What do to in our situation? It's a mess...

[Phoenix0281]

Hi, I just registered on this site looking for some help. Here is our situation...

The house my wife and I are living in was bought by her mother for us to live in, both first and second mortgages are in her mother's name.

Her mother owns two other houses, one is her primary residence and the other is strictly for a home business, though she is a sole proprietorship. In total however, it does show that she owns 3 separate houses.

Back to the house we live in and are trying to save, the first loan is an interest only loan and the second is an interest only balloon loan, which will require the full $70k to be paid in 7 years. That's the first problem.

The second problem is that our financial situation has changed drastically and we can no longer afford the $2250/month mortgage, we need a lower payment. Her mother can't afford to pay for the house we are in, she bought it for us to pay for.

The third problem is the house cost $350k and now is worth roughly 230k.

Everything I've seen so far seems to only help out people living in the actual home, no help for 2nd or 3rd houses. Her mom does not live in this home, but it is our primary residence and has been since day 1 (3.5 years ago).
We havn't paid the mortgage since December and the 1st loan (Aurora Loan Services) has started the foreclosure proceedings. The 2nd loan is with CitiMortgage.

Ideally we'd like a loan modification. At least a regular, non-balloon mortgage and a lower monthly payment. I don't know if they can or are willing to do anything about the house being $120k upside down.

[LHarveyMadman]

Since this is not your mother-in-law's principal residence, then it would not qualify for any relief under the terms of the Homeowner Affordability and Stability Plan. However, you might still be able to negotiate a loan modification outside this government plan. That's the way it was until very recently. Several people here have been able to get modifications on their investment properties (which is technically how your home will probably be classified), so it's not impossible.

A big question is how much would a modification affect your payments. What is the interest rate on the $280,000 first loan? What is your combined monthly gross income?

You should get to work on a hardship letter. Get all your financial information together so that if someone from Aurora responds to your hardship letter, you'll be ready to discuss specifics about your current situation.

[Phoenix0281]

We've already talked to Aurora and given them the information over the phone and they are putting us on a forbearance plan for 3 months. They said this step is necessary in order to do a loan modification, which would take place after the 3 months. They also said the foreclosure would be placed on hold during this period. Does that sound correct?

The interest rate on the Aurora loan is 6.5% and the Citi loan is 8%.

Will they need our (my wife and myself, the renters) income or her mother's income? For the forbearance, we only gave her mother's information and put down $1850 in rent per month that we can afford to pay.

[LHarveyMadman]

Since your MIL is on the loan and is the owner of the home, her income needs to be included. For modification purposes, however, they'll take into account all household income, regardless of who is on the note. If you do resubmit your financials to include your and your wife's income, make sure you subtract out that $1850 rental income that you currently have listed for your MIL, because it would otherwise appear twice on your income sheet.

The forbearance is a temporary fix that buys you time to improve your financial situation, if possible. And yes, any foreclosure proceedings should be halted for now.

Lenders are definitely offering rates lower than 6.5% in their modifications, so if you can get it to work, then you could stand to save a decent chunk of change with a mod.

[Phoenix0281]

We just received the forbearance paperwork by FedEx.

It details a 3 payment plan of $1882 per month (1st mortgage) and then says a final payment of $11,xxx is due? WHAT? How does that work? They expect that huge chunk of money as the last payment?

This is very confusing.

[LHarveyMadman]

In a forbearance plan, payments are either suspended or reduced during the forbearance period, but once this expires, then the entire balance of deferred payments - and in your case, several months of missed payment - is due. It's almost never a good deal unless your financial fortunes can improve.

I'm guessing that Aurora offered you a forbearance first because they want to see if you're serious about trying to make things work. Since there has been no payment from you since December, they have no way of knowing whether you're going to follow through on any modification offer that the give you. They don't want to make the effort unless they get a sense that you're going to start making payments again. Think of these as good faith payments on your part.

If you make your payments during the forbearance period as specified, then after 3 months they might - MIGHT - offer you a modification. They might agree to take your past due payments (i.e. all your missed payments since December) and tack it on to the principal balance.

If you do not make the forbearance payments as required, then the $11,000+ amount will be immediately due, and your payments will revert to the prior amount, and it is unlikely that Aurora will modify your loan.

[Phoenix0281]

I really appreciate your quick responses.

The strange thing about the payments they set us up on are that they are actually higher by about $100 then what the the regular monthly payment was. I found that pretty strange.

It makes sense about the "good faith payments" and I guess we have no other choice but to go forward and hope that we can get some loan modification at the end of the payment plan.

[LHarveyMadman]

Oh, I see. Your $2250 monthly payment is the combined payment of both your first and second loan.

I guess they're calling it a forbearance because they're not demanding that you pay all your past due payments at present. So unfortunately, it doesn't really solve your current problem, it just gives you a little extra time to sort things out, if possible.

[Phoenix0281]

I talked to a client of mine who happens to do loan modifications and asked for some advice. He went over a bunch of stuff but a couple things that stood out were...

First, he said to really focus on the 2nd mortgage with Citi because, as he put it, "they can't do sh*t". He said they can't foreclose on the house and they really are at the mercy of the first home and the home owner. He suggested to try and work out a settlement with them and they may accept it as there isn't much they can do.

Second, he advised to claim that this home is the primary residence and that the other homes owners by my mother-in-law are investment properties.

Any input on that?

[Moe Bedard]

so this person who helps people with their modifications, asked you to commit fraud.....................nice...............that is precisely the reason why Moe started this free informational, safe, forum to help homeowners to be able to do the modifications on their own, and avoid following and having to pay for advice that will no doubt put, in this case, your mother in law in a very precarious postition,.............it is best to be honest because they will be pulling credit and verifying information in the processing of the modification.


A servicer must confirm that the property securing the mortgage loan is the borrower’s primary residence as evidenced by the most recent signed federal income tax return (or transcript of tax return obtained from the IRS), a credit report and one other form of documentation that would supply reasonable evidence that the property is the borrower’s primary residence (such as utility bills in the borrower’s name).

A servicer is not required to modify a mortgage loan if there is reasonable evidence indicating the borrower submitted false or misleading information or otherwise engaged in fraud in connection with the modification.

[Phoenix0281]

*** Damiano: Thank you for the reply, good points on what you said, I hadn't realized that the classification of the primary residence was such a big factor.

Can you comment on the other part about the 2nd mortgage? Is it true that they don't really have any leverage, ie. foreclosing on the house. Is it possible to offer then a lump sum, say $10k, and see if they accept it? Who would we make that offer to...the customer service rep or?

[Moe Bedard]

Take a look over in the deed in lieu section of the forum...........there are members working with their seconds and settlements at this time and you may find the answer that you seek on that over in that forum section........


I know it is difficult to do because the property was in essence, bought for you and your wife, but you have to think of it from the perspective of your mother in law, the owner of the property..............and if doing something like that is going to effect her other assets, properties, and credit..........you may want to have her do a consult with a real estate attorney first to weigh the options and outcomes of a decision such as this and the best way to go about it.

[LHarveyMadman]

Your client better be careful what he's directing other people to do. He could really blow things for a lot of others who are depending on his so-called judgment.