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LOAN MODIFICATIONS ARE NOT WORKING.

By
Real Estate Agent with Pacific Coast Real Estate Group

I posted a previous blog about loan modifications. I was proud that some borrowers in trouble that I helped with their loan modification efforts, actually got their loans modified.

Now, I discovered with horror that, in one case, the loan modification got invalidated and readjusted to a new scenario. Now, my friend in trouble has to pay $ 4,440.00 immediately, followed by $ 2,991.00 before April 10 and some time later another $ 1,593.00. If the Lender does not receive these payments as  requested, they will continue with their foreclosure proceedings that they started while working on the loan modification.

The Lenders' argument is that they received the package of financial information that they requested from my friend, and they determined, after reviewing it, that he still has $ 1,500 of monthly disposable income. When my friend explained to the negotiator and others that food had not been allocated, neither gas to go to work or health insurance; the Lender did not recant. Their answer; try to get the money from somewhere to send it to us or you will loose your home.

Obviously, their logic is completely flawed and does not make any sense. The property subject to the loan modification is a condominium in the Carlsbad area of San Diego that my friend purchased in 2005 for $378,000. He invested $ 70,000 down payment and signed a loan for $ 308,000. Prices fell as we all know and there have been three foreclosures in his complex. The first one sold for $ 240,000, the next one for $ 225,000 and there is another that just came out as Active priced at $ 220,000. The same floor plan. The way things are, this condo for sale will probably sell for $ 200,000. It needs work.So, the new appraised value will go to a new low value of $200,000.  

My friend requested a loan modification because he was willing to stay in the condominium. He is willing and able to pay the new low payments initially offered by the Lender, and overtime, pay the mortgage in full amounting to $ 308,000 plus the $ 10,000 that he hasin arrears. That was the loan modification that the Lender originally submitted. With this scenario the Bank would recover, over time $ 318,000. Lets assume that the Lender will foreclose on his condo in April 10. Because of the market, the unit will be sold between $ 200,000 and $ 210,000. Commissions and closing costs, another $ 12,000. Foreclosure expenses and more payments missed $ 10,000. The Lender will recover, if lucky $188,000. Nevertheless, the Lender is willing to foreclose to recover $188,000 instead of $ 318,000. Where is the logic?