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Multi-House Military Mess

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Posted On: 04/02/2008

Q: I’m a recent military widow. Unfortunately my husband left me too soon, and he left me with four houses and six mortgages.

The interest rate on all our loans is now at least 7.72 percent; some are higher. We have spoken with our largest lender regarding a modification and they suggest a modification to 7.15 percent for one year, but this means because of negative amortization (deferred interest) another $22,000 will be added to the loan balance in the next 12 months. Another lender is apparently out of business. The interest rate on these loans is expected to rise as they reset, meaning still-higher monthly costs.

We have property in California and Nevada, two areas hard hit by the housing downturn. We also have townhomes in South Carolina. The investment properties are leased. What can I do?

A: Most efforts to modify loans and bail out borrowers facing foreclosure are aimed at owner-occupants and not investors. That said, there are several steps you can take:

First, sit down with a military attorney and see if any provisions of the Servicemembers Civil Relief Act of 2003 or other laws can help in your situation.

Second, contact the housing office of the base nearest each of the properties and ask what help may be available. You need to sell or refinance each property. The problem is not the number of mortgages, it’s the monthly and annual losses each property represents. At least the properties are rented, and that preserves your cash.

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Third, you need local real estate brokers in each jurisdiction to determine the fair market value of the properties. You then need to sell one or all of them; that may mean selling your current residence, as well as the investment homes. It may be that some properties will have to be sold at a loss.

Fourth, contact each lender and ask about a loan modification. It doesn’t matter if a lender is no longer in business; someone is collecting the monthly payments and someone owns the mortgages. In addition, someone besides you is likely to lose money if a property is foreclosed.

Fifth, ask the tenants if they would like to buy.

Sixth, you need to think about foreclosures and bankruptcy if some or all of the properties cannot be sold or refinanced. Speak with an attorney for details.

Seventh, speak with local veterans groups. There is an enormous pool of good will toward those in the military and their families. Local vets may be able to suggest brokers, lawyers and lenders who can help in your situation at reduced cost or on a pro bono basis.

Q: I have been working with my lender on a loan modification but haven’t been able to get an answer from them. It has now been almost three months since I originally contacted them and every time I get a hold of the lady working on my loan modification she tells me that my loan is still under review. Do you have any idea how long this process takes?

A: Three months is not acceptable. Here’s why: You don’t have time to wait. Your home and your credit are at stake. If you’re having trouble with your loan payments or expect to have trouble then each month means you have another chance to miss a payment or have a shortage.

While lenders are generally not required to modify loans their attitude is beginning to change. The reason? A typical foreclosure produces a $40,000 loss, according to congressional testimony.

Several states are now working with lenders to smooth the modification process. Some states have funds to help borrowers with toxic loans. The federal government has a program called Hope Now – for details call 888.995.HOPE or go to www.hopenow.com.

If your lender is not responsive, contact your state governor and attorney general. Write to your senator and representative. Try the Hope Now program. In your calls, letters and e-mails, do not accuse your lender of anything, instead ask for help and assistance.

If you have an FHA- or VA-insured loan contact their help centers: Call 800.569.4287 (or TDD 800.877.8339) for FHA mortgages and 800.827.l000 for VA information.

Also, speak with lenders regarding the new FHASecure program, which is designed for owners who need to refinance exploding ARMs. Late payments and missed payments can be acceptable under this program, but you generally need good credit.

Lastly, ask local brokers about selling the property. This may not be a preferred choice, but a successful sale and full repayment are always better than foreclosure and bankruptcy.

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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