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Modification - Forbearance follow up

In a July post, I briefly explained forbearance as it relates to the Loan Modification process.  I suggested caution and thorough consideration when your lender makes this a requirement of your requested Loan Modification. I also noted that even if you complete this process you should beware that your lender is not obligated to offer you a final Loan Modification.

Anyone that has ever spoken with me on the subject will know that I am not a proponent of modifications.  I prefer short sales where we sell the property and mitigate the debt.  This provides a fair and beneficial permanent solution for the homeowner.  Regardless of my opinion and my motivation to express it repeatedly to everyone I talk with, there is no guarantee that people will listen or even hear my message.

I believe that people stuck in underwater properties with affordability issues often hear what they allow themselves to hear.  This is not a mark against them.  In a crisis situation we all must travel the path of denial through to anger and finally stop at the point of indifference.  Until you reach this point, moral character and fear will expose you to the motive of the lender.  This guiding motive is summed up in one word, recovery, and I am going to give you a real example so maybe you can avoid this.

A gentleman called me two weeks ago in a complete panic.  He was referred to me by a friend and he was adamant that he did not wish to discuss a short sale.  I asked him how I could help him.  He explained to me that he had paid a California attorney $3000 to help him get a loan modification.  Apparently the final requirement of the loan modification from his lender was for him to complete a three month forbearance period.  He inadvertently shorted the third and final forbearance payment by ten cents.  Now, can you guess the outcome?

The lender immediately cancelled his Loan Modification, demanded full payment of the entire delinquency, and stated they were moving his case to foreclosure.  I suggested that he immediately call his attorney.  He sadly explained that he had tried several times over several days and that they were not answering the phone or returning calls.

What is wrong with this and why am I using this unfortunate scenario as an example.  The lender kept the gentleman’s money and had absolutely no care or concern for his conscientious effort or welfare.  I thought the Federal Government was behind helping homeowners stay in their homes.  This is apparently not the case with the recent 2009 to date 46% statistical re-default rate for government loan modifications.  The other 54% are going broke just trying to hang on, but if you listen to some at the podium we are all behind making it better for the middle class and keeping them in their homes.

Where is the positive here that is not visible but serves as the critical keystone for the final solution?  When people go through something like this with their lender it’s horrific, but it’s just like landing on Chance and going straight to Go and collecting $200 dollars. You are now at the point of indifference.  There is no more moral character and you are ready to discuss a permanent solution. It may be time to discuss a Short Sale as an alternative.

I have been here with hundreds of clients since 2007 and I have learned to listen and allow them to talk through their anger and obsession until they boil over.  They will tell me that they feel as though they have been taken advantage of and others have come right out and shared that they feel stupid.  This is an important transition.

It is important from this point to listen to them and ask them a simple question.  Would you really have been in a position to make the decision to solve this problem with a short sale, had you not gone through what you did with your lender?  The answer is usually no.  They had to get to this point.  There is acknowledgement and confidence that replaces despair.  It is also amazing that someone besieged and emotionally distraught by such incidents will rise up and be ready to fight when you extend a helping hand.  The beginning of a solution is at hand.

Blogging from the front line of the housing crisis.

George Omilan
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