While reading the information below, please note – it may be possible to start with a Loan Modification negotiation to see if we can negotiate a significant payment reduction or principle reduction. But, if the terms are not to your liking, we can transition into a short sale. Much of the work that goes into a Loan Modification package transfers over into a short sale package. (this is not a comprehensive list - to review all of your options speak with an experienced Colorado real estate attorney.)
Loan Modification Pros
1. As long as you continue to pay you may stay in your home.
2. Someday you might get your entire investment back.
This may be the best option if you are planning on living in this house for 10 years or more. While it is not possible to accurately forecast the market, many experts are expecting the real estate market to continue declining due to high unemployment rates and continued adjustable rate mortgage resets..
3. You may minimize damage to your credit.
4. You may be able to do a loan modification and not waive your anti - deficiency protections. And if that is the case, you may choose to do a short sale or accept a foreclosure at a later date. I would highly advise bring a lawyer in to a least review your contracts.
Loan Modification Cons
1. In the vast majority of cases, the banks are not reducing the loan principle. They are only providing a temporary reduction in the interest rate.
2. In a typical loan modification - you may just be buying time. Typically, the interest rate, and your payment amount, will increase over time.
3. If you are not careful you may lose important protections against the bank’s claim on future earnings. If you have assets or a salary to protect currently or in the foreseen future, you should probably speak with an attorney.
4. The second loan provider is not always willing to modify their terms. In the loan modification process, you have little leverage over the holder of the second loan.
5. Your modification may have a minimal reduction in your monthly payment, The reduction may not be enough to change your financial situation.
Short Sales Pros1. In a successful negotiation, you should be able to get a release from the deficiency in writing.
It is my opinion that you should not close on a short sale without this element!
If your property is 100,000 dollars upside down, you get rid of the liability now. If you do a loan mod and then have to sell you house in two years, you may still be 100,000 dollars upside down or worse. If your loan modification included a waiver of anti -deficiency protections, you may be liable for the bank’s loss.
2. You get to deal with the second lender from a position of leverage that you do not have in the Loan Modification process.
3. You can deal with all the problems at once. Laws change, if you have good fall back positions today you might not have them in the future. You need to consider all your options.
4. Within a few years your credit rating may recover.
It can take as little as two or three years for your credit to recover. It is likely that the market will still present a significant buying opportunity at that time.
5. You may get to live rent free while the short sale negotiations take place. This time period can take from two months to a year.
Short Sale Cons1. It is getting more difficult to get released from the deficiency
2. You may not be able to buy a house for a while, though a Rent-to-own program may be an option.
3. You will have to move eventually.
4. You do damage your credit.
5. You have to deal with the selling process.
You should probably have someone with experience helping you set up the strategy and review your paperwork
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