Foreclosure is Better?

Posted April 29th, 2008 by Joe Kaiser

And three days later, when John and Mary haven't moved, the investor files suit to evict them.

Dear Rob,

Have you taken a look at the consequences of foreclosure?

I know I sound like a broken record here, but do you really have any idea what happens to people who go through it?

Apparently not, because if you had you’d never create something as insidious as HB 2791, the Foreclosure is Better bill.


The offer

John and Mary are in foreclosure. Their house is worth $200k, and they owe about $120k.

An investor has offered them $10k to walk, and they’re considering it. Until, that is, they hear they’d be better off letting it go to foreclosure because they can get all their equity that way.

Foreclosure is better?

So it seems.

They reject the investor’s offer (they read on the internet it was all a scam, anyway), and decide to roll-the-dice by letting it go to sale.

They even show up at the foreclosure auction to watch and sure enough, their home is bid up to $142k, meaning instead of the $10k the investor offered, now they’ll get $22k, more than double.

Nice!

So, they ask the successful bidder where they need to go to pick up their check, and he says, “huh?”

They check around and finally another investor says he thinks they need to hire an attorney to help them claim it.

Hmmm, no one mentioned anything about having to hire an attorney.


More surprises

When they arrive back home they see the winning bidder parked in their driveway.

Huh?

He’s a pro who’s been through this routine before, and he’s just posted a 20 Day Notice to Vacate on their front door.

Nobody mentioned that, either.

And, he says, “If you’re not gone by the 26th, I’ll send the sheriff over to toss you out.”

Well, that’s news, too.


How Long?

Mary calls around, hoping to find an attorney who will help them claim their money, but every one wants at least a $1,000 retainer before taking a look.

She eventually finds a guy who says he can get it done with only $500 up front, so they hire him. It’s the last $500 they have to their names.

John asks, “how long will it take before we receive our money?”

And their new attorney says, “Depends.”


Time’s up

Twenty one days later, as promised, the investor is back knocking on their door, and although the sheriff isn’t with him, he does demand they vacate immediately. John says, “We’re doing the best we can, but we don’t have our money yet so we can’t move.”

The investor lets him know it’s not his problem and posts another notice on their door, this time a Three Day Notice to Vacate.

And three days later, when John and Mary haven’t moved, the investor files suit to evict them.

The very next day there’s a knock on the door and a process server hands Mary the summons and complaint for unlawful detainer.

At the eviction hearing a few days later, the judge explains there’s nothing he can do. If the new owner says they have to go, they must. The judge grants the investor’s motion for a Writ of Restitution and the sheriff is notified his services will be needed.


Damaged credit

John says to Mary, “We’ve got to find a place, and quickly.”

Mary says, “I’ve been trying! How am I supposed to do that with no money? The last landlord I talked to said he’d take our car title as security, but when he saw the foreclosure on our credit report he changed his mind.”


Progress

John borrows $1,000 from his parents and he and his little family move into a hotel. It ain’t much, but it’s a start and they spend a couple days catching their breath.

They’ve still got a house full of “stuff” and no place to put it. So, after work on Friday, John heads over to the home and is surprised to see it’s been emptied. All their possessions are sitting on the front lawn, and it’s rained every day this week.

He notices things are missing. Anything of value, he discovers, has long since walked away.

He calls his attorney and says “someone broke into our house and moved everything we own out onto the lawn.” The attorney makes a couple phone calls and gets back to John, letting him know there was no break in.

“You’ve been evicted,” he says.

“Seriously?” John says.

“Seriously,” the attorney says.

“How you doing on collecting our money?” John says.

“I’ve got a call into the trustee, but they still haven’t deposited it into the court,” the attorney says.


Garnishment

Now, John and Mary’s credit report shows not only a foreclosure, but an eviction and a judgment for $2,700, the investor’s costs for getting them out.

And exactly ten days later John gets called into his department head’s office to learn the investor has garnished his wages on that eviction judgment.

John is livid, “He can’t do that!”

His attorney informs him that yes, he can.

“Any news on our money?” John says.

“Yes,” his attorney says, “it’s in the court now and I’ve already started the process. We’ll have a motion hearing to release the funds, but first I’ve got to send notices to everyone on title.”

“How long does that take?” John says, “It’s already been nearly two months since we lost our place.”

“About two weeks is typical,” the attorney says.


Mini me

They rent a U-Haul and a mini storage unit and with help from a couple buddies from work, they move what’s left of their stuff into storage, spending the last $200 of the grand they borrowed.

Something has to happen fast because the hotel is hitting their credit cards at the rate of $79 a day, plus tax, and there can’t be much room left on either of them.

The problem, though, is no landlord will even look at them because their credit has gone from bad to worse. When anyone hears of their recent foreclosure and very recent eviction, they are instantly declined.

Not only do they have no money left, there’s no one to borrow from and John’s paycheck is taking a 25% hit from the garnishment.


No food

“We need our money!” John says to his attorney. “Why is this taking so damn long?”

“Well,” says the attorney, “we screwed up a little bit and didn’t send the notices by certified mail, so we’ve got to do it all over again. The hearing has been rescheduled for next month.”

“Next month?” John says, “what am I supposed to do until then? I’ve got bills to pay and no food for my kids!”

“Hang in there,” says the attorney.


Finally Paid

John and Mary finally get their money. It took almost four months, but the attorney came through for them in the end.

It turned out to be a little less than expected, though. The attorney charged $3,000, which was $800 more than he said.

And, the trustee discovered a missed bill in the charges and added on another $3,200 for forced insurance the lender submitted.

They walked away with a check for $15,800, and a month later, found a landlord who’d rent them a house if they paid an extra $2000 security deposit, and so they did.

They got their stuff out of storage, bought a few things to replace the stuff that had been stolen, paid off the investor’s judgment to stop the garnishment, and, after six months of living in hell, they were able to sleep in what they now call home.

After the dust settled and things were squared up with his parents, they paid off their credit cards and had just under $1,400 left.


Foreclosure After Effects

And the future?

Long term renters, because buying a new place won’t be easy.

Their credit report shows the foreclosure and the eviction judgments, so it’s pretty much trashed for the next seven years.

And, since every application for a home loan now asks if you’ve ever lost a home in foreclosure, checking the “yes” box means they’ll likely never in their lives receive a decent interest rate on a home loan.

Ever done the math, Rob, to see what just a 2% difference in the interest rate does to the cost of a home loan?

On a $250,000 mortgage, at six percent, the monthly payment is $1498.

What’s the payment on an eight percent loan?

Try $1,834. That’s a difference of $336 a month, which over thirty years is $120,960. All because they were foolish enough to think letting their home go to foreclosure had few consequences.


The real consequences

Now, had John and Mary accepted the $10k offer that “no good” investor made, all of those ugly consequences could have been avoided. There’d be . . .

  • No history of foreclosure on their credit report.
  • No having to deal with investors or process services coming to their home late at night, threatening them with eviction.
  • No unlawful detainer action and subsequent hearing in front of a judge.
  • No locksmith breaking in and changing the locks in their absence.
  • No day-laborers rummaging through their closets and drawers and personal items, picking through everything they own.
  • No crew moving their possessions out onto the lawn, with an armed county sheriff standing guard all the while.
  • No neighbors going through their personal belongings and walking off with whatever they can carry.
  • No possessions not walking away getting ruined by the rain.
  • No eviction judgment on their credit report.
  • No $2,700 eviction judgment to pay.
  • No embarrassing garnishment at work.
  • No high-priced “B/C credit” loans practically a certainty in their future.
  • No life-long scars of having been foreclosed on, evicted, tossed to curb and left to scramble to find a place for the kids to lay their heads.

Foreclosure is better, Rob?

Where did you people ever get that idea?


Update

Because of the foreclosure, John lost his security clearance at Boeing. They’re hoping to place him in another position, but the pay won’t be nearly the same and for the time being, he’s been laid off.


The difference

Now, had they taken the investor’s deal up front, they’d have just found a new place to rent and with the $10k in their pockets, moved on. No fuss, no muss, and none of the consequences mentioned above.

And, in another year or two, odds are good they’re able to buy another place and get a halfway decent interest rate.

See the difference?


A mess

Foreclosure is better?

Well, maybe, but highly unlikely. I’ve seen hundreds, and they pretty much all end like John and Mary’s . . . horribly. Some not as bad, and some much worse, but in general, it’s a mess.

Do you know how I got our last dog, Koko, a beautiful black chow?

Her owners, who loved her dearly, weren’t able to keep her when they lost their home and their new apartment manager told them they couldn’t have a pet.

Lose your home, lose your pet . . . I hear it’s epidemic in California.


1 in 50

Foreclosure is better?

Don’t forget, people won’t see a dime of that surplus money for months and months (if it does, in fact, happen – about 1 in 50 foreclosures). With eviction coming in three weeks, what do you propose they do in the meantime?

Rob, these folks are depending on your office for the straight answer here, and between you and me, “Hang in there,” ain’t gonna cut it.

And neither is the new law that resulted from HB 2791, the Foreclosure is Better bill.

In the arena,

Joe Kaiser


5 Responses to: “Foreclosure is Better?”

  1. David Alexander responds:
    Posted: April 29th, 2008 at 2:43 am

    Yep…. and you were nice….

    I once agreed to buy a horse and find a place for it… because the folks we were buying a house from… had a horse with no where to put it…

    I’ve hired crews and moving vans for people… and paid the storages up for months so folks can get back on their feet…

    For some reason if an attorney charges enormous fees that strip equity and the folks don’t end up any better off… some how we are better….

    And right now in this market…. getting money back at an auction… who are they kiddin’

    Out of touch completely…

  2. Drew H responds:
    Posted: April 29th, 2008 at 6:00 am

    Joe,

    I’m glad you mentioned the security clearance part.

    I live in a highly military area, and if they default they practically give away their home because it affects their military clearance.

    Even active military (officers included) cannot have a foreclosure on their record due to security clearance. Foreclosure (which is public record) shows lack of financial discipline.

    But most homeowners aren’t financially savy and lenders and mortgage brokers sweet talked them into homes they couldn’t afford. These people need a way out, and foreclosure isn’t the answer.

    Mortgage applications ask if you have ever had a foreclosure for a reason, you’ve become a huge risk. Not to mention that some credit card companies will issue a “universal default” and skyrocket your credit card interest rates. Your credit goes from 700 before default to 450.

    I’ve caught a couple Judge Judys’ recently where people put in counterclaims for ruining ones credit for failure to pay (after showing proof they actually win the case), imagine the liability when they present their case against the State of Washington for giving legal advice to follow through with a foreclosure.

    After all, foreclosure can be a legal case, are you not then giving legal advice telling homeowners to just accept foreclosure proceedings? Doesn’t sound like advice I’d ever want to hear from an attorney I’ve hired…

    The question is, what’s in the homeowners best interest…in most cases it’s Joe…some cases a short sale…in the rest of the cases foreclosure is the LAST resort.

  3. DaveD responds:
    Posted: April 29th, 2008 at 6:54 am

    Joe, the trouble with you is you don’t think like Rob. You see, he isn’t too worried about where the likes of John and Mary end up, now that they have been protected from investors.

    However, once the law of unintended consequenses catches up and the ill effects of this bad law are plain to see, the law will get fixed. Fixed as in repealed? Nah. Tinkered with? Puhleese!

    Rob will simply aim his AG bazooka at the “greedy” lenders who are “causing” the foreclosure to begin with, as well as take another whack at the investor cat who is only trying to take possession of his rightfully owned property.

    This means everyone gets strung out longer… resulting in giving the (former) owner getting more time to “hang in there!” I’m sensing lawyers will get a larger slice of the pie since they charge by the hour… sweet!

    But again, the world revolves in a vaccum only in the minds of elite lawyers and legislators. There will be real world consequences as the market adjusts. And adjust it will. Do you think for a minute the lenders will eat the higher costs incurred by doing business in the State of Washington? Not if they want to stay in business!

    I’m guessing rates will simply rise for ALL homeowner loans. Yep, better for everyone to pay a fraction of a percent more (after all, it will only be maybe $25 – 50 per month, a small price to pay for fairness.)

    This is just another example of how Rob’s career highlight ends up being nothing more than another hidden tax… the kind that occurs as a matter of routine when you live in a regulatory hell. Creeping regulation… and more lawsuits… now there is an insidious plot.

  4. Brian responds:
    Posted: April 29th, 2008 at 10:43 am

    Have you actively taken this whole thing to the media? That John and Mary saga seems like the perfect story for 60 minutes. I would love to see this on a national news show.

  5. Joe Kaiser responds:
    Posted: April 29th, 2008 at 5:41 pm

    Brian, the John and Mary story isn’t real. It’s a compilation of some of the things I’ve seen happen in foreclosure situations. And, most of those things actually happened to me.


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