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Loan Mods & Other Options

When you’re underwater on your San Diego home and can no longer keep up with the mortgage loan payments, what are your alternatives?

  • You can alter your lifestyle to free up the money so you can keep up with your payments
  • You can go into debt on credit cards to keep up with the payments
  • You can do nothing and let the house go into foreclosure
  • You can sign a deed in lieu of foreclosure and walk away
  • You can attempt a loan modification
  • You can let us help you sell your San Diego area home as a short sale

Let’s look at these options one by one.

 
Altering your lifestyle
If you truly want to keep your home and have faith that its value and your income will both increase in the near future, this is a sound alternative. A little self-sacrifice never hurt anyone.

AS we move into the 2nd half of 2013, homes in San Diego are appreciating in value as demand surpasses the supply of homes for sale.

Going into debt to keep up with the payments
This is one of the worst choices you can make. Your first mortgage debt will be erased in a foreclosure and all liens against your home will be erased through a short sale*, but credit card debt will remain.

Letting the house go into foreclosure
This is the easiest route to take, and the most devastating to your financial future. A foreclosure can affect you both emotionally and financially for years to come.

Not only can a second lien holder sue you and get a deficiency judgment, you won’t be eligible to purchase another home for 5 years. In addition, the foreclosure will remain on your credit report for 10 years and for the rest of your life you will be required to answer “yes” to the loan application question “Have you ever had a house foreclosed upon?”

Possibly most devastating of all, you could become trapped in a Zombie Foreclosure and remain financially responsible for property taxes, utilities, and HOA dues for years to come.

Signing a deed in lieu
Is deed in lieu better than foreclosure? No. In spite of the new Fannie Mae / Freddie Mac offer to allow on-time borrowers to walk away, the loopholes make it a poor choice for California homeowners.

A deed in lieu is almost the same as allowing foreclosure, with less cost to the bank. Our recommendation: “Don’t even think about it.”

Attempting a loan modification

This choice, which looks attractive on the surface, has put thousands of American homeowners deeper in debt while merely adding to their stress and extending the time before they lost their homes.
One reason is that the plan is designed in such a way that many homeowners can’t qualify
.
If you have too little income, you won’t qualify. If you have too much income, you won’t qualify. If you owe more than 125% of the current market value, you probably won’t qualify.

One homeowner who had been struggling but managing to meet a $1,500 house payment was told she didn’t qualify because she “couldn’t afford” what would have been a $1,000 payment. Is there a shred of common sense in that statement?

For some who do qualify, the process can take so long that their homes go into foreclosure while they’re waiting.

False promises and false hope
The media and the administration touted HAMP (the Home Affordable Modification Program) as being the answer to homeowner’s prayers. It was supposed to save 3 to 4 million homeowners from foreclosure in the first 6 months. Instead, after a few years, HAMP has saved only about 600,000 homes.

Homeowners who drained their savings accounts and borrowed money to keep up with payments during trial modifications were later foreclosed upon because the bank changed its mind. And, according to a spokesman from J.P. Morgan Chase, that’s OK, because the paperwork gave them fair warning.

However, many borrowers say they would never have signed up for HAMP if they’d been told the risks.
An article by Chris Serres in the Star Tribune cites three stories of homeowners who are in far worse financial shape today because they attempted a loan modification.

Meanwhile, his investigation revealed one of the reasons why HAMP is not working.

“Incentives favor foreclosure.
” Most loans end up with servicers who are paid to collect the monthly payments and deal with loan modifications, short sales, and foreclosures. And the servicers aren’t the ones who lose money in a foreclosure.

In fact, the opposite is true. “Servicers actually can collect more in fees on a foreclosure than from modifying a mortgage, according to a 2009 study by the National Consumer Law Center.”

Thus, these servicers seem to be working for their own financial gain, not for their investors. And in addition to working for their own monetary benefit, many seem to be using their positions to stroke their own egos. Power in the wrong hands does corrupt.

These loan modification negotiators know they hold the keys to a homeowner’s future chances of staying in their home. And at least some of them are basking in that power. In fact, many bank negotiators seem to be saying “I’m going to make you beg me personally for your loan modification.” And we have heard of some strange things going on.

We’ve heard rumors that when the loan modification negotiators get together they share stories such as: “I saw that one lady had $100 a month for entertainment on her financial statement. I told her she didn’t deserve money for entertainment when she owed money to us.”

Another story was: “One couple had $200 a month on their financial statement to give to their church. As soon as I saw that, I increased the payment I asked by $200.”

At the same time, if a person is in dire financial straits, should entertainment and charitable giving be budget items? Probably not.

If you were rejected outright, you were probably lucky.

After seeing so many homeowners in Carlsbad, Coronado, La Jolla, Rancho Bernardo, North County, Del Mar, Mission Hills, Kensington, and Metro San Diego become financially damaged by an attempted loan modification, we think the fortunate San Diego homeowners are those who were ignored completely or turned down shortly after making application.

They were spared the months of uncertainty, saved from completely ruining their credit, and they didn’t empty their bank accounts or go further into debt just to throw the money down a black hole.

Now, as the administration seeks to implement yet another regulation called the “Homeowner’s Bill of Rights,” we believe the banks and their servicers should implement some self-regulation (and integrity) by adding two important steps to the loan modification process:

1. Homeowners will be given all the guidelines at the beginning of the loan modification process. They will receive the same guidelines the loan modification negotiator receives.

2. When a homeowner is turned down for a loan modification, the lender shall give them a written, coherent response along with the reason they were turned down. It will specifically detail why they were denied and what they can do to be approved.

As long as the rules are fuzzy and homeowners don’t know where they stand, the confusion and unhappiness will continue.

The San Diego Short Sale

We believe a San Diego short sale is a far better and safer choice for most homeowners. It will get you out from under your mortgage debt with no lingering financial burdens* – so you can get on with life.

It will also allow you to purchase another home in as little as 2 – 3 years. And once it’s done, it will free you from the debilitating stress that leads to physical ailments and family conflicts.

However – if you do want to attempt a loan modification…

Come and see us first. We have the same software that the banks use to determine whether or not a homeowner is eligible for a loan modification, and we’ll be happy to use it on your behalf.

We can tell you within minutes whether you’ll even be considered – and shave weeks or months off your “anxiety time” in waiting for an answer if the answer is clearly going to be “No.”

If it looks like you could be approved, we’ll share the guidelines that banks use to determine your eligibility, and give you tips on how to prepare your budget for submission.

If you definitely won’t be approved, you should not apply.

Why? Because the information you’ll provide for a San Diego loan modification will contradict what you must say to obtain a San Diego short sale.

A loan modification requires you to paint a rosy picture of your finances – and your ability to pay if they’ll just modify the loan. On the other hand, a short sale won’t be approved unless you show them that you’re in financial trouble.

In other words, a failed loan modification application could result in rejection of your short sale request.

If you’re underwater and not sure what you want to do, get in touch. We’ll be happy to talk with you and help you sort through the options.

And, if a San Diego short sale is your choice, we’ll be glad to explain how a short sale works, your role in the process, and what you can expect. We’ve helped hundreds of San Diego area homeowners avoid foreclosure and get on with their lives – and we’d like to help you too.

You can reach us by writing td@tomdunlap.com or by calling 619-325-4170.

*Subject to some restrictions. See IRS publication 4681 for details.


Please note that the information provided on this San Diego short sale page is generic, academic information used for general information purposes and may not be construed as or relied upon as a promise for a specific outcome.

This site provides information about real estate, law, income taxes and credit scores as relates to borrowers in distress, short sales and similar situations. The site is designed to help users safely cope with their own needs. Information is not the same as advice — the application of law or regulations to an individual’s specific circumstances. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a lawyer, tax adviser or other specialist if you want professional assurance that our information, and your interpretation of it, is appropriate to your particular situation. The models in photographs accompanying the testimonials on this website are used for illustrative purposes and are not a personal endorsement.