Yes! Loan modifications and short sales are two sides of the same coin. The coin is the “loan workout” with the loan mod and short sale as simply two types of loan workouts. Here is the most important thing to know: you cannot do both simultaneously. The banks will kill a short sale in favor of a loan mod every time. The reason being they keep you on the hook and continue to get more money from you. In a short sale they are liquidating the property and unless they have recourse to pursue you after the short sale is closed their relationship with you will be terminated upon the short sale closing.
As a reader of this article, please understand that the correct context here is for states with severely falling prices. If you live in a state that has not experienced severe deflation, then a loan modification may be a great option. Here in Nevada, Arizona, and many times California, the loan modification should be renamed: Operation: Investigate-the-Borrower. Most borrowers have no hope of ever getting a permanent loan modification that makes sense. They are so far upside down or already in default that the banks aren’t going to refinance them. They banks are just using the carrot to extract as much financial information that may be used against the borrower in the future, along with more cash.
I am often times robbed of legitimate short sale techniques because the seller (borrower) has already told the bank too much and we have a harder time proving a hardship. Short sales can be very difficult. The quicker you can get a buyer and get the processing going with the bank, the better chance you have to close in a falling market.
My advice is simple. Be honest with yourself! If you have a true hardship (death, divorce, job loss, income loss, job transfer) and you can’t afford your home, look to sell it in this market. Playing around with loan modifications can cost you valuable time you could have spent doing a short sale. The loan modification numbers in our states are abysmal. The banks think nothing of taking months and months processing your request for a loan modification only to tell you– sorry. Remember, FORECLOSURE ACTIVITY IS NOT SUSPENDED WHILE YOU ARE DOING A LOAN MODIFICATION! They continue the march toward foreclosure and since you cannot do a short sale at the same time, you may be left with no time to every attempt one.
Paul Rowe is the managing agent for the short sale division with the Sena Team at North American Realty of Nevada. You can contact Paul or Tony Sena at 702-376-0088.