Blind faith in loan mod backfires

Q: I haven't made the payment on my house in 11 months. Shortly after I bought it a couple of years ago, I became ill and it has been a struggle to keep it with my health problems and having to stop working on occasion. It is a two-unit property; I live in one side and rent the other side out, but my tenants have already given me notice that they're moving out in a couple of weeks. I've been applying over and over for loan modifications, but the bank refuses to bring my loan balance down in line with what my house is currently worth. So, I gave up.

I met with my real estate broker to list it as a short sale last week, but the day after we met, I received a notice of trustee sale in the mail. It says I have only three weeks before the bank auctions my home off.

I'm over 60 years old and I don't plan to ever own a home again, so I'm prepared to let the home go, but is it true that they could lock me out of my place in just a few weeks? I thought the banks preferred modifications and short sales to foreclosures. What went wrong here?

A: Your situation is a great example for those who think foreclosures happen only to irresponsible people. Many, many folks in America are in similar situations because of medical problems, job losses and other circumstances outside of their control.

What is in every homeowner's control, though, is their ability to get informed about their alternatives and options, and to be proactive and bold, yet realistic, in their interactions with their mortgage lenders.

For example, one thing you did wrong was that you had unrealistic expectations of the loan modification process. A recent study by the state of California showed that only about 1.3 percent of all loan modifications result in principal reduction. Had you known this, you would have known months ago that if principal reduction was the only outcome of your loan modification negotiations that would render continued ownership of the property feasible for you, then holding onto the place was unlikely to be a realistic solution. Then, in turn, you would have known a long time ago to list your home for sale via short sale or, in the worst-case scenario, to negotiate a less adversarial, less costly (monetarily and emotionally speaking) deed-in-lieu of foreclosure with your mortgage lender. ...CONTINUED

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