Loan Modification, Auctions and the Angry American Homeowner

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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.

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. 

REOLast 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.

About Author

Marty (G+) is the Chief Financial Officer for Rising Sun Capital Group, LLC, a real estate investment firm based in Gilbert, AZ. His firm purchases homes at the courthouse steps and public REO auctions. They have two exit strategies, either fix and flip or seller financing.

17 Comments

  1. I have no sympathy for folks who decide to destroy their former home. Its very childish and in my opinion criminal. I wish that cities would lock a few of these dirtbag home owners up. I also think that neighbors should be able to go after them for lost property value.

    • Bilgefisher, what I find astounding is that this guy had the guts to sit out in front of his house and advertise what he had done. As I mentioned, we did not win the bid on this house. If we had won I would have certainly gone after him for the damages. There is no excuse for this kind of behavoir. Two wrongs do not make a right.

  2. We bought a house where the owned poured cement down the toilets, threw cooking grease on the walls from his pizza shop and stole every fixture he could. From what the neighbors told us, he hired 3 helpers who spend 2 days dismantling his house.

    People can be crazy.

  3. I don’t believe is right to vandalize homes regardless of the circumstances. Nevertheless, the giant Banks like “Bank of America,” continue to fraud the America people; the nation in front of government eyes. It has become quite evident that OCC and Treasury Department are preventing homeowners from obtaining loan modifications. It is time to enforce loan modifications; otherwise, Banks, Services, and Investors will see Trash Homes in every City, County and State.

    • Will, I’m fundamentally against any more government intervention in the area of stimulus for the housing industry – that includes loan modifications. Like I mentioned in my post, the banks just aren’t doing them yet the goverment and news media continue to promote this nonsense. It creates false hope.

  4. There should be a sort of a binding agreement once all the dotted i’s are signed and delivered. That, if and when the owner decides to go on a rampage on their house, they should be awarded penalty, or something similar to it.

  5. So what does the loan docs that the homeowner say about maintaining property? Based on that agreement,what should a bank do? And what will the bank say abouthow they deal with destruction and vandalism on the property?

    • Chip, the language in the deed of trust/mortgage varies from state to state. It’s generally accepted and implied that the borrower maintain the property. However, there is very little the lender can do to the borrower after the auction. And honestly what good would it do the lender to go after the borrower for the damages? The borrower is broke right?

  6. I’m a bit surprised that none of my fellow commentators have any sympathy for the homeowners . . . . . I mean, yes, what they’re doing is childish and tacky. (especially that stunt with the faucet in the basement . . . . remember Home Alone?)

    But what’s WAY more childish is the fact that they actually believed that any bank would help them. That they didn’t understand, for whatever reason, that they need to protect themselves. Let’s focus more on THAT travesty, shall we?

    • I’m far from a fan of what some of these banks have done. From MERS to shadow inventory to shear lack of communications with homeowners in what is probably a top 5 stressful moment in their lives.

      That said, I have 0 sympathy for 98% of homeowners in foreclosure. It is 100% their fault. Yes 100%. They choose to move into a home greater than their means, they choose to spend money on frivolous items, they choose to not have a reserves in preparation for job loss or income reduction, they choose to get behind on their mortgage. A very very small percentage of homeowners current with their mortgages are having difficulty with the banks. Anyone of us who have walked through preforeclosure or short sale homes can point to 20 reasons why homeowners are behind.

      A home has been called an investment for a long time now. The greatest investment most make, yet most people don’t treat it that way. No sympathy at all. These dirtbags that damage homes should be gone after for criminal and civil penalties. We all know what a damaged home does to neighbors property values. Those neighbors should have the ability to go after these dirtbags for lost value. The city/county/state should also be able to go after them for lost tax revenue and willful harm directed to another entity. Am I upset about this, damn right I am, As should any property owner.

      Jason

      • Jason, there is plenty of blame to go around. The federal government, Wall Street, banks, MERS – even the individual homeowner and investor – they were all part of the problem. It appears to me that the reason the banks are being singled out by the federal governent, states attorneys general and the homeowner (by means of lawsuits and property vandalism) is because of the bailouts. Bank of America alone received $50 billion – Wells Fargo and Chase – $25 billion each. Our tax dollars paid to keep these banks from going out of business – now that they have their money its foreclose, foreclose, foreclose and to hell with the homeowner. Don’t get me wrong, I do not think this behavior is justified or moral.

        Last summer I called the local police when one of the properties we purchased at the auction was torn apart by the prior owner. They told me there was nothing they could do. How could we be certain it was the former homeowner and not a vandal? How could we prove that the items that were removed from the home (i.e. appliances, light fixtures, window blinds, smoke detectors, cabinet hardware) were not the former homeowners personal possessions? It’s a gray area and most law enforcement agencies are unable to anything about the problem.

        • I agree with your statement. One thing we can all agree on, its a mess that is likely to get worse prior to better. All we can do as investors is line ourselves up correctly to be grab opportunity when it arises.

    • MH, I can sympathize with the homeowner. Many of them are told to stop making their payments so that they can qualify for a loan modification. Once they get into the foreclosure the bank denies their modification for a variety of reasons. The homeowner naturally becomes angry. But I stop feeling sorry for the homeowner when they go on a rampage. This behavoir should not be tolerated. As many have pointed out here it hurts values in the neighborhood and costs all tax payers.

  7. There should be a sort of a binding agreement once all the dotted i’s are signed and delivered………That, if and when the owner decides to go on a rampage on their house, they should be awarded penalty, or something similar to it.

    I think so.
    Bye.

  8. I have no problem with the homeowner removing everything of value from the home, especially if they have poured significant money into improving the home before the foreclosure notice came. They are entitled to recover as much of their investment as possible.

    As for destroying property for destruction’s sake, I that should be penalized. But can the law distinguish between the two and is it worth the legal expense to recover losses in such cases? That, to me, is the question that is harder to answer.

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