Our opinion is that when it comes to loan mods, the homeowner who needs to be wary. On the surface, having the ability to lower ones payments an underwater mortgage certainly looks like a great deal, but we also know that the banks are on the edge of collapse due to the fact that the states and the courts are showing many of these entities do not have the proper documentation and ownership to actually foreclose on property.
The issue at hand is ownership of title, and rightful ownership of the actual note. When banks made their original loans to home buyers, they had the simple contract of title and note. However, when they sold the note to investments banks, who then separated the note from the title, and bundled these obligations with hundreds of others to create the RMBS, they simply put the title into a dummy holding company called MERS, and there was no longer a true and legal chain of ownership of the lien.
As time went on, some courts began to realize that the original banks, or the servicing agents who were simply collecting monthly mortgage payments, did not have the legal right or proper paperwork to foreclose on someones property.
So now, as a last ditch effort to compile the proper paperwork to satisfy the courts, banks are now suddenly offering loan modifications so that homeowners will by default, re-affirm the loan and justify a chain of ownership to the banks they did not have at the time of the foreclosure proceedings. Another important back-door trick of the banks is that they offer these "trial" loam mods, requesting all manner of financial documentation. And to get a loan modification, the homeowner needs to show income and assets enough to sustain payment on the lower payment. So most homeowner will go to great lengths to find and disclose and affirm assets and income that the bank may not have known about otherwise. Now, the banks know what assets to go after when they terminate the "trial" modification and foreclose instead.
In an article by Bruce Krasting on one of my favorite blogs, Zerohedge, he makes this assessment of the modification offers to homeowners:
One possible response would be to get all troubled borrowers to reaffirm their debt, the second is to get the trouble borrowers back to paying something on the mortgage, even if it were a fraction of what was formerly owed on a monthly basis. A loan modification would achieve both results. When a borrower signs up for a loan mod they sign new papers. A portion of this process will re-establish any loan balance that is due. The language in the mod could have new foreclosure terms that eliminate the banker’s problem with past tainted documentation. Once a borrower makes a few months of new lowered payments they are, in effect, confirming their acceptance of the new terms.
Most Mods go bust in six months or are cancelled for any number of reasons by the lender. So on the surface it would seem little is accomplished from the lenders perspective. But we think the lenders motivation for doing a loan mod is not to get a borrower to a monthly payment that they could realistically pay, but rather the motivation is to circumvent the foreclosure trap the lenders are in. A mod could legally resolve the problems.
To us, it appears to be a strong possibility that the banks and institutions that desire to foreclose on property are offering these modifications NOT as a means to help homeowners, but rather as a way to create new paperwork that will stand up in court, as well as uncovering assets and income that the banks may not have known existed, allowing the banks to foreclose and move on.
That being said, we have heard of homeowners that have received advantageous, permanent, modifications and are happy, keeping up with their payments, and keeping their home.
As we always recommend, any time your bank want documents from you or wants you to sign anything, contact a well educated and experienced real estate attorney.
You can also call us to discuss your options and the relative benefits/drawback to each...
or call me on my direct line at 561-602-1258
Thanks for reading...Steve
