Is A Loan Modification Better Than A Short Sale?

Should you try a short sale or a loan modification? Think twice about a loan mod.

If you are in a financial jam and are looking into an Arizona short sale, you may think getting a loan modification would be ideal, wouldn’t you? If you can get your lender to go for it, doesn’t a loan modification seem better than short selling your house, or worse, going into foreclosure?

Theoretically, yes. But there are many reasons that loan modifications fail. So you may want to think twice about it.

Here are five reasons an Arizona short sale may be better than a load mod.

  1. Lenders don’t always stick with their promises. They can make loan mod offers and then later retract them at the most inopportune times. They can also require a temporary loan mod and then turn around 3 months later and tell you that you do not qualify for a permanent loan mod.
  2. “Permanent” loan mods often are not actually permanent. Many times, the lower interest rates are good for only 3 to 5 years.
  3. If you are making reduced payments through a temporary loan mod with the lender, and then later your permanent loan mod is rejected, you will now be in default and the lender can foreclose.
  4. Lenders can keep asking for updated financial documents in order to try and get further payments from you and discover assets in case of eventual lawsuits.
  5. Finally, most loan mods are only a forbearance and the missed payments along with penalties and interest are added to the end of the loan as a balloon payment. This affects your negative equity.

Loan modifications look good, but in the end there can be many problems with them. Talk to your Arizona short sale specialist for the advantages of a short sale.