The most recent example of some banks becoming more flexible in dealing with upside down homeowner comes from one of my own asset protection clients who was trying to get a loan modification. If the bank would not agree to either a modification or to a short sale with a waiver of a deficiency judgment the client planning to “walk away” and do a strategic default. The client had a first mortgage loan with Cirrus Bank and no second mortgage.
The client purposefully become two months delinquent and contacted the bank for a work-out arrangement. The bank agreed to accept a deed in lieu of foreclosure and waive personal liability on the loan. In addition, the bank agreed to lease the property back to the tenant and set the monthly rent payment below the amount of the mortgage payment. The bank made the rent equal to 31 percent of the homeowner’s household income. The 31 percent number is the standard for modified loans under the HAMP program.
The borrower obtained a release of liability, reduced living expense, and he can remain in the home. The bank got title to the property, but it also has a tenant who will take care of the house until the market comes back and the bank can recover more of its loan. Finally, a bank willing to make a win-win settlement with the homeowner.
This true story is consistent with other reports of increased lender flexibility in dealing with upside down homeowners. This week USATODAY
published a front page story about lender’s increasing receptiveness and cooperation with proposed short sales. Lenders are learning that foreclosure is the last and worst alternative for all parties involved.