Like short sales and mortgage modifications introduced in recent years and have become common place today, there are products and programs that are emerging for the upside-down owner. Over 14 million owners are upside-down on their mortgages (owe more loan than the home value), and some have taken advantage of some form of default, including foreclosure, short-selling or flopping to flippers. Another consideration for them is loan eradication.
These owners are paying their mortgage payment on-time, have jobs/income, and just need something to assist them in breaking the chains of excessive debt. As the recent bubble bursts are bringing forth wrongful practices from lenders, loan eradication is becoming known as an option to offer upside-down owners.
Private services perform preliminary evaluation to determine if a loan may have “lender fraud” as part of the application and loan process. Recent whistle-blowing and news has brought forth that institutions allegedly inflated property values, allegedly illegally utilized MERS, (Mortgage Electronic Recording Services) and allegedly trained their originators to place artificial data on loan applications.
If the private service determines that a loan is a potential candidate for lender fraud, making the entire contract experience voidable, the service requires a $5,000 deposit to proceed. It is not a court process, nor are attorneys involved. The first $1,000. is spent quickly acquiring documentation, performing investigative research, and; securing the factual data that lender fraud is present in the loan.
If not, $4,000 is refunded and other suggestions to go forth are recommended. If lender fraud is present, the service uses the remaining $4,000 to get the loan balance eradicated. This means totally gone! Zero balance! The service creates an environment for the lender to eradicate the loan balance and show on the owner's credit history a “paid-as-agreed” loan. Different than loan modifications that reduce payment but leaves balances intact, eradication eliminates the existing loan balance resulting in no loan.
The service charge is 25% of the eliminated loan balance for the eradication service. For example, a $300,000 loan balance, on let’s say; a $150,000 home value, resulting in a zero loan balance but acquiring a $75,000 lien on the property. The owner needs to remedy the lien and can do so with various options, like financing it at a 50% loan-to-value. They can pay it off with cash reserves, there are one-year lines of credit available to pay the lien, and; allow time to market the property.
What is so fantastic about loan eradication, compared to short-selling or mortgage mods, is that the owner retains equity and can get back into a realistic LTV as an owner. Or they can sell and utilized their freed up equity held captive due to lender fraud. There are no 1099s for forgiven debt, there are no default foreclosure credit entries and the owners are immediately eligible for financing as a result of the eradication.
The service is available to those who are defaulting or being foreclosed upon, but they would not be qualified candidates for immediate traditional financing. The one-year line of credit can be an option to such owners however. Also, consider the example above: 50% LTVs can be funded with less desirable credit due to equity in the home.
The process takes the time that a short sale takes. Depending on the lender, it can be as quick as three to four months. However, some lenders take more time due to their reception of the lender fraud being presented to them. One private service assisted 53 properties with 50 receiving eradication over the past 12 months and the others were refunded unused deposits and took another option to remedy their positions.
A mortgage modification cost the owners nothing, but they have the upside-down loan balance to remedy throughout their lives. A short sale costs the owners lost equity, and; they may receive a 1099 for the forgiven loan balance to pay taxes on. Flopping gets the owners out of the home, as lenders are more incline take a flip offer due to undesirable property status, but the owners are left with nothing and need to start all over.
A loan eradication brings equity back to the owners and they have value to work with once more. Different than the other options, loan eradication does not require a license or certification to participate in, and; is Dodd-Frank exempt. It is a private service and does not require any Federal agency oversight. The submitting provider source receives compensation for submitting the paperwork and assisting the up-side-down owner to obtain loan eradication.
A percentage of the profit share ($15,000. of the example in this blog) is paid to the originating person who brings the up-side-down owner out of debtor's prison. I am writing this so that industry professionals can be of service to people in their market reach, but any knowledgeable person can submit and process a loan eradication. Financial planners, investment fund agents, real estate agents and any person that understands applications and processing can be of benefit to those who are upside-down with their loans.
As owners have incorporated flopping that they can perform themselves, it will not take long for innovative owners to embrace and utilize loan eradication themselves. Why not bring it forth as another product/service which you can perform? Other concepts, using constitutional rights exist as well, but this is not what loan eradication is.
Everything has a time and season. Hard money, short sales, mortgage mods, etc. The time is here for loan eradication, as lenders are being exposed to their wrongful practices, creating the season for lender fraud to be a tool in eradicating an up-side-down owner's loan balance. You can use such a tool to be of service and reverse some of the burst bubble scenarios with your customers and within your market reach.