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Loan Modifications vs. Short Sales
Loan Modifciations vs Short Sales
While reading this list please note - we have programs where we can start of with a Loan Modification negotiation to see if we can negotiate a significant payment reduction or principle reduction, but, if the terms are not to your liking we can transition into a short sale or deed in lieu. Much of the work that goes into a Loan Mod package transfers over into a short sale package.
(this is not a comprehensive list - to review all of your options speak with an experienced attorney licensed in the state in which the property is located.)
Pros - for Loan Modification
1. Lenders are making a big push for loan mods. Based on my recent experience some of the large lenders like countrywide seem prefer loan mods over short sales.
2. The lenders seem to be able turn Loan Modifications around faster. You can do a loan mod on your first, then gain leverage against your second and then see how your options look.
3. As long as you continue to pay you may stay in your home. ).
4. Someday you might get your entire investment back. (it is theoretically possible, I am not saying it will happen.)
5. You may minimize damage to your credit.
6. You may be able to do a loan mod and not waive your 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. I would highly advise bring a lawyer in to a least review your contracts.
Cons -
1. Without leverage it is unlikely you will negotiate a principle reduction.
2. In a typical loan modification - you may just be buying time. You get to make payments until you decide to sell or your payments go back up. Will it be better to attempt a short sale in a few years? I doubt it. But, you never know.
3. 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.
4. What will happen to your second loan. You should speak with an attorney about a short payoff.
5. Your mod may be deep enough to eliminate stress or financial problems.
Short Sales Prose
1. If you negotiate well you may be able to get a release from the deficiency in writing. Although this is getting more difficult.
2. You get to deal with the second lender, instead of putting off the day of reckoning.
3. You can deal with all the problems at once. Laws change, if you have good fall back positions today you might not have them in the future. You need to consider all your options.
4. If your 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, you may still be 100,000 dollars upside down or worse. Will 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 Negatives
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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If you have two loans do not go into default on your first until you know your downside. Not every loan modfication or short sale works out. You may not be happy with the terms. You need to keep your best options open.
If you do this the right way you may gain leverage against the lenders and see great results, if you approach your workout the wrong way, you could end up in much worse shape than you are now.
For more info on short sales vs loan modifications
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