Any of you guys know about loan mods?

[combusean]

I bought my place in June of 2007. It's a small historic studio on 4th Avenue and McKinley.

The north unit in my building that originally sold at the same price I got mine at was foreclosed on recently. It sat on the market for barely a month before it was picked up.

It sold for two thirds less than I bought my unit for.

The decade or so it originally took for me to recover any equity has overnight turned into a lifetime. I had planned on toughing it out but it's just freaking ridiculous now.

Prior to this, I was morally opposed to walking away, and even the thought of negotiating with my mortgage company would have required swallowing a good chunk of my pride. I bought my place with the full intention of owning it forever, knowing full well of the responsibilities and risks. The CEO of First Horizon himself signed off on my mortgage and I was not about to prove him wrong.

But bailouts have introduced an externality--Wells Fargo would have never gave that unit away had they not been given untold billions of dollars by the government.

I have sorta looked into loan mods but Google results seemed inherently sketchy and might not have even applied then due to my negative equity which has just sank even worse, so I don't really know where to start with there. I'd sue WF myself if I had grounds to stand on.

Any advice would be more than welcome.

[Don B.]

Given that I work as the Director of the Maricopa County Lawyer Referral Service, perhaps you should contact me and I can help you out. In a nutshell:

1. You can attempt a short-sale. This is where you sell the property for the current market value, which in Phoenix is often about a third of what it was worth four years ago. There are realtors that specialize in short sales, you may wish to consult with one. Generally you don't need an attorney for this.

2. You could attempt to negotiate with your lender, but unless you have some sort of financial hardship that would make it hard for you to continue making mortgage payments, your lender has no incentive to reduce the balance due on your note. I believe there are some attorneys that are handling these matters, but I am not certain of the process.

3. You could consider bankruptcy. Federal judges have the power to reform notes and reduce balances due, but if your income is steady and you are not having issues with paying your bills, you likely are ineligible for bankruptcy. This you would probably want to consult with an attorney on.

4. You can simply make a business decision and walk away from the unit now. Yes, it will be likely ten years or more before property prices return to normal. However, even in these down times, Phoenix is still gaining population (albeit much more slowly than in the 2002 to 2006 time frames) and prices will return to normal eventually. If you do walk away, make sure to buy or rent something now with your good credit, because once you stop making mortgage payments and that hits your credit report, your FICO score will drop something like 200 points in a month or two. Mine went from about 750 to roughly 525 between April and July of 2008, after we ran out of money and could no longer make our mortgage payments.

Hope this helps.

--don

[phxbyrd]

If you could rent it and break even month to month then that might be a decent option if you want to keep good credit.

[scottkag]

Yeah what Don said.

My understanding is that the gov or your lender will not likely be receptive to a loan mod if you are current on your payments. If you miss payments or stop paying, you need to have a good reason why you can no longer pay (like loss of income, large medical expenses, etc).

If you don't want to stop paying for ethical or credit reasons, a short sale is probably your best bet. The credit score ramifications of a short sale don't seem to be clear, I've heard conflicting information.

[mwadswor]

I would just recommend keeping in mind that property values are going to bounce back. It may take them awhile to get back to where you bought at, but they'll probably eventually get to well above where you bought at. If you're planning on moving anyway, then yes, now is probably the time to do something, the market probably isn't going to drop much further. However, if you're not having any trouble making payments and you're not planning on moving in the near future, I would advise just hanging in there. Yeah, it sucks that someone else got the same condo at a lower price right now, but when they turn around and sell it at the next peak well above where you bought it, would it be ok for the bank to come to you asking for a loan mod? You bought the place plannng on making a certain level of payment knowing full well that the market would fluctuate up and down. It sucks right now, but it'll eventually bounce back and suck worse for someone else who ends up having to buy at a higher price than where you bought it

Of course, all that is assuming that you're intending to live there for a while. If your intent is to move anyway, I vote walk away from it

[combusean]

^ I expected market fluctuations, in fact I expected something really close to 1985 with values down by no more than a third.

I was way wrong. I totally agree with the moral argument of making payments, the price I bought it at, but we don't live in that moral world anymore.

Once I realised that Wells Fargo is making so much money after bailouts they don't even care about valuing their assets properly did I throw that crap out. As far as I could tell, it was 75% of the value of the last property sold in the complex, a non-comparable builder closeout over a year ago.

At normal real estate appreciation, it would take 35 years to recover.

Oh, and here's one other thing. I'm in a crappy ARM that resets at 2017 and my payment jumps up. The idea was for short payments now, and I'd make more money by 2017, which I still expect, but if I can't refi it because it hasn't recovered by then I'm still SOL. If the government's throwing money around or it's possible now, I need to jump on it now.

Staying in the place at a decent fixed rate is my ultimate goal. But there's no way I know how to refi being so underwater.

[phxbyrd]

what's the difference between rents people are paying in your complex and what your payment is?

[Don B.]

A couple of other considerations. Note this can't be construed as legal advice as I have not taken the bar exam yet, but I've read the relevant statutes extensively in Arizona which are online for everyone to read, because I was forced to defend extensive litigation arising out of our three properties that were ultimately foreclosed on. I also should point out that I didn't "cut and paste" this information - this is my own creation, largely from personal experience and research (and some of it is just common fucking sense):

1. Renting may be a problem, because unless you have a really low mortgage balance, you won't be able to recover enough in rent in today's depressed markets to cover your mortgage outlay each month. Renting also has a whole other can of worms to deal with, because landlords have to comply with the Arizona Landlord-Tenant Act, which you can find here after A.R.S. 33-1301:

http://www.azleg.state.az.us/Arizona...s.asp?Title=33

2. Walking away and permitting your property to fall into foreclosure does have the annoying tendency of royally screwing your neighbors (this happened to us in Scottsdale so I'm particularly sensitive to this issue). The problem with this is most of the damage has been done by now (not the case in 2007), but as long as people continue to bail, especially when they have the means to pay, it will continue to put pressure on the Feds and the various States to reform statutes so there is a more serious penalty for doing so. It will also continue to ensure that our economy remains in the toilet, until the people who promised to pay stop voluntarily breaching their contracts. It also may deter future lenders from granting mortgages, if people think they can just walk away scot-free. This may make it much harder to own your own home, condo or townhome in the future.

3. Right now, Arizona's anti-deficiency statute (A.R.S. 33-814g) pretty much immunizes a homeowner from subsequent liability for a deficiency, but there are some conditions:

a. The lender must use the non-judicial trustee's sale, often referred to as a foreclosure. I will talk more about this issue later, see (5) below.

b. The property has to have a residence on it. Raw land and commercial properties are not protected.

c. The person who defaults on the indebtedness must have lived in the property personally as a primary residence. Investment properties and rental properties are specifically not covered.

d. Only the first mortgage or indebtedness is covered by this act, for a PMSI. This is a purchase money security interest, which is how most home loans are structured. If you did something weird, like gave a security interest in a commercial venture or something else, it may not be covered. In addition, if you took out a home loan for other things like cash, toys, home improvements, etc., it may not be a PMSI debt and thus would not be protected by Arizona's anti-deficiency statute.

So long as all of these elements are met, in Arizona, a lender cannot sue you personally for anything if they elect the non-judicial 'foreclosure' method. A lender always has the option of foregoing the trustee's sale process and suing you directly for the property, in which case you will not be protected by the statute above. In any event, if a lender does sue for a deficiency pursuant to a trustee's sale process, they must do so within 90 days of the date of the trustee's sale, otherwise they are time-barred.

4. Note all junior interests are extinguished by the 'foreclosure' of the primary mortgage holder. If a first mortgage forecloses, second mortgages, thirds, etc. are all blown away by the action of the first. The trustee's sale also extinguishes any liens in the property from HOAs or other junior security interests. Whether any unpaid HOA debts incurred before the foreclosure survive as a personal obligation of the homeowner is still being hotly debated at the moment, although I believe it does not survive, since HOA obligations arise out of and run with the land (appurtenant thereto as we say in the law), concurrent with owning property, and once you are no longer the owner, then any personal obligation should be extinguished. As noted above, my reading of 33-814g seems to indicate that any second mortgage who takes no action to sue within 90 days of the foreclosure date is time-barred, but I'm sure someone will argue that it is a mere breach of contract, which is governed by a six year statute of limitations. That's why, if you suffer foreclosure or walk away, you may wish to consider bankruptcy as a way to cleanse the slate, so to speak, and finally and totally blow away that lurking second or third mortgage.

5. Note almost every home loan in Arizona consists of a deed of trust and promissory note, NOT a mortgage. That is because mortgages have to be judicially foreclosed (a lawsuit has to be filed) and a deed of trust, pursuant to the power of the trustee's sale, does not. Deeds of trust are foreclosed in a non-judicial process, which is faster and avoids the expense ($303 filing fee in Maricopa Superior Court) and delay of a judicial foreclosure. Therefore, to foreclose 95% of the property in Arizona, the following is the process:

a. You fall behind in your 'mortgage' payments (even though most are actually your promissory note payments, but people just call them mortgage payments).

b. After a delay of between two to six months, your lender will record what is called a "Notice of Trustee's Sale" with the county recorder's office, which is by statute set for 90 days in the future. From that date, the foreclosure clock is now ticking. You have 90 days from that date to redeem the property (catch up all of the past due payments).

c. If you do not, on the date of the trustee's sale, your property will be sold on the courthouse steps to the highest bidder. Given our severely depressed market economy, many sales attract no bidders and the lender becomes the owner by submitting a bid. Either way, you have now lost the home to foreclosure, and legally you are now a squatter.

d. Most people vacate the property by the date of the trustee's sale. If the homeowner is still there, the new owner can file a forcible detainer action in justice court and get the person evicted in about 5-10 days.

So there it is. That and $1.29 will buy you a cup of coffee at a Circle K.

--don

[Tfom]

Sean,
Don't feel too bad about it. I am fighting the same fight. I can't compete in the rental market like I used to which has cut into that income (I rented rooms in my place). I have some other circumstances which racked up some debt also. I'm going to try and push for a short sale if I have to, although my cousin gave me the name of a guy he knows well who he said might be of help. If he is of help with a loan mod, I will pass his name along. I was planning on calling him this week.

[phxbyrd]

so between what you take in for rent and what you'd pay for a comparable apartment elsewhere you still don't cover the monthly payment? That sucks.

[vertex]

Have you heard of N.A.C.A? They might be of some help.

[westbev93]

I usually prefer to read message boards more than contribute, but I felt the need to clear up something stated about the anti-deficiency statute, A.R.S. 33-814(G).

This statement from above is incorrect:

"c. The person who defaults on the indebtedness must have lived in the property personally as a primary residence. Investment properties and rental properties are specifically not covered."

The statute was amended so that it only applied to a home that the owner lived in for 6 continuous months (which would exclude investment and rental properties). Due to a huge uproar, it was changed back to the prior language. As long as the deed of trust is for purchase money, the property is 2.5 acres or less, and it is either a single family dwelling or duplex, the anti-deficiency statute applies. Even if it is rental or investment property.

[phxbyrd]

I'm not sure I agree with that change. I'm all for helping people with their primary residences but investments, whether stocks or real estate are risks and you should be prepared to lose everything at any time.

[westbev93]

Which change? The law always helped people with investments/rentals, then they changed it, then they changed it back almost immediately.

[phxbyrd]

I guess I don't agree with the change back. Just because something causes a huge uproar doesn't always mean it wasn't a good idea.

[combusean]

Thanks guys. I've been taking everything into account very slowly, and am not about to walk away or short sale.

I talked to my friend who has dealt with this sort of thing. Evidently, since I'm not paying PMI on my loan it puts me in a way better boat than others. As I understand it nearly everybody who got loan mods through BofA (not my mortgage company) recently got them because they didn't have PMI. And it makes sense. I had concern about in the future not being able to deduct and I wanted to be certain of my payment rather than be given a wide range of how much it could cost, so I bought up my interest rate instead. It would almost behoove my bank to put me in such a loan that would protect them in the case of default as much as it would help my situation out.

[Don B.]

Originally Posted by westbev93

I usually prefer to read message boards more than contribute, but I felt the need to clear up something stated about the anti-deficiency statute, A.R.S. 33-814(G). This statement from above is incorrect:

"c. The person who defaults on the indebtedness must have lived in the property personally as a primary residence. Investment properties and rental properties are specifically not covered."

Reading it again, I would agree with you, but then I had five calls from investors in the last week (and probably 20 in the last month) being personally sued for deficiencies from the foreclosure of single-family homes on less than 2.5 acres they had purchased for investment/rental/flipping purposes. Either the lenders and law firms suing thereon don't understand this issue, or the loans were not purchase money mortgages. Or investors are not protected. In any event, I typically end up referring these people to bankruptcy attorneys (if they have other financial problems), as for the cost of hiring an attorney to defend the lawsuit, they can file bankruptcy for the same amount of money and moot the lawsuit.

--don

[westbev93]

It's not uncommon for the lenders to file the suit anyway and see if the homeowner raises the issue, or they could have been suits on second mortgages. However, I've had clients get sued for a deficiency when they were clearly covered by the anti-deficiency statute. The firms that handle this stuff on behalf of the lenders are just pleadings mills cranking these things out by the dozens (or more) everyday. Stuff slips through.

[Don B.]

^ I find this practice reprehensible and morally bankrupt. Attorneys are supposed to know the laws they are suing thereunder and I think pursuing cases in clear violation of the statute violates Rule 11 or 13, which should warrant sanctions.

Of course, there's a lot of litigation right now that makes no sense whatsoever. For example, HOAs are suing homeowners in foreclosure for $700 in past due fees and then racking up $4,000 to $5,000 in attorney's fees to get a judgment. This is a waste of court resources and, I would argue, the fees are inherently NOT reasonable, which violates another ethical rule in Arizona. But, the statute provides for said fees, so they are taking advantage of that to, in essence, blackmail homeowners.

That's why I so love bankruptcy. Most of these debts can be blown away in BK and then the HOA will have thrown good money after bad money. Fools...all of them, chasing people who, is most cases, don't have a pot to piss in or a window to throw it out of. What a crappy way to earn a living, and how they sleep at night is beyond me...

Note my comments herein do not apply to people of means who simply walk away from a mortgage. Those people should be sued to the hilt and I have no sympathy for them. But if you have homeowners that, through a job loss or other calamity, should not have to deal with lawsuits on top of the horror of losing a home to foreclosure. It is emotionally gut-wrenching and I'm very sensitive to those issues, given it happened to me three times in the last four years.

--don

[DowntownDweller]

Just STFU and pay your mortgage like you agreed to do. Don't bother with what you THINK your property is worth. If it had jumped 50% in value, would you be considering such a scummy thing as walking away?