Mortgage lenders are beginning to offer money to borrowers who don’t pay to get them to take care of their property until it can be sold in a short sale.
USA Today reports three of the nation’s biggest banks are offering anywhere from less than $3,000 to up to $35,000 to non-paying borrowers in states where there’s a long process to foreclosure. And believe it or not, that’s actually good business, as I’ll explain later.
Judicial vs. non-judicial foreclosure states
Let me set a little background here. Mortgage foreclosure procedure is determined by where you live and there are two kinds of states: Judicial foreclosure states and non-judicial foreclosure states. See what kind of state you live in.
In judicial foreclosure states, a lender has to go before a judge to prove they have a right to foreclose. That means documenting that they own the mortgage and that the homeowner hasn’t paid. But doing that has proven to be very messy in light of the whole robo-signing scandal.
In non-judicial foreclosure states, it’s not necessary to go before a judge. The lender simply takes your house if you’re not paying. They’re required to give you notice, but that’s about it.
A smart business move?
Why would the banks pay people who aren’t paying? Think about it like this: If a bank has to foreclosure or a house goes abandoned, that house’s value declines rapidly. Copper is stolen out of the HVAC, appliances are stolen from inside the home and vandals generally tear the place up. Pretty soon the bank has a worthless property sitting on its books.
So by cutting a deal with the non-paying borrower, the bank can insist that the person keep the house in good shape and require them to market it as a short sale. That helps everybody in the end.
The eventual next buyer gets a well maintained home; the bank avoids the expense of foreclosure; and the delinquent borrower is (generally) protected from being sued for deficiency over the bank’s losses when a short sale is done, though their credit does take a hit that’s equivalent to a foreclosure.
Again, the key thing to know is lenders are only doing this in judicial foreclosure states. And the report in USA Today typified the frequency of these payouts as both “random and infrequent” and “limited but increasing.” So know that it’s something of a shot in the dark, but one that might work out for you.
Here’s a quick rundown of what lenders are reportedly offering:
- Bank of America is paying between $5,000 and $25,000 in the state of Florida. No word yet on a national program. Call 1-866-880-1232 for more details.
- Wells Fargo is paying between $3,000 to $20,000. Call 1-800-678-7986 for more details.
- Chase is offering incentives of up to $35,000 as a national program. Call 407-248-3945 for more details.