Speaker 1: 1:38

The views and opinions expressed on this podcast are those of the presenter and do not necessarily reflect the views or position of the podcast host. All right, welcome back. Welcome back to another episode of Foreclosure Chronicles, where we help homeowners that are facing foreclosure with options so that they can make the best decision for their situation or exit the property with dignity. I am your host, amy Ellis, and we have her back again, second time in a row, ms Julia Iden, the president of Advanced Mortgage Education, and she's going to talk about the workout, and it's not that workout that you know we need to be doing to get that body in shape for the summertime, but it's the workout with your foreclosure. So, miss Julia, welcome back and thank you again.

Speaker 2: 2:46

Well, I'm excited to be here and talk with the listeners today about what options may be available to them Now. In our last podcast we talked about hardship and that one of the most important things is the homeowner's desire. What do they want to do? Do they want to stay in the house or do they want to get out? So the workout options fall into two buckets cure related workouts those options that would cure the delinquency, turn the loan back into performing assets.

Speaker 2: 3:17

So if the homeowner were saying I really want to stay in the house, then I would be thinking about the cure-related workouts moratoriums, forbearances, loan modifications, claim, advance, borrower assistance. So there's several of them that fall into that bucket. But if the homeowner wants to get out, they're fighting over the money like cats and dogs and if they're not divorced, one of the two of them is going to be dead. If they just want to get out, okay, then it's the non-cure related workouts, and there are several that fall into that bucket the deed and lewd, the short sale, foreclosure sales, full guarantee sales, and so what we'll talk about today is we'll talk a little bit about how those programs work and when would be a good time to use them.

Speaker 2: 4:09

Okay, when it might be applicable for that homeowner. So we'll start talking about those cure related workouts. So the homeowner wants to stay. And we talked about hardships last time in our podcast and one of the hardships was disaster. So if there is a earthquake, a tornado, a hurricane, a snowstorm, a flood, a fire, a mudslide, if this governor of the state has declared it a disaster, okay, then you qualify for what is called a moratorium, and moratoriums go with disaster and disasters go with moratorium.

Speaker 2: 4:49

So as soon as I started talking to the homeowner and they said some kind of disaster, the first thing that popped into my mind was moratorium. So here's how a moratorium works. It's the legal authorization to delay the process and to put off accepting money. So the loan just sits stagnant. We don't report anything through to the credit bureau, so there are no late pays being reported through. And so let's say your house was damaged by a hurricane and you called into the mortgage company and you use the little trick that we talked about in the last podcast to get to the right department in the loss mitigation. And if you didn't listen, you might wanna go back and listen to that podcast.

Speaker 2: 5:34

There were some good tidbits in there. So you get into the loss mitigation department and you're gonna pull your financial package together and when they're talking to you and you say the word earthquake, flood, blizzard, whatever it was, tsunami, whatever the disaster was that impacted my house, and so in loss mitigation, what they'll do is they'll let you go for a certain period of time. Typically it was six or 12 months, depending on how much damage was done to the property. Now I am going to want to see photos of the damage and repair bids, but usually the way your homeowner's insurance works is they only give you a portion of the insurance proceeds up front. So you use that as a down payment with your contractors so that they can get started on the work, and then, once all the work is completed, they send out their inspector and they go yep, everything's been completed. Now we release the rest of the funds.

Speaker 2: 6:27

So I know the homeowner is going to have to be putting out some money to try to get everything fixed and, as an investor or an insurance company, ok. So I got a call from a homeowner who had a house that was a block away from Disney. Had a house that was a block away from Disney, okay. And she said look, I know that the mortgage company, they want to own my house because it's a block away from Disney. And I said no, we don't. We want your money, we don't want your house, we're not in the business of owning homes and we don't want to own your home. We want you to make the payment, okay, and if you can't, then we want you to contact a real estate agent and list and sell the house. Okay, and if you can't, then we want you to contact a real estate agent and list and sell the house. Okay. So if they've had some kind of disaster, we will let them go for six to 12 months, depending on how bad it was and how long it's going to take to get the property back in to condition where they can live in it. And a lot of times, if they can't live in it, they're having to rent something else while they're working on getting the house fixed.

Speaker 2: 7:26

So what the mortgage companies do is called a moratorium and we let you go six or 12 months without making any payments. You just focus on getting the house fixed. We don't report anything through to the credit bureau, so there are no late pays being reported through, no negative ding happening to your credit score. Okay, and so that is a big positive for the moratorium and we are helping that homeowner out by not reporting anything through and letting them get the house fixed. Now, at the end of the time period, what we'll usually do is just take however much money that comes to and just add it back into the mortgage, tack it back on to the end. So we'll just let you go a period of time you don't get referred to foreclosure attorney, you don't get reported to the credit bureau, and then at the end of that period of time you just pick up right where you left off and we'll just tack that year on to the end of the mortgage. No big deal, okay.

Speaker 1: 8:25

So let's talk. Can we talk about, like the COVID moratorium?

Speaker 2: 8:34

Oh, girl, okay, special forbearance. That's the next one on my list Okay.

Speaker 2: 8:41

Historically, there's a thing called a special forbearance where again, we let you go a period of time without making payments but those are reported through to the credit bureau. So, for example, when I was talking to the homeowner and they said to me Julie, I worked at the mall, at a big chain store, in retail, and then after the holidays they laid me off. And so I'm thinking to myself well, she works in retail, so it probably in two or three months at tops, she'll find another job in retail. So I just need to buy her a couple months to get reemployed. So I said I'll tell you what I'm going to do. I'm going to put you on a special forbearance of making half payments for the next six months. So the money you would have used to make the next three mortgage payments, we're going to spread that out over six months. So you're only going to make a half a month, half a payment. So if your payments were $1,000 a month, you'll only pay $500 a month for the next six months, for the next six months Now at the end of the six months. Well, we stretched that money to cover the three payments out to get you through six months. At the end of the six months you're going to be three payments behind. You're going to have three late pays on your credit report, so we'll have to do something at that point to bring your loan current. But I bought you time to get reemployed, to get better. Okay, you've had to have some kind of surgery and so now you need a couple months to get back on your feet before you can make the payments again.

Speaker 2: 10:13

I had a gentleman once who he was a single man, who lived in San Francisco. He did not have any significant other and he didn't have any children, and when I was looking through his financials, I noticed that he had a $500,000 life insurance policy and the problem was he had AIDS, and so he was going through some treatments and some remissions and having some issues. So that's why I couldn't make the mortgage payment, because he was having to stay home from work, because he was sick. And so I said to him hey, I'm going to put you on a special forbearance. Have you ever heard about those companies? You see them on TV. We buy life insurance annuities. Did you win the lottery and you're tired of getting your money in little bitty payments? Come to us, we'll give you a big payment. I said go to those companies because sometimes what they'll do is give you like 50 cents on the dollar for the insurance. You don't have a spouse or children, so it's not like you're leaving it to somebody. Go ahead and cash that in. Get that money out and use it to enjoy the rest of your life, however long you have. You'll be able to make the mortgage payments. You'll be able to pay for whatever treatments you need to have and enjoy the rest of your life. Well, you can. And so I used it to buy time for him to get that taken care of.

Speaker 2: 11:37

So a special forbearance I'm usually buying time to get them better, to get them reemployed, to get whatever you know, whatever it is that they're trying to get settled. Sometimes they're in a lawsuit and the attorney has sent me a letter said yes, we won the lawsuit, but we're waiting for the settlement check to come. And I said I'll tell you what. I'll put you on a special forbearance till the settlement check comes, cause your attorney wrote me. The letter said yes, you won, we're just waiting on the check. So I'm using it to buy time to allow the consumer to fix whatever the issue is. It will have a negative effect on their credit because there will be a few late pays by the time you get to the end of it. But that's the way that I'm using the special forbearance. And then came along 2019 and cover Pearl. If you had told me that that was going to happen back in 2012, I'd have said you were crazy that nothing like that would ever happen in this country. But it did.

Speaker 2: 12:37

And a lot of people were not able to make their mortgage payments, so they have what's called a special COVID forbearance. Okay, and so what they said is if a homeowner calls into the mortgage company and they say I can't pay because of COVID, for whatever reason, but due to COVID I can't pay, then what we were going to do is we were going to put them on a special forbearance, not making any payments over a period of time. We would not report it through to the credit bureau, so it wasn't going to have a ding on their credit. Now here's where we have to be careful, because, okay, consumers don't read Right.

Speaker 1: 13:19

They do not read.

Speaker 2: 13:21

And even if they did read, these documents are written by accountants and attorneys. So even if they did read the letters coming from the mortgage servicers to the homeowner, most of the time they have no idea what they just read on that piece of paper. So here's what the homeowner said. They heard on the phone call with the mortgage company. They heard the person say to them look, if you say the word COVID to me, that you can't pay, then I'm going to put you on the phone call with the mortgage company. They heard the person say to them look, if you say the word COVID to me, that you can't pay, then I'm going to put you on the COVID. Special forbearance.

Speaker 2: 13:49

And, depending on who the investor on the loan was, because VA had a certain term that they would go out to Fannie Mae did Freddie Mac. So I looked at all of them and the longest one was 24 months, but most of them were 12 to 6 to 18 months. Okay, so know that it's going to be anywhere between 12 months to 24 months. They got to go without making any mortgage payments. We didn't report anything through to the credit bureau. Uh, so they had no negative impact on the credit, kind of like the moratorium when they had the hurricane. We're not holding it against you, okay, we're not going to ding your credit for it. And so now, what happens, though, is they said to the homeowner don't worry about it, we're just going to tack it onto the end.

Speaker 2: 14:35

And what the homeowner heard was okay, those 24 payments when I make my last payment on December 2030. Okay, then those 12 payments that you didn't allow me not to make, and then, on January one, I'll make the first payment, on February, I make the second payment, and I'll just make them for 12 months until I've paid it off. But that is not what the paperwork says. The paperwork says that, on December 30th or 31st, when you make that last payment under that mortgage, that the entire lump sum. So if it was a thousand dollar a month payment, and you went 12 months, $12,000, then, on January 1, $12,000 is Wow, and on January 1, $12,000 is done. And so I think there are going to be a bunch of homeowners who get surprised, because they thought they were just going to pick up right where they left off and make those 12 or 24 payments until they were done, when, in fact, it's going to be what we call, in the industry. A balloon payment, one big, giant payment that all comes due at one time.

Speaker 2: 15:51

Okay, now, if I were talking to real estate agents, here's where I'd be saying to them if you're taking a listing on a sale for a property, you need to ask your seller did you participate in a COVID special forbearance? Because a lot and I mean a lot of people did. And if the homeowner says yes, I did, then you need to do some math in the back of your head. Okay, your mortgage payments are $12,000 a month. Even if you got the max of 24, that's $24,000, because $24,000 to find out about that a few days before the closing on a transaction, $24,000 could put you in a short sale situation.

Speaker 1: 16:27

Yep, okay.

Speaker 2: 16:31

And so it's good to ask about that.

Speaker 2: 16:34

If the listing agent were taking a listing today, I'd not only be asking about who, how many lien holders and how much you owe them, but also, did you participate in a special forbearance COVID program?

Speaker 2: 16:45

And so that's what that was, and a lot of people benefited from it over the last couple of years and it's done. They're not doing them anymore. That program is over, but a lot of people did participate in it. So that's the special forbearance. Now a repayment plan this, of all the options that we're going to talk about today, the repayment plan is the only option that the collectors are allowed to offer to a homeowner. So if you wanted one of these other plans that we're talking about today, you really have to get into the loss mitigation department. And again, if you didn't listen to that last podcast, better go back and listen to it. So when you get into the loss mitigation department and again, if you didn't listen to that last podcast, better go back and listen to it so when you get into that loss mitigation department, okay. Then the repayment plan. So here's how a repayment plan works.

Speaker 2: 17:36

Let's say the homeowner was on the phone with the collector and the homeowner has lost their job. They have not been able to find another job. And the collector called and said here's what you're going to do You're going to go and get your checkbook and you're going to give me a check today to bring this loan current. And the homeowner said I don't have the money to pay to bring the loan current today. I lost my job. And the collector said well, the only other option available to you is to make a payment and a half until you bring the loan current. Other than that, we're going to send you to foreclosure. So the homeowner thought that that was the only option available to them. So they said yes, I'll take the repayment plan. They took the last. So they got a thousand dollar a month mortgage payment, but they got to make a payment and a half. So they got to make a $1,500 mortgage payment. So that's every penny they've got, or they borrowed it from their parents, their siblings, their business partner got advance on the paycheck. They scrape together that fifteen hundred dollars. They make the first payment on the plan and they cross their fingers and hope that, before the next payment comes due, that they have a job. But they don't, so they break the plan. Collector calls them up and says you got three options Pay today in full, make a payment and a, or we are sending you to foreclosure. What's it going to be? And so the homeowner said sign me up for the payment in a half. I'm going to do that because that's the only option that I can do right now. I don't have the money to pay in full and I don't want to go to foreclosure. So again, I borrow $1,500 from my parents, I make that first payment and I cross my fingers, by the time the second payment comes due, that finally I'm hoping I'm going to have a job, some kind of job, something, so I can do this. And so then I missed the second payment. Again I break the second plan. They call me up and they said Julie, three strikes and you are out paying full. Today you pay a payment and a half, or you go to foreclosure. What's it going to be? And I said sign me up for the payment and a half, because that's all I can do. And so I make the first payment and then again, I don't make the second payment.

Speaker 2: 19:34

So inside the mortgage servicing world, that's what we call a chronic delinquent, when a homeowner goes in and out of the default three times like that and they break three plant.

Speaker 2: 19:49

They are coded as a chronic delinquent and after the 90 days of being in default remember we talked about this last time after 90 days, then they're released to the loss mitigation department because collections wants to get their crack at collection so they can get their bonus at the end of the year, and so all chronic delinquents are called out of the loans that are referred to loss mitigation at the end of the 90 days.

Speaker 2: 20:13

So by agreeing to these three repayment plans because you thought it was the only option that you had available to you Now, you have undone your opportunity to do a workout deal with the department whose job it was to help you, because you're coded as a chronic delinquent and they can't help you. Remember when I said these homeowners go off in the wrong direction into collections and they die here and they can't get past it. They wind up at foreclosure sale and they just don't understand what's going on. And they agreed to something they never should agree to. Now think about this If for the last three months they have not been able to make a thousand dollar mortgage payment, what makes you think for the next six they're going to be able to make 1500?.

Speaker 1: 21:04

No way. Exactly.

Speaker 2: 21:06

Okay, and even if they do, the homeowner called up and said for the last six months I haven't eaten nothing but ramen and I have not left my house because every penny I earned went to pay that $1,500 a month. And I have not left my house because every penny I earned went to pay that $1,500 a month. And I did it. I just sent in the final, the sixth payment. Yoo-hoo Called to the mortgage company, said girl, that last check is on the way. I'm so happy I'm done. And they said stop, I got to tell you something.

Speaker 2: 21:34

You see, for the last six months you've been in default, so there's been a $50 late fee every month. For the last six months you've been in default, so there's been a $50 late fee every month for the last six months. So you owe us $300 in late fees. Plus, we hired an agent to do a drive-by Now, don't mean the bang bang bang drive-by, but they drove by the house and that cost us $150 a month. So that's $200 a month times six months. You still owe me $1,200. So you are not done. I'm going to have to put you on another repayment plan. And at the end of the repayment plan, what are they told Sorry, there's been late fees and drive-by fees, so you're still not current. And so the homeowner gives up. They stop answering the phone, they stop opening the mail, okay, because they can't take it anymore. They just don't understand.

Speaker 1: 22:22

So they've been given pretty much the runaround because they didn't listen to the last podcast show to get that special trick and number to bypass all this runaround, exactly.

Speaker 2: 22:42

And you can see why, really, dealing with losing a job and getting a divorce and your mortgage company and all your credit cards, you could see why someone really could be at the brink. Okay, and so if anybody ever does say I'm at the brink, they really do need to talk to a counselor. All right, there are options available out there. You just got to get to the right department. Okay, you know, one day I'm going to stand before my maker and he's going to say what did you do with the talents I gave you? And I'm going to say, well, at first I made a bunch of money for the mortgage companies, but then, at the end, I used my skills and my talents to help your people who fell to their knees and prayed out oh God, there's got to be somebody out there who can help me. Ok, this thing is going to foreclosure. I can't seem to get anybody on the phone. I'm trying to do the right thing and I'm desperate, and you know it. You know it, amy. That's why you're doing what you're doing today.

Speaker 1: 23:40

That is true, because there's there's nothing out there for actual homeowners. There's things out there for real estate agents or real estate investors, you know, to try to help the homeowner, but information to actually help the homeowner few and far between. And that's why I have you here and a host of others, because we got to get the word out. We do.

Speaker 2: 24:07

We do, we definitely do, and it really is the homeowners. This is the biggest financial investment they have made in their life and they need to be smart about the decisions that they're making and they need to make a good decision. Not for their mortgage company, not for their investor, not for their insurance agents company Okay. Not for the real estate agents and the attorneys. They need to make the best decision for themselves personally, okay and so as a homeowner, okay and so. Uh, as a homeowner, if you want to stay in that house, we've talked about the moratorium. If you've had a disaster, that's applicable for you. We talked about the special forbearance to buy you time to get re-employed or to get better or to get back on your feet, and so might have a little ding on your credit, but we'll do something at the end to bring it current. We talked about the COVID special forbearance and how that's going to work and how that helped a whole bunch of people Loan modification. Now, in the loss mitigation department, where it is a negotiator's job to help homeowners, we do this the most because it is so versatile and we are. What we're doing is we're modifying your promissory note and we can modify a couple different things. I can change the type. So if, when you originated the loan, you got an adjustable rate mortgage and rates are going up, up, up and it's putting you in a position where you can't afford to make the payment, I can change it from an adjustable rate to a fixed rate, okay. Or if you had an extremely high fixed rate and the rates had been going down, down, down, then maybe I could change you from a fixed to an arm to drop the interest rate lower, to make it more affordable for you to be able to make the payment. So I can change the type. I can change the rate. Okay, I just talked about how I could do that. I can capitalize the delinquency. I want you to think about it like rolling your closing cost into the refinance. So all those late pays, all the drive-by fees, all the late fees, I tell you what homeowner, don't worry about bringing a dime to this deal. We're just going to take all that and we're going to add it to your unpaid principal balance called capitalizing the delinquency, and then re-amortize the whole thing so we can change the term. So we can change the type. We can change the rate. We can change the term.

Speaker 2: 26:42

So if, when you got the loan it was a 30-year mortgage and you have been paying for 10 years. And I add 10, I take all that stuff, capitalize it, I add it on to the unpaid principal bonds, but then I take that and re-amortize it over 30. Now, on loan origination, they usually don't go much more than 30 years. But on the backend and workouts, I've seen them take the term up to 40 years. And if I could take you from 20 to 40, I could take your mortgage payment and cut it in half by doubling the term and make it affordable for you able to make the payment. So I can change the type, I can change the rate, I can change the term, I can capitalize the delinquency Okay.

Speaker 2: 27:28

And then the last thing they can do is what's called a cram down. So when everybody's value hit the bottom back several years ago, what the mortgage companies did is they said I'm going to order an appraisal on your property, okay, and you owe me $200,000. That's your unpaid principal balance. But the appraisal came in at 150. So what we're going to do for you is we're going to cram down your balance from what you currently owe me down to what the current value is. So you owe 200, but it only appraised at 150. So I'm going to drop it to 150, which sounds like a great deal.

Speaker 2: 28:12

However however however, at the end of the year, on that loss, the investor could file a 1099 with the IRS. And in accountant speak, when the investor files a 1099 with the IRS, the IRS says you, investor, you had a $50,000 loss. That's just terrible. But in accountant speak, if you had a loss, somebody else had a gain. And they turn to the homeowner and say we view that as if they stroked you a check for $50,000. And it could put you into like a bonus check. Okay, it could wind up as high as a 50% tax bracket On $50,000, that's up to $25,000. So if I were the homeowner, I might be saying mortgage company, you can change my type, you can change my rate, you can change my term, you can capitalize the delinquency, roll it all in there and amortize it over 35 years okay. But I don't want you to touch my balance because I feel that in the future the values will come back and if I don't have to pay taxes on a loss, then I don't want to have to pay taxes on a loss. That might be better for me all the way around. Okay, so that's a loan modification and that's how it would work and you could see why, as a negotiator, they would use this the most because they can really use this to cut a payment way, way down. Now my rule of thumb on a loan mod is if I look at their mortgage payment so let's say your mortgage payment is a thousand dollars a month and then I looked at your financials, I remember one of our little tidbits in our last podcast was don't fix the numbers because you could undo your opportunity for a workout deal. Needs to be true, needs to be accurate, needs to be correct. So when they looked at their financials and I see that they earned $5,000 a month but they spend $5,500. So they're $500 in the haul.

Speaker 2: 30:24

My rule of thumb here is as long as you don't have to cut your mortgage payment more than 50%, we might be able to make it work. When you've got a 40-year mortgage and you've only been paying for three years so you still got 37 years to go, okay, and you only put 3% down on the house, so there's no equity in there and it's more than a 50% I got to cut your mortgage payment by 75% in order to make it affordable then the loan mod is probably not going to work for you. So when a homeowner says I'd like to try a loan mod. My question is is how much is your mortgage payment and how far in the negative are you? Is it going to be more than a 50% reduction? Because if it's more than 50%, let's not waste our time. Let's not waste four months trying to do a loan mod. That's not going to work for you when you need to call a real estate agent list and sell your house because you cannot afford to make the payments. Eventually the mortgage company will turn you over to a foreclosure attorney. Homeowner thinks that there's a manila folder with their name on it that's been lost at the mortgage company and they're not going to get referred over. No, everything's done electronically. If you're not making the payments, you are being referred to an attorney. You're not falling through the cracks. Okay, you need to be talking to the loss mitigation department. Try to work out a deal. But if a loan mod's not going to work for you, if it's more than 50, then you're going to have to probably go with a non-cure workout deal. So that's a loan modification.

Speaker 2: 32:03

There is the claim advance, and this was the couple that had the young daughter who had leukemia, who had reached out to their mortgage company and said we're going to be on family leave so we won't be getting paychecks. Here's a letter from the doctor, here's a letter from our employer. And I at the mortgage insurance company said, hmm, I either advance the $3,000, $1,000 for each month's mortgage payment the $3,000 that covers them for three months or I pay a $10,000 claim payment, and so a claim advance is where we advance the money to the homeowner. We do never send it to the homeowner, we always send it directly to the mortgage servicer who puts it in suspense. Each month, as the payment comes due, they take the money out of suspense and apply it to the account. They don't get anything reported to the credit bureau, they don't get any collection calls.

Speaker 2: 32:56

Okay, so claim advance is coming from private mortgage insurance, okay. So when I was a negotiator and I was calling those homeowners and they answered the phone and I said, hey, this is Julia Iden with the mortgage insurance company. I'm calling you to talk with you about your loan, and they said, oh yeah, that's the insurance I like. Quack, quack the duck. If I get hurt and I can't make make my payment, you make the payment for me. I said, no wrong insurance yeah, okay.

Speaker 2: 33:26

So what's the deal? Then I said remember, when you bought the house, you didn't have 20 to put down. Ergo, they required private mortgage insurance on the loan. So the two benefits to private mortgage insurance is, one, you got in with less than 20% down. And two, if you were ever in trouble, that mortgage insurance company will bend over backwards to try to help you because they don't want to have to pay that claim. And if I could do a loan mod with you and fix it so you can pay on a go-forward basis, then, hey, I don't have to pay a claim at all. That's a great thing. Let's try to work that out. So, claim advance I helped you before you were even in default.

Speaker 2: 34:07

Or I think I used the example in our last little podcast about the engineer. He's a train engineer and had an accident in the train and when they took him to the hospital he didn't pass the drug test. He was on 12 months suspension from work, no pay, okay. And so the mortgage company called me up and said hey, you have the private mortgage insurance on this loan. It's six payments behind. We're about to refer this over to a foreclosure attorney, but I thought that maybe you might want to help this guy out. I said I do. I advanced 12 payments to the mortgage company. Six brought the loan current. So the premium started coming back in the door. The loan was current, the homeowner was able to make the payments. No more late fees, no more lates reported to his credit report.

Speaker 2: 34:57

All right, and so claim advance borrower assistance. They are coming from private mortgage insurance. So if you have private mortgage insurance, there are additional benefits to you should you find yourself in trouble, available through the loss mitigation department. So if a homeowner was saying that they wanted to stay, those would be the options that would be floating around in the back of my mind. Okay, now they want out. They're not interested in staying in the house, they want to get out. They've had it. They've had it with the mortgage company, they've had it with whatever it is that's happened to them. They just want to get out. So what are the non-cure?

Speaker 2: 35:40

Okay, so most of the loans originated today are what we called non-assumable instruments. They have a due on sale clause in them that says if you sell this property, your loan is due and payable at full at that point in time. But there are some loan products out there, for example, va, that allows them to be assumable. Now most vets don't want to do that because they used their certificate to get their VA benefits benefits. But when they sell the house then the benefits come back to them and they can use them to buy another house. But if they let it be assumed then it ties up their certificate. So while most of the VA loans are assumable, most people don't assume them because they're trying to use that cert to buy the next house. So the vast majority of loans out there are not non-assumable instruments.

Speaker 2: 36:38

Now, when my husband and I bought our first house a long, long, long, long time ago, girl, the interest rates were 12% at the time and we bought a non-qualifying assumable mortgage at a fixed 9% and we danced in. Okay, we danced in at 9%. So even when I hear the buyers today going, oh, I'm like honey, right, don't complain to me about seven. Okay, so an assumption it may be. And I've seen fannie and freddie wave the do on sale clause in the loss mitigation department and allowed the loan to become assumable. Okay, so the homeowner found somebody who wanted to buy their house, but for whatever reason, let's say the interest rate is a fixed three and a half percent and the buyer's like, hey, if I go to get a loan today I'm paying twice that. I want to go through loss mitigation. Let's see if we can do an assumption, and I can assume it Now.

Speaker 2: 37:43

The way it works is we take the new homeowners and we add them onto the loan and for 12 months it's both the old homeowner and the new homeowner. We go 12 months of good, clean pay history. Then we do a quick claim deed from the old homeowner to the new homeowner and we do a release of liability for the old homeowner. So they're now off the mortgage and it's just the new people. And if during the first 12 months the new people don't pay, now I've got two people on the hook for this loan the old people and the new people. No skin off my nose. I'll waive the due on sale clause and allow it to become assumable to get a workout deal to go through. So assumptions are in our non-cure bucket.

Speaker 2: 38:26

Then, after our assumption, we have what's called a make wholesale. Now this is your traditional residential real estate transaction where the seller, the lien holders, are paid 100% in full and the seller walks away with cash in their pocket. Okay, and because all the lien holders are made whole. We call them make wholesales. So that's your traditional residential real estate transaction. Okay, it's a make wholesale. Then we have what's called a short sale. Now let me tell you the only thing short about a short sale is the payoff on the loan. Okay, so when you owe $100,000, but fair market value is $90,000. I as an investor, I as an insurance company, I as a mortgage service company, no, it doesn't matter what you owe me, it matters what fair market value is. You can owe me $100,000 all day long Doesn't mean you're getting an offer for $100,000. So we agree to accept a fair market value offer of $90,000. That's called a short sale because the proceeds from the closing are short, the payoff on the loan. So that's a short sale. So it's possible to do those. Then we have what's called a short sale. So it's possible to do those.

Speaker 2: 39:38

Then we have what's called a short sale pre qualification, like the buyer went to the loan officer and got pre-qualified for a mortgage loan before they went riding around with a real estate agent to make sure that they could afford the property that they were about to write an offer on and before they go into a legally binding contract. They wanted to make sure that they could afford the property. So when the homeowner wrote their hardship letter and said we're fighting over the money like cats and dogs, we just want out, is what they wrote about them in the letter. And they said and what we want you to do is go ahead and order an appraisal, take my financials they are attached Load it all into your computer system and generate me a short sale pre-qualification letter. Amy, we pre-qualified the sale of your property. Now we know you owe $100,000, but we're going to give you a pre-qualification letter that says we'll accept $90,000. We're going to pay 6% in commissions, we're going to pay 2% in closing costs and this letter is good for 90 or 120 days. So as soon as you get an offer that meets these requirements, we are ready to go to closing on this transaction. Short sale all right, then we have a full guarantee sale.

Speaker 2: 41:05

So this is when you're gonna hear the words black mold, lead paint, toxic waste, meth, lab, chinese drywall. Something has happened to this property severe insect infestation and there is no way that it is worth. Look, the homeowner packed up their stuff in the middle of the night and they moved out and left the house vacant and there are unscrupulous people driving around in the towns looking for these houses so they can get in and cook, crack and run drug rings and prostitution rings I mean all kinds of bad stuff they do in these houses, amy, okay, and so that's why we're having these drive-bys done every single month when this homeowner's not paying, to make sure this stuff isn't going on. All right, we don't want this.

Speaker 2: 41:54

I've gotten those calls from Detroit when the person said to me I'm the only person living on the block, every other house is vacant and half of them are drug houses and the other half are prostitution. And I'm leaving and I'm taking my children because we can't walk to the car for fear of taking our life into our hands because of the kind of people who are roaming around this neighborhood. Wow, and it's a legitimate concern. Wow, and it's a legitimate concern. And, as an investor, when I underwrote and invested on all these loans and they're going to foreclosure, I'm the one who's taking the loss on the back end. I think about that.

Speaker 2: 42:32

Okay, so the homeowners packed up in the middle of the night. People got in there, started cooking meth and we didn't realize it till the agent found it a couple months later. And so now, because all that stuff soaked into the drywall and down into the floors, it's all got to be and it's got to be carted off to a hazardous waste dump because it's considered to be hazardous waste. Now all we have left is a vacant lot. We sell the lot for $30,000. It was a $100,000 loan with 10% private mortgage insurance. So the insurance company writes a check for 10% of $100,000, $10,000. So the mortgage company gets the $30,000 check from the lot sale. They get the $10,000 check from the insurance company. They have surpassed their full guarantee of coverage and they are still in a lost position. So when it's a full guarantee sale, I'm hearing words like black mold, lead paint, meth, lab, toxic waste. Something really bad has happened. Okay, that's going to be your full guarantee sale.

Speaker 2: 43:38

And the reason that this is important to the mortgage company is because when the agent called up or the homeowner called up and started telling the negotiator about this, the negotiator called me at the insurance company or the investor and said, hey, this thing's supposed to go referred over to the foreclosure attorney next month, or there's a foreclosure sale date two months away. I said, whoa, hold the phone, call the foreclosure attorney. Postpone that sale. I do not want to be in the chain of title because in the future, when somebody turns around to sue over this black mold, lead paint, toxic waste, meth lab, I, the investor, have deep pockets and I don't want to go to court over this. So tell that attorney to postpone the foreclosure sale. I want to give the agents two years to sell this house and I'll sell it for 20 cents on the dollar to an investor buyer and I don't care, because I just don't want to be in the chain of title on this property. So the homeowner was bringing it up, the agent was bringing it up and when the negotiator was smart enough to realize, oh, we're going to be in a lost position here for the investor in the insurance company and let me get them on the phone because they might not really want title to this, we might be willing to work with that agent and an investor buyer and sell this house. Ok, so that's our full guarantee sale.

Speaker 2: 45:00

Then we have what's called a deed in lieu. That's think about it like a voluntary repo on your car. You said to the bank look, I can't afford to make the payments on the car anymore. You don't have to repo it from me. I'm just going to give it back to you and we're going to call it even. Okay, and so and so the homeowner said I can't afford to make the payments anymore. So I tell you what I'm going to do. I'm just going to deed the house back to you. You don't have to hire a foreclosure attorney. You don't have to spend months and years trying to foreclose on me. I'm just going to deed it back to you Deed in lieu of foreclosure. The benefits to a consumer historically with a deed in lieu have been no deficiency judgments and no 1099s.

Speaker 2: 45:44

Okay, Now we're going to require that the homeowner list it with a real estate agent at fair market value for 90 days. So I want you to at least try to sell it first. If at the end of the 90 days you haven't got an offer, then I will take it back as a deed in lieu. Now, remember, the benefit to the mortgage industry of doing a deed in lieu is we get to forego all the time and all the expense associated with the foreclosure itself. So two days before the foreclosure sale, when the homeowner talked to the foreclosure attorney and said isn't there something we could have done?

Speaker 2: 46:22

I heard about this thing called a deed in lieu, where I can just deed it back to the mortgage company okay, in lieu of, instead of foreclosure. And that's when they called me up and I said too bad, so sad, spent all my time and all my money. There is no benefit to me now in doing a deed in lieu. So, homeowner, if you want to do a deed in lieu, you need to get into the loss mitigation department as soon as possible. Know that the closer you get to foreclosure, the less likely they are going to take this as a deed in lieu.

Speaker 1: 46:58

So can I ask a quick question? So in North Carolina they can do a deed in lieu, or is that they?

Speaker 2: 47:04

can do the deed in lieu in any state. It's just that, remember, the closer they get before, see what happened is the homeowner had no idea about this and they found out at the very last minute about it and now it's too late. So if they wanted to do that and they needed to know in the very beginning, now something to think about. So I'm talking to the homeowner who says I hate mortgage companies because of the way that I have been treated. I do not think it's fair. I'm never going to buy another house again. And when I'm talking to grandma Mary, who is 80 years old and she is telling me that when she gets out of this house she's going to the rest home and she'll leave there in a pine box. She's never going to own another home, okay, she just wants out. I say to her go deed in lieu. Okay, list it for 90 days with a real estate agent at fair market value. At the end of the 90 days, if you're not done, deed it back to the mortgage company Now to start over again and get another mortgage loan. The rule of thumb is if you do a short sale, it'll be one to three years depending on where we are in our origination market, but one to three years from the time you close on to that short sale to the day that they will originate another mortgage loan for you. Ok, if you did a deed in lieu, ok, we didn't have to spend all the money and go through the long foreclosure process, but we still had to take it as a foreclosure. You deeded it back to us five years before we give you another mortgage loan, and if you let it go to foreclosure, seven years, ok, before we'll give you another mortgage loan. And if you let it go to foreclosure, seven years, okay, before we'll give you another mortgage loan.

Speaker 2: 48:44

So when I'm talking to a homeowner, I'm thinking about is your hardship voluntary, is it involuntary, is it temporary or is it permanent? Okay, do you want to stay in the house? Are we talking about cure-related workout options or you just want out? So we're talking about non-cure-related workouts. And if you just want out, are you going to start over again? Am I talking to a nice young couple who are in their 30s? And then?

Speaker 2: 49:11

In which case I said I don't know, deedon. You could go, deedon, lou, but you'd be better off to do the short sale or make wholesale, because then you don't have to wait as long and I know that they are going to say that they are never going to buy another house and I've gotten this call before. Ok, I don't care. I don't care how bad the ding is on my credit report. Let it go to foreclosure. Ok, I don't care if it's seven years, but after two or three years of paying somebody else's paying rent, somebody else's mortgage payment, they're going to come back and they're going to say I wish I had done this a different way, julie.

Speaker 2: 49:47

I wish somebody had told me that if I had done a short sale I only would have had to wait one to three years. Okay, but if I did a loan mod I was going to have to wait five years and if I let it go to foreclosure I was going to have to wait seven. Because now I really want to buy another house and I believe in homeownership. Okay, you would think if anybody was on sour on homeownership it might be me All right, the whole career talking to homeowners who couldn't pay. But I believe in homeownership. It's a wonderful thing. But if you are not financially mature or something bad happens to you, a mortgage just could really, really really hurt your credit.

Speaker 2: 50:29

And so those are the options. There are a bunch of options to homeowners and there are a bunch of homeowners who'd qualify. They just got to get to the right department and that was a workout.

Speaker 1: 50:40

Wow, this was great information. There was a couple of them that I didn't even know, especially the the crunch down was. Is that what you call it down?

Speaker 1: 50:52

the cramp on your balance. Never heard of that one, wow. So, everyone, you must listen to the last episode to get that nugget that Julia talked about, to get you to the right department. Just calling that number on that statement once you're in default is not going to cut it. It's not going to cut it. Oh goodness, this has been wonderful, wonderful. Any last parting words, miss Julia, to our audience.

Speaker 2: 51:26

You know, don't give up, don't give up, those are my parting words.

Speaker 1: 51:34

Right, that is, and that that is true. Do not give up. There are people out here that can help you, and that is true. Do not give up. There are people out here that can help you. There are resources out here. You just need to do your research and find them, and hopefully you're getting getting that information on this podcast. Julia, thanks again for delighting us and giving us a workout today, and hopefully we can have you back to talk about something else, because you are just a wealth of knowledge from the back end of the mortgage industry. I really do appreciate you.

Speaker 1: 52:07

All righty, I'll talk to you later, all right, thank you so much. Bye-bye, bye.