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Homeowners on the Brink of Foreclosure Find Relief--and Options--in Springfield

For area homeowners in the midst of the housing crisis, foreclosure might seem like the only way out. But one local attorney is working with these people to help them find alternatives and save money. KSMU’s Samuel Crowe spoke with that attorney and one of his clients and has this report.

Springfield homeowner Ashley, who asked us not to use her last name to protect her reputation, found herself in the middle of the housing crisis earlier this year. She and her husband purchased a home in 2008 with a loan-to-value ratio in the low 80 percent range.

Three years later and with a new addition to their family, Ashley and her husband were ready to sell and move into a bigger home. But then they hit a roadblock.

“The appraised values across the street, the builder had come in and started dropping prices on the remaining houses that were left. We were at the top of it, and they were at the low end. We couldn’t sell our house for what they were selling theirs,” Ashley said.

Ashley says they had a loan on their house for $204,000, and tried selling by owner to save on the commission. A year went by, and they could not find a buyer because similar houses across the street were selling for $184,000. They were upside down on their property, meaning they owed more money than their house was worth, so Ashley went to the bank and tried for five months to modify the loan. Her efforts were unsuccessful.

“Not only that, but I couldn’t even get somebody to talk to me. So we had gone round and around and around with the banks trying to get somebody, and no one was interested,” Ashley said.

So Ashley and her husband starting going through the routine steps to foreclose their home. But on the day that the trustee’s deed was filed, 30 days before foreclosure, she received a phone call from a local realtor who found her house listed as a foreclosure online. The realtor offered to help, and eventually Ashley and her husband were put in contact with Springfield attorney Dan Sivils.

Sivils says his goal is to help his clients avoid foreclosure. A single foreclosed home, according to Sivils, will knock down the value of the other homes in the neighborhood from one to 2.9 percent.

“You know, their house was worth at one point a certain amount, then because of the housing crisis, followed by the foreclosure crisis, that amount evaporated. So the folks can’t sell their home because they don’t have enough to pay off, and if they have a triggering event where they need to sell their home, well it’s now going to foreclosure. One way or the other it’s going there, unless we can find an alternative,” Sivils said.

Alternatives that Sivils says don’t lower the value of a home. One alternative is a deed in lieu of foreclosure.

“That’s basically where you agree to give the lender the deed to your home, and in return now there are programs where they may waive the deficiency, which is waive the balance of your loan,” Sivils said.

The deficiency is the difference between the current value of the house and what the homeowner owes. According to Sivils, Missouri homeowners are required to pay this deficiency, unless they can qualify for a deficiency waiver. A homeowner qualifies for these waivers either by financial hardship or by signing an unsecured promissory note with the bank.

“It makes sense, because one, a bank doesn’t need to go through with an expensive foreclosure process. A deed in lieu is very simple. I do all the work preparing the deed in lieu. So do other people. Then once the home is sold, it is just a normal house back on the market,” Sivils said.

The second alternative to foreclosure, Sivils says, is a short sale.

“In a short sale, the homeowner gets to stay in a home just like a normal sale, and it’s marketed just like a normal sale. First you get an offer to sell it, and the lender has to approve that offer. They have total control over the sale. If they approve the sale, they’ll remove their lien, then often we’ll try to negotiate a deficiency waiver,” Sivils said.

And what about the homeowners who choose to stay in their homes and keep making those payments even though they’re upside down?

“What we need is for homes to be able to be bought and sold again. And it really doesn’t help if people stay in their homes, waiting for it to come back, because I don’t know any economists that say ‘In one, or two, or three years it’ll be back.’ There’s a lot of people on all sides of the political spectrum that are not planning on home prices getting back to the 2006, 2007 levels,” Sivils said.

And as for Ashley and her husband? She says once Sivils began working with the banks to short sell their home, the weight was lifted off their shoulders. Six and a half months after they met Sivils, a short a sale agreement was made, and their house closed.

“Basically they [the banks] never hassled us again. Ever. We would get harsh, mean phone calls from the bank because that’s their job. It’s to tell you how awful your credit’s going to be. That’s their job to do that, trying to hassled you into paying, and keeping your loan. The entire time that Dan was involved, I never dealt with them. I called Dan every single time I would get a phone call and he would take care of it,” Ashley said.

Ashley and her husband didn't even have to pay direct attorney fees to Sivils; rather, those fees were rolled into their payoff to the bank.

Sivils says the foreclosure crisis will likely get worse before it gets better, predicting that more foreclosures will occur after the presidential election. But in the long term, he thinks it will improve, as long as both lenders and homeowners realize it’s not about getting a homeowner out of debt. Rather, he says, it’s about re-evaluating a home’s worth in the most reasonable way possible.                                                                        

For KSMU News, I’m Samuel Crowe.