The traditional advice given by financial experts is for a troubled homeowner to contact their lender as soon as they begin to fall behind on their mortgage. After all, it’s assumed that the lender wants to do everything they can to avoid an expensive foreclosure. Does this assumption still hold true in today’s real estate market? The experiences of many troubled homeowners seems to indicate that this is no longer the case. They’ve found the path to obtaining a lower interest rate or more manageable payment to be very frustrating.

The cause for this is really rather simple, there’s no financial incentive for a lender to offer a loan modification to most homeowners. As it turns out, many lenders aren’t really lenders at all. What they actually are is a loan servicer. This means that they essentially take the mortgage payments and distribute these payments to the actual investors.

Most home loans over the past 10 years have been bundled and sold as an investment instrument. This has created a market for loan servicers, companies or divisions at banks, which simply manage the accounts and are paid a commission for doing so. They don’t have the legal authority to modify conditions of the loan. All they can negotiate are repayment in full plans or forbearance plans.

The actual owners of the home loan are the hundreds or even thousands of investors who own a part of many loans. They would all have to agree to change the terms of a mortgage contract and this is unlikely to happen. Thus, the loan servicer has a strong incentive to stall or delay any kind of loan modification. Why? Because they get paid a commission to do it. They get paid by the investors for their collection efforts up until the actual sale or foreclosure. However, they will not profit if a loan is modified.

The first step to avoiding frustration in the loan modification process is to determine who your mortgage holder really is. If your mortgage has been sold as part of a security, the chances of you being able to get a loan modification is rather low. In this case, you should prepare yourself for other options, such as a short sale, deed in lieu of foreclosure or a foreclosure, or find a way to bring your mortgage current and continue to keep it current.

There could be changes in the law that would remove the financial incentive for mortgage loan servicers. Several have been proposed in Congress, the Obama administration and the SEC. However, until the law is changed troubled homeowners, their communities and the actual mortgage investors will continue to have a no-win situation on their hands when it comes to mortgage loan modifications.

Related posts:

1. Second Lien Mortgage Payments Rescue Plan The US Treasury Department recently announced that they will use...
2. Federal Home Loan Modification Plans Are you investigating the new federal home loan modification plans?...
3. Loan Modification Attorneys Perhaps you have wondered if hiring an attorney can help...

The important thing is to remember that most homeowners wait too long to start investigating their options. It is almost as if they are looking for a reprieve from the lender.  Unfortunately, those in poor financial standing are unlikely to get that reprieve. Therefore, it is to your advantage to understand the facts of short sales ahead of time and begin negotiating with your mortgage lender as early as possible in the process.

Not all homeowners are able to receive assistance from their lender and not all banks are willing to offer it.  If you find yourself in this position, a pre-foreclosure sale at the full price of the mortgage may be the only way to keep your credit in good standing.  Don’t be mislead, a foreclosure will negatively impact your credit score for many years to come.  Some foreclosure lawyers advise their clients declare bankruptcy to stop foreclosure.  This can work in some states but it is also risky and will damage your credit score as well.

If you make the decision to sell your home, either at full price or at a price lower than what you owe (aka a short sale), it is a wise to make arrangements ahead of time with your lender. This is required in the case of a short sale but even if you manage to sell your home for you owe staying in touch with the mortgage lender will help smooth the process. If your lender knows that you are actively trying to sell your home they are more likely to allow you time to close that sale and may assist the sale in other ways. Staying in touch with the lender is something you should do.

As for that sale, it can be handled by you or by a realtor.  If you are upset about the loss of your home, working with a realtor who knows how to work with pre-foreclosure sales and short sales is advised.  Not only might you have difficulty dealing with prospective buyers who seem to have no regard for you or your troubles, you will also want to have someone who knows the process helping you out. If you do end up using the services of a local realtor who understands short sales to assist you with the sale of your home, you may actually receive more money.  This happens because realtors usually sell homes for somewhere at or around their actual assessment value.  Although it may be the case that not much will be left over after paying your mortgage and the realtor, it may be just enough to help you make new living arrangements. Since buying another home likely isn’t an option, you will most likely need to have enough money for a security deposit as well as first and last months rent.

Remember, buyers who’re interested in pre-foreclosure and short sales aren’t always careful with the words they choose.  Believe me, you may have to deal with people who look down on you. This can be an unpleasant situation, to be sure, but it is important to remain calm. Unfortunately, you will find that there are many misconceptions about people who’re facing foreclosure, most of which are not true.  Remember to always keep your head held high.  As painful as it may be to deal with a jerk, at least you can avoid foreclosure and keep your credit in good standing.

The biggest downside to selling your home, a home that you liked well enough to buy in the first place, through a pre-foreclosure or short sale, is the loss of your home. This stark reality is why many homeowners procrastinate until the last minute to begin looking into how to sell their home like this. It is a decision that many homeowners are uncertain and frightened about.  However, you have to know that unless you can get your mortgage back to good standing, you will lose your home regardless of what action or inaction you decide to take.  A pre-foreclosure sale or a short at least helps you retain a decent credit score, especially if your mortgage is paid off in full.

Related posts:

1. Government Short Sale Program Beginning on April 5, 2010 lenders who participate in the...
2. How to Avoid Home Loan Foreclosure If you are one of the thousands of people who’ve...
3. Foreclosure Prevention Advice If you are facing foreclosure you may be looking for...