WEBCAST: More foreclosures loom as pace of mortgage defaults quickens
September 14, 2006
• But reasons behind the defaults may surprise you
• The case of the janitor’s palace
Attorney John Brady offers advice for those facing foreclosure.
A softening home market is not by itself to blame for the jump in California home foreclosures says a San Diego attorney who specializes in helping those faced with losing their homes.
The most common reason is an event such as loss of job or illness to a family’s major income producer. But attorney John Brady says there are other causes that he is seeing more often.
“It could be predatory lending,” he says.
“I’ve had a number of people in this last month – this is completely unbelievable and so foreign – their mortgage payments are more than their income,” Mr. Brady says.
((Listen to a CVBT interview with Mr. Brady by clicking on the link below.))
He says in some cases it appears that mortgage brokers faked income for the applicants so they would qualify for mortgages.
“It’s kind of like the homeowners to some extent are kind of clueless on what’s going on, how they expected to pay for it, what it means – that whole situation they’ve gotten involved in,” he says.
Mr. Brady says it’s a type of predatory lending.
“The homeowner should never have gotten the loan. Somebody’s made fees off of this thing and I think some of these lenders are so anxious to get their money loaned out that they do what they call ‘stated income,’” he says.
Using that technique, there’s no verification – such as tax returns or payroll stubs – for the income that is “stated” on the loan application, he says.
“The lenders don’t care. You’ve got janitors that are out there with $450,000 loans,” he says. “The lenders should know that janitors don’t make enough to support that kind of loan.”
One of his clients who is in foreclosure makes about $5,000 a month but on the loan documents someone wrote in that his income was $11,000 a month, Mr. Brady says.
“So the lender goes ahead and grants the loan and now the guy can’t pay it,” Mr. Brady says. “He’s probably going to lose his home [and] it extremely damages his credit.”
He says a number of his clients are choosing to lose their homes through foreclosure because they cannot refinance or sell in a market where sales are slowing and mortgage rates are rising.
“I’ve had a number of clients that have refinanced their property in the last year or two. They’ve pulled all their equity out of it and they’ve used their house kind of like a credit card. Now there’s nothing left. Some of those are choosing just to let it get foreclosed on,” Mr. Brady says.
But he also says an option to consider is filing for Chapter 13 bankruptcy. This is a federal program in which debts are consolidated and a schedule is set by the courts to pay them off.