Is Foreclosure A Fad?

By
Mortgage and Lending with Mike Tullio, Kroboth & Helm Mortgage Company NMLS #208860

Foreclosure Sign It's getting interesting out there.  The foreclosure rate is increasing exponentially and the media is eating it up like a Chinese buffet.  You can't turn on the tube without a well-polished reporter spewing forth another factoid about the topic, and rue the day that an evening news broadcast doesn't mention the floundering housing market.

But is this compounding the problem?  Foreclosure was the dirty word of the lending world just a few years ago.  You had to be on the brink of financial ruin or the victim of a traumatic life change to walk away from your home.  It's getting easier now.  Heck, millions of people are doing it, so why can't I?  It's the lender's fault anyway for sticking people in bad loans to begin with, right?

I remember back in high school (the mid 80's) when my history teacher said that one out of four of us would be divorced in our lifetime.  It was shocking.  Decades before, divorce was an abberation, a social blip.  Now look at the marriage statistics.  Half of everyone joined in holy matrimony end up breaking their vows.  Did our society create this monster by making it more socially acceptable to divorce?  I drive by this little office now and again called ASAP Divorce, and for $199, they can make it happen.

I'm starting to see the same thing in the lending world.  People signed promissory notes; they gave their word that they'd pay back the money they borrowed, and now they're starting to walk away.  And for $995, you can get a company to help you do it.  Yes, there are consequences, but I can repair my credit in 9 easy steps, wash my hands clean of a bad situation, and life will go on.

What will be the lasting effects on our country's financial fiber?  Is the foreclosure boom just beginning?  Does anyone have any answers?  Or are we headed for moreclosures?

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Rainer
31,244
Tony Fantis
Fantis Group Real Estate - Salt Lake City, UT
Realtor,Principal Broker - Salt Lake City
I can see why people jump into foreclosure.  But credit repair in 9 easy steps?  That sounds nicer than Chicken Soup for the Soul!
Apr 12, 2008 11:00 AM #1
Ambassador
786,689
Charlie Ragonesi
AllMountainRealty.com - Big Canoe, GA
Homes - Big Canoe, Jasper, North Georgia Pros
An interesting notion and post. The end to the fad will be when folks have to have some money and sink it into the house in order to get the mortgage. Then people will do whatever it takes to stay . Rather than walking away
Apr 12, 2008 11:02 AM #2
Rainer
136,920
Kimberly Grant
Exit Leon Crawford Realty - Huntsville, AL
Real Estate Agent - Huntsville Alabama
I think it may be a fad.  I am not sure about your area but I have seen situations lately where the owners of homes want to buy another home.  They go ahead and purchase the home they want and then they just walk away from the former home.  Since they have made another purchase they know the previous home will just go to foreclosure and they don't seem to be bothered by that since they have already made another purchase.
Apr 12, 2008 11:13 AM #3
Rainer
15,725
Jim Houlihan
Coldwell Banker - Sunnyvale, CA
It is interesting how things change as time goes on. I remember growing up when people were ashamed to accept charity. Now it seems everyone has their hand out. I just herd on the radio that food stamp applications is nearing record levels. I am not sure if it is a fad or if things are really getting that bad.
Apr 12, 2008 11:17 AM #4
Anonymous
Anonymous
Michael

Hello.  I was wondering if someone can provide some information or advice on a Home I purchase in Debary, Florida.  I live out of State, New York as a matter of fact.  The home was purchased 2 years ago with the the notion I would be relocated with my former employer.  That DID NOT happen.  The home was completed and I closed in August 2007.  I have been making the payments until last month. I can't afford to pay the mortgage in Florida and my Home in New York.  I have had the home up for sale for the past 8 months, Real Estate Agent, MLS, etc. and have reduced the price significantly (Short Sale).  Not even a phone call. 

 I will be Foreclosing on the home.  Can anyone tell me what I will be up against in regards to Deficiency Judgements, coming after me in New York, Assets, etc.  The bank is Sun Trust and they do not have any facilities in the Northeast.  I appreciate any advice anyone can provide.  Thank you!

Apr 12, 2008 11:19 AM #5
Rainer
44,250
Joe Virnig
RE/MAX Gold Coast REALTORS, Ventura County, California - Ventura, CA
No Ordinary Joe
Mike, your take on this is too simplistic.  While some people treat foreclosure lightly, most don't.  For people whose circumstances in life has changed owning a home they cannot afford or sell can ruin them financially.  The bank and the homebuyers entered into a business deal with the rules all spelt out, mostly in favor of the bank.  The real problem is that the stigma of foreclosure is not what it once was since so many people have been affected by it. 
Apr 12, 2008 12:10 PM #6
Rainer
17,353
Mike Tullio
Mike Tullio, Kroboth & Helm Mortgage Company - Sarasota, FL
Kroboth & Helm Mortgage Company

Yeah Tony.  I was definitely being facetious, but some of the experts on MSN and other websites seem to think anything can be done in a couple of easy steps.  If only it were true!

Good point Charlie.  We need our imaginary equity back!  I've heard talk of lenders being able to tap funds and lower what is owed by a borrower.  That would be a nice solution.

I think we'll see more and more of that behavior Kimberly.  I think it's human nature to justify what we do or think.  If I know I'm going to foreclose, then why not beat the system that beat me down and get my house before my credit is trashed.  Very interesting behavior.

So true Jim.  Our culture is very fickle in the things it embraces.  I think of how "in" smoking cigarettes was at one point, and now those folks are basically social lepers in some places.  Same with carbs.  They are like the dietary kiss of death now; I thought they were one of the basic food groups?

Hi Michael.  In the state of Florida, if you foreclose on a property, the lender has the right to file a deficiency judgement.  I'm not sure how often SunTrust does this, but as lenders start to bleed more money, I think it will be fairly commonplace for them to file.  The folks to talk with would be foreclosure attorneys to get the specifics as there is a lot of misinformation floating around out there.

Fair enough Joe.  I wholeheartedly agree with you.  There are a lot of good people that are getting caught in this real estate meltdown we are in.  When have we had to deal with such drastic depreciation in just about every region of the country?  The tide has gone out and all of our boats are stuck.  I don't think I was saying that people think it's right or even an option they'd like to pursue.  But like you said, the stigma has been lifted, and I think that's my concern.  When we start revising the rules to fit our needs, that is a worrisome trend.  Thanks for your thoughts.

Apr 12, 2008 01:44 PM #7
Rainer
17,353
Mike Tullio
Mike Tullio, Kroboth & Helm Mortgage Company - Sarasota, FL
Kroboth & Helm Mortgage Company
In response to your question, if the loan is only in your name, then the lender cannot come after your wife's assets.  Joint assets, yes.  Anything with your name on it is fair game.  In Florida, the lender also cannot come after the equity in your primary (homesteaded) residence, which I'd guess is the same in NY.  So you do have a couple of vehicles to preserve some liquidity.  I know it's stressful and many of us never thought we'd have to face decisions like this.  I wish you all the best in this situation and feel free to e-mail me anytime at matullio@blueskyeloans.com.
Apr 13, 2008 07:59 AM #8
Rainmaker
76,119
Randall Schrader
Competitive Insurance of Dundee - Dundee, FL

Not a fad, but a serious mis-judgment.  Not many expected a swing of this magnitude in such a short period of time.  foreclosure is not even a choice for most, it's what they are forced to do.  Fad is not even close.

Deficiency judgement - Most lenders are going to sock their borrower's for a foreclosure, late payment AND a deficiency judgment.  This will effectively take the borrower out of the mortgage market for around four years easy.  The judgment will need to be paid before another mortgage will be approved by most lenders.  The judgment will also remain on the credit report for 10 years too. 

A better idea would be to sign a "Deed in lieu of Foreclosure."  It's like taking a car you can't afford back to the lot, in great condition.  The bank will do this because they will not be forced to foreclose and waste time and money doing this.  They also could expect to get the collateral back in better condition and much sooner.  For the borrower, no foreclosure would be on the credit report and if the bank forgives the deficiency (and they've been known to), there is no judgement.  They will however send a 1099 in the amount of the deficiency, which probably won't affect the borrower too much and the lender can right it off.

Communication is the key!  There is common ground and neither party wants a war in these situations.

Apr 15, 2008 08:48 AM #9
Rainer
17,353
Mike Tullio
Mike Tullio, Kroboth & Helm Mortgage Company - Sarasota, FL
Kroboth & Helm Mortgage Company

Thanks for the insight Randall.  I like your perspective and appreciate you sharing the truth about foreclosure.  I agree that communication is so important and if customers can work with their lender instead of running away from them, they may be able to create some solutions like the Deed in Lieu that you mentioned.

We avoid the dentist because we don't want to know about our issues and don't want to deal with the pain and expense.  But we all know what happens if teeth are left unchecked.  Bad stuff.  And the same is true with real estate.  The more we deal with the truth, the better off we'll be.

Apr 15, 2008 09:07 AM #10
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