subject: Doing Home Improvements While In Foreclosure [print this page] I'm going to tell this story in the first person, but it's a real example from one of our clients and he wanted to tell his story anonymously.
In January of 2008 my mortgage company sent me a notice that they decided they needed to increase my payment into escrow for insurance on my home. This was based on their estimation that the $1,900 I did pay last year was not enough but that $18,000 was now required for the same property, same coverage and nothing new, such as no hurricanes or flooding at all in the last year. And just so you are sure that I didn't make a mistake on the amount of money, they wanted to raise my $1,900 to $18,000. It's like I always say about sales, you can always ask. Just like that big fat ugly guy in high school got to take the best looking cheerleader to the prom simply because everyone was too afraid to ask her. Since he had nothing to lose, he asked.
So I thought that instead of going along with their little world of fiction, I'd take the opportunity to negotiate a better deal, and what better place than in foreclosure. Oh I know, you thought I was going to say call them and ask them to modify the terms right? No way! You have to understand first that all of this talk about "modification" is just a fraudulent scheme to get people to pay money when they cannot afford the full mortgage payments. See for yourself, check to see if they ever remove the mortgage lien and record a new one with the terms of the so-called modification. Of course not, what they do instead is trick you into paying them less than the full mortgage payment by having you disclose all your financial information and signing an additional agreement and then get you into default with no commitment from them. That way they can foreclose whenever they want and they know that for about 98% of these so-called modifications, they end up in foreclosure anyway within a year.
And because you were so kind as to provide them with a new signed agreement and all of your financial information, it is so easy to sue you and levy against your property. A year later you get a notice from the IRS saying you owe them taxes on the money you didn't pay the bank on the deal. So you see, modification was not on my mind. I was thinking Why not get the money that I created or lent them in the first place and have that cancel out the mortgage agreement and clear my title?
So after they refused to credit my March 2008 payment as a mortgage payment I wrote them a letter and told them I was withholding future payments until they corrected the matter. I also told them not to call me but invited them to send me as much written correspondence as they wanted. To this day they have never written me one letter addressing the matter. I even provided them with a copy of my new insurance quote for the following year, and it was even lower than $1,900! They didn't care.
And you know the sinister part of this whole thing; I believe the bank did this so that I would stop paying one way or another and so that they could foreclose. And everyone always asks me, why would the banks want to foreclose? Well, the bank is not like my Uncle Bob, a friendly guy who lent me the cash at closing. He doesn't have investors or a credit rating through Standard & Poor's or Moody's. But if the bank puts a property into foreclosure they can remove that receivable (mortgage contract) onto a different set of accounting records that the credit rating agencies don't consider. A bank with too many receivables, good and bad, has a lower credit rating. A lower credit rating means their stock value drops and that cycle will continue unless they dump as many of the receivables as fast as they can.
So in July of 2008 I received a summons and complaint to foreclose. I was ready for this with a response, so I waited until a few days before it was due and filed my own motion to dismiss the foreclosure. I also asked the court to strike their request to create a new note that claimed they lost the original. I believe that because of the issues raised in the motion, the attorneys for the bank were reluctant to ask for a hearing on it. And you know I'm not going to ask for a hearing, why should I when I now have a house with no mortgage, insurance or tax payments, courtesy of my friendly bank?
Now during this time it was already part of our family's plan to remove some of the sod and build some gardens and do some other minor improvements to the property such as add ceiling fans and some new furniture. These are small home improvements I know, but these are things most people would do to their home, unless it was in foreclosure, am I right? We are doing one large project in 2010, installing a geo-thermal heating and cooling system. This will reduce our electric bill by at least 60% and it makes sense since we expect to be here a while. So we're thinking that with all of the money Obama is printing and handing out these days, there is a chance that the food supply might be interrupted and that it would be a good idea to have some gardens and basic canning in place. We bought a pallet of Mason Jars and some canning equipment and seeds and converted our second garage into somewhat of a barn, unofficially.
Finding something productive to do with the money we were no longer paying for taxes, insurance and mortgage payments was easy. We decided to bet heavily against the U.S. Dollar and buy gold coins and silver bullion. So far in just 18 months we've earned 20 - 60% on that money. You can see for yourself if you check the price trends during this same time period. I'm thinking if we can't get the deal we want on this house "clear title" we'll easily have enough money to pay cash for the next house; or close to it at least.
It wasn't until August of 2009, over a year later, that the bank's attorney asked for a hearing on my motion. No response or objection was ever made to my motion but the hearing was scheduled for October 20, 2009. I figured since they never objected or responded to my motion to dismiss, they couldn't be serious about anything, so I sent them an amended motion to dismiss and added a few little goodies into the mix that I had discovered in the last year. Thirty minutes into the hearing time, the judge got angry because the attorney never appeared, never called or anything. The judge cancelled the hearing and since then, nothing has taken place regarding this foreclosure. If my motion is ever denied, I have an answer and counterclaim ready to file and just the discovery and pre-trial on those alone will take two years minimum.
You're asking I know, what about the business of clearing the title? As it turns out the banks have no money, they need you to provide them with a signed promissory note in order to fund the loan. They sell an interest in this note and trick you into signing a mortgage (debt pledge). The reason why they get you into a mortgage is because you failed to bring a recorded note to the closing (or the money for the property). If you had recorded the note, thereby paying the taxes and bringing it into the public registry, it would have closed escrow upon presentment to the escrow agent. But it's not too late, if you register your note by recording your notarized copy at your county recorder's office and then using a certified copy of that note, you can settle the mortgage claim and clear your title. In my case, because the motion to dismiss is still pending, there's no need to deposit the recorded note into the court's registry for disbursement. The best time to do that is during discovery or when either of you asks for summary judgment. So I'm waiting in my case, happily, each day I wake up and express my gratitude for having a debt free house and the means to keep it debt free.
My wife and I think that we should knock out a wall and expand our back patio for the next project. So we're either delusional or we've figured this scheme out. Only time will tell.
Copyright (c) 2010 John Gliha
by: John Gliha
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