Loan modifications: Do you really want to apply?

monopoly top hat man for post on loan modificationsIf you are considering a loan modification in Los Angeles, think about the long-term impact of your financial disclosures.

What you reveal can be quite costly if you later decide to pursue a short sale.

The bank will ask for all of your financial information. It may also seek detailed information on your hardship.

Say you have property in Playa Vista or Palos Verdes that is declining in value. You’ve lost your job and have a bit of savings keeping you afloat. Chances are you have a 401k, IRA or other retirement account as a “protected asset“.

You love your home and are trying desperately to keep it, so a loan modification seems like a brilliant alternative to foreclosure or a short sale.

You fill out all the paperwork. Tell the bank everything it wants to know. You wait. Patiently call your lender back. Nothing.

You stop paying your mortgage. The lender adds late fees and non-payment penalties to your obligations of debt. Even more time goes by.

Feeling like you might have a chance to save your home, you hang in there.

If you are lucky you might get all of your late fees and past-due mortgage payments tagged onto the back end of your loan. Is your principle reduced? NO!

Is you home continuing to decline in value? How long do you think the market will continue to decline in Beverly Hills, Manhattan Beach, Playa Vista and Palos Verdes?

Do you really think the bank will modify your loan?

Now the bank has you right where it wants you.

You’ve given them all your financial information.

If your lender denies your loan modification … foreclose may be in your future.

Be aware that with a foreclosure the banks can slap you with a deficiency judgment. Then credit could become a disaster zone.

Q: After the failed loan modification, can you now do a short sale?
A: Perhaps, if you haven’t waited too long and your negative equity is not too big. It is all up to your lender.

Banks are becoming more reluctant to help homeowners with large negative equity. Banks’ short-sale negotiators are less likely to consider applicants who have waited a long time to start the process because the homeowners are getting closer to their foreclosure deadline.

Nothing is free in America, and giving the banks all your information sets you up for costly complications in closing a short sale.

Let’s see … You’ve told them about your retirement accounts. You told them about your son’s college savings plan.

In your hardship letter, you told them about other payments you’re making — perhaps to a doctor on an ongoing basis — just to make a better case for your need.

Now, the bank wants you to “contribute” to the short sale before it will agree to selling your Manhattan Beach home for less than you owe the bank.

Shocking isn’t it?

You disclosed that you have money!

Can banks ask you to cash in protected assets such as your retirement accounts? No, but they know you have money.

Can they ask you to cash in the money you saved for your child’s future? No, but they know you have money.

When preparing for a short sale, manage your expectations to include seller contributions or some sort of repayment plan. This is not necessarily a bad thing. The fact is, if banks know you have assets, they want you to help pay for your short sale.

If you knew from the beginning how much a loan modification would cost you in collateral damage, would you have filled out all that paperwork — provided all that documentation on all your personal assets?

Consider the pros and cons of a short sale when considering how a loan modification affects your future.

Think, how much is keeping this home I love really going to cost me?

Need help? Feel free to contact me, Cindy Marty, to discuss your options, including short sales.

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