Expert: Dick Dennis - 6/26/2010

Question
QUESTION: I have a double-wide on 10 acres currently worth about $60K with a mortgage of $138K. I am 62 and can't see the value of Arizona land making up my lost equity by the time I retire in 4 years. How do I best work with U S Bank to get them to somehow forgive $78K of lost equity? I do not qualify for Modification. If it comes down to it, I will move and rent. Doesn't it make sense to do something now instead of waiting til I retire?
Thanks,
Richard

ANSWER: You are officially member in a very big club, Richard. My guess is that you bought your property somewhere in 2005 or 2006. And if you've been paying attention to the stories online and elsewhere, there are more than four million people with whom you share membership in the Underwater Club. Everybody is trying to solve their problems and banks are not cooperating.

You probably don't qualify for modification because you are up to date with your monthly payments. And you're current with your payments because you want to maintain your good credit. You are to be complimented, but you can't have everything.

I don't believe that real estate values will recover before the four years when you retire. You have to realize that at the time you bought your property the real estate market was at its zenith. It'll be many years before it reaches that point again.

As long as you are willing to let the property go and then rent, then you may want to do what one of my clients did. After corresponding with his lender for a couple months, he told them he was going to stop making payments, stop maintaining the property and let it go to pot. Then he actually did stop making his payments for two months. THEN the bank called him and they worked out a modification (mind you, the client never missed a payment before and his credit was fairly good). They lowered his monthly payments down about $400 and his interest rate TO LESS THAN 1%.

He is now making his payments regularly. I do wish you well.

Richard C Dennis
CA real estate broker
dixiedee13@aol.com

---------- FOLLOW-UP ----------

QUESTION: You are right about my situation. What are the odds it will work out for me the way it worked for your friend? Did he get a principle reduction?
If I can't reduce principle , how can I ever get out from underneath the loan? Won't I have to do a short sale or default eventually?

Answer
What they did, Richard, was to NOT change the amount of time he had to pay the mortgage off. It was originally a 15-year pay plan. That they didn't change. By doing that, they in effect changed the principal. That means that if he continues until it is paid off at the same interest rate reduction, they will have reduced his principal by $20,000 (it was a second mortgage and he did not change the first in any way).

All lenders do not do what he had done for him. But most of them will indeed give a modification. At best, they put "good credit payors" at the back of the line because they think they have a borrower who actually believes in paying his debts as originally contracted. But when the borrower does indeed fall behind, then they dismiss that thought and see if they can somehow save that loan rather than having to let it fall into foreclosure and having to spend more money to ultimately get it resold.

Part of the problem solving some lenders do is to suggest the borrower sell the property on a short sale. Therefore, you would have to find a Realtor to help you in that end because banks will only do short sales with a Realtor in the picture. Maybe you should see what attitude your lender has in mind.

You have to keep this in mind, too: I don't think too many banks have had to deal with land with a mobile on it. They may have additional costs in letting it fall into foreclosure. Or not . . . all they would have to do is to move the mobile off somewhere and let the land fallow.

There is a possibility for you: I have been talking with an agent who represents some investors. He says he operates in all 50 states. His investors will buy the mortgage from the lender at a discount sufficient enough to allow them to make a profit by giving the borrower a loan FOR AN ANOUNT EQUAL TO THE VALUE OF THE PROPERTY. That might be of interest to you. I will be talking to him on Monday.

Dick Dennis
dixiedee13@aol.com