Q. I bought a condo in Corona in December 2005. I owe $290,000 on the first – 10-year interest-only – and $32,000 on the second – which is due in 15 years with a big balloon due at that time.
We have made all payments on time and we have excellent FICO scores. We can afford our payments right now but will struggle when payments go up. Since recent comps in our condo community are about $150,000, I am looking at alternatives because we are so upside-down. I ran across an Internet site that proposes a short sale-refi, in which they would negotiate with the servicers to do a short sale on my condo. Then I would buy it right back, hence short sale-refi. Plus no upfront fees! All fees and costs would be rolled into new loan! After doing some Internet searches, this “short sale-refi” is only offered by one company. My question is, is this a real opportunity or a scam? The fees are $2,500 for loan modification and $3,500 for short sale-refi.
A. I share your suspicions of this program. One feature of legitimate transactions is that they are transparent. This scheme would seem to fail that test in that the ultimate buyer is not an independent third party. I think it unlikely that the lender would approve the short sale if they knew the full details of the transaction. More specifically, I also cannot see them approving a simultaneous loan modification.
There is a question about whether you could get a loan from someone else with the damage that a short sale would do to your credit rating. Normally the effect of any kind of action where the previous lender got less than the full amount they were owed shuts you out of the housing market for a few years. For a greater discussion of that topic, click here.
I think your suspicions are well-founded. The good news is that you have five years until the first loan resets and a lot can happen in five years, as we have found out in the last five.
Q. I am a retiree with six rental properties and trying to hold on. I need some refinance advice on what to do next on the refinances. I have been handling this on my own for years but now need guidance during this unique market. (The property I bought in 2008 is now appraising at under half of what I paid for it).
A. That’s not quite enough information for a comprehensive answer because all your properties are involved, not just the one property that’s under water. Although that property may be under water, it still may be providing a positive cash flow. Your interest is whether in total all of your properties will provide sufficient cash flow to support your retirement. Correct?
Current rates are well less than 5% so if you have properties with enough equity that are currently financed with loans with interest rates above 6%, you should consider refinancing them today for long-term savings. Note that you need to qualify for the loan, but that is based upon your total income including rental income and whether you qualify for the housing expense on your own residence.
If it makes sense to refinance, then you ought to do whatever you can now because rates are so low.
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