Expert: Dick Dennis - 2/1/2009

Question
We have a first (650K)and second mortgage (65K) from the original purchase in 2005. We have not refinanced. Our home is currently valued at 550-600K.  We bought at 805K (90K down payment). We've tried to work with our bank in the bay area, California but they have said unless we're 90 days late they will not talk about modifying our loan.  We have a 5-1 interest only ARM up in September 2010.  I think it is a fair guess to say the market will not rebound to our favor by this time. Can we go through the foreclosure process even though we can still financially make the payments?  Our mortgage, insurance and property tax equals 60% of our income.  Needless to say we barely break even each month and our savings is essentially gone. My husband and I are young with two small kids and want to do what's best for our family in the long run. We're not emotionally attached to our house, and in the current market can rent a similar house for 2K less a month.  We don't mind renting for awhile to boost up our savings.  We have no credit card debt, but a car loan for 25K.  Should we stay in a house that we feel we are currently throwing away money on or take the credit hit and go into foreclosure?

Answer
Yours in not an uncommon dilemma, Becky. As a California broker, I have been helping people to modify their mortgage balances and it might be possible to do the same for you. My experience has been that banks are indeed reluctant to modify the loans for their borrowers until they are indeed behind in their payments. They figure if you are making your payments on time, no matter how much of a financial strain it is, they don't want to talk to you. More than anything else, they don't want another foreclosed property in their inventory.

One of my clients, upon getting the same response from their bank, took the monthly payments on their first and second trust deeds mortgages)and put them into a savings account AND DIDN'T TOUCH IT! Just before when their third monthly payments were due on their first and second trust deeds, I was able to help them and modified their unpaid balance (on the second only because their payments on the first was acceptable to them). And then they took the trust deed payments that were saved up and brought everything current as part of the modification agreement. The second was modified to less than a 1% interest rate for the unpaid balance but for only four years. But it dropped their monthly home obligation by about $400 during that time!

I cannot say for sure the same could be done for you, but you never know. First things first, Becky, and you may want to talk it over with your husband before you take the next step. I cannot nor will  not suggest you stop making payments on your trust deeds. But if you do, you should contact someone who has experience in modifying trust deeds (mortgages in California).

As a broker since 1971, I have kept clients happy for a long time. You can look me up on the Internet. Pull up the California Department of Real estate and look up Richard C Dennis, license #00349415.

If you do take that step, you would stop both trust deed payments because if you should only stop one, the 2nd could file an NOD (notice of default, the start of the foreclosure process in California which is scheduled for 121 days, usually longer however) even though you may be up-to-date on the first. But they most likely would not do that until you are indeed three months behind. Maybe later, based on what our state laws have stipulated that the banks must contact and discuss the problem with you prior to and delay filing the NOD.

Yes, your credit will be affected negatively, but not as much as it would if you let the house be lost to foreclosure. Modification is so much better. I do wish you well.

Dick Dennis
dixiedee13@aol.com