Senior U.S. bankruptcy trustee for the Southern District of Florida, Kenneth Welt, says strong demand is consuming the inventory of distressed real estate sold through a pilot program to avoid foreclosure. The program was launched in September 2014. Welt said it took nearly a decade to convince lenders to sell properties directly out of bankruptcy court in short sales instead of moving cases directly into foreclosure.
In the last six months, he has closed the sale of 15 houses after borrowers surrendered the properties in bankruptcy. New cases in the past week generated five more potential deals.
In September, one sale turned a no-asset bankruptcy case into a deal that partially satisfied the first mortgage and generated $13,000 for unsecured creditors and $10,000 for a nonfiling spouse. By arranging the bankruptcy sale, marketers generated $345,000 for a three-bedroom waterfront house with patio, pool and tiki hut on a 9,563-square-foot lot in Pompano Beach. In another case, Nationstar Mortgage, was owed $934,524 on a property that last sold for $560,000 in 2004. It authorized the trustee sale and accepted a $291,453 payoff.
Welt said, “It’s a win-win and gives debtors a fresh start. That’s what bankruptcy is. From a people standpoint, it’s a good thing for the homeowner, for the neighborhood and for the lender.”
Instead of letting foreclosures drag on as bankruptcies play out, the program aims to subtract years off the sales process and deliver payments to unsecured lenders that would likely have ended up with nothing in the case.
Last year, Welt received approval from Fannie Mae, Freddie Mac and several major lenders to create a program that would accelerate sales in cases where homeowners surrendered their property. The Federal National Mortgage Association and Federal Home Loan Mortgage Corp., which are linked to about 60 percent of foreclosures, signed on to the pilot program covering the Southern and Middle Districts of Florida, New Jersey and the Eastern District of New York.
Under the program, lenders must agree to allow a percentage of home sale proceeds for general unsecured creditors in bankruptcy.
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