Loan Modification, Auctions and the Angry American Homeowner
When I opened the drive report and saw the photo I couldn’t believe my eyes. A picture is indeed worth a thousand words. He sat there comfortably in a canvas chair talking on his cell phone. The guy was holding a sign that read I GUTTED HOME – CEMENT IN TOILET – AKA TRASHED.
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It was a typical December morning in Arizona. The sun was shining, 70 degrees and not a cloud in the sky. I had 9 houses that fit our buying criteria sent to me from our wholesaler. Each was scheduled to go to auction later that day. Our drivers were dispatched to go by each home on the list and provide us with exterior photos, interior photos if possible and list any special selling features (i.e. swimming pool, corner lot, cul-de-sac street, etc.)
This particular home was scheduled for sale at noon. The opening bid was $180,000 and the original mortgage balance was $373,800. It would later sell to a third party for $262,000.
Now I can’t say for certain that the guy with the sign was the homeowner. However, there was just one name on the tax report and he was the only person to ever hold title to this home. Public records had it listed as OWNER OCCUPIED RESIDENTIAL, built in 2005. I’m no detective but I’m pretty sure this angry gentleman with the sign was in fact the homeowner.
I'll probably never know why he was so angry. It could have been because his bank refused to accept a short sale offer on the house. But, I doubt it. The home had never been listed for sale on the multiple listing service. My hunch is that he was the victim of a loan modification gone bad. When the day of the auction came he decided to take his frustration out on the house and then advertise to the entire neighborhood.
The angry American homeowner strikes back.
Last month, we bought an REO from Bank of America. It was a beautiful basement home built by one of the most prestigious builders in the Phoenix area. Surprisingly, the former homeowner left all of the appliances behind, including the stainless steel refrigerator, as well as the light fixtures and interior blinds. How polite right? Except of course for the little water problem. Apparently someone left a faucet on in the laundry room sink, locked up the house and moved away. The basement was transformed into an indoor swimming pool.
Not every homeowner acts like this. Take Max R. for example. We bought his home at a trustee's sale in September. He spent months attempting to negotiate a loan modification with his lender. He failed. When I knocked on his door to inform him we had purchased his house at the auction Max agreed to move out in two weeks. He turned over the keys as promised and much to my surprise the home was clean. Not just clean, but cleaned. The carpets were vacuumed and the toilets were scrubbed. Yes, Max was angry. Luckily for us he didn't take it out on the home.
A headline from our local newspaper last week said it best, ‘Banks favor foreclosing over altering home loans’. Ladies and gentlemen, I have a news flash for you – the loan modification is a pipe dream sold by the news media and federal government. It’s pie in the sky. As a real estate investor I’m on the front lines and I see it every day.
When the loan modification falls through and the back forecloses the homeowner may move out peacefully. Or, they could go in to attack mode. If that is the case then nothing under the roof is safe.
Keep that in mind if you’re thinking of buying a house at the auction or from the bank. Do your due diligence. Pray for the best and plan for the worst. And if you come across a basement home you may want to bring a swimming suit.