Anxious to meet the bank's demands for quick action, Andrew Garcia and his fiancee, BethAnne Hoffmann, rushed to find financing to buy a foreclosed-on house in a lovely tree-lined Baltimore neighborhood.
That was in January.
A month later, the bank that's selling the house broke its own closing deadline. The couple has been in limbo since. In frustration, they turned to their congressman's office for help. Only then did they receive an apologetic call and a new proposed closing date of April 24 -- but still no signed paperwork.
"It's unbelievable. With all we hear about all the homes out there that need to be sold, I have to call my congressman in order to purchase a house," Garcia said. "If that's the process, there's no way we're going to clear all these foreclosures."
As bargain hunters turn their attention to foreclosures, many are discovering the toughest challenge is dealing with the banks that repossessed the homes. These banks are usually quick to accept a bid and write a contract. But the closer buyers get to the settlement table, the greater the potential for bureaucratic bungling and the chance the buyers will give up.
The housing market stands little chance of recovering until the foreclosures are sold. Distressed properties make up roughly a quarter of U.S. homes for sale. Moving them would go a long way toward stabilizing home prices. But working with the banks, which are typically based far from the homes they're selling, is not as simple as buying from a regular homeowner.
"Things go wrong, and it takes the bank a lot longer to deal with them," said Vivianne Couts, a Virginia real estate agent. "There are a lot more people involved, many more layers. The Realtor can't always call the bank and say, 'What's going on here?' "
Garcia and Hoffman, both first-time home buyers, realize that now.
Digging into court records
When their closing date passed and no one could explain the delay, they started digging into court records. They learned that days after the bank had repossessed the home, the previous owner had filed for bankruptcy protection. Garcia said all the bank needed to do was submit paperwork to the court confirming that it had foreclosed on the house prior to the bankruptcy filing. But that letter didn't materialize until their congressman, Rep. John Sarbanes (D-Md.), intervened.
The bank, CitiFinancial Mortgage, declined to comment on the case. But Mark Rodgers, a spokesman for Citi, said the company tries to handle closings expeditiously. "If and when there is a delay, we regret any inconvenience to the customer," he said.
Garcia and Hoffman feel stressed. The lease on their apartment runs out this month. They do not understand why the bank didn't jump to unload the property, especially because they offered nearly $5,000 more than the $170,000 asking price.
"I can't believe we had to bring this [bankruptcy] to everyone's attention," Garcia said. "It's as if no one did their homework on this property and when they found out there was a problem, they were like, 'We'll get to it. We'll get to it.'"
By all accounts, banks are overwhelmed by the record foreclosure volume. In the Washington region, there were 217 foreclosures as of April 1 for every 10,000 properties, up from 16 about two years ago, according to George Mason University's Center for Regional Analysis.
Dennis King, a lawyer who handles foreclosures for banks, said that when home prices were climbing, the banks never had to keep houses long. Investors would snap them up in auctions on the courthouse steps.
But in the past two years, with prices plummeting, investors are no longer interested. So banks must try to sell to the general public, which takes longer.
"The more time that lapses between a home getting foreclosed on and the sale of the property to the next buyer, the more problems that can crop up," King said. "Maybe the property taxes were up to date when the house was on the market, but they're not up to date anymore."
When a bank repossesses a home, it typically hires a lawyer to check whether there are other claims on the property, such as a mechanic's lien. But the lawyer is paid to look only at the time from when the owners took out the mortgage to the time they lost the house. Any pre-existing problems -- or new ones -- usually surface at closing time, when a more thorough search is done.
If the bank goes under, that creates more hassles. Also, in states that require court approval of the foreclosure, including Maryland, there can be a disconnect between the legal procedure and the sale. A house can be on the market before the foreclosure is approved. The buyers may be left waiting for the court.
"So in other words, I'm the happy home buyer and I've got my furniture in the truck, and I find out that the foreclosure is not ratified and nobody knows for sure when it's going to get ratified," said Jeffrey Fisher, a foreclosure lawyer in Upper Marlboro who works for banks. "That's a cold slap in the face and a financial hardship."
'The waiting game'
Michele and Timothy Bowden not only had their furniture packed, but also had their friends and family in tow when they drove down this summer from their old home in Florida to their new one in Burke.
On closing day, the bank discovered it did not legally own the house because the necessary paperwork had not been done. The Bowdens were told they had to wait as the bank in California sorted through the mess with its foreclosure lawyer in Texas.
"So there we were, my husband and I, our two kids, grandma, grandpa, the dog, our friends. We had to live in hotel rooms for 10 days," said Michele Bowden, who moved into the house in August. "Everyone had come down to help us move. . . . We calculated that between all of us, we incurred over $7,000 in costs for the hotel rooms, eating out for days on end, all the driving around and the moving company's furniture storage fees. Then we had the waiting game."
Buyers can cause delays, too, some real estate agents said. Banks generally sell homes as-is and on their own complicated terms. Buyers know that going in, but some are unwilling to accept it when it's time to finalize the deal, especially when it's time to sign a six-page addendum to the contract detailing the bank's conditions.
"Some people see this, and they freak out," said Barbara Newcomb, a Maryland real estate agent who sells homes for the banks. "I'll get addendums back that are scratched through and changed and the banks won't accept them -- then the buyers get mad at me."
On rare occasions, the mix-ups don't end after the purchase, said Joy Siegel, a Bethesda lawyer who handles home-sale closings. Siegel recalled how one of her clients was shocked when she showed up at her house, a foreclosure she had purchased weeks earlier, and found the locks had been changed and a "no trespassing" sign was posted because of a miscommunication relating to the timing of the home's sale.
"I called the bank immediately and the lady on the other end of the line responds like this, very calmly: 'This happens in approximately 5 percent of our cases. We'll send someone over to let her in,' " Siegel said.
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