Jerry & Debby Porter The Porters PLLC

I have recently been googling to find out what Gilbert homeowners might find if they were to look for help with a loan modification or other mortgage workout options. What I found were sites that did not deliver complete information, sites that did not deliver correct information and sites that were just down right predatory. As someone who has been in the trenches on the banking side of the fence I'd like to offer information on what options are available to Gilbert homeowners who are behind on their payments or in danger of falling behind and who want to know what options might be available to them. Options will depend upon financial institution, number and position of liens and individual financial situation.

HOME RETENTION WORKOUT OPTIONS

1) Reinstatement - paying the total amount due or the delinquent amount to bring the account current and in good standing.

2) Repayment Plan - paying the total amount due over a period of multiple payments. The total amount due is divided by the number of months of repayment and added to the normal monthly payment. At the end of the repayment plan the loan will be current and in good standing.

3) Extension (or Forbearance) - taking a number of monthly payments and moving them to the back end of the loan. There will most likely be a larger down payment that will be needed initially and then your typical monthly payments will resume.

4) Modification - modifying the loan's rate, terms and/or balance over the short or long term. There are two main types of modifications, Making Homes Affordable mod also referred to as HAMP and MHA and non MHA mods sometimes referred to as BAU or business as usual mods. This will typically require a trial period of 3 months or more and the account will not be brought current or in good standing until final modification documentation has been signed.

5) Payoff - paying the entire balance of the laon.

6) Settlement - paying a percentage of the balance of the loan to settle the note and release the lien.

7) Deed in Lieu of Foreclosure - deeding the collateral property back to the bank to stop the foreclosure process.

8) Short Sale - selling the collateral property for less than the amount owed to the bank or banks.

9) Bankruptcy - bankruptcy will stop the foreclosure process and collection efforts during the bankruptcy process. After a bankruptcy is discharged the promissory note is wiped out, but the property is still collateral for the mortgage and the bank can still foreclose for non-payment even though they can not attempt to collect unless the note is reaffirmed. If the bankruptcy is dismissed the note remains and collection efforts can continue. -- Please consult an attorney for more information on the advantages and disadvantages of bankruptcy.

The two most popular options above are modification and short sale. These options are both options for homeowners who have had a reduction in income, however, a modification is only an option for homeowners whose reduction in income is not too severe. This is gagued based on the housing ratio. For example, a couple who qualified for a loan based on dual incomes, but who now have two lower paying jobs that bring their housing ratio to 45% are probably great candidates for an MHA mod. If the same couple both lose their job and only one of them is able to find a new, lower paying job which puts their housing ratio at 80% they will most likely need to take the next step to consider a short sale.

Let's take these examples one step further. Let's say the couple both still have the same jobs they've always had, but now have an increadible amount of usecured debt and other expenses. Their housing ratio is 31% but their DTI (debt to income) ratio is 80%. This couple is most likely not going to get help in the form of a loan modification. The MHA modification targets a 31% housing ratio so from the bank's and the government's stand point there is no need for a modification. In this situation the homeowner needs to take a look at spending and decide how much they value continuing to live in their home.

There are many, many scenarios and each scenario will have it's own solution or possibly solutions. The best advice that I can give to homeowners who are looking for information on their options is to ask multiple sources and and pay attention to discrepancies and ask questions.

FAQ - I'm prequalified for an FHA loan at 3.5% down. I can't find a new primary residence that I like. Can I buy the foreclosure down the street?

A - NO.

I know, I'm a real bummer aren't I? But no, you can't us an FHA loan to buy an investment property. And I won't help you use an FHA loan to say that you are buying a new primary residence that I know you don't intend to occupy so please don't ask. Most likely you lender won't allow it either.

If you are up-sizing, down-sizing, moving across town or buying in your coveted neighborhood and you will be occupying the property you can legitimately utilize an FHA loan. Depending upon your financials you may not need to sell or rent your current property to qualify for the loan. If you must rent your current residence to qualify for the loan you will most likely need to show 30% equity in your current property and have a signed lease agreement with deposit in place prior to closing on your new loan.

If you are only interested in purchasing an investment property FHA is not the loan for you. You will want to look into conventional loans for investment purchases. To my knowledge the lowest down payment for an investment loan is 10%, but I am not an expert. For information on your loan options please speak to your lender!

FAQ -I'm looking for a new primary residence. I'm qualified to purchase up to $xxx,xxx. After we purchase this property can you list my current home as a short sale?

A - NO.

I say no for two main reasons:

First, I would like to keep my real estate license and stay out of jail. The above scenario is loan fraud and is not looked upon kindly. If another agent has told you that they can help you with it, by all means, go with that agent. But please do yourself a favor and ask your local association of Realtors to point you in the direction of some information on the future ramifications of such actions.

Secondly, if you qualify for an additional mortgage you do not have a hardship. You can list your home as a short sale, but your lender must approve it. Your lender will want to see that you have a financial hardship that is keeping you (or will keep you) from making your mortgage payment. Assuming that you do not falsify the information you are providing to your current lender for the short sale financial statement you may go through the experience of showing your home and receiving offers only to find out that your sale will not be approved.

Briefly, it is an ethics thing in addition to not wanting to do work that I will not be paid for. I apologize if this is a bit blunt, but it is what it is. I do not recommend trying to take advantage of a situation like this and hope that you will heed my advice.

All the best!

If you are looking for knowledgeable, ethical, hardworking real estate professionals in the Gilbert area look no further! Contact The Porter Team 480.202.2475 for buyers and 602.818.0473 for sellers. Or TeamAR@MyPorterHouse.com

For access to all of the latest MLS property listings in Gilbert and the surrounding areas please visit www.MyPorterHouse.com The search is Free. No registration required.

Q: I am having difficulties making my mortgage payment(s). Should I contact my lender(s)?

A: Notifying your lender of your hardship is the only way to find out if you have any workout options available to you. The most common workout options are loan modification and short sale but there are several others options that may be available to you. If you have enough equity (or more commonly not too much loss of equity) in your home and depending upon who bought your loan on the secondary market you may actually have the option of refinancing. This may or may not help you depending upon the cause of your difficulties making payments.

You do not have to be behind on payments before you make contact with your lender. Waiting until you are late on your payments may reduce the number of programs that you can qualify for. When you call into your lender they will direct you to a department called home retention or something similar. They will verify your identity and then collect information on your financial situation so that they can get a full picture of the problem. Once they see how your income compares to you expenses they will tell you whether or not you qualify for any of their workout options.

To be eligible for a loan modification your income cannot have decreased too dramatically. Conversely, to qualify for a short sale you must demonstrate some sort of signification financial hardship. Common causes would be job loss, hospitalization, divorce, or even the need to relocate. When neither of these options work for you some lenders offer a deed in lieu of foreclosure.

If your financial difficulties lead you to bankruptcy that's a whole new can of worms! Please contact an attorney for more information on bankruptcy proceedings and the impact on your home.

If you have questions about listing your home as a short sale in the greater Phoenix area
please visit www.FreeShortSaleAZ.info or contact 602-818-0473 to for more information.