Say your home gets foreclosed on. What then? Your options are to file for bankruptcy or pay off the deficiency balance, which is the amount you are liable for on the note after the foreclosure sale. But what many people don’t know — in fact, I learned this just at dinner last night — that figure can usually be reduced to pennies on the dollar outside of filing bankruptcy IF you hire an attorney to negotiate with the mortgage company. And the mortgage companies are getting so bankruptcy weary, they are in a more negotiating mood, says Jacob A. Decker, an attorney with Allmand & Lee.

“The large five mortgage companies are really talking turkey now, ” says Decker. “Last week, I settled one deficiency balance of $65,000 for less than $5,000.”

The trick, he says,  is to work with a bankruptcy law firm that deals with the creditors on a daily basis in a bankruptcy context. That way, the lenders know that if they do not settle for a  pennies on the dollar, the next step will be a bankruptcy filing where they will likely get zilch. A couple thousand versus zero? Decker says the lenders will almost always take the money.

Toss in cash-strapped tenants who are filing to wriggle free of long-term leases, bankruptcy attorneys are busier than they have ever been, says Decker. He’s also seen a significant increase in creditors’ willingness to settle other debt — renegotiate auto, student loan and even credit card debt. Bankruptcy attorneys are raking it in. Full disclosure: I have first-hand knowledge of how hard they’re working and am not complaining one bit: Decker is my new son-in-law!

Even if your mortgage has been sold, sold again and re-packaged as a mortgage-backed security, your name is on the note and you are responsible for the monthly payments no matter who it was assigned to. Know those stacks of papers you sign at closing? One of those docs gives your lender the right to assign the loan — or sell it — to whoever wants to pay the big bucks buy it. Miss one payment, you’ll find yourself embroiled in a lot of explanation and eterna-holds. (Wachovia calls me if one of our mortgage payments is two days late!) Miss several and your home could end up being sold on the court-house steps. Texas is a non-judicial foreclosure state, which means nothing has to be shown to a judge prior to launching the foreclosure process. This is one reason why Texas bankruptcy attorneys are busier than sin these days, working Saturdays and going to court to help homeowners save their homes.

But I need reader’s help with this one: is the mortgage holder, in this case none other than our esteemed Wick Allison, required to mail the payment (or send electronically) to the last known servicing address? Isn’t the bank required to notify all mortgage holders when a new loan assignment has taken place and specify where payments are to be mailed? What, if any, are the penalties against the mortgage holder for not doing so?

I recall an article in either the New York Times or Wall Street Journal a few months’ back describing the confusion all these loan re-assignments have caused in the foreclosure process. Folks were getting to court and no one could locate the actual mortgage documents. I’m trying to find the article.

One, I cannot believe how archaic the process is. A bunch of hot people standing outside the George Allen Courthouse, lawyers in suits  (low wool content, I hope). We could have used chair massages and Slurpee’s, and where’s the potty? At first we went to Lew Sterrett Frank Crowley, I pulled out the Handi-Wipes, but was re-directed to 600 Commerce after passing my handbag through the metal detector. Veterans tell me that folks didn’t like being at Lew Crowley for obvious reasons. So we get to 600 Commerce and like a sidewalk fair, everyone is  standing outside under the overhang, where I stayed remarkably comfortable for a July day in Texas. (Note to Dallas County: exterior ceiling fans.)  A few people did stop and ask if this was a fair or something. It was hot, but could have been worse.  Pity the poor trustee  who was off next to Tarrant County’s auction — it is held on the west-facing courthouse steps, outside, no overhang.

Foreclosure attendees consist of four basic food groups: newbies, like me;  investors (serious), also known as vultures; bank reps — I learned many of the banks buy back their own properties so they can re-sell them; people desperately trying to save their homes. The atmosphere is almost camp-like, since the savvy bring coolers and those fold-able camp chairs — one trustee even had a camp battery pack and fan. Paperwork is kept in rolling file cartons a la the Container Store. The American Dream is in full force — one person’s loss is another’s bargain.  Most folks are dressed casually save for the few dedicated attorneys in suits who stand out like hot, sore thumbs, but at least you can see them as they read off their prepped legal docs — same verbiage, different debtor: “Whereas on August 12, 1999, Michael Jackson, a single man, executed a deed for the sum of $500,000 in Dallas County…”  You cannot hear  very well as the buses, planes and sirens are out-screeching  words, so everyone leans in close, creating a huddle around each trustee. I saw one bid start at $80,000, the home sold for $214,000. (Interesting, the guy waiting to about $150K to jump in.) The bidding on some properties  started at a dollar. One Lakeridge property owned by Bank of America started at $24,650, and I wrote about a four million dollar property out there. Someone cleaned house on a $5 million dollar downtown commercial property they snagged for $3 million. The blood thirst for bargains was thick: I was back at the silent auction table at a charity fund raiser where an aggressive broad planted herself in front of the sign-up for lunch with Nolan Ryan at The Ballpark, or at Filene’s Basement with La Perla fifty cents a pair.

To do this right, you need a mentor, and mine was Virginia Cook’s Kyle Rovinsky, a D Best Realtor, and foreclosure auction vet. We wanted to be “in the pit” by ten a.m. and almost were save for the Lew Sterrett detour. The good folks at KERA were there filming a special on mortgages and foreclosure that runs July 21 –I chatted with the delightful BJ Austin and helped them find “who was in charge.” That was an excellent question, actually, because at the forclosure auction it seems that no one is in charge. You must buy the foreclosure list from Roddy’s Foreclosure Listing Service, Inc. to even know what is for sale,  who the trustee is, although a new company, Lone Star Foreclosures, is coming to cover Hunt and Smith Counties: one person’s poison is another’s paradise. Veterans buy the list days ahead,  (this month’s was about 136 pages long) scrutinize and organize it into the properties of interest. The trustee doesn’t just shout out the street address. They call the legal property description,  lot and block number, so you really have to know what you are looking for.  The Roddy’s people put name tags on the trustees — lawyers who work for the banks or mortgagors — and would occasionally shout out the name of the trustee for all to hear. No megaphones, no microphones, and a few lenders will send out a cameraman to document the process.

As for the people, they ranged from the pros working for real estate investment companies to individuals, like the woman and her family who have been buying foreclosed properties for 30 years. She was the one out-bid by a man on an east Dallas property she told me was owned by an older Vet who had fallen behind on his payments — she wasn’t sure what she would have done with the home had she bought it, but she was out-bid so the issue was moot. Though the banks will start bidding at a dollar, they will not let the property out the door at that price. Once the bidding starts, a bank rep will bid it up. You can pick up some real dogs if you don’t know what you are doing — these properties, one veteran told me, sell “as is” and unless you’ve gotten title work you could turn around and have to pay out thousands in unpaid liens, property taxes, not to mention repairs. That’s why you really need the list early  and need to research the properties.  Also, many homes on the list never make it to the auction, like 3616 Beverly. People make midnight deals — even 9:00 a.m. deals — with the lenders to save their home. I was told of a local home builder who has been “saving” his properties the night before every auction now for six months. Still, one expert told me that a smart buyer can pick up a home for 30% less — he strongly suggests that if you have your eye on a property, go ahead and pay for the title work prior to the auction.

I met one young eager investor who started buying buying foreclosures one year ago — 50 units. He put in about $15,000 in repairs and sold for a profit. But this is such a depressing market, I said. Not so, he said, this is when you make money, when the market is down. Quit listening to the media. But what, I asked, what if it NEVER comes back, at least not for a very long time? Doesn’t matter, he said, as long as you buy it right. There is this thing called seller financing.

Real estate, he said, is very much like poker: matters not the cards you are dealt, it matters how you play the game.

People Newspapers staff photographer Chris McGathey sent along the following photos and accompanying caption:

Acorn Members Sebastian Dominguez, holding a sign, and Tersesa Rojo protesting outside the Wells Fargo at Lemmon Avenue and Wycliff on Wednesday. The Acorn members were on hand to support and help two families that were meeting with bank officials to re-negotiate the foreclosure of their homes. Texas Acron is currently supporting and have put together a five-point legislative package to help families stay in their homes.

(with tongue placed firmly in cheek) I wonder if I can get some protesters to stand outside the cubicles of certain unnamed PR reps who spam my inbox with 6 versions of the same e-mail?

Here’s a closer look at the data from Addison-based Foreclosing Listing Service:

A -$8000 tax credit for first-time buyers, l like very much. Assuming this will work like a section 179 deduction and come right off the taxes, not add 5 more pages or 6 hours of CPA billable hours to the tax return, essentially using tax dollars to help fund the home purchase. 

F- Revamping U.S. bankruptcy rules, giving judges the power to reduce mortgage payments and set lower interest rates. Excuse me, but I think part of our problem was that banks got too big, unregulated and complex. So now we are going to let judges play banker? This will slow down lending and banks will have to recoup their losses from somewhere —charge more to the customers who pay their bills, or higher PMI or PMI for everyone or higher interest rates.

Not fair, folks.

C – The government will match reductions lenders make to keep borrowers home payments at 31% of their income. What income — stated income? Does that include alimony?

Incomplete – Flushing Fannie Mae and Freddie Mac with $900 billion.

But what about people who bought with zero down? Didn’t they have to pay P.M.I? Or were they, instead, encouraged to get second mortgages so that instead of having an insurance policy on default, they would screw over two banks instead of one?

May I make a modest suggestion: whoever initiated the dumping of P.M.I. helped make a significant contribution to the mortgage crisis and current financial meltdown. Agree?

To understand how we got into this trillion dollar financial mess, Shiller said we had a number of merging factors: rare events, complacency, over reliance on conventional wisdom, herd behavior, and more respect for sophisticated methods rather than substantial evidence. (”Quantitative technology?”) Finance and real estate have become much more sophisticated disciplines, but data we used didnt include historical episodes such as The Great Depression. Since the 1929 crash, we had 3 major stock dips — 1929, 1987 and 2008. Shiller thinks this latest episode is more like 1929 than 1987, and he doesn’t think recovery will be rapid. But for the first time in our economic history, we had a real estate bubble. Americans went gaga about real estate as an investment. In Miami, for example, housing prices were stable from 1987 to 2000. 2001 to 2007 prices tripled — the Miami condo market overbuilt by hundreds of thousands of units. We got carried away: irrational exhuberance, herd mentality. Long term solution? Market transparency, better information, but as Shiller pointed out, you can present buyers with all kinds of warnings — sometimes people just don’t pay attention or figure it out. Very interesting comment: what if, he asked, medical professionals did not exist and all we had were drug company sales reps telling us which drug to take? (Would the Wellbutrin folks would tout the benefits of Prozac or push their product?) Shiller believes every family needs a financial physician that the government should subsidize. (Reality check: the government does provide health benefits for some through Medicaid and Medicare, but both programs reimburse physicians at minimal rates and are teetering financially.) These advisors would vow to not take commissions or other distractions to affect the advice they give their clients.

In this country, we have failed to manage real estate risk, which is devastating to familes. Shiller proposes a futures market for single family homes. We need more hedging of real estate risk, something he is focusing on in his company, Macroshares. We need to think creatively about our mortgage institutions. Why are we so married to 30 year conventional mortgages? (And why was the wheeled suitcase only invented in 1972?) Why can’t a work-out be built into a mortgage — in case of default, safety measures would kick in to prevent foreclosure. Why not have home equity insurance? Livelihood insurance? Payroll deductions for mortgages that would adjust up or down with the market? Harvard’s Elizabeth Warren has proposed a Financial Product Safety Commission to protect consumers from financial products, much like the Consumer Product Safety Commission protects consumers from concrete products.

 We are living in very uncertain times, says Shiller. To people close to retirement or living off equities, be careful — the market could fall in half again this year. Job creation did not drive the housing boom — credit did. And it’s going to take much more than just a finger-snap to get us out of it.

“We’re, as it is, struggling now from paycheck to paycheck just to make sure ends meet,” she said. “So, that would be great, a perfect idea.”

Doesn’t sound like a perfect idea to me. Sounds like how we got into this mess. Sounds like someone who probably ought to put home buying on hold, save some money, rent and buy when they are not struggling from paycheck to paycheck.

Or are we looking at the next family to have a home foreclosed in Arlington?�