Help Me Interpret Neighbor Foreclosure Notice

[TromboneAl]

The notice below appeared on the neighbor's abandoned house a few days ago. It says the house is going to be auctioned off, and the total unpaid balance and expected expenses totals $851,000. It says "Beneficiary's bid may include part or all of said amount."

Does that last part mean that much lower bids will not be accepted??

Any other thoughts on what will happen with this house, and how long it would take? Our worry, of course, is that some dope grower will buy it at a low price.

 

[MissMolly]

T-Al
Depending upon what entity insures/guarantees the mortgage (FHA, VA, RHS, PMI) if anyone, the lender will open with their rock bottom bid amount. This will be the least amount they can accept according to their agreement with the insurer/gaurantor. Rarely do they expect to receive the full amount due. Their bid will be based on a certain percentage of the outstanding loan plus fees and costs. If any bids come in that exceed their opening bid, they usually do not try to bid the property up, but just take the highest bid offered. If nobody outbids the lender, the lender takes the property back in inventory, and then depending on the insurer/guarantor, they will either file a claim and convey the property (FHA & VA) or they will file a claim and the market and sell the property (RHS/PMI).

 

[clifp]

I recently got back from a real estate hunting trip in Vegas, and since these notices are more common sight in Vegas than newspapers onfront porches, I asked my Realtor to explain what is going on. I should add, that my understanding of the process is a bit shaky.

This is notice of delinquency (terminology my vary by state). It is designed to inform any tenant or person living in property that they are likely to be evicted soon, because the property is in the process of being foreclosed.

This situation is a bit unusual because the lender Financial Freedom Senior Fund Corp. is actually a reverse mortgage company and my understanding that you generally can't be evicted from your home with a reverse mortgage. But obviously I am wrong.

The 851K figure is simply the amount owed and includes late penalty, and unpaid principal and interest. This is the maximum amount of money that Financial Freedom will recover. If for instance the house is sold for a $1 million the owners will receive the balance.

The final step which is likely to occur in the next 2-6 months (or possibly longer cause this is California) will be the notice of public auction. This will provide a date generally in the next month or two where the property will be auctioned off at the county courthouse steps. (I almost went to one in Vegas). This is your opportunity to buy you neighbor house on pennies on the dollar. Any proceeds will go Financial Freedom, the auction winner will be responsible for paying any back taxes and home owner association fees (may not be the case in CA). Note in many case the banks end up winning the auction for properties they have mortgages on.

In most cases there is a parallel process going on in the form of a short sale. Here Financial Freedom will agree to sell the house at price almost certainly well below the $851K on the theory that this will cost less in court cost, than a foreclosure and is likely to fetch more than the auction.

 

[HpRyder]

This assumes the auction is not postponed and actually takes place. Currently in CA, many are indefinitely postponed. Thus leading to CA's huge shadow inventory of houses in foreclosure but not yet owned by the lender.

If the auction doesn't take place the house will just sit there until the lender decides to take title via completing the foreclosure, then evicting the occupants. How long this will take depends entirely on the lender. Many newspaper articles have be written about families living rent & mortgage free, in foreclosed houses for years.

 

[arebelspy]

Above posters are right.

To put it simply, at the first auction the bank will bid their costs, 851k. If anyone outbids, the balance goes to the owner. This rarely happens in today's climate. Otherwise, the bank takes it over. The bank then may fix it up and sell it as an REO, or may hold another auction later for it, with a much lower starting price.

 

[kyounge1956]

(snip)This is notice of delinquency (terminology my vary by state). It is designed to inform any tenant or person living in property that they are likely to be evicted soon, because the property is in the process of being foreclosed.

This situation is a bit unusual because the lender Financial Freedom Senior Fund Corp. is actually a reverse mortgage company and my understanding that you generally can't be evicted from your home with a reverse mortgage. But obviously I am wrong.(snip)

Perhaps the people who took out the reverse mortgage have since died or moved out of the house. The wikipedia article about reverse mortgages says

"The loan comes due when the borrower dies, sells the house, or moves out of the house for more than 12 consecutive months. Once the mortgage comes due the borrower or heirs of the estate will have an option to refinance the home and keep it, sell the home and cash out the equity, or turn the home over to the lender. If the property is turned over to the lender the borrower or the heirs have no more claim to the property or equity in the property. The lender has recourse against the property, but not against the borrower personally nor against the borrowers heirs, referred to as "non-recourse limit." Once all borrowers on a reverse mortgage passes away the heirs are granted 6 months to sell the home, refinance it, or to make the decision to turn the home over to the lender."

According to the notice, the reverse mortgage was recorded in 2000. If the original borrowers received an amount at that time and/or over the intervening years that is larger than the amount the house would sell for now, or if the heirs simply haven't been able to find a buyer within the six months, and can't refinance because there is more owed than the house's current value, I can see how a reverse mortgage might end up in a foreclosure. If those are the circumstances, I suppose it makes sense for the heirs to let the house go to the lender.

 

[calmloki]

T-Al. I'd talk to my bank and round up a stack of various value cashiers checks or whatever is simplest and valid at the auction and show up on the 22nd. Bank may well bid it's costs, but they may also offer at a substantially lower bid. Places here get their opening acceptable bid dropped by 50% or more on occasion, often the day before the sale. You have a couple weeks to round up say, $350k?, and enter the wonderful world of landlording! Problem is, you know too much about the place....

Up here the hard money lenders would probably hit you up for 4 points, 12% interest, a 9 month balloon, and want you to have 20% skin in the deal. Flippers who would bid on the place want to be able to pay those costs, account for unknown problems, be guaranteed of a fast sale, and make money. That could be to your advantage in bidding.

 

[GregLee]

... I can see how a reverse mortgage might end up in a foreclosure. If those are the circumstances, I suppose it makes sense for the heirs to let the house go to the lender.

Even if the mortgagees are still alive and living in the house, if they don't keep up their home insurance or property tax payments, they can be foreclosed, and then out they go. It happens to a considerable number of old people, I've read, though I can't recall a reference to give for this. The remedy for this problem is supposed to be the counseling session that is required before a reverse mortgage is granted: "Are you sure you will always be able to pay your taxes and insurance?"

 

[Sue J]

Is this the same property that you posted about when the dogs kept you and Lena up at night?

Found the topic -
http://www.early-retirement.org/forums/f27/need-help-neighbor-dog-problem-50100.html

 

[11522914]

The notice below appeared on the neighbor's abandoned house a few days ago. It says the house is going to be auctioned off, and the total unpaid balance and expected expenses totals $851,000. It says "Beneficiary's bid may include part or all of said amount."

Does that last part mean that much lower bids will not be accepted??

Any other thoughts on what will happen with this house, and how long it would take? Our worry, of course, is that some dope grower will buy it at a low price.

Typically the bank (servicer) will request bidding instructions from the owner of the note (investor) or the PMI company if private mortgage insurance is involved. The servicer has determined the fair market value through a BPO (broker price opinion) or appraisal. They will usually at the foreclosure sale bid a % of the FMV - anywhere from 82% to 93% depending on the location. They prefer an investor/buyer bid higher than their % of fair market value. They generally DO NOT want to take title to the property but will not give it away cheaply either.

In many cities throughout the country they are the one and only bid at foreclosure. They acquire title to the property and then list it for sale at the FMV. As time elapses without an offer they will continue to reduce the listing price until an offer is received.

 

[TromboneAl]

Is this the same property that you posted about when the dogs kept you and Lena up at night?

Found the topic -
http://www.early-retirement.org/forums/f27/need-help-neighbor-dog-problem-50100.html

Yes, that's right. The tenants were kicked out, and then one of them was arrested and in jail. The original owners died a few years before that. The mortgage and reverse mortgage were such a mess that the four sons that inherited it gave up and let it go to the bank.

The house has been blissfully empty (and quiet) for the last year or two. I'd only buy it if I could bulldoze it so as not to have noisy neighbors, but that wouldn't be smart use of our money.

I'm still a little confused. I had thought that the four sons had just let the bank have the property. Does this indicate that that is not the case?

Thanks for the help.

 

[clifp]

Yes, that's right. The tenants were kicked out, and then one of them was arrested and in jail. The original owners died a few years before that. The mortgage and reverse mortgage were such a mess that the four sons that inherited it gave up and let it go to the bank.

The house has been blissfully empty (and quiet) for the last year or two. I'd only buy it if I could bulldoze it so as not to have noisy neighbors, but that wouldn't be smart use of our money.

I'm still a little confused. I had thought that the four sons had just let the bank have the property. Does this indicate that that is not the case?

Thanks for the help.

Ah the owners dying explains the reverse mortgage.
The notice is the bank continuing the process of taking possession of the property. I am sure with a probate, mortgage and reverse mortgages, it was way to complicated for the sons to actually take possession of the house, plus potentially bad for their credit scores. I'm guessing the estate simply stop making payments to anybody. It also means that it is unlikely you'll see any type of short sale activity.

I think the good news is it will probably be at least year and possibly much longer before you have a new neighbor. No need for a bulldozer, just let the American judicial system work...

 

[TromboneAl]

That's what I was hoping for. It's actually a good house, but it's deteriorating. For example, the cap is gone from the chimney, so every time it rains, water goes in.

 

[Nords]

Any other thoughts on what will happen with this house, and how long it would take? Our worry, of course, is that some dope grower will buy it at a low price.

So would you be buying it as a landlord or for an "agricultural" zoning?

 

[Ed_The_Gypsy]

This is your opportunity to buy you neighbor house on pennies on the dollar.

Yes! Now YOU can rent it out to a grow-op!

I have just read that some banks are just bulldozing some repossessed houses. Is that a possibility?

 

[clifp]

Yes! Now YOU can rent it out to a grow-op!

I have just read that some banks are just bulldozing some repossessed houses. Is that a possibility?

God I hope not.

My impression this was for the <50K and more like <$25K house you see in places in Detroit, Cleveland and other gardens spots.

There is 850K deficiency and even if the house is only worth 1/2 or 1/3 of that, that is still a lot of money to bulldoze.

 

[calmloki]

God I hope not.

My impression this was for the <50K and more like <$25K house you see in places in Detroit, Cleveland and other gardens spots.

There is 850K deficiency and even if the house is only worth 1/2 or 1/3 of that, that is still a lot of money to bulldoze.

This has stuck in my mind: Victorville | Housing crunch becomes literal in Victorville - Los Angeles Times Shocking to me - I have a hard time watching the home renovation groups on tv destroying perfectly functional but dated cabinets and such as a first step.

‪BAIL OUT BANK DEMOLISHES NEW MODEL HOMES- HOUSING MARKET COLLAPSE‬‏ - YouTube

 

[TromboneAl]

Related to the demolition, I've always thought it too bad then when too many buildings are built, or are no longer used, it's rare that any are destroyed, and the land returned to it's previous state. For example, this gas station has been closed for years, and it just sits there.



So it was refreshing when a restaurant and motel that went out of business was purchased by an environmental group and bulldozed. Every trace of it was removed. This is what it looks like now:

 

[Mtxu]

Yes, that's right. The tenants were kicked out, and then one of them was arrested and in jail. The original owners died a few years before that. The mortgage and reverse mortgage were such a mess that the four sons that inherited it gave up and let it go to the bank.

The house has been blissfully empty (and quiet) for the last year or two. I'd only buy it if I could bulldoze it so as not to have noisy neighbors, but that wouldn't be smart use of our money.

I'm still a little confused. I had thought that the four sons had just let the bank have the property. Does this indicate that that is not the case?

Thanks for the help.

If the original owners died a few years ago, then the mortgage was due when they passed away. The heirs are supposed to notify the lender, as with any other loan that is not assumable.

Reverse mortgage lenders allow the heirs up to 12 months to refinance or sell the home and pay only what is owed on the loan. If the home is upside down, the heirs can sign a Deed in Lieu of Foreclosure. This gives the lender direct title so that they can begin to sell the home. Sometimes, the heirs just walk away. And sometimes, they live in it rent free for a year, delaying for as long as they can, until they eventually get evicted.

It sounds like the heirs just walked away from it, forcing the lender to foreclose, which is a shame because now it will affect your home value. If they had signed the Deed in Lieu of Foreclosure, it could have sold sooner, without having to go through the legalities of foreclosure and eviction. And if there were tenants (who were not the sons), then the sons were making money off the house while the lender waited through the process. If the tenant was one of the sons, and reverse mortgage payments were being made by the lender after the borrowers death, then maybe that is why he went to jail. Could have been a number of things.

 

[calmloki]

So? Inquiring minds wish to know. Did the sale go through on the 22nd? New neighbors?

 

[TromboneAl]

Nothing has changed over there, and I haven't done any research to see if the sale went through. Perhaps I can check on a web site??

 

[calmloki]

not seeing anything on Trulia or Zillow - maybe a call to the county clerk or tax office?

 

[TromboneAl]

There was nothing on Zillow, but today the bank's inspector came by to do his periodic inspection. He says the place is literally falling apart inside. The ceiling sheetrock is moldy and falling down, and the insulation is saturated with water. He thinks that anyone who comes to look at it will decide it's not worth the effort to fix it up.