Are banks incentivized to do a foreclosure on your home instead of a short-sale or modification?

Several clients have come to me lately and complained that they have been declined for their home loan modification after they have successfully made payments on a trial loan modification for a period of time.  After a long period of making the payments on time and without fail they naturally believe that the have been approved for the permanent modification.

This is a natural and logical conclusion.  During a “trial” period you would naturally show that you are capable of sustaining payments on a loan.  It is logical that after you pass that test then you get to keep the new payment schedule.

This is not true in the strange and mysterious world of the banks.  My clients are receiving no notice but just a returned check one day when they send their payment in.  They then call the bank believing there is some mistake and then they are told that their loan modification has been refused because they “don’t have enough income”.

The homeowners have made the payments faithfully but the bank has suddenly determined that the don’t have enough income.  I smell a rat.  Information is beginning to trickle out that these banks are incentivized to do foreclosures.  They are paid when they first sell the loan to Fannie mae or Freddie mac but they are apparently paid again if they take back a home in a foreclosure.

They seem to get no such benefit if the homeowner keeps the property with a loan modification or if the home is sold to a buyer in a short sale.  The incentives are all wrong.  Apparently the Obama administration has put this incentive in the bailout plan and now we are now reaping the whirlwind.  Homeowners are being thrown out of homes that they should stay in so the banks can make money which they make only because of government incentives.  Shouldn’t the incentives be to keep homeowners in their homes?

Anyone miss the era when the bank lent out its own money?  I do.  This is an unsustainable situation and apparently people are getting wise and lawyers are beginning to sue the banks.  One lawyer who does these suits in federal court told me that the banks can’t answer or defend all the suits that are coming because of this foreclosure crisis.  He says that this is why they are suspending foreclosures and why there is a growing cry from all over the country to do just that.

It is clear that something has to be done as this foreclosure mess is unfair, unsustainable, and as badly managed as it can be.  More to come……

The “shadow market”- banks could be holding back foreclosed homes from the market

(For a foreclosure update see this blog: ).

Why do they do it?  We don’t know.  It might be that they don’t want to crash the housing market now or it might be that they don’t want prices to drop any lower so they lose even more money.

But according to my sources in real estate there apparently is a shadow market of homes the banks don’t release or list on the MLS.  These are homes that they have already foreclosed on and they own and hold in their portfolio of properties.  But these homes don’t appear in the Multiple Listing Service (MLS) used by realtors to see what properties are on the market.

Realtors only realize what has happened when one of these shadow homes suddenly appears on the MLS.  Then by looking at the original foreclosure date the realtors realize that the home was foreclosed on some time ago and the surmise that it was held in the “shadow market”.

It appears that the banks are holding these properties back and releasing them slowly when they are ready.  Some appear to be vacant and some are overgrown with weeds with pools that are filling up with slime, but the shadow homes remain unreleased into the real estate mainstream.

There are also reports that the banks are now renting these homes.  The banks appear to want to be landlords now too.  They have this real estate which they can’t or won’t put on the market, they hold it back in a shadow market and they then apparently rent these properties to tenants.  Is this because prices are so low and rents are high?  Are the waiting for prices to climb again or have the banks just found a new profit center?

These are unanswered questions about the current state of affairs with the banks and foreclosures and real estate and it seems to be getting stranger and stranger.  More to come……

For more info. check out my websites at: or  Or call my office for a free consultation at (619) 702-5015.  Call now for free credit report and analysis!

I am a bankruptcy lawyer in San Diego.

For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to:

Squatters taking over foreclosed homes all over the country

(Check out my update on squatters here (  ).

(To see how to get squatters out of your property see here: ).

Short sell your home today, protect your credit, and don’t let your former home be used by squatters!

Squatters are moving in foreclosed homes all across the country and taking up residence.  They will seek out a bank owned foreclosed home where the original owner has vacated and then they will break in and occupy the residence.  Sometimes they will put up “no trespassing” signs to keep others and bay.  The utilities are shut off so they will live in the cold and dark and without water and you can imagine what a mess that creates with overflowing toilets.

Police will often not interfere or even know sometimes unless there is a disturbance.  The formerly homeless squatters could then occupy the residence for some time.  One home in Sacramento was apparently taken over and signs appeared that said “private property of sovereign Woman of republic of California” (whatever that means).  But it meant trouble to the neighbors because the squatters apparently also put up signs warning that any trespass would be met with “self-defense” and “justifiable homicide”.  Watch out that your dog or your kids don’t stray onto their lawn!

Neighbors often don’t know what is going on.  These squatters move in with moving trucks and put up signs and the neighbors often think they that they legally own or rent there.  What would you think if a whole crew moved in next door?  Would you think squatters or renters?  Most neighbors do nothing unless thing get so out of hand that the police must be called.  The banks rarely inspect the property so squatters can stay for some time until they are found out.

There is an epidemic of this kind of home takeover according to articles posted all over the internet.  Some of these people appear with phony contracts from bogus realty firms.  Some people fraudulently rent out foreclosed homes that they don’t own to unsuspecting tenants who don’t have a clue.

People who are tenants can then take advantage of the Landlord/Tenant laws  and demand theat they be formally evicted (which takes time).  Some squatters wind up getting cash for keys from the bank even though they illegally occupied the premises after the foreclosure.  (Don’t ask me how they do that).

It appears as if a whole industry could be growing up around occupying these foreclosed homes.  Sometimes “activists” will move in or bring other squatters into a foreclosed home.  Some are calling it a “movement” and social justice  with names like “Take back the land” or “Poor people’s economic human rights campaign”.  These groups will move a whole family into a home and go do the same to another and another.  They move them in, change the locks, and then have the squatters refuse to get out.

Yes, this is happening now across the country.  You might not have thought that it could happen here but some say as we move from a recession to a depression, these things will happen more frequently.  It’s time we start asking the older folks what it was like in the 1930s because here we go again!

I recommend to my bankruptcy clients not to allow their home to end up in this mess.  Short sell it to another family.  It will cost you nothing, because the bank will pay the realtor’s commission, and it will save your credit from a foreclosure.  A short sale will also keep your home from becoming trashed by squatters that the banks are too busy or too clueless to evict.

I am a bankruptcy attorney in San Diego.  For more info see my websites at: or  Or call my office for a free consultation at (619) 702-5015.

For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to: