Usually one of the first three questions a homeowner that has fallen behind on their mortgage asks, "What are my options?"As real estate professionals, we should provide the information; Refinance, Reinstatement, Forbearance, Modification, Deed in Lieu of Foreclosure, Foreclosure and Short Sale. Then we explain the options and which options are viable under the circumstances. Such as if the homeowner is upside down with negative equity you can't refinance or with loss of income and savings it is unrealistic or they are unable to reinstate. When it comes to loan modification, we all want the best and it would be great if the homeowner could stay in the property. Based on income and the NPV calculation it should be fairly straight forward. Right.......Wrong!
Too often the trap gets set; when the homeowner goes into a trial modification. This with the belief that if they got this far, they must be able to qualify for a permanent modification. After all why would the bank go through all this, hold the foreclosure and take their money? The trial modification gets extended as the bank says it looks good or we just need one more item. A foreclosure sale date is placed on hold or postponed a month or two down the line. And the hopes and expectations of the homeowner continue to rise.
Then it happens, the modification is.............................................
DECLINED!
And all too often with only days before a foreclosure sale date. Frantically the home owner is calling the bank for answers only to hear one of many reasons. The two most common are missing paper work and inadequate income. But shouldn't the bank know what's missing and ask for it. Or if the income doesn't work from the beginning decline the trial modification? Next the homeowner hears there were no guarantees and it's too late to stop the sale. A day or two later another home is foreclosed. Of the more than 1.4 million trial modifications there were only 168,708 made permanent. That's right ONLY 168,708 permanent loan modifications and a large percentage of those have already re-defaulted. A joint study from the Office of the Comptroller of Currency (OCC) and Office of Thrift Supervision (OTS) showed over 50% are 60 days or greater past due. I have not seen a number for those that were foreclosed after being denied on permanent modifications.
Everyone has heard about it! Everyone has seen it! Everyone knows someone that this has happened to!
If you are a Realtor don't let this happen to your client. If you are a homeowner don't let this happen to you! Bad advice can be disastrous and cause irreparable damage. Make sure you get the right advice. From an active professional Realtor working with the banks on short sales, A CPA or professional tax preparation expert and even an attorney. Though you may not hear what were hoping for, with the right advice you can plan properly and provide for the future. A foreclosure can leave you in even worse financial shape. Recourse loans after a foreclosure in California have 4 years to act on the deficiency and are often sold to collectors that have only one thing to do.....collect!
In review and understanding of the new government HAFA guidelines being implemented April 1, 2010 by all the major banks, and already being used and tested by a few, this should help to prevent many of these foreclosures, allowing the homeowner to short sell and release them of recourse and deficiency.
James Eichenbaum of AREA-REALTY-GROUP, California Broker DRE# 00891338, is a Southern California Short Sale Expert and has helped hundreds of home owners. With the experience and knowledge of government HAMP and HAFA guidelines he has developed successful strategies, contacts and an in-house team to work directly with the banks. If you need assistance, have questions or would like information emailed to you about one of our upcoming FREE seminars, you can contact him at AREA Realty Group, 949-373-7400. Or visit the website at http://www.AREA-REALTY-GROUP.com
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