Foreclosure Defense Strategies for Real Estate Investors

Posted on: June 8, 2010

Categories: How To Sell, Investors, Procedures, Things To Consider

Author: buyfixandprofit

What is Foreclosure Defense?

Foreclosure defense is a legal strategy in which a homeowner retains the services of an attorney to complete a forensic loan audit of all the documents associated with the mortgage. The attorney is looking for fraud and predatory lending violations than can then be used to aggressively counter sue the bank for damages and in return force the bank to negotiate with the homeowner or investor.  This process can typically take 12-24 months depending on the severity of the findings.  Remarkably, on average over 80% of all residential loans since 2003 contain such violations.  During the housing boom, banks could not push new mortgages through their system fast enough to satisfy the appetite for profits by Wall Street.

In the midst of this frantic churning of mortgages, many T’s were left uncrossed and many I’s were left undotted.  There is a long list of items than an experienced foreclosure defense attorney will pursue in order to delay the foreclosure process or in some cases even completely rewrite the actual terms of the note.  Just a the few of those items include: chain of title issues, backdating of documents when deadlines were missed, loss of original paperwork including the note, good faith estimate (GFE) numbers not adding up, unauthorized individuals signing paperwork, strict pooling and servicing agreement (PSA) guidelines not being followed, and on and on.

In the worst-case scenario, the attorney is able to delay the foreclosure 1-2 years while the homeowner or investor does not make a single mortgage payment during that time. This allows an individual the time needed to get back on their feet and regroup prior to the foreclosure occurring.  In the best scenario, the attorney is able to delay the foreclosure process 1-2 years and settle with the lender for a reduction in principle, lower interest rate and in many cases a brand new loan. There are even cases where the bank has not been able to produce the original note and the case goes into extended limbo or even the note is forgiven since the is no legal proof that the owner owes that money.

Is Foreclosure Defense Ethical?

Everything being performed here in legal, but is it ethical?  First of all, banks don’t make decisions based on emotions; the words in the contract are all their attorneys stand by.  In the majority of cases, investors and homeowners did not take out mortgages in order to defraud an institution.  Most individuals approached their banks looking for a forbearance, a loan modification, or a short sale once they realized the trouble they were in.  The problem is that the majority of the requests were denied or ignored according to the statistics.  Foreclosure defense is a viable and effective way to force the banks to actually take notice of your case and work with you.

Foreclosure Defense Costs

According to Adam Ackerman, one of the managing partners at www.foreclosuredefense.com, the initial forensic audit of the mortgage documents costs approximately $750 per property.  Then after that, there is a monthly $750 retainer fee that is charged per property.  So given these costs, this option isn’t for everyone.  If your a homeowner or investor with a monthly mortgage in this range to start with, it may be better to just save all your money and ride out the process until the property is sold at auction.  But for the many homeowners out there with much larger mortgages, in many cases a $750 monthly retainer would be more than a 50% reduction in the monthly payment while the attorneys fight on your behalf.

Applications for Real Estate Investors

During the interview, Ackerman detailed several examples of how real estate investors struggling with under performing rental properties asked the banks for help in the form of a loan modification or a short sale and were turned down or ignored.  Now these investors are using foreclosure defense techniques to force the banks to negotiate with them.

Banks are not set-up to deal with aggressive countersuits when they foreclosure on someone.  Foreclosure attorneys working for the banks earn a flat fee based on the minimum work required to process a foreclosure.  So when requests for detailed information, proof of documentation and countersuits start coming in, most of the time the banks don’t want to deal with this kind of headache and magically become receptive to the investor’s request for a loan modification or a short sale.

In one case, an investor with a two multi-unit buildings purchased during the boom was struggling to pay his mortgage due to the reduced rents from his struggling tenants.  The bank refused to work with him and in turn he hired a foreclosure defense attorney to represent him.  Even after paying $1500 per month (2 properties) for the defense, this investor is still taking home $3500 per month in rents. Even if the foreclosure defense fails, after two years of delaying the foreclosure process, the investor will have collected $84000 in rents.

Short Sale Investors

Foreclosure defense can also be a good tool for those real estate investors working with homeowners to either buy or flip their property after the banks approves a short sale.  Deals with large profit margins may be well worth saving using foreclosure defense techniques in order to buy the added leverage needed to help the bank change its mind.

Special thanks goes to Adam Ackerman at www.foreclosuredefense.com for contributing to the information in this article.  Their network of attorneys work with investors and homeowners across the country in all 50 states.  Please feel free to contact them for more information and a free consult.

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LEAVE A COMMENT:  2 Comments

2 Responses to “Foreclosure Defense Strategies for Real Estate Investors”

  1. AJ says:

    Will this work in Los Angeles,ca?

  2. buyfixandprofit says:

    AJ

    I know the guys at http://www.foreclosuredefense.com and their strategies do work in all 50 states. I personally know a real estate investor that received a property free and clear from the bank because it wasn’t worth the banks time and effort to fight the case. This stuff works.

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