We have a house that we have been tracking for months and it just got cancelled. The homeowners have not made a payment for over two years and are declaring bankruptcy. I can see in the bankruptcy case that they are not negotiating anything with the bank, i.e. they do not have a loan modification/letters have been sent to the bank from the court. How is this possible? Don’t all homes have to go to auction before they can legally be owned by the bank? I realize the bank can set any opening bid amount, but don’t they have to go to auction? Is there a way a third party can somehow own the home before it goes to auction?
Also note the house is vacant so it is not like the people are trying to keep it.
There are thousands (probably tens of thousands) of properties where banks have decided, for whatever reason, not to complete a foreclosure and take over the property. These homes are part of the “shadow inventory” that exists along with properties the banks own but have kept off the market.
Now that a bk. has been filed - they can’t complete a fcl. even if they wanted to without (1) going to bk. ct. and get an order or (2) wait afew months until the bk. is closed.
In Ca., a fcl. sale notice has to be renoticed after a year. In this case, since the owners have walked - you won’t be able to buy it on a short sale before the inevitable fcl. At some point, the lender will almost certainly renotice a sale.
Many people have taken advantage of the fact some lenders are taking years to decide to foreclose. They have stayed in the home “rent free” for more than two years. I know of 3 such situations myself.
Brin,
As Miket points out, a bankruptcy (BK) filing can forestall the foreclosure process and some homeowners and their legal advisors are adept at keeping a property in BK … albeit an aggressive lender (beneficiary) can take counter legal actions, if they grow weary of the “BK delay” gamesmanship.
As Miketh also notes, a notice of trustee sale (NTS) must be ?re-filed? after one year if no trustee sale occurred within the 12 month timeline.
Not every property in default (NOD + NTS) goes to auction. Some homeowners will do a “deed in lieu” thereby turning over ownership to the foreclosing beneficiary. But, that is less the case today, as so many homeowners are opting to stay put until/unless the lender (bene) takes the property to trustee sale. It can be stressful to always wonder if this sale date will be ?the one,? and some prefer to ?move on? rather than string things out.
In the wake of the robo-signing scandal and subsequent nationwide (states? atty gen) settlement, and other foreclosure reform legislation, many lenders are now being more liberal about considering/approving loan modifications. But lenders have found that many (NOT ALL) homeowners with negative equity, are simply not interested in ANY realistic “loan mod” options. These homeowners know how common it is for lenders to postpone trustee sales (go slow ? dot ?I?s, cross ?t?s), and many defaulted owners prefer to stay in their homes until that fateful day when the property finally goes to auction. Hence, you hear stories about 2, 3 or more years in a property without making ANY payments.
It’s also ironic that many property owners with “high risk” (low credit score or ?sub-prime?) mortgage loans, now are being offered favorable loan mod options, whereas a similar property, in the same neighborhood, purchased/financed at appx the same time, by a borrower with a high credit score, and substantial down payment, may not have such generous loan mod options. One reason for this discrepancy is the common practice of lenders assigning (selling) loans to a new beneficiary. And the higher the risk in the loan (?in default? or ?at risk?) the more likely the loan will be sold at a deep discount to a new beneficiary. It is often in the best interest of the new beneficiary to make the defaulted loan a performing asset, by offering generous loan mod terms or even a principal reduction. Yet many homeowners still see ?negative equity? and have grown accustom to not making payments, and they say ?thanks but no thanks? to any loan mod option.
I looked at one deed of trust (DOT) today where the loan was assigned three (3) times in the last 6 months. The loan is going to trustee sale very soon, and I suspect the latest beneficiary will not be taking much or any loss should they opt to foreclose, even at a deep discount bid. Why? Because the new bene almost certainly purchased the loan at a deep discount (well below the property’s current market value). With the market strengthening, the new bene may in no rush to foreclose.
Another dirty little secret is that many banks are profiting handsomely by delays in the foreclosure process. While many of the large banks were once big mortgage lenders, a large number are now making hay by servicing loan portfolios. Mortgage servicing fees add up, and get added in to any bid on a DOT that might eventually go to trustee sale. Servicing fees add up, and the longer the delay, the more in fees payable to the institution doing the servicing. More delays = big servicers acting like Charlie Sheen ? ?Winning!? Duh!
Brin,
One thing I not not address in my ramblings above was “asset manager” decision (losses and gains on lender’s balance sheet). If a homeowner has truly given up on keeping their property … moved out and moved on, etc. (but no deed in lieu) and yet the lender still seems unwilling to foreclosure (trustee sale is postponed again and again), it may be a function of lender’s internal balance sheet management. There are many variables (too many to list) at play and often little pressure for the lender to act (thanks to stupid low interest rates and US taxpayer bailouts). So crazy as it seems, the property may “sit” for awhile … but *eventually* it will go to sale.