Loan Modification, Short Sale, Foreclosure or Bankcruptcy: WHAT IS BEST FOR ME?

Due to the tough economic times, you have stopped paying your mortgage. You start getting these phone calls from your mortgagors, and you ask yourself, "What should I do?". There are a lot of things floating around from friends, neighbors, TV ads, etc but the information are overwhelming. With all these options, you don't have to stick to one, why not try them all?

Loan Modification

The question you need to ask yourself is, "Do I want to keep this house"? If you answer no, then skip this portion and go straight to Short Sales; but if your goal is home retention, you may want to try loan modification.

Loan Modification is when you work with your bank to make a mortgage payment better suited for your budget. It is not necessary to hire an attorney to do your loan modification. I suggest it best that you do it yourself, because if you are already having problems paying your mortgage, you can save thousands by doing loan modification yourself.

The process is, you call your lender, and ask for their loss mitigation team. Most of the time, if you are on time with your mortgage, the loss mitigation team will not even entertain you. Now that you have missed payment, they are more willing to talk. Make sure you document all your phone calls with your bank, and list down who you talked to. They will ask you for some documents, and once that is satisfied and you are a qualified candidate, they may put you on a trial modification.

A successful trial modification will lead to a permanent loan modification, which is fixed for the life of the ‘new’ terms. The mortgage could be a slash in interest rates, a cut in payments for a few years adjustable after a set period, or in rare cases, a discount in the principal amount.

Some drawbacks include having to negotiate with multiple banks if there in your property. It is also concerning that the failure rate on loan modifications is 70%. Which means, if you really would like to keep your home, you have a 30% chance for success. This is worth a try if your goal is to retain and keep your home.

Short Sales

If your loan modification failed or you just want to get rid of the house to solve your problems, then Short Sales should be your next step.

A short sale is where you sell the house less than the amount of the loan. So a house with a loan of $500,000, is put on sale for $300,000 due to market conditions.

You will need to hire a professional realtor who has experience in short sales. The realtor who sold you the house 5 years ago, may not be equipped with the right skills to do a short sale, so do your research diligently.

For the seller, the process of short sales will look like any regular sale. The same guys are there, the banks, escrow, real estate agents, open houses, etc. plus a few complicated additions.

A plus in doing short sales is you don't pay sales commissions to Real Estate agents**. Your Realtor will negotiate their compensation from the mortgagor. Short Sales take a long time to complete, but the new HAFA rules promise to speed up the short sale process. Just like in a regular sale, you can stay in your house until it gets sold. It is possible that your house will get sold and you don't have to spend a penny. A good realtor will negotiate to save you every single dime. You may even qualify for relocation assistance of $ 3,000, under the new HAFA guidelines.

Once your house gets sold in a short sale, your credit will start to cure itself. It is possible to purchase a property within 2 years after a short sale. I am currently representing a buyer-client purchase a new property, after a successful short sale we have completed 13 months ago.

Bankruptcy

A bankruptcy remark may stay in your credit for 10 years, but sometimes it is the inevitable conclusion to solving your problems after exerting loan modification and short sale solutions.

If you are being harassed by creditors, debtors, mortgagors, even a personal friend whom you owe money with, bankruptcy may be an option. You lose your debt, as well as a few friends, but it does give you some peace of mind and start on a clean slate. But with a wrecked credit, you may see a lot of opportunities like low interest rates, pass you by. You will also have to pay a lawyer upfront to do your bankruptcy.

After bankruptcy, it is possible to start buying properties with a loan after 2 years of good credit.  Still, bankruptcy is your best option rather than losing your home due to foreclosure. 

Foreclosure

Foreclosure is when the bank takes possession of your home. The credit impact is negative for seven years. This happens if your short sale failed, no buyers made an offer, or you decided to just ‘walk away’. Doing nothing will bring you to foreclosure and devastate your credit.

These are tough times, and I am very aware of how people’s lives are being affected by the bad economy. But all you need to do is to take charge and start doing something. Inaction will accomplish nothing. Do your loan modification yourself. When that fails, interview several realtors and several lawyers. Remember that they want your business, so when you talk to realtors and lawyers, you are the boss. You hire the person who you think will represent you best. You will be sharing with them the most important details of your life, so choose wisely.

In the challenges that you face in your life today, I wish you good luck. Though time can not be turned back, you can definitely start to find a solution today. Take a step now and claim your path to recovery.

N.B. ** If an agent who claims to be a short sale expert or loan modifier charges you an upfront fee, go the other way! Collecting upfront/advanced fees for loan modification and short sale representation is illegal and is sanctioned by the Department of Real Estate.