This is a guest post written by a client, Mike Munter.
In 2010, I wasn’t working and hadn’t worked for the previous 3 years. You could call it a mid-life crisis. After 20 years working long hours in IT, minor league baseball and finally at the Rose Garden Arena here in Portland, I had no idea what I was going to do next.
Luckily, I saved and invested wisely, so I was able to support myself during this time. But by 2010, the money was running out and I was determined to not touch my 401k.
So, I stopped paying mortgages on two properties I own. One was a rental unit, a condo overlooking the city. The mortgage payment was around $900 per month. The other unit was my primary residence where I had a first at about $1300/month and a second at $300/month.
After about 3 months of being hassled by the banks with threats of foreclosure and tumbling credit rating hanging over my head, I was introduced to Kate Brooke. In an hour consultation, Kate explained Oregon real estate law to me.
Judicial vs. Non-Judicial Foreclosure in Oregon
She told me that foreclosure is a legal process that forecloses an owner’s interest in real property. There are two types of foreclosure, judicial and non-judicial. In both cases, Oregon protects most homeowners from having to pay the unpaid remainder of the debt after the foreclosure has taken place (and the property has been sold to a new owner).
This protection stems from anti-deficiency statutes — laws that prohibit foreclosing lenders from collecting the unpaid balances referenced above. If there is another secured lender, such as a second mortgage or home equity line, for example, that lender may be allowed to try to collect its deficiency, athough there are some circumstances where neither lender may pursue its deficiency. However, in those cases where lenders could pursue me for the unpaid balance, Kate advised me that she’d heard stories about banks settling for 10-25% of the mortgage value.
Settling The Investment Property
My rental property was in a 5-year adjustable rate mortgage and while that plan looked attractive at the time, I was hoping to get it into a 30 year fixed for the stability.
Flagstar Bank was the lender on my investment property and after around 6 months of missed payments, I was able to get a loan modification. They offered me a 30-year fixed at a ridiculously low rate of 3%. They rolled all of the missed payments into the new loan, giving me the relief I needed. My new payment of $954 started in February 2011 and is fixed until the loan is paid off. Done deal.
Settling My Primary Residence First Mortgage
My primary residence was also in a 5-year ARM and I had purchased the house with 0% down for 240,000. The loan on the first was about 183,000 and the second was 57,000.
My primary was much more difficult. I actually had to stare down foreclosure – I received the letter saying my house was scheduled for foreclosure (120 days out just as Kate had predicted). I considered letting the house go since I hadn’t put any money down and the house was worth less than what I paid for it. After months of consideration, I decided to figure out a way to stay.
In talking with the bank, one of the problems was I wasn’t showing any income from the new business I had started. And here’s where it gets a little squirrely, but I did what I had to do.
My girlfriend paid me $3,000/month for my marketing services for 3 consecutive months, to show the bank I had income coming in. Of course, my girlfriend was just loaning me the money.
After 2+ years of going back and forth with the bank – submitting hundreds of pages of “hardship package” documentation and enduring one nasty collection call after another, the bank (Suntrust) finally offered me a loan modification
The end result was that I was able to get a loan modification on my 1st mortgage on my primary residence at 4.25% over 30 years fixed, beginning in 2013. Terrific, I got to stay in my house.
Setting My Primary Residence Second Mortgage
Setting the second mortgage was pretty entertaining, looking back on it now. Remember, I owed about $59,000 at this time – with late fees and penalties added in.
Taking Kate’s advice that some banks were settling loans for as little as 10%, I decided to try settling to see what would happen. When I told the collection agency I was interested in settling, they said they were authorized to settle the loan for $36,000. I said, “Thanks, but I don’t have $36,000.”
They put me on hold for about 30 seconds and I’ll never forget what the negotiator said when she came back on the phone. “Mr. Munter, I am authorized to settle this loan for $29,000 right now.”
Whoa, they came down pretty fast! Of course, I didn’t have $29,000, either. They asked me what I could afford to settle for. I said, “Five thousand dollars.” They said they would take it to the bank, but doubted anything would happen with an offer that low.
So, I waited until they called again. I asked them what the bank said and they said they never took my $5,000 offer to the bank; it was too low. I told them I wasn’t going to bid against myself and the call ended.
This masquerade continued for a couple months until I finally got a call from a different loan officer who mentioned they could probably settle for $20,000. Again, I reiterated I didn’t have that kind of money and that my offer was $5,000. I was told they would not present that offer to the bank and that was the end of it.
After a while, the calls stopped coming. By 2014, my financial position changed for the better. I wanted to fix my credit rating, so I called the bank to settle. I found out that the bank had basically written off the second loan. Not to say it still wasn’t owed or that some collection agency might come looking for it later, but for now, Suntrust had taken the loan off their books.
As I saw it, I could either let it go – in which case the loan would always be hanging over my head and affecting my credit score, or I could try to wrap it up. I offered the bank $10,000 and they accepted it on the spot.
Of course, the worst part is I now have to pay taxes on the $49,000 that was forgiven – it is treated like income. So, that will wind up costing me another $12,000 or so. But in the end, the loan is now settled, providing me with instant equity in my house and my credit rating will soon be restored, allowing me to actually get approved for the things I’d always taken for granted prior to 2010 – like credit cards.
Here are the final stats:
Rental property $893 monthly payment (ARM at 4.75%) modified into a $954 monthly payment (30 year fixed at 3%).
Primary residence 1st mortgage $1,300 payment (ARM at 5%) modified into a $1,350 monthly payment (30 year fixed at 4.25%).
Primary residence 2nd mortgage of $59,000 settled for about $22,000 ($10,000 settlement + $12,000 income taxes).
Equity: The primary residence I purchased for $240,000, I now owe less than $180,000. Overnight, I now have equity, plus, a monthly payment of $1,350, compared to the $1,600 combined payment I’d been saddled with for putting zero money down.
To me, this is an excellent outcome and a huge return on my initial $200 investment with Kate. When I had follow-up questions along the way, Kate answered them at no charge.
If you’re facing foreclosure or looking to understand what leverage you have in real estate, I’d recommend talking with Kate. She knows real estate law and is up to date on how banks are handling things. But what I really like about Kate is she’s tough and she’s got your back.