As a recent series of articles on CNNMoney points out, some homeowners in distress are able to have some or all of their debt forgiven, or have their interest rates on their mortgages reduced to as little as 2% fixed for the remaining life of their loan.

Getting those modifications can be very difficult, however–according to Treasury Department statistics, only 4% of homeowners in distress have been able to get permanent modifications to their loans.

One key word in that statistic is “permanent”. Many lenders are currently putting distressed owners in “trial” modifications, to confirm that the owners can at least make the new, smaller, payments–but during that trial period, the owners are technically not making their full payments, which is in turn causing them to be reported to credit bureaus as delinquent; the end result is that borrowers who are in good faith complying with lenders’ modification plans are finding that they’ve ruined their credit history.

Anecdotally, we’ve found that owners who retain professional help to negotiate with lenders on their behalf tend to have much better results in terms of getting their modifications approved. Those modifications often do still result in damaged credit (often because of deficiency judgments obtain against the homeowners, or “P&L loss writeoffs” that the lenders declare on the homeowners’ credit reports), but for some owners they can still be worth it if they result in avoiding foreclosure or bankruptcy.

If you’re contemplating a loan modification and would like to first explore your options for a traditional refinance, we may be able to help; we can also provide you with referrals to lawyers and negotiators who can help you with your loan modification, bankruptcy, or short sale. If you’re interested in any of those services, please fill out the form below and we’d be glad to assist you.

Loan Modification Request

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3. How Long Do You Have To Wait After A Short Sale Before You Can Get A New Mortgage?

A short sale is a transaction where the seller does not make enough by selling their house to pay off their mortgage(s) and doesn’t have enough cash pay the difference, and where the mortgage holder(s) agree to forgive that difference. (A short refinance (aka short payoff refi or short refi) is the parallel for a refinance, and is treated the same way.) Historically, short sales have been reported on the seller’s credit report the same way that a foreclosure would be, often making it impossible for that seller to get a mortgage to buy a new property until at least 5-7 years had elapsed.

As the number of short sales has been climbing in response to falling home prices during the recent recession, however, lenders have become more forgiving of short sales in terms of how they are treated on a credit report. More specifically, they now usually distinguish between “non-delinquent” short sales (where the seller was current on all payments but simply needed to sell the property (e.g. because of job-related moves) at a time when the market happened to be down, and where their mortgage holder forgives the excess portion of the mortgage without requiring any repayment of that excess (e.g. by filing a deficiency judgment against the seller)) and “delinquent” (or “pre-foreclosure”) short sales (where the seller had fallen significantly behind in their payments before the short sale was concluded or where the mortgage holder filed a deficiency judgment against the seller).

After a non-delinquent short sale, most lenders are requiring at least a 1 year waiting period before a new mortgage can be obtained; some lenders (including multiple of the lenders through whom we can broker loans), however, are now allowing those sellers to get new mortgages as long as they meet all of the other credit requirements for the new mortgage, without any special restrictions or waiting periods. (Note, however, that having a short sale of any sort on your credit report does negatively affect your credit score, and that lower credit score is the one that the borrower would have to use to qualify and that would be used for determining rates.)

After a delinquent short sale, on the other hand, lenders currently are usually requiring a waiting period of 4 years after the short sale before a new mortgage can be obtained; some of our lenders do allow mortgages as early as 2 years after a delinquent short sale if there are significant extenuating circumstances that caused the delinquency and the borrower can document why those circumstances are not likely to recur.

If you’ve had the misfortune of needing to have a short sale, and are interested in exploring your options for a new mortgage, contact us and we’d be glad to review your options with you.

Also, if you are considering a short sale or loan modification now, keep in mind that your future plans to buy another home some day could be affected by how you structure your loan renegotiations today, so it’s important to have your lawyer, agent, and/or future lender in on the discussions to make sure that decisions you make now don’t come back to bite you a few years down the road. Contact us and we’d be glad to set up an appointment to discuss your situation, and refer you to the correct combination of agent and/or lawyer to help you with your short sale or loan modification.

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1. FHA announces new guidelines for post-short-sale mortgages
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