In simplified terms the process is supposed to work like this:
1) Request help either verbally or by sending in documentation.
2) Servicer evaluates you for eligibility.
3) If Eligible you start a trial modification of three months.
4) Start permanent modification on the fourth month if trial payments made.

I can't tell you how many people tell me they think their bank is just screwing with them. So let's talk about a few things I'm seeing from servicers of which they are supposed do to ; but are not. I'll break it down into the four steps above and you will be able to see why so many people have trouble getting this modification on their own.

Well that isn't a simple answer; but let me go over a few things that need to be considered. First of all you need to consider whether your state allows banks to come after you personally when a foreclosure sale doesn't satisfy the outstanding loan balance for your home. Attorneys in California (which I am not one!) may tell you to just walk away and let them foreclose. CA is generally considered a non-judicial foreclosure state and it is generally accepted that Banks can't go after you personally. What about other states like mine, Colorado?

There are generally three things you have to do in order to walk away. First, you need to not be able to afford your mortgage. You will need to be able to show this by giving your income and expenses to your lender. Second, you will have to put your home up for Sale and hope for a short sale to come through. I assume Short sale since so many people are upside down on their home; but if you have equity then this whole discussion is moot. After your home is on the market for 90 days and hasn't sold you can then generally ask for a Deed-in-Lieu. In both the case of a Short Sale or a Deed-in-lieu the bank will generally agree to not go after you personally for a deficiency. So, if this is your situation you should contact a Real Estate agent who can help with a Short Sale and if that doesn't work out give us a call about helping with a Deed-in-lieu. That's all for now.

The first step in the process is for the lender/servicer to determine if a Deed for Lease is a good option for the borrower and whether the borrower is even interested. The servicer will have to prescreen the borrower based on the qualifications outlined in the last post. If the property is tenant occupied, then the servicer should determine whether or not the tenant would like to continue to lease the property. The borrower will have to facilitate contact between the tenant and property manager, including providing the tenant’s contact information and a copy of the lease (if written). There will be a property manager assigned and they will contact the borrower directly to provide additional program details and set up an appointment.

The borrower must communicate with the property manager within five business days of obtaining the referral to set up the appointment; otherwise, the deed for lease opportunity will be cancelled. Generally the borrower or tenant should have about 11 business days for the lease to be signed and approved.

Next, the property manager will collect a non-refundable $75 lease application fee to process the deed for lease application, which includes running the background and credit check on the borrower or tenant. If a lease is approved, Fannie Mae will send an “Approval” e-mail to the servicer indicating lease acceptance and request the estimated deed for lease completion date. Fannie Mae will maintain the copy of the lease.

If a lease was approved, the borrowers execute in favor of Fannie Mae, the servicer, and their agents a general release of all claims arising prior to the acceptance of the DIL which relate in any way to the loan or the property. The servicer will not require that the property be vacant upon acceptance of the deed in lieu.

This is designed to be a much easier process than getting a loan modification. However there are still many hoops to jump through in the qualification process. If you have questions, contact us!

This is a program designed to work in tandem with a Deed-In-Lieu. This is where you would voluntarily transfer the deed to your lender or Fanny Mae and if you qualify, they will rent the home back to you in 12 months lease(s). There are pre-screening qualifications as well as instructions for servicers/lenders and borrowers. Let's first go over the main qualification requirements.

The Program eligibility is as follows:
- The loan has to be a first mortgage in a one to four unit dwelling.
- The loan can't be an FHA, HUD, VA, or Rural Development loan.
- The property must be a primary dwelling for the borrower or their tenant, no vacation homes.
- The loan has to have had at least three payments made on it. You can't get a loan in January and then stop making payments in February and eventually qualify for this program.
- You also can't be more than 12 months late on the loan payments.
- You can't be involved in a Bankruptcy or litigation on the property.
- There can't be any title issues that could result in litigation.
- You must have income, in other words they want to make sure you can pay rent.

No those are the main program requirements. There are of course other sensible requirements such as: Making sure there are no zoning restrictions on renting, making sure the home is habitable, that the rental income will cover ongoing maintenance and management costs.

Finally, there are specific occupant eligibility requirements. For instance the magic 31% of gross income. In other words, rental payments are set based on certain criteria and those payments can't be more than 31% of the occupant's gross income or the lease won't be offered. The occupant would also have to agree to maintain the property, get pet insurance if appropriate, get a credit check, and generally be a good tenant.

Next time I want to go over how the entire process works a little better. Stay Tuned and thanks for reading!

Selling the debt to a junk debt buyer is rare in my experience, at least for a second mortgage. If they do decide to do this, they would usually sell your loan and many others at the same time to the same place. Then it is up to the junk debt buyer to try and collect on your loan. It is usually harder to judicially enforce a loan that you are not the lender on. The reason is that many times you don't have the original contracts and other evidence that is needed to win a judicial decision.

More likely than any other option is that the lender will collect on the loan like it is a credit card or other unsecured debt. Usually this means hiring a debt collector first. That is when the real harassing phone calls take place. Generally a debt collector gets paid something like 20% - 25% of what they collect. That obviously gives them an incentive to get money from you. That is why they are often so aggressive.

After a while if they are unsuccessful with the Debt Collectors, they may have a law firm try to collect from you. Things get dangerous at this point. Law Firms generally get 33% to 40% of what they collect. They much less incentive to settle the debt with you because they figure they will just sue you, get a judgment, and collect the whole thing including attorneys fees and court costs. If you get a letter from an attorney's office get help immediately.

The best situation you can get in is to be in a position where you can settle your loan debt. Now, most people get in this situation because they are really tight on money. However, I've seen cases where people were offered to settle their second mortgage for 3 cents on the dollar! Now that is unusual; but 20% or less isn't. It would be in your interest to borrow the money from anywhere to get rid of 80% or more of your debt. Call us if you think you may be in this situation.

I didn't call "doing nothing" by your lender the best situation b/c it is rare they will just give up on it. If they do, it is likely because you are what is considered judgment proof. That means that even if they sued you and won, they couldn't collect any money from you. This is the case if you have no assets, no job, and/or your income is exempt. Exempt income is usually stuff like retirement, social security income, child support, etc.

I've found that this whole subject brings up more questions than answers, so please call me if you are in this situation and need some advice.

What does it mean to have a secured mortgage? In simple terms, it means that your lender can foreclose on your house, sell it, and take the proceeds to pay the debt/mortgage. In other words, your debt is secured by the home. Well that is all good when your home has some equity in it; but what about days like this where home values are depressed?

Lots of folks have purchased homes in the last several years with no money down and a 1st mortgage for 80% of the value of the home and a second mortgage for 20% of the value of the home. I'm running into many folks who have the situation above AND are in some kind of interest only loan. Finally these same people have lost significant value in their home and often owe more on their first mortgage than the home is worth. So are you in a similar situation? At least one where you owe more than your home is worth? That is a situation where a second mortgage can become unsecured.

If you have value in your home the Holder of your second mortgage has to buy out the first mortgage, then foreclose on the property, then sell it before they get their money. They aren't going to do that if the transaction leaves them little to no chance to get money out of the deal.

Let's say you owe $80,000 on your first, $20,000 on your second and your home is worth $75,000. Why would the holder of your second mortgage pay $80,000 to get $75,000 back and still not get their original $20,000? Does that make sense? Of course I am skipping all kinds of other transaction costs in that scenario; but hopefully you get the idea.

When you owe money to a company, they put that amount on the Asset side of their accounting books. This works well when you are paying; but what happens if you can't pay? Well accounting principles say that that business has to put that amount on the liability side of their accounting books. Their other option is to foreclose, and as seen above that doesn't make sense. So when your lender decides to write of the debt v. collecting on it through foreclosure; it becomes unsecured. That is when they will collect on the debt, much like they would a credit card. Next time I'm going to go over what to expect with collection activity on your charged off second mortgage.

Now the FHA, it appears, just picked up where Freddie and Fanny dropped off. The FHA insured 21.5% of all new loans last year, up from 6% in 2007. That's a huge increase. It appears these were risky loans too. FHA is going to have losses of at least 54 billion dollars. Precedence would tell us that we can expect another bailout within the next 24 to 36 months.

Folks, some of my blog entries seem a little doomsday-ish. I am a super positive person; but the things our government has done trying to control out economy are going to keep us in a recession for a while. You better make sure you are planning for the worst and hoping for the best. If you have an FHA loan, programs for modification are coming out. Find out if you can qualify. Lock in current rates where you can.

A Forensic Mortgage Audit is basically an attempt to uncover mistakes or legal violations in you loan or loan documents. A company will tell you that they will audit your loan, find mistakes and then use them as leverage to force your lender to modify your loan. Sometimes they promise more like compensation or even getting your home for free. They are looking for several things in an audit: 1) RESPA Law violations; 2) TILA law violations;3) Accounting errors; and 4) other general irregularities or legal violations. So let's say they find some of these, what next?

The idea is that you can put legal pressure on your lender to modify your loan and put you in a position where you can pay your mortgage. These auditors assume that this can't be done without this kind of work. Sometimes they are right, it can't be done without this kind of pressure. For an explanation look at my series on how the Making Home Affordable Plan works, especially the income and expense piece. So let's say they've uncovered violations in your loan and you are in a situation where you otherwise wouldn't qualify for a loan modification. What does your bank/lender do when confronted with these problems?

They say, "go fly a kite". They don't care. They are FAR too busy with modifying loans for people who are going through normal channels to deal with extortion. Have you ever heard the phrase "you catch more flies with honey than with vinegar"? You are running into a situation where you are trying to force the banks to do something. How do you force the bank to do something they don't want to do? You have to sue them! Do you have at least $70,000 to front for a lawsuit? You can expect to spend at least that much. This is the fatal flaw in hiring a forensic mortgage auditor. You will pay far more money for one of two things: 1) The same result you would get trying to modify through regular channels or 2) No result because you don't qualify for a modification anyways. If you are considering hiring a forensic mortgage auditor you better think hard and check references carefully. This firm stopped doing it when we realized how far we got with honey.

You can exempt household goods such as furniture, clothing, appliances, and the like. The aggregate value that can be exempt is $10,775. Jewelry can be exempt up to $1350 as long as it is held for personal and family use. There is also a "wild card" or "any property" exemption. This is an additional $1,075 for property not already covered/exempt. There is another $2,025 exemption for "tools of trade".

You can also keep most Life Insurance policies as long as they don't have a cash value. Life insurance policies, which do have a cash value get complicated; but generally can be exempt up to the cash value of $10,775.

Many people have expensive health aids like wheel chairs/scooters, artificial limbs, even specially equipped vehicles. These can all be exempt and although there are gray areas, if it qualifies there is no dollar limit.

There are also exemptions for all kinds or retirement benefits and other rights to future income. This gets complicated and is too extensive for this blog entry. As you can see there is a lot to consider when filing a Bankruptcy. If you have further/specific questions contact us! Consultations are free.

The question I get from so many people is, "Can I keep my car and can I keep my house?" The answer is Yes! If you have a car loan, you can keep your car and re-affirm the debt/loan. Once your Bankruptcy is discharged, your loan servicer will send you papers to Re-affirm your debt. Basically an agreement where you agree to continue paying on the loan.

If you own your car, it is exempt and you can keep it. By Exempt, I mean that you won't have to sell it to pay off your debts. You can be in a Chapter 7; but let's say you have three cars and two of them are collector's items and classics. The Bankruptcy court may force you to sell those to pay off some or all of your debt. You will be able to keep at least one car. If you have multiple family members they can usually keep their car too.

You can also keep your home. Not a vacation home; but your primary residence. That's if you want to keep it. You can walk away from it too. It used to be that everybody would just "stay and pay", meaning that you just continue to make your mortgage payments after the bankruptcy. Nowadays it is a good idea to consider asking your mortgage company to re-affirm your mortgage after the bankruptcy. There are good and bad results from this. The good is that you can qualify for a Mortgage Modification later if your debt is re-affirmed. Further, you eliminate some troubles when you are ready to sell the home. The downside of re-affirming your mortgage after a Bankruptcy is that you can't walk away from it later if you get into financial trouble. So that is a personal preference/balance that each debtor has to decide on his/her own. Next time I am going to to into more detail about exempt property and what you can keep and have to get rid of during a bankruptcy.

Once a Mortgage payment is missed, most banks usually don't do anything for the first 90 to 180 days. This depends on many factors including temporary laws, investor guidelines, how many foreclosures they are undergoing, etc. The first step in most states is for your lender/servicer to file a Notice of Default. This Starts a Time line. I'm going to highlight California; but the process is similar in many states.

Once the Notice of Default is filed, the bank has a waiting period before they can Sell the Home at Auction. In California, this is called the Redemption Period and is 90 days. After that 90 days is up, the bank can schedule a Sale Date. Most States Require a Publication Period. This is a period where the bank has to let the public know about the upcoming auction. In California the publication period is 20 days. Once the publication period is over, they can schedule a sale date at any time.

So, in this example the shortest time line your house could go to sale is 201 days after missing your first payment. What happens after the sale, though? There are specific rules for renters; but let's talk about home owners. After a Sale date it takes a few days before a Notice to Vacate is placed on your door. Depending on your State's specific eviction laws you may still be able to live in your home for some time. Often times an eviction proceeding has to be filed with the court and you can live in your home for another 30 days before the Sheriff comes and forces you out.

So what do you need to do? Always check your mail and don't avoid a process server. You need to be on the lookout for a Notice of Trustee's Sale or similar document that gives you the Sale Date for your property. Call your bank. You will have to deal with collection efforts; but you should be able to get information on how much longer you have in the process. I would suggest not trying to live in your house after the Sale Date. That should be your moving day.

Right now I am seeing Sale Dates that are 8 to 10 months after a missed mortgage payment. Next time I am going to go into a little more detail on how the Sale Date and Foreclosure time line is affected by a Mortgage Modification Request.

Let's take the same folks 40 years ago. What do you think somebody aged 65, with social security had to save to retire with a meager; but middle class retirement? 40 years ago they could have retired with $75,000 and a social security benefit. But what if you were 25 years old back then and you are getting ready to retire at 65 today? How much would you need along with social security to retire in a meager, yet middle class lifestyle? Today you would need $400,000 and that social security check. Well guess how many people who retire today have saved up $400,000? Less than 10 percent. Guess how many have saved up $75,000? Over 90 percent. Do you see the problem here? People didn't adjust for inflation. Do you know how much you will need in 40 years to retire middle class? $2.5 million! Don't think social security will be there either. So are you ready to do something about that debt?

Now who guessed you would have over a million dollars? Let me show you what happens when your money gets taxed every year after it doubles. I am going to use a 28% tax rate. So you start with a dollar. You double that dollar in year one. That means you earned a dollar. The government is going to tax the dollar you earned at 28%. That reduces your earnings by 28 cents in year one ($1.00 * 28% = .28 cents.....$1 - .28 cents = .72 cents). That plus your original dollar gives you $1.72. So in year two you are going to double your money and earn another $1.72 for a total of $3.44; but the government taxes your $1.72 at 28% leaving you to only add $1.24 and you have $2.96. Repeat this process for twenty years and guess right now how much money you think will be there in 20 years...

Dollar--------Year
1-----------------1.72
2-----------------2.96
3-----------------5.09
4-----------------8.75
5-----------------15.05
6-----------------25.89
7-----------------44.53
8-----------------76.60
9-----------------131.75
10---------------226.61
11---------------389.77
12---------------670.41
13---------------1,153.11
14---------------1,983.34
15---------------3,411.35
16---------------5,867.53
17---------------10,092.15
18---------------17,358.49
19---------------29,856.61
20---------------51,353.37

Now, all that money you are paying towards your credit cards and other debt is post tax dollars!! That means again, your money is working against you. See why it is so important to get out of debt by any means necessary? Debt Settlement, Bankruptcy, whatever. You can't depend on Social Security or the government to take care of your retirement. You must get out of debt and start saving in the highest interest rate accounts you can that are tax free! Next time I'll go over inflation and how that affects how much money you will need to plan on having in the future. Stay Tuned for part three.

Let's say you're earning 1% interest compounded annually. You put $100 in the bank. Divide 72 by 1% and you get 72. That means you will have $200 in about 72 years. What if you are earning 10% interest? 72 / 10% = 7.2years. Your money will double every 7.2 years. You can see that in the same 72 years (assume a longer than average life span) your money would double 10 times over the same period that your 1% interest investment doubles once. After 72 years your 10% interest investment of $100 would be worth $102,400!!

Do you know where you get 1% returns? Bank savings accounts. Why would anybody keep money in there when so many other investments guarantee higher returns? So what does this have to do with consumer debt? Your credit cards compound interest against you!! They are investments for the credit card companies. They are charging you outrageous interest rates and when you continue to pay the minimums you are making them rich. If you ever want to win the money game you must eliminate your credit card debt and stop compounding interest from working against you. There are many options to get out of debt including bankruptcy, debt settlement, borrowing from a 401K, even laddering your payments. If you are in a situation where your debt is too much call us to discuss what options might be best for your situation. Next time I'm going to explain how taxes work against you and why you need to avoid them at all costs.

I titled this entry as "The Big Squeeze" and that is exactly what is happening to Prime Borrowers. In fact, Prime borrowers now account for more than half the mortgages that are 90 days late, which exceed sub prime borrowers. Credit Card companies are looking for more cash to keep their bottom line from disappearing. Bankruptcies are up, people are settling their debt, and millions just can't afford to pay anything. Compounding the problem, so many people are without jobs, that wage garnishment isn't an option.

Normally, your credit card companies have ways to hedge their losses from people who don't pay. One of the first ways is to write off losses, including bankrupted debt, against their taxes. There is a limit to how much of this debt can offset taxes each year. They can also get a judgment against the debtor and put a lien on property, levy a bank account, or garnish wages. These options are very limited in this economy. So many people are in foreclosure, that putting a lien on property is a waste of time. People are so broke there is often nothing in their bank accounts to levy. Finally so many people are out of work or on unempolyment (which can't be garnished) there is no option to garnish wages either. So what are the bank's options?

The answer is to get more money out of their "good" customers. Don't be fooled, it has been proven over and over that these companies aren't scared to employ guerrilla tactics to take your money. It is confusing people why they would employ these tactics against their best customers. I am telling you that it is because they have tapped out everybody else. First of all let me tell you that most changes to your credit account are legal. They can change the rules on you almost at will. Generally, all they have to do is give you 30 days notice and an option to close your account if you don't like the changes.

What seems so amazing is that too many of their "good" customers, who have never been late are now being forced into making a choice between paying their credit cards or their mortgage. Not much of a choice. In the end if you can transfer your balances to another card, do it. If you have any money in your 401K, use it to pay off your debt. Most people don't realize that compound interest works against them, just as it can work for them. If you are paying high interest rates on your credit card and getting a low rate of return on your 401K or other investment, YOU ARE LOSING MONEY!

In my next blog I am going to explain the money game in more detail. Particularly, I am going to explain why Taxes, Inflation, and Interest are so important to have working in your favor and not against you. Stay Tuned.