By Bill Robinson
April 19, 2008 07:00 pm
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After jumping by 45.6 percent in 2007, first-quarter statistics put Madison County foreclosures on track to rise 12.4 percent in 2008.
From Jan. 1 through March 31, Madison Circuit Court has referred 61 cases to Master Commissioner David Baird. Last year, 217 referrals were made.
Foreclosures started their steep increase about two years ago, said Baird, who has been master commissioner for nearly 11 years. Local forecloses numbered 149 in 2006 and 136 in 2005.
Madison County foreclosure auctions typically take place on a Wednesday or Thursday in front of the property to be sold. Prior to an auction, they are advertised once a week for three weeks in the Richmond Register’s classified pages.
Many jurisdictions conduct foreclosure sales in front of the county courthouse, Baird said, but Madison Circuit Court directs that they be on the site in question.
For this past week, 19 sales had been advertised. Not all took place, however. A foreclosure action can be cancelled at several points prior to a sale, Baird said.
“The borrower and lender may reach an accommodation, another buyer or financier may be found or the borrower may file for bankruptcy. In that case, jurisdiction passes to the U.S. Bankruptcy Court.”
This past Thursday morning, only eight sales were pending, but by noon, the number was down to seven.
Baird presided over the sale of one home on Rose Lane between US 25 and US 421 near the Blue Grass Army Depot.
As Baird began the auction in front of the 952-square-foot frame house, only one prospective bidder was present. Bidding was opened on behalf of the lender, CitiFinancial Mortgage, at $45,900.
The lone bidder, James Reese, bought the house for $45,901.
The sale advertisement listed the lien at $72,737.
The Associated Press reported Friday that CitiFinancial’s owner, CitiGroup, suffered a record $5.1 billion loss in the first quarter of 2008, slightly more than it made in the first quarter of 2007.
Reese, a farmer, said he had bought five foreclosed properties in the past eight years and fixed them up to be rented.
“I hadn’t bought anything in the last two years,” he said.
Homes in foreclosure range from low-value older homes in poor condition to relatively new homes with six-figure prices.
The lien on a home in Shiloh Pointe, up for sale Wednesday, was listed as $485,100. The borrower filed for bankruptcy, however, and the sale was canceled.
A Boones Trace subdivision residence, also advertised to be auctioned Wednesday, was listed at $357,000. The lender, Citizens Bank of Jackson, ended up owning the property.
The sale of a home Wednesday in Indigo Run with a lien of $286,317 was canceled after the borrower filed for bankruptcy.
Why loans go bad
Lenders advancing more money than a borrower can afford to repay is usually the reason for loan defaults, said Theresa Burdette, who has been a local mortgage broker for nearly 31 years.
“We’ve been getting a lot of calls recently from people who are facing the prospect of foreclosure,” she said.
By the time a lender is threatening to foreclose, however, the borrower’s credit rating has gotten so bad that a new lender probably cannot help them.
Foreclosure is a losing situation for the lender as well as the borrower, Burdette said. Foreclosure, therefore, usually means other alternatives have been exhausted.
“We always look at the borrower’s income and expenses before making a loan,” she said.
A couple paying $600 a month in rent recently applied to finance a house with Lanco, Burdette said. To buy the house they wanted, the payments would have been $1,100 a month.
“I asked them ‘Are you currently saving the extra $500 a month you will need a month to make the mortgage payments? If not, you can’t afford this house,’” she said.
Excessive spending often is the reason a borrower gets in trouble, Burdette said.
“When people tell me they are having trouble making their payments, I say, ‘Step back and get on a budget.’ I’ve told so many people to get (financial advisor) Dave Ramsey’s book or attend his seminars. He should probably be paying me for referrals.”
Several local churches offer Ramsey’s Financial Peace University personal finance training for free.
“A credit rating has to be earned,” Burdette said. “To get a good credit rating, you have to have your spending under control.”
Sometime borrowers are victimized by unethical lenders who did not disclose all the fees that must be paid, said Cynthia Elliott, executive director of the Appalachian Research and Defense Fund.
The legal services organization known as Appalred serves low-income residents of Madison and 36 other Kentucky counties.
The difficulties that an adjustable rate mortgage can cause also may not have been fully explained, she said. “The lender may be planning to sell the loan to someone else, and knows he won’t end up being responsible for the loan.”
Lenders also must disclose the cost of credit life and disability insurance and make clear that these services may be obtained elsewhere.
Other insurers often offer similar policies for much lower premiums, Elliot said. “Life and disability insurance cannot be presented as requirements for a mortgage,” she said.
If “truth-in-lending” laws have been violated, Appalred may be able to help a low-income borrower fight foreclosure, Elliott said. “We have a very good track record for keeping people in their homes in those kinds of cases.”
Appalred has even had cases in which homes have been passed to the borrower “free and clear” because of illegal actions by a lender. In other cases, Appalred has been able to negotiate settlements that have reduced monthly payments and the organization also represents low-income clients in bankruptcy court.
If a lien exceeds the value of a home, the excess is unsecured, Elliott said. “In a Chapter 13 (wage earner) bankruptcy, the judge can base the required monthly payments on the value of the property.”
Appalred has hired University of Kentucky law students to attend foreclosure hearings. If defendants attend a hearing without counsel, the students tell them an Appalred attorney may be available.
“Our foreclosure attorney in Madison County is Addison Park, and he’s an expert,” Elliott said.
Appalred’s Richmond office can be reached by calling 624-1394.
The Kentucky legislature reduced the appropriation for Appalred in the recently adopted state budget from $1.5 million to $500,000, but the organization recently obtained a three-year grant from the Institute for Foreclosure Assistance.
“The grant should help us continue providing advice and represent clients in foreclosure cases,” Elliott said.
The Kentucky House of Representatives included $1.5 million for Appalred in its version of the budget, but Senate President David Williams, R-Burkesville, blocked the appropriation in his chamber, said Rep. Harry Moberly, D-Richmond.
“Senate Democrats favored the larger appropriation,” he said.
The legislature did pass House Bill 552, which will help borrowers avoid exorbitant fees when refinancing to get a lower-interest rate, state Sen. Ed Worley, D-Richmond, leader of Senate Democrats, said in a news release.
“HB 552 also will give homeowners having difficulty making their mortgage payments broader access to counseling and other financial advice before they lose their homes,” the release stated.
The measure also requires mortgage lenders to show borrowers what the maximum payments would be under an adjustable rate loan.
“In the future, no one should be caught off-guard when their rate resets to a much higher monthly payment,” Worley said.
The legislature also acted to raise the Kentucky Housing Corp. debt ceiling, Moberly said. “This will enable the agency to assist at least 25,000 households to secure home mortgage loans.”
KHC has a very good lending record, Burdette said. “It’s foreclose rate is just over 1 percent.”
Bill Robinson can be reached at brobinson@richmondregister.com or at 623-1669, Ext. 267.
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