Part 4: Foreclosure and mod offers.
Your loan mod appears like you’re making some progress and you are actually starting to get a hopeful. At the same time, you’ve got that gnawing feeling that the bank may not get you your modification in time and instead they’ll foreclose on you.
Watch your timelines. As this process is moving along, you’re still not making payments. You’ve been having lots of conversations with the Loan Mod Department or Loss Mitigation Department AKA: “Loss Mit”, but did you know that the Foreclosure Department may not know the status of your mod and is moving toward foreclosing on you? Not making payments triggers several things. First, you are accumulating unpaid payments that are adding to your loan balance. This in turn is increasing your borrowing costs because those payments are adding additional interest to an ever increasing balance, further complicating the Underwriter’s calculations by the way. You’ve been getting nasty letters and calls from the Collections Department; don’t they know you’re doing a modification? Uh in a word, no, and they don’t care anyway. They’ll want you to make a payment of some kind – if you’re in this far, don’t start making payments now (but I can’t say that). Every state is different of course. In California the other trigger is the Notice of Default (NOD) or worse, the Notice of Trustee Sale (NOT). For those of you reading this that are in Judicial states, I can’t speak to the process since California is a Non Judicial state we have trust deeds not mortgages so no court appearance is required for foreclosure. This is a critical point in the process, because you are like a covered wagon heading towards the edge of the Grand Canyon and if you’re not very careful, will find yourself flying over into the abyss; said another way, you’re playing Chicken with the bank and you could lose your home. You need to call the foreclosure department and they should have a person or message directing you to a website that will show the sale date and status. If a sale date has been set, you need to know about it.
Getting the sale postponed. Truthfully if you are 60 days past the Notice of Default, you need to start talking with your RM or negotiator about the sale date. Alert them by writing at the top of every correspondence, SALE DATE: PENDING. Once you’ve found out the sale date, and you should have received written notification of this my mail or a note posted to your front door or both, you change your heading to, SALE DATE: 1/1/11 (your date). It must be made clear to them that the clock is ticking; you have to get your sale postponed. Get on the phone with whomever you’ve been working with and alert them to the pending sale. This is a call you’ll need to make every day or every other day until you get the sale postponed. You need to verify the postponement in writing. If someone says it’s been postponed, ask for a letter, a screen shot, something. You can’t take their word for it, you’ve got too much at stake. Once the sale is confirmed postponed, you can breathe a little easier, but they will only postpone it in 30 day intervals so this now becomes a regular part of your loan mod procedure.
Your first offer. Very often the lender will make a throw away proposal to see if they can get you to bite. It will usually be a “Piggy Back” offer. This is where they “generously” allow all of your arrearages and back payments to be added to the balance but nothing else. In other words, you don’t have to make some monster single payback payment, but rather just add everything onto the back end. They will tell you that this is what most homeowner’s biggest hurdle is and tell you that’s the best you can get. You do not want to accept this offer. First of all, it does nothing to change the payment you were making when you started this process – no change in rate or terms. Secondly, if you accept this offer, you have precluded yourself from a future modification. They won’t grant a 2nd modification. So repeat this mantra: escalate. Explain to your person that this doesn’t help you afford the home. Ask them, if the underwriter is “looking at all my debt”? “Don’t they see I’ve got child support payments, a 2nd lien; a lease or time share you can’t get out of; huge medical bills”? You give them anything you can think of and then ask for a supervisor or make the call to the Executive Office. You can call the Executive Office anytime you want. They will likely be able to help get your file pushed forward and escalated. Remember, write down everyone you’ve spoken with and their extension and reference your conversations with other Executive Office personnel – they likely all work together and know one another. Again, this is just showing that you’re serious, diligent and professional.
The Trial Mod. After all the wrangling and number crunching is done, they’ll finally come up a real offer. This offer typically stretches your payments to 40 years rather than 30, makes it fully amortized if you were in an interest only and reduces your interest rate, which could come in the form of a straight forward reduced flat fixed rate or could be the a fore mentioned “Step Up” whereby the first years are reduced super low and gradually step up; ie: years 1-3 are at say 2.5%, the next 2 years 3.5% and then the remaining years fixed at 4.5%. But it won’t become permanent until you’ve demonstrated you can handle the new payments. This is called the “Trial Loan Modification Period” and is usually for 3 months. This new structure will start at a date, often a month or two out; will include the taxes and insurance based on all the figures you’ve provided in your package and include all back payments and accrued interest. Once you make those 3 “Trial” payments in full and on time, your lender will draw up new loan docs usually based on those terms (though they won’t guarantee it’s usually the case), and you now have a successfully modified your loan. It only took a year but you did it. Congratulations!
H.A.R.P 2.0. This is a refinance program introduced by President Obama in 2012. It allows current borrowers (you can’t have missed but one payment in the past 12 months,) to refinance regardless of DTI (provided you are underwater), or LTV (you can even be unemployed). In other words, as long as you are current; your loan is owned by Fannie Mae or Freddie Mac (sorry, jumbo loans don’t qualify) and you are still breathing, you can refinance; (You can verify if your loan is a Freddie or Fannie by visiting their websites). I mention this here because you may end up taking a loan mod if for no other reason, to restructure your debt later on by refinancing through HARP 2.0. Since you have to be current on your payments, even though your loan mod might not be everything you want, it may be enough to bridge the 12 months of making payments so you can refi under HARP 2.0.
The object of this series: I updated this series since originally writing it because I have been involved in two more loan mod attempts since and one appeal, and the government introduced some new programs, so I felt it worthwhile to bring my new experiences to the table. Sadly my success in these latest attempts was very limited, it’s just not easy to get banks to comply, or troubled homeowners to fit into the “loan mod” box.
You may also be wondering why I would devote so much time in writing this and “giving away” all my secrets. The reason is simple, I want to help distressed homeowners and I thought this the most efficient way. There is really no money to be made for a guy like me in doing loan mods. They take a really long time and I cannot by law collect money up front. In fact I could only collect a fee if I were successful and even then I don’t even want to ask. Since this process is so difficult to accomplish, and since there are no upfront fees or retainers, it’s just not a job that pays, so I’ll stick to selling residential real estate. I do make this one request, if you are one of the many that are seeking a loan mod or know someone who is, and you found this helpful, send me a referral. I work the Los Angeles/Ventura County line and help buyers and sellers including short sellers, buy and sell real estate, so keep me in mind, I’m never to busy for a referral.
All the best, and good luck!