the property.
So what should you do if you cannot make the payments on the property? What I advise my clients to do is start saving the amount of money that you would have made towards the payments or as close to that amount as possible. Do not spend that money. Wait out the period until you receive the foreclosure notice and the sale date has occurred before you move. Have a back up plan of where are going to move, even if it is just temporary so you can move on short notice. Take the time you are living rent free to pack the things that you want and weed out those things that you no longer need. Keep in mind that this scenario may only work if you do not have kids involved. Regardless of whether you stay or move you must maintain the property until the property sells or has been foreclosed upon.
The mortgage companies are hoping that if they leave the borrowers in the home long enough the market will come back. Then when they foreclose an individual buyer will actually purchase the home instead of the mortgage company themselves buying the property back. So if the mortgage company is going to use you to their advantage when surrendering a home why not use the mortgage company to your advantage and live mortgage free.
If you have not filed bankruptcy and are not going to file bankruptcy take this opportunity after you save at least three months worth of rent to pay off your debt. If you do not have any other debt than the house use the opportunity to build a nest egg for the future. This could be the time to make lemonade out of the lemons produced by the current economy.
Remember that knowledge is power and in this case the knowledge about the facts of foreclosure and surrendering property in bankruptcy will give your the power to stay out of jail.
Written by Rachel Lynn Foley, Kansas City, Missouri Bankruptcy Attorney.