ADIOS A SU CASA
I am not sure that the ultimate result at a foreclosure mediation will be what the Supreme Court envisions, said an attorney to the Nevada Supreme Court yesterday. Chief Justice Jim Hardesty replied that they don’t have a specific “vision” other than some sort of “resolution”. The attorney was referring to the new law’s implication that a loan modification is the desired aim at the mediation. That however, will not be the case.
Simply put, many mediations will not result in a loan modification, for good reasons. Many mediations will result in a settlement where the homeowner and bank agree that the best course of action is for the homeowner to voluntarily transfer title and posession to the bank, in exchange for the bank forgiving the homeowner’s mortgage debt, forever and always. Restoring or preserving the homeowner’s credit could be part of the settlement discussions, as could the homeowner agreeing to pay a small portion of the loan back over time.
If a homeowner’s mortgage is worth significantly more than his house, the decision to abandon becomes a matter of simple math: If a homeowner has no hope of having an equity stake in the home for years to come — if ever — trading his mortgage payment for a much cheaper rent payment may be an economic no-brainer.
This is not high math. If a homeowner owes $100,000 more than his home’s value, it will take many, many years for the home to equal the mortgage balance, or it will never happen within the homeowner’s lifetime. It will take even longer if the homeowner modifies his loan to a lower monthly payment, and ironically, the case for a walk away becomes even stronger.
For a portion of the homeowners in Las Vegas, a loan modifcation may be the best plan: 1) where the homeowner is not significantly upside down; 2) where the monthly payment amount is acceptable for the long term without necessarily factoring in an increase in home value; 3) where the homeowner wants to stay in his home for legitimate reasons; and/or 4) where the homeowner plans to eventually walk away and just needs to live in the house temporarily.
Once the homeowner and bank agree to a walk away, the details will be negotiated and the settlement agreement reduced to writing and signed by the parties (and their attorney if they have one). The terms may include that the homeowner peacefully turns over title and posession within a fixed period of time, say 90 days. In return, the bank forgives the debt and each party agrees not to sue each other. The homeowner and banker shake hands, and they walk away from each other and never cross paths again.