Short Pay – another option to save your home.




There are many attorneys in South Florida helping lots of people today with defense of foreclosures and attempting loan modifications. There are lots of newsworthy articles in the press and on the TV news about the woes in our national economy related to the mortgage crisis and foreclosure. But very few attorneys and very few news stories seem to deliver what homeowners want to learn and need to know – How to cure the problem of being upside down or underwater on your mortgage? If the news anchors would stop looking for sensationalism in the foreclosure crisis and instead give more insight to curing the problem, then just maybe this negative economy can turn itself around again. Another issue is that the banks really have no incentive to help the consumer. So, as attorneys we must take the helm for each client and guide them into safe waters.

When was the last time you heard from an attorney or even a news anchor’s story that an underwater homeowner mired in mortgage debt with a devalued home property could be helped and the mortgage could be re-evaluated under a refinance? No one talks about it, and very few attorneys, even those of late who are doing foreclosure defense and loan medication know anything about it.

Here’s the scenario. You bought your home or refinanced your home in the past ten years based on the artificial inflated real estate values that hit us in South Florida since 2002. Today that home you bought or refinanced is worth maybe 35% to 50% of what the estimated values were in 2002 or since. Every month, like clockwork, you pay your mortgage, even though you know you are paying for something that is worth far less in value. Your neighbor down the street stopped paying his/her mortgage and went into foreclosure because the bank told them if they continue to be a current paying bank customer they do not qualify for a loan modification. STOP!! If you don’t pay your mortgage your credit could be ruined for years. STOP!! If you do not pay your mortgage the bank could sue you and ultimately could foreclose on the property. Of course there are ways of defending such foreclosure lawsuit against you – to be discussed in later blogs. FACT: True, the bank cannot and will not even consider you for modification unless you stop paying your mortgage and only after 90 to 120 days could you then possibly qualify to be considered for modification and then what happens? The bank usually does not properly process your request. You, on the other hand continue to pay your mortgage on time and what can you do to get your mortgage modified? Who will help you? The bank won’t, they want your timely monthly payments, so why would they want to give you any help to lower your mortgage payments? They won’t. WE MAY BE ABLE TO HELP YOU (if you qualify).

As defense counsel to foreclosure issues we are very much aware as a law firm as to where the market is and where it should be. Right now the new Congress is considering revamping the National plan to shore-up the major deficiency that bank management has today that is totally a negative impact on all financial markets, and especially here in South Florida. The negative issues are the a) warehousing of repossessed foreclosed homes called REOs (Real Estate Owned Properties) by major mortgage lenders; b) no incentives for the lender banks because of the misguided TARP bailouts that still exist; c) lack of respect by most mortgage lenders who will not accept the true blame for the inflation in the market caused by the same bankers with prior very bad lending practices who now levy blame on their borrowers.

Most borrowers, and thank goodness for that, are very responsible homeowners and some have been hurt financially with the artificial inflation over the prior 7-years when prices topped $1-million on properties that were only worth $375,000 to begin with. Now, the market has receded and the buzz word is “Short Sale.” So what is a SHORT PAY???

At KATZ & ASSOCIATES LAW FIRM, we firmly believe that the new and upcoming buzz word in 2011 will be the Short Pay. Short Pay basically is a refinance at a realistic value by a new lender to take over the existing lender’s loan position at a discount of the grossed-up mortgage. The same day when you originally Closed on your loan, or refinancing, that loan and mortgage was immediately sold by the lender bank to investors and now the lenders are actually loan servicers in most cases. The investors want the value in “current money,” not “future money.” That economically makes sense to an investor with actuality when we do a “Short Pay”. We create an incentive to discount the loan in order to have it bought out at current value where the investors are paid now, instead of the future when there may be a total loss to the investor.

What is a Short Pay?
A Short-Pay, or also known as a short-refinance, is a transaction, where a current lender agrees to accept less than the full amount owed to them. This process is similar to a short sale but instead of selling the home to a third party, the homeowner keeps their home by refinancing with a new lender with a new loan based on the current market value of the home. The Short Pay allows the homeowner to keep their home and avoids a foreclosure or possible bankruptcy.

Why a Short Pay?
Homeowners that want to keep their homes, but don’t have sufficient equity to refinance their loan through conventional methods, should use the Short Pay option as a tool. The lender considering the Short Pay would have to be willing to accept a short payoff on the existing loan or hold a second mortgage to make up the difference needed to payoff the existing mortgage at the home’s current value, and the homeowner must qualify for the new loan.

Who may be able to use a Short Pay as another method to avoid foreclosure?
Homeowners that are experiencing financial challenges where a default on their loan obligations may be imminent, are “upside down” on their homes (meaning they owe their lenders more than their homes are worth), have not been late on their mortgage payments and otherwise qualify for an FHA loan refinance (maximum loan amount for Broward, Palm Beach and Miami-Dade Counties is $345,000 since the Rules revision of January 1, 2009) based on the current market value of their homes, should contact us immediately to determine if a Short Pay is a viable solution.


Katz & Associates, PLLC

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