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Home sale tangled in web of complications

March 28, 2009|By ARNOLD PLATOU

HAGERSTOWN -- Even after refinancing her home twice, Nancy Shulley knew she was in over her head.

So Shulley did what many in the home mortgage industry advise these days: Call your lender and admit your problem because they'll work with you.

Now, what a tangled mess she's gotten herself into.

"This is a nightmare," Shulley said, walking around her Hagerstown house this past week.

"It's a story that's just so wrong that you just don't care," she said. "It could have completely been avoided, if they would have just done what they said."

Some would say the story has other victims, too: The bank that might never make good on its loan and, perhaps, the mortgage guaranty company that put the chill on use of an increasingly common solution.

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For Shulley, what began with admittedly bad financial decisions, has escalated into a situation that is costing her -- a house, her savings, and, likely, the possibility of ever again having a good credit rating.

She said that what she considers the cause of it all will alarm homeowners, just as her official complaint about it has drawn investigation by a Maryland agency.

Shulley, a research associate at the National Cancer Institute in Frederick, Md., wasn't particularly attracted to the two-story brick house at 114 E. Irvin Ave. when she first saw it in August 2005.

"At first, I didn't like it because it was old. I wanted more like a townhouse that I didn't have to do any maintenance on," she said.

But the real estate market was booming, people were competing for houses, prices were rising, and this three-bedroom house had just come on the market. Inside, "it was really very pretty and the location is nice," Shulley said, explaining her decision to buy it.

She paid $191,000 -- making a down payment of $20,785 and financing the rest through a local mortgage broker. Soon, worried because the interest rate was adjustable, she refinanced the loan to a fixed rate.

In December 2006, feeling the payments were still too high, she refinanced again, this time to an interest-only loan.

Last spring, realizing that repairs and improvements coupled with the loan payments were costing more than she was earning, she tried to sell the house for $215,000. But the market had cooled too much.

So she called U.S. Bank, the nation's sixth-largest commercial bank, which by then was holding her mortgage.

"I said, 'I'm having a real hard time making payments,'" she recalled. "I had never been late with one, but I knew every month, it was getting harder and harder. I didn't really have any savings left.

"I said, 'Tell me what I can do?' And, they're saying, 'We could see if you can do a short sale.' They were very nice about it. I said, 'I feel very bad about it.' And, the woman said, 'Aw, don't worry about it.' She said so many people have to do that these days."

A short sale is becoming more commonplace as the nation's economy worsens. For a short sale, the lender agrees to let someone buy your house for less than you owe.

The deal spares the lender the high cost of foreclosure -- on average, $68,000 to pay an attorney, try to sell the property while paying to maintain it and still losing loan interest, the Maryland Bankers Association has said.

Sale blocked

By last May, U.S. Bank had reviewed Shulley's financial records and given her the hardship status needed for a short sale, according to Realtor Frannie Parks.

Following a range of prices given her by the bank, she said, she listed the property at $169,900.

An offer came in August, but it was less than the bank's minimum, Parks said. So, she said, she worked with the other Realtor to get the bidder approved for a higher loan -- enough to meet the $148,300 minimum the bank needed.

A tentative settlement date was set for late September, Shulley said, so, having made what she considered her final payment on the mortgage, she signed a lease on an apartment. Then, she called the bank to say she was moving out.

The floor in her world was about to collapse.

Shulley was getting settled in her new apartment some days later when Parks called.

The news was about United Guaranty Corp., a mortgage insurer that Shulley had never heard about -- that is owned by AIG, a company she had heard much about.

"Frannie (Parks) called and told me that she had just spoken with U.S. Bank and they said that AIG wanted me to sign a promissory note for $25,000 -- or it wouldn't approve the short sale," Shulley said.

The two women were stunned.

They said they had no idea that anyone else's approval was needed, let alone why United Guaranty was suddenly involved.

What they learned took them back to the $20,785 down payment Shulley had made when she bought the house. Because the amount was less than 20 percent of the purchase price, Parks said, U.S. Bank had to buy insurance from United Guaranty.

The insurance premium is paid by the borrower in his or her monthly mortgage payments, according to United Guaranty's Web site.

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