Loan Modification on Investment properties

Asked by Shannon, Antioch, TN Thu Dec 31, 2009

I have an investment property with no Equity. I bought the house no money down and it has decreased in value by 20k. The loan is set to reset in March of 2012. I contact the lender Aurora loan services and they said they offered different modifications for investors. Just because they offer it doesn't mean they will modify a loan. I have been on time with payments and do not want to lose my property and mess up my credit score. However, local rent rates will not cover my loan reset, because my rent isn't covering all of the mortgage now. I was given a pay cut and I am struggling to hold on to my primary home. I had to lower rent to find renters because of the economy.
Wouldn't it be in Aurora's best interest to modify my loan so that I can hold on and continue payments since the house is underwater and I have nothing invested.

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Marilyn Bell, Agent, Calabasas, CA
Wed Jan 6, 2010
This is one of those times where Dave Ramsey would probably ask you about your situation in reverse. If you didn't already own that investment property, would you put yourself in a position where you were struggling with your primary home to purchase an investment property that doesn't collect enough rent to cover the rent and is worth $20K less than you pay for it?

I agree with Kevin that you should talk to someone, however if it were me, I'd be talking about how I could get out from under the home. If you're insistent about keeping the home (because pretty much every option you have to get out from under the home will damage your credit - albeit that can be overcome in a couple short years) I would consider trying to sell it via lease purchase. You can often collect a higher rent that way.

If you can't find anyone who wants to lease purchase it, I would also look into renting it out to Section 8 tenants. Section 8 means you collect market rents (granted, rents are down in your area) and often with most of it paid directly to you by the government. That can relieve some of the stress of renting the house.

It sounds like you are precariously close to an even worse situation. One month of a tenant not paying rent or one unexpected repair can change things for you for the worse. I hope you can figure out a solution before that happens. One ray of hope is that I actually know people who have had their payments go down recently due to resets. I wish you good luck and hope for the best!
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Kevin Pellat…, Agent, Franklin, TN
Thu Dec 31, 2009
Absolutely, unfortunately lenders/servicers often give precedence to their customers who are behind - rather than those of us working to maintain our payments. This too often ends by encouraging homeowners to fall behind (risking their credit worthiness), rather than assisting those customers that have been most valuable in these difficult times. It’s a tricky balancing act of incentives for both sides to navigate.

You may consider consulting an attorney familiar with bankruptcy, short sales, and loan modification procedures. My hope would be that their experience and advice may help protect you from more extreme circumstances.

Kevin Pellatiro
Hoping to help you take advantage of the market – when you are ready.
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