Update on my foreclosed former neighbor:

[Robb]

OK, so long story short, the guy I used to live catty-corner (kitty corner? Across the intersection, kinda) from a few years back lost his job and had a few other problems, moved away to get work and the bank foreclosed on his house. This was almost a year ago now, and I just heard from him this week -- he's actually doing well (almost 70, IIRC), he's got a steady gig this winter doing maintenance on lifts at an undisclosed ski area. :D

Anyhow, here's the part of his story that I find fascinating: he's in the clear, it appears. No deficiency in the foreclosure -- the bank called it square. He owed money, the bank said the house was worth what was owed, he's long since out of it, it went back on the market. It sold, too -- three times, which is the interesting part.

First, it went to the foreclosure auction, where his bank bought it for exactly what they said he owed them. Which is where he got off the hook.

Next, it went from the bank (I want to say this was BofA or Chase) to Freddy Mac (or Fannie Mae, I'm sorry I don't remember which is correct now that I'm re-telling the story). The transfer price? Again, the same number, exactly what was owed to the penny.

Then it hit the actual market, I guess. He said they dropped the price every month until it sold -- for $100K less. I looked it up online and it sold to a guy I know of, but don't know personally (it was a small town). The point is, it sold for probably the "real" value of the place, rather than the inflated value of just a few months earlier.

So what happened? Who was left holding the bag? I'm guessing Freddy/Fannie/whoever, not the bank, but I don't really understand this stuff. Mostly I'm just glad he's surfaced and is doing relatively well (and, frankly, has health insurance). Anyone have any idea what might've gone down?

[NYC_SKP]

1. No idea, except that BofA or Chase are off the hook....

...not sure if Freddy/Fanny put the onus on us taxpayers or not, but I wouldn't be surprised if this constitutes more of the same.

Privatized Profit, Socialized Debt.

:patriot:

[dkf]

5. If fannie/freddie were involved then it's us.

[Pigheaded]

2. Taxpayers holding the bag

Which means me and you.

PH

[tridim]

3. That's exactly what happened with my foreclosure, except..

Chase acquired it illegally from WAMU when they went belly up. Essentially they got my house for free, never doing any paperwork to transfer the mortgage to their books. When they sold my house it was still legally owned by WAMU, though I'm sure Chase kept the profits.

[customerserviceguy]

6. When WAMU was shut down by the Feds

Chase acquired all of their assets, and their liabilities. It's just a shotgun merger, that's all.

[tridim]

7. Right, and they paid zero dollars for those assets.

Quite a deal if you're too big to fail.

[customerserviceguy]

8. They also assumed a buttload of liabilities

That's why OTS shut them down. And how much of those assets were mortgage loans secured by rapidly declining real estate?

I will admit, they did this to get bailout money. I don't recall any other too-big-to-fails having to do too much to get their handouts.

[customerserviceguy]

4. Yes, the federal mortgage insurance paid off the lender in full

But you knew that. Who's left holding the bag? The taxpayers. And their children.

I don't know what state you live in, but if you are in a non-recourse state, with a Deed of Trust being used as the instrument securing the property (as opposed to a mortgage), then it is normal for your neighbor to have walked away owing nothing. Of course, it's very possible that your friend had no other assets worth going for, his retirement accounts would have very likely been exempt from a deficiency judgment.

The "inflated" price of the transfers at the foreclosure sale and the deed to Frannie had to be for the full amount of the unpaid principal amount of the debt, plus interest and costs. That's how mortgage insurance works.