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Too Late to Modify?

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Posted On: 07/09/2008

Q: I’m four months behind in my house payment. Can I still go to the lender and ask for a loan modification?

A: You certainly have the right to ask, but the odds are overwhelming that you will be foreclosed.

Like many borrowers you likely have an impossible situation. If you were current on your mortgage you would have no grounds to ask for a modification. Having missed four payments your credit may be so damaged that you no longer qualify for either a loan modification or a new loan with another lender.

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Borrowers hit with rising payments or who cannot otherwise pay their mortgage should not wait for months to resolve the problem. Instead, try to refinance or modify the loan while you still have good credit, the time when you have the most leverage in the marketplace. The moment you see that a payment will be missed contact an attorney, legal clinic, your state attorney general or a community housing group and ask for help. Don’t be embarrassed and don’t delay.

As to national programs designed to “help” those with exploding ARMs and other toxic loan products, the odds are against you. As an example, in May HUD issued a news release that said that the “FHASecure product has helped 200,000 homeowners refinance their mortgages and avoid foreclosure.” However, as of the end of April, HUD reported that only 2,276 delinquent conventional borrowers refinanced with an FHA loan. In other words, the sentence in the news release means that about 198,000 borrowers with good credit refinanced – and only about 2,300 borrowers were saved from foreclosure.

If you have a toxic loan, one which will surely lead to higher costs in a few months or in a year, think about refinancing now, before your credit is damaged. Gather your paperwork and be prepared to fully document your income, assets and debts. Also, be aware that many refinancing programs require little or no cash at closing -- instead the new lender will pay the closing costs in exchange for a larger loan amount or a somewhat higher interest rate. This “higher” interest rate is not a problem if the new interest level is less than the rate you’re now paying or will shortly pay.

A caution: Many toxic loans have stiff prepayment penalties that assure that borrowers must either pay higher monthly costs or face grossly unjustified penalties. Beat the system by planning ahead. Start saving now for higher payments -- and then refinance as soon as the prepayment penalty period ends.

There are ethical and honest lenders out there. You can get their names from real-estate brokers you trust and from friends, co-workers and neighbors.

Q: Our home was purchased in 2006. About two months ago, we received a surprise visit from a consulting engineering company who wanted to inspect our “sun room” that we had allegedly added onto our home. The structure is not shown in local real estate records. Our sale agreement said the sellers “knew of no condition regarding the property that would constitute a violation of zoning, housing, building, safety or fire ordinance that remained uncorrected at the time of the real-estate transaction.” Should the sellers pay for the removal of the unauthorized room?

A: Why did you admit an “engineering company” to your home two years after the close of the sale? For whom did they work? Who was paying their fee? Were they involved in the original transaction? Did they seek to sell you services at this time?

Is the local government complaining about the sun room? For instance, has a building inspector asked to see the room? Have you received a citation or summons? If not, is there any problem here?

Does the addition appear on property-tax assessments? They usually show the property, an outline of the house and the square footage.

At the time of purchase did you specifically ask about the addition? Did you have a professional home inspection?

On the matter of the addition, the sellers may not have “known” that the addition was not recorded. For instance, the addition may have been added to the property prior to their ownership. As well, public records could be wrong -- the sellers or prior owners may well have proper paperwork.

Your next step should be to contact the sellers and their broker. With the passage of time if you do have a claim the complexity and cost to pursue it may be so great as to make such an effort impractical. Please speak with an attorney for specific advice.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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