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

By
Real Estate Broker/Owner with Tutas Towne Realty, Inc and Garden Views Realty, LLC BK607690
Good question.

It's quite common for lenders to reach out to their borrowers to see if they qualify for a loan mod. Usually the Lenders have to offer foreclosure prevention options to the borrowers before they can pursue the Short Sale. It really has nothing to do with whether or not the Short Sale will be approved.


My experience is that loan mods are rarely given. However if you want to try and keep your property then you may want to give a loan mod a try. If you aren't able to keep your property then just opt put of the loan mod they are offering. The loan mod should be eliminated prior to attempting the Short Sale.


A loan mod, unless with substantial principal reduction, is a band aid. A Short Sale is a permanent solution.


I hope this helps.

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Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Charles Stallions 12/30/2012 09:06 AM
Topic:
ActiveRain Community
Location:
Florida Orange County Orlando
Tags:
short sale
loan mod

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Rainmaker
592,907
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

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

Dec 25, 2012 11:44 PM #4
Rainmaker
996,749
Kevin J. May
Florida Supreme Realty - Hobe Sound, FL
Serving the Treasure & Paradise Coasts of Florida

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.    

Dec 26, 2012 12:35 AM #5
Rainmaker
2,363,500
Charles Stallions
Charles Stallions Real Estate Services - Pensacola, FL
800-309-3414 - Pensacola, Pace or Gulf Breeze, Fl.

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.

Dec 26, 2012 01:35 AM #6
Rainmaker
1,142,050
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

I think you are right Kevin.

Thanks Charles!!!

Dec 26, 2012 03:34 AM #7
Ambassador
1,229,631
Melissa Zavala
Broadpoint Properties - Escondido, CA
Broker, Escondido Real Estate, San Diego County

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

Dec 26, 2012 04:49 AM #8
Ambassador
1,970,471
Silvia Dukes PA, Broker Associate, CRS, CIPS, SRES
Tropic Shores Realty - Ich spreche Deutsch! - Spring Hill, FL
Florida Waterfront and Country Club Living
BB, thanks for the straightforward answer. Short sale sellers get confused and unsure when they receive such an offer not to mention that they sometimes get their hopes up for naught.
Dec 26, 2012 09:19 AM #9
Rainmaker
4,797,120
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

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.

Dec 26, 2012 07:58 PM #10
Rainer
103,704
Michael Deery
Citywide Financial Corp - Pacific Beach, CA
A loan mod can help give many people some payment relief if they are self employed for example and need to rebuild their business, I have also heard of many permanent loan mods where the rate is lowered for the term of the loan! A short sale can mean additional tax burdens for most folks, as well as not being able to repurchase a home for 4 years with Fannie Mae! It's important one chooses wisely if they have the opportunity to do both!
Dec 26, 2012 09:33 PM #11
Rainer
282,546
Ron Aguilar
Continental Mortgage - Saint George, UT
Mortgage & Real Estate Advisor since 1995

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. 

Dec 26, 2012 10:10 PM #12
Rainmaker
491,406
Terry McCarley
REMAX Realty Team - Cape Coral FL - Cape Coral, FL
REALTOR, SRES, CDPE - Cape Coral, FL

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.

Dec 26, 2012 10:24 PM #13
Rainmaker
686,609
Hella Mitschke Rothwell
(831) 626-4000 - Honolulu, HI
Hawaii & California Real Estate Broker
I only know of one successful loan modification. What does this say about the process?
Dec 26, 2012 11:59 PM #14
Rainer
84,345
janine nielsen
Re/Max Advantage - Redlands, CA
Homes For Heroes Realtor
Unless the lender does a principle reduction, most loan mods are only temporary fixes in most instances. Most of the homeowners in my market area are 35-55% underwater. They are better off doing the shortsale and rebuilding over the next 3 years in order up purchase again. And if I'm not mistaken, Fannie and Freddie just announced new short sale timeline guidelines for repurchase to match FHA. I have recently helped 3 seperate clients repurchase after doing their short sale.
Dec 27, 2012 12:35 AM #15
Rainmaker
1,527,851
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Real Estate

Because their idiots?

Dec 27, 2012 01:08 AM #16
Rainmaker
222,058
Jirius Isaac
Isaac Real Estate &TriStar Mortgage - Kenmore, WA
Real Estate & loans in Kenmore, WA

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.

Dec 27, 2012 01:53 AM #17
Rainmaker
838,032
Bob Miller
Keller Williams Cornerstone Realty - Ocala, FL
The Ocala Dream Team

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

Dec 27, 2012 02:02 AM #18
Rainer
61,819
Sharon Sanchez
Ace Home Realty - Carson, CA
Your Number "1" Source For Real Estate.

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.

Dec 27, 2012 03:29 AM #19
Rainer
475,664
Kimo Jarrett
WikiWiki Realty - Huntington Beach, CA
Pro Lifestyle Solutions

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. 

Dec 27, 2012 09:11 AM #20
Rainer
116,418
Ric Mills
Keller Williams Southern Az - Tucson, AZ
Integrity, Honesty, and Vast Real Estate Knowledge

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. 

Dec 28, 2012 03:08 AM #21
Rainmaker
1,333,294
Michelle Gibson
Hansen Real Estate Group Inc. - Wellington, FL
REALTOR

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.

Dec 28, 2012 10:49 AM #22
Rainer
133,027
Rob Renk
Center Street Lending - McKinney, TX
AE | Fast Fix/Flip Loans for Residential Investors

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.

Dec 28, 2012 10:55 PM #23
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