Recently, there was a great article on Moolonamy, about this topic.  The article entitled, “Is It Better to Buy or Rent?“, gives some excellent facts and figures.  There is an wonderful chart outlining the costs and benefits of renting vs. owning a home.

In this economy, with the uncertainty that comes with your job and your financial stability, buying a home is a big decision and renting may be a better option.

Some points to remember when choosing your Realtor:

1. Make sure you like them

Like I said above, you are going to spend a lot of time with them. If you are buying a home, you are going to go with them to open houses and showings. You are most likely going to be in a car with them driving between homes and then with them at the homes. You have to like them and trust them. If you are not happy with your Realtor, find another one. There are plenty to choose from.

2. Ask Questions

You should feel comfortable enough with them to ask any and all questions you have. If you are selling your home, you should ask them questions such as “Will my home be listed on the Multiple Listing Service?” and “How long will my house be listed with you?” If you are buying a home, you should always ask whether the Realtor is working for you or the seller. Many times the Realtor is the Listing Agent and is working on behalf of the seller to help them sell the house. Any questions you have you should get an answer that is clear and concise. You should not be left wondering what is going on.

3. Referrals

If you ask your Realtor for a referral, remember that it is just a referral. You are in no way obligated to use the attorney, appraiser, or mortgage broker that they recommend. You are always free to choose whomever you wish to represent your interests. However, Realtor’s can usually give you a referral to someone in the area and most likely, they have a relationship with them.

Remember that buying or selling a home is a lengthy, complicated process that requires you to be involved in every step. Make sure that you are choosing someone that you are comfortable with to have a relationship with for a few months.

There are so many options out there is you are struggling with paying your mortgage:

1. Loan Modification

I have written many blog posts about loan modifications and there is a ton of information out there about them. This is an option for you whether or not you are qualified under the MHA. Most banks have their own internal loan modification program, if you do not qualify for the MHA.

2. Refinance

Qualifying for a refinance is your biggest obstacle here. If your house has some equity in it, you want to talk to a licensed mortgage broker or your bank about the possibility of refinancing. Refinancing does have costs associated with it; however, with interest rates as low as they are, the costs may be worth it. You will also need to have a good credit score (620 or higher).

3. Streamlined Refinance

A Streamlined Refinance is a refinance of your existing loan with the same lender and the costs are significantly lower than in a traditional refinance.

4. Deed-in-Lieu of Foreclosure

If you are already behind on your mortgage, a deed-in-lieu of foreclosure may be an option. Under this option, you will need to contact your bank and determine if they are willing to take back the house.  You will turn over the deed back to them. The banks are sometimes willing to do this to avoid the foreclosure process and the fees that are associated with it. There is some negotiating that will have to be done here. You want to make sure that the bank releases you from the mortgage and any deficiencies. You do not want to turn your house back over to the bank to then find out that you still owe the balance of the mortgage.

5. Short Sale

A Short Sale is where you sell your house for less than you owe on it, pending approval of the bank. You will need an attorney to negotiate the short sale for you but here, there is also the opportunity to make sure that you do not owe anything to the bank. Your attorney should be able to help you negotiate this and make sure that any deficiencies in the sale price and mortgage amount are “wiped” away.

6. Cash for Keys

Some banks are now offering a program called “Cash For Keys.” This is a program where the bank pays you to move out of your home.  You are released from the mortgage and most of the time, any deficiencies between what you owe on the mortgage and what the bank sells the house for. Once again, all terms of this need to be negotiated before it is finalized.

There are so many options if you are in danger of losing your home.  Don’t just walk away. There are scams out there so you need to be careful, but you do have options.

Related Posts

1. Should I Stop Paying My Mortgage?

2. Streamlined Refinance As An Alternative to A Loan Modification

New York State law requires that anyone who charges an upfront fee to handle a loan modification be either a license attorney in the State of New York or a licensed mortgage broker in the State of New York.  There is a very good reason for this. New York State wants to make sure that you are receiving the best advice about your mortgage as possible. A loan modification is not always the best option for someone and an attorney can help you to determine what other options are available to you. A loan modification company only handles loan modifications and therefore, they are not in the business of telling you that they cannot get you a loan modification. 

There are no guarantees with a loan modification. The are many factors that are in play when a loan modification is submitted to a bank. The bank, your financials, the investor that holds your loan, the negotiator and many other factors will determine if your loan modification is approved. Further, if you do not qualify for the Making Homes Affordable Act, your lender has internal programs that you may qualify for and those internal programs change constantly.

There can be no guarantees. Anyone who offers you a guarantee is only setting you up for disappointment.

Related Posts

1. The Top Five Loan Modification Myths!

2. Should I Stop Paying My Mortgage?

3. Streamlined Refinance As An Alternative To A Loan Modification

Are people just better off walking away and starting again?

This discussion began to get heated in October, when there was an article published on the Wall Street Journal blog written by an economics professor that stated that homewoners should walk away from their mortgages, in certain circumstances.  In “It’s OK to Walk Away, A Law Professor Argues“, there is an argument that walking away from your mortgage is more of an emotional or moral issue than a financial one. People feel as though they have a moral or ethical responsibility to stay in a home they can no longer afford or is “underwater.”

Today there was another article published by WalletPop, called “Is It Immoral To Walk Away From An Upside Down Mortgage?”, which discusses this topic one more time. The author discusses the issue as not so much a financial one but more of a moral and ethical decision. Homeowners need to accept the fact that they cannot afford the house any longer and make a decision to walk away.

There are many arguments on both sides of the argument. There is no right answer for everyone. There is no one who can make a decision of this magnitude for anyone else. There are definite financial consequences if you walk away from your mortgage. There will be severe damage to your credit score and your financial history. It will make it difficult to get credit or even rent an apartment for some time. However, there may be worse financial consequences if that homeowner stays in the house and lives off their credit cards to get by every month and ends up in foreclosure anyway.

The moral and ethical consequences can also be severe. People associate their homes with their families and their self-worth. They think that walking away means they are a failure. They have failed their families and themselves. However, walking away may help them save their families.

Before anyone walks away from a mortgage, there are many different factors that need to be considered. If you feel as though this may be something you are considering, you need to talk to a professional, either an attorney or a financial advisor, who may be able to help you make the right decision.

I know that this is a topic that people feel very strongly about.  What do you think?

When refinancing your home, remember that it is your home. Make sure that refinancing is something you are doing that will have a positive effect on your finances. Make sure that you are doing it because you are sure that it will help you in the long run. Make sure that you are not doing it because “everyone else is.”

It’s your home and your money; make it your decision.

Get in Front of It!

If you have the ability to foresee financial trouble, call your lender and get on a temporary modification or forbearance plan. You are not the first person to experience financial difficulties in your lenders portfolio and they have plans in place for short term help. You will need to document the problem and prove to the lender this is a real issue that will resolve in a short time, but they are typically willing to help.

Too Late

If you are already behind on your mortgage, the battle is more difficult but not altogether lost. Lenders do not want your home, they want your money! Therefore they are willing to help in most circumstances. The trick here is start as soon as possible, do not wait until the lender is calling you and begins the legal process. Try to be proactive and get a resolution. If you are unable to resolve the problem then you may need professional help to deal with the lender and try to help get things back on track. The further behind you are, the harder it is to get a resolution.

How it Works

Lenders work on a DTI (Debt To Income) ratio, this is your provable income verses your provable debt. The rent you get from the illegal garage apartment that you don’t claim on your taxes and the money you borrowed from Aunt Marie don’t count here. The further behind you are the more money you need to get out, plus you need fees, late payments, interest, principal and the all important but often overlooked escrow shortage.

Lenders will not help you unless you can afford to be helped. That means, if a lender has predetermined repayment plans and the longest plan adds more to the mortgage payment than you can afford then the repayment plan will not be offered to you. Lenders also feel like they are helping you, so if they offer a plan and you fail to make the payments they will not offer you a new one without extenuating circumstances.

Can’t afford repayment… Help

Next step is a loan modification or bankruptcy. Loan modifications offer a borrower the ability to rewrite the loan in terms that are affordable to the borrower and still give the lender some benefit of the mortgage. The Government Guidelines call for a lender to lower interest rates and extend the term of the loan so that the borrower is paying out 31% of their gross monthly income to mortgage payments. The issue here is that not all lenders are mandated to follow the guidelines and private modifications have been offered in many cases. These are typically shorter in duration and don’t offer the same relief, but some relief is better than none. Some investors will not offer modification terms and others require that the borrower be late before a modification may be offered. The Federal Guidelines specifically state that a borrower does not need to be late to obtain a loan modification and all participating lenders must abide by that rule.

Bankruptcy

There are two types of bankruptcy available to homeowners, Chapter 13 and Chapter 7. Homestead exemptions are different by state; however most states allow a debtor to keep their home if they do not have too much equity and can prove the ability to make the payments. The newest trend is the Bankruptcy Court’s willingness to move secured second mortgages and even portions of first mortgages from the secured creditor side to the unsecured creditor side. If a property has lost so much value that more is owed on the property than it is worth, then that portion that is no longer secured has beed seen by the Courts as unsecured and dischargeable debt.

Help is out there! It is not always easy to obtain and results vary. Professionals are available to help you meet the demands of this new and floundering economy but we are all wondering around in the dark a bit. Participating lenders are not obligated to help their borrowers unless forced to offer loan modification plans to their borrowers by the Government. However there is no rule that the banks have to make obtaining a modification easy. Delay, confusion and collection tactics are often used by lenders. It seems counter-intuitive for lenders to act they way they are acting because it is not profitable for a lender to own thousands of nonperforming loans or distressed properties. Although workout plans, temporary modifications, permanent modifications, and forbearance agreement are not ideal for the lender, it is good business sense to make some money than none at all.

Related Posts

1. How Long Does A Loan Modification Take?

2. Streamlined Refinance As An Alternative To A Loan Modification

Many financial experts and advisors cannot figure out why the loan modification process doesn’t work. I am going to tell you why the process doesn’t work and why most people need to hire someone to help them obtain a loan modification.

First

The borrower must submit a financial package. The trick here is that you must send exactly what the lender requires and you must fit within exact guidelines. The problem is that the lender normally fails to inform the borrower of exactly what they need, what counts as income and what counts as expenses. For instance, many lenders count rent as income but only allocate a specific portion of the rent received. Some lenders count all the rent some 75%, others as little as 50% and yet other don’t allow rent at all. Many borrowers although collecting rental income do not claim that income on their taxes or have illegal apartments, does that rent still count? Depends on the lender. For a unified system there is a lot of wiggle room on the lenders side.

Second

The borrower must send documents into the lender via facsimile or scan and the amount of paper required is astronomical. Many of the borrowers do not own a scanner or fax machine and are therefore unable to submit the documents without enlisting a service such as Kinkos or Staples and the money spent in faxing alone may be significant. After all of the faxing is done, there is a wait until the papers appear in the lenders system and they are often lost, misplaced or simply don’t arrive requiring a resubmission.

Third

It is the borrower’s obligation to stay on top of the modification. Lenders rarely inform borrowers of missing documentation and after a short time simply delete the modification request due to an incomplete submission. The borrower must then start all over again. The real issue with this besides the time and expense is that it can take months for the lender to issue a letter to the borrower stating the modification was denied for lack of documentation. The lender will not inform the borrower what was missing and if the missing paper is one required by the lender but not specifically stated as required as mentioned earlier, the borrower’s package is once again denied and the borrower may never know what the issue is. With this in mind the borrower must call the lender all the time, a minimum of once a week during normal business hours in many cases and wait on hold for an hour just to get the wrong customer service representative on the phone. Most borrowers do not have the time, patience or ability to sit on hold for an hour while at work to deal with personal issues like this and could risk losing their job just to get a five second answer from their lender.

Fourth

Problems! What does a borrower do if there is a problem, if his/her taxes are not correct, income is difficult to prove or if they are told they don’t qualify when they clearly do? Most borrowers give up. The lender knows the rules. Right? Wrong. Most customer service representatives do not know the law or the guidelines, they do what the computer tells them to do. In many instances the information entered into the computer is wrong or misapplied especially where contributions and rentals are concerned. Many borrowers live with relatives or a spouse who helps support the premises and contributions from those individuals are counted at 100% not reduced like rental income is. Little errors like this can be the difference between approval and denial but the typical borrower doesn’t have access to this type of information, doesn’t know what questions to ask, and doesn’t know how to make the corrections necessary to get through the system.

Fifth

Updating the material the lender has for consideration and changes in circumstances can be a full time job. Many lenders require that the information they have in their system not be older than 30 days. This is interesting since it is the lender that is taking 90 days from the initial request to even consider the documents sent over. Lender will deny a modification request based on expired documentation and delete the request from system before they issue a letter to borrower requesting updated documents. The borrower is supposed to know that he/she is responsible for constantly updating the lender with pay stubs and bank statements as well as profit and loss statements in many instances and that failure to do so may jeopardize their ability to modify their mortgage.

In many instances, obtaining a loan modification is nearly impossible for a homeowner on their own. The “red tape” that is created by the banks can be overwhelming to a homeowner who has never applied for a loan modification before. Also, what one bank requires is different from another bank, so enlisiting the help of a friend or family member who has sucessfully obtained a loan modification is not always helpful. 

The system is designed to make it difficult to obtain a loan modification but it is possible. There are hurdles to overcome but it is possible. Know what your bank requires or enlist the help of a licensed professional. Its your home and you should get to keep it.

Related Posts:

1.  How Long Does A Loan Modification Take?

2. Do I Need To Hire An Attorney To Do A Loan Modification?

3. The Top Five Loan Modification Myths!

Problem 1

The Making Homes Affordable Act  and the Guidelines set forth by President Obama make obtaining a loan modification difficult for those borrowers who are/were the victims of predatory lending practices and unsavory characters. The lending industry, for better or worse, put into effect lending programs that required little to no documentation of the borrowers ability to repay the loan. These loans were known as NINAs (No Income No Asset), SISAs (Stated Income Stated Asset) and combinations thereof. What this meant was that borrowers who had decent credit, could walk into a bank and say, ”I would like a loan to buy a house for $800,000.00 and I can afford it.” The bank would give the money as long as his credit was decent. The lenders here did not require proof of income, proof that the borrower could repay the loan, tax documents, etc. For those programs where documentation was required, lenders qualified borrower on an initial teaser mortgage payment that was affordable at the time, but became too burdensome once the teaser payment expired and real payments began.

However, if that borrower wants to modify his loan, he must prove that he can afford it and back up his proof with tax returns and additional information. The problem here is, many people who were put into these types loans are unable to prove their income, even though they actually make good money. The Hispanic community has been hit particularly hard by these issues. Many Hispanic clients are working off the books or partially off the books. The most egregious part of this is that it is not typically the workers fault that they are being paid in this fashion. Many employers, in order to avoid the required taxes and workers compensation simply choose to pay these particular people off the books and the workers are trapped as there is a line of people willing to take their place for the same or less pay in any fashion the employer sees fit. Although in the short term, this equals more money in your pocket, it turns out that under the modification guidelines the borrower must prove his income. Additionally, rental income and other contributions are discounted by the lender as income and any rent must also be reflected on tax returns to be counted as income. It is unfair for the lenders to put people into loans where they failed to do the initial due diligence and then require complete underwriting of a modification as full document loan.

Problem 2

Self employed borrowers really have a tough time. The issues here deal primarily with the volume of documentation required and the proof required to show the lender what the borrower’s income truly is. The main issue with self employed borrowers is the inability of the lender’s employees to grasp the finer details of the actual income verses reflected income. In many instances not only will the borrower need multiple, up to date profit and loss statements from an accountant at a cost of a few hundred dollars each, but also letters explaining the IRS tax code and that simply because the IRS allows certain deduction for each business, the actual cost incurred may not be as high as those reflected. Couple this with the uncertainty of the next month’s revenues and the ability to prove ongoing business and establish that the business will remain on going and it is an uphill battle.

Problem 3

Delay. Lenders’ are overwhelmed and do not have the ability to train their staff adequately. As an employee of a lender in the loss mitigation or customer service department, it is trial by fire and who cares how many files they destroy on the learning curve. It takes 90 days to get an initial answer on a loan modification and then an additional month or two for negotiations. Most borrowers do not feel that they have that kind of time. During the initial process and the negotiation process, the lender continues its foreclosure with papers and harassing phone calls continuing. Borrowers ger nervous and will agree to almost anything to make it stop and often do not get the best deal they can.

Problem 4

The process of loan modifications is extremely tedious and complicated. The lenders are not making it easy for borrowers to obtain loss mitigation services even if they are mandated to provide those services. There is no rule saying it must be easy. The lenders have created an extremely complicated maze that a borrower must work through in order to get to the review phase much less the negotiations.

Help

The government through the use of media such as television advertising, public service announcements, and required recordings played when a borrower calls a lender has managed to inform the public that assistance with a loan modification is free through certain government and non-profit organizations. While this is true, and the borrowers affected are typically suffering financial difficulties, the help available by these organizations is not very good. Many borrowers, after using one of the free modification services go to an attorney or other source for help. Even though the borrower is required to pay for the help they are receiving, the results are normally better and faster. Where a government or non-profit may be free, their staff are not attorneys, they are typically under trained and very overloaded with files. It is not possible for a person to handle 200 modification files and meet with borrowers in a way that produces results. If a borrower determines that they are willing to expend monies to get help with a loan modification, that borrower must be careful and do the proper research into the attorney or company thay are hiring for assistance. Scams are prevalent in the modification industry but honest, hard working people are out there and willing to help.

Conclusion

To go through all of the problems that plague this particular legislation would require a book and not a blog. As a borrower you must be informed about the options available to you, seek the advise and services of someone with experience and disregard all the myths surrounding loan modifications. Help is available and in most instances the benefits far outweigh the burden. Borrowers have the opportunity to save hundreds of thousands of dollars, keep their homes, and save their credit rating if they can wade through the quagmire that is loan modification.

The Court System is finally standing up for the little guy!

History

Years ago, lenders conspired to bypass the mortgage recording systems put in place by local municipalities, as well as avoid the fees associated with the recording of assignments of mortgages. In order to accomplish this task, lenders formed a company known as the Mortgage Electronic Recording System or MERS. Many mortgages state that the owner of the mortgage is MERS as nominee for the lender. The issue here, is that MERS is not the actual lender or the note holder and one can only foreclose if they are in fact the party that has been defaulted. In the case of MERS, the investor is the owner of the note but MERS is the owner of record of the mortgage.

What Does This Mean?

In short this means that the note and mortgage are owned by seperate entities and a foreclosing party must own both in order to foreclose. If a borrower fails to make payments, then the borrower has defaulted on the note and the owner of the note therefore has a cause of action for default on the note only and is not able to foreclose. The note holder may have the right to a judgment on the note and may be able to attempt collections on the note but cannot actually institute a foreclosure proceeding. The mortgage document, which allows for foreclosure, has not been violated since the borrower has only defaulted on the note and has not offended the owner of the mortgage. A mortgage holder may still be able to institute a foreclosure proceeding against the borrower for other violations of the mortgage such as transferring the property without consent, condemnation of the premises, etc.. but the mortgage holder may not institute foreclosure proceedings based on nonpayment of the note. This means that under the new rulings by a Kansas Court, MERS does not have the ability to foreclosure the mortgage and the investor may only recover under the terms of the note.

Proof Of Ownership

A foreclosing lender must prove that it is the owner of the defaulted mortgage and note, and not the owner of only one of those two documents. In keeping with the Kansas Court, the Bankruptcy Court for the Southern District of New York threw out a first mortgage of more than $400,000.00 in its ruling. The foreclosing servicer and underlying investor could not prove that they were the actual owners of the mortgage. The underlying investor, U.S. Bank , could not prove that it owned the mortgage that was being foreclosed upon by it servicer, PHH Mortgage. The lenders here used MERS which allowed them to assign the loan without filing actual assignments in the Municipality’s recording office. Since there was no assignment of record, U.S. Bank was unable to prove that they were the aggrieved party and therefore, had no standing to foreclose.

Summary

Although these rulings are being or will be appealed by the lenders, these rulings show a change in the way the Court System is looking at foreclosures. After years and years of deferment to creditors and a bending of the rules when it comes to proof of claims in foreclosure and collections matters, the Courts are now requiring lenders to prove that they are in fact the aggrieved party and to provide proof. If the lender is unable to prove that they are the aggrieved party, Courts seem much less likely to simply defer to the creditors. It seemed that the burden of proving the debt has finally been shifted back to where it belongs. Now the lender must prove that the debt is valid and owned by them, before the Court will allow them to proceed.

What This Means For You

About 60% of all mortgages that were given out during the lending and refinance boom are held by MERS as nominee. There is a good chance that your mortgage is held in this fashion. If you can find your copy of the mortgage papers you signed all those years ago, look on the first page of the mortgage documents and see who is named as the lender or mortagee. If it is MERS as nominee, you may have a viable defense to foreclosure or may be able to have the debt completely relieved in bankruptcy.

Disclaimer

The rulings cited in this blog post are cases of first impression and the full ramifications of the rulings are not yet known. The ruling of the Kansas Court is not binding upon any other State and until the appeals process has been completed there is no way of knowing what the actual outcome may be. This article written to show the trend of the Courts in moving away from a creditor bias and toward a more fairly viewed interpretation of the law and rules surrounding mortgages and foreclosure. This is not legal advice but rather a resitation of facts and an analysis of what appears to be happening around the Country with the hopes that some of our collegues may be inspired to pursue these types of defenses to foreclosure proceedings and establish the rule of law more thouroughly and to give hope to those who are facing similiar circumstances.