3 replies to this topic

[doodlebugger]

I recently settled a car accident claim for way less than I thought it would be, but I have a small amount of money coming. I can offer the bank approximately 28-29% of the principal balance on the home loan. The loan was included in bk7, so I know I can walk away, but my hope is that by settling with the bank, I could avoid the 3 year wait for a new loan, and we could just rehab our current house and stay here. It will likely need about $50,000 worth of repairs (could be more), so our thought is to settle with the bank, then turn around and apply for a loan to fix it.

So, I was just wondering if anyone has had any success in offering a settlement on a house in a foreclosure, and if so, how that would report. It's my understanding that we wouldn't have to count the loss as income due to the 2007 Mortgage Relief act.....so there's nothing to lose here - right?

Anyone have a template or suggestion on what to write in the letter - do I just send it to the loss mitigation department?

[SportsNut]

A settled for less transaction would be reported the same as a foreclosure from the standpoint of a 3 yr wait on a new Fannie mtg.
The only way to avoid this might be to actually purchase the paper (note and assignment of mtg or dot) from the lender, but this is a very technical event and maybe too vast to discuss in detail here. These transactions are also very rare, if dealing with a large lender.
Back to the offer of 28-29% of the loan bal: How does this reflect to and objective value if determine by a 3rd party? Sounds pretty low unless the mtg value was way too high or the mkt value has taken a serious hit. Another way to look at this is, if you owned the mtg, knowing what you know about the house and FMV of the local re mkt, would you accept 28% of the loan bal, or would you foreclose and sell to the highest offer following a sher sale? Which would net you more?
Lastly, a lot depends on whether there is PMI mtg ins on the loan, what type of loan it is, and a few other variables. Again, this is very, very unlikely unfortunately.

Edited by SportsNut, 02 April 2012 - 09:05 AM.

[doodlebugger]

A settled for less transaction would be reported the same as a foreclosure from the standpoint of a 3 yr wait on a new Fannie mtg.
The only way to avoid this might be to actually purchase the paper (note and assignment of mtg or dot) from the lender, but this is a very technical event and maybe too vast to discuss in detail here. These transactions are also very rare, if dealing with a large lender.
Back to the offer of 28-29% of the loan bal: How does this reflect to and objective value if determine by a 3rd party? Sounds pretty low unless the mtg value was way too high or the mkt value has taken a serious hit. Another way to look at this is, if you owned the mtg, knowing what you know about the house and FMV of the local re mkt, would you accept 28% of the loan bal, or would you foreclose and sell to the highest offer following a sher sale? Which would net you more?
Lastly, a lot depends on whether there is PMI mtg ins on the loan, what type of loan it is, and a few other variables. Again, this is very, very unlikely unfortunately.

Thank you for your reply. Will the transaction still be reported if the loan was IIB and ready to fall off soon (our bk7 was finalized in 1/2006)? Would we still have to answer "YES" on an application that asks if we have ever been involved in a foreclosure?

The offer seems low, but first off, I live in a very rural area. The area is very poor, and a sheriff's sale would likely not get them their asking price. The bank would likely purchase the property themselves, and they will never be able to get the money out of it because of all the problems with it.
There is no PMI insurance. It's a Fannie Mae loan.

I'm sure it's a long shot, but at this point, I am willing to try it. At least then I know I will have tried everything.....

[SportsNut]

Thank you for your reply. Will the transaction still be reported if the loan was IIB and ready to fall off soon (our bk7 was finalized in 1/2006)? Would we still have to answer "YES" on an application that asks if we have ever been involved in a foreclosure?

The offer seems low, but first off, I live in a very rural area. The area is very poor, and a sheriff's sale would likely not get them their asking price. The bank would likely purchase the property themselves, and they will never be able to get the money out of it because of all the problems with it.
There is no PMI insurance. It's a Fannie Mae loan.

I'm sure it's a long shot, but at this point, I am willing to try it. At least then I know I will have tried everything.....

Unfortunately, the time clock for mtg reporting has nothing to do with your Bk, and the disch date of the mtg. The time clock starts ticking the day the property is transferred from your name, as in a short sale or a foreclosure, and runs 3 yrs from the date of transfer. This is true on any mtg loan that was delinquint, as in your case, but not sure how this would work if you were successful and the lender did accept your offer since the property wouldn't transfer as you would be retaining the ownership. The clock may start ticking the date of satisfaction of mtg in your case. No way that you get around the 3 yr requirement though, for a new Fannie mtg. Good luck on it.

PS. Doodle, I looked at the language on a Form 1003, Std Fannie Mtg Application, and the langugage does not seem to include a mtg that the lender agreed to settle for less, as in your desired approach. So IF they entertained the idea of settled for less, this may allow you to side-step the 3 yr wait, based on how I read the questions. Obviously there would be no reporting to the cred bureau either way since the obligation was disch in bk... so maybe you sail through on thin ice. Again, I doubt that this will fly since doubtful that any lender is going to accept that type of offer, at least from the party who defaulted on them... but maybe you can prove me wrong. Again, good luck.

Edited by SportsNut, 02 April 2012 - 12:00 PM.