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Ten Truths About Loan Modification (Part 2)

July 18, 2009

This is Part 2 of 10 Truths About Loan Modification. For Part 1 Scroll Down to the Prior Post.

6.  Paying for loan modification is often unnecessary. If you computer freezes most computer users will try self-help by re-booting before bringing their computer to a technician. Homeowners should attempt to modify their mortgages themselves (for free) before hiring anybody to help them. Many loan modification companies call the same numbers available to consumers. Before hiring a private for profit loan modification company homeowners should explore non-profit companies that are local and usually have far more experience that Johnnie come lately loan modification companies that have jumped on the loan modification bank wagon.
7. Hiring an out of state loan modification company is about as stupid as lighting your money on fire. It was with sadness that I heard the story of a Brevard homeowner who will lose her home later this month to foreclosure sale. She hired a loan modification company in California and paid them $2,500.00 up front for loan modification. They never got her a loan modification. If they did nothing they would have hurt her less than they did. They also told her not to worry about the summons and foreclosure complaint that were delivered to her by process server. They told her “That is just a scare tactic, don’t worry about it.” She listened to them and ignored the strange papers that happened to be a foreclosure lawsuit. She ignored the case when the lender got a default. She thought a loan modification would save the day. She ignored the lenders motion for summary judgment. When she got the notice of sale it was pretty close to too late to save the home. The $2,500.00 she spent on “loan modification” was more than enough to hire a lawyer to stop the foreclosure. If you hire a local loan modification company under an agreement that you do not pay a dime unless and until you receive a loan modification at least you can stop by their office and ask to see your file and talk with them face-to-face. If they fail to keep their promises of change an illegal upfront fee you can demand your money back, sue them the county where you live, and report them to the Florida (or your states) Attorney General. If you hire an out of state company good luck ever getting your money back.

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8. Hiring a loan modification company requires due diligence. Before you hire a loan modification company (to modify your loan) or a lawyer (to modify your loan, defend a foreclosure lawsuit, or sue the lender) you have to do your homework and ask tough questions. Start by looking the company up on google and consumer complaint boards. See if they are listed on the attorney general website or even Yelp! Ask the company for references and proof of the results they have obtained. Our firm has orders from cases where defeated lender motions for summary judgments. Our client’s identity is attorney-clients privileged but we can redact out our clients name with a marker and share the orders in person or send a scanned copy to a prospective client. We have satisfied clients whose homes we have saved who can give a reference over the phone to a prospective client. Hire a professional in your own state. Ask for a reference. Ask the reference what happened with their loan, how long did the process last, how much did the modification company or lawyer charge them, were there calls and E-mails returned, would they happy about the result would they recommend the company to a friend. If your house is a stake you should use the same care in choosing a lawyer as you would hiring a doctor or car mechanic.
9. There are alternatives to loan modification. If the bank is owned $250,000 on home worth $150,000 in a short sale on their best day the bank will receive $150,000 and usually less after real estate commissions. If the lender will take $150,000 on short sale but will not reduce the loan balance then short sell the house to somebody you know and trust and buy it back a year later. Perhaps you can rent the house in the meantime. A short re-fi is another alternative that many homeowners have never heard of. In a short re-fi the lender accepts a payoff in the amount of the value of the property and the source of funds is a new lender. The original lender cashes out of their loan, limits their losses and takes a non-performing loan off their books. The homeowner has a new mortgage from a new company and usually has a small amount of equity from day 1. Another variation of Short Re-Fi is where an investor buys the note from the lender for less then the current value of the home. The investor then enters a satisfaction of the first mortgage in exchange for the homeowner executing a new mortgage in favor of the investor for slightly less then the value of the property (but more than the amount the investor paid the original lender). The homeowner never moves out of their house or loses possession of the house. The first mortgage is recorded as paid off and the homeowners new mortgage has a loan balance much less than the old loan and is less than the value of the property. We work with Short- RE-FI companies that do NOT require excellent credit just steady income and employment and an owner occupied primary residence. (Florida homeowners seeking a free consultation about Short Re-Fi may E-mail: truthaboutloanmodification@gmail.com
10. Homeowners who fight their foreclosure get the best loan modifications. When somebody is pointing a gun at your head sometimes the best way to negotiate is to point a gun a theirs. When the bank tells a homeowner in foreclosure they do not need a lawyer there is a reason for it and the reason is that the bank does not want the homeowner to have a lawyer. If has been our experience that when a homeowner hires our firm or other skilled foreclosure litigator the foreclosure case will take three times as long, and the banks legal fees will likely quadruple. When the lenders lawyer can’t prove their case because they lost the note, the note was not properly endorsed, or the case as one of numerous other legal flaws banks get desperate. When a bank risks getting nothing the people in loss mitigation are no longer calling the shorts and a new team the banks legal team and lawyers are making the decision. After the bank has stumbled in Court is when real modifications occur. Remember banks make modifications not because they want to but because it is in their financial interest or because their lawyer tells them they have no other choice.

Ten Truths About Loan Modification (Part 1)

July 17, 2009

1.  No lender has to modify a homeowners loan.  A mortgage is a contract and the U.S. and Florida constitutions prohibit laws that impair contracts.  The lender can insist on enforcing the contract as written.  Lenders agree to modify loans only when it is in their financial interest to do so.

2.  A loan modification company cannot stop foreclosure.  A loan modification company can’t go to Court for you unless it is local and has an attorney who is a member of Florida Bar (or the bar of whatever state you live in).  While the loan modification company is talking to the banks loss mitigation department the banks lawyer can and most likely will file a foreclosure action if you miss four (4) payments in a row.  While you or your loan modification company negotiate with the lender their lawyers are moving a foreclosure case through the Court in a process that ends with the judicial sale of your home.  If you do not have a lawyer and are not watching the foreclosure case your flank is exposed.

3.  Most homeowners never receive a loan modification.  C.N.N reported on July 16, 2009 that there were 1.53 million foreclosure pending in the U.S.  There are probably an additional 3 million loans that are in default but are not yet in foreclosure.  In the month of April 2009, between Fannie Mae and Freddie Mac, there were 18,000 loan modifications.  Based on current trends it appears that less then 1 in 20 loans in default will receive a loan modification.

4.  The loan modification industry is virtually unregulated.  While Florida and a handful of other states have passed laws prohibiting upfront charges for loan modifications there is no licensing of loan modification companies in Florida and most states.  Anyone can start a loan modification company, you do not need a high school degree or special training.  There are people holding themselves out the public as loan modifiers who have never modified a single loan.  Some out of work “mortgage brokers” who put trusting homeowners into inappropriate loans so that they could reap hidden legalized kickbacks called “yield spread premiums” are now trying to get homeowners out of the bad loans by starting loan modification companies.  Hopefully these unscrupulous characters will not victimize the same homeowners twice.

5.   Qualifying for loan modification is often a catch-22. If the homeowner makes too much money, they are just upside down and do not need a modification.  If they make to little money they will not be able afford the modified mortgage.

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Welcome to The Truth About Loan Modification

July 17, 2009

Welcome to The Truth About Loan Modification. The purpose of this Blog is to help consumers lean the truth about loan modification companies and various lenders’ policies with respect to loan modification. I hope that this blog can be a form for readers to share their experiences good and bad with respect to their own attempts to obtain loan modification either on their own, through a loan modification company or though an attorney.

When it comes to information many consumers have a huge disadvantage. When faced with a loan modification offer the consumer cannot tell if the offer is good or bad because they have no standard of comparison. Our firm has seen countless homeowners who hired loan modification companies that did absolutely nothing other than take the homeowner’s money. In some cases when the lender was contacted by the homeowner the lender told the homeowner that it had never received a single call or letter from the loan modification company. Other loan modification companies have gone through considerable efforts and their clients, now in foreclosure, will come to us with pages of letters and call logs detailing the efforts of the loan modification company. Unfortunately diligent efforts often do not lead to a loan modification offer or lead to a proposal that offers little real savings.

One client of ours had two mortgages (a $250,000 first mortgage and a $75,000 second mortgage) on a condo that had fallen in value from $350,000 at the top of the market to $210,000. The homeowner had not paid their mortgage in six months. After a foreclosure action was filed by the lender, the loan modification company obtained an offer for modification that would roll the arrearages (from not paying for six months) into the loan and lower the interest rate from 7.95% to just under 7.5% on the first mortgage and lower the interest on the second mortgage on the second from slightly over 8% to slightly over 6%. I saw the loan modification proposal and told the homeowner “this is a joke.” Given that the first mortgage holder had filed a foreclosure action if that action went to completion (something our firm is fighting to stop), the first mortgage holder would obtain the property which is worth less than the balance on the first mortgage. If a deal is not reached and the foreclosure was completed the second mortgage holder would get NOTHING. Nonetheless the loan modification offer obtained by the loan modification company (something our client paid over $1,500.00 for) did not have one penny of principal (loan balance reduction) on either mortgage. If the property was put up for short sale it would be expected that the first mortgage holder would get almost all of the short sale proceeds and the second mortgage holder would get $1,000.00 to $2,500.00 because that is better than their alternative of getting nothing in a foreclosure.

If you have had had an experience good of bad with a loan modification company or loan modification lawyer, feel free to discuss it in the comments section of the blog or send an E-mail to truthaboutloanmodification@gmail.com. In future Blog posts I will post links to consumer complaints and state attorney general actions against loan modification companies that take homeowners’ money and never lift a finger to obtain loan modifications. I am hopeful that can build a database to compare modifications from the same lender. Armed with the knowledge of what a lender has done on other loans consumers can ask the bank for similar concessions and provide the lender of the details of similar modifications the lender has made in the past. Given that lenders often use multiple loan servicing companies it is normal for the left hand of a bank to have no idea what the right hand is doing.

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July 16, 2009

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