Would you jump out of an airplane being told by a stranger that you had a parachute but with you not really knowing you had a parachute? I should have a nickel for each time a person tells me they stopped paying their mortgage so their lender would speak to them. If you are trying to do a short sale, loan modification or deed in lieu of foreclosure, whether or not to stop paying your mortgage is the certainly the first question asked.
IF YOU HEAR IT ENOUGH TIMES IT MUST BE TRUE…..
Common talk on the street – so common most think it is gospel – is that the lender will not discuss any change in your mortgage unless you are (here is where the gospel varies) you are 30 days late / 60 days late / 90 days late / even 120 days late.
Lenders have done much to promote this common conclusion. Call one up and tell them you need to modify your mortgage while you are current with payments and sure enough, they tell you to discuss a change in your mortgage you have to be late in payments. Of course, going late in your payments is the single most significant hit your credit score will take. It is also one of the most difficult decisions for borrowers that always pay their bills on time – no matter what. (See SHOULD I PAY MY MORTGAGE?)
OK, I’M LATE – BUT I DON’T QUALIFY?
The kicker is the lender will not talk at all about any pre-requisites for obtaining a loan modification before you go late – or of approving a short sale. Then, the borrower stops paying so the lines of communication can be open – sort of like pay phones and dropping a nickel (remember that?) into the phone so you can make a local call.
GOING LATE TO QUALIFY FOR A TELEPHONE CALL…….
The problem is that the borrower goes late, then “qualifies” for the telephone call discussion, and more often than not finds out there is nothing the lender can / will do, or is told that the borrower does not qualify for any programs at the lender. End result, the distressed borrower is now more distressed because the credit score is now 100+ points lower.
There have been many articles and blogs trying to dispel this erroneous “you have to be late” advice, but it has not slowed down the tide of those that received bad advice that keeps flowing into my office. One of the other factors in promotion of the “got to be late” fallacy is that it is definitely easier to work (as a credit counselor / short sale advisor / loan modification advisor or attorney) with a delinquent borrower because the delinquency is generally presumed to be a threshold qualifier to some sort of loan relief. In reality, going late will definitely get the lender to talk to you – usually via their attorneys through a foreclosure action. So now besides the credit hit, you also have a lawsuit you have to defend. Did you have that parachute on or was someone mistaken?
WHAT DO THE LENDERS SAY?
Twice I have had the opportunity to discuss face to face this matter with lenders’ senior officials. In one I was speaking at a lunch to a group of bankers about short sales and in the other I was the listener in a small meeting with senior Bank of America executives. In the first, which was a few years ago, when I made the statement that many borrowers wrongly believe that they must be late to get a loan modification or short sale, the bankers chuckled and openly admitted that was not true – but if they had any other policy, every borrower they had would be on the phone asking for better rates or lower principal or some other concession.
In the more recent meeting this month (August 2011) there was no chuckling – but the answer was the same. They said that being late was one but not the only factor in determining a hardship “entitling” the borrower to be considered for some form of relief, but hardship can be determined without any late payments. The discussion continued on that imminent delinquency can be considered as one of the hardship factors. In that regard, we have argued to lenders that there is just so much water left in the bucket before it is empty (an analogy to money in bank accounts running out).
Admittedly, some lenders in fact do have rules regarding being delinquent in payments to qualify a borrower for a loan modification or short sale. Which lender has what rules is a never ending moving landscape because those rules and policies are always changing. One of the primary lenders that have had such delinquency rules (of varying lengths of 1 month or 3 months) is FannieMae.
The end result under today’s rules is that generally, being late is a factor to determining a hardship, but it is not the sole factor and that means two things: 1. Being late does not guarantee you have a qualifying hardship; and 2. Staying current does not mean you do not have a qualifying hardship.
Difficult concepts for difficult times.
--------------------------------------------------------------------------------------
Copyright 2011 by Richard P. Zaretsky, Esq.
Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make. This article is for information purposes and is not specific advice to any one reader.
Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660 RPZ99@Florida-Counsel.com - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide! Shortsales@Florida-Counsel.com New Website www.Florida-Counsel.com
SEE OUR TABLE OF CONTENTS FOR HUNDREDS OF ARTICLES ON DISTRESS REAL ESTATE ISSUES AT TABLE OF CONTENTS - SHORT SALE AND LOAN MODIFICATION ARTICLES.
Comments(27)