Advice on a 2nd position loan workout

[Mark Gibbs]

I have been working a loan in Georgia for 5 months and the borrower has finally come to terms with the fact that the lien on her property is indeed intact and needs to be addressed. We have filed for foreclosure and the auction is scheduled for the first week in January. She has sent in an initial payment and would like to reinstate her loan by paying $300 per month until the lien is satisfied. The loan had a maturity date of 12/5/16. My question is what is the best course of action on the loan? Her payment plan is adequate for me. I can have the attorney draft up an agreement for repayment and have the loan reset which would probably cost less than having a new loan originated. BP community, what would you do?

[Mike Hartzog]

Hi Mark,

I would do a loan modification which has a trial period built in so that the mod will not take affect unless the borrower makes consistent on time payments for a period of time (say 6 months or a year).  You can put the foreclosure on hold during this period.  If the borrower satisfies the terms of the trial period, the loan is brought current with any arrearages capitalized into the new principal balance. 

You could also do this as a two step process, with step 1 being a forbearance agreement and the second step being a mod if the borrower complies with the terms of the forbearance.  I have used both approaches, but prefer the mod with trial because it requires document shuffling one time rather than two times.  Fee free to give me a call if you need to talk more about it.