I own a home in Seattle that is worth $300K but we owe $400K. Wells Fargo, the first lien holder, agreed to modify the loan. Charter One (second lien holder) charged-off the 2nd right before the modification was approved. Charter One has not signed off on the Wells Fargo modification yet. Can/will Charter One hold up the Wells Fargo modification? Is short sale an option once a 2nd mortgage loan is charged off? If mod doesn't go through should we let foreclosure happen if we can't pay original loan?
Thank you for your question about a Wells Fargo Loan modification. Like many underwater borrowers, you are facing a set of difficult circumstances. It is wise to look at different foreclosure prevention alternatives, so you find the one that will best protect your financial interests.
Wells Fargo offers a number of foreclosure prevention options. The most appropriate option will depend on the type of loan you have, the amount of equity in your home, and the degree of hardship you are currently facing.
Eligibility: Loan modifications are intended to help homeowners who are struggling to make their payments due to a financial hardship. Here are some of the basic eligibility requirements for a Wells Fargo Mortgage Loan Modification:
Ways to reduce payments: A loan modification can help reduce payment through a combination of different techniques including:
Documentation: Before approving a modification Wells Fargo will look at your individual situation and weigh a number of factors including your loan balance, the type of lien, the value and condition of the property, and the extent of your financial hardship.
A Wells Fargo Loan Modification requires a lot of documentation. This includes detailed information about your income (tax returns, pay-stubs), your assets (bank and investment accounts), a detailed description of your financial hardship and monthly debt and other expenses.
Since each person’s situation is unique, work with your lender to make sure that you provide all the relevant documentation. It is common to be asked for the same paperwork more than once, so keep all your records organized in one place.
Work closely with the Wells Fargo representative to ensure that all of your paperwork has been received and found satisfactory. If approved for a Wells Fargo Modification, then you will enter into a trial period, to see if you can maintain the new payments. It is crucial to make your trial payments on time.
Your question regarding Charter One is very difficult to answer. On one hand the second lien holder, Charter One, has very little incentive to foreclose on your property, because you are underwater. (You mention that you owe $400,000 on a home worth $300,000, but not how much you owe each lender).
The fact that Charter One charged off the loan does not mean that it can collect on the debt. In order to do so, Charter One would first have to pursue legal action. Washington is a "non-deficiency"state, so I suggest that you speak to a local attorney regarding your rights against a lender that forecloses against your home. (Your protections may only be against the party that actually forecloses.)
Overall, Charter One has no great incentive to foreclose, although Wells Fargo may be concerned about your ability to make payments on a loan if you are in default on your second mortgage. I recommend that you speak directly with Wells Fargo regarding the second mortgage. (They will know your situation once you present all of your financial information). In addition, work with Charter One, and attempt to work out a modification on your second mortgage.
You mention the possibility of doing a short sale in the event of a charge-off on a second mortgage. It is a good idea to keep your options open, because if the loan modification does not go through and/or you are not able to keep up with your payments, then you will need to find other solutions.
Wells Fargo offers a number of solutions besides the loan modification. Wells Fargo, along with other big lenders/servicers, signed the National Mortgage Settlement and agreed to make a number of changes in their foreclosure prevention procedures. This included no dual-track (both foreclosure and modification) and a single point of contact.
A short sale is an alternative, but aware that you will have to deal with the deficiency balance and possibly tax issues. Make sure that you negotiate with Wells Fargo a dismissal of your deficiency balance. You will also have to get agreement from Charter One regarding the release of the junior lien. Check out Washington State Department of Financial Institutions page about short sale.
When talking to Wells Fargo about your modification ask about other foreclosure prevention programs and if you might be eligible for government programs, such as:
Finding a long-term solution is the key to working with your lenders. A loan modification is one foreclosure alternative, but check all possible options, including if necessary bankruptcy.
Take these four steps:
I hope this information helps you Find. Learn & Save.