Getting the word out on foreclosures
Kalispell Realtor Paul Heidegger, at Keller Williams, has been selling homes in Northwest Montana for 20 years, but he says he never heard of “short sales” here until a client asked him “out of the blue” to set one up about five years ago.
By that time, he had been hearing “horror stories” about home sales around the U.S. “but didn’t pay attention as it wasn’t yet relevant in Northwest Montana.”
As the impacts of the recession on the real estate market here worsened, Heidegger took classes and seminars to learn as much as he could about short sales. He estimates he spent $40,000 in the past four years in travel and education costs to help his firm become experts in the field.
One thing that became apparent to him over the past four years was that the nation’s foreclosure system wasn’t working properly. A victim himself, Heidegger gets very emotional about how foreclosures hurt people.
“People are willing to talk to the public about their stories,” he said. “There’s no more shame. They’re angry about what happened to them.”
Homeowners in preforeclosure face four endgames — foreclosure or deed in lieu, similar outcomes that can wipe out a person’s credit rating for eight years, a loan modification with the bank, or a short sale, which hurts a credit rating for two years but provides homeowners with some money, including “cash for keys” relocation money.
About 5-8 percent of foreclosed homes end up being sold by auction on the courthouse steps, Heidegger says. The rest stay with the banks. Out of 250-some cases he’s familiar with, Heidegger says he knows of only seven who successfully got a loan modification. Another 10 got their loan modified, but their monthly payments went up.
“Many people bought homes when interest rates were relatively high,” Heidegger said. “All the banks need to do is reduce their interest rates a few points so people can keep their homes and get through the recession.”
Dozens of foreclosure notices appear in Flathead Valley newspapers every week, and as a Realtor, Heidegger is concerned about the long-term effects.
“We’ll end up with millions of people who won’t be able to buy homes for eight years, which will cause a chain reaction,” he said.
When a person’s home payments are “underwater” — when the mortgage is greater than what the house is worth — it often doesn’t make sense for people to modify their loans, Heidegger said. But people want to stay in the homes where they raised their families, which “creates an ethical dilemma” for Realtors, he said.
There’s a lot of confusion in the foreclosure system, Heidegger explained, as homeowners try to communicate with out-of-state banks that have bought and sold local mortgages. Paperwork gets lost, and a loan modification agreement might not be honored by a second bank that bought the homeowner’s mortgage.
It’s also not uncommon for a homeowner to never see the bank’s signature on a loan modification agreement. And advice from the banks’ “$10 an hour bureaucrats” can sometimes be shocking, Heidegger said. He recalled one man being told he had to “ruin” his credit rating.
“The bank told him the only way he could modify his loan was if he fell behind on payments,” Heidegger said. “Two years later, a man with a good credit rating was $40,000 in debt.”
Heidegger also said he knew of cases where the bank still went after homeowners following foreclosure to recoup the difference between the mortgage and the eventual sale price.
A short sale could be a quick fix, Heidegger say, and he thinks banks are relying on them “to clean up their mess.” To qualify for a short sale, a homeowner should be 3-4 months behind on payments, the mortgage generally must be “underwater,” and the homeowner needs to prove he can’t make the payments. They must also be ready to move on.
“People have emotional ties to their property,” said Gordy Lister, a Realtor at Keller Williams. “But home ownership is also a business decision. Sometimes people need to wipe it clean and start all over at a new location.”