Net Present Value What can Bankruptcy do when you have an UNSECURED second loan, third loan?? Tools to know when negotiating with your lender

If you find yourself in a financial hardship and you are considering your options on what to do with your home, what to do about your credit cards you do have options. Although this blog is not intended to replace legal counsel I do give good information to start with.

First, if you are noticing your having a financial hardship you want to do something about it sooner rather than later. Dont think you will use your money from savings and then everthing will be ok. You dont want to pay bills with credit cards and drain your savings account if you have had a life changing event. Loss of a job, divorce, much lower income, death in family, interest rate adjusting to a rate you can not afford. You may be able to get help. Most lenders have their own modification program or depending on who owns your note they may go by the Making Home Affordable plan, FDIC. Basically they all do about the same thing which is:

You will know if your paying too much for your first loan if your first mortgage payment is more than 31% of your gross income, including principal interest taxes and insurance. If your ONLY problem is that your value is too low you most likely will not qualify for a modification, IF you also have a financial hardship along with that you may qualify modification.

If you decide you want assistance make sure you contact a person who has successfully modifed mortgages in the past. Also, they need to be a realtor or an attorney to modify your loan. A realtor can not ask for upfront fees unless he has an advanced fee agreement with the Department of Real estate. An attorney is a better choice to modify or short sale your home because they have legal knowledge and can use information about Chapter 13 to strip unsecured loans.

Things you should know/ask when calling your lender. Ask them what they have as your homes Net Present Value. The negotiator should know this information. If your home passes this test it means your lender/investor should modify your loan.

Terms can look like this, as found in the FDIC's website under loan modifications, program works like a "Waterfall"

Minimun Criteria:

Owner Occupied originated on or before Jan 1, 09

Unpaid principal balance equal to or less than $729,000

1: Reduce interest rate possibly to 2 or 3%

2: extend the term of your loan to 40 years, 50???

3: Forebear principal this may be a better option than principal foregiveness because you MAY be taxed on principal forgiveness!! Forebearance is potentially better. If you owe $700,000 but your home is worth $500,000 instead of forgiving $200,000 and potentially getting a taxable event the lender takes off the $200,000 overage and amortizes the loan at the current market value. The goal is to get your payment to 31% of your gross income.

There is also a short sale option, if you can buy your home for several hundred k less than you currently owe that may be an option to consider.

Dont wait untill you have used all of your savings to realize your facing a change in your finances.

Credit cards can work the same way. Sometimes it takes longer for them to start negotiating. and there are usually a few different programs. Dont enroll in a program that cost you 15% of the Debt!! that is too much.

Best of Luck!! Family first!! Dont let your credit score stress you out.

JoAnna Jensen

Realtor Paralegal

Volo Law Group

925 699 5041