LOAN MODIFICATION, SHORT SALE OR FORECLOSE?

Within the last 60 days, I've received an increasing number of calls from frustrated homeowners attempting to modify their loans on their depreciated properties with no success.  


While our team does not conduct loan modifications, we work to give these people tips on how best to approach their banks, specifically their mortgage servicer, with the hopes of a successful modification, a loan modification on the homeowner's terms.  It is not enough for the homeowner to state to their mortgage servicer, "my home is upside down in value and I don't want to pay the mortgage on an upside valued home." 


Unfortunately when the homeowner is unsuccessful in obtaining a loan modification, our team informs these homeowners of other options, either short sale or foreclose and not something these homeowners want to hear.  When a homeowner chooses to short sale their property, our team works to make this process as painless as possible.  We are nationally Certified Distressed Property Specialists and very experienced at working with distressed property owners... Please check out my testimonies   on my website...www.myfengshuiagent.com


In the eyes of the mortgage servicer who contracted with the homeowner to lend money to the buyer to purchase their home, the servicer does not see the depreciated market as their responsibility.  I realize this is stating the obvious.  


What most upside homeowners desire is either a principal reduction and/or interest rate reduction.  It is rare the bank will grant a principal reduction and it is more common to obtain an interest rate reduction.  Given this information, it is up to the homeowner to provide clear evidence of "hardship" supported by a detailed financial statement in order to position themselves to obtain a successful modification.  


Here's what the banks are looking for in your "hardship" letter when attempting loan modification.  


1- Explain what changes or events have occurred since your loan originated that have caused you as the homeowner to fall behind. (***very important note *** if you are making your payments, the servicer does not view this as a hardship... )


2- Explain how these changes impair your ability to afford your mortgage payments.


3- Explain when the changes and/or events occur.


4- Explain if you foresee your financial situation improving in the future.  If you state "yes", there is a strong likelihood that your mortgage servicer will ask what you are able to contribute towards your loan...


Any statement you make in your hardship letter must be supported in detail on your financial worksheet.  It is critical that the financial worksheet is completed with 'accurate' detail.  Accurate in this case, an honest and truthful detail because the mortgage servicer will definitely verify every accounting detail you've documented on your financial worksheet.  


Should the mortgage servicer offer a loan modification after these filings have taken place, it is imperative that the borrower (homeowner) understands 100% what the new loan terms are.  I've seen many modification packages that offer extremely attractive interest only packages for SHORT term and when the interest only portion expires, the payments adjust to nearly triple that of the original offer. . .This is a small bandaid and a very LARGE wound!!!  Be careful....


As I mentioned earlier in this article, many of these homeowners who cannot afford to stay in their homes or cannot live without a loan modification or even with the modification with unacceptable terms choose the short sale option.  This means that we work with the homeowner to sell their home for less than what is owed on the property.  With California's new short sale law, Senate Bill 458,  Prohibits Recourse and Anti Deficiency On Second Mortgages, the short sale option is a more common option than foreclosure to distressed homeowners these days.  

The Reality of TODAY's Appraisal!

At one time in your history of home refinance, home buying, or home selling, you've been discouraged because your appraiser has valued your home as this. . .

Your lender see's your house as this. . .

 and yet, your buyer sees your home as this. . .

and you see YOUR own home like this. . .

meanwhile YOU will most likely go to battle because your assessor will see your home as this. . .

With the current market conditions, I've observed sellers who cannot sell their home, home owners who cannot refinance or home buyers who cannot purchase due to the numerous appraisal challenges.   Here are just a few items that can make a difference in the success of an appraisal. . .

1- Make your home sparkle. . .This doesn't mean rebuilding your home to new construction.  This means paying attention to the 'obvious' deferred maintenance.   Dark, dingy and spotted walls,  worn carpets, broken windows or damaged flooring, just to name a few items of appraisers consideration.  Appraisers will assign an 'effective age' after considering these items that are not corrected and will obviously and significantly reduce the value of your property.  

Be mindful to correct things that give you the HIGHEST return on your investment (ROI).  It is highly recommend that you hire a reasonably priced home stager who will do their best to make your home look like a model home!

2- Paying attention to curb appeal by having tidy landscaping.  Obviously, this is a challenge with distressed properties, foreclosed or short sale homes.  Because of the current market conditions, it is even more important as a re-sale seller to pay attention to this item.

3- Make sure appraiser is aware of all upgrades and remodels.

4- Location, Location, Location of the subject property. . .It does matter!  

5- Have comparable sales available for the appraiser to consider.  This is extremely important for newly constructed homes!  When new homes are sold, the builder's sales office has these records, the broker's multiple listing services (appraiser depend on this service for their comparable sales) does NOT!  

Buying, Selling or refinancing in this market is a "team" concept.  The proactive homeowners, sellers and buyers who believe in this attitude will most likely see positive results!  

DISCLOSE OR NOT TO DISCLOSE?

Many sellers become confused when they are deciding when to disclose material facts about the home they are selling.  The general rule in California, "when in doubt, disclose".  I have a seller along with his buddies installed a brand new HVAC (heating/air) system in their older home without obtaining a permit before installing the unit.

It is common for homeowners to avoid retaining permits for remodels or installation and/or replacement of equipment in the home.  In many California city and counties, the building permits can be quite costly so it is understandable why many avoid taking out required permits prior to construction or installation. In some counties, a seller must obtain a clear 'city re-sale inspection' before placing their home on the market.  This forces the seller to sell a home that is code compliant. 

Even though my seller had already installed the HVAC system without the permit, it became very clear that he needed to produce evidence of a permit and he understood it wasn't too late to obtain the permit because of the following California law.  

Beginning October 1st, 2005, all HVAC systems installed or replaced requires a permit and test for leaks.  Any ducts leaking more than 15 percent from the HVAC system must be repaired or properly installed.  This law came into affect as a measure of energy conservation in California.  

 

AVOIDING FORECLOSURE WITH A LOAN MODIFICATION

Today, we received an unfortunate call from two distressed homeowners who found a Notice of Trustee Sale taped to the front door of their home.  What does this mean?  The bank and/or their mortgage servicer has notified the homeowner that in 21 days from the date of the Notice, their home goes to Auction and the home is sold to the highest bidder in a court setting, not pretty.  

Unbeknown to this couple, the foreclosure timeline proceeded forward while this upper middle class couple had successfully obtained an approved loan modification.  Keep in mind, their approved loan modification came from the same bank who is scheduling to foreclose on their home!!!  Wow?!?

Yes, this is just plain strange and NOT surprising. The left hand doesn't communicate to the right hand!  Several months ago, I blogged on the topic of the banks' loan modification and loss mitigation departments never communicating with each other.  Another case and many cases out there just like this young couple.

Viewing from the borrower's perspective, one might assume that this is malicious intent by the bank, the banks must be on a mission to foreclose on their borrowers' homes.  Rumors and the news support distressed borrowers' suspicion that the banks are receiving subsidies to foreclose on them, a justifiable paranoia. 

My advice, don't give up, if you have a bonafide APPROVED loan modification from your mortgage servicer, that means you as the borrower have signed an agreement to the terms of the loan modification provided by your mortage servicer, there's a strong chance you will avoid foreclosure.  

It is a matter of providing documentation of your approved loan modification to the loss mitigation department of your bank and/or mortgage servicer.   It is advisable that you seek legal counsel when you find yourself in a similar situation of these distressed homeowners.