Loan Modification or Short Sale?
WHAT’S BEST FOR YOU?
TODAY AND 5 YEARS FROM NOW?
Let’s Break it Down …
Get rid of a high loan balance and a lower valued property, forever.
Get a temporary moderate payment on a high loan balance on a lower valued property.
In a short sale, the property is sold at a price lower than the loan amount owed.
SHORT TERM ADVANTAGE
1. You can continue to stay in your property through the very long short sale process. This gives you the opportunity to save money and prepare for an orderly move.
2. You rid yourself of a high loan balance on a lower valued property, forever. The 2nd mortgage can be settled and reconciled during the short sale process or after at no cost.
3. All liens against the property will be paid: Delinquent property taxes, county and state taxes. and even some personal debt. This adds up to a huge debt relief!
4. You AVOID FORECLOSURE mark on your credit record.
5. You can work on re-establishing your credit and mortgage worthiness.
6. In 36 months after the close of the short sale property you are eligible for mortgage financing.
7. You will have Tax Free Debt Relief on the federal tax return on the bank’s shortfall provided that you close the sale by December 31, 2012.
LONG TERM ADVANTAGE
1. Delinquent mortgage debt of the 1st TD, property taxes and/or HOA dues are brought current and all liens are paid and removed from the property through short sale.
2. Delinquent mortgage debt of the 2nd TD will have been reconciled or settled at a discount.
3. Your can stablize your finances.
4. You can save and plan for the future again.
5. You can repair your credit due to mortgage delinquency.
6. You can purchase a house again in 36 months after the close of the short sale, in time for the equity build of the economic recovery.
LOOKING AHEAD TO 2016
If you short sell your property in 2010, your short sale will be 36 months behind making you eligible to apply for a mortgage. Property values will most likely be considerably lower than the market between 2003-2006. That means, you can buy the same property you short sold for less! You will have a loan balance appropriate to the times and home that you can comfortably afford. And, you will be poised for the real estate appreciation that accompanies an economic recovery.
The 1st TD mortgage may be reduced to a lower interest rate, possibly as low as 2% for 5 years. The 2nd TD usually does not modify.
SHORT TERM ADVANTAGE
1. You and your family can continue to live in your home.
2. You may have comfortable mortgage payments for the intital year of the loan modification.
3. You will earn $1000 off your mortgage balance for every year that you are current in your Loan Modified payment, up to a maximum of 5 years.
4. You have temporarily avoided foreclosure.
SHORT & LONG TERM DISADVANTAGE
1. Loan modification applies to the 1st TD only! The 2nd TD does not modify.
2. While the interest rate is modified to be considerably lower, the loan balance remains the same other than $1000 credit, per year that you are current on the Loan Modified terms. Furthermore, the new loan is usually a “step up” interest rate, increasing your payment in 3 phases and for a longer term.
3.The lender will not bring you current if you are behind on property taxes, HOA or other mortgage related liens. If the lender brings you current, the amount paid will be added that amount to your already high loan balance.
4. You are responsible to keep property tax and HOA fees current.
5. Whether the real estate market recovers to previous highs in 5 years is unknown.
6. What the re-set interest rate on the high mortgage will be in 5 years is unknown.
Anectodally, we hear that many homeowners, after months of processing and compliance, are notified that a permanent loan modification is denied. The property is scheduled for trustee sale, ie foreclosure with a couple of weeks of denial. At this point, it may be too late to do a short sale.
LOOKING AHEAD TO 2016
After 5 years, the loan may be fixed or may adjust to an amortized (principal + interest) payment at whatever interest rate is current at that time. It will apply to the original large loan balance plus any additional sums added for bringing other house related delinquencies current during the loan modification.
In the event that the amortized payment is unaffordable, will you be able to sell your property? Will property values meet your loan balance + closing costs? If NO, you may find yourself in delinquency again, having to short sell without the benefit of the Tax Free Debt Relief that will have expired 4 years prior, in December 31, 2012.
Why would you want to commmit and maintain a loan balance that is double the value of a property??
This is why I Renee Baccaro Realtor only use ReMerge Short-Sale experts for all my Short-Sale lisings. (562) 972-9886 Orange County and East LA.