Are you several payments behind on your mortgage and not been able to get any more relief from your lender? The next person you see at your door just might be Frank the Foreclosure Man. Do not be surprised to discover that Frank is not from your mortgage company.
Frank the Foreclosure Man is a composite I made up to describe what is generally referred to as a foreclosure specialist or foreclosure broker. It was the early 1980s when I first met Frank, a man who made his living off foreclosed properties. Back then, interest rates were skyrocketing, homeowners were having trouble selling and foreclosures were going up.
Frank appeared on the scene, sought out desperate homeowners and attempted to get them to sell their homes to him for the amount in arrears. Frank then resold at a higher price or took the unsuspecting owner on the ride of his financial life. Frank disappeared for a while after interest rates went down and the real estate market got hot, but now he is back. That is because foreclosure rates are going up again.
RealtyTrac, (www.realtytrac.com) an industry organization that maintains a nationwide database of foreclosures, says mortgage defaults between January and March of this year numbered 323,102 compared with 188,122 during the same period last year — an increase of 72%. Indianapolis, Atlanta, Dallas, Memphis and Denver had the highest foreclosure rates in the first quarter of 2006.
Fortunately, Jackson has one of the lowest foreclosure rates of the top 100 cities.
Frank the Foreclosure Man awakens each day and immediately checks the newspaper. He does not care about the news; he goes straight for the legal notices. There he scans the foreclosure section and makes a list of houses in certain neighborhoods. Some of these houses he will want to buy and others he will want to negotiate with the owner. His goal is to find homeowners who are behind on their payments, but have a lot of equity in their property. He is especially in search of owners who are desperate. He knows that desperate owners feel that they have only two choices — lose their home to a foreclosure sale or negotiate with Frank to keep their home.
Frank calls on the owner and says that he may be able to help in these desperate times. In Mississippi, a lender can foreclose on a home in a matter of several weeks after giving public notice. In some states, it takes several months. Frank points out to the owner that if the property sells for less than the mortgage balance plus expenses then the owner may have a judgment placed against for the remaining balance. And then there is that nasty matter of a credit rating that will certainly be affected. The owner, not wanting to lose his home, his credit rating and more, listens to Frank.
Frank’s offer is rather straightforward. Frank will buy the property for the back payments and then lease the house back to the owner until the owner can get financially back on his feet. Frank even promises to resell the house to the owner for only a small profit for Frank’s time and effort. Frank whips out a warranty deed and has the owner signs the property over to him.
Now it gets interesting. Depending on the circumstances, Frank might just hold onto the deed and collect payments from the owner. He will use that money, plus his own, to make up the back payments so that the foreclosure does not go forward. He might begin advertising the property for sale at market value. If he finds a buyer he might evict the owner, file the deed and then sell to the new buyer. That can result in a hefty profit. Sometimes the old owner does not make the payments to Frank, moves out and leaves a vacant house. In that case, Frank may even rent it if he can get more in rent than the mortgage payment, or he may sell it.
So, is Frank the Foreclosure Man in a legitimate business? As long as there are no misrepresentations to the owner or the lender, Frank may very well be providing a valuable service. Web sites are also popping up offering programs to teach you how to be a foreclosure specialist. There is probably a cable television program on the subject by now.
Is Frank the Foreclosure Man a piranha? That’s what one state attorney general calls foreclosure specialists.
If you are a homeowner who has received a foreclosure notice, contact an attorney and discuss your legal rights. I would advise you to contact your lender, but I am assuming that because foreclosure proceedings have begun you have already done that with unsuccessful results. By all means, do not sell your house for less than market value without being fully informed.
Phil Hardwick’s column on Mississippi Business appears regularly in the Mississippi Business Journal. His e-mail address is firstname.lastname@example.org and his Web site is www.philhardwick.com.