Help a Reader: Foreclosure

Here's an email I recently received from a reader:

I need to ask for some advice about a mortgage problem my aunt is having. First of all, she is disabled and living on a fixed income. She and her mother (my grandmother) own a house in Los Angeles, CA. My grandmother died 2 years ago. Both names were on the title, and it was assumed that the title would simply transfer to my aunt, without having to file any paperwork. We have recently learned that assumption was incorrect and that she should have filed the paperwork for Prop 58 in order for taxes to not be reassessed. Taxes were reassessed to current market value (actually, it is a bit higher, since it was reassessed for the time period when prices were at it's highest!)

Here's the problem: My aunt has the mortgage through Wells Fargo. They paid the newly assessed property taxes (which came up to more than $12K), and have adjusted her new mortgage payment accordingly. They have denied her application to modify her loan, even though we have already filed the paperwork with the assessor's office and are just waiting for the taxes to be reverted back to what it was before. The assessor's office said that the way things are going with the economy, it might not get paid back until next year. Wells Fargo is already trying to start short sale proceedings. We don't know what to do. She will lose the house at this rate, simply for not realizing she was supposed to file something at the time of her mother's death. Wells Fargo sees that the house is worth far more than the mortgage she owes, and is trying to get the house any way they can. Please let me know if there is anything we can do to keep the house.

The only other responses I have gotten have said to get a lawyer, but we cannot afford that, so I'm not sure there is much else that can be done.

Any advice for her?

Comments

[Strick]

I'm gonna assume the commenter meant "foreclosure" proceedings and not "short sale" cause can't imagine how this aunt could afford such a big place that's underwater (but maybe that's just California living for ya)

You get 3 years to file the form she's talking about for re-assessment exemption, so it will be granted and the money will be returned to Wells Fargo (whenever California can come up with it, its budget is tighter than this aunt's right now). Given this is a guranteed thing, I can't imagine that if somehow you got ahold of someone up into the middle managment chain at Wells Fargo there wouldn't be a way to delay this until the funds are returned (wouldn't even imagine a true "restructuring" would even be worth it for Wells to bother with, just adjust & then delay their escrow calculation.) But how you get a hold of someone like this I have no idea.

[FMF]

Strick --

Maybe an email carpet bomb?

http://consumerist.com/consumer/complaint-letters/how-to-launch-an-executive-email-carpet-bomb-259713.php

[michelle]

Have you tried Legal Aid? They have sliding fees, etc.: http://www.legal-aid.com/

[Jim]

It sounds like the main problem is figuring out how to handle that $12k property tax bill. Is the aunt able to handle the payments on the home otherwise? From the sounds of it I think that is the case. So the problem seems to be coming up with $12k to pay the property tax bill.

Is that $12k tax bill for 1 year or multiple years? If thats just 1 year then thats a very high value home. I'm guessing something around $900k? In fact if she has a lot of equity in the home but little income then it might be in her best interest overall to sell that home and move somewhere cheaper. Frankly I think she should SELL the home. Given the whole picture, a very expensive home with lots of equity owned by a woman on a fixed income and disability. I think the best solution overall is to move to a much cheaper home and cash in that equity. But selling a home is tough nowadays.

Can the aunt borrow any money anywhere? Has she tried to refinance via another bank?

How old is the aunt? A reverse mortgage might actually be a solution here. A reverse mortgage would pay off the existing loan and then give the aunt a fixed income via the equity from the house. Its probably only appropriate if the aunt is older.

Can anyone else in the family help out with some money either as a gift, loan or investment in the home?

[Jim]

BTW, my answer above is 'plan b' in case they can't get Wells Fargo to back off. Best option is like Strick said, to push up the management chain at Wells Fargo until they get someone who can help.

[Stephen]

One thing to investigate is whether the company at which you or a close relative works provides access to legal assistance. My company, for example, allows one to receive legal advice (not actual representation, but advice on a legal issue) for a token hourly amount (the remainder being paid by the company).

[MC]

The whole story is confusing.

I can't believe the Wells Fargo mortgage didn't already require an escrow account that would cover most of the property taxes. So even if they taxes went up a bit (no surprise there), wouldn't that just add only a small amount to each month's mortgage payment? Is the letter writer actually saying that the Aunt can't pay the small increase in the mortgage payment caused by the new taxes? If she can comfortably afford the old mortgage payments, it's not really believable that she can't possibly afford the new ones (with the tax increase added in).

I'm also confused by the property tax increase being huge and a total surprise, and the assumption that filing papers to challenge the tax increase will lead to a reversal. the implication that the property hadn't been re-assessed in eons. In my experience counties usually regularly re-assess homes and reprice their property taxes whenever they want to. And even if you challenge their assessment, they often deny to re-evaluate. Is this due to some special Calif rule?

Perhaps the letter writer is referring to IRS taxes derived from the Aunt receiving the house's equity in the grandmother's will?

Sounds to me that there is no way the Aunt could ever take over paying the mortgage on her own, property tax assessments notwithstanding. She's got to sell the property and move, even if she doesn't get what the property's worth. And if she can't sell it right now, perhaps a family member can take of the mortgage payments until she can.

If she received the property via a will, she might not have to sell right away. The executor of the will usually has up to a year to settle the estate and should be paying the mortgage from the estate until the property sells.

[Apex]

@MC

You don't understand CA tax law and the 1978 prop 13 tax law. Look it up and your lack of understandings will go away.

CA holds property taxes artifically low for existing home owners. The increases are limited to very small amounts. If the same owner owns it for decades the taxes become drastically under market value and cannot be adjusted until it is sold. The mortgage if one still exists is on a very old and much lower value as are the taxes and thus all are very cheap compared to current market. This was done to keep people from losing their house due to historical periods of rapid house appreciation causing people's property taxes to make their house unaffordable when it was previously affordable. Once the ownership transfers, the taxes re-adjust in full overnight to the current market value. A potential jump of hundreds and hundreds of percent, over night.

This is what happened to this person and even though the paper work now filed is going to let the taxes revert back, the current payment structure it has set off are completely unaffordable for her.

[Q]

Get a lawyer. Seriously. Ignore all of the other advice, and hire a good lawyer. It sounds like your aunt is risking tens of thousands of dollars--maybe even hundreds of thousands if the mortgage is almost paid off. To not be willing to pay a lawyer $2000 to solve a complicated legal problem like this is astounding. You'll risk much more than the legal fees if you don't get good advice.

I'm assuming that the aunt held the property as a tenant in common with right of survivorship with the deceased. If so, knowing nothing about CA law, I would still bet a good lawyer could find a way to resolve this favorably for the aunt.

[Eager]

People should stop saying they can't afford a lawyer.

In this day and age, you can't afford NOT to have a lawyer.

[Jim]

Apex is right about CA property taxes. Since this house was owned by the grandmother it may have been bought decades ago and would have been locked in at a very low property tax rate based on the existing value at the time. For example if the house was bought in 1980 for $100k and is now worth $800k the actual current property tax rate may be $12k but the grandmother may have been locked in at taxes bill of $1,500 for the $100k property value since 1980.

[Jim]

Bit of a tangent but, MC said : "Perhaps the letter writer is referring to IRS taxes derived from the Aunt receiving the house's equity in the grandmother's will?"

There would be no estate tax bill due unless the estate was worth millions of dollars. In 2009 the first $3.5M of inheritance is free from estate taxes. The person receiving the inheritance doesn't pay the taxes themselves, the taxes are settled by the estate as part of probate before the money and assets are given out.

[Strick]

If this person really can afford this house without the drastic increase in taxes, I'm in with your plan FMF!!! She will get the exemption and Wells fargo will get their money back eventually, we just need someone to stall during the red tape.

[Apex]

Advice it seems to me boils down to 3 categories.

1. Get the bank to change their minds and back off. (not easy)
2. Get a lawyer to find legal recourse. (No idea how successful that would be, perhahps very, I just don't know.)
3. Raise the money to pay the difference until you get the money back from CA.

Option 3 is the least hassle and most straight forward if you can do it.

Options to do so include:

1. Get a loan from a bank for it. Not sure if a bank would lend on this situation or not.
2. Get friends and family to chip in to pay the difference knowing they will eventually get paid back.
3. Go to one of the community lending sites such as prosper and put in a request to lend the money from the community to pay the difference until the money is refunded. If you have decent credit and can prove with documentation that the state has promised the money back this would probably be considered a good risk by many community borrowers and you might be able to raise the money there and pay a reasonable interest rate (although probably a little higher than market maybe something around 8-10%) and you could just get the money to make the payments that way.

I have never tried these community lending sites but this seems like a great use for it and since everyone is usually only lending 50 bucks at a time or so, I bet you could get a lot of takers and people would actually just like to lend to you to help you out. I know I would if I was a lender on there.

Good luck!

[Sarah]

Lawyer! In addition to the actual substantive help a lawyer can provide, the fact that you're willing to hire one is a signal to the bank that you're not a hapless pushover. That alone can be helpful in negotiations.

It sounds like too much is at stake *not* to get legal assistance.

[Mark]

Ah, yes, old money entitlements. It's what California is built on. I never tire of hearing stories of "old, poor people" on fixed incomes who manage to live in $1.2M houses (as your tax of $12,000 assumes). Tell granny that she is not entitled to anything and that she should make sacrifices like the rest of us do--move to a place you can actually afford!

[Otis]

@Mark

It's not an old-money 'entitlement'. Just because a house could theoretically be sold for millions of dollars doesn't mean you should kick somebody out of it. Also, if you look at a $2M house in CA, you might just be shocked at how little house that can get you in some places. Like FMF says, you should live somewhere affordable. Well, this place is affordable for her once this bank error gets corrected. To simply move to a place she could afford would mean having to move to somewhere 1/2 way across the country. And since she's older and poor she won't be able to afford plane trips and such, thus completely divorcing her from her life.

Basically callous people like you making unrealistic demands of "old, poor people" are in large part what's wrong with the world. Just live and let live. Let this lady live in her home and don't rip her away from everything she knows and loves just so you (or someone like you) can make a buck.

[Mark]

If you have a $1.2M asset, you are not poor. And, BTW, I live in California and have a six-figure income. And guess what? I won't buy a house in this state because too many old people own multiple homes assessed well-below market rates, while younger people bear the full burden of taxes. No sympathy. She could move to Sac or Fresno and stay in the state and have a comparable home for less than a quarter of the price. If she is "poor," she shouldn't be in a $1.2M house!!! But, my view is a minority. Liberals always believe that the "poor" are entitled to $1M homes on the backs of the working class.

[Mark]

Actually, the real problem in this world is people like you who believe it is everyone's entitlement to live in a house above their means. Isn't that what got us into this mess? People buying $600K, 900K home (or multiple properties in the case of flippers) for pure greed and speculation, with no money down. They felt that they "deserved" to live anywhere and do anything. Then, because their investments crashed, they either walk away, causing the bank--and ultimately taxpayers--to eat the loss, or they start whining to Congress that they were duped into buying the house and start missing payments so they can get taxpayer help. Whatever happened to personal responsibility?

[Sarah]

Mark, what in the world are you even talking about? This woman didn't buy a house above her means. She lived in it with a relative who (it would seem) had lived in it for a long time, and inherited it from her. She can afford the house--she just can't afford to pay the *incorrectly assessed* taxes, which she was only charged because she, an uncounseled layperson, didn't understand a fine point of CA tax/property law. Where is the irresponsibility?

As for "Liberals always believe that the "poor" are entitled to $1M homes on the backs of the working class," man, I missed that one at our last cabal meeting! (And p.s.: if you make a six-figure income, you aren't one of the "working class," not even in California.)