Be a smart homebuyer

Housing counselors with a HUD-approved agency can help you be a smart consumer. To find a counselor near you, call 1-800-569-4287 or go to HUD’s Web site, www.hud.gov. In Hennepin County, contact Community Action Partnership of Suburban Hennepin’s (CAPSH) Foreclosure Prevention Program at 952-933-9639, Ext. 202, or visit www.cashenn.org/foreclosure.htm. There, you can download a foreclosure prevention packet.You can register for CAPSH “Home Stretch Home Buyers Workshops” to be guided in a step-by-step process to home buying. To register, call 952-933-9639, Ext. 281. 

By Unsie Zuege

It might sound glib to say, “don’t panic,” to someone facing foreclosure on their house.

But that’s one of the first things Louise Setterquist and Jean Stanley, housing counselors at the Carver County Community Development Agency, tell people who’ve come to them for help.

The number of home mortgage foreclosures is rising compared to last year – according to data from the Hennepin County Sheriff’s Office. In April alone, there were 184 listed, last year. This year that number was up to 351.

Still, Setterquist and Stanley reassure homeowners facing foreclosure that they have options.

As housing counselors, they want to first work with homeowners before they get to the point of foreclosure; for those already at that point, Setterquist and Stanley can help demystify the foreclosure process.

There are myths surrounding foreclosure, Setterquist said.

One is that once a foreclosure notice is published, the homeowner has only four to six weeks to keep the home. “A lot of people think that the sheriff’s sale date means the homeowner has to be out of the house on that day,” Setterquist said. “People think they have to be out immediately and that their possessions are sold out from under them. That’s not true.

“What most people don’t realize,” Setterquist said, “is after foreclosure, they have six months to catch up on payments, work out a repayment plan with the mortgage holder, refinance, or ultimately, sell their home themselves.”

Still, that may not be the best option. What Setterquist and Stanley are seeing is that due to inflated appraisal values, homeowners owe more than what the home is worth. For example, Setterquist said, the mortgage may be $250,000 but the home’s value is $150,000 to $210,000. In that case the best option may be to go through foreclosure which reflects as an F on a credit report for 10 years.

“But the good news is that if you can reestablish your credit and be perfect for three years, you can be considered a first-time homebuyer again,” Stanley said, “but it depends on re-establishing your credit. Foreclosure is serious business.”

Subprime trap

Most of the calls Setterquist and Stanley get are people who don’t have a prime mortgage rate, which has been, typically 6 percent over 30 years.

“My opinion and it’s simply my opinion,” Setterquist said, “is that most of the problems come from the subprime realm when companies were giving out loans without concern … there were brokers and loan officers that saw an opportunity and took advantage. There were all these seminars on how to make money in real estate. Many new career people learn to do foreclosure reissue scams. It’s a combination of poor training and a lack of ethical standards.

“This industry was so ripe for fraud,” Setterquist said. “All a person needed to get into selling these types of loans was a telephone and access to mortgage representatives. When someone says, ‘We’ll pay you one and a half percent in additional commission on a $300,000 mortgage or more, that’s a darn good incentive – to make $3,000 just to do a loan? It’s tempting.”

In addition to subprime rates, lenders were encouraging people to take more money than they needed.

“‘Why not take an extra $5,000 for a vacation,’ the lender might say,” Setterquist described. “‘How long has it been since you had a vacation? You deserve it.’ And it just escalates from there. ‘How about a boat, a TV?’”

There is not one typical foreclosure scenario, Setterquist said.

“We don’t see a big pattern,” she said. “Each case is unique.”

She pointed out that prime rate and FHA loans have a lot more foreclosure prevention, enabling homeowners to negotiate with lenders.

But she advises people to come to counselors like her and Stanley before they get in too deep.

“There is a network – Minnesota Housing and Finance is like HUD for Minnesota,” Setterquist said. “It has state funds. If clients qualify, if they can afford housing and go forward, they offer zero percent loans … Can you afford the house going forward? If so, they can pay the arrears for you. If they caught you up and paid the utilities, can you make the payments from now on?

“The most important word to get out is that there is help through agencies like us,” Setterquist said. “If we can get them in here as early as possible, there’s so much more we can do. Give us a call and work with us.”

What is a sheriff’s sale?

First, homeowners need to understand how foreclosure works.

The most common foreclosure is by advertisement. The mortgage lender or the bank advertises the foreclosure six consecutive weeks in a local newspaper, in the public notices.

“Once you are in foreclosure and stop making mortgage payments, the mortgage company serves a notice to the homeowner,” said Sgt. Julie Boden of the Carver County Sheriff’s Office. Mortgage companies and banks may contact the Sheriff’s Office to have a deputy serve the foreclosure notice, but the majority contract with a service processing firm. At that time, an auction date or sheriff’s sale is published.

The term sheriff’s sale, while accurate, isn’t what most folks imagine.

“It’s not like an auction is held on the front lawn of the property,” Setterquist said. “But that’s what a lot of people think.”

While it is an auction of the outstanding mortgage, it is a low-key affair.

 “On the day of the sale, a sheriff’s deputy and a clerk will stand in the lobby of the sheriff’s office,” Boden said. “The mortgage company sends a representative or a process server company, and the deputy will read what was published in the paper verbatim. Then at the end the deputy asks for any bids. Usually it is the representative of the mortgage company that does. That bid represents the outstanding mortgage and accumulated costs. If there are any other bidders, and they have the high bid, they have to pay in full, either cash or certified funds. If the mortgage company is outbid, the homeowners get the amount over the outstanding mortgage.

Beware equity strippers

One of the things of concern that the sheriff’s office and housing professionals warn homeowners about are equity stripping companies. Boden said that these companies will locate home foreclosures and contact the homeowner.

“They’ll say something like, ‘We understand you’re on hard times. We’ll give you financing,’” Boden explained. “Then they give the homeowner paperwork to sign that makes the payments affordable for a year’s time after which the payments balloon, and the homeowner can’t pay. These companies use the six months after foreclosure to their advantage. They wait until the last day for the signature, when time has run out for the homeowner to refinance or work with their mortgage company.

“When we serve a foreclosure notice,” Boden said, “we also bring information, on different colored paper to set it apart, providing assistance for the homeowner and warning them about equity stripping.”

The Legislature has changed the laws to prevent lending fraud, Setterquist said, but the downside is that it will be more difficult to get a mortgage.

“I miss the old days,” Setterquist said, “when people used to save for years before going to the bank for a mortgage … that everyone can buy a home is a myth, but it still is the best way to build wealth.”

Investment buyers beware

Sgt. Julie Boden of the Carver County Sheriff’s Office cautioned that anyone thinking that they will snap up property at bargain properties at a Sheriff’s Sale better do their homework first.

First, there is a redemption period of six months, in which the mortgagee can refinance the mortgage, or sell the house. If that happens, the person who won the auction gets his or her money back with interest.

“Sometimes there are people who come to bid, looking for homes with a lot of equity,” Boden said. The case of buying a home valued at $300,000 with $250,000 in equity, for a price of $50,000 for example, would be highly unusual, Boden said.

Another thing some people overlook, Boden said, is that often, a foreclosure is for only $3,000 or $5,000, but that represents a homeowners’ association lien. Or, a bidder may win the auction but it’s only for one of several mortgages on the property.

“If people have any intention to obtain property this way,” Boden said, “they need to do some work first by going to the recorder’s office, and by checking on exactly what the sale is for.”