Be careful . . . - Posted by Joe Kaiser
Posted by Joe Kaiser on September 08, 1999 at 17:47:54:
From Totally Dominate Your Foreclosure Marketplace:
We have the ?Farmers Home Loan Administration? program in our area. They are a part of the federal government, and make subsidized home loans for people who want to live ?out in the sticks.? A unique feature of these loans is the ?recapture? aspect. When you eventually decide to sell, you pay your balance, plus you pay back a percentage of the monthly payment subsidy. Many years later, it often comes out to nearly the amount of the principal balance.
Now, when those things head toward foreclosure, the Notice of Trustee?s sale will let you know the total of homeowner?s back payments, and will also describe the balance owed, but that?s about it.
Real World 112?
I discover a twelve year old loan headed toward foreclosure. I meet with the seller and we put together a deal in no time flat. She?s already vacated, she doesn?t want a thing to do with the property, and I gave her exactly $100 for her interest.
The property is in disrepair. It?s had its share of tenants come and go, but it?s not too bad and I can see potential. Fixed up with another $10,000 or so, that thing has got to be worth $110,000.?
The notice of trustee?s sale says she owes $54,000 and she?s $6,000 behind.
Great deal.
I locate a fix-up guy in no time. He pays me $12,500, pays the $6,000 to bring it current, and fixes the thing up to like new condition.
A couple weeks later, he?s got a buyer at $113,000.
Here?s a $20,000 payday right around the corner, when what do you know, the payoff figures from the lender come in not at the $54,000 we all imagine. No, they explain, they?ve included the ?recapture? as well, and the new total is $78,000.
Ouch
I get their paperwork, I do the math, I get screwed.
They base everything on an appraisal. Not an appraisal from before, but on the newly fixed up home. Ugh. That?s bad enough, but there?s more.
Remember that $6,000 paid to reinstate the loan? That did not decrease the total amount owed - it increased it! Because of some convoluted recapture requirements based on equity, paying $6,000 to reinstate the loan increased the equity by an equal amount, and since the recapture was based on a percentage of the equity (in this case, 60%), bringing the loan current increased the balance by $3,600!
Good grief. It is true what they say about working with the government.
I re-examine the notice of trustee?s sale. I get on the phone to the local office.
?Look,? I say, ?it says right here the balance is fifty four thousand dollars.?
?Keep reading.?
?What?? I ask.
?Keep reading,? she repeats.
?Okay,? I say, scrambling now, trying to regroup and collect my thoughts, ?fifty four thousand, . . . and other such costs and fees that are due under the note.?
?Gotcha,? she says, hanging up the phone.
Once in awhile I?ll receive a call from a homeowner in foreclosure, and when he tells me the lender is the Farmers Home Loan Administration, I clue him in on the uglies.
Sometimes, he won?t believe me and thinks I?m trying to buy the house out from under him. I tell him to call, check it out and then get back in touch with me.
And when he does call back, he?s dumbfounded, completely in shock.
Gotcha?d.