I have a friend who is currently facing upside down situation. He is originally from IL. He bought house in CA (Orange County) when he got a job in CA. However, he left the job soon after he bought his house and he went back to IL few years ago.
Because of housing market bust, his equity became negative (Loan amount is much higher than the value of his house). Worse, he is currently facing $1400 negative cash flow situation in his CA rental (He has no choice but renting out to the tenant to soften his mortgage obligation).
He has jobs (Both full time and part time job) in IL so he can still keep up his mortgage.
In this situation above, what he should do to get out of this situation? To my knowledge, he can't shortsale his house since he can still keep up his mortgage obligation because he has two jobs. Can anyone help my friend? Any help is appreciated. Thank you very much.
I think there is a program of loan modification for those who are current on their payment but in negative equity.
To the best of my knowledge, it's basically a program that stretches the loan to more years (40) so the monthly payments are substantially lower.
Thank you very much for reply my question. I read some more thread about loan modification and some people claim that most of the loan modification business is scam (Via third party). Is that true? Or are there some people who actually managed to lower their mortgage via loan modification?
Why doesn't he just sell it? Even if he has to take a loan to cover the shortage he would at least be rid of the albatros.
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I would be very careful with short selling. If the owner is paying on time and is current, I suspect that his credit rating is good. If he short sell, it will effect his credit rating no doubt.
Loan modification, the way I described earlier, should not effect his credit, since the lender doesn't take a hit. It just spread the same loan over a longer period of time and the lender potentially makes even more money.
With regard to how to go about with it, Google the government agency that deal with it and take it from there. Also, you can find a reputable law firm that specialize in those type of mods.
Problem is that he rents out his place to soften his mortgage obligation. So, once he sells his CA home, he can no longer keep up his mortgage by his income (Only mortgage left). Or once he sells his CA home, is there anything he can do to lower his monthly payment so that he can keep up his mortgage? (Are you saying that refinance the outstanding loan amount after he sells his house? This can be a good idea if it can be done)
I'm confused. You say he's $1400 negative on the CA house. I suspect you mean the rent he's getting is $1400 less than his PITI payment. So in reality, his situation is much worse. Any hiccup, like a big repair bill, an eviction or a long vacancy and he's sunk.
If was rid of this CA albatros, could he afford his house in IL? If so, he should sell the CA house. If he can get a loan for the shortage, there is no short sale. Even if the payments on that loan are $1400, he's better off than now, because he has no risk of a big expense.
If he can't afford the IL house if he gets rid or the CA place, he should all it too. But it seems like getting rid of the CA place would do nothing bug help.
Some real numbers would help.
Converting a $500k loan from 30 years to 40 years would knock only $250, less than 10%, off the payment. That doesn't seem to be enough to help.
Jon, All you said is true in today's market condition. However, if you, like me believe that in two years we will experience the biggest inflation ever, and presuming that the person can sustain himself with loan mod for two years, he may be able to benefit from higher rent and stable mortgage... but then... I could be wrong.
Another option is to also rent his current residence in Chicago, and move to a lower rental area, Not ideal but an option.
I'm confused. You say he's $1400 negative on the CA house. I suspect you mean the rent he's getting is $1400 less than his PITI payment. So in reality, his situation is much worse. Any hiccup, like a big repair bill, an eviction or a long vacancy and he's sunk.
Jon, you are exactly right. His PITI payment is $1400 higher than the rent.
He is currently renting the place in IL because he simply can't afford it. If he can get a loan for the shortage as Jon said, I think it is going to be better off for him.
Your friend needs to have a plan! You cannot simply be in the red just because you want to save your credit rating! That is ridiculous.
I agree with Jon! First, encourage your friend to call the lender to see if there is anything they can do about a loan modification. I know of no loan programs (loan mods) for non-owner occupied homes especially ones for 130% LTV, but new programs come up all the time so it is worth looking into.
Second, have him ask his lender about deed in lieu of foreclosure or cash for keys programs. He might be able to strike a bargain with the lender since he had to relocate.
Third, there are some lenders who will do short sales without getting behind on your mortgage. This could be worth looking into especially since he has been a stand up human being to this point.
My friend has called lender 3 times but there is no response from the lender as of yet (He talked to the lender 3 weeks ago). And, he said to me that he is planning to talk to attoney about this issue. Is there anything attoney can do to solve his situation? Thank you very much for your help.
Lenders are usually reluctant to talk to borrowers who are current with their payments. From their perspective, there is nothing worth negotiating at this point. Having an attorney representing you, make the issue more serious because, everything becomes official and can be used in case of litigation. However, I would strongly recommend hiring a reputable lawyer who is an expert in negotiation with financial institutions.
i am in the same situation upside down as many homeowners are. I suggest as many of the readers are saying and speak with your lender personally for modifying your loan. some lenders with also do a shortsale refinance but I don't know what lenders are doing that.
the only thing is that your friend is current and so he will be in the bottom of the list as far as priority so he really needs to be defaulting on his payments in order for the lender to even look at his situation. I agree with jon and eddie in that those loan mod programs are scams.
As far as credit is concerned if his debt to income ration is high than what will credit get you now a days. So if he's worried about his credit score he can always rebuild his credit at a later time
If it were me, I'd be tenaciously persistent. I'd call twice a day, every day, and leave voicemail messages. I'd send as many email messages a day. I'd write letters and put them in the mailbox. Sooner or later, someone will realize this guy's serious and talk to him.
If your friend is paying on time then his chances of qualifying for a short sale is slim to none. You have to look at it this way, he is one of few that the banks are actually getting their monies from. As long as he continues to pay on time they will continue to collect as much money as they can from him, wouldn't you? You speak with different departments within the banks based on your loan status. For example, if your friend is past due 30 days, he would speak with collections, if he was 90 days or more he would be speaking with loss mitigations. If he is paying on time, well he's just speaking with a first level rep who wouldn't be able to assist him with short sales or loss mitigation options. The only way he's gonna get some help is if he let his mortgage go into foreclosure, it's unfortunate but it's the truth.
Mortgage and real estate scams are what got us here in the first place and there are a lot of scams going on with the loan modification, but I teach foreclosure prevention and loss mitigation to realtors as a continuing education and one of the questions they ask is how do you make money negotiating loan mods? My answer, simple, first make sure your Broker know that you will be collecting a fee-for-service so that you won't be violating any laws. Second, know what forms are involved when negotiating shortsales or loan mod, Thirdly, homeowners really do need help negotiating with their lenders. We have to remember that homeowners are fragile and very emotional. The banks will give them the runaround and transfer them from rep to rep only to find that they are talking with the wrong department and they have to start from the beginning by calling the 800 number back. They need someone who is emotionally unattached to the situation, yet have a sincere concern with them keeping their home. It is time consuming, lots of phone calls and faxes. You have to know how the different departments work on the inside and what forms to submit. I usually offer advice and encourage homeowners to call their lender to negotiate, but if the homeowner insist that I help them, I have a set fee that I charge. I have the homeowner sign a form that break down my fees. I will not disclose how much I charge, but its very affordable. The terms are, for example I may charge $500 for the service. I ask the homeowner to put down $250 as a retainers fee. If I am able to reach a negotiation that is acceptable to the homeowner, they own me total sum of $500. If I am not able to reach an agreement, I refund $100 and keep the $150 for services rendered. You can't make a living off this stuff unless your scamming and charging outrageous fees, but you can make something and still attempt to really help a homeowner.I have a loss mitigation package that I have them sign. This package is very effective, it gets the lenders attention and I usually get great results and fast replies from the loss mitigation department.
It does not matter that the payments are on time. If the house is upside down and he has relocated for employment reasons if I understand correctly he can short sale. You DO NOT HAVE TO BE LATE TO PARTICIPATE IN A SHORT SALE. He has a hardship and the most important thing here is that he has relocated for employment reasons and that qualifies for a hardship, tell your friend to list the property for sale as a short sale with someone who knows what their doing. I have help a countless number of people short sale their properties who had not missed a payment and their credit was not greatly affected.
Your friend has options. Short pay refi would be one of them. Google it and it is self explanatory. Quick way is Chapter 13. Cram down the balance to todays market value.
an investor i know is doing alot of the short pays with his properties that went belly up then the bank even allows him to sell them after that and hes even making a profit!!
If i were him, i wouldnt worry about his credit for now. If he shortsales, it will be effected for about a year. IF as Jon says, a big problem came as a vacancy or something hes going to foreclose and that will be there for 7-10 years and for 5 years he wont qualify for another home.
Honsetly, i would stop paying if its going to kill him with stress, then negotiate a shortsale which an agent can do or even im sure an investor on here will be willing to do it and buy the place then resell it! The bank forgive the debt even though he will get a 1099-c DONT FREAK OUT!! According the the Mortgage Debt Forgiveness Act of 2007 (extended to 2012 EXCEPT in CA- it goes till 2010 for now so GET STARTED!) he may be insolvent, or even though its not his principle residence NOW, it may even qualify because it was and the loan im assuming was not for a rental since he lived there. SOOO he may not even have to pay JACK for taxable income UP TO 250K if single and 500K if married.
I will type some stuff to read about FROM the SOURCE cause i dont know if they allow links?? Might ruin my influence points but i will sacrifice to help! lol
mortgage debt forgiveness act of 2007 (make sure its on the irs page not some 3rd party explanation)
IRS publication 4681
news release for update see IR-2008-17 on irs page
BUT i do agree with the fact a MAJOR inflationary period is on its way and from the looks of our monatary supply chart i saw on the governments page.... it exactly resembles, hungary 1946, zimbabwae 2008, argentina, yougoslavia 1991, and MORE which means, hyperinflation. I dont know how far out but its just a matter of time unless they stop doing what they are doing and even then we will stil have major inflation.
Edited: 06/26/2010 at 09:10AM
by Moderator
: activated link
Jun 27 '09, 08:31 AM
