Monday, July 24, 2006

Banks 'Uninterested' In Avoiding Defaults: CO

From the Denver Post. "Homeowner Eric Elkins is struggling to avoid the real estate world's dreaded F-word. Foreclosure may be his only way out. Elkins says he can no longer afford his payments. He owes $285,000 on his Highlands Ranch house. But it's worth less than $250,000. 'I just want to get out of the house and not be too screwed,' he said."

"He and his then-wife bought it for $252,000 in 2002. Last year, Elkins put the house on the market for $299,000. At that price, the home attracted only three showings. Increasingly unable to afford his payment, he contacted his lender, U.S. Bank. At first, the bank told him he couldn't refinance again because he owed more on the house than it was worth, he said."

"He inquired about selling, but to sell a house for less than it's worth requires lender approval. Eventually, Elkins' lender came up with a better idea. 'He put me into two home-equity lines of credit,' Elkins said. 'It was all very creative.'"

"These new loans replaced his mortgages. One was interest-only, meaning Elkins wasn't required to pay the principal during the term of the loan, keeping payments low. Both loans had adjustable interest rates. As for the value of the house versus the size of the loans needed to refinance it, equity, no problem. 'He got an appraisal for $285,000,' said Elkins of his lender. 'I don't know how he did it. It was exactly the amount I needed.'"

"Unfortunately, Elkins' financial situation is still disintegrating and his payments keep rising. He put his home up for sale again in May. In June, he got an offer for less than $250,000. His broker submitted it to U.S. Bank for approval. The bank had to decide what to do about the deficiency. One option would be to grant Elkins an unsecured loan for the balance. Another would be for the bank to take the loss. The loss on a short sale is typically smaller than the loss on a foreclosure."

"Unfortunately, the bank did not respond and Elkins' bidder moved on. 'This property will end up foreclosed on because the bank cannot respond quickly enough,' said Elkins' real estate broker, Gretchen Faber. 'U.S. Bank is completely uninterested in cooperating with me or with the buyer's agents. It isn't just U.S. Bank,' she said. 'All banks do this.'"


At 7:55 AM, Blogger OC BEAR said...

'He got an appraisal for $285,000,' said Elkins of his lender. 'I don't know how he did it. It was exactly the amount I needed.'"

I know how he did it..."FRAUD!"

And when the Reqional Banks continue to have distress because of their avoidance of resolving these issues, the American Taxpayer will begin the "Great Houseing Bail-out of 2007/2008.

This just stink's on all sides.

At 11:46 AM, Blogger Loren said...

Exactly, This guy's story sounds like fraud to me, if I was a bank I'd let him stew a bit too. What kind of a fool thinks they can cashout to the max and then just walk away.

I don't believe that banks are "uninterested" in avioding defaults. I've seen a few short sales go through in Northern Colorado.

The short sales I've seen look like good faith efforts on the sellers part. I think the banks want to see at least some shred of personal sacrifice or responsibility before they try to make a deal, though.

At 3:06 PM, Blogger MrIncomeStream said...

You have to be completely broke for a shortsale to go through. They won't let it go through just because you say you can't make the payments anymore

At 6:26 PM, Blogger mort_fin said...

What's Colorado's law on deficiencies? If the lender can come after Elkins for one, and they think that Elkins has assets and/or future income, a short sale is unlikely. No one knows exactly how the new bankruptcy code will play out, but I expect it will mean fewer short sales and more deficiency judgements for anyone that can be squeezed.

At 8:41 AM, Blogger Loren said...
Colorado does not have a non recourse provision for mortgages. Even so, I've seen a number of short sales recently. I think banks still have enough easy cash to be forgiving right now. Later on in the cycle it may not remain so lax.

Colorado laws tend to favor creditors and landlords moreso than many other states. The result is low intereste rates and good mortgage terms and a healthy rental market.


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