Troubled homeowners not confined to those with “too much house”

19 Apr Troubled homeowners not confined to those with “too much house”

Sign_of_the_Times-ForeclosureOpponents of leveling the mortgage modification field by changing bankruptcy law like to demean those who would benefit from the change as those who greedily bought more house than they can afford.

That characterization does not begin to encompass the range of clients I’m seeing with houses that, absent a modification, they should walk away from.

The most vivid are the clients who took out a bad second mortgage to fund treatment for their cancer stricken son in law. They lost the son in law; perhaps they will lose the house as well. The loan’s initial interest only rate was barely affordable; after it adjusted, payments increased $1000. And then, the house is now worth substantially less than the debt. This isn’t too much house; it’s too little health insurance.

The second family inherited a debt free house and mortgaged it to buy an existing business. American entrepreneurship at work, right? The business has failed, leaving the homeowners with $200,000 more mortgage debt than the house is worth and a whopping debt to the IRS arising from the business. Too much house? No, too little skills to run a business in a recession, perhaps, and a collapsing housing market that makes it insane to keep paying on the mortgage as it is.

The other pattern shared by many clients is the young, often minority couple who stretched to get into a house in the Bay Area when the price trend was relentlessly upward. The real estate professionals chanted that they needed to buy now, or they would forever be locked out of a home of their own. Those who bought at the peak paid an inflated price and were steered into mortgage products that benefited the mortgage brokers, not the clients. Perhaps too much house by reason of believing the American Dream?

My colleague Doug Jacobs, whose practice is in California’s Central Valley, has written about his clients who need a mortgage modification. The other pattern I see in the Bay Area is loans fraudulently sold to the elderly and the non English speaking.

There is no single face of those facing foreclosure. While the problem might have once been confined to a small segment of borrowers, with tumbling home values and 10% unemployment in California, a much broader group of homeowners is caught in the mortgage vise.

With a foreclosure every 13 seconds these days, is it useful to permit the carnage in the housing market for fear that some “undeserving” person might keep a house that would otherwise foreclose and drag down home values even more?

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Cathy Moran, Esq.

I'm a certified specialist in bankruptcy law (California State Bar Board of Legal Specialization) practicing in the San Francisco Bay Area for more than 30 years. In addition to practicing bankruptcy law, I train new practitioners at Bankruptcy Mastery.
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