The couple – let’s call them the Smiths – considered their house in a nice area of Branford their dream home. They purchased it for around $700,000. They had long-term employment and good credit. In short, they did everything right.
Then she got sick and had to stop working. He continued to work and they avoided maxing out their credit cards, but the value of their house spiraled down during the recession. Along with their lives.
Mary Johnson Photo
Brad Whiteman, (pictured) associate broker at Coldwell Banker Residential Brokerage, says there has to be a team effort in helping people through tough times like this. “If you take a poll now, many people have second jobs and they’re struggling. They’ve maxed out their credit cards.”
And the somewhat optimistic government figures don’t always tell the truth about the state of the economy. He predicts that we’re in for a difficult year in terms of the economy and real estate.
Just this week, RealtyTrac reported that 24 percent of the homes in the U.S. sold in the last quarter of 2011 were either bank-owned or going through foreclosure.
“The global economy and the financial picture have a major impact on what’s going on in real estate,” Whiteman says. “Any bedroom community is facing more foreclosures and short sales than they ever have.” A short sale is a transaction in which the seller’s mortgage lender agrees to accept a sales price that is less than the balance due on the loan.
The Foreclosure Process in Connecticut
The foreclosure process begins when a borrower/owner defaults on loan payments and the lender files a public default notice (Notice of Default or Lis Pendens).
The process can end in one of four ways: the borrower/owner can reinstate the loan by paying off the default amount during a grace period determined by state law (pre-foreclosure); the borrower/owner can sell the property to a third party during the pre-foreclosure period to pay off the loan and avoid having a foreclosure on his or her credit history; a third party can buy the property at a public auction at the end of the pre-foreclosure period; the lender can take ownership of the property, usually with the intent to re-sell it on the open market in an attempt to recover the unpaid loan amount.
Connecticut law requires a 60-day demand letter be sent prior to the filing of the foreclosure action. The foreclosure process begins after that and takes three to four months to complete.
Because Connecticut is a judicial foreclosure state, a civil action must be filed with the Superior Court, The lender will file a motion for a judgment of foreclosure and the judge will grant either a strict foreclosure or a foreclosure by sale.
In a strict foreclosure, no auction is held and if the court determines there is no equity in the property, the court assigns “law days” to allow interested parties to redeem the property. If the property is not redeemed, the title of the property goes to the lender free and clear; the lender then has 30 days to record a certificate of foreclosure.
If there is equity in the property, the court will order a foreclosure by sale, determining the time and manner and assigning a committee attorney to handle proceedings. The borrower can stop the proceedings any time before the sale by paying the balance due on the mortgage; otherwise the sale will go forward. The sale must then be approved by the court so the title can be transferred to the successful bidder.
According to Whiteman, the decision to foreclose on a home is not always made by the bank, but rather by its investors. And that applies even to small local banks that never received TARP (Troubled Asset Relief Program) funds to bail them out and thus, don’t play by the fed’s rules.
In the Smiths’ case, they were able to enroll in a six-month trial loan modification program. They complied with the program and faithfully made the payments.
But then they were served court papers. Whiteman explained that the operative word in their loan modification was “trial.” He said that banks get paid to put people into loan modifications, but they’re not necessarily accepted permanently, often for reasons unknown to the homeowner. The Smiths were stunned.
Mortgage Mayhem
Regarding mortgage modifications, the hoops homeowners have to jump through and the lack of cooperation on the part of the banks have become the stuff of legends.
Such was the case with the Smiths. They put their house on the market, listed at around $600,000, but the fair market value was closer to $450,000.
Whiteman’s group of real estate agents stepped in, getting the couple to (1) drop the price of the house, and (2) get an offer. They helped the couple develop Plan B.
This is where – to paraphrase Hillary Rodham Clinton’s much-used adage – it takes a village to save a family.
Whiteman is part of a new effort among real estate agents to address the social and economic issues concerning foreclosure, as well as assisting people whose houses are “under water” (they owe more than the house is worth in today’s market) and are facing short sales.
From a social perspective, he says that people are unwilling to talk about what’s happening to them, as a result, the system for providing support – emotional and economic – stays unhealthy: “Don’t think. Don’t talk. Don’t feel.”
Whiteman adds, “People are just starting to ask for help. They have to be vocal and admit there’s a problem.”
In Branford, it can be seen in organizations such as the Branford Counseling Center, Community Dining Food and the Food Bank where people who once donated are now seeking their services.
Likewise, he says, “Realtors have to start speaking up and be part of the solution and advocate for homeowners. They have to be a fiduciary representative for homeowners.”
Whiteman described the old dynamic as “singular” and now they must look to a “we” approach. “Agents have to take a different approach. They can’t fix the ‘program,’” he says.
“Plan B” involves educating the community, “These people lost their home, but they need a place to live,” says Whiteman. “The rub is that their credit is shot.”
He says there has to be a communications protocol among the attorney, listing agent and homeowner, who has to be available to answer questions and produce bank statements. In addition, banks have to work with their clients to fix the communications gap and rebuild trust.
“Banks have become politicized. There’s a lot of lip service but not a lot of results,” Whiteman says. “More inclusive interaction is needed, and we can’t wait. We need to fix this as we go.”
He adds that there are a lot of well-intended people who work for the banks, but they are hampered by “rules and regulations.”
Plan B was successful for the Smiths. They were proactive and worked well with their listing agent. Their house eventually sold for $420,000 and they found a condominium in North Branford that was perfect for them.
Some programs are offering help to homeowners. Home Affordable Foreclosure Alternatives (HAFA) offers incentives in connection with a short sale of deed in lieu of foreclosure on a loan eligible for modification under the Home Affordable Modification Program (HAMP).
Geared toward South Central Connecticut is the ROOF project (Real Options Overcoming Foreclosure), which offers informational clinics on preventing foreclosure. Whiteman said that programs like this, originally designed for urban areas, are now being offered in the suburbs.
Cash for Keys is another program that can help homeowners facing foreclosure. In lieu of eviction and in return for funds toward security deposit and rent at a new apartment, they agree to turn over the keys to their house, which must be clean and not damaged.
The compassion and insight shown by real estate agents such as Whiteman is a major step toward helping local homeowners weather the long-lasting effects of these tough economic times.
Next week: Part II.
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