Amazing Story - BOA Forgets to Foreclose on a $300,000 Loan for 3 Years

By
Real Estate Agent with Keller Williams Realty Louisville East (502) 664-7827

This is a true story. The greatest fiction writer could not make this up. We will call the homeowner “Sally” for illustration purposes.

History

  • Sally files Chapter 7 bankruptcy.
  • Sally includes her $300,000 loan in the bankruptcy and moves out of her Louisville Highlands home.
  • Sally never makes another payment.
  • Loan officer tells Sally she can get a new loan 3 years after bankruptcy.
  • Sally waits 3 years and applies for a loan.
  • Loan officer tells her she doesn’t qualify because she still owns her house with a $300,000 balance. She still owns it after all these years.

What the Bankruptcy Attorney Didn't Tell Her

  • Sally is confused and calls me.
  • I look up her house on public records and, Yup!, it’s still in her name.
  • Sally says it can’t be, because she filed bankruptcy.
  • I tell Sally that bankruptcy doesn’t convey ownership of the house. She has to (a) sell it, or (b) convey a deed-in-lieu of foreclosure, or (c) the bank has to foreclose on it.
  • Sally says her bankruptcy attorney didn’t tell her that, therefore it can’t be.

What Bank Of America Didn't Do!

  • Sally comes to my office.
  • Surprise! Her lender is Bank of America.
  • We call Bank of America.
  • Bank of America customer service lady looks up Sally’s loan.
  • Customer Service lady says: “I see your last payment was made 3.5 years ago, you now owe $84,000 in back payments. Are you planning to pay this today?”
  • Sally manages some niceties and we politely hang up.

The Sad Result

  • Sally asks me how this can happen, and “Why didn’t anyone explain this to me 3 years ago?”
  • I welcome her to the insanity and the inanity of the preforeclosure world.
  • Sally calls her loan officer who says she may now have to wait another 3 years after foreclosure or deed-in-lieu to qualify for a loan.
  • We visited the property. It had been broken into and vandalized. Sits vacant and deterioating. The BOA field services tracking sheet is periodically updated.
  • Sally then tells me what I’ve heard many times before: Dave, I wish I had met you 3 years ago. I would have done things differently."

Lessons:

Even if filing bankruptcy, sellers with underwater mortgages should also consult a short sale Realtor. It may save you from foreclosure and bankruptcy.

Posted by

 

 

Dave Halpern, Realtor

The Dave Halpern Real Estate Group

Keller Williams Realty Louisville East

Website David.DavidHalpernRealtor.com

(502) 664-7827

 

 

View Dave Halpern's profile on LinkedIndave_halpern twitterhalperndave_facebookDave Halpern QR CodeLouisville Foreclosure Realtors Dave Halpern

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Rainmaker
560,247
Ken's Home Team LLC. | 360.609.0226 | Portland, OR & Vancouver, WA Real Estate Team
Ken's Home Team LLC. - Vancouver, WA
- SOLD IS OUR FAVORITE 4 LETTER WORD -

This is also an issue with the Bankrupcy Trustee, when doing a bk the bk trustee (an attorney) takes posession of the home and sells the home.  Typically, the seller does not do this while the bk is in progress That is how it is here in WA

Nov 07, 2010 04:29 AM #1
Rainmaker
184,234
Wanda Thomas
Montana Homestead Brokers, Broker, CRS, GRI, SFR, RN - Billings, MT
Billings Montana Real Estate

wow, this is amazing!  Does the attorney owe the client some responsibility here?

Nov 07, 2010 04:34 AM #2
Rainmaker
526,160
Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

Ken,

I'm not a lawyer so this is just my perspective from my observations: If there is no equity in the house, the trustee abandons interest in the house. The foreclosing lender can get the court to lift the automatic stay and release the house from the BK so the lender can continue with the foreclosure. Or. the lender can wait until the BK is over and then complete the foreclosure.

All AR members and readers are welcome to add their perspective here.

Nov 07, 2010 05:10 AM #3
Rainmaker
526,160
Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

Wanda,

BK attorneys tend to limit their scope to bankruptcy issues and tell their clients that they are on their own with non-BK issues. The conversation goes roughly as follows:

Foreclosure issues? Consult your real estate attorney.

Taxation issues? Consult your CPA.

Divorce issues? Consult your divorce attorney.

Estate planning issues? Consult your estate planning attorney.

Also, the BK attorney may have told the owner what the process is, and the owner may not have understood or remembered. Just like in any profession, a consummate professional will do what they can to ensure their client's success. Not everyone subscribes to that approach.

 

 

Nov 07, 2010 05:24 AM #4
Rainmaker
412,900
Carla Harbert
www.LorainCountyHomeSales.com - Avon, OH
RE/MAX Omega: Lorain-Medina County Area

This is true, I had a deal like this on a home in Amherst this summer. The homeowner had filed bankruptcy almost 4 years ago, which included the house. The bankruptcy trustee never went forward in taking any actions - and either did Wells Fargo. The homeowner continued to live in the home and never re-confirmed on the mortgage, but never signed over the title either. They were just waiting for the bank or sheriff to tell them to get out, which never happened until this year. And they can't buy until this home goes through foreclosure, sells, sale is recorded, then wait 3 years from that date. Crazy. How can banks forget and do nothing for such a long time?

Nov 07, 2010 07:54 AM #5
Rainmaker
526,160
Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

Carla,

I am amazed that you and I encountered an almost identical situation. Therefore we can infer that this happens hundreds, or thousands of times.

Banks can nitpick and deny short sales over small fees, $1,000 settlement disputes to junior lienholders, and other biridgable items, then turn around and incur the losses of a 3 year foreclosure cycle.

Nov 07, 2010 08:18 AM #6
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Rainmaker
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Dave Halpern

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