We bought our home for 575K -market value now 500K.

Asked by Art Valencia, Torrance, CA Fri Oct 24, 2008

We cannot afford to stay in our home at $3600 a month - our loan will reset in Apr. 2010 to a higher APR. We are definitely in distress. What is a readjustment loan compared to a short sale? My wife wants to put the house on the market (for sale) for 600K, which I think is unrealistic and waste a time. What to do? Our mortgage is an 80/20 with the bulk being 455K at 6.2 (5-1 ARM) due in April 2010. Our smaller loan for 115K is a 30 yr. fixed at 9.0 APR. Will the lender consolidate both loans (is that possible?) considering the 2 loans are from two different lenders. Or can we approach both lenders and ask for some type of relief? Any feed back is appreciated.

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Keith Sorem, Agent, Glendale, CA
Sun Nov 2, 2008
There are a couple of key issues of which you should be aware.

The one thing going in your favor is that the lenders are more inclined to work with you because of financial climate. The bad news is the economy has definitely shifted downward so time is of the essence.

You basically have to different options that both require a Realtor experienced in short sales to help you analyze your situation.
Option #1 is try to re-negotiate the terms of your loan. Called a Loan Modification, it is possible that you will be able to have the lender re-structure your loan so the payments are affordable. In this scenario you will need to qualify for the loan, so part of this process is explaining why at one time you did qualify for the loans your currently have, and how it is that now you are no longer qualified.

Option #2 is to explain to the lender that due to circumstances beyond your control you are no longer able to the mortgage payments and that it is a situation which is not going to reverse itself. The best thing for the lenders (both first and second) to do is to allow you to sell your home at a loss.

The challenge here is that the two options require different tactics. if you try to qualify for a loan modification, and the lenders reject it, then try to qualify for a short sale, they may look at the application data for the loan modification and say "hey, you should qualify to keep paying your existing mortgage".

I would be happy to refer you to an expert in your area that can analyze your situation and give you your alternatives, and the pros and cons of each.

Note that there are many people who have experienced a decline in value, so just because your home's value has declined is not a valid reason for a lender to work with you. Also, there are people that have experienced real hardships, including medical bills, death, divorce, job loss, that really need and deserve a loan modification or a short sale.

The benefit to you speaking with a local expert is you can then get the facts you need to make the right decision.
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Scott Godzyk, Agent, Manchester, NH
Sun Nov 2, 2008
Call the lenders and ask for the home retention department. tell them your situation and see what they suggest, there are loan modifications and forebearance available as well as some different creative ideas some lenders are using, good luck in working it out
Web Reference:  http://www.ScottSellsNH.com
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Michael Magaw, Agent, Torrance, CA
Sun Nov 2, 2008
Art, you will not find any lender that would consolidate $570k worth of loans, unless they thought the home was worth more than that. If you don't think that they home is worth at least $630k, then the lenders would not take that chance.
First try the loan modification. Ask for a lower interest rate, fixed over a longer time, and also try for a reduction in principle. It is a lot more challenging when there are two seperate lenders for the first and second.
Before you call them, contact a local agent who can give you a fair estimate on the value of your home. Also figure out your future budget. They won't renogiate if they think you make too much or too little. They will also want to know what happened to get you here. A letter of explanation as to why you are in distress.
If you want some comps or need further advise, feel free to call or email me at 310.259.6850 or Info@NHLBrokers.com
Web Reference:  http://www.NHLBrokers.com
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Dan Sanchez, Agent, Burbank, CA
Mon Oct 27, 2008
Well the answer to your first question "What is a readjustment loan compared to a short sale?" is that the loan readjustment (aka Loan Modification) is a way to lower your mortgage payment, interest rate and possibly reduce your principal balance and be able to stay in your home. The Short Sale scenario is when you have exhausted all possibilites to be able to financially pay for your home and is a better alternative than letting your home go to foreclosure. The 1st mortgage holder will receive the lion's share of the proceeds, while the 2nd mortgage holder typically receives $1,000 to $3,000.

As for the other question about consolidation of both loans from 2 different lenders? The short answer is most likely will not consolidate the loans, especially the 2nd mortgage holder because their note is essentially worthless in this market and will not want to take on additional risk and liabilty if the home is worth considerably less.

The silver lining in the Short Sale scenario is that it will not cost you, the Seller, a dime to short sell your home. Although, your credit score will be affected short term versus a foreclosure on your record, which typically lasts 5 to 7 years on your credit report. As real estate professionals, we would all agree that a loan modification will be your best option. However, if you elect to do a short sale, I would interview those agents that specialize in Short Sales.

Best of luck,

Dan Sanchez
Short Sale Expert
Dilbeck Realtors
Web Reference:  http://www.dansanchez.net
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Ron Werner, Agent, Manhattan Beach, CA
Fri Oct 24, 2008
There is no set rule regarding readjustments however many lenders are finding that a performing loan on their books is better than a foreclosure with the costs involved with it. I do work the Torrance area and could determine what your home would sell for if listed in the current market. I do agree with you that if you overprice it, you will not be successful in a sale. Your 2nd trust deed lender may be in a zero equity position which makes your situation more difficult. On a short pay, the 1st trust deed lender may give some proceeds back to the 2nd TD lender to cooperate with the short sale.
Web Reference:  http://GR8Homes.com
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Bill Challas, , 95032
Fri Oct 24, 2008
Becky has given you the best advice. Ask yourself what would your house rent for? Then try and get your notes modifed to that amount. Your loan sounds like a Countrywide loan and they usually have a 5 year fixed or adjustable program. The last client I helped reduce their payments by $1,000/month. When you call your lender ask for the Note Modification Department. It's going to take 2 to 3 years for your house to be worth $600,000 plus again, it will go back up. What ever you bought a house for in1990 it took until the middle of 1994 before it was the same as 1990. In 1980 prices came back in 1982 which was only 2 years.

Bill Challas
Los Gatos, CA
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Becky Richar…, Agent, Burbank, CA
Fri Oct 24, 2008

Speak to your 1st lender and try to do a LOAN MODIFICATION to reduce your payment. This is very helpful If not, I have professional modifiers who can help you. Yes, you can ask for relief, which is the modification. Your 2nd isn't bad but you could ask for a modification for that too. Try that route first, it should take about a month.

Becky Richards - Burbank
Winderemere 818-515-8685
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NonRealtor, , 23456
Fri Oct 24, 2008
Right now, you're probably thinking "We should have rented", right? Sol means "sun" in spanish. It means something else for your situation. Maybe ask your neighbors what they are doing, some of them may be in the exact same situation. Good Luck
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