Deed in Lieu of Foreclosure and HAFA
Someone asked me today why I didn’t mention anything about the Deed In Lieu of Foreclosures (or simply Deed in Lieu) portion of HAFA (Home Affordable Foreclosure Alternatives) in my previous post. The answer is simple: because of the requirement to be free of liens.
A Deed in Lieu simply means you are telling the bank that you can no longer afford to keep up with the mortgage payments, so you offer to turn over your deed to the lender in exchange for you getting out from underneath the note. If you can find a lender who agrees to this, that may be a quick way out of the impending foreclosure mess, but the hitch is that the property must free free of liens. Free from liens means you cannot have a second loan against the property or have any other liens like unpaid property taxes or unpaid HOA dues. A big problem for most distressed homeowners.
In expensive California (and more specifically here in Silicon Valley), a majority of homes are purchased utilizing a combination of first and second loans. Many people who could not afford to come up with the 20% down payment, financed the down payment with a second loan. The vast majority of people who are in distressed situations now are those who have both first and second loans. But to add insult to injury, once people are unable to pay their mortgages, they are often also equally unable to keep current on their property taxes or HOA dues.
So for most of Californians, when we talk of HAFA, we really are talking only about a Short Sale because it is the only viable option with no restrictions against having liens on properties.
Local tax collectors are permitting large banks to foreclose on homeowners.
As people still struggle with unemployment and the financial distress associated with such hardship, the prime beneficiaries of TARP (bank bailout program) continue to benefit and even thrive at the expense of tax payers who help fund the program to help them out of their difficult situation in the first place. As a San Jose Short Sale Agent, I see how lending institutions deal with its customers on a daily basis, yet I am continually amazed at the means by which these gargantuan lending instituations have benefitted during their time of need, yet when the individual home owner are struggling, rather than help, they pounce right on them and go for the jugular…..
Here is a ridiculous illustration of that point. During this economic morass we are all enduring, city and county governments also suffer as a result of the individual home owner not being able to pay their property taxes. Because we are treading on unchartered territories and local government is in desperate need of cash flow, some of them are now selling their delinquent tax bills to third party companies for cash. [By the way, this is what these large banks are doing with their HELOC (home equity line of credit) and why they are now starting to play hard ball and refusing to sign off on short sales unless they are given the right to settle said deficiency after the closing. They write off their loss, turn around and sell the right to collect to a collection agency for additional cash and walk away to let the collection agency deal with collecting the deficiency. It’s a win-win for the banks because they are squeezing as much as they can out of the borrower at the first bite level and letting someone else get a second bite at the borrower in exchange for a fee.]
These tax lien purchasing companies are not affiliated with, nor have any interest in the local communities, so they are pushing the local homeowners quicker into foreclosure by adding additional penalties and obscene interest rates, which the homeowners cannot afford, then forcing them into foreclosure to collect their debt from the proceeds of the sale. All of this suffering and devastation over a very small percentage of the value of the property.
Think about this: it is not the lender that is owed the mortgage, nor even the lender which owns the line of credit, it is the third party entity that bought the rights to the delinquent tax bills that is forcing a homeowner into foreclosure over a few thousand dollars, which was inflated due to their horrendous interest and penalty charges…… What’s wrong with that picture??!!
The largest of these entities which buys and sells property tax liens, the one which is devastating Lucas County, Ohio and the one discussed in the New York Times article is called Plymouth Park Tax Services. Guess who is the parent company of this little known company? JP Morgan Chase – perhaps the biggest beneficiary of TARP!
Thank God, Santa Clara County is not selling its tax liens to these companies.
