Why Is My Lender Offering Me A Loan Mod When I'm Doing A Short Sale?

Bryant,

"Why is my lender offering me a loan mod when I’m doing a short sale?"

It’s called "loss mitigation!" All to many forget the biggest looser, often the only loser, in a short sale is the lender!

Bill

I could be wrong BB however I believe Dodd-Frank legislation requires the loan mod to be offered prior to any foreclosure attempt.  It's more like a reach around than a "reaching out" that lenders truly are trying to help consumers.  Loan mods, short sales and foreclosures occur concurrently and independantly in the process.    

Hi Bryant I always love your post and you are one of the most helpful folks in this business. I had two closings last year directly related to your suggestions although I thanked you then everytime I see your post I just appreciate all you do.

Well said. It's a small band-aid for a very large cancer! Happy Holidays!

I have seen way to many loan mods fail.  Many through no fault of the home owner, rather through the fickle process of the lender.

Sure, we as agents an LO's understand all the ramifications of this. I have seen this for the past 2 years, but it depends on the Servicing group whether this is common or not. In short, always find out where the home seller is by bringing this up during the pre listing negotiations. 

I have seen very few load mods.  One that did happen that will always stand out in my mind was a short sale I had under contract and the lender had issued written approval with full debt foregiveness.  The lender offered  the seller a loan mod and had me look thru the paperwork with him.  He informed me the payments weren't totally comfortable to him but he was going to take the loan mod as it would allow him to keep  his home and hope things improved financially for him.  I told him the loan mod was just a band aid fix and he admitted he realized that but wanted to give it a try anyway.  Fast forward to less than one year and he lost the home to foreclosure.

Because their idiots?

The banks will try anything to keep getting money from you & also, it has to look like they are trying to help!  Loan modification are only worth pursuing if you are not underwater, you want to keep your house, & a payment that is 31% of your gross income that you qualify for & are happy with.  This is rarely the case.

Hi Bryant, the HAFA program and others like it require that the bank offer a loan mod before doing a short sale.

Hi Bryant.  It's very confusing for borrowers.  I had a client who was denied a loan modification.  The servicer sent him a letter stating he was denied and that his property was going to be sold at a Trustee Sale.  He decided to do a short sale.  While the negotiator was reviewing the short sale documentation, I received several calls stating they just needed another payment in order for him to continue the loan mod.  So he changed his mind and now he's doing a loan mod again.  I hope it's approved because he really wants to keep his home.

It depends on the circumstances and a bunch of other data to determine what is most prudent and suitable, yet every opportunity is unique and different, so it's difficult to have a general solution for every situation. 

It is just on their check sheet that they offered the modification.  If you want and can stay in the house, then a modification may work.  If you want/need to move then a short sale is the answer.  Just let your lender know you want the short sale as the modification doesn't work for you. 

BB - Loan mods obviously take place, I personally don't know anyone who has successfully done one and you bring up an excellent point about it being a band-aid.

True, loan mods are almost never approved.  I know of many people who have gone through the process to only be told no at the end.  The short sale solves the issues the homeowner may have to dispose of the property.