In the face of foreclosure

It’s hard to miss the pages and pages of foreclosure notices in the Twin Cities press.

Emily Raguse, an Eden Prairie resident and Coldwell Banker real estate agent based in Excelsior, explains the seeming abundance of foreclosures by noting that, during the pandemic, there was forbearance from foreclosure, and many of the current postings of foreclosures are simply a catching up of delayed legal notices. Another contributing factor to the numerous notices is the law’s requirement for six separate postings of a single foreclosure notice.

Real estate agent Emily Raguse. Photo courtesy of Coldwell Banker Excelsior

Raguse notes that the formal basis for foreclosure is typically a series of four missed mortgage payments. Behind these payment issues, there is often a change in the mortgagee’s financial situation. It could be triggered by job loss or a divorce. Raguse observes that the burden for the mortgagee can be even heavier if a home equity loan has been added to the mortgage.

Attorney JD Haas of the law firm JD Haas & Associates, PLLC, has spent many years defending homeowners faced with foreclosure. Haas, who lives near the Eden Prairie/Bloomington border and represents many EP clients, emphasizes that a mortgage is serious stuff: it is a contract with a lender.

Zach Kwakenat, formerly a resident of Eden Prairie and currently an originating manager for lender Guaranteed Rate Affinity, sheds light on the significant damage caused by foreclosure.

Kwakenat explains that a foreclosed homeowner must wait seven years before regaining the ability to finance another home purchase. Then, too, a foreclosure will bring down the credit rating of the foreclosed homeowner by “at minimum 100 points.”

Short sales, postponements, and other options

Anticipation of a foreclosure may compel a mortgagee to do a “short sale.” In an agreement with the lender, the house is sold for somewhat less than the mortgagee owes the lender.

Attorney JD Haas. Photo courtesy of JD Haas & Associates

Haas observes that, in order to recoup the loss on the short sale, the lender may put a deficiency judgment against the mortgagee. This type of court ruling would require the mortgagee to pay the lender the difference between the home’s sale price and the amount still owed on the mortgage. Haas said such an action is “infrequent,” since the mortgagee has insufficient assets.

He also notes that a short-sale house may often have hidden defects because the mortgagee does not have funds to fix the house.

Similarly, mortgage consultant JoLee McDevitt, who does work with Raguse and sells foreclosed homes for Trustone Financial, says that foreclosed homes are “not in pristine condition.”

Lender JoLee McDevitt. Photo courtesy of Trustone Financial

When a homeowner faces foreclosure, they have the option to request a postponement, which can last anywhere from five to 11 months. However, a crucial question arises: where will the homeowner find the funds to pay the default on the mortgage? Kwakenat does note that, with several months of postponement, a person who has lost a job may become re-employed and able to catch up on mortgage payments.

Since a lender aims to avoid foreclosure, Kwakenat says the lender looks to provide the mortgagee with various options, including short sale, postponement, and post-foreclosure redemption (the ability to “redeem,” i.e., buy back, the home even after a foreclosure sale).

Who makes a good candidate for a mortgage?

Today, conditions are much improved over 2007-2008, when foreclosures were numerous.

Kwakenat says that the post-2008 Dodd-Frank Act makes application for a mortgage much more rigorous.

Lender Zach Kwakenat. Photo courtesy Guaranteed Rate Affinity

Haas adds, “Easy money is not around anymore.”

Kwakenat explains that lenders now carefully assess the mortgagee’s “ability to repay.” Additionally, Raguse points out that in the current hot housing market, the rapidly increasing home values allow mortgagees to easily tap into their home’s growing equity to cover mortgage payments.

Along with the new tighter laws and substantial housing appreciation, experts urge discipline in buying and owning a house. Raguse says that the monetary investment for proper annual maintenance of your house should be equivalent to one percent of the value of your home.

Haas’s job is to be protective of the person facing foreclosure, but he also gives stern standards for home purchasing.

He says a good candidate for a mortgage has the following: “Good credit score. Low debt. Good job. Long-term stability at job.”

According to Haas, anyone contemplating purchasing a house should make certain their job is stable, they can afford the house, they want the responsibility of maintaining a house, and they have emergency funds to withstand job or health reversals.

Kwakenat says that, with tight lending guidelines and robust house appreciation, foreclosure is unlikely. People simply have to keep a tight rein on their finances to avoid facing the forced sale of their home.

“Unfortunately, some people might be forced to sell when they didn’t want to sell,” he says.    

According to the experts, it is discipline and detachment that will help homeowners retain and enjoy their homes.

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