Experienced Legal Advocacy

Mortgage Settlements in Lieu of Foreclosure

| Apr 1, 2021 | Foreclosure |

The housing market is on a tear in the Midwest and Southeast. Multiple stimulus bills from Congress, the federal reserve holding interest rates down and the move away from big cities to smaller metro areas with less closed economies, have all contributed to the influx of dollars chasing the limited supply of homes in places like Indianapolis, Louisville and Nashville, TN.

In an utter reversal of the Dust Bowl era and the plot of Steinbeck’s great novel, The Grapes of Wrath, families have departed California for the now “greener pastures” of Oklahoma and its neighbors, most particularly Texas.

As housing prices skyrocket in the home destination pockets of the 2020s, many new challenges come along with the great boom: property taxes track the appreciation in property values, services on everything title work and mortgages to moving and remodeling are lined up for weeks and months before providers can get to their clients and existing homeowners in high flying markets are faced with a dilemma – sell while the market is so hot, or stay put and hope a crash doesn’t arise on the heels of this moment of acceleration.

There’s one less widely recognized issue, however, facing literally hundreds of thousands of homeowners, who have survived the last great dip in home prices that befell the nation in 2008 and 2009 – dealing with a mortgage that may be months or perhaps years, many, many years in default, as they contemplate selling the home they’ve continued to occupy, even though there was a time when they could neither pay the mortgage nor the sell the property itself.

Take the following example: in 2008, a couple in their late 50s was hit with a perfect financial storm. They were happily living life in their $350,000 suburban home, paying down mortgage principal of roughly $250,000, and jointly earning well over $100,000 per year. Following the collapse of Lehman Brothers in September, and the ensuing market upheaval, the husband was let go from the mid-level executive job he had held for the past 20 years. The job market was dead and there were no good prospects in front of this aging white male. Soon thereafter, his wife was diagnosed with an autoimmune illness that forced her too to leave the workforce.

Of course, they were unable to sustain their mortgage payments. Yet as the responsible adults they were, they went to their lender and asked for some terms they could work with. After falling ninety days behind in their payments, the lender began offering them a series of opportunities to be considered for a modification on the loan, all of which were met with delays, requests for additional information and a process of continually kicking this can down the road to the next application.

After some time would pass, the loan would be transferred to a new lender who would start the same process over again. After nearly two years of going through all of this, the lender of the day finally filed for foreclosure.  While the wife’s health prospects improved, the job prospects for either or both spouses did not. They did not even feel they had the financial resources to hire an attorney.

The lender pressed forward with foreclosure, obtained judgment and scheduled a sheriff’s sale. With no where to go if they lost their house, the couple finally pulled enough of their nickels and dimes together to hire an attorney to help them out. In their choice of a lawyer to work with them, good fortune was on their side. The attorney was savvy enough to find errors in due process in the failure of the bank to follow appropriate procedures in filing the foreclosure and got the judgment set aside.

Next, he requested the lender to produce the original promissory note. But that was not possible. The lender was not in possession of the note, which under Indiana law, is a serious problem for a debtor seeking to enforce a debt on a note. At that point, the proceedings stopped in their tracks. After a few more months passed, the bank actually dismissed the foreclosure case, without prejudice, so they could come back later and re-file if they chose to, but at the moment this left the couple in possession of their home without the risk of it being sold out from under them.

All went quiet. Not for months, but for years. Eventually, the couple decided the house was too big for their needs and they wanted to relocate to a warmer climate. So it was time to put it on the market. They contacted a realtor to get a broker’s opinion of the value of the home and, to their great joy, learned it was worth as much as $750,000! With a $250,000 mortgage outstanding, even with years of interest and penalties, they were confident they could make more than enough to sell the house and buy a little condo near the beach the Carolinas, near where their grandchildren lived.

But there was a little gum in the works. They contacted the latest in the long line of mortgage servicers and were advised that the balance due on the mortgage was $750,000. What a coincidence. No sooner did they hang up the phone then they started asking themselves on a $250,000 loan with a 4.8% interest rate ($12,000) per year, how could they possibly owe $750,000? Even though nearly ten years had passed, and with compounding, the total amount of accumulated interest could not have exceeded $200,000 during the duration of the default. Yet the bank audaciously claimed the owners owed them $750,000 before they could take a dime from the house.

In anger and frustration, they called their attorney once again to determine what their options would be.

So what should they do? More homeowners are faced with a situation at least remotely like this than you can imagine. You fall behind on a mortgage. The bank fails to properly pursue foreclosure, and hence there is no foreclosure. Years later, overall economic prosperity has caused the value of the house to rise to a point where the owner can account for a great deal of equity in their home. The bank, however, is as or more aware of these conditions than the owners. Somehow, magically, they assert a balance due on a loan that is approximately equal to the current value of the property, assuring that even with great market conditions, the owners will not be able to walk away with any money in their pockets. Or so they think?

Most states have procedures for a debtor, any debtor to ask of and have a court enter a declaratory judgment that clarifies and states exactly what the amount of the outstanding debt actually is – in clear legal, settled and incontestable terms.

But even if this remedy isn’t available, debt settlement options are available in other ways and just because you’re dealing with a mortgage, that does not mean you can’t settle the debt for an amount less than what the creditor claims it is owed. With second mortgages and home equity lines, in fact, it happens all the time.

Landmark Advisors and Andrew Thompson have many years of experience helping homeowners with mortgage related issues, and businesses and individuals with loan workouts and other debt settlements. We would love to advise you of your options and help you with the best means of settling debts for your benefit. Please call us today at 317-600-1665 or use the contact form on this website to get in touch today!