Striving to create a better life for everyone by sustainably solving real estate problems

(512) 807-8777

Tag Archives: Foreclosure

The F Word.

Talking about foreclosures. They make me physically ill. I understand why they happen, and I know the business decision behind it, but I can’t stand to know that someone is losing their home. Sometimes people don’t budget properly, and sometimes something unexpected happens. I don’t care which of these it is, I want to help! So what do I do?

This is how I feel on Thursdays. But! If I help one family, it is worth it!

Once a week I go through a list of foreclosures that are posted. I start writing letters to the people facing this, and offer our help. This is a situation where sometimes your best option is your least bad one. Yes you will probably still have to move, but you will not be followed by a foreclosure, and we try to get some money to you so that you can afford to move. Obviously we can’t take over your mortgage plus pay you the market value of the house, but we can usually get you something and we can save that foreclosure from being on your credit.

Here’s an interesting factoid about foreclosures that I learned from Lee yesterday. He had a friend go through this experience. When the bank writes off the bad debt of a foreclosure, you get a 1099 in the mail from the bank, because the IRS considers it taxable income. I looked this up, and the article I found here says that the IRS views a foreclosure just like a sale. That’s insane to me! Now here’s the kicker! Banks typically take YEARS to write off things like this, so you’ve finally re-established yourself, doing so much better, that foreclosure is ancient history of 10-15 years ago, and !!!BLAM!!! You get a 1099 saying you owe taxes on $180,000 worth of income from a FORECLOSURE!!!

Continue reading →Hermann says please like and share!
164Shares

What’s Going on with Kerrville Folkways?

kerrville folk festival map

This is a map of the most fun spot in folk music, Quiet Valley Ranch! It’s from a program.

You may recall that we have a contract on a house that we’re calling Kerrville Folkways, because that’s the name of the street it’s on. Besides that, some of us have actually attended the Kerrville Folk Festival here in central Texas, and we like it.

We got a signed contract on this property back in November, but we still haven’t closed on it. In February, we shared that we were waiting on the IRS (the tax people, if you are not from the US) to pronounce what it was going to do about a lien on the property. We have been diligently checking in with the listing agent every week or so since. You know, the government takes its own sweet time, and the needs of people to have housing, or to sell their houses, well, those aren’t really important to whoever is working on these liens.

Finally there is some news! It’s not the greatest, but at least there is movement. The selling agent finally sent an email to Carol that explained what the IRS came up with. Hooray for them! It turns out that there is close to $4,000 more owed to the IRS than our current offer. And the owners for some governmental reason, are not allowed to contribute this money. It looked like we would have to do it, or the house would toddle off to foreclosure, where it would languish even longer.

Continue reading →

Hermann says please like and share!
4Shares

SB 1994 Would Outlaw Wrap Mortgages

A flight plan with NYC labeled "Gravitational Slingshot"

Like SB 1994, we seem to be capable of making all kinds of logical errors. I love XKCD.

H.L. Mencken famously said, “For every complex problem there is an answer that is neat, simple, and wrong.” A wise politician, whose name evades me, paraphrased the quote as, “For every problem there is a solution that is simple, easy to implement, inexpensive, and wrong.” SB 1994 is a wonderful example of such an erroneous solution, although I’m not too sure about the “inexpensive” part.

Just to be blunt, with SB 1994, Senators Zaffirini, Rodríguez, and Watson have only one purpose. They intend to make it illegal to wrap mortgages. Although they don’t state this purpose on the description in Zaffirini’s press release, the caption of the billed filled with the Senate states clearly, “Relating to the financing of residential real estate purchases by means of a wrap mortgage loan; creating an offense.” The press release obfuscates a little:

SB 1994 (Zaffirini) provides that a wrap loan is void and unenforceable unless it is made with the prior, written consent of all existing lienholders and is closed at a title company’s office. This provision is intended to eliminate wrap lenders’ incentive to hide transactions from the original lienholder, who may have a due on sale clause. SB 1994 also creates a fiduciary obligation and constructive trust for all payments a new owner makes to a wrap lender, ensuring these payments are used for their intended purpose. Finally, SB 1994 gives a homeowner several remedies if a wrap lender violates the law, including the remedies in the Texas Deceptive Trade Practices Act.

If you only read the press release, you might think they simply want to make wrapping impossible, so I suggest you read the full bill. There are many scary provisions in this one.

Continue reading →

Hermann says please like and share!
6Shares

SB 1993 Hurts the People It Claims to Protect

This post is part of my series on legislation in the Texas Senate that “Takes Aim at Wrap-around Mortgages.” SB 1993 is Senator José Rodríguez’s second bill (this one co-authored with Kirk Watson and Judith Zaffirini) to regulate wraps. Here’s how it was described in Senator Judith Zaffirini’s press release:

SB 1993 (Rodríguez) eliminates a loophole that allows wrap lenders and servicers to avoid being licensed by the Texas Department of Savings and Mortgage Lending (TDSML). Right now, only lenders that make five or more loans annually are subject to licensure. Wrap lenders exploit this loophole by making it difficult for TDSML to verify how many transactions they have made. For example, wrap lenders may set up shell land trusts, not record transactions, or use the name of an unsuspecting investor. SB 1993 would eliminate this loophole for wrap lenders and servicers.

You can find the text of the introduced legislation here.

Continue reading →

Hermann says please like and share!
16Shares

HUD Announces New Mortgage Buying Regulations

House being sucked into a vortex

For more information about the effect of hedge funds buying mortgages, see Realtor.com and Hedge Fund.

The Department of Housing and Urban Development (HUD) wants to reduce the number of delinquent mortgages sold to hedge funds and other major corporations, according to Bloomberg. To accomplish this objective, HUD has implemented new regulations that favor local governments and nonprofits. The goal is to help delinquent borrowers stay in their houses. The assumptions:

  • Private investors “rush” to foreclose to convert the properties to rentals or other more liquid assets.
  • Nonprofits and local governments will be less likely to foreclose and more likely to keep current owners in their houses.

The “private investors” involved are usually not people (except under the erroneous definition of the “Citizens United” ruling). They are too-big-to-care banks and hedge funds that buy hundreds or thousands of troubled mortgages at a time. I know several private note buyers who operate legitimately and ethically. I would not want to tar them with the same brush as the corporate raiders.

People like us at Hermit Haus try help these distressed homeowners salvage what’s left of their credit by buying their houses (sometime subject to the existing mortgage, sometimes not) before the house goes to foreclosure. We occasionally buy at foreclosure auctions, but by then the damage has been done, and it’s down to the numbers.

Nonprofits and possibly local governments will probably be less likely to foreclose than the hedge funds. One question is can these institutions raise the money they need to accomplish HUD’s goal. If they can’t, the delinquent mortgages will be offered to the corporations a couple of months down the road. It would be good if they could take possession of title and use the houses to provide low- or moderate-income housing. The latter could bring needed capital into financially distressed areas.

The other question is what will keeping distressed buyers in their houses accomplish? Putting on my Nostradamus hat, I foresee four possibilities, depending on the reasons for the homeowners’ distress:

  • People who suffer from payment shock—having payments that go up because of the increased price of taxes, insurance, or interest (in adjustable rate mortgages) beyond their capability to pay—may be able to renegotiate their principle or interest rates to bring their payments down to something they can afford. I believe this will be good for the homeowners and the economy as a whole.
  • People who get into trouble because of job loss or a healthcare crisis (which often results in the loss of a job and medical insurance) may be able to stay in their houses for a while longer, maybe even permanently as a result of a governmental or charitable purchase. Whether or not they would be able to afford to maintain their properties in a livable condition remains to be seen. Many of the houses we purchase are “unlivable” because the owners couldn’t afford or perform upkeep. This results in people living in some truly horrid conditions. I’ve seen toilets that haven’t worked in years. (You can’t un-see that!) Whether or not this outcome would really be beneficial to the people involved and the economy depends on the actions of the charities and local governments. Will they be able step up to the additional costs of upkeep of an individual’s home?  In the case of local governments, will their constituents even allow them to do so?

Hermit with a heart

Heart makes this business rewarding. Money only makes it possible. We try to help good people in bad situations.

  • People who make bad financial decisions will continue to make them. Additional bad decisions may or may not lead to an eventual foreclosure. I talked to one person facing foreclosure who believed it would be possible to win a third set of concessions from their lender. It wasn’t. In this case, the concessions only deferred the inevitable, and the person was well and truly surprised when the lender auctioned off their home.
  • People who are gaming the system will continue to exploit that system. I’ve often said—so often that Sue Ann is tired of hearing it—that human beings can’t invent a system that other human beings can’t corrupt.

Now for the question many of you have been waiting for: how will these changes affect investors like Hermit Haus? I don’t believe the will have any significant effect. Our business model is to intervene before foreclosure or to pick up the pieces afterward. We buy houses, not mortgages. When we buy houses from people facing foreclosure, we try to find creative ways to help them start over; we don’t just put them on the street.

The truth remains, that if you can’t afford your house, if you can’t afford the upkeep on your house, if you’re facing foreclosure or bankruptcy, we are likely to be your best option. Call us. We’ll try to help.

Hermann says please like and share!
6Shares