loan mod or short sale?

Question

She's behind on payments.

Her loan is with Litton. She says they denied her last loan modification.

She wants to sell but I thnk she said she re-applied dor a loan mod. I suggested she do a short sale.

She's unsure if she can do a short sale if she re-applied for another loan mod.

She said something about the house having to be listed for 90 days before she can do a short sale?

Should I just get the authorization to release information form from her and talk to Litton first to see what the story is and what they are willing to do?

Joel Owens · Answer

I don't know if you heard correctly from her. YES for each type of loan there are different servicing guidelines. Litton is a loan servicer for the bank/investor who owns the loan. Servicing guidelines can impose that a property has to be listed for sale before they will look at a short sale. The investor on the loan is who approves the loss so they can make additional requirements even to the existing servicing guidelines before approving a short sale. They want to see it listed for full market exposure to net as much as possible on the short sale. Servicers can actually get sued by investors for not following workout protocols.Generally a small workout for a temporary problem has the least loss followed by a perm loan mod and then a short sale and most damaging a foreclosure. The servicer has to go through steps and document every step of the way that they did everything possible to avoid losses. PMI companies can also deny payout claims if it is proven less severe workout options were not properly pursued. What typically happens the owner is approved for a 3 month trial modification.The requirements for the 3 month trial are easy to qualify for. When the owner goes for the permanent modification that is much harder to get approved for. Depending on the loan there are multiple types of permanent loan modifications available.Sometimes it will take the owner 1 to 2 years to get approved for a permanent loan mod or not at all. The homeowners job situation and financial stability is ever-changing.This is why the servicer will request updated financial docs every 30 to 60 days while a mod is in process. Sometimes the home owners situation will change for the better and they get approved to work on a perm loan mod and other times it gets worse and they fall out of getting approved. The type of loan will depend on workouts available with loan mods. Example is the loan Fannie Mae or Freddie Mac backed?? Is the loan a conventional loan held in a RMBS pool?? Can't do a perm loan mod and short sale at the same time.They are different departments and the computer will have the file set to a certain type of workout solution. For short sales they would assign the file to a loan liquidation department. Loan modification you would be assigned a workout negotiator to restructure a loan for a perm mod. Hope it helps

Laura Alamery · Answer

Yes, talk to Litton with proper Third Party Authorization. Most lenders will not do a short sale if there is a pending loan mod, so she will have to choose which route to take. If she was denied a loan mod, unless her income and debt figures have changed, I would not take the chance of being pushed into foreclosure, if they get tired of waiting. Also, they might do an exception to the 90 day rule. I had that happening to me before - they took a short sale just shy of 2 months being listed. So, definitely, talk to them! :)

Michael G. · Answer

Thanks again. She said she's stopped making payments on the house altogether which doesnt bode well for a loan mod approval...right? Logic would dictate that talking to Litton should provide the insight needed to move forward or not on this. I'm thinking I need to speak with the lender either way to determine if a short sale can or cannot be done.

Joel Owens · Answer

That was only one type of perm mod she was denied for.Generally the servicer has 2 to 3 different types of perm loan mods they can go for. So they will try to usually put her in a different trial mod again and then go for a different type of perm loan mod.This is hwy I said it can take 1 to 2 years to get approved. Each perm loan mod is structured differently kind of like finding a loan that fits for a purchaser.Even if she gets a perm loan mod they might want 3k to 5k in re-instatement fees that can't be rolled into the recasted loan. You can go for the ATR and send it in.Sometimes it will take up to 48 hours to scan in their system.So if you get to them later this week it might be Monday before you can talk to them and the ATR shows in their system. Good Luck

Michael G. · Answer

Thanks Joel! That was very helpful. Now the whole 3 month listing scenario makes sense. She did say they had her on a modified loan and when the opportunity was presented for a perm mod they denied her. She may not be telling me the entire story. There may have been some contributing factors to her getting denied. I guess what I'm trying to determine is how to proceed? My instincts tell me too meet with her on Thurs. Get the ATRI and call Litton to see what can be arranged.

Ray Hope · Answer

I talk to people all of the time who are just like this lady. I think they are so desperate to save their houses, they sometimes grasp at straws. There is no requirement from the lender that your house as to be on the MLS for 90 days, but who knows what she heard. I would encourage you to get her to authorize you to talk to Litton and go from there. Good Luck!!