Meeting the challenges of bankruptcy for the benefit of all parties
BK Global CEO Brad Geisen is a 30-year veteran of the real estate industry by default, having built or operated websites such as Foreclosure.com, HomePath.com, HomeSteps.com, TaxLiens.com, HUDHouses.com and many others.
He developed and led a pilot program for the US Department of Housing and Urban Development (HUD), which evolved into the highly successful HUD M&M program that still operates today. In this pilot, Geisen created for HUD the first online offer management platform, which became the industry standard used by leading government sponsored companies (GSEs) such as Fannie Mae, among others. .
He also created a national training and education platform for Freddie Mac to improve supplier performance and ensure compliance. He also developed the National Short Sale Platform, which Fannie Mae still uses today to facilitate approvals in as little as 48 hours.
Geisen previously spoke to DS5: Inside the industry Bankruptcy trends webcast as we head into 2021. This is an extended version of this video interview.
What do you expect with regards to an increase in bankruptcies in 2021, with so many borrowers potentially reaching the end of forbearance plans?
There has been a lot of discussion about this. The great thing we see is when you look at what we predict [for 2021], and compared to what happened in, say, 2007 — in 2007, you had a lot of properties that had significant negative equity. When the market turned slightly, the only option for homeowners was foreclosure or short selling. In this situation, we have markets that remain strong. Real estate values have increased. We have a lot fewer properties with negative equity, as a percentage, with all of the ones in default. So that’s a big difference.
However, you have a lot of people who haven’t worked and are behind on their other debts: consumer debt, car loan, school debt, credit card. A lot of people live off credit cards. They burnt their savings. Their house is probably the least bit of a problem because they actually had a forbearance, this discount on their house, but they didn’t have any forgiveness on all of their other debts. In a situation like this, bankruptcy is now becoming a better alternative, or a smarter alternative, for many people. We anticipate and predict that bankruptcies will increase because of this.
What should mortgage agents do to help and work with distressed homeowners for whom bankruptcy may be a viable option?
It’s a good question, everyone is trying to figure it out and prepare. We started BK Global five years ago, but we’ve been in this industry for over three decades. We’ve always looked at bankruptcy as a black hole, and I think everyone has. We started BK Global to find better methods of mitigation and bankruptcy. When we first have [entered this space], what we saw was a couple of things. We have seen debtors who have gone bankrupt, who have either settled their debts or renegotiated their debts and hopefully made a fresh start.
But what repairers would generally do is file a claim for redress to get out of bankruptcy. As soon as the debtor goes bankrupt, the administrator files a petition for reparation, which almost raises a wall. Then there is a trustee involved, and the relationship between the trustee and the agents was contradictory. We have seen that all of this is counterproductive when there are a lot of bankruptcy options that are great vehicles for the manager, debtor and trustee to do so.
The first thing we did was put together a program where we bridged the gap between trustees and service officers. What’s ironic is that their intentions and results are really aligned. They were still fighting back and forth, but they want the same result. We have built a technological platform. We brought all of the service agents together nationally and developed programs for service agents and administrators to work together. We created a protocol, an agreed sale, which is basically a short sale in bankruptcy. What’s different about our program is that we get all parties to agree. So it’s not a forced bankruptcy or something contradictory, or some kind of court order. It is all the parties who manage to agree.
What is really advantageous with this program is the savings we make on each file. For an average house of $ 240,000, we saved the repairman and investor about $ 46,000, which is a significant number. We have many cases that represent savings of over $ 100,000, and that’s a big difference.
It creates a lot of goodwill for the consumer. A consumer goes bankrupt to make a fresh start. If they are working to sell their bankrupt home, they have bankruptcy under their belt. If they go through credit counseling, in 18 months to two years that debtor may be bankable again. It’s a new start. This is what they are all trying to achieve. If the home is abandoned in a bankruptcy foreclosure and is dragged into foreclosure, even though the debtor is not responsible for the deficiency, that foreclosure will still be on their record. These programs bring everyone’s consent, save huge amounts of money, and create goodwill for the consumer.
What are the important lessons or take-away points repairers should keep in mind when working with a struggling homeowner? What factors should be taken into account?
One of the things we do to prepare for this next wave is that we rely heavily on our brokers. Our brokers are boots on the ground. We have set up a training program where we certify brokers as Certified Bankruptcy Specialists, and train them to know how to handle these bankruptcy situations and how to work with our program. Then if they need to contact the owner, they know what to do and what to say. There are currently over 800,000 bankrupt properties between Chapter 7 and Chapter 13, and that is before the surge.
Everyone is trying to predict the magnitude of this number after the outbreak, but it is a significant number. The majority of homes, even with our consent sale program, the trustee, in most cases, still gives up the asset. If they do, then we have a second level where we take our brokers that we have trained, who are certified. We contacted this owner, the debtor, to discuss their options. We are working on doing a short sale and we are working with the repairman to put that in place. We put together a structure and an agreement that works for both the server and the debtor, and it ends up being a win-win for both parties.
You’ve been in the industry for almost three decades now, so it’s a long time to deal with anything. What are the main lessons and lessons you have learned from your career so far?
Most importantly, bankruptcy is extremely complicated. Each case is completely different, and the direction in which they are going may be completely different. For repairers, this is in most cases problematic, as a repairman likes to have a structure and a plan. If it is bankrupt, we go down that road. There really is no “one size fits all” for bankruptcy. That’s where the complexities come in, trying to manage these things nationally and in all the different situations.
We have created what we call a bankruptcy advisory service, where we work with the repairer and their legal counsel, and advise them on what we consider the best path. What we do different is that duty officers and their lawyers tend to look at court data to make their decision, and that’s really only a small part of the case. We do a number of other things that have never been done before, where we reach out and have a dialogue with the trustee. The direction the trustees take makes a big difference in the options available to the service agent. By meeting with the trustee, discovering his intentions, aligning his direction with that of the manager, we are able to reach win-win agreements for both parties.