The Lender's Must Be Crazy!
My Loan Modification Experience
I come across all types of scenarios as a real estate investor. I’ve stayed successful by defining and adjusting my buying criteria. If a deal doesn’t work for my portfolio it doesn’t mean it won’t work for another investor, or be a great deal for an owner occupant.
My team and I talk with a lot of homeowners. One weekend I found myself working with Donny. This is what I knew about Donny so far:
- Tax value $95,000
- Unpaid balance $62,000
- PITI $715
- Fixed interested rate 6%
- Reinstatement amount $1,400
- Area rent $900
I liked the deal on paper, so it was time for a live conversation with Donny.
Donny’s home was a modest 3 bedroom, 2 bath home that he is very proud of. Unlike many homeowners I met with, he did not have a fancy car, big screen TV and all the other toys I’m accustomed to seeing in financially distressed homes. He worked hard to buy the home, and fate dealt him a bum hand. I call it bad things happening to good people. Donny works in the construction industry. The construction industry took a hit in most places in the country during the last year and a half.
As jobs dried up, Donny’s bills began to pile up. The financial problems took an emotional toll on Donny’s marriage. His wife moved out and filed for divorce. Donny has gone from 2 incomes to 1, and now must pay child support.
Donny filed for bankruptcy in a good faith attempt to restructure his debt. He simply did not have enough income to pay for everything. This whole process from first missed payment to my first encounter with Donnny took 18 months.
Donny wants to stay in his home, and asked his lender for assistance. He showed me what the lender offered him. Turns out Donny’s reinstatement amount was $14,000, not $1,400. The devil is in the details, and one zero can really kill a deal!
The lender offered Donny what they termed a loan modification, which looked more like a forbearance or payment schedule to me. The lender proposed the following payment schedule:
- Payment 1 $2,500
- Payment 2 $715
- Payment 3 $715
- Payment 4 $715
- Payment 5 $9,300
Are you kidding me? This would be funny if it weren’t so sad. Now, in the lenders defense, they have not received a payment in 18 months and wanted their money. They also reduced some of the fees and penalties. But if the homeowner can’t make a $715 monthly payment, how are they going to make this payment schedule? It’s insanity!
I offered Donny a few scenarios of what could be done with his home. I’m sure I’ll be hearing from him again as his options are few. Most properties in his distressed neighborhood have sold for $30,000. Best option for an investor is to do a short note or short sale. If I were to pick up this property, I would give Donny a second chance. I firmly believe in helping those who are deserving of a hand-up. Now, that second chance would include Donny’s enrollment in a credit repair service. Mamma didn’t raise no fool!
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