Article describing the foreclosure process for high-end homes.

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Michael Underwood hasn't made a full mortgage payment on his four-bedroom
house in San Francisco's East Bay area since early 2008. But he has yet to be
evicted from the home, which includes a lagoon-style pool carved into the
property's natural sandstone.
The Alamo, Calif., home that he
bought in 1999 is now worth about
$1.05 million, less than the $1.58 million that he owes after refinancing several
times.
"I feel guilty, it bothers me," says the 63-year-old former mortgage banker, who
says he depleted much of his savings and sold assets, including jewelry, to make
house payments after he initially ran into trouble. "This has been going on for,
wow, four years."
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ECONOMY
For the Costliest Homes, Foreclosure
Comes Slowly
February 28, 2012
By SHELLY BANJO And NICK TIMIRAOS
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His extended stay illustrates yet another consequence of the complex U.S.
foreclosure system—and banks' skittishness in disposing of certain large loans. A
new analysis for The Wall Street Journal shows that high-end homeowners are
able to remain in their houses, without making payments, for far longer than
those with smaller mortgages.
Nationally, borrowers with loans of at least $1 million were in default for an
average 792 days last year before banks repossessed their homes, according to an
analysis by data provider Lender Processing Services. For loans under $250,000,
the wait stood at an average 611 days—a difference of about six months. The
numbers are current through November.
The intervals are especially long in states such as Connecticut, New York and
Florida, where judges are required to approve foreclosures before banks take
back properties.
The link between larger loans and longer foreclosures holds true in all but five
states: South Dakota, North Dakota, Iowa, Rhode Island and Nebraska, states

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where there was a small or nonexistent sample of million-dollar foreclosures. In
California, where foreclosures don't have to go through the court system, the
Michael Underwood has been able to stay in his $1 million home. MICHAEL MULLADY FOR THE WALL STREET
JOURNAL
The Wani family took a rental after defaulting on a $199,000 mortgage. BRAD HORRIGAN FOR THE WALL
STREET JOURNAL

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timeline averages 671 days for loans above $1 million and 445 days for loans
below $250,000.
There are several reasons why holders of large mortgages are able to stay in
place longer. A key factor is that banks tend to keep larger mortgages on their
books, while smaller mortgages are more likely to be bundled into securities and
later resold to investors with backing from Fannie Mae and Freddie Mac. Fannie
and Freddie, the government-controlled mortgage giants, have set strict
foreclosure timelines and will fine mortgage servicers that are found to be
needlessly delaying the foreclosure process.
Mortgage companies may also be more flexible with borrowers because they
may have more assets and better prospects of recovering. "The banks have hope
for the wealthy—of future employment, additional income or bonuses as the
market comes back," says Genevieve Salvatore, a Connecticut real-estate lawyer
who represents delinquent borrowers as part of her practice.
Economists say banks are also more reluctant to foreclose on high-end
properties because they are expensive to maintain and take longer to sell.
What's more, wealthier borrowers tend to be more sophisticated at stalling
foreclosure by hiring attorneys. "It's cheaper to pay a monthly retainer to a
lawyer than a $20,000 mortgage payment on an underwater loan," says
Christopher Fountain, a Greenwich, Conn., real-estate broker.
The advantage affects a small segment of borrowers: About 71% of all loans in
foreclosure have balances of less than $250,000, and more than 94% have
balances below $500,000. Loans above $1 million account for about 0.7% of all
foreclosures.

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Foreclosure timelines
have grown for
homeowners of all
stripes as lenders
grapple with the
paperwork associated
with an
unprecedented
volume of bad
mortgage debt. And
after widespread
instances of
potentially fabricated
documents were
discovered in 2010,
banks and their
lawyers have become
far more cautious
about foreclosure
filings, which has
slowed the process.
Banks have sharply
tightened their
lending standards
since private mortgage
markets shut down in
2007, and today nearly nine in 10 loans are being backed by federal entities like
Fannie and Freddie.

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As recently as 2008, the foreclosure gap didn't exist. Then, the average
foreclosure took 260 days for loans under $250,000, and 251 days for loans of $1
million or more. As the housing crisis dragged on, the split grew.
Fannie and Freddie rely on banks and other outside firms to process and collect
payments on their behalf. A Freddie Mac spokesman says the company requires
mortgage servicers to "explore every possible avenue to help a struggling
borrower avoid foreclosure."
Of some $10.3 trillion in mortgages outstanding, around $7 trillion have been
securitized, and of that amount, around 83% are backed by Fannie, Freddie and
other federal agencies, according to Federal Reserve data. Those agencies
generally guarantee loans of less than $417,000.
Loans above $1 million, by contrast, are less likely to have been bundled and sold
into mortgage-backed securities as they weren't eligible for backing from Fannie
and Freddie. That means banks may own more of the bigger loans on their
balance sheets and have more flexibility to delay or postpone foreclosures.
Mr. Underwood fell behind on his
monthly payments of roughly $5,000
after he stopped working and went on
disability due to an illness he traces
back to his military service in
Vietnam.
He sought a loan modification and
filed for bankruptcy protection in
2009 to improve his chances of
getting help. His bank, Wells Fargo & Co., finally foreclosed in July 2011, but then
rescinded the foreclosure action to ensure it hadn't run afoul of a federal law
protecting active duty military members after it learned Mr. Underwood's son

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was deployed overseas.
Shortly after, Wells Fargo agreed to re-evaluate him for a loan modification
under an in-house program. The bank has also filed to re-foreclose on Mr.
Underwood's house but has postponed the date at least four times, most recently
until mid-March, while it considers him for a modification.
"Foreclosure is in our view a measure of last resort," says Wells Fargo spokesman
Tom Goyda. Foreclosure timelines are driven heavily, he says, by how actively
homeowners have pursued loan modifications and whether they have filed for
bankruptcy. Both steps, he explains, usually compel banks to delay the
foreclosure process.
Some analysts say smaller banks could also be drawing out the process because
they want to avoid the losses that hit their balance sheet when large loans go
through foreclosure. "It makes sense banks would try to take more time to work
those out," says Sean O'Toole, president of ForeclosureRadar, a firm that tracks
foreclosure filings in five Western states and whose research also shows larger
loans take longer to complete foreclosures.
Consumer advocates cry foul. "It's our concern that lenders are doing more to
avoid foreclosures in upper-income, higher-value markets," says David
Berenbaum, chief program officer at the National Community Reinvestment
Coalition, a consumer advocacy group that focus on fair-lending issues. In
harder-hit neighborhoods with depressed values, banks "don't seem to offer the
same efforts to keep the house out of foreclosure or to maintain the house once
they've taken it back," he says.
When Virgilio Wani and his wife both lost their jobs in the winter of 2010, the
couple fell behind on their $1,700 monthly mortgage payments. From November
2010 to the following March, the couple had missed four out of five payments on

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the West Hartford, Conn., home they bought in 2006 for $210,000 with 100%
financing.
Last spring, Mr. Wani found a part-time job as a cashier. He tried to restart
payments on the $199,000 that remained of his mortgage and sent a $1,700
payment in April. But the lender, Sovereign Bank, returned the money and began
foreclosure proceedings, he says.
A spokesman for Sovereign declined to comment.
Ten months later, the couple and their five kids faced an eviction notice and
sought temporary housing. Now, the family is living in a two-bedroom
apartment nearby. Mr. Wani is still working as a part-time cashier, and his wife
got back her job as a nursing assistant.
Mr. Wani is now working with an
advocacy group called the
Connecticut Fair Housing Center to
get Freddie Mac, the investor that
now has possession of the house's
title, to transfer the title back to him. He hopes to get some type of modified loan
that will allow lower payments.
"Before we lost our jobs, we never missed a payment. Never in my life did I
expect to go through a process like this. It pains me a lot," says Mr. Wani, a
Sudanese immigrant who is attending night classes to become a certified public
accountant, his previous profession in Sudan. "We are both working now and
working with the bank, so I am hopeful."
A spokesman for Freddie Mac says the foreclosure process has been legally
carried out, and that a loan modification is still possible.
READ MORE
Sales Index Stirs Hope for Housing

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Some investors see opportunity in the current climate and are snapping up low-
end homes that can be rented out at a profit. The market for high-end
properties, though, is still sluggish, making banks wary of taking over properties
with mansion-like touches, such as expansive lawns and multiple pools.
Sales of homes priced between $100,000 and $500,000 in December had been on
the market for around six to eight weeks, while those priced above $1 million had
an average market time of 15 to 16 weeks, according to the National Association
of Realtors.
In Atlanta, bank-owned properties listed below $250,000 have been on the
market for 93 days, compared with 135 days for bank-owned properties above $1
million. In Los Angeles, foreclosures listed below $250,000 have been listed for
75 days, compared with 160 days for foreclosures above $1 million, according to
Realtor.com.
Private-equity investor Paul Parmar lives in a 40,000-square-foot mansion in
Colts Neck, N.J. His estate boasts a putting green, two bowling lanes and a Bali-
esque "beach" with Tiki huts and sand. He also has a $23.7 million mortgage with
Deutsche Bank, which hasn't received a payment from Mr. Parmar in nearly
three years.
Despite Deutsche Bank's efforts to remove him, Mr. Parmar has remained in his
compound while fighting the bank in a protracted legal battle.
Mr. Parmar had fought a foreclosure ruling by a state Supreme Court judge in
favor of Deutsche Bank, claiming in court papers that the bank improperly
handled the foreclosure proceedings.
Mr. Parmar says he initially stopped making mortgage payments of more than
$54,000 a month because of another, unrelated business dispute, which he says
froze his assets and bank accounts. When the dispute was resolved last fall, he

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deposited into escrow the more than $2 million he says Deutsche Bank
requested to cover his mortgage payments, taxes, fees and Deutsche Bank
expenses, court filings show.
Mr. Parmar says his settlement with Deutsche Bank will be filed with the court
within the next week. "I've agreed to pay each and every dollar they asked for,"
he says.
—Robert Frank contributed to this article.
Write to Shelly Banjo at shelly.banjo@wsj.com and Nick Timiraos at
nick.timiraos@wsj.com
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