Millions of Americans are wishing for some form of financial relief through loan modification from lenders. Unfortunately, however, the reality is that only a small portion of loan modification applicants are benefiting from the loan modification program being encouraged by the government while millions are still hoping for relief.
A couple that was already in bankruptcy proceedings came to see me last week. The situation of this couple is not unlike the situation of many other American couples today. Prior to the housing bust, this couple had previously owned 4 houses. The last few years, they had invested their life savings on the down payment of these real estate investments. As should already be obvious by now, the values declined and this couple last all their equity (hence, their life savings) on these investments turned bad.
Three of their real estate properties have already been foreclosed while only their primary home remains. Though the spouses are already in their mid 60’s and already receiving retirement income, both are forced to continue employment as they need the additional income to pay for the mortgage on their primary home. The situation, however, went from bad to worse when they also informed me that they were already 10 months delinquent on the mortgage payments of their primary home. In addition, the property value of their home is already way below the mortgage obligation.
Prior to coming to see me, this very sweet couple had already been to various loan modification seminars sponsored by certain individuals. They found one whom they liked and proceeded to give their trust to these individuals who then promised that their loan modification would be approved. No approval came, hence, the foreclosures of their 3 properties. The only reason their primary home has not yet been foreclosed is because they are in a bankruptcy proceeding that has temporarily halted the foreclosure of their home. Eventually, however, this Stay of foreclosure by the bankruptcy court will be lifted and the lender will be able to foreclosure on the home if they continue to remain delinquent.
This very sweet couple has pleaded with me to help them save their home. They do not have a place to go should their house be foreclosed. They want me to do everything possible to save their primary home. They have already exhausted their savings with their bad investments. They have also expended many more thousands of dollars the past year on loan modification services, which went nowhere. Now, they have practically exhausted all their financial reserves.
Just by looking at the income that they are currently receiving and comparing it with the mortgage payments (not to mention the real property taxes and insurance they have to pay on the home), it is clear that they do not have the financial capacity to continue with their mortgage payments. More than half of their monthly income needs to be allocated to mortgage payments just to be current, not to mention the 10 months of delinquent mortgage payments that they will need to update if they want to keep their house. The hardest thing for me to do was to make this couple realize, that with their financial situation, they could not afford to continue paying for their primary home. They had to realize that they would eventually loose their home. It’s not a question of “if” but a question of “when” that will happen.
In this particular case, it does make sense for this couple to stop paying the mortgage. Instead of paying the mortgage my advise to this couple is to just stop paying their monthly mortgage payments and save whatever monthly mortgage payment they are supposed to make.
They, however, do not need to abandon the house now. Instead of going out to rent an apartment, my advise to them is to stay put in the house. Why go rent an apartment when you can stay in the house (for now) rent-free. In California, for example, it would take around 4 months for a lender to extra-judicially foreclose a property from the time it gives a delinquent notice. Assuming the couple still does not leave the home even after foreclosure, an eviction action will have to be instituted which may take probably another 2 to 4 months. At the very least, therefore, the couple would be able to stay in the house a few more months rent-free even if they continue not to pay the mortgage now. Thus, if they were paying mortgage of $3,500 a month and they save this mortgage for the next 8 months before they are forced to leave the house that would give them $28,000 at the end of 8 months. This is money that they can use as deposit and payment for their apartment plus whatever other personal expenses they may need. In this situation, though they may eventually loose their home, they will at least have some savings to tide them over the difficult times.
Homeowners who are struggling to make mortgage payments should be aware of what their financial end game is. Some homeowners keep on dipping from their savings or keep on borrowing money just to make the monthly mortgage payments on a house they can hardly afford to keep. Eventually when credit is exhausted or savings are gone, that house will go into foreclosure. Not only will the homeowner loose the house, the homeowner will also have lost all his savings too. For some homeowners, it may just make more sense to accept the inevitable and accept loosing a house but retain whatever savings the homeowner still has. Homeowners who do not plan ahead may have no choice and end up loosing BOTH the house and whatever savings the homeowner may still have left.
It may be important for us homeowners to realize that in these difficult economic times, we may just need to return to the basics. After all, a house should just be a shelter for us. There is no need to be emotionally attached to a particular house. Though the home we reside in now may be the house that gave us so many happy memories, we have to also realize that those happy memories reside in our hearts and minds; and, not in any physical abode.
(DISCLAIMER: material presented above is intended for informational purposes only. It is not intended as professional advice and should not be construed as such. Rey Tancinco is a partner at Tancinco Law Offices, a professional corporation with offices in San Francisco, Vallejo, and Manila. The law office website is at: tancinco.weareph.com/old. Rey Tancinco can be contacted at (800) 999-9096 or (415) 397-0808 or via email at: attyrey@tancinco.com
