Financing in Oakland>Question Details

Tyrone Woods, Home Buyer in Oakland, CA

I have two loans; mortage and HELOC that total $600.000. At the moment my home is worth $360.000. What are my options?

Asked by Tyrone Woods, Oakland, CA Fri Jan 22, 2010

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It’s a tough economy out there today and homeowners around the country, in numbers never before seen, are struggling to stay afloat. Job losses, declining property values, a mortgage that now exceeds the home’s value – all of these can create a financial situation that requires some tough decisions.
When you can no longer make your mortgage payments, you have three options:

1. Loan Modification: If your loan payments are too high, loan modification might be an option for you. For example, you could qualify for a lower interest rate. Loan modification is a solution that enables you to keep your house without negatively impacting your credit rating.
2. Short Sale: In a short sale, your bank or lender may agree to let you sell your home for less than the balance owed on the loan in order to help you prevent foreclosure and help the lender avoid a larger loss on your loan.
3. Foreclosure: In the event that a short sale or loan modification is not the right option for you, the next step is foreclosure. Foreclosure is a process whereby your lender takes over your property for nonpayment of the mortgage. In California, this can occur after two or three months of delinquent mortgage payments. The timeframe varies depending on the lenders guidelines.

Regardless of your situation, you need someone who can help you understand what your choices are, help you take the step, and work with you to negotiate with the right lender to get the best deal. You may also want to discuss the options with an attorney to see how the option you choose can impact you and your credit.

These financial strategies are complex and you need someone you can trust. Someone who has your best interests at heart, and who has the experience, expertise, and the focus on delivering excellence that will move this process along for you as quickly as possible.

If I can be of any help in discussing this further, you can call me at 510-279-9580

Meena Gujral
2 votes Thank Flag Link Fri Jan 22, 2010
Marilyn, that sounds like a very interesting concept. I apologize, but I have to tell Tyrone which questions to ask if he decides to go this route: Why would a financial institution buy a loan at a reduced amount and lend money to someone for a property that's worth considerably less? If the current lender needs to be paid off, can you assure me (in writing) that my credit will NOT be affected by means of "accepted for a lower amount" or any other terminology that would reflect negatively on the credit report? Because to me, it sounds like a modification loan. You'd have to pay off less than the amount owed on the current loan in order to have title transferred, so something's gotta give. How much are the fees? Will they be taking out auto payments from the checking account? If so, what is the fee to do that? How much is the pre-pay penalty for? What happens if I cancel in year 1, year 2 or year 3? Unfortunately, life happens and if you need to get out for any reason, its' good to know. I'd recommend that you start paying the mortgage bi-weekly or sending extra principle to the loan, especially on the second mortgage. You're not alone, but honestly, do your homework on these modification loans. If any type of modification is done to the loan, then..it's a modification loan and it can damage the credit.
1 vote Thank Flag Link Fri Jan 22, 2010
Hi Tyrone

Short Sale – To hold a short sale on your property is if both the primary lender and the HELOC lender agree. Part of the short sale agreement will probably be required to pay a certain amount to both lenders in order for your account to be considered closed. In addition to the money recouped by the sale. Your credit report will state that the account was settled but that the full amount was not paid. The damage to your credit can be significantly less than the damage caused by a foreclosure.

Short Sale with Incentive to HELOC Lender – It can be difficult to get a HELOC lender to agree to a short sale; chances are the lender will not receive money from it. A lot of HELOC lenders like to keep collecting monthly payments for as long as possible. If the primary lender wants a short sale, it may offer the HELOC lender an incentive. Sometimes the HELOC lender is paid between $1,000 and $4,000 to sign off on the sale.

Primary Lender Forces Foreclosure – If your property is foreclosed upon, your primary lender will be paid everything it is owed with the money it takes from the sale. It may also use some of the money for expenses related to the sale of the home. Since the HELOC loan is subordinate to the first mortgage, the HELOC lender will be paid with any remaining money. If the HELOC lender is not paid the full amount owed on the line, the HELOC becomes an unsecured lien collectable via a deficiency judgment. The lien is no longer on the property; instead, the borrower is liable for everything owed. Through the deficiency judgment, the HELOC lender may be able to recoup the money from you by garnishing your wages or even putting a lien on any property you buy in the future. A foreclosure will also show up on your credit report, making it extremely difficult for you to get credit for the next 7 years.

Simone Hoover
510-467-7640
simonehoover@gmail.com
0 votes Thank Flag Link Wed Jan 25, 2012
Every situation is unique and must be evaluated to determine which options are available to meet your needs There are several options: 1) If you can afford to pay the mortgage and can hang in there, you might consider this. (Over time hopefully your equity will return to the property). 2) If you cannot afford to continue payments, contact your bank and see about a loan modification. You may be a perfect candidate for this type of situation. Usually the bank will look at your hardship, your debt and try to work with you on reducing your payments. 3) If the above are not possiblities, a short sale may be. However, without complete knowledge of your situation it is hard to know the answer. A responsible agent will make sure that you are a candidate for this. They will recommend that you talk to both a real estate attorney who specializes in this area of law and also a tax person who specializes in this area to find out what your tax implications may be and to also find out if, even after a short sale, the banks can come back after you for the debt. Many times, even in short sales, it does not wipe the slate clean and the banks, if they do not give you a FULL release are coming bck to Sellers to collect the debt. If , in fact, you are a candidate for a short sale that will anot ffect your credit score as much as some of the other alternatives and can be a good alternative. 4) Foreclsure, Bankruptcy and Deed of Lieu are also possibilites which of course do affect your credit for a longer period of time. If you want more information go to my blog "Is a Short Sale Right For Me". I know that this is a very difficult time, but there are steps you can take. The main thing is not to become immobolized. Educate yourself about your situation and determine which option is best for you. If I can be of assistance I specialize in short sales and will be happy to try and help you. Please do not hesiate to contact me (510) 530 7011 (I have also seen the advice of the person below re purchasing your loans. I would discss this at length with my attorney before moving forward to make sure that this option is safe for you. Best of luck...You are not alone and we need to work together and make the best of these more difficult times. Rose Nied, Alain Pinel Realtors, (510) 530 7011
Web Reference: http://www.apr.com/rnied
0 votes Thank Flag Link Sun Feb 28, 2010
I have gone through a long & very dificult financial situations in my life while I was in my 20's to 40's so I understand your struggle. Personally, we hung in there, bit the bullet & held on to our place that was upside down by moving in with my in laws, rented the place out at a big negative until market turned around. It took over 10 years but we turned that one place into 3 properties when we finally sold it about 15 years later. I believe we are rewarded for doing the right thing always.

There are loan modifications available, short sale today that can help you. Contact a good Realtor to help you sort through the maze. Hang in there.
0 votes Thank Flag Link Tue Feb 23, 2010
Tyrone, I would go with an age old bit of advice, "If it sounds too good to be true, it probably is." What you should be wary of is if title still remains in your name or not. Why would someone pay $600,000 to a lender to pay your loans off, then lend you $324,000 and allow you to still own your home, if there was nothing in it for them. There have been many deals like this that were offered to unsuspecting borrowers who didn't realize that someone else was taking over ownership of their home, and allowing them to rent it back, in a way, by making those payments.
0 votes Thank Flag Link Thu Feb 11, 2010
Hi Tyrone,

I have to agree with Mr Polack brings up with Marilyn. The upfront payment of approximately $1,600 should be at the most $512; max appraisal price of $500 + the credit charge of $12. If you can get by with a drive-by appraisal in today's market, then the $512 number should drop down to $87 at best. If you have a refinance, the rest of the fees would be reasonable, imo.

I am not against anyone earning a living, but be wary of exorbitant upfront fees promising you what you want to hear.

Good luck, Tyrone.
Ros
0 votes Thank Flag Link Thu Feb 11, 2010
MORTGAGE REDUCTION PROGRAM - NOT a loan modification

Our Group Fund will purchase your loans from your lenders and give you a new loan back to you at 90% of the current appraised value. It will be a 30 year fixed loan at approximately at 7.5% with a 3 year prepayment penalty. Your new mortgage payment will be $7.00 per $1,000 of your new loan. If your new loan is $200,000, then your monthly payments would be around $1,400 per month (200 times $7.00 = $1,400).

There are four basic requirements:

1. Your loans must be 25% higher than your value of your property. (Take your total loans times 75%. Your appraised value must less than that).
2. You must have a 50% debt to income ratio with the new mortgage payment. (All your monthly debts have to be less than 50% of your gross monthly income. That includes your new mortgage, taxes, insurance, car payments, credit card payments, etc. Any bill that you are required to pay monthly).
3. You must fill out and supply all the paper work required for a normal full documented loan. Everything will be verified. Your credit must be filed in the paperwork, but the credit score does not matter.
4. You must pay $1,595 up front. This is the total for everything. This is for:

• Drive by/AVM appraisal - $75-$150
• Full appraisal - $250-$500
• Title on new loan - $400-$600
• Credit reporting - $12
• Processing/misc. the remaining

Marilyn White
Century 21 Real Estate
0 votes Thank Flag Link Fri Jan 22, 2010
How much is your 1st mortgage and how much is your second mortgage. Is your 1st mortgage owned by fannie mae or freddie mac? Who is your current lender? And how did you come to the valuation of $360k? Sometimes your lenders streamline process may have a different value that they use for the refinance of your home.
0 votes Thank Flag Link Fri Jan 22, 2010
Hello Tyrone, Sorry to hear about your situation but, of course, you know you are not alone. Not having the full story, I can suggest the following:

If you can afford to keep paying, you should continue to do so.
If you can not afford the payments, you should try to have your loan modified.
If you can not afford to make any payment at all, you might want to consider a short sale as it will hurt your credit for a lesser time then a foreclosure.

I have been provided free assistance and loan modifications for quite some time now, please feel free to call or email if you have any further questions. Good luck to you dear.

Kamal Randhawa
Broker
510-932-1066
"Straight answers every time"
0 votes Thank Flag Link Fri Jan 22, 2010
Hi Tyrone...the answer to your question depends on your answers to many other questions. I recommend you either 1. contact a full time agent in your local area who can help guide you through your options or 2. since no-one knows your situation better than you, educate yourself regarding the options. Kiplinger had a good article that would be a starting point for self education....I have included the link below.
0 votes Thank Flag Link Fri Jan 22, 2010
Hi Tyrone -

I know it's cold comfort, but you are far from alone. Every situation is different, usually complex and fraught with potential pitfalls. Realtors can be great sources of referrals in this situation, but truly can't (shouldn't) advise you on what is in your best interest. First, I would speak to a tax advisor, ideally someone with an EA designation. They can spell out for you what the tax ramifications you will face depending on what course of action you take. Second, I would sit down with a real estate attorney and get their advice. Once you are truly aware of what you are "up against" and can make an informed decision, you consult a Realtor IF a short sale is in your best interest. The first thing your agent would likely do is determine from their experience or that of other experts we work with how likely it is that your lenders will "play ball". We can list the property, negotiate terms of your short sale and be there to support you through the process. What a responsible agent should never do is tell you what is in your best interest. If you would like names and numbers of tax advisors, real estate attorneys or any other resource to help you in this tough time, I'd be happy to help.
Web Reference: http://www.wendygraves.net
0 votes Thank Flag Link Fri Jan 22, 2010
It would help you receive targeted answers if you give more info. Are you in a position that you can no longer pay your monthly payments? Are you being relocated by your employer? Do you have unanticipated health issues? Have you maxed out your credit cards?
0 votes Thank Flag Link Fri Jan 22, 2010
Pay or walk away is the simple answer.

There are obvious ethical issues with walking away.

There are practical issues too....your credit will be shot - at least for 3-5 years.

Check with an attorney to find out the legal ramifications. They should be able to give you a clear picture of what options you have and the true COST of walking away.

Good luck!
0 votes Thank Flag Link Fri Jan 22, 2010
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