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Loan Mod Anyone? Loan Mod Everyone! Not Exactly

Short Sale or Loan Modification

Loan Modification ScamsIt’s fairly common knowledge that one of the problems plaguing short sales is the buyers who walk away before the approval letter is obtained. Who can blame them? They put in their offer in June, and it is already October and still they do not have an approval. Blame it on the banks, blame it on the buyer’s agent, or blame it on the listing agent. It does not matter who is at fault; the buyer is now irritated and has moved on—no doubt soured on buying real estate, in general.

Another problem that plagues the short sale market is the sellers who decide at the eleventh hour that they want to consider a loan modification. Let’s get real here (please pardon my candor). Most loan modifications are not successful; there are plenty of statistics to back that up. Those individuals who successfully complete the modification process are generally not very pleased with what they have been offered. They grudgingly accept, and several months later they are delinquent again.

Many times, the seller, the buyer and the agents are knee deep in the short sale negotiation process and the sellers get a phone call (either from the lender or from some extremely gifted salesperson) and the sellers are suddenly sold on the loan modification. Look in the mirror and look at your finances, Mr. and Mrs. Seller. If you have lost your job and do not have much income to speak of, it is unlikely that you will be approved for a loan modification. And, if anyone guarantees they can obtain a modification for you, do not pay them—pay me, as I have a lovely bridge in Brooklyn that I would be happy to sell you instead.

If you do not want your short sale deal to go kaput, then you need to sit with your sellers and discuss loan modification. You need to be absolutely certain that they are ready to move forward with the short sale.

Also, it’s a good idea to review the hard facts about loan modification scams. These loan modification scams are all around us. Here are a few things that you should share with the sellers.

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Sellers need to stay away from all of the following:

  • any company/person asking for a fee in advance to work with your lender to modify, refinance or reinstate your mortgage
  • a company/person who guarantees they can stop a foreclosure or get your loan modified
  • a company/person who advises a seller to stop paying the mortgage company and pay them instead
  • a company that pressures you to sign over the deed to the home or sign any paperwork that hasn’t been read or is not understood
  • a company that claims to offer “government-approved” or “official government” loan modifications
  • a company/person who asks for personal financial information online or over the phone

Remind sellers that they can call their lender directly if they want to learn more about the loan modification. The bottom line is this: short sales are long enough transactions already. So, if you are taking a short sale listing, you will want to be absolutely certain that the seller is really ready to sell. The clock is ticking and you probably do not want the deal to fall through at the last minute.

Written By

Melissa Zavala is the Broker/Owner of Broadpoint Properties and Head Honcho of Short Sale Expeditor®, and Chief Executive Officer of Transaction 911. Before landing in real estate, she had careers in education and publishing. Most recently, she has been able to use her teaching and organizational skills while traveling the world over—dispelling myths about the distressed property market, engaging and motivating real estate agents, and sharing her passion for real estate. When she isn’t speaking or writing, Melissa enjoys practicing yoga, walking the dog, and vacationing at beach resorts.

18 Comments

18 Comments

  1. Liz Benitez

    October 19, 2010 at 12:59 pm

    We just recently had a guest speaker at one of our office meeting. She was from a tittle company that is spearheading the short sale process. They sit down with the client and “prequalify” them for the short sale. Making sure the client understand all there options, going over the financial info, getting accurate contact information for all parties involved, ect. I haven’t used them yet but am hearing very good things about their short sale program. Aside from helping the short sale move a little smoother, it also weeds out the clients that are not ready or good candidates for a short sale.

  2. Sheila Rasak

    October 19, 2010 at 2:50 pm

    Melissa,

    Hitting it right out of the ballpark as always! I love the cartoon floating around YouTube that has the charaters (would be seller seeking loan modification and Realtor) chatting it up about doing a short sale in lieu of loan modification or, more likely, foreclosure.

    I’ve witnessed countless times where the so called modification ends with the loan being revamped with higher payments! Having this happen after waiting it out for over a year is taxing to the seller at best.

    I’ve stressed to my homeowners that the best case scenario is they run both at the same time in an effort to be in the driver’s seat when and if that notice of default gets filed on their property.

    Let’s not forget that, more often than not, lenders tend to still have breakdown in communications between departments. A homeowner who is waiting for their loan modification approval can be served with an NOD while in the process of obtaining new terms on their loan. Going for that loan modification is a shot in the dark and no one is watching your back.

    Last, and very important, is once that new loan term is obtained, the million dollar question that the homeowner needs to ask is, “Will my new term turn this loan into a recourse loan?” In a non-recourse state (California), the lender has just turned the tables on the owner and can come after the owner with a deficiency judgment if and when they default.

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