Recorded live on January 5, 2009

Do you prefer reading to watching video? Well you are in luck! Here is the transcription:

Ryan Rockwood:  My name is Ryan Rockwood. This is my dad and business partner Mike Rockwood. He wrote the book on loan modifications. He was originally one of the first do‑it‑yourself style books back when everyone was into charging many, many, many thousands of dollars. And we thought, “Wouldn’t it be a big success if everyone could go get a do‑it‑yourself book and do it on your own for a $100.” The results were really mixed, to tell you the true. We’ve had really good results with the book but it turns out that do‑it‑yourself loan modification just isn’t for everyone.

Being do‑it‑yourselfer kind of guys, we didn’t pay as much attention as we might have to the fact that there is a point where you want to turn over to someone else. The thing is, people have vastly different scenarios here. I mean a lot of people will call and say, “Hey I want to do my loan modification myself.”

Great. They got one loan, one house, a W2 income ‑ it’s either they’re in or not. But other people have six houses. We’ve had some people that have done this now on six to 12 different houses. When you have that many houses, they are naturally income sources.

Naturally you pretty much have to ‑ you start getting 15, 20 income sources coming in. You’ve got tax things going on and you’ve got issues with court ordered childcare with all kinds of different funky ways of how your income comes in and how your income goes out.

Anyway, we do it for people as well. If that interests you, I’d check into that ‑ it’s very reasonable. But also the main thing we do here on these calls is just tell you that for most mere mortals, it’s well within your grasp to do this yourself. We give you the tips and the tricks that you need, as well as the changing environment. We print our book on demand, however things change so rapidly that one week something may be true, the next week it may not be true.

I was talking to something today saying that… We’re just talking about the budget, and how it’s important these days to get really right at zero or a little positive or you’re really in big, big trouble with your budget.

Mike:  Last summer we here having success loan modifications that were three and seven hundred dollars. That’s weird.

Ryan:  Right. Anyway, that’s the importance behind community and like someone just said, it is kind of like a dark science ‑ the dark science of loan modification.

Mike:  Or the whole dark science of foreclosure workouts. The whole dark side of this credit implosion, or the credit bust that we’re in. It’s dark stuff. It’s difficult stuff. It’s emotionally draining stuff and its’ stuff that a lot us thought we didn’t have to learn.

Ryan:  You know, I heard you listening to something today that quote it well. It said something like; “The heart of this is that we have to disassociate our emotions from these problems until we can look at them as simply a mathematical problem.” No one ever got bent out of shape about not being able to complete an algebra equation. Well actually, I got quite bent out of shape about that in math class, on a test or something. No one walks around I’m a stupid human being for not being able to do trigonometry or something like that.

But plenty of people do when they get their notice from their bank and they sit around feeling, “I’m a horrible human being” and blah, blah, blah.

So we’re going to try to help you too look at this as a simple math problem because that’s really what it is.

Mike:  Recently I was interviewing an Indy Mac negotiator who has become over the years, kind of a good friend. We first got to meet him when I was modifying my own mortgage about a year and a half ago. He was very informed, very articulate, kind of high‑ranking guy at Indy Mac even back then. So we stayed in touch and I was reviewing with him an update, particularly about third parties and hiring people and the way the banks seem to be working against third parties.

His comments kind of echo what Ryan was just talking about. He says he thinks it’s very interesting that homeowners call with such anxiety and so apologetic about the fact that this deal went south. He made the comment just like Ryan said, “You know, its just math.”

It’s not like you just came in a stole $200,000 from the bank. What you both invested in decreased in values by 100’s of 1,000’s of dollars. Now what are you going to do about it? You’ve got to settle. You have to settle. You have write off some principle. You have to short sell it. You have to let it go into foreclosure. You have to give it to them in lieu.

You have to do something, modify the loan or something. Something needs to be done and it’s strictly business. He says, to them, in their meetings it is strictly business. But they realize they can take advantage of the fact that homeowners are in distress. They have great anxiety about saying, “I can’t afford to make the payment. I realize I’m in default.”

Just saying those words and actually having to face a trustee sale and maybe having them to lose the home. Their just very emotionally laden things, but he made the same observation that Ryan did.

People would be better off if they just realized that this is just business. Let’s settle it. And millions, literally millions of people, are dealing with the banks and negotiating with the banks about what to do. That’s what “Foreclosure Doctor” is all about.

Ryan:  It’s interesting. No one at the bank is ever in a meeting and they’re saying ‑ well they probably do call homeowners a‑holes and stuff like that too, to tell you the truth ‑ but not from the same personal… You do get the sense that bankers really despise homeowners, homeowners in distress especially.

Mike:  Their customers.

Ryan:  Yeah. However it’s not personal as much as it’s the woman who’s sobbing on the phone and saying she can’t pay. Well what can you pay? We’ll take it. And then we’re foreclosing anyway. As a way of introduction we have…Basically our education outreach is this. We have a Tuesday night and a Thursday night class like this. If you have questions you can send them in right now to question@60minuteloanmodification.com. I will get those.

You can also ask on the chat screen there ‑ you can also ask a question there. However sometimes that gets moving too fast and I can’t follow along with it when we’re on call.

Mike:  These teleconferences are a natural extension of the work. We work right up until this time and we get on the phone and we get on the video and we talk about what we’ve been learning because Ryan and I are working foreclosure workouts every single day. We’re working with banks, working with homeowners, figuring out with short sells. Arranging for deed and lieu transfers, working short sells all around the country. What we bring you is not academics but street‑smart information about what’s going on.

And we always like to bring out a little bit of good news. Today I’ll share with you a couple of good tidbits. One of them is: you know we’ve been a little bit concern. If you remember the July‑September time frame, the President really got all over the banks for not working on his making homes affordable program and not actually getting very many people started in modifications.

He put a lot of pressure or the administration put a lot of pressure on the banks and so in the short period of time they got 650,000 people onto trial modifications. Well, the fear was that those trial mods were going to not be turned into permanent mods and today I have a real great story to tell you.

Ryan:  We have good news to tell you but those concerns are certainly justified.

Mike:  No, they are very valid, but I do like to pass on good news when there is good news. And that is that a client this morning was approved for exactly a renewal or an extension of the trial modification payment. So his payment had been reduced by almost 30% for the three‑month trial and then when the trial ended, this was Indy Mac sent him conformation that he could continue at that payment for 10 more years and then the loan would convert. It’s going to be interest only for a period of time. This is kind of a unique one. And then after 10 years for the remaining 15 years on the loan it is an amortizing loan so the payment goes up but it’s principal. You got a real nice interest rate and just a real sweet deal.

So that’s good news and hope, hope, hope for the future that more and more of these trial mods are just going to be… If you can validate the information upon which you got the trial mod, then you should be right in there. That’s what this client did.

All right, should we start talking about short sales?

Ryan:  Yes, let’s do it. Now, I would think if I was… Let me also I should say we do so many of these that we forget that some people are joining us for the first time. If you are, welcome. I don’t want you to feel overwhelmed. We get into this discussion of things, just let it go over your head if it’s going to go over your head. Kind of file it away.

File it away and recall this sometime in the future when you get to that stage where the question is appropriate for you. So don’t be overwhelmed and zone out and go away. Anyway, what we’ll do is today we are going to talk about short sales versus loan modifications.

We talk about all kinds of things, too, but I do want to say that don’t be surprised that we’re huge advocates of short sales. You might be surprised because we don’t really have a short sale product to sell here. We’ve got a loan modification product to sell. Short sells are a fantastic solution to a lot of life’s problems today.

It’s something of the mistake to think that you may only need one or the other. In many cases it may be appropriate to do a loan modification and a short sale even if you have no intention of doing a loan modification of going through with it or something like that.

It’s a nice tidy way to style things for a good four to six months.

Mike:  Well, either can be used to stall your foreclosure and sometimes clients just plain need to delay the foreclosure because they are not sure about the best work out strategy. So either of these can be good delay tactics, but ultimately a loan modification, we always advocate that everybody do loan modifications because they are so cheap and they are so easy. I mean, our kit is like $150 and it takes you an hour to prepare your application.

Unfortunately these days it takes you six weeks to follow up on it. But loan modifications are easy and a lot of our clients see them as short term solutions to their problem. Let’s say you are $25,000 to $250,000 upside down on your home and you would love to stay there if you could but honestly more than $50,000 or $100,000 upside down you are not likely to ever see that recover over the time that you have left on the mortgage or heck, even in your lifetime maybe.

So it doesn’t really make sense and at some point you are going to have to make an agreement with the bank that either they are going to take the house back, because the collateral just imploded the value of the collateral declined or you are going to have to sell it short in the future.

So a lot of people just see the loan modification as a temporary Band‑Aid. The opportunity to stay in the home for a year or two or three or if you get a really good modification maybe 10 or more. But ultimately, if our values don’t increase in those hardest hit areas, like Florida, Southern California, Nevada, Arizona, a couple parts of Texas, if those values don’t come back then ultimately you are going to have to deal with a short sale.

And short sales, Ryan, is right. We absolutely love them. Most realtors will tell you that they are the “sale from hell” and you don’t want to get involved in them. They take forever. And they don’t take forever. I mean, they can.

We’ve had short sales that have taken two full years. But we’ve also had short sales that take 45 days. A lot of it has to do with the intent of the seller. If the seller really does want out of the home fast, then we generally can get them out of the home fast. A lot of times clients will say to us: listen I don’t see any way out of this. I’m going to stop my payments. Sell this thing short for me and honestly I wouldn’t care if I lived here for another year.

And so, that’s what we set about doing. We set about meeting their best need. So, that’s the beauty of the short sale, is you can kind of throttle it. It’s pretty easy to throttle the speed because the banks, I’m telling you if you weren’t all over the banks the banks would take six months to approve a short sale in the first place.

So let’s just review. A short sale or a short pay off is when the lender agrees to accept less than is owed on the property. For an awful lot of properties that were purchased in the housing run up, between like 2002 and 2008 there were an awful lot of homes that second mortgages, first and seconds.

And because values have declined in many parts of the country, more than 25 or 30% a lot of times that second mortgage is toast. Actually they have no equity left in the home on which they lent the money. So you have a little bit of a negotiation that has to go on between the first mortgage and the second mortgage.

Sometimes the first mortgage is in fact going to be able to cash out completely. I’m just closing one this week in Southern California in which that’s the case. The first mortgage is going to be completely whole. So they, of course, approved this deal. There’s nothing for them to approve really. But we had to negotiate hard with the second because they were only going to get about $3,500 of $150,000 that they were owed.

Normally in California that wouldn’t be a problem because if it was a purchase money loan, there’s no recourse. They have got to accept it. The seller, the individual is not personally liable. That’s the beauty of a non‑recourse state. However, this seller had refinanced and taken some money out of the home and the seller’s lawyer determined in consult with us, determined that in fact the second mortgage did have recourse.

So like we’re doing with all kinds of folks in Florida, we came to an agreement. We took, the seller is bringing some cash. Most sellers in cases like that have to bring between 10 and 25% of the short fall to pay off or to strike a deal with the lenders.

So a short sale is selling the home short. All lien holders have to be satisfied and have to sign off on the deal. It’s extremely easy to do and so many of our clients are so relieved because from a seller’s perspective, let’s say you’ve got a house. You’re $200,000 upside down on a $600,000 house. You owe $800,000 on it. Getting out from under that $200,000 loan can be very, very freeing.

You stop your payments. You don’t make payments during the short sale process, at least 99.9% of clients stop making their payments. You are not charged any of the closing expenses. The reality is you already lost all of your down payment and all of your investment and all of the sweat equity that you put into the home during the time that you have owned it. That is all lost.

The bank is losing now and taking their loss and taking it on their books. So that’s what the short sale is all about. And then at the closing very often we can time the closing in such a way that it makes it really convenient for the seller to get out, you know, at a convenient time, with plenty of warning, you always have at least thirty days notice of the closing date, so it’s really quite a good solution.

And then, the beauty of it also is that you wrap up all those liens, you get them to sign off as payment in full and they are precluded from taking any kind of court action to get any kind of judgments against you in the future. So people leave short sales knowing that everything is wrapped up tight as a drum.

You do have to be concerned, like you do in all work out solutions, about the tax liability, because any forgiven amount can be a tax liability. And again, like Ryan was saying, we very often counsel our clients to use a short sale or a loan modification, sometimes even in conjunction with one another because you don’t know what will be your best solution.

If you get through the loan mod process, that maybe takes six or seven weeks, and you don’t get a good offer, let’s say you just can’t find a way to qualify for a good loan modification, then you might want to go ahead with the short sale process. And very often finding a buyer takes you six weeks, so we often recommend that customers start the process in parallel.

Now there are lenders, like B of A, who have a hard time with that and won’t work with us to let the lender be considered for either, so when that is the case, you just don’t notify the lender that you have the home up for sale.

It’s really none of their business, it is after all your home and you have a right to put it up for sale. So there you go. We will now take your questions on short sales, loan modifications, deed in lieu or any kind of work out solutions including, short re‑fi’s, settlements,

Ryan:  Hey Scott’s…

Mike:  …walking away.

Ryan:  Scott’s chiming in with a question here.

Mike:  OK, go ahead, Scott.

Ryan:  He’s asking, “is there a difference between imminent default HAMP and regular HAMP?”

Mike:  Modifications.

Ryan:  Do you know anything?

Mike:  Yes, yes. Good question.

Ryan:  I may have misspoke but I told him that I don’t think so.

Mike:  Yeah.

Ryan:  But what he follows it up with, by saying that he’s reading a directive, nine five, I think it is, something like that, in which directive nine‑zero, nine, dash zero five R, sounds like they calculate income differently like allowing negative rent income to factor in. You know anything about that or we need to do more research?

Mike:  No, that’s very, I’m glad he actually gave us the quote, we’ll actually look that up and figure that out. But here, just because I’m sure a lot of listeners don’t know what this imminent default is, I kind of laugh when I hear about it because it was really coined, a term coined by the Obama Administration in the kick off of making homes affordable back in March of 2009. It became laughable because all the big banks formed these imminent default departments which became, I mean some of them, literally were just a phone number.

Ryan:  …warehouse in Nebraska.

Mike:  Yeah and a website, a button on a website, there was no staff, there was nobody that returned your call, there was nobody to could talk to and treating people who are imminent default, was thought that it was going to be great way to prevent people from getting into default. So what you do, what the thinking was that you expedite their modification because they’re almost in default, it’s imminent.

But as it turned out in fact, they turned out to be just sheep, a wolf in sheep’s clothing. And in fact just prolonged the agony and really just became a collections department that put off, and put off the modification just to get more payments out of the, out of the homeowners.

And I’m sorry if you don’t think that’s true, I can tell you case after case after case in which it was true. I’m sure there are hundreds of people around the country who have worked in these imminent default departments and think that they’re doing some good, but I got to tell you, it was a laughter. And actually, in recent months I haven’t even heard much about those organizations because most people have come to accept the fact that if you want a modification, you go into default.

That still is the case, coming up on a year since Making Homes Affordable was introduced. But that was a, so the imminent default treatment of your Making Homes Affordable modification is supposed to be expedited but in fact it never was. The actual terms of the modification I don’t believe are any different, but we’ll sure look into that. Thanks for the question.

Ryan:  OK, so we’ve got another question here from…,

Mike:  I’ve got half a dozen here I was given before I sat down too if you want me to take some of those for you.

Ryan:  OK. Yeah, why don’t you go while I find a good one that…

Mike:  OK. I’ve got half a dozen that came in in the last hour, Shirley says, “I’m making offers on short sales and my agent always resists making low offers and we argue about it. Shouldn’t we be offering low and let the seller counter?” OK, let’s just think for a minute. OK, so Shirley is a buyer and she’s out shopping and some of the homes that she likes are short sales and she wants to offer real low and her agent gives her some push back and says, you know, of course is arguing to offer closer to list price. The agent’s motivation is, you know, could be suspect because the agent obviously just wants to collect a commission, but the agent could also be well‑informed about the fact that it’s not going to go for much less than list price.

So let me give you my two cents worth on that. It’s pretty easy to predict what the bank will accept on a short sale. By and large, we routinely get short sales sold for ten percent below market price. Now, in recent months it hasn’t been so difficult, but last fall it was almost impossible to tell what market price was because it was dropping so steadily, but now things are kind of stabilized, so what we do is we get market price, and of course you use comps, within a mile and within 60 days.

Like the appraisers have to do, those are real comps. So you use those comps, get market price and then offer ten percent lower and it should be good, but here’s the other problem. Good properties always draw a crowd. And these days there actually are a lot of buyers out there and there are a lot of investors out there, and so particularly in homes that are below FHA and Fannie, you know, below Fannie Mae and Freddie Mac guidelines, there are a lot of buyers.

And so what we find is when we have a buyer who’s making low ball offers on short sales, sometimes they really do lose out on a lot of them because you know there’s six or eight or ten people that are offering on that. You really have to just use common sense in terms of what you’re going to offer, number one. Number two, if you’re going to use that strategy of making low offers on short sales?

Got to make a lot of offers. You’ve got to make an offer on almost everything that fits into your description, you know either your geography, the size, the type of home. So I mean literally, you have to put a machine together that can make two or three offers a day, so you have 20 or 30y offers.

Ryan:  Stop, depending on which state you’re in, you’ve got to stop going to see these homes or it’s really lame.

Mike:  Oh yeah.

Ryan:  You’ve got to get a criteria down, how many bedrooms, you know, how many square feet.

Mike:  …what zip code it’s in.

Ryan:  and write twenty offers.

Mike:  Yeah.

Ryan:  I mean throw something out there or you know, it’s one of those, the universe can’t throw one back unless you throw a couple out there.

Mike:  In fact I have one client who has had success in recent weeks, he’s gotten three short sales approved in recent weeks, but honestly, he spent three months making offers. So, you know, all of them take a long time, and you lose out on 75 percent of them, so you’ve got to have a lot of offers out there, OK, so that’s the answer to Shirley’s question. So Shirley, you’re both right, you’re right and your realtor is right. But honestly, you want to be in lockstep with your realtor. Settle it with them, about your strategy, so that you don’t have to argue about it all the time. OK.

Ryan:  I got another one here. This is from Michael P. “We are three months late on our mortgage and cards. My wife is worried that we are getting certified mail. If I sign for the certified mail, will I put me at some sort of disadvantage. Is there anything that they can give me that I can’t get over the phone?” What do you think about that?

Mike:  Well…

Ryan:  I don’t think you could ever say, “Hey I just didn’t get my certified mail.”

Mike:  Well, yes. But what they’ll do is they’ll serve you papers and they’ll be notice of trustee sale three months from now. So, …

Ryan:  But they don’t have to sign it. They don’t have to do that certified mail do they? Can’t they just serve it at the house? Can’t they just leave it at the house? Mike Yes, you’re right. There’s nothing, you should go ahead and get that stuff.

Ryan:  I think, as far as we know. You got to get your stuff. It’ll give you peace of mind, and you’re not going to feel like you’re running from stuff.

Mike:  Yes, absolutely. You got to just go get that stuff and figure it out. And remember if the clock started ticking a couple of weeks ago when they first sent this certified mail, better that you knew about it. And everything is so predictable in the foreclosure process that you just don’t want to be afraid of it at all. It’s very, very predicted. You’re very, very well protected. And it’s real clear what’s going to happen at every stage.

Ryan:  If you leave those variables out there, too, you’re always wondering what else is out there? What’s going to come and hit me? And oh yes, he follows it up saying him and his wife are “traveling back and forth between two cities for work. What are the pitfalls of showing her expenses of the place where she is staying at her job?”

Mike:  Sure.

Ryan:  ”What will the mod people think of me using my accounts in this other city? Must we give them all our bank accounts?” And the answer here, Michael, is it’s going to depend on who is on that loan. If you’re both on the home loan, you’re both going to have to do it. If it’s just you or just her on the home loan, then you have a great deal of flexibility. Meaning that you can show all or part of your spouse’s income. And that’s a big, big, tip that has gotten a lot of people home mods.

Mike:  What I don’t get here is I think, Michael, that you’re thinking that you’re going to get too much underwriting scrutiny. You really aren’t going to get a lot. Remember if this is a modification on your primary home, the lender is very motivated and compensated to get you a modification. And they want to give you a modification. They will cooperate with you. They’re not going to be looking to pick where your charges were made and that sort of thing.

Ryan:  Well he has been turned down in the past when he was still current, so he’s probably feeling like “Hey, I don’t want to screw this up again,” you know what I mean? So I can understand that. The thing is, must we give them all of our bank accounts? The answer is, technically, you have to give them what they ask for. However, we have had clients with a great deal of success ignoring requests. Or certain things like 401K balances. Of course, you can’t lie.

Mike:  Well, here’s the thing. There’s a checklist that says what they need, and they were given that by a lawyer. And it says checking and saving account. So give them a checking and saving account. If one of your savings accounts has an awful lot of money in it, don’t give them that one.

Ryan:  Each case is unique. If you are a person that is self‑employed, and uses a husband and wife checking account, now you get into some difficult area because proving your income. It may not be that they want your bank statements as part of routine, it might be that they want that as part of proof of your income. Because you won’t have a W‑2. So then it gets a little more complicated, you see what I mean? But you try to give them the simplest thing. Meaning that if you have both W‑2 and your two checking accounts, absolutely you try to get by with giving them one.

Lots of people are in your situation, Michael, with having to travel. And in fact, some people have to go so far for work that they have to get another place, and have to show another rental, and stuff like that, so all you can do is try to make the best of your financial situation, put your best foot forward with them.

Mike:  But you know, let’s remind everybody that it is extremely predictable about whether or not you will get approved for a loan modification. It’s crazy predictable. And in our “60 Minute Loan Modification” kit, we explain to you real clearly what ratios you need to have for your front‑end and you backend DTI, and what kind of cash flow you need to have, and how you need to substantiate your income. So it’s not really magical and it’s not squishy at all. It’s real simple. Let me take a question here, Ryan.

Ryan:  I think this might be a follow‑up. “Should I pay my taxes and insurance separately? We are three months behind.”

Mike:  It doesn’t matter.

Ryan:  OK. Wait, doesn’t matter meaning?

Mike:  It doesn’t matter if you do or not. It’s entirely up to you. Either way you have to pay the insurance, but here’s the deal. Some people feel like they should stop making all payments if they fully intend to let the house go eventually. If all their foreclosure workout efforts really, they know, are going to end in losing the house, one way or the other, because they are just too upside down. If that’s the case, then I wouldn’t be making my tax payments, because that’s going to come out of the settlement. All right. I think I just told somebody not to make a tax payment. Whoa, do not show this one to the attorney. We got to remember to more often tell people.

Ryan:  What are we supposed to say? We are not attorneys.

Mike:  That’s what I’m saying. We got to think of our disclaimer.

Ryan:  Yes, we are not attorneys.

Mike:  What else aren’t we?

Ryan:  Surgeons, airline pilots.

Mike:  Oh, and we’re not CPAs.

Ryan:  Yes. So anyway, all we are telling you here is what other people are experiencing. It’s not financial advice. In fact, I think it’s just like a club or something.

Mike:  We’re reporting. We’re reporting the way that we see it. Hey, here’s a guy. Wait until you hear this one, Ryan.

Ryan:  I do want to say though, we did talk about some credit card stuff. I want to tell everyone that if you have credit card debt, if you are on the call, either sign up below for the little opt‑in box here, put your name and email, or better yet, just go to…

Mike:  Nobody can see you’re right arm.

Ryan:  No?

Mike:  There you go.

Ryan:  Just go to cc.Ryanrockford.com and sign up right now for our credit card club. It’s like $20 a month. And we’re walking people through the step of settling their credit card bills themself. It’s not like you pay us any money to do it, you just do it yourself. The thing is, I talked to one guy today, and he was a nice guy, he really pooh‑poohed it I said, “Hey you might want to try out this credit card thing we have, too.” He said, “Oh no, I don’t want to declare bankruptcy. I don’t want to mess with my credit,” and stuff like hat.

Mike:  Oh, really?

Ryan:  And I got quite a bit of push back. And I felt like I was being sales‑y by telling him about it. And I thought, “Well, huh.” So I went on to explain it to him, that settling your credit card debt yourself is something that you can do, and in two years have a fantastic credit report. As opposed to bankruptcy, where you still probably going to pay a big chunk of that money back and your credit has gone nuclear for like seven years.

Mike:  And you’ve spent two to five thousand dollars on an attorney to help you.

Ryan:  That’s true. So anyway, somehow we have to start to break down some of those barriers… A lot is just, like we were talking about, bankruptcy is just a legal system that’s in place.

Mike:  Yes, so people trust it.

Ryan:  And people trust it. They say “Well, OK, I’ll just do that route.” But credit card debt settlement, like loan modification, is somewhat of a wild west.

Mike:  That’s why I think he service that you’re providing in having a community of people, a co‑op, where people can hear from one another, and get case studies and testimonies about what people are doing right now with the various lenders is the way to go. Because that’s what I want to hear about if I’m in a corner and I have no resources to pay off my credit card debt. I want to know what is somebody doing all around the country. I want to hear from 10 people that are working with Bank of America on their credit card debt right now. What are you doing and what kind of success are you having? So that’s the beauty.

That’s why I think that information needs to be timely. I call information that isn’t timely just data. You’ll get these books with all this data and it’s on the shelf and you know it’s on the shelf. But you need an answer to a question you have, you need application right now.

So you need information, and you get information from these forums that you’re providing and the teleconferences that you’re providing. That’s good stuff.

Ryan:  OK, sorry, go ahead with your last thing.

Mike:  I love this question because we haven’t had it asked for months. I wonder why. But it says, “Can I pay the realtor for giving priority to my offer on his short sale?” Don’t you love that? That’s only if it’s my short sale. [laughs] It’s patently illegal, blatantly illegal, crazily unethical.

Ryan:  I don’t know, is that true?

Mike:  No, but it’s done all the time. So that’s just very, very frustrating to me because in all the short sales we do, we do have to sign a form that says that we in fact are not related to the seller, the buyer is not related to the seller, there has been no agreement about long term rental, there has been no agreement about buybacks, there has been no agreement about any money exchanging hands and anything other than this contract. And we have to sign it.

And I don’t know about you but signing contracts means a ton to me, it means a lot to me. And I have people offer me all the time, “Here, let me give you money as a kickback for giving me priority on the offer on this deal,” and I just won’t do it. And if your realtor will than I’d be suspicious of that realtor.

But I know that a lot of people are doing that just because so many people offer it, but it is a no‑no.

Ryan:  OK, we’ve got one here from Fred. Self‑employed for a C‑corp, primary residence, subleases 50 percent of the mortgage to the corporation, its home‑based business, no other residence, first is 2,500, second is 1,200, primary income reduced by 40 percent due to reduced business income‑ouch‑income flow equals 2,000 a month for all expenses.

Mike:  You’re totally screwed.

Ryan:  What are the chances…I’m afraid your analysis isn’t too far off because what I think Fred’s saying here…

Mike:  No, he’s totally screwed.

Ryan:  …is that his income is $2, 000 a month.

Mike:  And he’s got almost $4, 000 worth of mortgage payments, and then you’ve got credit card debts, you’ve got higher loans.

Ryan:  Add another 1, 000 if you’re eating Top Ramen, right? So there is no way on God’s green earth, Fred, that you’re going to get a loan mod under these circumstances. Now he is saying here that he has rented half of this stuff out to his business, so he’s saying to us that he’s eliminating half his mortgage expenses. However, it’s still going to show up as a negative, you know what I mean? Is there a way to structure it so that his business…

Mike:  Well, the bottom line is either you or your business, it doesn’t matter where you put the house. You put the whole mortgage in the house if you want. It sounds like your business revenue is just gobbled up by all your expenses. Here’s just the rule of thumb is you want to take your monthly debt payments and divide them by .7. Take all of your debt payments, your car loan, all your credit card minimum payments, your mortgage, your second mortgage, taxes, insurance‑property taxes, that is‑homeowners association, all that stuff that they’re going to use to calculate your DTI, your debt to income ratio, take that number and divide it by .7.

So now you will have the income that is the minimum threshold that you’re going to need to qualify for a loan modification. So you need at least that extra 30 percent because if you have a back end DTI of over 70 percent, they just won’t approve it. Their underwriting criteria will say this person’s in too much debt, they can’t make it. Don’t throw them a life preserver, throw them a rock so that they can sink faster. [laughs]

Sorry, was that unkind?

Ryan:  I hope not. He sounds like a nice guy and I sure feel your pain.

Mike:  Yeah, so you’ve got to crazy and get a few more thousand dollars a month in income.

Ryan:  You’ve got to get more income.

Mike:  Yeah, and remember, Fred, get creative about ways to do that. The banks will accept letters from relatives committing to pay you money. If you have a relative that sees that you’re just in an income slump and has the wherewithal to pay you $1,000 a month to help you through this difficult time and will write that in a commitment letter, the bank will accept that.

Ryan:  Contribution letters, rent rooms out of the house.

Mike:  Rent a garage out.

Ryan:  Figure out what you can do to make that happen. That’s definitely a tough situation, someone who really needs a loan mod and is not going to get it unless you jump through some hoops.

Mike:  I talked to a client in kind of a similar situation to this today, but they were a little closer. They just needed to scoop another 12 or $1,300. And as we went through it the wife was kind of going, “Well, I don’t know. Maybe we just can’t do this.” And I said, “OK, but I think you’re resigning yourself to lose your home because look at how much of your income,” it was over 80 percent, “is going toward debt payment. And this Making Homes Affordable loan modification that you’re trying for is going to shave a quick $1,000 off of your payment.” It’s the very best modification you can get.

And Fred, if you can qualify for that one, it’s worth jumping through hoops to contact your rich uncle or your best friend and just explain what you’ve got to do, and get a contribution letter from each of them, and rent a room. Just put tape and hairpins and bubblegum and hold this whole thing together and get that modification because it can mean $1,000 a month for you.

And if you’re only making $2,000 month, that’s a 50 percent income increase. It’s significant. So fight on.

All right. I got a question here from Al. He says, “Will I be able to negotiate repairs after a short sale approval?” I think he means after his offer gets accepted by the lender and the seller, will he be able to negotiate for repairs. That’s a good question, Al.

And my advice always is to not expect it. Here’s why: when you submit an offer and the realtor agrees to submit that offer to the bank, they attach to it a HUD‑1 form, that is the Housing and Urban Development that is required by the Real Estate Settlement Procedures Act that stipulates exactly where all the money will go. All the fees, all the payments, the commissions, all the costs are there.

And when a lender approves that and sends it back to the title company, back to the escrow company, back to the realtor, back to the seller, they agree and they say in writing, “That’s how much money we have to get, not a penny less, and it has to be in our account by a particular date.”

So any negotiation that you do in the ensuing month that you’re working on getting it all closed really puts the whole deal into jeopardy. So I never advise people to go after short sales betting on the come like sometimes you do when you see that the roof is going to need repair and you know that you’re beating out some competition by a higher price.

Don’t do that on a short sale because you won’t get the money out of the bank. You’ll waste your time and your agent’s time, and you might lose another buy for the seller. So don’t do it.

John asks‑oh, this is a forensic loan audit question. Forensic loan audits, for those of you who are new, are audits of your loan process to see if there were any illegal activities having to do with predatory lending, what’s come to be known as predatory lending that may be used as leverage against your lender in a negotiation for a deed in lieu or for a loan modification or for a short sale. So John asks, “Which violations, that you get from an audit do you see getting results with lenders?”

And so his question is, here’s the deal, there’s all kinds of violations that took place. Some of them were just inadvertent errors that had to do with the fact that everybody was rushing to do loans, appraisers, inspectors, brokers, realtors, buyers, sellers.

Everybody was going so fast that some things got overlooked. Those are violations that the lender knows full well they will get a hand slap for, they will get a citation. They may get nothing at all. So those violations, while they are important, they really don’t, they won’t hold up in court and get you any money, and that’s what you really care about.

There are an awful lot of violations that will however, discrimination, fraud, those kinds, consumer protection law violations. Those will, and it takes an attorney to kind of tell the difference. However, here is what has been my experience, that, generally speaking, it’s very easy to pick out three or four violations of RESPA and TILA, Truth In Lending Act, and Real Estate Settlement and Procedures Act. It’s pretty easy to usually find two or three or four of those.

And usually we do that in conjunction, if we find more serious violations, like discrimination, or inflated appraisal, or an annual percentage rate miscalculation, misstatement, on the Truth in Lending Act form. What we’ll do is we’ll use those, in conjunction with the more serious one, to paint a pattern or show an intent to deceive.

So naming the violation, you can’t really say which violations for an audit do you see getting results. It’s more in the presentation. And people find that that’s more difficult than actually finding the violation. It’s presenting it in such a way that is effective.

Ryan:  I got a question here about forensic audits. We’ve got a gal named Theresa. I believe she’s written in before. It says that she’s interested in starting a forensic audit. And I’m looking for her info, although her name is familiar, I don’t have any of her background info, so I know we had a… Oh, here we go, here we go, OK, so… Basically, how can Theresa get started and get a forensic audit? We offer them. We had a special at $995.

Mike:  Still do.

Ryan:  We do. OK.

Mike:  Yeah‑yeah.

Ryan:  So that’s the cost, $995.

Mike:  Yeah, they’re not cheap, Theresa.

Ryan:  Because you have to have a professional audit firm do them for you, right?

Mike:  Yeah.

Ryan:  You have that one handy? We got one back today. It’s about 20, 25, pages. It’s a big document. Let’s see, now. I’m going to look for the… Theresa, we have a page on the website about that. I think it’s … You know what we’ll have to do, we’ll have to… Because I’m a little bit unprepared with it, is there anything you want to talk about that?

Mike:  Yeah‑yeah. Yeah, the forensic loan audit is very, very useful, in that I always go right to the summary page. I guess you can’t make it out at all. But the company that we always recommend is De Novo Financial Solutions, here in Southern California, in Foothill Ranch. They’re consistently good work and insightful. They never seem to miss a thing. And you get a summary that really gives you an indication of whether or not you’ve got any beef, you’ve got anything that you can use. And then what we do, what I’ve started to do on every loan modification, is send ‑ I do my own do‑it‑yourself‑ forensic loan audit ‑ and I send those results to the legal department at the same time that I send my loan modification.

On this particular client, because we did a full forensic loan audit, not just my own personal one, we’re going, she’s going to actually hire an attorney to present this information to her lender. Because there are some pretty clear violations, number one, and, number two, it’s like a $2.3 million mortgage, so it’s kind of a high stakes game. So the $3,500 that she had to pay in a retainer to the attorney seems reasonable when you’re dealing with that kind of money.

All right? Now, Ken asks another forensic loan audit one ‑ I didn’t realize these I had these couple guys ‑ Ken asks, “Even if I can…”

Ryan:  Oh, if you want to see.. .Oh, sorry, go ahead, do your thing. I’m sorry.

Mike:  OK, Ken asks, “Even if I can do the forensic loan audit myself, don’t I need an attorney to really pursue any of the violations and get a settlement?” Ken had heard me talking about my do‑it‑yourself forensic loan audit, but because of legal issues, it’s taking us a lot longer for us to introduce that product than we thought it would. We thought we were going to have it done by Christmas, but it turns out now that it’s probably going to be the first of February, before it’s done, because the legal beagles have taken it from Ryan and me and they are scrubbing it. I hope it comes back with some usefulness, but, at any rate, he says, “Don’t I really need an attorney to really pursue any of the violations?”

And here’s the key. I don’t think that you do. I think that on a standard loan modification, that is highly likely to be approved, a forensic loan audit presented to the legal department and to the loss mitigation department, in conjunction with your loan modification, is a perfect way to get out of line, which is what I’m always counseling people to do.

You’ve got to get out of the line, up to the front of the line. It sets a tone to your whole loan modification that I know what I’m doing and I’m serious. I’m going to fight to get this modification done, so take me seriously.

And so I don’t think that you need an attorney. I think that you may, if you get refused, want to take it to an attorney. It just puts you in good stead, having already submitted that information to the lender up front.

And then hire an attorney to pursue it, actually, in court. I say that, pursue it in court, but 99, there are almost are no cases that actually get to court, because all of these get settled before court. And you’re always offering to settle it with a loan modification. That’s all I want, after all.

Ryan:  You know, I just had another question from Theresa, she said, “Hey, I heard that short sales could take a long time.” And we commented on that earlier. We said that, in one case here recently, we just did one two years, but there are several ways to look at that. And it’s not always a bad thing, as odd as it sounds. Whether you’re renting it out, it’s wonderful to get rent for two years without paying any mortgage. There’s going to be damage to your FICA score, but, at some point, frankly, you get over that. And also, if you’re living in the house and can deal with the level on ongoing uncertainty. I know that’s not for everyone.

Mike:  Right.

Ryan:  Again, two years mortgage‑free, hey, can’t do anything better for your finances, if you can store that money away, you know? So we really have had a great call in. I want to thank, let’s wrap it up, because we’re reaching the end of our time here and I don’t want people to get bored. I want people to be able to tune in here, and have fun, and turn it off, and go on with their life. But if you haven’t become a client, yet, for sure, do it. You’ve got nothing to lose. Our product is 100% guaranteed. So go down on the page, right here, and sign up for the product. There’s also some special offers in the email I sent out earlier today. So you can check that. It’s in the P. S. section at the bottom of the email.

Also, don’t forget about our credit card cure program. We’re doing some really neat stuff there. So thanks for everyone, thanks for chatting and emailing. You’ve made it a great call. And we’ll see you Thursday. Now, if you’re not a client, we won’t see you Thursday, so you still have two days to become a client. So don’t let this Thursday pass.

All right, see you later.

Mike:  Good night, everybody. [audio ends]