Skip to comments.Foreclosure woes: For one homeowner, following bank's advice was bad news
Posted on 06/08/2011 8:01:42 PM PDT by Jim 726
PANAMA CITY BEACH Lindsay Hall took out a $200,000 loan in 2005 on her paid-off beach house with the understanding that her $600 monthly Social Security check would cover the mortgage payments.
When her interest rate jumped more than a year ago, it raised her mortgage payments to $1,500. At that point, Hall started the fight to save her home.
I want to say I did my best to fight for the American dream, said Hall, 70.
Hall has negotiated with her loan servicer, IndyMac Mortgage Services, to modify her loan payments multiple times. Each time she negotiates payments within her $600 budget, the modification is rejected and the mortgage payment jumps back to $1,500 a month, she said.
To begin loan modifications, lenders often advise or suggest homeowners miss three payments to send up a red flag and initiate the modification talks. When payments are missed, loan modification talks may begin, but banks, meanwhile, also will start foreclosure proceedings.
After loan modification talks failed, Hall tried to change her loan through the Home Affordable Modification Program (HAMP) offered by the U.S. Department of the Treasury. For the past three months, she was able to make payments of $585. Hall, who continues to work, received a letter informing her that she no longer qualifies for the program based on her income and that her payments will jump back to $1,500 a month.
Im back on hold; Im waiting for the lender to let me know what I need to do next, Hall said. This is the first time I have thought its over and Im going to lose the house.
The bubble burst
Hall purchased her two-bedroom beach house in 1970, paying $38,000 for the property with the income she generated from owning and operating a dance studio in Dothan, Ala. At the time, her mortgage payment was $103 a month. When Hall semiretired in 1994, she moved to Panama City Beach as a full-time resident.
Hall took out a $50,000 loan in 1994 to update the property, which she paid off. In the 2000s, Halls elderly mother moved into the home, and in 2005 following the advice of a friend, Hall took out a $200,000 loan on her beach house, which was valued at $400,000, to convert the garage into a mother-in-law suite, add central heating and air, reroof, pay off credit cards and purchase a vehicle.
I didnt have a fixed rate, which I know all about now, she said. Im one of those dummies that should have known better. Now, my $400,000 house is worth $180,000 if we were lucky.
As her mortgage servicer kept increasing her monthly payments, Hall took her work ethic to the phones and started calling her lenders and representatives. She calls her lenders every Monday and logged her discussions and paperwork.
Ive just bugged the heck out of them, Hall said. I wanted this settled. Im not trying to get out of making payments. I just want to pay what I can pay. Im not going to die over this and I just dont want to be sleeping on a park bench after working my entire life.
The News Herald wrote a story about Hall and several other local individuals dealing with foreclosure in March 2010. After the article appeared, Hall said her borrowers started calling her and working toward a loan modification, a task that has yet to be completed.
I goofed up and borrowed more money than I should have, Hall said. It would be much easier to give up. I need some help, people.
IndyMac was acquired by OneWest Bank in 2009; officials from the bank said last week they would look into Halls situation.
Delaying, preventing foreclosures
A common problem or misperception for many homeowners in trouble happens when borrowers try to get a loan modification. Lenders often require borrowers to go into default, missing three payments, before engaging in a discussion about modifications.
If you miss three payments, the bank passes off the case to a law firm to begin foreclosure proceedings, said Florida foreclosure defense attorney David C. Hicks. People are getting a false sense of security from banks.
Mediation, like in the case of Hall, does not typically produce a positive outcome for homeowners.
What we have seen is that mediation has not done a great deal, said Hicks, who is based out of Tampa. For one reason, theres no principal reduction, so if you are upside down in equity there is no way to get out from under it.
The federal government has two programs aimed at helping homeowners. The first is HAMP, a loan modification program designed to reduce delinquent and at-risk borrowers monthly mortgage payments.
One of the problems with HAMP is that there are guidelines for who is eligible and it can be a catch 22 for many homeowners, Hicks said. You have to prove income, and for many people they dont have enough money or they have too much money. HAMP does not really help.
The Home Affordable Foreclosure Alternative Program (HAFA) was created to provide an option for homeowners who are unable to keep their homes through HAMP. HAFA exists as an exit strategy when homeowners know they will lose their property and they want to avoid a deficiency judgment, Hicks said.
Both HAMP and HAFA are voluntary programs for lenders; they do not have to agree to allow the loan holder to participate. When a homeowner knows they will lose a property, the best thing to do, according to Hicks, is to make sure there is no deficiency judgment.
Hicks explained that homeowners are still responsible for the outstanding loan, even if a property goes into foreclosure and is sold. Banks and collection agency have a window of several years to try to recoup the balance on a loan.
The biggest mistake you can make is getting a deficiency judgment, Hicks said. The loan follows the person, not the property. The property secures the loan, but that does not stop banks from being able to garnish wages and other assets.
A big misunderstanding with loans is that the institution to which a mortgage payment is made out does not own the loan; it is servicing the loan. In many servicing agreements, there are clauses that allow banks to make more money on a foreclosure than on servicing a 30-year loan, Hicks said.
They dont care about loan modifications, Hicks said.
In the cases where loan modifications are granted, 60 percent of the homeowners are in default again within nine months, Hicks said.
You want someone negotiating on your behalf from a position of strength, Hicks said. It might sound like a sales pitch, but you should hire an attorney. Most homeowners are not educated on the process.
Hicks recommended legal aid or hiring a professional attorney.
Victory depends on the equity status of the house, Hicks said. You cant expect miracles.
Do not expect the federal or state government to help.
I wish I was in the position this woman started in... having a paid off house.
That about sums it up. Used her house as an ATM, and got burned. So sad, too bad... but why should people who refrained from such foolishness be required to bail her out?
Yes, that was my first thought. What a dumb thing to do.
For $200,000 she could have built an additional house. Sounds like some contractor took her to the cleaners.
And she is only the tip of the iceberg. All those new cars, trips around the world, boats, condos in exotic places, timeshares, the children’s and grandchildren’s college expenses, etc. and then the cash cow died. How sad and unfair ... who to blame it on?
She wants to pay $600 a month on a $200,000 loan...
Well at an interest rate of ZERO it would just under 28 years to pay that off...
What the hell did she expect? Free money?
While true that she probably shouldn’t have pulled $200k out, or any, the fact remains that people ARE being mislead on loan mods, which, are hard to get and only being offered to people who are not paying.
The other thing I noticed...based on the $200k loan size, her payment increase wasn’t due to the “rate going up” as much as that her introductory negatively amortizing payment period was expired...and she had to start paying back principal.
Not only refrained from such foolishness, but paid extra in the form of points to get a lower locked in rate. So now not only do I have to pay my mortgage, plus the points, plus a rate that was higher than her low adjustable rate, but now I should have to help her pay her mortgage???
How about someone helping me? How about adjusting MY mortgage?! I’ve never missed a payment, took a part time job to help make ends meet, I don’t go to Disney, never buy “new” cars and I just canceled cable to save money.
Why is it always me that has to pay to help these people?
It was probably LESS THAN Interest Only, an “Option ARM.”
An artificially low payment that doesn’t even cover the interest, but when the loan balance increases to where it’s more than about 115% of the original amount, you have to start paying back principal plus all the month’s interest.
“What the hell did she expect? Free money?”
Yup. Zero interest loan for x years most likely. Of course, the bank assured her it was a good idea, I’m sure.
What a mess...
Feds Cite Schumer In Collapse Of IndyMac
Flowers, Soros, Michael Dell team to buy IndyMac
caveat emptor doesnt cover Con men and grifters...
thanks. I just now read about “option ARM”. Man, what a freaking scam. It sure sounds like that that’s what that lady had. The math fits.
At 70 she’s old enough to remember the inflation, high interest rates and adjustable mortgages of the 1970s. She was paying a mortgage then and probably grateful that she had a fixed rate.
$600 a month is never going to pay off a 200K mortgage.
“Hall, Lindsey” returns no matches on PCB property tax rolls.
“Hall, Linda” has only only one return that is close to a beach house and thats a condo in a tower.
It’s astonishing how many people just have no clue about personal finance and economics topics. It’s just not that hard. Maybe something needs to be done at the High School level, to give more people some basic clue about how to deal with basic financial decisions.
This person clearly didn’t know bad advice when she got it.
There’s a relative of mine, some sort of step-aunt or something... she and her husband both have had good, well-paying jobs. Before the big crash they were into a third mortgage on their not-yet-paid-for house— all of that money borrowed went for vacations and cruises and other travel. Every penny they made was being sunk into those loans. They had no savings anymore, and of course massive credit card debt. They’d buy lavish presents for themselves on their cards, and then merely pay the minimum payment... never touching the principal, which just grew, and grew...
I simply don’t understand it. How can anybody be that big of a financial disaster?
That article says "Linda prides herself on her ability to pay her own way. She paid cash for her car. She doesn't have credit cards. She saves up to travel."
Prides herself??? She admits in the newer article she bought that stuff with money she borrowed on her house. Paying cash for a car and paying off credit cards is easy when you borrow against your home.
Don't be an ass. It's the agreement the bank made with her. If that wasn't sufficient, they shouldn't have made the loan. You're blaming her for the bank's foolishness.
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