Tuesday, February 14, 2012

What is the Full Story about Helen Bailey's Pending Foreclosure?

Occupy Nashville has come to the assistance of 78-year-old Helen Bailey trying to prevent Chase Bank from foreclosing on her home. The story has gained national attention. Over 40,000 people have signed an on-line petition protesting the pending foreclosure including notable civil rights activist Cornel West.

This is a sad story. No one wants to see a 78 year old women be put out on the streets. However, before we jump to the conclusion that Chase should just write off $9000 in debt and let Ms Bailey stay in her home, pause and think about this situation.

What is the full story? 
The newspaper article says Ms Bailey has lived in the home for 28 years. There are some details that may not be relevant, but they very well may be. I don’t think we are getting the full story. There were two recent quit claim deeds filed on the property where other parties gave up an ownership interest in the property. I would be curious why there were two quit claims filed on the property. One quit claim was from Meriel Bailey dated 5/9/2011. The original warranty deed dated April 1999 transferred the property to Kimberly F. Bailey, Helen Bailey, and Meriel Fulton. Also the newspaper says her two daughters recently moved out of the property. Were the parties giving a quit claim her daughters? Did someone give up their ownership interest in the property so Ms Bailey could qualify for a reverse mortgage? Is Ms Bailey the only person on her mortgage? If other parties are on the mortgage they are still responsible for this debt. When one gives up an ownership interest in a property, they do not escape their obligation to pay the debt. I don’t know the facts. I am only asking questions but I think these questions need to be asked. (For property information see here and here.) 

Can Chase forgive $9000?
Ms Bailey is trying to get a reverse mortgage and the reverse mortgage is $9,000 short of the amount needed to pay off the existing mortgage. Occupy is asking Chase to take a short pay-off of $9000. While I do not know that Chase cannot do that, it may very well be that they cannot. Mortgage companies often cannot just write off a debt. When a mortgage company makes a loan, the loan is bundled and sold with similar type loans. The investor in these securitised debt instruments could be Fannie Mae or Freddie Mac or any of about 4000 other investors. Chase is no longer the owner of the debt. The debt instruments which secure the bundled mortgages often contain language that prohibits writing down any of the principle. So even if Chase wanted to write off $9000 they may be prohibited from doing so.

If Chase could write down the debt would it be good policy?
If Chase does a write off of debt for one person so they may get a reverse mortgage then others will have a similar expectation. What is the limit on how much debt a mortgage company should write off in order to accommodate someone in getting a reverse mortgage? Believe me, people will figure out how to make the system work for them. If it becomes Chase policy to write down debt in order for a party to get a reverse mortgage one may see situations in which people purposely modify their circumstances in order to qualify for such a write down. Wives may quit claim their interest in the property to their husband in order to let an older husband get a reverse mortgage and then they may expect the mortgage company to just forgive any shortage necessary to get the reverse mortgage. All of this money that is being written off is someone's money.  Part of it may be the tax payers money and contribute to the $14 trillion deficit.  If you own a share in a mutual fund in an IRA, you may experience a loss in your retirement account when an investor writes off a debt. There are consequences to debt forgiveness programs.

If Chase does write down the debt, can indeed Ms. Bailey get a Reverse Mortgage?
Reverse mortgages are not as automatic as they once were. Reverse mortgage companies have been having a problem with borrowers who would get a reverse mortgage and then still not be able to keep up the home, keep it insured, and pay the taxes. The newspaper story says Ms Bailey only has $700 a month income. In considering Ms. Bailey for a reverse mortgage, the reverse mortgage company would have to be assured that she is financially able to provide for home upkeep, taxes and insurance and still have money to live. I am not so sure she can qualify for a reverse mortgage. Does she have a conditional approval from a reverse mortgage lender?

Why did the daughters abandon their mother?
The Tennessean report says, “She fell behind on her mortgage in April after her two daughters moved out, leaving her with a mortgage just under $1,000 to pay alone.” Why did her two daughters move out? If everything was OK prior to the two daughters moving out, do the two daughters not have the obligation to help their mother? Are either or both of the daughters on the mortgage note? Can the two daughters raise the $9000 shortage? Are the two daughters not more responsible for their mother’s well-being than Chase? What is the story?

Is keeping this home in Ms Bailey’s best interest?
The newspaper story says, “She receives less than $700 a month in Social Security.” Think about that. Even if Chase writes off the $9000 and Ms Bailey is able to get a reverse mortgage, can she stay in her house on $700 a month? The home is a 4-bedroom, three-bath, 2720 square foot house. That is a lot of house to heat and maintain.  If she is only $9000 short on getting a reverse mortgage then my best wild guess is that she owes about $128,000 on the home and it is worth about $176,000. (See value estimates click here.) It is probably in Ms Bailey’s best interest to sell the home and downsize.

Why not let Occupy pay the $9000 shortage?
If 40,000 people think Chase should forgive the $9000 in order for Ms Bailey to stay in her home, then do the math: $9000/40,000= 22.5 cents each. If each of the 40,000 people who signed the petition would send Ms Bailey a quarter her problem would be solved. Maybe Cornel West could send a dollar.

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