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Foreclosure war stories: Two investors share theirs

24 July 2010 No Comment

By Helen Kaiao Chang

See original story on SDNN

Monday, May 18, 2009

You thought you had it bad. Wait till you hear these two stories about real estate investors in housing foreclosures.

John Woodbury has six houses in foreclosure. Lenska Bracknell has three houses in short sales.

Woodbury, 62, was a retired state worker turned real estate investor who had a credit score of 780. He lost everything.

Bracknell, 45, runs an aerial photography business and is a real estate broker. She bought three houses on 30-year-fixed rates, full doc loans and 20 percent down. Now, those investments are sour.

Woodbury and Bracknell both attended a workshop last month about how small business owners are facing mortgage foreclosures. They agreed to share their stories with SDNN.

John Woodbury loses six houses

Investment dream: “We hoped this would help our retirement,” said Woodbury. “We were all looking forward to it.”

Number of properties: 6

Locations: Escondido, Hemet, Los Angeles, Montana, South Carolina, Texas

Credit score: 780

The good life: In 2006, “all the properties were making money,” he said. “I could borrow money, and even if they had a negative, I knew they were going up in value, so that was great.”

Warning signs: In 2008, the L.A. house rent dropped to $1,600. The mortgage was $3,200. “We knew we had to get rid of the property, because we were going through our savings.”

Refinancing: In September 2008, Woodbury applied for a refinance on the L.A. property. The mortgage broker said Woodbury’s finances were excellent, and could qualify. But Fannie Mae changed its rules, limiting the number of houses that an investor could get loans on to four. He no longer qualified for the loan.

Negotiating with the bank: Woodbury contacted First Horizon Bank, the lender on the L.A. house. “The first thing out of their mouth was, ‘Are you behind?’” said Woodbury. “We said, ‘No.’ And they said, ‘Well, you have to be behind at least two months before we can even talk to you.’”

Woodbury missed two payments, called the bank again, and “they said there’s nothing they can do.”

Attempt to sell the house: Woodbury found a buyer, with ample down payment. The house went into escrow. Two weeks before closing, the HUD statement showed that Woodbury would have to bring $33,000 to close.
Saving the deal: Woodbury borrowed $16,000 from his sister. He wiped out his savings. The real estate agents agreed to lower their commissions from 6 percent to 4.5 percent. But Woodbury was still $7,000 short.

Negotiating with the bank: Woodbury asked the bank to lower its penalties and late fees by $7,000.

“They said, ‘No.’ I said, ‘You understand, if this doesn’t close, and this house goes into foreclosure, you are going to lose about $200,000 on the value of the property immediately. I can give you all the principal, part of the interest, just not all of it.’ The bank said, ‘No, we don’t want to have anything to do with it.’”

Failed deal: The house fell out of escrow March 6 and went into foreclosure. “Everybody lost,” said Woodbury.

Bank’s motives: “They don’t need to do this,” said Woodbury, “because they know that even if they have to go into foreclosure, and they lose money, they’re going to get money from the federal government in the bailout.

“They’re not concerned about helping citizens at all. Why spend the extra time and money for something you’re going to get paid to do anyway, if you don’t do anything?”

First Horizon Bank’s response: “First Horizon strictly adheres to all applicable privacy laws, and our confidentiality policy prohibits the disclosure of customer information,” said Anthony Hicks, public relations officer, in an email.

“We recognize these are difficult times for many people and work with our customers to exhaust all available options. We encourage customers who may be experiencing difficulties, and those who think problems are likely, to contact us immediately so we can offer the best solutions for their needs within the parameters of their loans.”

Other foreclosures: “That’s one of six loan modifications I’ve tried to do, and all of them have fallen through for lack of cooperation” from banks, said Woodbury. “Part of the reason is because my credit scores have gone down, and they’ve gone down because they didn’t loan me the money, because of (rules changes at) Fannie Mae.”

Dead dreams: “Now we have no retirement, no money,” said Woodbury.

How they are surviving: Wife’s government job salary. Woodbury is filing for bankruptcy.

Responsibility: “I’m not blaming anyone but myself, because I’m the one who made all the decisions,” Woodbury said. “Nobody guaranteed me anything when I was born. You do the best that you can. Sometimes it works, sometimes it doesn’t. You just do the best you can.”

Lenska Bracknell negotiates three shortsales

Her main business: Aerial photography

How she started investing: In 2003, Bracknell bought one house, fixed and sold it. She used the profits to buy more houses.

Number of houses: 3

Location: Boise, Idaho

Great loans: 30-year fixed, 20 percent down, full documentation.

Warning signs: In 2006, many people lost jobs in Idaho. Rents dropped from $1150 to $750. The mortgages were $950.

“Suddenly, the whole cash-flow was not working anymore,” said Bracknell.

A property manager ran off with two months’ rent and a deposit. Bracknell had no rent income.

The state raised its property taxes. The property tax went up from about $750 to $3,500 a year, said Bracknell.

Negotiating with bank: “I tried to contact my lender to try to make the payments, but obviously, they don’t want tot talk to you,” said Bracknell. “So you really have to default in order to get the bank’s attention.” That didn’t work.

Shortsale: “I decided to cut my losses there, because obviously I’m not able to recoup the money,” said Bracknell. “I hired a short-sale company, an investor group that makes offers on these houses … and negotiates the shortsale with the bank,” said Bracknell.

Credit cuts: Bracknell had two American Express cards, with credit limits of $18,000 and $38,000. Since 1996, “I have never carried balances, paid every balance for the last 13 years.”

In March 2009, American Express “cut my credit down to $2000.”

Business impact: For the aerial photography business, “I can’t rent helicopters or airplanes using credit cards or do business like I normally do.”

Sleepless nights: “I got some chest pains a few weeks ago,” said Bracknell. “I had my sleepless nights, sleepless weeks, months. But I decided I can’t give in to it.”

Responsibility: “To be honest, I don’t think I did anything wrong,” said Bracknell. “I put 20-percent down, full doc loans. I treated my tenants well.”

“But due to the economic climate, certain people got too greedy,” she said. “Small people on the street really have to feel it and change their whole life.

How she’s surviving: Savings.

Future: “I love real estate,” said Bracknell. “I love to actually help people to make the right decision. And that’s why I’m using all that experience … to give that advice to other investors, who now have the cash to do the investments and turn those properties around,” she said.

Woodbury’s settlement breakdown

$445,000 — Mortgage owed
$ 26,000 — Real estate commissions
$ 7,000 — Title fees
$ 16,000 — FIRPTA* tax
+ $ 13,000 — Penalties and late fees
= $507,000 — TOTAL OWED

Amount still needed to close

$507,000 — Total owed
- $475,000 — Sale price
- $ 25,000 — Loans and savings Woodbury brought to table
= $ 7,000 — Difference needed to close

Appraisal value 2006: $775,000

* Foreign Investment in Real Estate Property income tax for non-owner occupied properties.

Follow Helen on Twitter @HelenChang.

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