Loan Mods and Deep Breathing

Upside down on your home loan?  Real estate investment property vacant?  Don’t know what advice to follow?  Should you walk away or let it go to foreclosure? File bankruptcy?  Hire a loan mod specialist?

Homeowners and real estate investors are scrambling to cope as the economic crisis hits home — literally.  Even in California, property owners are waking up to the harsh reality that their homes and real estate investments are worth less than what they owe on their mortgages.  Add the misery of a layoff or news that an investment has gone sour, or the fact that your 401(k) has suffered a 30% drop in value, and you cannot make the payments.  What can you do?

Three steps to get out of the muck

First, CALM DOWN, don’t panic.  The threat of losing one’s home is certainly grounds for concern, but if you panic, you are more inclined to do do the wrong things.  People who panic tend to listen to bad advice, especially when it comes in the form of a promotion making ridiculous promises.  Most of this advice comes from people who are trying to make money, not people who are trying to help you.

Second, GET BUSY!  The process of working through a loan modification takes time, and requires a lot of hard work on your part.  You will need to demonstrate that you will be able to make the payments if and when the real estate loan modification is approved.  This will require you to make some tough financial decisions, get your financial records and documents in order, and probably make some adjustments to your plans.

Don’t blame yourself or others.  It only serves to waste time and energy that you will need to develop a solution.  Instead, make a Plan.  Ask yourself, “What do I want to do?”  “Where do I want to be?”  Chances are, if you are facing the prospects of a layoff, or have been unable to make mortgage payments, or are facing the prospect of foreclosure, you’ve been caught up in the chaos of the moment, and haven’t taken time to focus on the future.  Working through a loan modification process only makes sense if you have a clear idea where you want to end up.  In the end, it may make sense to short sale a property, or let it go into foreclosure, but only if it helps you to get where you want to end up.

Third, take ACTION.  Get help now!  Consult with a professional and explore your options.  I recently received a call from a distraught individual reporting she had been evicted that morning by the Sheriff from the home she had owned for 20 years.  Not an ideal time to start getting legal help!

Before you sign up with someone advertising loan modification services, find out exactly what they will do for you. Look for a real estate attorney or a specially registered real estate broker.  Pursuant California law, in many instances real estate brokers cannot charge you a fee in advance unless they have been approved by the Department of Real Estate (DRE).  Attorneys licensed to practice in California are exempt from this requirement, but make sure they are experienced in real estate law. For more information, see the Consumer Alert by the DRE:

Fourth, reread step three and take ACTION.  Too many individuals become paralyzed by worry.  Your circumstances will not improve without action.  So, take a deep breath and pick up the phone. Contact a professional experienced in loan mods who will get started right away.  The sooner, the better.  It may cost you some money, but with the right help, you will be able to avoid even more costly mistakes.