What about a Mortgage Workout?

I have a client that I financed about 2 years ago. She’s a single mom with a good job and good credit. We were able to get her a "piggyback" first and second mortgage to 100% of the $575,000 purchase price.

Fast forward 18 months. The market had changed and her house dropped $125,000 in value. She called to say she was no longer able to keep up with the payments and the lender was foreclosing. Unfortunately we were unable to do anything else to help due to the loan-to-value. 

Fast forward 6 more months. I just got a call from her last week letting me know that her first and second lenders had BOTH agreed to a workout. The first lender rewrote her loan, deleting $100,000 from the balance, and the second lender rewrote their loan deleting $90,000 from the balance.

She said dealing with the lenders was a long and painful process, but with a happy ending because she is now able to stay in her home and make the payments.

I don’t know how many lenders would be willing to do a mortgage work out like this one, but it would make sense for all of them to do it. The alternative is to take posession of the property through foreclosure, spend the money getting it ready to market, pay the sales commission, and still not get the amount of money she has agreed to pay.

Her story is a reminder that no matter how hard it is to do, communication with the lender is important. How else will they know what’s going on with you?

There was a period of time about two years ago that three business associates and I briefly worked in the pre-foreclosure market. We would actually go to the property, introduce ourselves and offer our solution, which was to work with the lender loss mitigation departments. I was amazed to find most of the people facing foreclosure had already given up and just moved out. One couple we talked with on the phone said they knew what was coming and had already bought a cheaper house in another state before the foreclosure started and simply packed up and left.

And so this wild ride called "being in the mortgage business" continues.