How much can someone charge on a loan mod?

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How much can someone charge on a loan mod?

Herm M.Pro Member
Real Estate Investor · NorCal, CA · Member since 2009 · 273 posts · 43 votes

A lot of us short-sale flippers have the same goal: to find as many listings as possible. But we all run into people who aren't willing to short-sale their property, and they would like to attempt a loan mod.

I haven't done any loan mods, but the lady I work with does them occasionally, and charges $2500.

Getting a loan mod and versus getting a short-sale approval is essentially the same amount of work. A short-sale flip in California will make us $25,000+ per deal, so I don't see it being worth our time to do the same amount of work for only 10% of the income.

So here's my question:

Can we charge our clients based on how much we reduce their principal loan balance, on top of the $2500 standard fee?

We will be collecting nothing up-front.

Let's say someone owes $600,000, and successfully complete their loan mod and their balance is reduced to $500,000, not to mention I get their rate dropped. I will charge $2500 for dropping the rate...and I want to charge a percentage (I'm thinking 7%) on how much I reduce their principal.

So in this scenario, I would charge $2500 + $7000, because I reduced their balance by $100,000.

As long as the customer agrees, is this legal?

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Josh Green
Financial Advisor · Tampa Area, FL · Member since 2008 · 956 posts · 214 votes
17y
Originally posted by Justin S.:


HMann

How do you plan to prove hardship if the homeowners can afford the property but chose not too? If the homeowners can afford the property and do have money in the bank, how are you protecting them against a deficiency judgement and are they still willing to sell their house knowing that a deficiency may be filed?



C'mon Justin! It's a simple conversation really.....

LoanMod: Hi, (insert bank name here), my client has $45000 in the bank and doesn't want to pay their agreement with you anymore because the market tanked. They owe you $685,000 and the house is worth $300,000. As you can see, they quit paying their mortgage 3 months ago.

Bank: Oh, I do see that. You mentioned that they have $45000 in the bank, they can afford the $4000 a month payment! Why aren't they paying us?

LoanMod: Well, cause they don't want to!

Bank: Oh, ok. How about if we just make it a $200,000 loan? We'll give them an extra cushion just incase the market continues to fall. We don't want them to be in this situation again! Afterall, we are your friendly neighborhood, not-for-profit bank!

LoanMod: Eh, $200,000? HMMMM, Can you throw in a toaster?

Bank: Let me check with my supervisor.....(beautiful orchestral pop music)........Hi, LoanMod? Sorry about the wait. My supervisor gave me clearance to not only give you a toaster, but also a loaf of bread since you had to wait on hold for 28 seconds.

LoanMod: Can you make it wheat bread?

Banker: Absolutely!

LoanMod: Thanks!

Banker: No, No, No, THANK YOU!
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  • Nick J.
    Residential Real Estate Broker · Payson, AZ · Member since 2009 · 3k+ posts · 1k+ votes
    17y

    have you closed any deals yet to say, 'it's not worth your time' ?

    I would think any money is worth your time when just starting out with a lot to learn still.

    Most importantly, how do you expect to get paid if the mortgagee can't afford their payments to begin with. How are you expecting to collect $9500 from them?

    good luck to ya either way

    1Reply
  • Jeffrey Gordon
    Investor · Spokane, WA · Member since 2009 · 76 posts · 16 votes
    17y

    loan mods are under a lot scrutiny, I would be sure you know the requirements for licensing etc.

    jeffrey

    0Reply
  • Josh Green
    Financial Advisor · Tampa Area, FL · Member since 2008 · 956 posts · 214 votes
    17y

    i am 100% anti-loan mod companies.

    there are plenty of info for consumers to do a loan mod themselves.

    in my opinion, loan mod companies are in the same category as credit repair companies....i title that category 'SCUMBAGS'.

    0Reply
  • Herm M.Pro Member
    OP
    Real Estate Investor · NorCal, CA · Member since 2009 · 273 posts · 43 votes
    17y

    Nick, we both know that just because somebody isn't paying their mortgage, that doesn't mean they don't have $10,000.

    The lady I spoke with last night owes $685,000 on her property. It is worth $360,000.

    There are plenty of people in Richmond, CA who owe $400,000 on their property, and the properties are literally worth less than $100,000.

    Some of these people have money, but aren't paying for their homes because they owe 2x-3x what it's worth.

    0Reply
  • Nick J.
    Residential Real Estate Broker · Payson, AZ · Member since 2009 · 3k+ posts · 1k+ votes
    17y

    do we both know that?

    0Reply
  • Josh Green
    Financial Advisor · Tampa Area, FL · Member since 2008 · 956 posts · 214 votes
    17y

    i have yet to hear a firsthand experience of anyone getting their principal reduced. i've read somewhere that less that 1% have received a principal reduction. i think that number is even inflated.

    i have many, many contacts in banks (and i sit at my bankers desk all day) and am seeing that people that are behind on their mortgage aren't behind because they just refuse to pay due to the value of the home, but can't pay.

    i certainly hope that you didn't promise that lady you spoke to that you can get the lender to drop her loan amount to the amount the home is 'worth'. it will NEVER happen!

    the bank put out the $$$ for her to have the home, she agreed to the terms stated, she needs to live with that fact.
    if she paid 685k and the house went to $1-million, would she have allowed the bank to get the $315k in equity? i think not..... my opinion on that may be best for another topic though.

    1Reply
  • Tony Walker
    Real Estate Consultant · San Francisco, CA · Member since 2009 · 94 posts · 28 votes
    17y
    Originally posted by Josh Green:
    i am 100% anti-loan mod companies.

    there are plenty of info for consumers to do a loan mod themselves.

    in my opinion, loan mod companies are in the same category as credit repair companies....i title that category 'SCUMBAGS'.

    I have successfully done loan mods( with an attorney ),
    and credit repair.

    Funny. I have heard many homeowners say that about investors. :mrgreen:

    0Reply
  • Lafi S.
    Real Estate Agent · North Jersey, NJ · Member since 2008 · 287 posts · 51 votes
    17y

    I have played around with a few loan modifications and charged up front. But after about 10 of them I realized it is not worth my time when I can be spending my time getting more short sales. In the end I think it will slow your real estate business down...

    As far as the homeowners, I successfully completed the modifications for most of them and they were very pleased with the results so it wasn't too bad knowing you helped someone stay in their home.

    The few I have left...the lender refuses to budge on, trying to turn those into short sales now :)

    0Reply
  • Lafi S.
    Real Estate Agent · North Jersey, NJ · Member since 2008 · 287 posts · 51 votes
    17y
    Originally posted by Josh Green:


    i have many, many contacts in banks (and i sit at my bankers desk all day) and am seeing that people that are behind on their mortgage aren't behind because they just refuse to pay due to the value of the home, but can't pay.




    Not true Josh. There has been plenty of evidence to support that the a big factor driving the foreclosure market is negative equity. Yes people that can afford to pay simply walk away because they owe more than what the house is worth.
    0Reply
  • James Ward
    Real Estate Investor · Ocala, FL · Member since 2008 · 742 posts · 463 votes
    17y

    Just my $0.02-

    I was told by my attorney to NOT get involved in any loan mods. So, we just tell people to do them, themselves.

    1Reply
  • Herm M.Pro Member
    OP
    Real Estate Investor · NorCal, CA · Member since 2009 · 273 posts · 43 votes
    17y

    Josh, I'm not promising anybody ANYTHING as far as a loan mod goes.

    Tony, since you've done some loan mods...can you answer my original question?

    Nick & Josh, maybe it's the states that you live in....but believe me: In California, there are TONS of people walking away from their homes because their LTV is 200%+.

    0Reply
  • Justin S.
    Residential Real Estate Agent · Chandler, AZ · Member since 2009 · 1k+ posts · 928 votes
    17y

    HMann

    How do you plan to prove hardship if the homeowners can afford the property but chose not too? If the homeowners can afford the property and do have money in the bank, how are you protecting them against a deficiency judgement and are they still willing to sell their house knowing that a deficiency may be filed?

    1Reply
  • Josh Green
    Financial Advisor · Tampa Area, FL · Member since 2008 · 956 posts · 214 votes
    17y
    Originally posted by Justin S.:


    HMann

    How do you plan to prove hardship if the homeowners can afford the property but chose not too? If the homeowners can afford the property and do have money in the bank, how are you protecting them against a deficiency judgement and are they still willing to sell their house knowing that a deficiency may be filed?



    C'mon Justin! It's a simple conversation really.....

    LoanMod: Hi, (insert bank name here), my client has $45000 in the bank and doesn't want to pay their agreement with you anymore because the market tanked. They owe you $685,000 and the house is worth $300,000. As you can see, they quit paying their mortgage 3 months ago.

    Bank: Oh, I do see that. You mentioned that they have $45000 in the bank, they can afford the $4000 a month payment! Why aren't they paying us?

    LoanMod: Well, cause they don't want to!

    Bank: Oh, ok. How about if we just make it a $200,000 loan? We'll give them an extra cushion just incase the market continues to fall. We don't want them to be in this situation again! Afterall, we are your friendly neighborhood, not-for-profit bank!

    LoanMod: Eh, $200,000? HMMMM, Can you throw in a toaster?

    Bank: Let me check with my supervisor.....(beautiful orchestral pop music)........Hi, LoanMod? Sorry about the wait. My supervisor gave me clearance to not only give you a toaster, but also a loaf of bread since you had to wait on hold for 28 seconds.

    LoanMod: Can you make it wheat bread?

    Banker: Absolutely!

    LoanMod: Thanks!

    Banker: No, No, No, THANK YOU!
    4Reply
  • Nick J.
    Residential Real Estate Broker · Payson, AZ · Member since 2009 · 3k+ posts · 1k+ votes
    17y

    I always thought that's how it goes Josh LOL!!! vote for you mister!

    0Reply
  • Josh Green
    Financial Advisor · Tampa Area, FL · Member since 2008 · 956 posts · 214 votes
    17y
    Originally posted by motiv8td:
    I always thought that's how it goes Josh LOL!!! vote for you mister!


    thanks! that's how we bankers roll!
    0Reply
  • Anna Estes
    Real Estate Investor · Panama City Beach, FL · Member since 2009 · 75 posts · 4 votes
    17y

    In Florida ForeclosuresDaily does loan mod with good success. They charge $2,000 and you get $750 for referral.

    0Reply
  • Josh Green
    Financial Advisor · Tampa Area, FL · Member since 2008 · 956 posts · 214 votes
    17y
    Originally posted by Anna Estes:
    In Florida ForeclosuresDaily does loan mod with good success. They charge $2,000 and you get $750 for referral.



    I located this article written January 23rd 2009;



    *

    LARGO — Foreclosuresdaily.com LLC, once growing so lucratively and fast it was recognized by Inc. magazine, has vacated its office and may be on the hook for about $12 million owed to financial institutions.

    The business is operating an online presence, but a calendar shows it has no events currently scheduled in Florida. Telephone numbers listed on its Web site for sales and customer support were not working.

    Fifth Third Bank and HSBC Bank Nevada have filed separate civil court complaints seeking a total of nearly $2 million from the company.

    Fifth Third claims Foreclosuresdaily defaulted on two loans, Hillsborough County court records show.


    I should also mention that this company appears to have stiffed the employees and closed one location basically overnight without the employees being aware and moved to another location. shadey!
    2Reply
  • Jonathan Rexford
    Real Estate Investor · Vero Beach, FL · Member since 2008 · 268 posts · 89 votes
    17y

    I would be very careful about taking money for Loan Modifications. Now as far as principal reduction. I have seen (even worked the file) with Litton Loan to reduce the amount. Now this property was in a war zone and there was a suspicion of Loan Fraud. It was not a real tough case.

    I have stopped doing loan modifications and only do consultations to homeowners. They can do it themselves. Owners are successful without consultation, but some need help. The non profits are over burden with back up.

    1Reply
  • Justin S.
    Residential Real Estate Agent · Chandler, AZ · Member since 2009 · 1k+ posts · 928 votes
    17y

    Whoa, whoa, whoa...back up the horse carriage. Banks are giving out toasters?

    Guess who has two thumbs and is updating their contract to be contingent on a free toaster?

    That's right...THIS GUY!!! :clap:

    0Reply
  • Scott Hubbard
    Rehabber · Tucson, AZ · Member since 2008 · 1k+ posts · 802 votes
    17y
    Originally posted by crosswind_:
    Just my $0.02-

    I was told by my attorney to NOT get involved in any loan mods. So, we just tell people to do them, themselves.



    I used to submit loan mods under the pretense that it is a document preparation charge. I would spend less than an hour using a program that I purchased which auto-completed the lenders required forms. I would charge $195.00 and the homeowner would follow-up himself/herself. It is a way to keep the client close to the vest and show that I was about solutions not short sales. It worked well...

    Then one day, my attorney told me to quit unless you wanted to get licensed.

    No mas! no mas!

    Loan modifications are like marriage. Seemed like a good idea at first, now only the attorneys are happy.
    0Reply
  • Josh Green
    Financial Advisor · Tampa Area, FL · Member since 2008 · 956 posts · 214 votes
    17y
    Originally posted by Justin S.:


    Whoa, whoa, whoa...back up the horse carriage. Banks are giving out toasters?

    Guess who has two thumbs and is updating their contract to be contingent on a free toaster?

    That's right...THIS GUY!!! :clap:

    true story: back when i was working for wamu (washington mutual) we had a promoton where we gave away toasters with new accts. i kept one to put in my breakroom and about 3 months after the promo ended, our toaster caught on fire. not like something was burning in it, but it was actually burning.

    i wonder if any of the new customers' toasters did the same thing and seeing as the company is no longer, they can't be sued..lol

    0Reply
  • Tony Walker
    Real Estate Consultant · San Francisco, CA · Member since 2009 · 94 posts · 28 votes
    17y
    Originally posted by H Mann:
    Josh, I'm not promising anybody ANYTHING as far as a loan mod goes.

    Tony, since you've done some loan mods...can you answer my original question?


    Nick & Josh, maybe it's the states that you live in....but believe me: In California, there are TONS of people walking away from their homes because their LTV is 200%+.


    No I don"t think it is feasible to charge an extra 7%,
    since most loan mod attorneys in Cali are charging 2-4k.

    If you do loan mods it is a very smart business move to get alligned with a law firm and attorney that has been doing loan mods for years.

    Loan mod candidates can be a great source for ss"s though.

    There are many homeowners getting ripped off in CA,
    and the attorney general is coming down on "loan mod companies" and " foreclosure consultants".

    This is an article from The Orange County Register.

    AG Jerry Brown has sent letters directing 386 mortgage foreclosure consultants to register with his office within 10 days and post $100,000 bond, or demonstrate why they are not required to. If the consultants are required to register and have failed to do so, they are subject to criminal penalties of up to a year in jail and fines ranging from $1,000 to $25,000 per violation. Eighty-five of these consultants are based in Los Angeles County, 133 in Orange County, 47 in the Inland Empire, 68 in San Diego County and seven in the Bay Area.

    AG cracks down on 133 O.C. loan modifiers
    August 12th, 2009, 11:31 am · 45 Comments · posted by Mathew Padilla
    (Clarification: Exemptions added.)
    Attorney General Jerry Brown today ordered California companies that promise to help people avoid foreclosure to immediately post $100,000 bonds and register with his office or face criminal prosecution. He’s targeting 133 loan rescuers in Orange County and 386 statewide.
    He also ordered 27 of these companies to “justify suspicious loan modification claims made in ’slick advertising,’ online and through the mail.â€
    Meanwhile, the State Bar of California today said it has obtained resignations from two lawyers and filed charges against a third for their loan modification activities. The Bar’s loan-mod squad is investigating more than 400 active complaints from consumers about lawyers’ roles in loan modification scams.

    http://mortgage.freedomblogging.com/2009/08/12/calif-ag-orders-133-oc-loan-rescuers-to-post-100000-bond/15515/

    0Reply
  • Mary Stewart
    Escrow Officer · newport beach, CA · Member since 2009 · 5 posts · 0 votes
    16y

    I was lucky enough to meet Eric Heller at a real estate meeting I was attending in San Diego held by his company us debt relief. Eric Heller saved my life. My husband lost his job and we were over 8 months late on our mortgage. I am disabled and we would have had no were to go. My sister Susie, who also was fortunate enough to have been helped by him, referred Eric Heller to me. Eric Heller not only saved my home permanently, but never charged my a dime! I am writing this and doing anything I can to repay the good deed he has done for my family and me. Thank you Eric Heller

    0Reply
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