Loan Modification Pitfalls in San Diego: Turning Non-Recourse into Recourse Loans is a post from: Troubled Property Solutions | Loan Mods | Short Sales call 1-619-631-4546
Loan Modifications in California May Seem Like a Good Thing, but There are Hidden Pitfalls
Here in San Diego many homeowners first turn to a loan modification to save their home if their financial situation has changed and they need some sort of economic relief. A loan modification in San Diego may result in the reduction of the amount of mortgage a borrower has to pay each month, but is it worth it?
California has done a few things right for homeowners. Loans that have been taken out when you first buy the house are considered “non-recourse” loans. What does that mean? It means the debt is only secured by the asset in which it is attached. So if you default on your mortgage they can only take your house, and nothing else. Basically you can just walk away and suffer only the consequence of losing the house. A recourse loan means you signed personally for the loan, the the debt is secured to first the house, then whatever asset of yours they can get their hands on. It’s much more dangerous to have a recourse loan.
During the hayday of the real estate “boom” most loan brokers failed to inform the homeowners that by refinancing their house, they converted that safe non-recourse loan into a recourse loan. But who would have thought that the house value would drop by 50%? or that the economy would go to pot!
So what about today when considering a loan modification?
If you are one of the many San Diego homeowners that have not refinanced and still have the original loan on the house you are safe. However, from what we’ve studied about loan modifications, when you sign that loan modification document at the end of the loan mod process you end up signing new paperwork regarding your loan. Many in this industry believe that with this new paperwork you are converting your non-recourse loan now into a dangerous recourse loan. So if you then default on your loan modification, even during the trial period you’ve now put your entire family’s finances in jeapardy!
No loan modification officer, lender, or other professionals in the industry are going to tell you this, are they?
If you default on that loan modification and the bank forecloses in California the lender can literally take your other assets (except your 401K). Believe me, banks are not playing nice these days. We’ve seen a lot of those banksters even sell the debt to Guido the debt collector or some sleazy attorney to harass you for years.
So what to do?
If you have a non-recourse loan, and really can’t afford the house, the smart financial move would be just to get out of the debt. Even if you have a refinanced recourse loan, selling while you can still settle the debt makes sense. While working with the lender one critical negotiating tool is to have the debt settled in full as part of the short sale. You can’t do this if the house is foreclosed upon.
We know it’s a tough emotional decision to sell the house, but if you are upside down and can’t afford to stay, best just to get out and start fresh.
Call us at 1 (619) Home-Out if you are considering taking our advice and selling while you can.
