DEERFIELD BEACH, Fla. – March 9, 2010 –
Michael Keigans is “underwater” on his mortgage, owing $80,000 more than his Deerfield Beach house is worth.

Keigans figures it could take a decade or two to recover the lost equity, so he’s tempted to walk away, even though he has the money to pay. “Why keep putting money into a house that’s going down in value?” he asks.

It’s a question being debated in many households nationwide as the housing crunch continues. Some borrowers feel they have a moral obligation to pay the mortgage, but a growing number of homeowners and consumer advocates say walking away could be a smart business decision.

The scale of the problem is daunting: More than half of all residential mortgage holders in Broward County are underwater, California research firm First American CoreLogic said last week. In Palm Beach County, nearly half of mortgage holders fall in that category.

And there are several reason for the crisis: Homeowners who now are underwater have seen their property values plummet after they paid peak home prices from 2004 to 2006. Many of these borrowers bought with adjustable-rate mortgages, putting little or no money down. Some are underwater because they refinanced their homes at the market’s peak.

So should they walk? Hundreds of thousands of people are doing just that.

Keigans, 36, is considering it, too. First, he wants to try to unload the house in a short sale, in which a buyer would agree to pay current market value – probably no more than $200,000 – and his lender would forgive the remaining debt. If that doesn’t work, he sees little choice but to walk away.

But borrowers have to weigh several practical considerations of so-called strategic default. They risk being sued by the lender for the unpaid mortgage balance for up to 20 years. Their credit will take a huge hit, making it difficult to get a credit card or a car loan. And the poor credit rating could affect future employment and mean higher auto insurance rates.

Some homeowners, unable to strike deals with their lenders, are willing to face those consequences for the opportunity to shed burdensome mortgages.

“There is no easy way out,” said Guy Cecala, publisher of Inside Mortgage Finance, an industry newsletter.

In a recent study, global information services company Experian and consulting firm Oliver Wyman estimated that 588,000 borrowers nationwide chose to walk away from their mortgages in 2008, up 128 percent from 2007. The taboo of abandoning homes appears to be dissolving amid the mortgage meltdown, the report said.

Those who walk away and let their homes fall into foreclosure can expect to see their credit scores drop by 200 to 300 points, said Shari Olefson, a Fort Lauderdale real estate lawyer. Foreclosures stay on borrowers’ records for 10 years, and they won’t be able to get other mortgages for at least two or three years, she said.

“We should be encouraging people to meet their obligations,” said Olefson, author of Foreclosure Nation, a book about the housing downturn. “It’s the right thing to do. We should be setting a good example for our kids.”

Florida law allows lenders to seek personal judgments if homeowners default on the mortgage. The increase in homeowners walking away likely will result in more lawsuits from lenders seeking to recoup losses, credit counselors say.

There may be tax issues, too. If lenders forgive the mortgage debt, borrowers who walk away from investment properties risk having to pay federal income taxes on the forgiven amount. Forgiven mortgage debt through 2012 is not taxable income on a primary residence as long as the debt was used to buy or improve the house.

“We don’t think [walking away] is a good option for homeowners,” said Nancy Norris, a spokeswoman for banking giant Chase, which lends in all 50 states. “A mortgage is a contract. We expect you to pay the money back that you borrowed.”

But sometimes that doesn’t make financial sense, said Brent White, a University of Arizona law professor who wrote a research paper in December on underwater borrowers.

White contends that most underwater homeowners stay put to avoid the stigma of foreclosure and because of the “exaggerated anxiety over foreclosure’s perceived consequences.” Borrowers who have good credit before they walk away can rebuild their credit rating within two years of the foreclosure, White wrote.

He said homeowners should make decisions in their own best interests, without worrying about “unnecessary shame and guilt and fear.”

Lenders and other businesses break contracts without considering morals or ethics, White said.

He points out that securities giant Morgan Stanley announced plans in December to hand back to its lender five San Francisco office buildings to get out of the loan obligation.

“We have a double standard,” White said. “It’s indefensible.”

But legal, Cecala said. Businesses often buy assets by setting up corporate entities that protect them from liability. Generally, most underwriters for residential mortgages require borrowers to be on the hook personally.

Edward Sunshine, a theology professor at Barry University, says borrowers and businesses should honor their contracts if they have the financial means to do so. Deciding to walk away from a mortgage in anticipation of financial problems that have not yet happened is rationalization, he said.

“Our whole economic system is based on trust,” he said. “It is important for people to fulfill their obligations and do what they said they’d do.”

Keigans, the Deerfield Beach homeowner, bought the property for $327,000 in 2005. He didn’t make the February mortgage payment of about $2,100. And if he walks, he thinks he’ll be able to rebuild his credit faster than the house would regain the value of his mortgage.

He said he doesn’t feel the least bit guilty. He blames the banking industry for creating the mortgage mess by lowering lending standards to make homeownership attainable for many Americans who couldn’t comfortably afford it. The increased demand helped push prices to record highs.

“The financial minds that made these decisions had to know that someone making $40,000 a year couldn’t repay a $400,000 loan,” Keigans said.

Boca Raton resident Hilton Wiener said reaching out to lenders often is a waste of time.

Wiener, a Fort Lauderdale lawyer, has tried unsuccessfully to make deals with his lenders on 10 underwater investment properties he owns across Florida. But he said they wouldn’t work with him, either refusing to take back the properties or rejecting offers for short sales.

Unwilling to deplete his savings to cover the mortgages, Wiener has stopped making the payments. He said his first responsibility is to his family – not the banks.

“You have to make choices in life,” he said.

Copyright © 2010 Sun Sentinel, Fort Lauderdale, Fla. Paul Owers. Distributed by McClatchy-Tribune Information Services.

BofA has been criticized for its participation in the government’s Troubled Asset Relief Program. The government has invested a total of $45 billion in federal funds into BofA as part of the program, which was designed to thaw the credit markets and boost the economy. Earlier this year, Lewis told investors he hoped to repay the taxpayer aid before he retired. So far, the bank has not repaid the money.

via BofA’s Lewis to retire by year end – Orlando Business Journal:.

Attorneys’ Title Insurance Fund notified its 6,000 member lawyers this week that it will not insure deals made with a popular – but controversial – method for closing flips of short sales. A short sale occurs when a mortgage holder agrees to allow a home to sell for less than the mortgage balance so that foreclosure can be avoided.

Buyers & Sellers Beware… we had a feeling something like this would begin to happen since so many agents & investors are getting involved, and there has been so little oversight of the issue to date.

This is probably just the first step towards either state regulation or federal regulation.
If you are in need of assistance with a short sale, please give me a call and I will be happy to review your options with you.
On the other hand if you are looking for a short sale / foreclosure and need an experienced agent to give you a hand in finding and purchasing a foreclosure, then visit my Orlando Foreclosures page and / or give me a call at (407) 282-4525.

Here is the link to see the full article. Home short sale flips nixed.

Brady Pevehouse your Avalon Park Real Estate agent.

via Renters told: Get out of foreclosed homes.

Unlike states such as New York and California, Florida has few laws to protect renters’ rights. Relief may be on the way, however, in the form of a new federal law passed earlier this month by Congress.

Effective immediately, tenants who pay rent on time can remain in their homes until their lease ends plus an additional 90 days – unless the bank sells the property to someone who intends to reside in it. Even without a lease, a renter may stay in a house for as long as 90 days after the foreclosure is complete, though that provision in the law is set to expire at the end of 2012.

It really bugs me that many real estate agents have been involved with the placement of tenants into properties that are in foreclosure. I personally saw a property about 3 weeks ago, that had been in foreclosure within Downtown Orlando that was for rent at a great price. After a little research for my client who was looking at the rental, I found that the property had been listed / advertised for sale as a short sale with the disclosure that the property sale was subject to 3rd party approval and the listing price may not cover all debts associated with the property. The property had been advertised as a short sale for months, then withdrawn from the MLS and no longer listed for sale as a short sale / foreclosure. ONLY to be placed back on the market 2 days later as a rental with no disclosure of it being previously advertised as a short sale!!!!!

With no proof that the homeowner couldn’t bring the property current once a tenant was placed, there is little we can do until after the fact which just rubs me the wrong way. Where is the professionalism that is supposed to be associated with our profession?

If we personally do not take steps to correct what is wrong with our market and our community, then who can we expect will? We must stand up to potential fraud when we can, and protect ourselves and our clients!

I know this is just me ranting, so let me leave you with this…. if you are looking for a rental, make sure your agent (and it is imperative that you use an agent to help you avoid potential issues such as this) but make sure your agent is looking for a life long relationship. Someone you can count on to be responsible for listening to your needs and your goals, whether you are renting or purchasing. There are TONS of agents who are qualified and genuinely care about their clients, but there are also those few who feel they can beg, borrow and steal and never get caught.

In regards to the new law, passed as described above. Make sure you keep receipts and NEVER pay in cash alone unless YOU are making a deposit into a bank account, AT A BANK.

Information is key: If you would like to speak to someone regarding foreclosures, you might check into calling some of the numbers below….

Naturally if you would like to talk to someone in the Orlando or Brevard area, please give me a call at (407) 282-4525.
The following groups are available to help at-risk homeowners:
• HUD at (800) 569-4287, (877) 483-1515, or www.hud.gov/offices/hsg/sfh/hcc/hccprof14.cfm
• HOPE NOW, a cooperative effort of HUD mortgage counselors and lenders to assist homeowners: (888) 995-HOPE or www.hopenow.com
• NeighborWorks America: www.nw.org/network/home.asp
• Federal mortgage modification and refinancing programs: www.makinghomeaffordable.gov
• The Controller of the Currency’s consumer information site for banking-related questions: www.helpwithmybank.gov
• OCC Customer Assistance Group: www.occ.gov/customer.htm
• Federal Trade Commission: www.ftc.gov/bcp/edu/pubs/consumer/homes/rea04.shtm
• Federal Reserve Board: www.federalreserve.gov/pubs/foreclosurescamtips/default.htm

Source: Controller of the Currency (04/21/2009)
© Copyright 2009 INFORMATION, INC. Bethesda, MD (301) 215-4688

Brady Pevehouse