Friday, February 19, 2010

Loan modifications - Have Realistic Expectations

Many homeowners have very emotional connections to their home and it can often cloud their judgment when it comes to trying to save their home. If the homeowner doesn't have steady income, the bank is very unlikely to do anything to keep you in your home. The banks only look to financial performance, reward, and risk, and if you don't have current income, you are extremely risky. The banks see this over and over where they provide some form of assistance only to have the homeowner default down the road because they think they will start doing better financially, only to realize that the economy is not picking up in 2010 as many expected.

If you are living off withdrawals from retirement accounts, credit cards, or loans from family and friends, a mere change in the terms of your home mortgage is probably not going to be enough to save your home. The banks see this other debt and often take it into account when deciding whether to provide you a loan workout. If you think of a modification as a refinance, you will have more realistic expectations. In a refi, if you don't have verifiable income, reliable income, low other debt, and decent FICO scores, it is too risky for the bank and they will say no. Often clients try to argue that it makes financial sense to keep the person in their home versus foreclosing. The banks have their own internal numbers and they are more than willing to take substantial losses to be done with that loan since it is often not a valuable loan for them to service or sell.

Homeowners should think about what if a loan modification is denied, have they thought about turning the house over with a deed in lieu of foreclosure to avoid personal liability for the loan. Have they thought about a short sale to also avoid personal liability for the loan? Do they realize that once the home is in foreclosure, it is very difficult to get back out and foreclosure and evictions on your record are equal to or worse than bankruptcy. A person in bankruptcy can get a rental apartment because they are in a better financial position now that certain debts are gone; however, someone who had to be evicted tells a landlord that if they have to remove that person, it is going to cost time and money because that person is not willing to move out voluntarily.

For more information on bankruptcy, foreclosure, and loan modifications, visit our website or give us a call 888-881-6591.

Chris Barsness, Esq.

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