Why do sellers have so much faith in banks offering remods

7 Replies

BP,

I have a guy that has a great property in an affluent Austin area however he is over a year behind and nearing the fatal court house sale.  He is working on a loan remodification with his bank so that he can get a new start and continue to rent the property.  I suggest that he owner finance to catch up on payments and fees cover closing and keep the property less the deed.  The seller really doesn't want to sell the property because he hopes one day it could yield some great return, however my confidence in the bank granting him a loan remodification is very low.  He's already tried it once before but they gave him the run around until he gave up.  He wants to attempt it again but I want him to understand that with his credit all jacked up the banks are not really working in his favor.

The guy wants to use the owner finance as the last option and wants to rent it out now until he knows if the loan modification will go through, I think he is gambling on the wrong thing and will end up losing the house, leaving him nothing but a loss.  Has anyone seen a remod work in the favor of the seller recently.  I feel that when the current administration got in office and was trying to help homeowners more remods were accepted but in the past 2 years I haven't seen one homeowner have any success with that.  Your thoughts?

When a borrower is working in a remodification the banks are not underwriting the borrowers credit like they do when someone applies for a loan. 

Since you mention he gave it in his last attempt to get a remod then he, and or you, don't know if the remod will be accepted, but if he's actually in the remod process the bank cannot foreclose under the new Dodd Frank and or Safe Act laws. 

I'm not an expert in residential finance but there are others here in BP that are and perhaps someone can expand on Dodd Frank and the Safe Act that'll provide you with an expanded explanation.

My suggestion would be to stay close to this seller and follow up regularly. If he gets the remod then it's time to move into the next deal. However, if he doesn't then you're positioned to negotiate and then execute.

CFPB Rules Restrict Dual Tracking

The CFPB, which was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, issued new mortgage servicing rules that went into effect as of January 10, 2014. Among other things, the rules restrict dual tracking.

Under the new rules, a mortgage servicer cannot initiate a foreclosure until 120 days after you fall behind in payments (which provides a reasonable amount of time to submit a loan modification application). Also, the servicer cannot start the foreclosure process if a loss mitigation application is pending.

If you submit a complete loss mitigation application to your mortgage servicer after the foreclosure has started, but more than 37 days before a foreclosure sale, the servicer must stop the foreclosure process until:

  • the servicer informs you that you are not eligible for any loss mitigation option (and any appeal you make has been exhausted)
  • you reject the workout option that the servicer offers to you, or
  • you accept a workout, but fail to comply with the terms of the deal (such as not making payments during a trial modification).

Now...that's the law, but let's talk about reality.  Anyone ever watch the show House?  (Of course you did, admit it!)  Remember how House always tested for things that couldn't have been possible, if the patient was telling the truth?  Why did he do that?  Well, he kept telling his residents why...Because patients lie! 

If you read the synopsis of the servicing rules that went into effect in Jan of 2014, there are plenty of loopholes that would allow a bank to pursue a foreclosure, even when the borrow says they are seeking modification, such as simply not filing a complete and accurate application.  Borrowers, like people everywhere lie, but even more than that they live in DeNile.  That's usually how they have gotten to the place they find themselves.  They have been floating along the river enjoying the views and pretending the crocodiles aren't circling the boat!

Stay plugged in with the buyer but don't spend a lot of time on this one.  Also, keep an eye on the auction filings.  Since we're non-judicial, it's hard as hell to monitor them efficiently, but most of the high-volume originators will file their notice of auction 45 - 60 days out from the planned auction date.  If Travis handles it like Dallas County does, they are scanned into a mammoth PDF file.  However, since you know the name of a specific borrower, you can simply do a Ctrl-F and search for the buyer's name in that PDF file.  That way, if the buyer is lying or floating on the river, you may be able to have a reality check with them and grab the property, before it hits auction.

I appreciate all the feedback the borrower was told that his property was set to go on sell at the courthouse Oct 7th but since he is starting the remod process he has delayed that. The borrower is over a year behind and was given a streamline opportunity he says that would of given him a chance to save his property if he would of paid a higher mortgage payment for several months but he didn't make the payment by the date they suggested. When he called to see if he could get another option like that they redirected him to the lost mitigation department and now he is compiling all of the paperwork.  To me its a big gamble with no gaurantees I wonder if the remod gets denied how long will he have before it goes back to the auction.

Originally posted by @Andre Key :

I appreciate all the feedback the borrower was told that his property was set to go on sell at the courthouse Oct 7th but since he is starting the remod process he has delayed that. The borrower is over a year behind and was given a streamline opportunity he says that would of given him a chance to save his property if he would of paid a higher mortgage payment for several months but he didn't make the payment by the date they suggested. When he called to see if he could get another option like that they redirected him to the lost mitigation department and now he is compiling all of the paperwork.  To me its a big gamble with no gaurantees I wonder if the remod gets denied how long will he have before it goes back to the auction.

 If he was previously approved then chances are he'll get approved again. It really all depends on who the bank is and what their internal modification policies are. The big lenders like Wells Fargo, and Bank of America will approve a borrower for a remod and then the borrower is required to abide with whatever terms were dictated in the agreed to modification. 

If a borrower fails initially theres a chance they've lost their opportunity and the lender may or may not allow them a second attempt. However, if the borrower completed the first initial payments in the remod (usually 3 or 6 months) and then failed then there a good chance they'll be approved again for a remod assuming all the borrowers and lenders variable remain the same.

As a potential buyer of a distressed situation there is nothing you can do either way other than staying in contact and remaining on top of the situation. Do that consistently, and except for when you need to make contact forget about this deal.

Move on and find the next deal. Otherwise you'll drive yourself crazy. Remember, good investments come through numbers, the number of tires you kick, the number of owners you talk to, the number of offers you write, and the number of deals you put under contract. This deal is just one of those numbers so until its an actual deal, and its not now, don't think about it. Go increase your numbers! 

Originally posted by @Andre Key

Owner has not accepted his reality. Keep building rapport but don't be surprised if things come apart quickly. I am in the process of picking up a Ft Worth property in a similar situation. I helped my owner with the loan mod process. Once he saw it wasn't going to work he took me up on my offer.

Originally posted by @Andre Key :

BP,

I have a guy that has a great property in an affluent Austin area however he is over a year behind and nearing the fatal court house sale.  He is working on a loan remodification with his bank so that he can get a new start and continue to rent the property.  I suggest that he owner finance to catch up on payments and fees cover closing and keep the property less the deed.  The seller really doesn't want to sell the property because he hopes one day it could yield some great return, however my confidence in the bank granting him a loan remodification is very low.  He's already tried it once before but they gave him the run around until he gave up.  He wants to attempt it again but I want him to understand that with his credit all jacked up the banks are not really working in his favor.

The guy wants to use the owner finance as the last option and wants to rent it out now until he knows if the loan modification will go through, I think he is gambling on the wrong thing and will end up losing the house, leaving him nothing but a loss.  Has anyone seen a remod work in the favor of the seller recently.  I feel that when the current administration got in office and was trying to help homeowners more remods were accepted but in the past 2 years I haven't seen one homeowner have any success with that.  Your thoughts?

Loan mods still go through where I am.  That being said most of the ones I see do eventually go to foreclosure. The loan mod buys the borrower/owner more time.  That can and does work out in their favor in up markets.  Sometimes they can get out and even make a little by selling.  But mainly it's a place to live for a monthly cost they can supposedly afford.

Well the buyer has conceeded to letting my wife list his home and after doing research this property has been appreciating at a rapid rate yearly, wow Austin realestate is unreal.  I just need it to sell fast as is.  Thanks for all of the feedback.

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