Ahhh...this has gotten to be quite a subject now, hasn't it? Here we go with another long post- ready?
In the meantime, perhaps it would help if you tell me what your timeframe is/when is the foreclosure?
We have 2 months, so we have time to figure out the best way to do this.
and, how bad is the situation? How wide is the gap between the mortgage and the fair market value of the house?
Are they actually 'upside down' in terms of value? Or, did they just run out of time to sell their house?
They never even tried to sell- just walked away due to the problem of him losing his benefits & her ending up being too sick & unable to return to work. With her tremendous medical bills & without her income, they knew they would never be able to make the payments.
They owe 160k on it. FMV on it in the condition it is in right now is appx. 135k. Fixed up, appx. 160k. Repairs estimated at 5k. So you see why it is necessary for the bank to discount substantially- there is no equity at this point.
The most practical 'solution' is a very non-fancy, non-technical one.
Let the house go into foreclosure.
You've said they don't want to ruin their 37 year perfect credit history, but, as you've also said, they already have a bankruptcy.
They're not going to be able to get a mortgage for a while anyway, at least not a traditional, conforming one, so why view the foreclosure as a 'bad' thing? I know, I know! But, it's 'positive' in that they are securing what they want most, their medicaid benefits.
Yes, true on all counts. we just didn't want to add another "bad apple to the barrel" to make things worse.
i realize that this would be hard on you, after putting in all of this work (you got the bank to agree to a short sale, wahoo!), and i don't mean to make light of this aspect. Do you have 'angle' on the house going into foreclosure? could you find a prospective buyer and match him/her up with the bank for an 'assignment fee'?
Yes & no. I am more interested in helping these people (as well as helping myself at the same time), but if something I were to do would hurt them, I am not interested in doing it. Also, this is a small town & I am a firm believer in "what goes around comes around".
As to a prospective buyer, undoubtably, but the transfer of Title would end up being the "fly in the ointment" (more on this below, keep reading!).
could you bid on it yourself?
that way, your time wouldn't have been wasted.
Yes. But- The bank will open bidding at what they owe. As you see, this would be WAY too much $.
in that case, why isn't 'walking away' considered 'giving away a resource'.?
Because they are not willingly giving it up, the lender is taking it- they have no choice.
in the typical foreclosure situation you ARE giving away a resource. you are walking away from equity.
Normally. In this situation, they owe more than it's worth so there is no equity. No equity=no resource.
i know, i know, the gov't doesn't have to make sense, its the gov't.
highly illogical. Mr. Spock (star trek) would never approve!
okay, i know this is the gov't, so, i'm assuming/re-iterating from your previous posts that you know, without a shadow of a doubt, that medicaid would view 'reduction of debt' as a 'gain'?
VERY illogical. Medicaid could take a lesson from the Vulcans.
In the way that this would play out, yes.
even though this reduction would make little or no difference in their cash flow? (i'm assuming once they leave the house they will rent an apt?)
They have actually left the house & are living in a state funded shelter right now.
and, if it DID slightly impact their cash flow, i.e., if their apt rent would be less than their mortgage payment why wouldn't this increase in cashflow trigger a medicaid problem, even if they did sell or 'walk away' from the house and rent a less expensive apt.?
Yes. Resource & Eligibility rules for COPES/medicaid are very strange (go figure) AND lengthy. (All COPES recipients get a Medicaid card, this is why the two services are tied together).
From WA State Law:
INCOME:
"To get COPES services, both your income and your resources must be within limits set by law....
To be eligible for COPES in 2005, your gross monthly income (with some fairly rare exclusions*) must be less than $1,737 if you are single. If you are married, the Department looks first at the income that comes in your name. If that is not more than $1,737, you may be eligible for COPES no matter how much income your spouse has. If the income that comes in your name is more than $1,737, you may still be eligible if the sum of your income and your spouse's income combined is less than $3,474."
RESOURCES:
"The limit for resources (assets, property, savings) that a single person may have is $2,000. A spouse of a COPES recipient is allowed to keep substantially more resources."
If you have spare time to kill & are the least bit interested, the full text for COPES as to what requirements, eligibility & resources count, don't count, partially count, count except for *,
might count, blah, blah, blah, may be found at:
http://www.lawhelp.org/WA/showdocument.cfm/County/%20/demoMode/=%201/Language/1/State/WA/TextOnly/N/ZipCode/%20/LoggedIn/0/rpc/2120099/doctype/dynamicdoc/ichannelprofileid/15416/idynamicdocid/1907/iorganizationid/2470/itopicID/867/iProblemCodeID/2120099/iChannelID/7/isubtopicid/3/iproblemcodeid/2120099(The link is nearly as bad as the law).
this kind of reasoning reminds me of what robert kiyosaki disparages in his books. the false reasoning of accountants who value 'assets on paper' over actual, real life, cash flow.....i know, the gov't doesn't have to make sense.
this is where the word 'byzantine' comes from
EXACTLY.
i take it they are being held by the same bank? this would make it easier. my teachers have taught me techniques for handling the situation when the 2nd is held by a different bank. 1st mort. holders usually require that the 2nd be wiped out. they don't want to take a loss if someone else is getting paid.
Yes, same bank. Yes, second will be wiped out unless bank decides to do something weird (not likely).
this 'buying the note option' is looking like the most promising loophole to me, at this moment.
At this point in time this WOULD be the most promising due to new developments-
Got a call from the homeowners last night - they were absolutely frantic.
Seems the case worker is a "by the book" worker. Case worker was alerted to the fact that the owners
might be going to sell instead of going to foreclosure.
Sent out a letter (warning) to my poor homeowners about "the consequences of such an action". ie: you sell, you lose your benefits, you let it go to sale, everything is just fine. (!!) Homeowners are so worried, now they are backing away from the deal, so now I have a willing bank, but not willing homeowners due to the "threat".
LESSON:
NEVER discuss (or have the homeowners discuss) the possibility of a sale with a case worker! Case workers are (after all) gov't employees, and if they are a "by the booker" type, you've only grief to look forward to.
Case workers do
not understand that the bank will take less than is owed in certain cases (banks don't DO that!!)
nor do they understand that the 1099 does
not show a tangible gain! (If it SHOWS they made X amount of $ then they MUST HAVE- why would the bank lie??!!)
SIGH.
Incredible. If at any time a situation like this HAD to be discussed with a case worker, for heavens sake warn the homeowner that a letter will probably arrive within DAYS with a warning, so at least they are prepared & don't freak out like mine did.
would medicaid be happy if they just say "yep, we still have a 50k 2nd mortgage"? or do they have to show that that they are still making payments on the debt?
Medicaid really dosen't care about the debt, just their income & resouces (house, car, etc), therefore, they don't care about the payments either. All they are concerned with is that the people don't give away a resource, or if they sell it, they don't make any $ on it (paper gain or otherwise), as the "gain" counts against their income, so has the same consequence as giving it away. I know that this doesn't make a whole lot of sense, but what do you expect?
Proposal: Buying the Note....Title would transfer from the homeowners to you and then from you to the rehabber, all in a matter of minutes.
Everything you said would work perfectly if Medicaid were not involved, it's an almost "textbook" perfect senario. The problem arises when the homeowners transfer Title- they are now giving away that resource, thereby opening up the Medicaid penalty. (& don't think for a minute that their case worker won't see this & implement the penalty- the worker seems to enjoy making their cases miserable & keeping them worried, my homeowners are not the only ones having problems with this worker....but that's another longggg story....... :
Remember, to keep medicaid happy, you are still holding the original 200k debt. The homeowners can tell medicaid that the debt is in the hands of a private investor, and they are making payments. You can work out whatever payment terms that will satisfy medicaid: ‘token’ monthly payments until the debt is satisfied, ‘a balloon payment’ due in 2025. With both of these options you might want to sign a paper privately with the homeowners saying that you will forgive the debt in the event of their deaths. In other words, you will not sue their estate to collect the debt. (surely you don't have to tell medicaid about THIS?)
Fine, but Title is still in the HOs name, so I must foreclose in order to get Title, thereby putting them through another 4 months of H*%ll as they can not simply sign it over without the penalties. :'(
We could sign a forgiveness statement without Medicaid ever being involved, no problem.
Heck, you could even turn it into a ‘negative amortization’ loan, with every missed payment added to the principal of the loan. Medicaid should LOVE this; the debt will actually grow (just kidding, kinda).
They probably WOULD!! :D
yes, of course, i'm wondering if the bank can use it's discretion in your situation to make the deal work.
Yes, I think so after a second conversation with them, they are VERY willing to do whatever it would take to keep this off their books.
it would be worth checking out, though. to see if there is a way for a private party to foreclose without it going on the public record. do the credit companies comb through public records?
When the Deed is transferred at the Trustees sale or otherwise, it is then recorded & becomes a matter of public record. The foreclosure automatically attaches to their credit record, so when pulled, it will show. There is no way to prevent this legally (or IL-legally for that matter).
in a 'power of sale' state you can, in effect, 'foreclose' without foreclosing. there's just a clause in the deed that says, 'in the even the mort. payment is late, the deed reverts to the mortgage-holder'. something like that.
i checked, though, and washington is not a deed of trust state. you are in washington, aren't you?
There are judicial & non-judicial foreclosures. We are a non-judicial state. (Washington State)
I believe a judicial foreclosure would be what you are talking about when you "foreclose without foreclosing".
We ARE a power of sale state, & do use deeds of trust, however, we use Trustees, (not attorneys) when the power of sale is invoked by the lender. The DOT reads as follows:
"If Lender invokes the power of sale, Lender shall give written notice to Trustee of the occurence of such an event of default and of Lender's election to cause the Property to be sold."
It goes on, but that's the important part.
So after the proper notices go out & after the appropriate waiting period & publications, the Trustee sells the property for the lender and transfers Title.
If I held the note, the bank assigns their interest to me, but the original DOT terms would remain. I could CHANGE the Trustee, but I could not "undesignate" (or not have) a Trustee. There must be one. Therefore, a new foreclosure would have to be initiated in order to gain Title. So it would be the same senario repeated, just with me as the beneficiary instead of the bank.
anyway, it would be worth consulting an attorney to see if you can do something like the above without filing a lawsuit, i.e., foreclosure.
Nice idea, wish it would work.
So, anyway, I think we are down to letting the lender foreclose just so the homeowners nightmare can be over & done with, I really don't want to put them through more than is necessary, they have enough problems.
I will keep you posted on this, as it has been very interesting (to both of us I think). BTW- What state are you in?
Cheers!
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