Real Estate Investing Blog

Hello Michelle, 

My wife (as a real estate agent) got a listing to sell a one family house who can longer afford the monthly payments although the homeowner is  current on her monthly payments on her payments. The homeowner is also upside down.  The value is $105,000 and the mortgage is $116,000.

We were thinking about doing a short sale ( as we have a buyer who is interested to buy a lower price) but I thought it would appropriate and ethical to contact the Loss mitigation and try to work out a loan modification as the homeowener wants to stay in her home with a lower affordable monthly payment. She was getting assistance from her daughter but that has stopped. She cannot afford the payments with her only income. The daughter is not on the note.  I had mentioned that my wife is a real estate agent and I am a part time real estate investor.

We live in Pa. I would be preparing the documents necessary to send to the bank. Would attempting a loan modification (considering that she is current on her mortgage payments) the correct thing to do? Do you think the bank will modify the note under these conditions? Should we send the documents as you discussed in your May 8 Coaching calls.  
Al Castro, New ForeclosureMillionaireClub.com member .

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Albert, I’ll get right to it! 

If she is current on her payments – loss mitigation doesn’t even know about her. Why would they do a loan mod if she is current. 

A Loan Modification is when the bank agrees that:

                They will put the payments that are behind on the balance of the loan (or sometimes on the ‘back end’ of the loan) and then they do one of or a combination of things.  (1) totally rewrite the note (mortgage) with the new balance, new interest rate and new payment amounts, or (2) in a forbearance situation – write an agreement that the homeowner must sign and agree to pay higher payments for 2, 3, 4 or 5 months to bring them current with the current mortgage. 

Now – If her loan is an ARM loan – and she is current – and her payments went up because of the ARM – and her income can still support the previous lower payments – she may be able to contact the bank to renegotiate the loan to a fixed rate that she can swallow every month. 

NOW – HERE’S THE MOST INTERESTING THING.  She ‘could’ also call the bank herself and tell them that she will not be able to make the payments in a timely manner, if at all, any more – and she would like to find a buyer quickly that would do a short sale. 

IF they agree to let her go ahead with this – they will probably also tell them that she will be 1099’d for the difference.  (The difference between what the short sale was and what was actually owed on the loan.) 

Food for thought.  I know she wanted to stay in the home but she may not be able to. 
Best of Success, 

This entry was posted on Friday, June 13th, 2008 at 12:05 pm and is filed under Foreclosures, Short Sales. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.