Loan Modifciation vs Short Sale
(this list is not designed to be a complete list)
Pros - for Loan Modification
1. Lenders preferred choice. If you watch CSPAN, read the news or speak with officers at the lenders - you are sure to get the impression the lenders are currently favoring Loan Modifciation workouts.
2. The lenders seem to be able turn Loan Modifications around faster.
3. You can "keep" your house. (as long as you pay).
4. If you keep it a really long time and the U.S. inflates without going into depression, you might get your investment back. (it is theoretically possible.)
5. You may minimize damage to your credit.
6. If you negotiate your loan modification correctly - you may not compromise any of your California anti - deficiency protections. And if that is the case, you may choose to do a short sale or accept a foreclosure at a later date.
Cons -
In a typical loan modification, done on your own or with the typical Loan Modification service, you are unlikely to see a principle reduction. Your are most likely to see some sort of reducement payment that gets phased out over time.
So in a typical loan modification - you may be putting off the judgment day a few years. Will it be better to attempt a short sale in a few years? I doubt it. But, you never know.
If you are not careful you may lose of waive important anti -deficiency protections. If you have assets or a salaray to protect or you expect to have those things, you should probably speak with an attorney.
A loan modifcation may not do much for your second loan. This is why you should speak with an attorney as you may wish to engage in a strategy in which you go after a loan modification and a short payoff.
You mod may be deep enough to eliminate strees.
Short Sales
1. If you negotiate well you may be able to get a release from the deficiency in writing. Although this is getting more difficlut.
2. You get to deal with the second lender, instead of putting off the day of reckoning. You may be paying interest and principle on equity that no longer exists.
3. You can deal with the credit problems swifly and possbly skillfuly once and for all.
4. You essentially eliminate debt which does not have any corresponding equity. If you property is 100,000 dollars upside down, you get rid of the liablity now. If you do a loan mod and then have to sell you house in two years, what are you going to do about being upside down by 100,000 dollars. We the values come back, will they decline further?
5. Within a few years your credit rating may recover and you will not have to harm you credit to do a short sale in the future. You may be better position for the times ahead.
6. You may get to live rent free for a while.
Short Sale Negative
1. It is getting more difficult to get released from the deficiency
2. You may not be able to buy a house for a while.
3. You will have to move eventually.
4. You do damage your credit.
5. You have to deal with the selling process.
6. You should probably have someone with experience helping you set up the strategy and review your paperwork.
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With both these approaches - if you have two loans do not go into default on your first, unless you undersand the consequences. You do not want be expose yourself to a sold out junior who is able to come after you for he entire amount of the loan. If is vital you have a back up plan.
For more info on short sales vs loan modifications
