Tuesday, August 31, 2010

Short sales, loan modifications and checking accounts

Image ID 1260843 by StockExchange user sgback


image credit, user sgback at StockExchange


If you’re trying to complete a short sale or loan modification on your home, do not keep money in a checking or savings account with the bank that holds your mortgage.


Open accounts with another bank, savings and loan, credit union (or whatever) that is not related to your mortgage(s) and move your money there.


Of course, if you're doing a short sale or loan modification, you should hire an attorney or a CPA/accountant, or both. Don't take my advice as gospel. I'm a Realtor, not an attorney or CPA or accountant. Hire an expert who looks at your unique situation.


From Inman.com newswire service:


Banks routinely obtain a "right of offset" in agreements with depositors, which allows them to take money from one account to settle a debt in another account with the same bank.


. . .


[normally this doesn’t apply to mortgages and checking accounts but]  Rosemary Ybarra, lead foreclosure intervention counselor [with] Neighborhood Housing Services of Phoenix, said she was aware of instances in which banks have exercised their right of offset against delinquent mortgage borrowers. (emphasis mine, not Inman’s)


Although Ybarra could not say how common the practice is, when clients seeking loan modifications are unable to cure their loans, "we let them know that the servicers will exercise their right (of offset), and that if they have an account open with them, to liquidate it."


This seems like just common sense and street-smarts.  You wouldn’t take a loan from a loan shark and then tell him “I can’t pay you” while clutching a  wallet full of $100 bills. Would you?


What's left in your checking/savings account might be only a couple of hundred dollars, but you'll be really, really angry if your bank takes it and applies it to your mortgage balance.


The quote above is from an article posted August 23, 2010 on Inman.com which is a subscription news service for the real estate industry. Like a lot of news sites, Inman has a fee section and a free section. The article the quote comes from was free on August 23, 2010 and pay-for-viewing after that.