Are you sick of hearing about the foreclosure mess yet? If you are; you are not alone. For nearly three years now America's mortgage melt down has dominated the news and lead the economic recession (which for many more closely resembles a modern-day quasi-depression.) Some states have been hit harder than others such as Florida, Nevada and California. These have been at the forefront of Short Sales and Foreclosed Properties. In my market of Central Florida, primarily St. Cloud Florida, Kissimmee, and south Orlando they are everywhere.
Investors in Kissimmee, and St. Cloud Florida, who bought during the historic building boom of 2005-2007 while prices were spiraling skyward, seemingly with no limit to the ridiculous prices a buyer would pay were fueled by nightly news reports that a "housing shortage" was pumping up the prices. Buyers seemed to feed upon available inventory like sharks feasting on flesh in blood tainted water, scooping up chunks of whatever they could find-such was the condition of the Real market then.
It was predictable to mortgage brokers and bankers, who knew then, that the vast majority of "stated income" applicants would eventually default. Yet the temptation for responsible loan approval seem obscured and certainly thinly veiled under the presumption that they were making boat loads of money from origination fees. They would hardly admit then that borrowers would need lifeboats a mere 36 months later. But much like the Titanic, during its final moments, no boat would arrive in time to save sinking borrowers from a perilous demise.
In eulogy, they are painted now as forlorn and destitute, being cast onto the streets like common peasants, as the bankers received bailouts from the Fed, and Tarp money to ensure they would remain solvent...yet, one ponders, was it not the same lenders who back then would gladly accommodate 125% financing or even worse "creative financing"? Did they not tempt borrowers by dangling "interest only" loans for twenty-four months on variable rate adjustable mortgages? Indeed it was.
Most of these borrowers had little to no knowledge or full understanding or comprehension that the seductive teaser rates, and improbably low payments were in fact a facade and lurking beneath the shadow of adjustable rate mortgages. Time eluded them. When the borrowers failed to refinancing their ticking time bomb loans prior to the end of the courtship, it blew up in their faces and ill prepared, the loans re-set at double and in some cases, triple what they were previously paying.
Real Estate Market imploded and that blast was heard around the world.
Which brings us to the present, the never-ending tidal wave of massive historic foreclosures, predicted long ago by industry, are here now, in full force and with seemly unrelenting perseverance. The third law of physics (according to Newton) applies equally to the economy and just as prices had risen through the stratosphere, they would, in due course and time, sink to the depths of despair. The glee and cavalier attitudes of days past, are now only a faded distant memory. They have been replaced with stern consumer concern over an economy and country hobbled by debt. Nearly crushing the American system of banking as millions upon millions of home owners defaulted on Trillions of dollars of debt.
Rising costs compounded with crippling job losses in St. Cloud Florida and throughout the country, paralyzed the Real Estate Industry. Anyone who purchased a home during the boom years, had in fact, no hopes of recovering the equity they had financed or lost, as a result of the earthquake- like catastrophic shift to the crust of the Housing Market.
The advent of the now ever popular "Short Sale", (asking the lender to accept less than is owed on a property) seemed to be one way Real Estate Professionals could attempt to stave off the inevitable for some of these most unfortunate borrowers. But their circumstances need to be dire and determination of such stated hardships is subjective at best, and subject to the scrutiny by the same lenders (they are now indebted to) and the same ones who considered their life story of little consequence, at the time the loan was originally approved on property the lender knew was hyper inflated and overpriced.
In the beginning of the Global Warming Effect of financing prior to the meltdown, the lenders were less than eager to negotiate losses with desperate borrowers, who came more in drips than in waves. No, thoughts of loan lucre from the glory days past, in the present, lenders were reverting to threatening tactics and repayment demands, making outright refusals to bring the home loan payments within a range the borrower could now afford.
Despite the submission of two years tax returns, pay stubs, bank statements and a letter of bona -fide hardship attesting to life altering circumstances such as divorce, death, illness, or job loss which were required to support the borrowers reasons for defaulting on the loan compassion, empathy, nor mercy were
The beleaguered borrowers having nowhere to turn, would throw themselves down on the credit sword losing their homes and ruining their credit. Fearing a deficiency judgement could be ordered upon them for the difference in what they borrowed and what the property would yield in sale now, in the aftermath of the mortgage meltdown. What they needed was debt forgiveness. Bank Of America, after being pressured by Washington, irate consumers, and Transaction participants has finally launched a plan which includes limited forms of debt forgiveness. Unfortunately, under its' current form a minimum of a solid five year payment history would be required to qualify. Simple math indicates that omits the purchasers of 2006-2007. There are other conditions as well. The home must have a value at least twenty percent (20%) higher than the note. In the wake of HVCC appraisals- that is an interesting shield to hide behind. Appraisals which were once quite generous, are now regulated under close scrutiny and as a result out of area "experts" selected by lenders are assigned work. It would appear the lenders control that aspect now as well. So if the appraisal is too low-you are disqualified.
Real Estate professionals were struggling equally hard in this parallel universe of upside home owners, absence of traditional sales and banks dictating policy for the massive inventories they had accumulated. They too would be doing twice the work for a lot less compensation. They typically face multiple requests for submission of documents, all of which, when provided, seem to fail to reach their final destination for consideration in the bureaucratic maze of the loss mitigation departments. The loss mitigation departments are more like fortresses of mile high, faceless, manilla folders in a kingdom of sound proof heartless cubicles; a purgatory to the workers, who are ill prepared to deal with the tireless demands of their superiors, real estate agents, defaulted sellers, calling daily and all anxiously awaiting a decision, which they alone can not make. It is absolute departmental chaos. Days turn into weeks, weeks into a month and months lingering in perpetuity, under a lack of determination guidelines. Buyers discouraged in droves, wore weary if waiting, moved on to properties which possessed far fewer obstacles to close, those which had already faced their final fate...the foreclosures. We now know how to get faster answers.
As the numbers of defaulting borrowers increased exponentially, lenders and the investors who had subsequently serviced the toxic loans, realized that failing to negotiate a short sale in most cases resulted in higher expenses by way of attorney fees to file the notices of foreclosure, and, having accomplished that task, and regained the property, realized even lower settlements and sale prices. Time was in fact, not on their side. As it had become, the paramour or mistress of declining values. Values which continued to drive the housing market into what was, by comparison, to the monumental unrealistic highs ... an abyss.
Months of unanswered requests for merciful release for the borrowers, frustrated buyers who eventually felt their attempts to purchase a short sale were futile, in the end would yield a less favorable price, when the gavel inevitably dropped at the steps of the courthouse. The rope in the tug of war had become Real Estate Owned property, in an inventory of millions which languished. The "investors" who were, less than eager to negotiate prior to the property falling back into bank receivership, pondered their options after the fact. Entire communities fell as borrowers bailed out in record numbers, further hindering the recovery that experts were hoping would soon take hold and stabilize the housing market. Walk away borrowers, and bankruptcies filed by borrowers seemed to be the only remaining options.
Auctions yielded little result, and lender and investors soon found themselves in the same precarious position as the borrowers they had foreclosed upon. An unforgiving public. No longer anxious to make even a minor offer on their damaged goods. Too many homes and no one to sell them to. Their losses actually compounded with time. Prices sunk to levels previously unimaginable.
A new wave of opportunity seekers slowly emerged, interested in partaking in the bounty of toxic debt properties, now priced below market value (which is only at best a snap shot of a current market price expectation.) Sales were resulting, as desperate Lender attempts to recover something, suddenly seemed a better alternative to having to continue to support a depreciating former asset.
Did the former property owners have their final revenge? In some cases, it would seem so. Upon vacating the properties under duress, they vandalized, plundered and pilfered, anything they could from the homes they were being forced to vacate. Damage to some of these properties was so significant, that a potential buyer learned it would no longer qualify for some forms of financing. Entire kitchens including the cabinetry, air conditioning, heating systems, doors, appliances, fixtures, wall boards, flooring and fans, all met an unknown demise but were obviously absent.
Has the public succeeded in sounding a wake up call to loss mitigation departments nationwide? Will their voices echo in hallowed hallways as demand for faster than nearly half-year long waits reverberate to Washington?
The properties they hold are in some severe cases now uninhabitable, and as such, are un-sellable chattel, shackled with defects and deficiencies.
Home Owners Associations have recently been trumpeting about unpaid fees particularly on Real Estate Owned properties. They too are calling in their Calvary of attorneys to attack, place liens and indenture the lenders, who are now responsible for abandoned properties, in deteriorated dilapidated condition or worse, the unsuspecting new owners who are stepping up buying them at fifty percent or less of original value.
Troubled times indeed. It is true there are "deals" to be had, and conservative buyers who were prudent and frugal with their incomes are willing to step up if the price is low enough, and tax incentives high enough, to turn the ugly ducklings into discounted swans. But with raging unemployment, more are scared than are brave enough to move the housing market forward.
Renovation is making a come back. Albeit modest and mostly functional items of necessity. The lavish luxury consumers once demanded have become much more ordinary than extraordinary. Items in some of these distressed properties, included granite counter tops, and high-end fixtures which are silent reminders that the economy did once flourish.
Will we emerge from this foreclosure and distress sale abyss? Of course we will. Through the decades past, only a mere four score ago, we have learned one thing. Our economy and our housing market runs in cycles. From the days of Great Depression housing has endured. It will not happen overnight, but it will gradually rise again. Not in a manic spiral of insanity; but rather under careful control of the American consumer, who without realizing it completely, holds the keys to our recovery in their hands....ever so gently.
© Allison Stewart, St. Cloud Homes & Land, LLC-All rights reserved
Allison Stewart, Licensed Florida Real Estate Broker, Real Estate Writer St. Cloud in The News Like this article and want to read more? Subscribe to my Blog
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