Facts About Loan ModificationsPosted on March 11, 2013 by
Many of the Sellers that are upside down on their home are stressed out and don’t know what to do. First off, I want all Sellers to know that when they got a loan from the bank their money was given to the bank from an investor. This investor could be a trust, reit, or maybe the government. The bank guaranteed the investor or group of investors a set interest rate. Many Sellers are attempting a loan modification hoping to keep their house. I always ask my Sellers if could wave my wand what do you want from the bank. Most of them will answer that they want the bank to reduce their balance on their loan or they want a certain amount for their monthly payment. Here are some facts I want to share with the Sellers:
- During a loan modification the bank is still continuing with the foreclosure.
- I have not spoken with a Seller yet that got a reduction in the value of their home on a homesteaded property and I have done over 500 short sales.
- The monthly payment the Seller wants makes no sense. They are not considering how much their taxes and insurance is on the property nor are they considering the interest that will be charged for the loan amount. Example: Seller owes $300,00,000 on the loan at 4% for 30 years is $1,432.25 – Yearly Taxes are $3,000 per year $250.00 a month – Insurance is $1,500 per year – $125.00 per month – Total monthly payment NOT INCLUDING HOA (homeowners association dues) would be $1,807.25. Many Sellers want a lower payment than this amount because they can’t afford it.
- I have only seen the bank take the monthly payments that they are behind plus interest, late fees and attorney fees and add it to the end of the mortgage and/or change it to a 40 year mortgage. Which would make their monthly payment $1,253.82 on the loan plus taxes and insurance would be $1,628.82.
Being able to discuss the above issues with a Seller will open their eyes to why a loan modification may not even be available to them. Let all the Sellers going through this difficult time that your home is where your heart is and may God Bless you during this difficult time.
So should a Seller do a short sale? First you need a good negotiator working on your file. Benefits of a short sale:
- The Forgiveness of Debt Act which expires on December 31, 2013 allows Sellers who own their properties as homestead to waive the tax ramifications should the bank forgive the debt. Up to Million Dollars for a Single Individual and $2 Million Dollars for a married couple.
- The Bank will report the short sale on their credit report as being settled for less.
- The Sellers may receive some money to relocate.
- The Sellers may not have to pay a cash contribution or a promissory note. Again this depends on your negotiator/realtor.
- The Bank will not go after the Seller for the difference if you get a full satisfaction otherwise they have the right to collect on the Seller for up to 25 years.
- The stress is gone and they have relocated into a bigger and better home most of the time.
I would recommend that as Investors or Realtors that a Seller give their family and themselves the gift of decision with the above facts.
Again remind the Seller that your home is where your HEART IS and your family will go wherever you go.