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Answers To The MOST Commonly Asked Questions Homeowners Have About Mortgage Default...

By
Real Estate Broker/Owner with Corcoran Legends Realty NYS# 10491202097

With so many out-of-work home owners facing very tough decisions about their mortgages approaching default, many wonder how to best handle the complex situation with the lenders they're indebted to. Here are some answers compiled by some of the brightest minds in the field to the most commonly asked questions:

1. Should I intentionally default on my mortgage?
Today, many people are "intentionally" or "strategically" defaulting because cash is "king" and much more valuable and reliable than access to credit. Because many of the mortgage originators, banks and lenders were unethical or plainly greedy, some borrowers don't feel the "moral obligation" to pay any longer, especially when the banks and lenders are being less than cooperative as buyers try to work things out. However, rather than defaulting, the best thing to do is to use the "Section 702 Program" of the "Obama Act", which allows a qualified third-party buyer to take possession and make a "bona fide" offer to the bank. This helps with showing the debt as "settled" on your credit report and can eliminate the second mortgages completely. Walking away and allowing the bank to foreclose still allows a second lender to render a judgment and possibly garnish your wages or some of your other assets. You may also have to file for bankruptcy to recover from the overall impact on your finances.

2. What are some ways you can gain leverage with your mortgage holder?
One way to gain leverage with the holder of your mortgage is to establish a "substitute mortgage" which is basically a security pledge that is offered to the seller's lender, with a third party (a lawyer or Escrow company) for a lesser amount of the current payment. Over time, this will result in a significant amount of collected funds that can be used as negotiating leverage to prompt the lender to release the borrower from the debt, or extract terms for a loan modification to the borrower's advantage.

3. Why have loan modifications and foreclosures become THE answer for so many distressed property situations, and why it can be problematic?
The reason why loan modifications and foreclosures have become the answer for so many is because many real estate professionals erroneously consider the short sale process to be too complex. Not knowing how to orchestrate the transaction and not having the correct forms and contact information from all the different parties is overwhelming to many Realtors, so they forego an option that would otherwise be in the owner's best interest. In many instances the lenders also try to squeeze the involved real estate agents to participate with vastly reduced commissions. The result is unnecessary spending of tax payer's funds needed for alternative solutions, when partial forgiveness of the open balances from the lenders sides could be given instead.

4. Why is a short sale strategy more advantageous than a loan modification or foreclosure approach?
The reduced payoff in a short sale can release you most of the time from the debt obligation completely. This allows you to re-establish your credit faster and re-enter the market some time sooner. A poorly constructed loan modification actually builds a debt trap around the borrower who is emotionally attached to a property, milking the borrower for every last dime, which then ends up in the very same situation again. A foreclosure altogether ruins a homeowner's credit and takes a long time to recover from, basically preventing them to re-enter the markets for well over ten years.

5. Wouldn't a "General Public Disclosure?" help and why?
Many people and their advisors are not aware of the available "alternatives" when facing foreclosure. The lenders, as well as the local, state and federal agencies currently do not provide any literature as to what the alternatives are as a "preventative" measure. Knowing your options, as laid out on a "General Public Disclosure" document, could make all the difference in establishing a deal that's in the homeowners' best interest.

6. And Finally
Lenders still have not learned that it is not even in their best interest to foreclose or to restructure failed mortages into impossible modifications... wouldn't it just be better "business" to give something back, forgive some of the principal, to set mortage rates to 4%  across the board for modifications, and leave struggling people with some dignity and time to recover by allowing them to refi automatically and without further fees and costs... to keep people in their homes making more affordable payments... it most certainly would go a long way in restoring confidence and respect in the lending and banking system... and also help to restore our battered economy! As it stands right now lenders and underwriters, investors and mortgage servicers will hold unsellable real estate assets until they are bankrupt themselves... unless they are willing to step up to the plate and do their part... like the American taxpayer has...

But that is possibly to much to ask... is it?

 

 

Posted by

Westchester County - Phyllis Lerner, Realtor

 



Phyllis Lerner, Realtor - Broker/Co-Owner - 914.438.3903
Westchester County NY - Real Estate Listings, Sales, Rentals & Services



Voted 2010 through 2023 FIVE STAR Real Estate Agent by Westchester Magazine

(Disclaimer: Any and all grammar, punctuation and spelling mistakes located within my blogs, web sites and any other content, are purely for your amusement and entertainment.) 

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