Loan Modification and Short Sale Steps

The process of getting a loan modification or resorting to a short sale is complicated, but can be explained in about five main steps.

Step One: Fill out a complete evaluation of your financial situation and your expected recovery value for a foreclosure. Asset dispositions as well as acquisition dates need to be projected accurately, and you must be sure to include an overview of property data, like copies of your loan-agreement, promissory note, the security agreement, the deed of trust, and every other liens that was secured by either you or the property’s operations, including taxes and assessments. Don’t forget, if you have them, rent rolls, current leases, rent concessions, and any and all tenant improvements. Also, if you have has any listing agreements or offers of purchase in the last year, these will need to be included as well. And every operating statement for both income and expenses for the last three years need s to be included in order to establish trends and accurately calculate the total operating income of the household.

Step Two: Every expense relevant to the situation will be analyzed as well as compared to the expense models that the lenders used- this will help to show a fair position on your behalf. Capital and leasing expenses for brokerage commissions or buyouts, as well as total debt service expenses will cut down the net-operating income that was previously calculated. The result of this subtraction is the ‘net’ proceeds from operations that your lender could realize after acquiring the title. This is important to produce so that they can have an accurate projection of what will happen.

Step Three: Establish the market value of your home. This is an obvious one. Then, you will need to add the operations proceeds to this net-sale amount, creating what is known as the expected recovery value which will become available from the collateral.

Step Four: Go over your exposure to a deficiency judgment- you want to avoid this if you can. All of your federal tax returns for the last three years will be included in this perusal, in addition to a recent financial and cash-flow statement that clearly outlines income sources and expenditure categories and amounts. This will help develop strategies for protecting your personal assets, and demonstrate that it is not in your lender’s best interest to go after you in a judicial foreclosure. After this, exposed asset values will be cut down by litigation and liquidation costs, and risk factors in losing a judgment. The resulting, lower value is the recovery rate that is expected from personal assets.

Step Five: Add and discount the expected-recovery value that we just calculated form ht collateral and personal assets mentioned to come up with a ‘present value’. Disocunt rates consider the price of administration, risk, and funds. Developing this present value is no mean feat, and negotiations always begin with this value. The only thing left to do after that is negotiate with your lender.