After the recent emergence of what some are calling the “Second Mortgage Crisis,” KHTS AM-1220 brought on two local experts to discuss what’s happening right here in Santa Clarita and how homeowners can protect themselves.
Home equity values are nearing what they once were before the first crisis began in 2006, and as a result, banks are starting to come out of the shadows to collect old debts, forcing families into bankruptcy and foreclosure, according to Richard Szerman of Alta Realty Group.
“What we’re seeing is, the banks have this attitude that, ‘Well, now there’s equity in the property, so why should we deal when we can just take the house?’” explained Szerman, who offers free foreclosure defense services to the public.
Szerman is already seeing what he called a “second wave” of bankruptcies and foreclosures right here in Santa Clarita, where homeowners who had their second mortgages “charged off” around 2006 are now realizing that their debts are back — and with 10 years of accrued interest, late fees and penalties.
Bankruptcy attorney Louis Esbin, who frequently partners with Szerman on these types of cases, noted that “the vast amount” of homeowners who received these charge-off letters believed their debt had disappeared and they didn’t owe it anymore.
“That’s not true — a charge-off is a step along the way for the holder of the debt to take a tax benefit from the debt not being collectible,” Esbin explained. “But that’s not understood by the homeowner — it’s not understood by a lot of accountants.”
Szerman calls the sudden reappearance of these second mortgages “zombie seconds” because he noted they “return from the dead.”
“You wind up with families who think they’re finally coming out of the economic downturn and they’re finally starting to see a light at the end of the tunnel, and then what they discover (is), that light is the head of an oncoming train,” he said. “They’re actually in more danger now than they were were before, and we see this over and over and over again.”
For example, if a homeowner’s $150,000 second mortgage was charged out in 2007, with a 10 percent interest rate over the course of the last 10 years, they would now be looking at between a $400,000 and $500,000 debt, according to Szerman.
“(The banks) all of a sudden show up at your doorstep and say, ‘Hi, we’re going to take your house,’” Esbin said. “And they have every right to collect.”
He and Szerman are currently working on a case in Santa Clarita where the family owes slightly more on their first mortgage than the house is worth, and just as they thought they were finally about to be free from their debt and able to sell the house, they were hit with a “zombie second.”
Originally a $60,000 loan, the second is now at $130,000 with the bank demanding $78,000 upfront and payments of $1,400 a month for the next 15 years or they will foreclose.
“That’s insane,” Szerman said. “No bank that does that is serious about working out a deal.”
After their more realistic counter offer of $20,000 upfront and payments thereafter was denied, Szerman presented two appraisals to the bank which he noted show that the house is already over encumbered by their first mortgage.
Szerman noted the bank’s attorney called and said he explained to the board of directors that forcing the family into filing a chapter 13 bankruptcy to save their house was “a bad idea” and the bank would “lose everything on this loan and they should work this out with you,” but the board wouldn’t change their decision.
“So you’re forcing this family into bankruptcy for really no reason — the bank involved isn’t getting penny one out of it, the family isn’t going to shred their credit after spending 10 years trying to dig themselves out of this hole and the bankruptcy court gets yet another case that it just doesn’t need,” Szerman said. “All because of just greed, stupidity and a business model that is inherently corrupt.”
Any homeowners from Santa Clarita who are facing a “zombie second” of their own — or think they are at risk of being hit with one — are encouraged to reach out to Szerman as soon as possible to take advantage of his free foreclosure defense services.
While Szerman often partners with Esbin on these types of cases, homeowners considering bankruptcy can also schedule a one-hour consultation for just $100 with Esbin to review their case and discuss their options.
“The banks feel they can get away with just about anything. They had been getting a little bit better, but then this year they’ve gotten much, much worse,” Szerman said. “What a lot of people don’t understand is that the rules really don’t favor the homeowner, and if you don’t know what the rules are, then you are in all kinds of trouble.”
To contact Richard Szerman of Alta Realty Group for free foreclosure defense services, call or text 661-714-1400, email firstname.lastname@example.org, or click here.