What To Do If I Am An Underwater Homeowner
By Oppenheim Law on Deficiency Judgments, Foreclosure, Presentation, Real Estate & Roy Oppenheim
Oppenheim: So what we have concluded, and we try to impart to our clients, and if you just leave with a few take away things today, because I could talk for two hours, three hours. I could talk for days. I could give a college seminar. I could give a law school seminar. I could probably run a law school on these issues because there’s so many issues.
And just to give you a sense of what the issues are. You’re talking about constitutional law. You’re talking about property law. You’re talking about security law. You’re talking about criminal law. You’re talking about uniform commercial code law. You’re talking about assignability of note. You’re talking about issues of signature law and impersonation. I mean it just goes on and on. This isn’t just about property law. This just isn’t about mortgages.
This is about the whole bevy of legal issues that come together in one area that guys like me have to dissect. But at the end of the day, you have this notion of moral obligation that the FDIC is talking about still and HUD is talking about…and that you signed this note, and that you have this religious duty, some sort of dogmatic obligation to pay that note.
Well, let me tell you a little secret here. On Wall Street every single day, they sign documents and they walk away from it. The only time they don’t is when the government decides to pay AIG 100 cents on the dollar, so they can honor all their counter obligations with Goldman Sachs, and so the other banks can all pay their bonuses with your and my money, but short of that, they walk away from billion and trillion dollar deals every time.
The bankers themselves walked away from a building in DC, that John Stuart actually talked to us about and we helped them produce a segment, where they had walked away from an obligation on a building that they bought because the value had dropped, and so they effectively ended up doing a short sale and walked away.
And what they did was…let me hear it…a strategic default.
Audience Member: Default.
Oppenheim: But when homeowners want to do a strategic default, the government starts threatening that they’re going to come after you for fraud. I mean it’s…for me, I find it just exceptionally frustrating. But having said that, we like to win little battles every single day. And what does that mean? That means that when homeowners come into us, we’re able to evaluate their situation. We can decide for them, what is their best bet. Is their best bet to stay and fight? That’s always a good option. Is it to move because their house is no longer safe? It has Chinese drywall, maybe it has mold, maybe the neighborhood’s not safe anymore, maybe the kids need to be in a better school, and we need to get out and do a short sale and move on.
Or, is there enough income in the household, or is there enough income among members of the household that we could possibly do a modification, and actually engage the bank in meaningful conversation. So most of these meaningful conversations don’t occur through a standard modification. They occur once they start to sue you for foreclosure and you move to dismiss the lawsuit, because of problems with their documentation. And there’s almost always problems with their documentation. And then within that context, if you do want to do a modification, you can do it through court-ordered mediation. Or, if you want to stay as long as possible and then use the bankruptcy law to protect yourself from a deficiency judgment, that’s an option too.
There are numerous, numerous options that you have, but the idea that you have to walk away because you can’t afford your mortgage, for me, is nonsense. Because the most important thing you can do is stand your ground, and stay in your home, and figure out what your options are. And the good folks that consolidated, of course, have other options dealing with consolidating your credit and sometimes being able to negotiate with your loans. That’s kind of a conciliatory process, and I have no objection to that.
My process is more in your face. It’s a little bit more like the way I grew up in the Bronx and how I had to make sure I didn’t get beaten up a lot, and how I had big brothers and big guys watching me, and I had to do their homework and stuff, you know.
But I survived, okay. I survived, and so, it’s those native survival instincts that I’m trying to impart upon all of you. And my clients who have stayed, sometimes get unbelievable short sale offers in the mail, where they’re told if they do cooperate with the bank, they’ll be paid 10, 20, 30, 40 thousand dollars to actually do a short sale, wipe away the deficiency. We have numerous, numerous situations like that. You go to my blog, you go to my Facebook, you can see all the times that that happened.
As many times as we get these lawsuits dismissed, and then the banks have to pay me attorney’s fees if they even wanna consider bringing the foreclosure again. We have some people in the audience here who understand that if you do have the case dismissed and the bank is unable to bring the lawsuit again, within a certain period of time, usually approximately five years, it is conceivable that you can end up owing your home, that happens in our case, maybe 15, 20% of the time. But we have clients that are going to end up owning their home and the bank’s not going to be able to come back at them.
Now, people don’t come to me specifically for that because if you go to a doc, and say “Doctor, what’s the likelihood I’m going to survive the surgery?” And he said, “Well, it’s about 10 or 15%,” you’re gonna head for the hills. So, we offer a holistic approach to addressing one’s concerns. But at the end of the day, you have to decide what you’re gonna do. If you’re gonna relocate to another state because there are more job opportunities, well guess what? You’re gonna do a short sale.
If you’re gonna stay in town and you wanna keep that house, you’re gonna probably have to do a modification or you’re gonna do a foreclosure defense and you’re going to try and fight as long as you can, and maybe you will be part of that 10 or 15%. Or maybe you’re gonna stay as long as possible and eventually do a short sale, and then rent for two years. It really all depends. I mean, I got people paying 2, 3% on loans right now because they’ve gotten these wonderful modifications and they wanna move, and I say “Well where you gonna move. Your rents probably gonna be 25 or 3,000 bucks a month because you got a bunch of kids and a bunch of room, and you’re paying 2200 bucks right now. Now your house is underwater, but who cares because you can’t rent that house for 2200 bucks.” So I tell’em to stay, and we’ll do a foreclosure defense and you’ll stay as long as you possibly can. Maybe you’ll get lucky. Maybe I’ll get you the house for free at the end, who knows?
So, every situation is different. Now, there are probably 40 or 50 permutations, I mean there aren’t an endless number of permutations, but there are a lot of different permutations. We’re fortunate because we’ve been able to create a data…a datagram, where we have all these different points, these data points, and we kinda know where people now fit in. Once every few months we get someone with something brand new that doesn’t fit into any two points, but typically we’ve seen a lot of the data points.
Now, the thing that’s changing now is the economy, before when people were under water, now they’re not always under water anymore, and so that changes the dynamics again, where a modification may well be your best shot, because if you’re not that under water, it may not really make sense to lose the home. And then the other issue is taxes. We don’t know what’s gonna happen, not just with this fiscal cliff and with the election, but whether or not Congress is going to extend the right to waive loan forgiveness income for your primary residence.
Now that’s a…it’s an arcane idea that when someone lends you money and you don’t pay it back, that you’re gonna owe them the money in taxes, even if they’ve written it off, but it’s just simple to say that someone gave you money, you used the money, and you didn’t pay it back, and so that’s kind of…
Audience Member: Income to you.
Oppenheim: …income to you. The flip side of that though is you did lose money and you had a loss. The accounting problem is…and I’m not an accountant, I’m not gonna give advice on this, is how do you take your loss, the property loss that you had, and set it against the income gain? And again, I’m not an accountant, but it’s very tricky and they don’t always match up.
So one of the problems right now we’re having in the economy is that we don’t know if Congress is going to extend this loan forgiveness income, as a matter of law. My sense is, that it will happen. I think it’ll happen. There’s probably, on December 22nd, at midnight or 1:00 in the morning, as part of their typical kicking the can down the road and trying to deal with the problem later, but I may be wrong.
And so, that is also hanging over the economy. And people wanna know why the economy isn’t growing in 3, 4%, is because when you don’t have clarity…I don’t care if you’re a Democrat. I don’t care if you’re Republican…if you don’t have clarity if you don’t know what the rules of the road are for an economy, people hold back. They don’t invest. They don’t invest in new capital. They don’t invest in hiring. And people hold back because they don’t know what’s gonna happen. They don’t know if they should sell their house now. They don’t know if they should sell their house later. And so, these are the kinds of things that we deal with.