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While our main focus on this Blog has been on people facing foreclosures on loans on single family homes, condos and town houses, this financial crisis has also hit commercial properties as well.

On a daily basis I am sure that you pass by apartment complexes. office buildings and strip plazas.  Most of these have commercial mortgages on them.  In this financial crisis, their values have dropped.  In addition many have vacancies and have lost rental income which they had been using to make their mortgage payments.

The Potential of Tax Penalties under the IRS Code

 Until recently the loans on these properties could not be modified without triggering tax penalties under the Internal Revenue code.  In the past the only time these types of loans could be modified was when the borrowing organization did not make their monthly payment on time.  If they were current on their payments and sought a modification they would have to pay a penalty under the IRS code.

There are two times when the borrowing organization is aware that at some point in the future they would not be able to make the monthly payment on their loan.  The first is when the declining revenue from rents was below what they needed to make their payment.  The second was when their mortgage came due and they could not refinance it. 

Commercial Loans Are Not the Same

 Commercial loans are different than residential mortgages.  On most the payments are amortized over 25 years.  That means it is determined how much the monthly payment has to be to pay the loan off over 25 years.  However, the term of the loan is shorter, typically, 5, 7 or 10 years.  The problem that has arisen is that many lenders are reluctant to do commercial loans in this financial crisis.  As the term of the loan approaches the end, the borrowing organization cannot find a way to refinance the loan.  If the amount due is not paid to the initial lender, the lender can foreclose on the property.

The default rate on commercial mortgages doubled in the second quarter of this year.  By the end of 2009 it is expected to rise significantly.

So on September 16 The Internal Revenue Service eased their rules.  They stipulated that borrowers that borrowers who had commercial loans in investment pools known as Real Estate Mortgage Investment Conduits could now have their loans modified without having to pay tax penalties.

What Does This Mean to the Borrowing Organizations?

 If they know that because of declining income due to increased vacancies, the borrowing organization will not be able to make their mortgage payment in the future, they can sit down with their lender and modify their loan to lower their payment.

If the term of their loan is ending and the borrowing organization cannot find a lender to refinance it, they can sit down with their current lender.  They can modify the terms of the existing loan to extend it for a certain period of time.  Most probably the payment would remain the same and the only change that would be made would be that the term would be extended.

Borrowing organizations can do this without the fear of incurring any IRS tax penalties.

While my focus here has been on commercial loans, I do not cover these in my EBook.  There I focus on the steps people facing foreclosure on their homes can take to save them.  If you want more information on my EBook, you can get it by clicking Stop Foreclosure.

Much Success,

Mark Elkins

Have you realized that while mortgage companies have been slow in helping people facing foreclosure to save their homes, more and more states, courts and local organizations have taken action to get the mortgage companies to respond?  The latest state to do so is Oregon.

On Monday, September 28, a new law went into effect in Oregon.  It was passed in June with overwhelming support from both democrats and republicans.  The bill was then signed by the governor.  Under state law, the new law took effect 60 days after the governor signed it.

How Does the New Law Help People Facing Foreclosure?,

 It requires that a mortgage company send a notice to people facing foreclosure.  The notice advises them that they can request a loan modification.  These modifications can lead to lower monthly payments and can help them save their homes.  The notice also lets them know that they can request a meeting with a representative of the mortgage company.  This notice has to be sent before the mortgage company can foreclose on the property.

Included with the notice is a form which the person can complete to request a loan modification and a meeting with the representative from the mortgage company.  The mortgage company also has to include information on the person’s rights.

When a person facing foreclosure completes and returns the form requesting that their loan be modified or that they would like to meet with a representative of the mortgage company, the mortgage company has to respond promptly. They also must set up the meeting if one is requested.  The law also requires that the mortgage company complete an affidavit indicating how they complied with the law in each case.

Under the law the Department of Justice in Oregon authorized additional funds for housing counselors to assist people facing foreclosure with their requests for loan modifications.

Now people facing foreclosure are being urged to do the following as soon as they receive the notice from their mortgage company:

• Call their mortgage company to schedule the meeting to discuss a loan modification.
• Send the completed request form to their mortgage company within 30 days of when they receive it.
• Get a referral to a housing counselor by calling an 800 number.

Just Think About What This New Law Does 

 When you think about it, this new law comes down hard on the mortgage companies.  It clearly indicates that the mortgage companies are not doing their job.  The state legislators are tired of people facing foreclosure being victimized by their mortgage companies.  People facing foreclosure are being clearly told how they can request a loan modification and a meeting with their mortgage company.  They are also being urged to get help from a housing counselor.

What Should You Do?

 If you live in Oregon and are facing foreclosure, take advantage of the help this law is giving you.  Fill out the request to have your loan modified and to meet with a representative from your mortgage company.  Also get a housing counselor to represent you.

If you live elsewhere, get a lawyer or an expert in loan modifications to represent you.  While there may not be a law in your state similar to the one in Oregon, a lawyer or an expert in loan modifications can help you request a modification to your loan which can help you save your home and protect your family.

Just a reminder – if you want to find out more about the foreclosure process and steps you can take to save your home from foreclosure, you might want get my EBook.  You can find out more about it by clicking Stop Foreclosure.

Much Success,

Mark Elkins

I don’t know if you have heard of it.  It does not happen frequently.  If you are facing foreclosure, this is something that you need to be aware of it.  What am I talking about?

A Bank Walk Away

 What is a Bank Walk Away?  It is where right in the middle of the foreclosure process, the mortgage company puts a halt to the proceedings.  Their representatives do not pursue it.  Why would a mortgage company do this?  It looks like they are doing this when they realize that they will get far less for the home than it will cost them to complete the foreclosure.  Significant drops in value have occurred in certain neighborhoods, cities and certain areas of the country where there are an extremely high number of foreclosures.  There are just so many homes which have been foreclosed in these areas that they have glutted the For Sale market.  No one is buying them and the values drop to next to nothing. 

Some people facing foreclosure who find out that their mortgage company has stopped the foreclosure process may think that that is great.  They now get to stay in their home without making a mortgage payment.  They are living there for free.  All that they have to do is pay is their taxes and utilities.  What a gift?  Actually rather than a gift it can be

A Real Legal Nightmare

 It can become a real legal nightmare because of the problems that can arise:

• At any time the foreclosure process can resume.
• The mortgage can be sold to another mortgage company who will try to pursue recovering what is owed.
• The city in which the person lives can throw them out for non-payment of real estate taxes.
• If the person wants to move, they cannot sell the home without paying off the mortgage on the home.  The original mortgage company has a lien on the property.
• If there are any code violations or if the city orders repairs, the person is responsible for the cost of these.

Some people facing foreclosure have felt that there was no way that they could save their homes.  They have moved out before the foreclosure was finalized.  In those instances where their mortgage company stopped the process, they are now on the hook for all of this even though they no longer live there.  Just picture that – They are legally responsible for real estate taxes and repairs for code violations even though they no longer live in the home.

What is The Correct Thing To Do? 

 If you are facing foreclosure, stay in your home until the process is resolved.  If you are able to save your home from foreclosure, that will be a victory for you and your family.  If you are not successful, then continue to live in your home until it is sold to someone else.  Set up a bank account and put into it any money that you have available and which you would have paid on your mortgage.  If you find that you have an amount equal to your old mortgage payment, then deposit that into the account.  If you have less, put that in.  Make these deposits monthly.  If you mortgage company wants to resume the foreclosure process, you can show them that you are sincere about wanting to save your home.  They may be willing to modify your mortgage and you may be able to save your home.  If not and if you are forced to move, you will have money for the rental of an apartment or another home.

Seek assistance from a lawyer or an expert in loan modifications.  In an instance like this where the mortgage company has stopped the foreclosure process, you do need expert legal advice.

Hopefully you will never be in this situation where your mortgage company stops the foreclosure process right in the middle.  If you are facing foreclosure, remember that it is always best for you to control the process.  The only way that you can really do that is by knowing as much as you can about the foreclosure process and the steps that can be taken to stop it.  You might want to check out my EBook.  It has quite a bit of information which I believe that you will find useful in helping you to understand the process and the steps you can take to save your home.  You can get more information on it by clicking Stop Foreclosure.

Much Success,

Mark Elkins

Most people have never heard of this.  Those who have really have no concept of what it is. Yet it’s in the Making Home Affordable Modification Program.  It is one of the tests to determine if the person facing foreclosure qualifies for a trial loan modification.  What is it?

The Net Present Value Test

This is a test the mortgage company does to see if the investor will get a better return on the money they put up for the mortgage by modifying the loan than they would if they foreclosed on the property and sold it.  How is the test done?

• The mortgage company calculates what the monthly payment would be if the loan is modified.
• That is multiplied by 12 months.
• That total is multiplied by 30 years.
• If the final total is more than the amount the mortgage company will get by foreclosing and selling the property, a trial loan modification would be worthwhile.  If it isn’t, it would be better for the mortgage company to proceed with the foreclosure and sell the property.

    The Problem with the Net Present Value Test

 While the guidelines in the Making Home Affordable Modification Program require the test, they do not require that the mortgage company make the calculations or the outcome of the test known to the person facing foreclosure or their representative.  They can just tell them that the proposed modification to the loan failed the Net Present Value Test and the trial loan modification was denied. Let me run that by you again.

The Proposed Loan Modification Failed The Net Present Value Test.

The Mortgage Company Does Not Have To Give the Results

To the Person or Their Representative

They don’t have to share the results with anyone.  Let me tell you what I feel is wrong with that. 

First – there is no standard guideline to determine how much a foreclosed property will sell for.  That varies from city to city, from neighborhood to neighborhood, from street to street and from home to home.  How can anyone be sure that the amount the mortgage company arrived at is accurate?

Second – Who is to say that the person at the mortgage company responsible for figuring out how much a home may sell for didn’t make a mistake in their calculations?

Third – The person facing foreclosure and their representative have no opportunity to contest the test and to submit their own findings which may show the results to be wrong.

Most of the mortgage companies are secretly guarding not only the results of these tests but also their formula for determining value from a sale.

 If You’re a Victim of a Net Present Value Test

Don’t just sit back and accept what your mortgage company is telling you.  Get the local organizations in your community involved.  Let them know what happened.  Report it to your local newspapers and television stations.  Most television stations have a reporter handling consumer affairs.  Talk to them.  Let them know how your mortgage company has zapped you.  Contact your state representative and senator.  Also contact your congressman.  You want to get as much public attention as you can focused on your mortgage company so that they have no alternative but to reconsider your request for a loan modification.  They may never reveal the results of the Net Present Value Test but they most probably will grant a trial modification.

Stay One Step Ahead of Your Mortgage Company

 If you are facing foreclosure and want to save your home, you cannot rely on your mortgage company to help you.  The track record so far shows mortgage companies doing little to modify the loans of people facing foreclosure.  You have to be prepared to take control of the process to save your home.  In order to do that you have to know as much as you can about what you can do.  My EBook has a lot of information which I am sure that you would find useful.  You can find out more about it by clicking Stop Foreclosure.  

Much Success,

Mark Elkins read more »

I continue to be amazed at the stories I hear about the work Wells Fargo has been doing on loan modifications.  This one really angered me.  It was in an article in the New York Times at the beginning of September.

In a post on this blog several weeks ago I reported on the trial loan modifications offered by Wells Fargo in the Making Home Affordable Modification Program through August.  Thus far they have only offered these on 9.2% of the loans it is estimated Wells Fargo has on which the foreclosure process has started.  Executives from the company indicated that they were pleased with the efforts they were making.  Yet by any normal person’s standards, 9.2% is not only a total failure; most would say that they are not even trying to do anything.

The information that came out in a Bankruptcy case in Arizona about how Wells Fargo is processing requests for loan modifications just confirms how poorly they are doing.  This was reported by the New York Times.

The Woman’s Story

A woman filed for bankruptcy in Arizona.  She had lost her job in 2008 and has not worked since then.  She also was in the process of divorcing her husband and he is no longer willing to make her mortgage payments.  With her mounting debt she had no alternative but to file for bankruptcy.

Her last payment on her mortgage to Wells Fargo was in November of 2008.  She filed an application for a loan modification under the Making Home Affordable Modification Program in March.   After that she sent Wells Fargo financial information they said they needed to process her application three different times.  Each time she called following up on it, she was told to send the information again.

When the date for the hearing on her Bankruptcy came, she still had no answer from Wells Fargo on the loan modification.  The judge on the case said that he and other bankruptcy judges around the country were hearing about how slowly Wells Fargo was acting on the applications for loan modifications.  So he summoned a senior executive from Wells Fargo to testify at this woman’s bankruptcy case.  Let me tell you – Summoning a senior executive from a national mortgage company to appear at a bankruptcy case is unheard of but this was how desperate the judge was.

The Testimony of the Senior Executive From Wells Fargo

The senior executive from Wells Fargo was initially questioned by the company’s attorneys.  He testified that the lady repeatedly failed to provide a financial worksheet which was necessary in analyzing her request for a loan modification.  This was their main defense and under cross examination it fell apart.  From her files the lady produced a letter from Well Fargo indicating the documentation she needed to submit as part of the request for the loan modification.  The senior executive was asked to read it out loud.  Nowhere in that letter was a financial worksheet requested.  The senior executive further revealed that shortly after receiving her application for a loan modification back in March Wells Fargo decided that she did not qualify for a loan modification.  Let me repeat that.

In March Wells Determined She Didn’t Qualify for a Loan Modification

 Yet they never notified her.  No one outside of the company was aware of this until the day the senior executive testified.  The senior executive went on to testify that this was not an isolated case.  There are others whose applications for loan modifications have been denied.  Wells Fargo has not had the courtesy to tell them.  He did add that his company was pledging to improve their communications with the people who have applied for loan modifications.  The senior executive also indicated that they would look at this woman’s case again to see if she qualifies to have her loan modified.

Can You Believe That?

 Shortly after she applied in March, Wells Fargo reviewed her file.  They determined that she did not qualify for a loan modification.  Yet they never told her.  Every time she called, they said they needed more information.  They never told her over the phone or in writing that she was denied.  This didn’t come out until that day in court.  How long would they have continued to withhold this information from her?  How many other people are in this same predicament?  The senior executive from Wells Fargo said that the company was going to improve communications.  How soon will this happen?  Can Wells Fargo be believed?

What Do You Do?

 If you have a mortgage with Wells Fargo and have requested a loan modification, do not believe anything they tell you verbally.  Ask for everything in writing.  Even then they may not be truthful with you.  They may have made a decision to deny your application some time ago yet just have never told you.  If they did deny your application is the denial correct?  You don’t know what they based the denial on or whether their judgment was flawed.

If you don’t have a lawyer or an expert in loan modifications representing you, consult with one immediately.  It does not look like anyone can try to deal with Wells Fargo on their own.  All they are doing is wasting time and risking an incorrect denial.  Also learn as much as you can about the foreclosure process and what you can do to save your home from foreclosure.  My EBook has much information which will help you.  You can get more information on it by clicking Stop Foreclosure.

Much Success,

Mark Elkins