This is the story of a house in Texas I own which is now being foreclosed
I purchased this property 5 years ago. At the time world savings was giving low doc loans to foreign nationals.
I purchased the property for $80,000 and took out a $65,000 mortgage at 7.8% interest only.It was supposed to be a cash flow positive deal.
The property was cursed with troubles right from the beginning. There were many repairs. Break and enters.
Two sets of feral tenants and two sets of incompetent agents which stole from me and allowed the property to be damaged.The house is a mid range area which is not really renowned for trouble, I was just unlucky.
The real trouble started a couple of years ago. when I had to evict the second set of feral tenants. The overpriced insurance policy I had taken out refused to cover the $3500 damage bill based on a loophole.
Out of frustration I cancelled the policy. After a couple of months I noticed that my mortgage payments had increased by $50per month.
I called the bank and they told me they were taking insurance on my behalf as it was against the rules not to have any.
I decided to just let them do it as $600 per year seemed ok and it was less trouble for me.After that things calmed down the house got a good tenant and all the troubles stopped.
Then out of nowhere my mortgage repayments increased $200 per month. I called the bank and was informed this time they had taken out A $2500 insurance policy in my name. A letter had been sent to the house but of course I dont live there.
I had previously contacted the bank 3 times to give my Australian address each time to call centre monkey told me thats done, but nothing ever happened. Finally I found out the following…
As world savings had been purchased by wells fargo it was not well fargos policy to…..
Send emails. Send Faxes. Call foreign phone numbers.So they made it impossible for me to have any contact details.
I raced out and took out Insurance with all state for $550 per year hoping to get a refund on the banks rip-off policy.
I told all state I live in Australia and here are my contact details. Instead they ignored me and sent a letter to house in the USA. When I did not respond instead of trying to email or phone me they just cancelled the policy.Upon finding out the bank took out an even more expensive insurance policy in my name and passed the costs on to me.
I didn’t find out for three months.By this time the repayments exceeded the available funds in my US account and I defaulted on the mortgage.
When I called to try and make some kind of arrangement there was no manager to speak to it was just all call centre monkeys and various departments that only did XYZ. I was told basically pay up in full or else I cant do anything sir my job is only XYZ.
This made me furious because I now owed them thousands in fees and charges that they invented.I finally got through to the hardship department. recently created by an obama law. I they spent three months faxing documents and writing letters begging for some fair arrangement to be made. They were endlessly baffled by my Australian tax return and even more confused by the fact that it was actually day time in Australia when it was night time in the US.
I got nowhere and the application was closed.
Now I have one month before my house is sold on the court house steps.
In order to pay up and make things go back to normal I would have to
pay $4000 in missed loan repayments.
pay $2800 in Invented fees.
pay $1500 in city taxes
pay $1200 for the remainder of the insurance policy they took out for me.I have $4000 cash in my USA account from all the rent payments building up there.
And to be fair I would have had to pay the $1500 city taxes anyway.So that leaves $4000 in totally invented fees they are trying to extort out of me like the marfia.
The house worth about $65-$70k and the mortage is $65000+the 8k I supposedly owe so theres no equity in it.
It has a good tenant and a slightly positive cash flow.I could
a) be forclosed. I get to keep the $4k in the bank and save another $4k on top of that.
b) Do a short sale. Im not even sure how to start with that but I only have a month.
c) Engage an annoying lawyer to slow the process down. Every month longer it takes I make $800.
d) Pay up and gamble something positive happen to the property in the future.Any suggestions.
Mark.
Stop the bleeding, if it can cash flow and keep it postive you have hope. These big banks are ruthless and would rather cut my hand off than do business with them. It's terrible
The Short sale would have to be bank approved and there greedy, so probably not going to happen. How much do you have invested so far? The tough neighborhoods are down right a challenge with the type of numbers you are saying you work with. Try complaining to the BBB. The 8k is at least something, good luck Mark"They were endlessly baffled by my Australian tax return and even more confused by the fact that it was actually day time in Australia when it was night time in the US."
Some Americans are really this stupid….they probably thought you were from Austria.
Mark,
contact me immediately. I will send you a PMI will add – I nearly got foreclosed on for exactly the same stupid reasons:) It is not pretty….
Don’t think I am a White Knight, but I finally have what some people might call powerful friends that may help. Its worth the ask… I DO know what you feel because I HAVE been there… The US worker does not think or care when you are in the position you are in. Unlike almost the entire world they seem to only think of themselves and what they have to do to get through the day. Solving your problems would not even enter their heads….
US Guys might think I am being hard but it is a harsh wake up call to anyone who hasn’t been schooled in US Capitalism.
BTW:
60% of my US mail takes 6-8 weeks to get to Australia – MINIMUM.It took me 10 years to work out why.
One day a letter arrived and it was clearly stamped ‘HAMBURG MAIL EXCHANGE’.
Finally it dawned on me that you have to assume that ALL mail from the US to Australia gets sent to Austria first. To do anything else will (as it did to me and as above) put you in foreclosure.
FYI guys in the US. The rest of the world’s postal systems work without UPS/FedEx etc because we have (so far) THINKING people who do not believe you get eaten by serpents and dragons if you step outside the lower 48….
AND….
NSW-CA mail – 4 days to deliver.
Ca – NSW mail – 56 days to deliver.Count on anything less and you WILL get caught….
dj_ajay wrote:"They were endlessly baffled by my Australian tax return and even more confused by the fact that it was actually day time in Australia when it was night time in the US."Some Americans are really this stupid….they probably thought you were from Austria.
I had an american, when told I was from australia, say, well from your accent that must be a southern state. Another said your english is good for a foreigner. Another said I have driven from oneside of your country to the other all the way from Melbourne to Sydney, very beautiful lush, green country.
I just re-read your post. My foreclosure issue in 07 was due to World Savings as well. I have written about it before to explain to LIL that US investing can be nasty.
I got my credit cleaned but it involved a lot of work by the broker that got the loan. My total disdain for US systems and their idiocy was entrenched from that day. I cannot believe the country actually mostly works with the recognised incompetence that involved what I went through. To see World Savings again in a similar context (my issue was when World purchased my mortgage holder) must mean sytemic failure with anything they do. And they are not alone, I have stopped the same thing happen wih other banks I deal with – because I am now deeply suspicious of the competence of any US financial institution.
Too All..
You can try to cast stones at the US and how stupid we are etc etc… Fact is Mark CANCELLED his insurance which is a cause for default on any US loan document.. The lender has the right to Place what is called FORCE PLACED insurance. At 4 times what regular insurance costs. I know as a hard money lender I have force placed insurance on many a borrower.
In addition mark got pissed because he bought a property in an area and or did not have the property team on the ground to preclude the damage that a bad tenant can and will do in a lower end rental.. then when he expects the Insurance company come to his rescue most likely he did not have the proper coverage for vandilism.. Been there done that.
Now on the flip side, I go through this every year with all of my rentals that have big bank loans… Invariably they will not get 1 or 2 of the proof of insurances or they f it up… I get the letter about the force placed insurance hand over to my insurance agent, he shows proof of insurance and I get a check back from lender.
Now this is not an issue with most of the off shore investors as they are paying cash…. My suggestion is if you get a loan, do not allow the insurance to be paid from your escrow account, Pay the insurance yourself and have your insurance agent provide proof annually,,
what the big banks do though is ( sell you on if you let us impound your insurance and property tax's the interest rate will be 1/2 point less) you agree to that and then you end up with these nightmares sometimes better to pay higher rate and pay tax's and insurance yourself.
In addition you lose track of your escrow accounts… I sold one of my personal residences a few years. then checking with state of oregon there were monies at the state that were in my name…. In further checking when my loan paid off… I had over 9k in my escrow account, the bank and postal service did not forward to me and the funds sat there for 5 years. At 7 years the funds would have Escheated to the state,,,fill out a few forms have them notorized and I got the 9k back, but it was a close call.
On whether to keep the property or walk,,,, Probably best to walk your just throwing good money after bad… it will allow another wholesaler to come in and snag it for 20 to 30k at foreclosure and start the process all over,,, its a never ending cycle here in the US.
Jay,
The thing that is so frustrating is that no one at all actually explains that – certainly not the bank, they usually don’t communicate anything – you are just expected to know. Simple things like an email, mail or a phone call and this would not happen. That type of thing is absolutely unheard of in Australia – why are you expected to ‘know’ and why can’t someone just pick up a phone, or an email. In my case World Savings posted my mortgage documents to Austria with an Australian Post Code. I mean Come on! There is a basic duty of care surely!I think it is a perfect example for Australians to hear about. I hope I will be able to help get a reasonable result – though I understand your ‘walk away’ comment regarding the cash, it is just so crazily unnecessary! Especially when everyone just accepts that the system is so far from perfect it isn’t funny but no one does anything about it!!
Well said lawsjs,
The bank has treated me in a horrible way. They have no representative like an account manager who I can make a deal with. Its like being foreclosed by an automated computer program its all call centre staff and nobody is responsible.
To think its not possible for the bank to send me a simple email saying hey we notice you’ve cancelled your insurance heres whats going to happen if you dont re-instate it is a joke.
I find a lot of americans scold and talk down to me on these kind of issues in a Judge Judy kind or fashion.
Everybody knows how annoying it is when a big phone company hides trap fees in the fine print of its contract and then blames you for being irresponsible and not reading the terms.
The general public need protection from large predatory companies.
In fact if I think back the cause of the problem can be traced to one ignorant member of there staff. When they first started to charge insurance on to my mortgage I called them and got the wrong explanation of what was going on. Had that women been articulate enough to tell me the full story I would have raced out and got a new policy right away.
Why cant I hold her responsible for causing me all this trouble.
Mark.
I didn’t mean ‘i’ above in ‘I expect’ I meant ‘we’ etc. Apologies. Having been through this type of thing I take it personally.
BTW property insurance on mortgaged freehold is not in any way required by Aus banks. Which is why it seems so strange to Aus resi’s. If it is compulsory, surely the bank would make some effort to ensure the owner had it..
The US banking and RE system is operating in the 1900’s. To expect differently is to take grave risks. You guys in the US just don’t even understand how much better it could be.
Jay – you grew up in Cupertino. Imagine for a second we have iPods in Australia. You (in the US) have 45’s. I can’t think of a better analogy…
BTW property insurance on mortgaged freehold is not in any way required by Aus banks
Hi Lawsj
Not the case with my dealings with at least 6 different financial institutions in Aus, they will actually tell you how much you need to insure the property before they sign off on the loan, also they require evidence from the insurance company, their name must be noted on the policy.
I have never been able to finalise any property deal in Aus unless this has occurred.
WI
http://www.wheredopuppiescomefrom.com.au/how-you-can-stop-puppy-mills/I have bought property in a few countries with mortgages and this has always been the case.
I bought a home in British Columbia and not only did I need insurance,,,, When I was in the states they needed a company checking on the house every week other wise insurance was cancelled..
Its was because of cold weather and broken pipes and flooding of the house.
JLH
I have not had insurance on a property with CBA, WBC and STG. In fact I have just bought a property this week and didn’t realise I hadn’t organised insurance on it until a mower I bought needed to be noted on the policy. Story got funny then, I simply rang up the broker to get the mower noted on another property in the same street (quicker than a new policy) which I assumed had been paid and hadn’t.. ooops:)
Much embarrassment, but proof positive the Aus banking system ‘yet’ requires policy. Second and third tier banks are more picky, but it is not a major issue with the guys I deal with.Obviously it is far better to have insurance than not, but in the US it is a hanging offence!
Best of luck to you, Mark – that sounds horrible. Can't imagine being forced to deal with this sort of crap, but tend to agree that if it's generating cash and requires no further repair or investments in tenant finding, try to keep it – surely the lawyer can stall, delay, postpone some of those payments at least, and reach an arrangement where the rent goes straight to cover those invented fees for a few months? Sounds like it'll be worth it to keep then, even if it ends up costing an extra month's rent in lawyers' fees or what…
"Starting over" is fine if you can afford it. Can your leftover $8-9K allow you to start again?Ziv Nakajima-Magen | Nippon Tradings International (NTI)
http://www.nippontradings.com
Email Me | Phone MeZiv Nakajima-Magen - Partner & Executive Manager, Asia-Pacific @ NTI - Japan Real-Estate Investment Property
lawsjs,
Not a hanging offense just a "Event of Default"
And if you actually read all the fine print in a US Deed of Trust and promissory note or Mortgage and or like in Georgia a Deed to Secure Debt…
there are many Events of Default… Heres a few I can list just from memory.
1. as with the topic at hand providing adequate insurance.. The reason for this is the lender wants their loan paid off if the house is wiped out by fire, tornado, etc etc… Now you do not need wind insurance or earthquake insurance. All you need is fire. Although from a practical point of view earthquake is probably smart in certain areas… Like CA.
2. Failure to make any agreed upon payment within the grace period of the Note.
3. Committing waste ( a lender can call a loan all due and payable if the owner is devaluing the security by creating their own personal pig stie,,, Although this is very very uncommon.
4. Failure to pay properties tax's…
5. Alienation of title… thats where the orginal owner or borrower who first got the loan sells the property subject too the exisiting debt. in this case the lender is entitled to and will call the loan due and payable.
6. Condemnation either voluntary or involuntary
7. Failure to make balloon payment,, Now in CA the lender must give you a written notice of said balloon payment 90 days prior to the payment being due… Failuire to do so and the Balloon payment can be pushed out until this 90 day notice is received.
8. Failure to keep adequate reserves in your escrow account,, again this is what happened to Mark.. When the insurance got cancelled and force placed insurance was put on the property there was not enough money in the escrow account to pay this and the additional is added to the payment and neither were paid, thats a default.
9. Failure to pay the new payment on an adjustable rate mortgage IE rate and payment go up but you keep making the original teaser payment… This is what happened in the sub prime melt down.. The borrowers who unfortuatly are not the sharpest tools in the US shed.. just sign up for a loan and really do not understand what a variable rate is. what 2 basis points over libour means.. they just sign the docs and away you go.
10. Insolvency either volentary or involuntary…
Now remember some investor bought the loan from the bank and expected a return on investment… they are not going to be very accomodating to investors who get in a flux because they claim the bank is screwing them over… Just the way it is.
And thats just off the top of my head before I go watch the Masters Golf tournement…
bottom line in the US lending world there is no defense to I did not know or they did not notify me… And foreclosures there has to be an attempt to contact the debtor and the default must be published in the legal publication of the county were the property is.
The banks have form letters and they are sent to what ever address you usually put on the loan app… Or the property its self… These loans are sold to servicing companies that are just robotic by nature… virtually no bank keeps there own loans on SFR type properties. World Savings was one of the last and was really a great bank and probably the largest Portfolio lender.
On last comment on subprime…. I bid yesterday on a bulk package of defaulted loans in my markets in Georgia…and the lowest interest rate I saw was 7.8 and the highest ws 12.3 and these were all owner occuppied loans… Now we have to buy the package as is and do the foreclosures ourselves. but my average purchase for these homes will be under 10k each.. In my markets and in the ares of Georgia I like and have been buildling my portfolio in. It will be hard work.. As some will go BK on me and I will have to deal through the court systems… Some I will give cash for keys.. and it will be easy… Some I will rewrite their note and be the New bank ( Love being the bank) others we will foreclose evict and will rehab rent and bring into our TWH model…
And maybe a few I will wholesale off to some of you folks and let you take a swing at them.
JLH
Jay, thanks forr taking the time – nice post.
You say 'whatever address was on the loan app'. Not true. Because foreign addresses do not fit in many US centric software 'boxes' you get the address in the system that the moron typing it in came up with – in my case frequently (and I mean frequently) an address that is absolutely guaranteed never to reach you. This is what got me off the hook credit wise – it involved Washington and took a year but I got it done. That type of error is inexcusable.
Even if the address actually is correct you then get USPS sending mail to Austria first.
Then you get switchboards that block long distance calls and -800 numbers that wont work outside the US. Ever tried to get in touch with a company WITHOUT using their listed 800 number?
I spent half a day applying for a 'trusted international traveller' INS pass to avoid the <moderator: delete language> queues at LAX (3 hours sometimes after a 15hour flight) I get to the end of the form and it turns out 'international' to the US Govt means Mexico and Canada only.
Sorry Jay but I have very skewed views of the idiocy built into the US because of this type of inexcusable backward nonsense. And it is inexcusable and almost impossible to explain to anyone in a 'normal' country because they simply cannot believe it is as bad as it is.
I am not anti US as such but I have long experience with it and parts of it are an international disgrace. It is embarrassing FOR the US. I dislike the nanny state that is Australia but at least if people are stuck with something stupid you will get someone who sees reason and fix it. The US is full of people that say 'how may I be of assistance' knowing full well they will never assist as long as they breathe.
I was stuck in an outgoing queue with a BA Captain in LA once. Some twit got upset about a mis interpreted instruction on a form (and the form was wrong, grammatically and instructionally) and all hell broke loose. Once these idiots realised the guy in uniform being paid to fly 400 passengers with 160,000kgs of jet fuel and full FBI clearance (unlike security) wasn't actually a major threat to the world the comment was perfect. 'Sir, what you patently fail to understand is that I am trying to leave this place as quickly and simply as possible – probably with 400 people who feel exactly the same way – unfortunately I have to be back next week, probably every few weeks after that for the next 15 yeras or so. After that, you have my word I will never of my own free will return'…
Enjoy the golf, try to avoid Tigers club:)
!! a) be forclosed. I get to keep the $4k in the bank and save another $4k on top of that.
b) Do a short sale. Im not even sure how to start with that but I only have a month.
c) Engage an annoying lawyer to slow the process down. Every month longer it takes I make $800.
d) Pay up and gamble something positive happen to the property in the future.Hi Mark
You have already thrown $15,000 at it when initially purchasing and currently no equity in the property…….. ouch
Its not clear how much money the property has cost you over the last 5 years but I assume it has made a loss each year?? What is the real loss over this period….. If you can keep the figures real it makes it alot easier to work out which way to go. Also, is this your only property in US?You state the property is in a mid-range area – does that mean it is a good/bad area??? I am assuming it is not a great area due to your experiences, or you have not made a good choice in terms of property management or both.
As far as US systems go, I am relatively new to this and I have been fortunate to date that when I have had issues, bank, insurance I have contacted my lawyer who has dealt with it direct, no additional fees, however I have provided ongoing business, so swings both ways. Still can be very frustrating for sure.
Looking forward to getting more info on this.
Cheers
WI
http://www.wheredopuppiescomefrom.com.au/australian-puppy-mills/I guess you got to let it go Mark.
The Short sale would have to be bank approved and there greedy, so probably not going to happen. How much do you have invested so far? The tough neighborhoods are down right a challenge with the type of numbers you are saying you work with. Try complaining to the BBB. The 8k is at least something, good luck Mark
Much embarrassment, but proof positive the Aus banking system ‘yet’ requires policy. Second and third tier banks are more picky, but it is not a major issue with the guys I deal with.
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