Intermural Wars Between Related Banks

[Joel Fraser]

Thanks for this forum, it is so needed. Here is my story: My mom died in February this year. Her estate/Trust is upside down in the amount of $400k primarily due to the plunge in value of the property. This is a condo near the beach in San Diego. It had appraised at $900k in March of 2007 but the last sale in the complex (ironically the one she owned before this one) closed at $440k in June. There is about $740k owed against the property; $452k to National City Mortgage Co (NCMC) and $290k to National City Equity Line of Credit (NCB). NCB is a subsidiary of NCMC. The primary reason for the dramatic plunge in value was the sale of a nearby condo at $900 at the end of 2006 which went immediately into foreclosure without a single payment being made. It sold for $525k in August 07. I want to keep the property. As soon as I knew the Trust was out of money after paying my mom's 2007 taxes, I sent a hardship letter and financial information about the Trust and requested a short sale to me and my husband at $440k. Upon advice from the 2nd, I sent identical packages to both lenders and was advised that they would have to wait until I heard from the 1st. I waited the 10 days the packet told me to do and then I started to call. And call, and call. No one would return my calls from Loss Mitigation until May 29th. Then I was advised that they couldn't do a short sale to a related party. Apparently this is a FNMA rule and while I don't know if the investor is FNMA, the bank appears to be following this rule. I spoke to the 2nd and I was advised that they would do a short sale/settlement with a related party. Apparently they are regulated differently than the mortgage co. So then I decided that I could try doing a settlement with the second and a loan mod with the first. I called back the customer counseling supervisor at the 1st and requested a loan modification package. She referred me to a supervisor from Loss Mit. He returned one e-mail on June 4th and then I never heard from him again. Again I waited 10 days to give him a chance to review the package and then started to call, but his voice mail was always full; so I sent e-mails requesting updates. I finally heard back from the supervisior in customer counseling on June 26 who basically told me that they were busy, to be patient and to let them do their work. During this time the interest rate rises almost a full point and my mom's loan rep tells me that the loan mod I requested; converting the existing 5/1 interest only ARM @ 5.5% to a 30 yr fixed rate loan @ 5.5% is unmarketable. Keep in mind our FICO scores are in the 840 range. My mom's loan was a stated income loan. By this time my husband is disgusted with process and doesn't want to have anything to do with the condo. He tells me I can use my own money (25k) but he's not going to qualify for the loan. Although I haven't had a job since my husband and I relocated to AZ, I know I can take my mom's existing mortgage "subject to" and rent the property for enough money to break-even (cover the PIT and HOA). I have about 25 years of real estate experience (primarilary institutional) including property management experience. Since there is a 1 year left on the 5/1 loan, I figure I can let them take their time on the loan mod request and in the meantime I can work on a settlement with the 1st. I go back to the 2nd and advise them of the situation. I only have 25k and I need to pay 3 payments to 1st, HOA and back real estate taxes thus only leaving them $9,130 to settle their $290k debt. Although this is only a nominal amount effectively they have no equity and it is a lot cheaper and easier than going through foreclosure and not getting stuck with the property. My husband and I head out to San Diego for the 4th of July holiday and we meet the BPO agent on July 3rd. A week or so goes by and I am advised that my offer is going to the settlement folks. The negotiator I have been dealing with will not tell me the BPO but I finally figure that it's around $480k. I think the BPO agent just added 10% to the last sale since my mom's unit is up one floor. I am advised that the package has gone to the settlement folks. I am advised that a decision is made in 10 business days. Then I wait and wait, calling every week. The negotiator mentions that the settlement folks are mad at NCMC because they won't participate in the settlement. Finally at the end of July I am advised that they want a copy of my mother's Trust. No problem; no assets there! Then another week goes by and I am advised that they haven't accepted my offer. No reason, no counter. I can't figure out why they would reject a guaranteed $9,100 settlement and risk the cost and getting stuck with a property that doesn't sell at a Trustee's sale. Because the property is located in CA, even for a recourse loan for all practical purposes, the lender is limited to recovery of the property. I ask for the negotiator's supervisor to review with his peer the rejection. He does and they are still rejecting it. No reason, no counter-offer. Now it is the first week in August. I receive a letter from NCMC indicating that they will be filing a NOD. I call them and ask about the status of my work out package. NOTHING has been done since May 29th! I ask where my package is and I am advised that I will need to resubmit a new package. I do and include the original package, copies of the correspondance between me and the supervisors and a covering letter explaining what has happened. I ask that all the penalties be waived since they lost the package and that they roll up the now 4 delinquent payments into the loan balance. While I was in San Diego I was able to refine the fix-up costs and get them down to $2k. 2 weeks ago I advised the negotiator that I could increase my offer to $12k. He emailed me and said he couldn't help me anymore. Last week I was notified that the NOD had been filed, but so far I haven't received a copy of the notice. I notified the negotiator and again asked for a reasonable counter to my 12k offer. He e-mailed me that negotiations start at 85% of the principle balance. I was shocked. This means they want $250k when their own BPO show the value $300k less! After stewing about it over the long weekend, I have come to the conclusion that NCB is rejecting settling with me and letting NCMC proceed with the foreclosure process to make it as painful as they can for both NCMC and me. Basically, they are mad that they are not getting the normal amount of money that they would in a short sale so they are going to refuse to settle, let NCMC do the dirty work of foreclosure and risk getting stuck with the property if it doesn't sell for the minimum 1st loan amount. Although NCB risks being wiped out, on the other hand if the Trustee's sale is more than $500k, they didn't have to do anything to get 10k or more. Today I e-mailed the negotiator's supervisor advising him that up until this point, NCB had always been helpful. I again requested a reasonable counter. I advised him of the situation with having to re-submit the package to the 1st and how I requested that NCMC roll up their deliquent payments into the loan balance so that I could use that money to settle with NCMC which would bring the settlement offer up to $20k. I also advised him that 20% of the units in the complex were financed by NCMC/NCB and that another foreclosure would be really bad for those other loans. We'll see if he responds. I am so frustrated. Does any body have experience of how lenders settle with each other in short sale situations? I wouldn't think it would be more than 10% but if that's the case, NCB should have countered my offers. Furthermore I am concerned that even the loan mod won't be accepted because even thought the condo cash flows, I'm concerned that they will only take 75% of the rental income like they do when the banks qualify you for a new loan. Where would I find out this information? Sorry for the long story. It's been a very frustrating experience. And if I hadn't been going through it, I would not have believed it.