Foreclosure Doctor TV | What happens when you walk away?
Recorded Live: January 12, 2010
Don’t just watch it. Read it too!
Mike Rockwood: Good evening everybody, this is The Foreclosure Doctor. Welcome, this is our weekly teleconference on foreclosure topics, and we’re here to discuss anything about foreclosure. We’re going to answer up to 20 questions, as well as give a little bit of teaching about just plain walking away from your home, as on of about seven or ten workout options we also counsel people on. Walking away is one that’s emotionally kind of appealing to a lot of people, because you don’t have to deal with all the crap. And if you fully intend to lose the home at the end of the foreclosure workout, it can be really tempting. But we’re going to go over some of the pitfalls today.
Ryan Rockwood: Even if you’re not going to walk away from the home, everybody wants to know exactly what’s going to happen throughout the process, what the worst case scenario is. So it’s relevant for more people than just those that are going to walk away.
Mike: OK, I’m Mike Rockwood, and I’m here with my business partner Ryan Rockwood. Together we have done foreclosure work in southern California for many years. In the last two years with the housing downturn escalating of course, the housing crash, we’ve become full‑time foreclosure experts working short sales, really throughout the country. And lone modifications through a kit that we put together called “The 60 Minute Loan Modification Kit.” Many of you have probably found your way onto this Ustream video broadcast by virtue of our loan modification work, because we’ve been really wildly successful with that. In fact, it’s the dominant do‑it‑yourself kit for loan modifications in the country.
So we’re both realtors in southern California. We have a good, solid real estate practice, but our main business is helping people who are facing foreclosure, be that through a short sale, through helping them figure out how to work a deed in lieu, a loan modification, or bankruptcy.
So we work closely with bankruptcy attorneys, we work closely with lenders to figure out refinance opportunities, and short refinance opportunities. And we negotiate with the banks on our client’s behalf, absolutely everyday.
So this Foreclosure Doctor is our Tuesday night call, it’s open to the public and we will answer questions that are emailed to questions@60minuteloanmodification.com. Questions, with an S, at 60minuteloanmodification.com. We’ll also go live to take callers for those of you who are not on a computer, and are just listening on the teleconference, we’ll go live for question from you as well.
We always want to start the show, and periodically, at least quarterly, our attorneys counsel us that we should do this more frequently. We should announce and clearly disclaim that we are not attorneys, we are not tax advisers, CPAs. We are in fact laymen helping other people through foreclosure.
So what we bring you is not a lot of academic smarts, you will see that. But what we bring you is a lot of street smarts, a lot of street smarts about what’s really happening. What’s happening good, and what’s happening bad and how your neighbors and friends are figuring out a way to work through this foreclosure storm, or this housing meltdown.
Ryan, are you broadcasting? Have we got all out technology working right for us now?
Ryan: Yeah, well someone has said that we’ve got some echo‑y audio. So I apologize for that. It’s not on the phone, it’s on the computer.
Mike: It’s not on the phone?
Ryan: No, it’s on the computers. So audio quality, not as good as normal. What a drag, shoot. We’ll try to think of some was to troubleshoot that while we go. But anyway, let’s move on. All right, so we usually like to begin these teleconferences by talking about a topic that’s of general interest. I usually give an introductory teaching, or talking about an area that’s of interest to most people.
Tonight’s topic is just walking away, or what happens when the bank takes your home. Either on purpose, or just because the foreclosure work out didn’t work out. This happens more frequently than I would like to see, where the bank actually becomes the owner of you home, and you’re living in someone else’s home. Or they just take over your home after you have abandoned it, or walked away.
Just walking away, like I said, is kind of a tempting option. The reason for that is that a lot of folks are very anxious about foreclosure. Most people, most of 15 million people who are currently facing foreclosure. That’s actually probably 30 million people, it’s 15 million households. Most of those people never wanted to learn about foreclosure, they don’t think of themselves as someone who defaults on loans.
They don’t think of themselves as someone who have to settle debts. They don’t think of themselves as someone who can’t make good on a promise that they made, which is sometimes how they feel about reneging on their mortgage. And they certainly aren’t the people who feel very good about have a bad FICO score.
However, when the tables turn, your back is to the wall, you have absolutely no options. Either you’ve lost you job, there’s been a divorce, there’s been a death. Your mortgage payment went through the roof, and your hours at work got cut back. Whatever your hardship situation is, you have to reprioritize. Your paradigm kind of shifts, and all of the sudden your have to rethink what’s really important, and “What can I really do?”
Because after all, you don’t want to do what millions of Americans have done. And that is burn through you 401k, burn through any kind of pension that you can cash out. Cash out all your life insurance and use that to pay your mortgage on a house that’s underwater, and not coming back.
You’re going to have to have that horrible moment where you have to say, “I need to take action.” Let the pain happen now, as opposed to any later, as opposed to a day later. OK?
Mike: Literally, Ryan and I talk to people at least monthly who should have been talking to us a full year ago, or more. And they’ve just…
Ryan: I don’t like to say that because it makes it sound as if we think they’re so crazy. We’ve been in the same situation. Truth is it’s human nature to do everything that you can do to avoid any sort of pain or change, right? But we have to try to shake ourselves up, especially in the interest of people who have some money. When I ran into trouble I was fortunate enough not to have any money. I’m sure that I would have burned through all of it.
Mike: That’s very true.
Ryan: You know what I mean? But there are a lot of folks that have $30,000, or last year it was $60,000 in the bank. They’ve just been paying that mortgage every month, in the hopes that something would come up. They’ve just been murdering that bank account. The truth is that there’s nothing more ethically better or worse, on anything like that about it, despite what they might tell themselves. What they are doing though, is they’re postponing this inevitable pain. Really at their own expense because who’s else expense are you really sparing? Citibank, Chase?
I’ll tell you what, the bad news is these guys don’t have a lot of love for you back. Should you need some help, you can feel free to give them a call right now if you want to judge for yourself the caring nature of that relationship. Ask them if they will cut you a break. And they’ll say…
Mike: No, ask them if you can’t just skip half a dozen payments or so, and see it that would be all right.
Ryan: All right. So, that should kind of clue you in on the actual type of relationship you have. A lot times, in all of our life, we think that “Oh, we’re friends with our boss.” You’re not friends with your boss, you know what I mean? Or your co‑worker, whatever. When push comes to shove, whatever. So don’t let your relationship with your mortgager be another kind of …
Mike: It’s not one of those things, it’s self‑deception. We deceive ourselves into thinking that we are somehow in this together with Bank of America, or Country Wide, our Chase, of Citi, or Wachovia, or Wells, or any of those people. Come on, get real. We’ve all been had, we’ve all been part of it. For 30 years we’ve just been over‑spending, borrowing, borrowing, borrowing, borrowing. The only thing that put off the Armageddon, or this difficult time that we’re in, is the housing market bubble. That took over where credit cards left off.
For 20 years we built up all this mass of credit on our credit cards, and then for the last 10 years we just built up this massive credit bubble feeding off our home equity. So now it’s time to pay the piper, it’s time to rethink that way of living. That’s why so many of us are struggling with it emotionally.
So walking away from the problem can be really attractive, emotionally. I’ll tell you again, it’s not the best idea though.
Ryan: It can be attractive emotionally, but it can kind of be a false attraction. Tell them why, Dad.
Mike: OK, there are really three myths that people often think are true. The first one is that they think that the bank really wants your home anyways. The bank is really after your home, and that fighting them for it is a losing battle. Well the truth is they don’t want you home, they want your money. Money is much more important to them because real estate is difficult and it’s messy and it has all kinds of risks. They lose a lot of money when they take back your home. The truth is, get real about it, they would rather get you back online paying.
Myth number two is “I’m not responsible for paying the bank’s legal fees if they foreclose, etc.” Well, don’t be so sure because, depending on the state that you’re in, the bank may very well sue you butt for any kind of shortfall between what you owe them, and what they sell you house for on the real estate owned, or REO, market.
Believe me, they will include any attorney’s fees, any trustee fees, any realtor fees. They’ll hit you for everything, and they will pursue you, especially if it’s over $50,000. That of course, is if you’re in a recourse state.
Myth number three is, “I’m done with it once the bank takes it back.” This is the biggest reason of all not to just walk away. There are many other options that are available to you, in fact there are nine other options. None of them leave you as long term vulnerable as just walking away.
Just walking away leaves you vulnerable to the bank just selling your home at the lowest price, and then suing you for a deficiency. And then you being tax‑liable for the forgiving amount. It leaves. You liable for all kind of crap.
So it really is a mess way to handle things. I don’t recommend it unless you really intend to flee the country, or if you’re at the point in your life were you just have no other options. But honestly, when people come to us and they’re just totally frazzled like that, and they just tell me, “I just want to walk away.”
I say, “Listen, you need to hire somebody like me to manage this thing for you and close it up, tie it up neatly. Let us short sell the property for you, get deficiency judgment, disclaimers, or payment in full notices from all of your lenders. Let’s tie it all up neatly, neat as a drum, and let you walk away. You can stop thinking about it right now and start down the short sell path.”
But for tonight’s lesson, what I’d like to do is just take a few minutes and explain what happens when you do just walk away. Or when you just stop paying, and just let the foreclosure process take its course. Unfortunately we have too much experience at this because some of our clients decide to do this, and some of our clients’ short sale applications, for whatever reason, fail to get accepted.
So what happens, generally, is that it’s generally pretty easy to get a foreclose trustee, or share of sale trustee sale, or share of sale delayed. So usually the prescribed number of months you have, usually gets at least doubled. So that in states like California where it is three months before you get a notice of default, three months afterward. Those six months, almost always, can be stretches into 12 months.
So let’s say you’ve been living in you home payment‑free for 12 months, but you just really are done with it, and you’d just assume let it got to foreclosure and the bank does take it in a trustee sale. Well what happens then is it would be offered at auction on the courthouse steps in a district right near your home. And these days, nobody will buy it because so much more is owed on it than it’s worth. So the opening bid will be lousy, it won’t be market rate. The banks just aren’t smart enough to get it sold right them.
So what they do is they take possession of it, and they turn it over to a real estate owned… what do they call those guys?
Ryan: REO?
Mike: Yeah, the REO agents. They turn it over to syndicate, an REO syndicate. So IndyMac Bank takes ownership, they call the syndicate, and they, “Say here is the property, get rid of it for us.” The dole is out to a local agent. The agent comes, knocks on you door. This is probably three days after the trustee sale, at minimum. More likely, in most of the big foreclose states like Arizona, Nevada, and California, Florida. Oh man, in Florida it might be two months later. But generally in California, it’s about three weeks later before the real estate agent knocks on your door, call you up and says, “Hey, I’ve been hired by your bank to sell your home on the open market, and I want to know what your intentions are.” To which most people say, “Well, I intend to move along, but I haven’t got enough money to move.”
To which the real estate owned agent says, “We can offer you $2,500 and we would ask you to vacate the house within two to four weeks.” To which most homeowners say, “Thank you very much.”
That’s called cash for keys, and it become standard operating procedure for bank‑owned properties where the homeowner stays in the home. Because you see, their alternative is to start the eviction process, which in many states can take up top three months, or even more if you contest it.
So they would much rather pay you a little bit of money and have you leave on reasonably friendly terms, rather than to really piss you off and have you leave the house messy, shall we say. Copper‑less, shall we say. Fixture‑less, shall we sayl. Window‑less, door‑less, shall we say. “De‑featured” is the way that Ryan and I often describe it.
So very often, the home owner will settle for $2,500 up to as much as $5,000, unless you’re in some of the really high‑rent areas where it would be really expensive, or they’re losing a lot of money every month with your there. Then settlements can go up to $10,000, or more. So if you’re in southern California and you’re in Beverly Hills, or Manhattan Beach, or Malibu, or on the Palos Verdes Peninsula or something like that, you can expect easily $10,000 cash for keys.
Then you move out, they put it up for sale, and it generally is sold pretty quickly because the REO, the real estate owned market, works like a well‑oiled machine. They price right, and it covers all their risks. So at that point, they’re really interest in covering their risks. With an inspector, with an appraiser, with a realtor. Plenty of insurance policies there, plenty of other companies for them to sue if things go wrong. So it usually happens pretty quickly, and the home is sold usually within 30 or 60 days.
So from the time of the trustee’s sale another month to two months before they take over the house, and then it’s another month to two months before they go into escrow, so it’s really another six months before the bank gets their money.
So that when you’re dealing with them in terms of a short sale, or a deed in lieu or some other kind of negotiation like a loan mod, keep in mind that if they foreclose on you, not only are they talking about less money but they’re talking about money later, as much as six months later. That’s pretty significant.
All right, how did I do?
Ryan: Well, do you think we ‑‑ I might have zoned out, but did you tell people there’s the whole timeline and how…
Mike: From the start of foreclosure?
Ryan: Yes. Did that want to be part of it? The 90 days and the…
Mike: Yes, I think so. Let me just review. In most states, you have to be in default for at least three months before you get a notice of default and the process formally starts. But that’s not always the case, and technically it’s not legally the case; it’s just common practice. Usually if you stop making your payment, if you stopped a couple weeks ago on January 1, it’ll be March 15 before you get a notice of default. That will begin the process, and then it’s two to three months before they schedule the trustee’s sale or the sheriff’s sale, depending on which state you’re in, or the court date, depending on whether or not you’re in a judicial or non‑judicial foreclosure state. Then at that point, it’s usually three weeks or 30 days before the trustee’s sale takes place.
I always say you usually can double that whole period of foreclosure because it’s pretty easy to do. You just request a delay, or you request some workout option, or you go down a workout option path for a couple of months and then determine that one’s not right.
So usually you fumble and bumble your way through doubling the normal foreclosure process. Keep in mind the banks are so incredibly busy these days that they’re not really highly efficient in forcing the foreclosure process either.
But do be aware, once you piss them off you do tend to get a little red X on your file, and they can cop an attitude towards you. So you don’t want to lie. You don’t want to deceive. You don’t want to miss deadlines. You don’t want to miss commitments that you’ve made.
So make commitments with caution and with care, because you don’t want these guys to cop an attitude because they’re powerful, and they can hurt you.
All right, let’s take questions.
Ryan: Well, what happens here then? Is it clear to everyone, do you think? I don’t want to beat a dead horse.
Mike: Yes, I went over it. I think the whole timeline is clear. You understand that this is one of 10 foreclosure options that we counsel our clients about. It’s one that I routinely discourage people to take, and in fact, I can only think of in the last two years two clients who just plain insisted and took this option.
Ryan: All right, we’ve got one from a client named B.B., trying to help her brother with a loan mod from Wells Fargo First. The loan amount is $200,000, APR 7, fixed 30 years, monthly PITI is $1,695. They’ve offered him a special forbearance plan for a trial period of three months at $811 PM. What is PM, do you think? $811 per month?
Mike: Per month, probably. $811 per month.
Ryan: ”It’s getting to the end of that trial period soon, three months. They’re going to reevaluate for a permanent loan mod. What numbers are the bank looking for, as we just can’t seem to get them right? Expenses are either way too low or way too high. Is there a DTI ratio they’re working off or a percentage of his income of mortgage payment? Any help would be greatly appreciated. Thanks.”
Mike: B.B., it is extremely predictable. The answer to your question is it is 100% predictable in terms of what they’re looking for. If you have not purchased our kit.
Ryan: She hasn’t.
Mike: The 60‑Minute Loan Modification Kit, it describes in very good detail exactly what they’re looking for. Let me outline it here for you. I bet, from the fact that your trial modification payment was cut down so low, it was cut in half, I’ll bet that you were put on a trial mod for the Making Homes Affordable program. So you have a really good chance, like a 95% chance or better, of getting that modification turned into a permanent mod.
You have to take this very, very seriously, and the ratios that they’re looking for are as follows. They’re looking to confirm that your front end debt‑to‑income ratio is higher than 31%. Now I’ll tell you what that figure is.
That is that first mortgage on the home that you live in, that’s your primary residence, first mortgage only, principal, interest, tax, insurance and homeowner’s association, all that added up needs to be more than 31% of your household income.
Keep in mind the household income is the income of those people who are on the loan and anybody else that you want and need to put in there, friends, relatives, anybody else ‑ no, I’m just kidding ‑ anybody else who’s in the household and contributing money.
You do not have to put their income in there, into that gross household income. You only have to put the income of the person who’s on the loan. That’s the ratio they’re looking for.
Now in terms of expenses, keep in mind that front end DTI and all your other debt payments, like credit cards, car loans, et cetera, student loans, all those need to come up to a back end DTI, debt‑to‑income ratio, of no more than high 60s. If it’s over 70%, that’s going to be tough. So in the high 60s.
In the remaining 30% of your income, or 40 or whatever is left, you need to spend every penny of it. So in your expenses, don’t show them a budget that shows that you’re $500 negative or that you’re $500 positive. Show them a budget that shows that you eat up all the money that you’ve got.
I know that defies logic because you’re asking for some assistance, so everybody thinks I should show them a budget that shows that I’m wildly overdrawn every single month, that I can’t make it unless I get help. But that isn’t the truth. You need to come up with these days right about zero, a goose egg.
So B.B., that is the specific answer. I hope you heard every word of that because if you follow that formula you’re going to get that $800 made into a permanent modification, and that’s enough to change your financial month to month.
Ryan: Michael P. writes in. He’s the one that received an acceleration last week when he went to check his mail. Here’s the situation with this one. Michael, the one thing I don’t understand here is it says that you’re having a hard time getting the bank to tell you what you owe. That should be something that you could get any old service person to tell you just by calling in anytime.
Mike: He probably means arrears. Who knows why they wouldn’t tell him that.
Ryan: Anyway, he’s got this house, and he wants to focus on his primary in Rhode Island, but he got an acceleration notice on this other one. Here’s the thing. He’s concerned because he says he’s still current with the payment on the first, and the second is with B. of A., a payment of $681. The second is pretty darn large, and it sounds like the first ‑‑this sounds backwards, but it sounds like he’s saying that the first has $50,000, and the second is a second of about $100,000.
Mike: That’s a whopping payment for a $100,000 mortgage.
Ryan: Or more. Well, how could it be that he could wind up with such a big second and not a refinanced first? You know what I mean? Would a second ever do something like that?
Mike: Yeah. Yeah. If you have all that equity in the house, they would have, in the go‑go days, lent you as much as you wanted.
Ryan: Well, he’s saying the value is $150,000 max.
Mike: Crazy.
Ryan: Perhaps he’s got these mixed up, mixed up the first with the second or else maybe something weird has happened here. The thing that I would consider on the second is, it sounds like the second is the one that wants to accelerate and sell the house. Typically, in a situation like this, the second would have the $50,000, and they wouldn’t really have any equity left to foreclose on. I would say, “Why would you bother?” Just stop paying them and take the FICA hit. Let them moan all they want.
Mike: But, Ryan, let’s just say we have the math right. So he says he has a little first and a big second. The second maybe has eyes wide open and they realize they can sell this for $150,000, and they can walk away with $50,000, at least. Maybe that’s what they’re up to.
Ryan: Yeah, true.
Mike: It usually doesn’t happen that way because the numbers are usually reversed. Usually the second is…
Ryan: I guess that all we can do is assume that he’s right, right?
Mike: Yeah.
Ryan: So, in that case, I guess you do have liability.
Mike: And, Michael, if we totally biffed your question, clarify, would you?
Ryan: So, anyway, he wants to know if he can maybe make a partial payment to stop the acceleration. I’m sure you can. They’ll certainly probably accept some money from you, unless they really want to foreclose and not get into the finances. It looks like he wants to stop. He wants to not worry about that home while he worries about his Rhode Island home. What’s the best advice that we can give him? Should he pay them a little bit?
Mike: Yeah.
Ryan: Should he call them up and tell them he wants to get a loan modification?
Mike: I would say, if that really is your strategy, you want them off your plate for six months or so, then I would just start making payments again. It’s not necessary, in my mind, to go ahead and get current, but at least stop that foreclosure process. So get back under 60 days late or something like that. I think that’s really the best. There are a lot of other things you can do, but they’re high intense work and they’re risky, so why do it? You want it off your plate for a few months while you fix the Rhode Island home.
Ryan: Oh, here he clarifies $50,000 on the first and $70,000 on the second.
Mike: Oh.
Ryan: The second wants to foreclose. Yeah, they want to get a few bucks. They want to get anything they can.
Mike: Yeah.
Ryan: Now here’s the good news on that, oddly enough.
Mike: There’s good news.
Ryan: I shouldn’t say this is true, absolutely, with Arizona, but I bet it is. It’s true here in California. That is, if they should sell your home for $150,000, they will be writing you a check for $30,000. So that’s the good news.
Mike: The bad news is nobody’s motivated. They’ll price it so low because they could care less about you.
Ryan: That’s true. They’ll let the auction take care of it and it will go for a low market price. Yeah.
Mike: Yeah. All right. I’ve got a couple of questions that were handed to me and one is from Libby. It says, “If the bank takes my home, this place,” she says. It’s in Minnesota. “I understand that I can still redeem it for several months afterwards. Is that so? If so, will my renters still owe me rent?” Very good. Yes, it is true and yes, they will still owe you rent. Here’s the caveat. In your mortgage, I’ll just bet you, if you bought it as a rental property, there is an addendum. It’s a “Rental Property Addendum,” or something like that, that most states use that specifies very clearly that, during the redemption period, or after foreclosure or, you know what, it may even be while you’re in foreclosure, technically that rent is owed to the lender.
Now, common practice is that they don’t sue you for that or they don’t pursue that. It’s really only because they’re so overwhelmed right now with legal action. All of their attorneys, every attorney that they hire, is tied up in foreclosure action, so they’re not going after these settlements. That’s one thing. Technically, you cannot keep that money. Technically, they have a right to get it from you. I’ll just bet, the likelihood is 90%, that you have that kind of a rider on your mortgage.
Secondly, there’s always the risk that your renter is going to hear that you are in fact in default. A lot of renters cop an attitude when they know that their landlord is not paying the mortgage. They feel, and a lot of time renters’ rights organizations tell them this, that if your landlord is violating his agreement, you have every right to stiff him because in fact the lender might sue you someday for the money. Not true, but these renters’ rights organizations tell them that. So you have to be afraid, Libby, that that might happen and then you’re going to have trouble collecting. You sure as heck don’t want to evict them.
My advice is, when you go into these situations, you wait as long as possible. When you do have to break the news to your renter you do it in a conciliatory kind of way and you explain to them what you’re trying to work out with your lender. If need be, you ask them to make some kind of an arrangement whereby if they can pay early, you’ll give them a 15% reduction or something like that to incentivize them to continue to make their payments to you.
It’s risky. In Minnesota I know for a fact it’s six months of a redemption period. That’s one of the longer ones in the country. So, for six months after the sheriff’s sale, you can go back and redeem that home. Take it back, if you can get financing somewhere. All right?
Ryan: All right. We have a gal’s name that I can’t say. She doesn’t want me to announce it on the air.
Mike: Mystery caller.
Ryan: Her name is “M” and she lives in…
Mike: Well, don’t say it if she’s…
Ryan: I want her to know we’re talking about her. She lives in Ohio or in Iowa or something like that. Anyway, I’m going to read just a couple points from her letter, which is long. In fact I didn’t know a subject line could be that long. See that?
Mike: Yeah, wow.
Ryan: Neat. Anyway, I’m just going to read a couple things from it because there’s some relevance just in knowing what other people are doing. She’s giving me the latest. “Moved into my rental property and updated all info with Well so now it can be owner occupied. Have just completed three months of on‑time trial payments. Am supposedly in the home stretch for the final mod.”
See what’s she’s doing there, folks? Obviously taking advantage of the president’s homeowner occupied thing. So that’s cool. OK.
“Still no income coming in. Retraining to get certified in new lines of work. Relying on boyfriend’s W2 job and his letter of contribution” for her loan modification application. OK? She’s taken all these tips and put them to good use. In her case, this is dramatic. She doesn’t even have an income. She’s not letting anything stop her.
“Negotiator made a mistake and calculated the trial payment as 31% of boyfriend’s entire take home pay, not the contribution. So obviously that’s going to be a lot less.” Here’s the thing, M. She’s in Idaho, sorry. Anyway, here’s the thing. She’s saying, “Since this was a mistake, what I’m asking them to do is set the payment to 31% of the old mortgage payment, interest, tax, and insurance.” which actually doesn’t make any sense.
That’s a misunderstanding of what we were talking about earlier. It doesn’t make any sense to cut your payment by one third, in and of itself. Don’t continue to push along that line. 31% is something that a lot of people get…
Mike: Yeah, they get messed up on.
Ryan: Hung up on and get moved around. Here’s the best that you can hope for: a 2% or 3%, fully amortized, fixed rate loan, or you could get maybe a couple years interest free at 2% or 3%. What other kind of options can she…
Mike: Interest only.
Ryan: I’m sorry, interest only.
Mike: Yeah. You’re right. This is one smart person. This person is very aggressively going after the very best, fighting to keep their home. I think by virtue of the fact that they made the mistake on the calculation, and if you think you’re right there, why don’t you push that for another three‑month mod? It sounds to me like you think the trial payment should have been lower. Maybe you’re going to be able to jump right on to another three month, but…
Ryan: I don’t know. Here’s my thinking. To get approved on your boyfriend’s income is a long shot, at best. If they decide to go with 31% of his income, if he makes somewhat of an average salary, don’t rock the boat.
Mike: Yeah, you make a really good point. There are times when you just need to say, in this craziness of loan modification, I had a guy get a good offer the other day and he just said, “Should I go for better?” I just said, “No. Run to the notary. Run. Get off the phone. Get in your car. Get over to a notary and get this thing signed. FedEx it back, overnight. This is such a good deal.”
Ryan: Now let me go on….
Mike: Yeah, if this is as good as it sounds, M, just take it.
Ryan: Yeah. Is he a millionaire? Is he pulling down $100,000 a month? Then, I’d say I don’t want to pay 31% of his income. If he’s anywhere near the $60,000 income or $30,000, whatever’s the median in that area, you’ve got a rocket, OK? Otherwise, I do see here, though, that she says that the trial payment is better, but it is not sustainable.
Mike: Oh.
Ryan: OK. So given that, given what we’ve said, I think it’s time to take a long, hard look at this. Consider transitioning from is fight, one day, into a short sale. I think a loan mod is a very legitimate part of it. Whatever you want to do, you want to make the most you can out of this property, whether it’s renting out for as long as you can, whether it’s living in it for as long as you can. You’ve certainly extended it, but if it’s not sustainable and his income is somewhat normal, it’s time to shift gears.
Mike: Do you want me to go on here?
Ryan: No, she’s got more. Also, she’s asking about exposing and disclosing cash and investments. Like a lot of people, she says she has some cash, but she has a lot of debts so it’s not really hers. Also, she has some investments in some LLCs and some businesses that don’t show up on her personal credit report.
Mike: Yeah, sure.
Ryan: Here’s the thing. She asks me, “Do I have to disclose this? Do I have to disclose that?” The answer, I’m afraid, is that you do. The caveat to that is that we certainly haven’t seen any investment police out there catching people on these things. A good number of clients have had extreme success with simply not answering. I guess that would probably be a lie, according…
Mike: Well, here’s the thing, Ryan. If you’re talking about a loan modification, M, you’re getting underwriting lite. If you’re talking about a settlement, or a deed in lieu, or a foreclosure settlement or a short re‑fi, then you’re going to get more underwriting scrutiny. Realistically, on a loan modification, what they do with the information that you put in assets is the clerk who’s looking at it goes over to a checklist and checks off the box that says, “Did they include their assets and liabilities?” and they check it. That’s the degree of scrutiny that you get, because you’re talking about a modification and, especially with Make Homes Affordable, they get paid to modify you. They want to help you. I wouldn’t be paranoid about that.
The way you should always start your foreclosure workout, whether or not you’re living in the property, whether or not it’s investment property, whatever, you have to take a sober look at how much your creditors can sue you for. How much is not protected by a trust? How much is not protected by a pension fund, 401k or Roth, or some kind of pension fund? How much is very liquid? The judge will, of course, just be looking at liquid assets.
They will be friendly to your real estate investments and they’ll be friendly to your pension investments. Of course they can’t touch any social security or anything in a trust. So step back and have a look at it. Maybe even ask an attorney to give you an analysis of what your liabilities would be in court if this company brings suit against you. For right now, you’re just talking about a loan modification. I wouldn’t be concerned about divulging everything.
Ryan: Well, no, we’ve had people, several people recently, who have been told they have too many assets. They had pretty modest assets, as far as I’m concerned.
Mike: No, I don’t know about that, but that’s my input.
Ryan: No? OK.
Mike: I don’t think so.
Ryan: All right. Carl P. writes in that he paid up for last month and he feels that he got the attention of Loss Mitigation after not having paid for a little while.
Mike: That’s nothing.
Ryan: He did pay up, so it didn’t go to long. He has not paid January mortgage yet and he has an opportunity here to work on something for about a week and make $1,000. Should he do that or should he decline the money and work on the loan mod full time? Doing this, I’ll say I never got a question like that before. What I can say is I’d take the money. Personally, you’re not that far in the late, late process, so I’d make money where you can.
Mike: Yeah.
Ryan: I think he says he’s a freelancer or something. Jobs come, jobs don’t come, you know how it goes.
Mike: And there’s nothing going to change in a week on your loan mod. So write them a letter and ask them a question. That will tie them up for a week.
Ryan: Take the money and run, Carl.
Mike: Yeah.
Ryan: OK.
Mike: Tim says, “How does the bank deal with damages done to this home after I move out?” Oh, this is a question with regards to abandoning your home. “If it is vacant for a while before it is owned by them, could they come after me for damages to it?” It used to be that we would just think that a vacant home, in some neighborhoods, they might get vandalized. Well, it’s become a big, big deal to the point where the banks are asking us now to confirm every time we’re calling in on a client’s loan mod application. Is the house vacant? Is the house vacant? Is the house vacant? Because, boy, they want to know if it is.
They want insurance and they want to accelerate everything because there’s been such a high incidence of break‑ins and vandalism. Once you abandon the property, thinking, “Doggone it, I should go back for that $400 door or I should go back for that $300 dishwasher or I should go back in and take out those windows. My cousin could use them.” That is a real threat, Tim. They’re very concerned about it. In terms of coming after you, it would be just added to their losses. So if they’re going to sue you and pursue a judgment against you for their losses, they could include the damages, yes.
Ryan: OK. Let me get this in. Fred is on the call and he wants to know is the window closing fast for loan mods. He’s part of our credit card settlement club, which is cool. We have some really awesome stuff coming out with that. Also, if you’re not a member be sure to sign up at the little box below, if you have any credit card debt.
Mike: Below the screen that they’re watching now?
Ryan: Yeah. How many missed payments would be motivation to a lender? Any experience with Bayview Loan Servicing? What’s the success of loan mods for seconds? Why don’t I let you have that one?
Mike: OK, the question is how many missed late mortgage payments, motivation to the lender for what?
Ryan: A loan modification, I think.
Mike: OK, for a loan modification as soon as you are in default, you are no longer being treated by their imminent default department, if there even are such things. I’ve begun to believe that, in fact, they’re just figments of our fragment. Immediately you are in default. That means 32 days after your mortgage is due, you’re in default. Whether or not you go 60, 90, 120 days late, it’s entirely up to you. You’re going to get treated with respect as long as you’re late.
What some people do to minimize the FICO damage ‑‑ and I don’t know whether or not it hurts their negotiating stance, sometimes I think it’s more work than it’s worth ‑‑ they make a payment, but they never get current. They’re always 30 days late throughout the loan mod process. Just one payment is all you have to really be late, but believe me, you have to at least do that one.
Then, no. No experience with Bayview.
And then what is the success for loan mods for second is loan mods for second are powerful, however, they usually don’t mean that much money to you because they’re usually insignificant compared to the first.
In many of the states that are deep in the foreclosure muck like Florida, Arizona, Nevada, California, Ohio, Michigan, in many of those states, the seconds are literally without any equity. So there are really easy to negotiate with. They’ll threaten to sue, they’ll threaten to foreclose, but they’ll also take your offer of some kind of minimum payment during your difficult period.
So if in fact your workout is a loan modification and you intend to modify your first, and then modify your second, it’s easy to get a modification out of a second. You should be able to get down to 1% interest or even lower. Even just a $75 to $200 payment every month just so they can keep from charging off the loan. They don’t want to do that anymore than you want them to at this point. They’re easy to negotiate with.
Ryan: OK, we have Kevin and Michelle. “How do you postpone a trustee sale,” is the first part of the question. The second is, ” have a first and second on my investment property. The rent will only cover the first. Will I qualify for a mod on the first? Thank you.” What other information do you need to know? It really doesn’t have a whole lot to do with…
Mike: What was the first question, Ryan?
Ryan: The first question was how do you postpone a trustee sale?
Mike: First of all, postponing a trustee sale means at once you pay a little more, bankruptcy. Let’s introduce it.
Ryan: OK.
Mike: When you get a notice of trustee sale, you’re on a short fuse, three weeks or so before they’re going to take your home. So you need to intervene real quickly, and you do that with ‑‑ take it away, Ryan.
Ryan: Hey.
Mike: Hey.
Ryan: Bankruptcy.
Mike: Bankruptcy.
Ryan: What else we got? We have…
Mike: Our favorite.
Ryan: Which is?
Mike: Submit a short sale offer.
Ryan: Oh, short sale. Yeah.
Mike: They love short sale offers because it’s cash now instead of six months from now.
Ryan: And that consideration can often take four months.
Mike: Exactly. Short sale is the sweetest one. And the other one that Ryan didn’t mention is just plain ask them. If you haven’t got any big red Xs on your file and you just say, “I need you to postpone it,” you’ll be surprised. If there’s a reasonable reason for you to need to postpone it, you say, “Listen, my wife is in the hospital. We can’t really work on this for two weeks. We think we have a solution.” In other words, just ask for it is the first one you should try as well.
Hey, I’ve got a question here from Shahid. It says, “How long will the F for foreclosure stay on my credit report and how long will it affect my FICO score?” When you do, if you do walk away from your home and you indeed get an F foreclosure on your credit report. They report that to FICO which reports that as a credit score hit.
It’ll hurt your FICO score for the 10 years that it’s on your credit report. It really impacts you for two to three years very seriously. Depending on how aggressive you get in terms of credit recovery, you can probably cut that down to about a year and a half, but certainly you’re into deep FICO problems, credit score problems for 18 months.
But if you get on a good regimen of FICO improvement practices like Ryan describes in “The Credit Card Cure,” and that we describe in the 60‑Minute Loan Modification Kit, I think there are seven of them. Those practices can cut in half the time that it normally takes to recover your FICO score.
Mark asks, “Will the bank sue me for the difference between what they get for my home and what I owe them?” Mark, that completely depends on whether or not you are in a recourse state. That is, does your bank have recourse to hold you personally liable to the debt, or is it tied only to the collateral that you put up for the loan, which was the home.
Now, you can find out if you are in a recourse state by Googling recourse states or by emailing me and asking me. The actual whether or not they really will pursue you, my street smarts says that it’s usually at about $50,000 where’s it’s worth it for them to actually pay $15,000 for an attorney to go after you.
If it’s in the neighborhood of less than $50,000, you might not ever hear from them again, but they have the right to pursue you for quite a few years. The statute of limitations in one state ‑‑ I think it’s Kentucky ‑‑ is only three years, but in most states it’s five to seven years.
You can find that also by going to statute of limitations on debts. They’ll take you to some site that will have a grid telling your state and the statute of limitations. Got some more?
Ryan: Yeah, I got a guy here, Richie, and he’s actually got a loan modification here. It’s a rental house and it’s converted from an ARM to a 4.5% for five years, PMI, and after five years, to the end, 5%. That’s pretty good.
Mike: That’s pretty good, yeah.
Ryan: Payment is still the same, OK?
Mike: They just amortized.
Ryan: OK, so I’m $500 negative cash flow amount a month.
Mike: OK.
Ryan: House is only worth $100,000, mortgage is worth $152,000.
Mike: I know where this is going.
Ryan: Yeah, BFA said it’s the best they can do. So, the good news is that it’s $500 negative a month only. You’ll be paying this off, right? So you won’t just be paying interest. The house is in Arizona, which is a non‑recourse state for now. I thought it was a recourse state now. Wasn’t Arizona?
Mike: I forget.
Ryan: I don’t know. I’d double check that, Richie, because I’m pretty sure they changed that the other day. I want to see if they’ll make it into a 40‑year. That’s a good idea.
Mike: That’s a very good idea.
Ryan: ”Should I reject their offer? Should I submit my own financials, or should I just short sell it. I like collecting rent while I’ve not been paying the last six months.”
Mike: No kidding.
Ryan: Good for you. But I’m afraid they will send it to foreclosure while I’m submitting for a loan mod the second time. I doubt they’ll send it to foreclosure while you’re submitting a second time as long as you’re in good touch. And it looks like you are one of these people who is able to communicate with your tenant well enough to keep him paying, which is important. OK? And the explanations are pretty easy, if you can just get over it.
Mike: I’ve got one just like that Richie, where I’m really arguing with the bank. Because I got to a point where I just said, “No, I’m not putting another penny of my money into this loser.” It’s only worth half of what I owe on it, and I already lost so much money on this one. I just said, “You know what? I’m done.” I’m stopping the bleeding, so until the bank gives me a modification that equals the rent, so that it’s a break even, until they do, I’m not paying. And I honestly don’t care if they push me right up to trustee’s sale, I’ll just short sell the thing. But it’s in such a hard‑hit area that I believe that they will accept it. I’ve been negotiating hard with them now for about nine months. I believe that they will acquiesce, because they understand that there’s just no options. I think I’m getting through to them. So you might try that, but it takes a lot of nerve.
Ryan: Kevin and Michelle follow up. We forgot their second one. They’ve got a first and a second on an investment property, rent only covers the first. “Will I qualify for a mod on the first?” I guess, Michelle, we have no idea.
Mike: Yes, because that isn’t the only factor. They take in your entire financial picture. That’s what matters, not whether or not their rentals are going to break even.
Ryan: Ultimately, if the rent covers the first and the second is a smaller amount, the ideal thing would be to get that thing to break even and hold onto it right? So that’s what you got to shoot for. But there’s just more to it.
Mike: Yes, we need more information than just that.
Ryan: OK, so Sean and Leah. You know, he says he hasn’t received a package. I thought we got that one out. Anyway, let’s check that.
Mike: Let’s skate.
Ryan: Don’t know. “I will not be paying the January payment on one of my rental properties. I have received a short sale offer, and the realtor says it is in the acceptable range she has been seeing. Can you go over what I should do with regard to the lender and a little bit about the ratios on a short sale?”
Mike: Yes, the first thing is you want to be sure that the realtor that you’ve hired does short sales, and I mean does a lot of short sales. Because honestly, you don’t want them learning on your dime.
Ryan: You know what I saw? There this guy named Frank, he’s a realtor in Manassas or something. And he does a lot of really innovative stuff online. And his property search rates the listing agent on short sales for how many short sales they’ve closed. Pretty cool, huh?
Mike: Yes, honestly that’s a good way to do it. I mean just cut the crap, don’t just hump. Because in any given geography there is one outfit that is doing the majority of the deals, because you get expert at it.
Ryan: So anyway, talking about ratios in regard to a short sale, that’s another problem. Because truly nothing matters on a short sale. What matters is that you’re not going to pay any more for it, you’re not going to bring any money to the table, more is owed on it, and can you get everyone a little bit of money. Ratios really don’t factor into it.
Mike: You think he’s referring to like debt to income ratios when he’s…
Ryan: I think he’s thinking debt to income ratios.
Mike: Yes, none of that stuff matters.
Ryan: Yes, none of it matters. And some people…
Mike: You see the key here is the bank is going to determine whether or not you have a hardship. You can’t make this payment. And if you convince them of that, because of a hardship and you show them financial numbers that say I can’t continue like this, and they agree, then they’re going to look at the deal, and they’re going to say, “Is this a reasonable market offer?” They’ll either pay a hundred bucks for a BPO agent locally to give them a price or they’ll hire an appraiser to come out and give them a price, and they’ll evaluate the offer in terms of whether or not it’s reasonably close to market. And I would say anywhere within 10% of market is likely to get accepted. And then they’ll just accept it. Because that’s what they’re going to get if they push it further and take it to REO.
Ryan: OK, so we need to cut it off. Why don’t you wrap it up, and I will cue our new deeply thoughtful and contemplative theme music.
Mike: Thanks for listening and we provide this teleconference and video conference as a service as part of our effort to proliferate street information, street smart information about foreclosures going on around the country. You find us at 60minuteloanmodification.com, for more information about what we do and how we help individuals get through the foreclosure process. Ryan is the author of a children’s book on foreclosure to help families talk about the emotional difficulties that they’re going through, and to help kids understand that the world is going to continue to spin, and that everything is going to be OK. You’re going to stay together as a family, etc, etc. That book is called “Mia’s Home.” And that book is available on our site.
We also have all kind s of loan modification support for you, in the 60 Minute Loan Modification kit. We have a notice of default handbook that’s available, and as Ryan talked about briefly we also have a membership only site called “The Credit Card Cure.” And on that site, people support one another, and help one another, and with Ryan’s good information through the “Credit Card Cure” book, they get through credit card debt settlement. So that is also a very important service we provide.
So we hope that these teleconferences that are on Tuesday, Wednesday, and Thursday nights are of service to all of you. Please join us again next Tuesday might, when we’ll talk about Foreclosure Doctor topics.
And join us Thursday if you are a client of ours, 60 Minute Loan Modification client, where we dig into the nuts and bolts of the street smart loan modification. And if you’re in credit card debt, please join us tomorrow night for our teleconference, the Credit Card Cure Co‑op. And you learn how to sign up for that apparently, right below me. All right?
Thanks everybody, and good night.
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