Have you or anyone you know ever had to deal with foreclosure? If you live in CA 2010, and if you stop and think about it, the answer is probably, “Yes.” If this is the case, then I have some info you need to know. According to ForeclosureRadar.com, within the county of Los Angeles alone, there were 3026 foreclosures in 09. These weren’t your ordinary “I’m sick of hearing about them on every front page” variety foreclosures. No sir. These were special. This unique group of foreclosures represents the worst variety of foreclosure known to man. These 3026 foreclosures were properties that went back to the bank while the owner still had at least 30% equity in the property.
What does this mean? In plain English the people in this group lost between $50,000-$250,000 each when the bank foreclosed. I don’t mean they lost this money on paper. This isn’t money lost because the house dropped in value. I mean that had they simply sold their homes before the bank foreclosed, they could have walked away with between $50,000 and $250,000 hard, cold cash in their pockets.
“Huh,” you say?
Why in the world wouldn’t a homeowner with so much to lose simply sell their home when it looked like there was even a remote possibility that the bank might take it? Why, indeed.
There are 2 primary culprits that lead people into this situation. The first is a combination of good old fashioned ignorance, and fear. People in foreclosure are often in denial. They think the cavalry, the lottery, perhaps God Himself will make an eleventh hour entrance and save the day. I’m not exaggerating. When the reality of the situation is too difficult to face, people often act in illogical ways. People of normally sound judgment, act very differently when their home is on the line.
The second, and in my opinion the worse by far, is that homeowners are lead to believe that they have a fighting chance of keeping their homes, when in fact they don’t. The average homeowner would prefer to stay in his home, and is busy chasing after a modification. The truth though, is that he probably won’t get one – not if the stats have anything to do with it. The number of homeowners that actually end up getting their loans modified to the point where they can realistically stay in their homes for the long term, is abysmally small. Yet banks, politicians, attorneys, and even Oprah would have you believe that you have a fighting chance.
I’m not saying that you can’t get your loan adequately modified. People do every day. The problem is that those people are in a very small minority. Those are the 3 ex fat people on the “Lose 100 lbs in 2 Weeks” infomercial, with microscopic writing underneath saying that “results may vary.” You can’t bet on a long shot when you have a lot to lose should that bet fall through.
And by the way, the bank has far less incentive to cooperate with you when you have equity in your home. If it gets sold, they get all their money. They are more likely to negotiate when you’re upside down passed your ears, and haven’t even thought about making a payment for a while. If they foreclose on someone who is upside down, they are going to lose money. But for the guy with equity, they are going to make money when they sell your home at auction.
Is it any surprise then, when the bank says, “Yes Mr. Homeowner, we will give you a trial modification to see how it goes. They then proceed to collect payments for 3-6 months, and suddenly conclude that you actually didn’t qualify for a modification, and furthermore inform you that they will be foreclosing in 2-3 weeks time.
When all is said and done, the case for selling is a strong one, particularly when you have equity. And if you you really can’t bring yourself to sell, then I’d put my money on the cavalry, the Lottery, or Oprah before I put my money on the banks to come through for me. The results are about the same, and they’re a lot nicer to deal with.
