How to stay in your home for the maximum time after a foreclosure. Use bankruptcy, HAFA, and cash for keys!

(For the current state of the foreclosure crisis see this blog: ).

There are a number of thing you can do to remain in your home for the maximum amount of time after a foreclosure has been filed against you but the first thing you do when you get behind on your home mortgage payments is just wait.  As I reported in a previous blog, the banks are now slowing down in their processing of foreclosures.

This is good for you though if you are in a situation where the bank should be foreclosing on you because you are more than three months behind on your mortgage payments.  At this point you should continue to reside in your home and wait for the bank to make a move that you can respond to.  No one can oust you from the home you own unless they file a foreclosure against you so wait on it until it comes.  When it does it will come with a NOD.

In California you will get a Notice of Default (NOD) as the first step in a foreclosure.  This just means that the bank has begun the legal process and it will take 110 days before there will be an actual sale of your home.  This is when you file for a chapter 7 bankruptcy. (Chapter 13 issues are more complicated).  File the bankruptcy the day before the sale date and a “stay” will automatically be created.   The stay will prevent the bank from taking further action and you will get the maximum time to remain in your home.  A bankruptcy will give you the added advantage that your credit card, medical, and personal loan debt will be wiped away leaving you debt free.

The bank will respond to your bankruptcy filing with a “Motion for Relief from Stay” to get the bankruptcy stay lifted so the bank can proceed with the sale of your home.  They could file this motion right away but in some of my cases it takes them another five weeks just to file this document.  It then takes around another thirty days (sometimes it’s quicker) to get it granted.  Now the bank will get another sale date and sell your home on the new date.

Once the home is sold you still cannot be thrown out in the street so don’t worry.  The new owner has to file an Unlawful Detainer/eviction action to remove you.  You begin now to negotiate with the bank or the new owner for cash for keys.  It is in the new owner’s best interest to give you the cash.  Remember that they don’t want to file an eviction because of the expense and time involved.  Many of my clients get around two to three thousand dollars in cash for keys and many get two or three more months to remain in the home.

But don’t forget the short-sale!  A foreclosure sale on your credit will prevent you from getting a FHA loan for the next five to seven years!  Bankruptcy will only stop you from FHA loan eligibility for two years so it’s not nearly as bad on your credit as a foreclosure sale is.  A short sale avoids the foreclosure sale if you can get the bank to agree to it.  Banks do want to allow these short sales so with a good realtor it’s usually not a problem.  The short sale will free the bank from the hassle and expense of a full foreclosure sale which would leave them with another piece of real estate that they don’t want.

Get a realtor who does short sales and he or she will explain the process.  Basically you will be offering the bank the current market price for the home and not what you owe on it.  The bank will settle for this and the realtor will negotiate his or her fee with the bank.  It will cost you nothing.  It is unlikely that the new buyer will give you cash for keys though to move out but there is a HAFA short sale government program that can pay you $3000.  HAFA stands for Home Affordable Foreclosure Alternative and it allows for you to get the $3000 for relocation costs.  Check with your realtor about the possibility of getting this money in the HAFA government program.

So there are a number of strategies to remain in your home for as long as you can and maximize your cash when you leave and save your credit as much as you can.  Remember that no one can throw you out or remove you in any way.  A foreclosure must be filed and an eviction must be further filed even if your home is sold at a foreclosure sale.  Only then can a Sheriff remove you but no one from the bank or any mortgage loan company can remove you with out these court actions.  So take heart, take your time,and maximize you advantages!

I am a bankruptcy attorney practicing bankruptcy law in San Diego.  Please visit my websites at or  Or call my office for a free consultation at (619) 702-5015.  Call now for free credit report and analysis!  If you or someone you know may need to file a bankruptcy then please get my FREE E-BOOK: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” by e-mailing me at

Shadow market tsunami!- It will take 4 years to sell all of these foreclosed homes! Good time to file bankruptcy.

(For an update on the curent state of foreclosures see this blog: ).

According to an article in the Daily Real Estate News it will take 4 years to clear the backlog of real estate “shadow inventory”.  The banks don’t admit that they have this inventory but they do.  Now we find out that there is indeed a four-year supply of these homes and the supply appears to be growing.

This is why home prices should remain depressed for some time.  Even if the overall economy turns around the housing market still operates on a supply and demand basis.  If there is this huge inventory of foreclosed homes that the banks are holding off the market then it will take some time before it is moved through the system.  We now get the word that there is this four-year supply of these shadow homes out there waiting to be sold.  I look for housing prices to be depressed for at least that long.

Scarier still is the statistic that this shadow market is up 11% in the fourth quarter of 2010 and up 40% from a year ago and the number of homes that are actually part of this shadow inventory appear to be growing.  According to the article Standard & Poors defines shadow inventory as properties with borrowers who are 90 days or more delinquent on their mortgage payments, properties currently or recently in foreclosure, or properties that are real estate owned (REOs). 

They point out that shadow inventory peaked in 2008 but that is probably because banks are currently waiting longer to foreclose on properties.  I have clients who have homes that they have stopped paying for and that they have moved out of a year or two ago and no foreclosure has been started.  It seems that banks are slowing down their rate of foreclosure processing.  This inaction creates more shadow inventory because there are now more homes that don’t show up on anyone’s radar.  These homes that don’t get moved through the system are in limbo and whether occupied or unoccupied realtors cannot list them for sale.   The number of homes like this are growing.

The article prints a chart where they show the number of months that it will take to clear these shadow homes.  It ranges from a high of 130 months in New York to a low of 25 months in Phoenix.  The other cities are Atlanta 49, Boston 71, Charlotte 65, Chicago 59, Cleveland 57, Dallas 56, Denver 38, Detroit 31, Las Vegas 33, Los Angeles 50, Miami 60, Minneapolis, 38, Portland 51, San Diego 39, San Francisco 42, Seattle 59 Tampa 57, Wash. D.C. 50.  It is clear from this chart that this is a nationwide problem of a shadow inventory of unsold and unlisted homes.

New York alone has $116.7 billion in shadow inventory according to Standard & Poors and because of the slower liquidation rate there New York will take 2.7 times longer to clear this inventory.  Los Angeles has a larger volume of shadow mortgages, $173.1 billion, which amounts to 31.5% of all outstanding mortgages.  L.A. has a faster rate of liquidating distressed properties.  My own city of San Diego has a 39 month backlog of shadow homes.

Default of home mortgage modifications remains high also.  80% of people have defaulted on their modified loans in the past and though the default rate is declining they say it still remains high.  My clients report extreme difficulty in getting their banks to agree to modifications of their mortgages.  It’s discouraging that such a high percentage of modifications go into default if people do in fact manage to get through the very difficult modification process.

The funny part is that the banks repeatedly deny that there is a shadow market or shadow inventory of unsold homes.  Realtors know that there is such a market as they can’t get listings for many of these homes that banks are holding off the market.  If banks now slow down or stall the foreclosure process then it will only increase this shadow inventory and increase the amount of time necessary to clear it before housing prices can rebound.

Don’t be surprised if the real estate market lags well behind any other economic recovery that happens in the country.  It is also possible that this huge inventory will act as a drag on the overall economy and prevent a recovery.  It could become what some have labeled as a “shadow tsunami”.

It is obviously a good time to buy a house though if you are going to keep the home for a while and its a good time to stay in your home longer if you are currently in a foreclosure.  It is also a good time to file for bankruptcy as prices will still be low in two years.  It takes two years to elapse after a bankruptcy before you can get a FHA loan approved.  Don’t allow your home to be sold at a foreclosure sale though as then you will have to wait five to seven years to buy a home.  Better to do a short sale and save your credit.

I am a bankruptcy attorney practicing in San Diego.  Please visit my website at or  Or call my office for a free consultation at (619) 702-5015.  Call now for free credit report and analysis! 

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

Shadow inventory of foreclosed homes- could it mean we have shadow depression?

(See my currnet blog for an updateon foreclosures: ).

There appears to be a definite “shadow market” of foreclosed homes that the banks are holding off the market.  They sometimes call this the “shadow inventory”

The banks are holding these homes off the market presumably to prevent a real estate crisis.  As I wrote before about this issue there is this huge reservoir of homes that the banks have foreclosed on and taken full possession of.  These homes are “shadow inventory” because the banks have kept them in the shadows and they have not listed these homes on the MLS for realtors to sell.

The Wall Street Journal recently did a story on this shadow inventory.  In that story they cite a study done by real estate consulting firm in Irvine California.  They estimate that there are 4.7 million homes in this unreported market which amounts to a 10 month supply of homes but the number could rise to as many as 5.6 million homes.  Some of the worst cities have a 20 month shadow supply of unlisted and unsold homes.

Analysts at Standard & Poor’s report that the largest backlog of shadow inventory exists in New York city followed by Miami.  Standard & Poor’s estimates that the time it will take to clear this inventory is up 18% over the first 6 months of 2010.

There is certainly a lot of homes in the “shadows” and this is a serious problem.  This is why some realtors are predicting that this foreclosure/housing crisis will be with us for 5 to 10 years.   The Irvine report also estimates that this shadow inventory will stay at elevated levels until 2016!

The report says that sales of distressed homes will rise to 40% of all home sales through 2012 and that real estate prices will continue to fall by 8% to 11% through 2012!  They also predict that if the economy worsens or if interest rates rise then housing prices will decline further and for longer.  According to the report distressed home sales will peak at 2.3 million homes next year.  So we haven’t reached the peak yet and it will get worse.

Worse than that a friend of mine was at a real estate conference recently attended by a president of a big bank.  The bank president denied the existence of a shadow inventory.  If the banks don’t want to admit that there is a shadow inventory and it is well-known enough for consulting firms and the Wall Street Journal to write about then what are they trying to hide and why?

Can we not take the truth?  It seems to me as I have written about many times that we are currently in a depression.  I don’t expect that anyone in government or the banks (who are now very closely tied to the government) will admit it.  They obviously have no problem lying about the shadow inventory of homes so it seems unlikely that we would ge the truth about how deep this economic crisis is.

I’m sure they will tell us when it’s all over.

I am a bankruptcy attorney in San Diego.  For further help please visit my website at

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: