Real Estate Loan Issues
“There’s no play here, there’s no angle. There’s no champagne room. I’m not a miracle worker, I’m a janitor. The math here is simple. The smaller the mess the easier it is for me to clean up.” George Clooney as Michael Clayton in Michael Clayton (2008)
Lots of homes in California are underwater – the mortgages cost more than the home can be sold for on the open market. The market is not going to appreciate its way out of the problem – the real estate loan must be modified or the house sold.
Homeowners facing this problem have two choices: loan modification or a short sale. A loan modification is a material change to the terms of the home loan, normally the term or the interest rate. The key word in that definition is not “change” its “material”. It does no one any good to get a mortgage payment reduced by $50; it can do both the homeowner and the bank lots of good to get the payment reduced by $500. A short sale means that the market value of the home is less than the total of the loans against it, so the loans are discounted, or “shorted” to complete the sale.
Loan modification and short sale are opposite sides of the same coin. The process and negotiation procedure is the same for both; as are the documents and information needed. In a loan modification, the documents and information document you can afford to stay in the home; in a short sale, the documents and information show you cannot afford to stay in the home. You can change strategy from loan modification to short sale at almost any point in the process; changing from short sale to loan modification during the process is complex and very difficult.
Whether or not you get a loan modification depends heavily on three factors: the borrower, the loan and the property. All three must be in the strike zone, or “sweet spot” for a loan modification to work. If any of the factors are outside the strike zone, the loan modification will not work. Since most people’s initial plan is to start with a loan modification, we will begin there.
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