Short Sale vs Foreclosure: Which Pill to Swallow?

Being a homeowner today is not easy, unless you own your home outright. For most that make mortgage payments, even if you have sufficient funds to make payments regularly, declining property values have crippled re-financing as a viable option. If you are a distressed home owner and have lost income and can’t make mortgage payments, you can either surrender to foreclosure, whereby the bank or loan company takes legal action to take total control of the property or you can attempt a short sale, whereby the bank agrees to accept less than the total amount owed on a mortgage to avoid having to foreclose on the property.

Being foreclosed has severe consequences to one’s reputation and credit. Participating in a short sale also has consequences, but they are less severe than those associated with foreclosure.

The following compares and contrasts some life options if you do a short sale vs. being foreclosed.

Buying Again: Short Sale vs. Foreclosure

If your payments have never fallen behind 30 days late and the lender does not require that you pay back the loan, Fannie Mae guidelines may allow you to buy another home immediately. Finding a lender who will fund that kind of loan is very difficult. If you are current on your mortgage, you can qualify for an FHA loan immediately as well, but lender requirements can be weird such as you have to move more than 600 miles away.

If your payments are in arrears yet a short sale is granted by your lender, you may qualify to buy another home with a Fannie-Mae backed mortgage within two years, regardless of whether the home is your primary residence. The wait for FHA is 3 years.

With certain restrictions, you may be eligible, after having your home foreclosed, to buy another home in 5 years if the home was your primary residence. Without restrictions, the wait is 7 years.

If you are an investor and do not occupy the home, the wait to buy with a Fannie Mae insured loan is 7 years.

Affects on Credit: Short Sale vs. Foreclosure

A short sale may be considered to be a derogatory mark on your credit even though credit bureaus do not show the word "short sale" on your credit report. It may say "paid in full for less than agreed" or "settled for less," among other categories. Some clients have reported negative FICO score drops from 50 points to 130 points.

Major point drops are typically due to being in default, meaning you have fallen behind on your payments.

Depending on your credit history and other guidelines, a credit score could fall 105 points to 160 points after a foreclosure. Generally, a foreclosure will remain on your credit report in the tradelines section for 7 years.

Credit Reports: Short Sale vs. Foreclosure

All lenders report short sales differently, with many reporting "paid in full for less than agreed," and some report the short sale as a charge off. Negative credit, however, stays on your report for 7 years. If a prospective employer runs a credit check on you, your job application may be denied if you have a foreclosure on your record.

Deficiency Judgments: Short Sale vs. Foreclosure

Judgments are often negotiated between the seller and the short sale bank. In some cases, such as California, if the home is your personal residence and was financed through purchase money, there is no deficiency judgment. Banks are generally unwilling to negotiate deficiency judgments with the homeowner after a foreclosure. In California, for example, according to the California Association of REALTORS, a deficiency judgment may be filed regarding a hard-money loan if the lender forecloses under a judicial foreclosure versus a trustee sale or if the second loan is a hard money loan and the sale takes place as a trustee's sale.

Loan Application Questions: Short Sale vs. Foreclosure

Loan applications do not ask questions about a short sale. You may report that you sold your home. However, you are required to answer the question: "Have you ever had a property foreclosed upon or given a deed-in-lieu thereof in the past 7 years." If the bank sees you have had a foreclosure, your loan most likely will be denied. If you lie, you may be subject to investigation by the FBI for mortgage fraud.

Length of Time to Move:  Short Sale vs. Foreclosure

If you've had a foreclosure notice filed, you may be able to postpone that action while the bank considers your short sale. The wait for short sale approval can be from 2 to 3 months, or longer. Unless prior arrangements have been made, the bank may want you to immediately vacate the property and can commence eviction proceedings.

Taxation: Short Sale vs. Foreclosure

A personal residence is exempt from mortgage debt relief until the end of 2012 on a federal level. Some states will still tax you unless you qualify for an exemption. An investor is not exempt from mortgage debt relief, subject to certain conditions.

A person who has had their home foreclosed, is protected under the mortgage debt relief act that is in place until the end of 2012. Nevertheless,  some lenders immediately send out 1099s, even if the owner is exempt.

Going for a Short Sale: Time is of the Essence

To qualify for a short sale your home must be worth less than you owe on it, and you  must be able to prove that you are the victim of a true financial hardship, such as a decrease in wages, job loss, or medical condition that has altered your ability to make the same income as when the loan was originated. Divorce, estate situations, etc… also qualify.

As a seller of a property you should never have to pay for any short sale cost upfront to any professional service. Realtors charge a commission that is paid for by the bank. In most communities there are also non-profits and HUD counselors who can help you with foreclosure prevention options for free. The only potential cost you could incur is if the bank would not release you from a deficiency balance in the short sale, which is happening less and less now.

The farther you get behind on your payments, the harder it is to get a short sale approved. The closer a property gets to a foreclosure the harder it is to convince the bank to perform a short sale; as they get closer to a foreclosure sale more money is spent, thus deterring them from doing a short sale.

If you think you need to perform a short sale, time is of the essence; the sooner you start the process, the better. Waiting too long can trigger the ramifications of a foreclosure, rendering the short sale unviable.

To Be or Not to Be: The Mortgage Forgiveness Debt Relief Act Extension Beyond December 31, 2012

The Mortgage Forgiveness Debt Relief Act is set to expire December 31, 2012, and there are early indications on Capitol Hill that it might not make the cut. The law, first enacted in 2007, allows homeowners who have received principal reductions on their mortgages as the result of loan modifications, short sales or foreclosures to avoid income taxation on the amounts forgiven.

Prior to 2007, all cancellations of debt by creditors — whether on auto loans, personal loans or mortgages — were treated as taxable events under the federal tax code. If a person owed, say, $200,000, but paid off only $150,000 through an agreement with the lender, the $50,000 difference would be ordinary income, taxable at regular rates. Thanks to the Mortgage Forgiveness Debt Relief Act, however, that $50,000 difference would not be taxable.

Under the debt relief law for qualified home owners, taxation can be avoided on forgiven mortgage amounts up to $2 million (married filing jointly) and $1 million for single filers. To be eligible, the debt must be canceled by a lender in connection with a mortgage restructuring, short sale, deed-in-lieu of foreclosure or foreclosure. The transaction must be completed no later than December 31, 2012.

Having a foreclosure on one’s credit report will impact a credit score much more than will a short sale. If one is successful in completing a short sale, in many cases, he or she may qualify for a mortgage much sooner than with a foreclosure. Not surprisingly, short sales have thrived under the Mortgage Forgiveness Debt Relief Act. There have been 1.6 million short sales reported by the National Association of Realtors since late 2008, accounting for between 10 percent and 14 percent of home sales activity each month during that time. If the Mortgage Forgiveness Debt Relief Act is not going to be extended beyond 2012, we can expect short sales to plummet in 2013, with real estate sales in general, taking a dive. So if you’re a home owner contemplating a short sale, should you act now or hold off?

Given the huge public and private resources now being devoted to helping financially distressed home owners — including the recently announced $25 billion national mortgage settlement with five major banks — you might assume that a key federal tax law benefit underpinning these efforts would be a shoo-in for renewal.

Election-year politics and a contentious lame-duck, year-end congressional session loaded down with tax and budget issues could doom renewal of the debt relief tax legislation and put large numbers of loan modification participants deeply in the hole. Republican strategists say the cost of continuing the program — $2.7 billion for two years — is substantial enough to catch the eyes of budget-deficit hawks. Beyond that, they add, some members of Congress may be opposed to what they see as still another targeted federal benefit for people who didn’t pay their mortgages — subsidized by taxpayers and stayed current on their loans, even while underwater or facing severe financial distress. Douglas Holtz-Eakin, president of the center-right American Action Forum, former director of the Congressional Budget Office and economic adviser to Sen. John McCain’s 2008 presidential campaign, said in an interview that there is “a powerful sentiment,” especially among conservative freshman House members supported by the Tea Party, that tax code “bailouts” to delinquent and underwater home owners are fundamentally unfair.

On the one hand, only 27 Republicans voted against the original 2007 bill, which was written by Rep. Charles Rangel, D-N.Y., and handily passed the House before sweeping through the Senate with unanimous consent. On the other hand, that all happened before the Tea Party picked up steam. A look at the 2007 roll call for the original 2007 bill shows that two of the "no" votes came from GOP members who are now heavyweights on the Ways and Means Committee-through which the original bill traversed -- Rep. David Camp of Michigan, the Ways and Means Committee chairman, and Rep. Kevin Brady of Texas, the GOP deputy whip. Both Camp and Brady are on record having signed an opposition statement attached to the original legislation highlighting concerns that the temporary measure could morph into a permanent entitlement, creating "an environment where the American tax system is complicit in promoting 'risk-free' mortgages." Camp has since been unsympathetic to many home owner relief measures proposed from across the partisan divide. He voted to kill the Home Affordable Modification Program (HAMP) and to deny federal bankruptcy judges "cramdown" powers, in which they could mark down the amount owed on a mortgage to the current market value of the property.

The extension of the Mortgage Debt Forgiveness Act beyond December 31, 2012, therefore, is hardly a slam dunk. That being said, home owners contemplating whether to do a short sale now or wait until next year might be best served to take the “I’d rather be safe than sorry” stance and do their short sale before year end..

The Strategic Short Sale: How Distressed Borrowers can Build a Better Future

Strategic defaults, from the inception of the mortgage meltdown through the Recession and

now the potential recovery have followed an interesting cycle. Borrowers holding exotic mortgage products characterized by lowball introductory rates with steep mortgage payment hikes after an initial fixed period comprised the first wave of strategic defaulters, followed then by conventional mortgage holders caught in the Recessionary fallout of unemployment or other calamities and couldn’t afford a fixed monthly payment. As the Recession came to a close, a new strain of affluent strategic defaulter appeared that walked away from their mortgage as a business decision to avoid losing more money on a declining investment. In each example, the borrower deems the short-term benefits of a clean default are much more valuable than the immediate consequences associated with abandoning the mortgage. There is yet another aspect to strategically forfeiting the home that takes into consideration long-term benefits with a more satisfying outcome.

Borrowers today have more options than ever keep their homes, ranging from proactive lenders reaching out to modify loans, to government and regulatory actions aimed to prevent more foreclosures. Moreover, today’s borrower takes a more prudent approach to their credit obligations, as evidenced by significant declines in consumer debt and delinquency levels across the board. However, there are still homeowners that have absolutely no backstop to avoid severe delinquency and ultimately foreclosure. Usually, the only option left other than foreclosure is a short sale, which under today’s conditions is more favorable alternative. The government has been incentivizing lenders and sellers to participate, along with lenders offering some pretty sweet cash bonus to delinquent borrowers to sell before a notice of default is filed. Moreover, real estate agents and brokers have become more familiar with short sales as part of their routine and are becoming better equipped expedite the process. But this is where the conversation usually ends. The lender accepts a lower price for the loan amount in return for removing toxic assets off its books. Borrowers dodge the horrors of foreclosure by selling it. Distressed borrowers, however, should be able to strategically leverage a short sale process as a stepping stone that helps them gain a stronger financial footing to recoup their most valued asset --- their home.

The strategic short sale is ideal for borrowers who, above all, are honest with themselves about their predicament. They acknowledge early in the process that at some point in their near future they will not be able to make either their current mortgage payments, or even sustain reduced mortgage payments they would be eligible for through loan modification. This is the critical juncture where they decide relinquishing the home through a short sale is a viable route. The short sale wipes out the debt on the first lien, and many short sale negotiations include the cancellation of the debt owed as a result of difference between the remaining loan amount balance and the final sale price of the home. Borrowers may also be entitled to cash incentives through the government, the lender, or a combination of both. Moreover, a short sale clearly has a significantly smaller impact on a borrowers’ credit rating than a foreclosure. These are the obvious advantages.

While it may appear that distressed homeowners initially lose their most valued asset, the strategic perspective of the short sale process provides for a more optimistic end game. The true goal is actually for the strategic short seller is to position themselves to comfortably handle the responsibilities of a mortgage for the long term. By relinquishing the debt of the original mortgage through the short sale, homeowners give themselves an opportunity to regroup financially and develop a savings routine based on new budgeting strategies. The fresh start allows the former homeowner to address other outstanding debt, and as a result build a stronger credit profile that would have a better chance of meeting today’s strict lending guidelines. The most important advantage to the former homeowner is that home prices, compared to when the original home was purchased, will be far more affordable when they are ready to enter the market again. While today’s low home values are projected to rise in the next cycle of the housing industry, they won’t approach the highs of the last cycle. The homeowner who takes the high road by strategically exiting the mortgage via short sale has the opportunity to return as a homeowner on more stable footing with a home and mortgage that can be sustained.

Losing a home may not the end of the world. It could be the beginning if approached with the right plan.

CA SB 1191 -- A Cure or More Big Brother?

SB 1191 has been introduced in the California Senate. It would require every landlord who is in default under a mortgage or deed of trust and who has received a notice of sale, to disclose the notice of sale to any prospective tenant prior to executing a lease agreement for the property. The bill would also provide that a violation of those provisions would invalidate the lease and entitle the tenant to recovery of “all” rent paid under the lease.

Granted, I have heard of past abuses by absentee landlords that may be valid causes to enact legislation to protect renters of single family homes but to include all landlords is a much more serious issue. When viewed on the macro-economic level, however, SB 1191 assumes an over-reactive, over-protectionist, “big brother” stance by imposing actions to cure ills in the single family residential sector on a much more complex commercial environment that operates by a completely different set of rules. And quite frankly, it’s extremely counter-productive to this struggling market.

Let’s look at this from an investor’s perspective: as an owner of a building, there are many reasons I could get into a default situation, and not because I may be trying to negotiate with my lender (though this does happen, but not often). I may well have a legitimate issue with my lender who could take a hard stance and slap me with a default. Under this proposed legislation, I would have to tell all of my tenants and prospective tenants about the default. What then are my chances of maintaining my building? Not very good. This could create the complete devaluation of my building, to a point that in all likelihood, I couldn’t recover.

And what about maturity defaults – I’m current but my loan is due and I can’t get refinancing. Having to notify my tenants and prospective tenants would turn a maturity default into a real default with ensuing consequences of serious devaluation and deterioration of commercial properties.

This proposed legislation is also a disaster from the lender’s perspective. Let’s say the building is half leased and needs an investment to bring it up to par. The note holder isn’t paying the lender; should the lender put him in default? If it does, it’s going to drive away existing tenants and not even get to first base with prospective tenants. The lender is, in essence, destroying the security in its own asset and should be very reluctant to enforce their rights under the terms of the loan.

It’s not often that investors and lenders have the same point of view on an issue but in this case, this proposed legislation is damaging for both groups. The last thing we need is more, empty buildings which this legislation would surely help achieve.

We all understand that the government is trying to protect renters; and granted, there are some “victims” out there who do need protecting, but the pendulum has swung too far with this bill. This over-reaching and over-reaction by government would create a new crisis in an already fragile environment. Let’s hope that appropriate limitations will be written in to this legislation to help maintain a market that is showing signs of recovery.

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Gil Priel is Managing Director and Principal of the Peak entities. Gil Priel has been involved in the real estate industry since 1978, starting with the private equity acquisition and management of several office buildings in the Los Angeles area.

Priel has worked in all phases of the real estate industry including land development, management, financing (portfolio lending for commercial and residential properties plus non-performing debt acquisition and broken development cycles) and disposition of all product types. His expertise in distressed real estate has spanned many cycles. Priel has been a guest speaker for many media outlets and publishes a monthly real estate newsletter. Priel has his BA from California State University, Northridge and a Juris Doctorate from Southwestern University School of Law.

Gil can be reached at gil@peakcorp.com.

Is the Marketplace Poised for a Return of Alternative Loan Products?

A return on the horizon for alternative loan products is inevitable.  While the products associated with this category have all but vanished, a new type of borrower is emerging that will reshape how loans that don’t fit the traditional 30-year-fixed model are fashioned.

Single family loans originated in 2010 and 2011 has proven to be the most solidly underwritten loans in years according to recent data from LPS.  While lenders’ conservative credit standards have been vilified as excluding many potential buyers from the market, the upside is that high quality mortgages are being originated by lenders, and eventually purchased by GSEs. 

From the lender perspective, this could indicate no need for subprime, Alt-A, or other types of “exotic” loans which were considered to be the root cause of the mortgage meltdown.  The issue with these products was that their underwriting standards weren’t based in reality. The predominance of these vehicles in the market was driven by lender/mortgage broker misuse, by marketing securities based on pools of mortgages with these shaky underwriting yet high returns, by appraisers being aware of the value needed for the loan to happen, and by poor oversight by government entities that guaranteed these products. As a result, poor loan quality destined for default was a defining element of this product set.

Stricter underwriting and scrutiny by regulators made subprime and Alt-A products virtually extinct and made borrowers with strong credit, deep reserves, and positive equity in existing properties the perfect borrower scenario for lenders. But now, the pendulum has swung the other way; qualified buyers who don’t meet these criteria are left in the cold and risk-averse lenders have taken the position that it is better to hold off on lending except in a perfect borrower scenario.

The need exists, however, to service this class of borrower.  New regulations governing our current lending environment, combined with more responsible lending practices, should provide the necessary restraints to prevent the credit misuse characteristic of alternative loan products seen in the last lending cycle.

Regulations requiring appraisals independence from broker shops, the end of yield-spread premium bonuses paid by lenders to brokers, and more upfront consumer disclosures are examples of current practices which should mitigate the risks of inflating home values and stop predatory marketing of non-traditional loan products to unqualified borrowers characteristic of the past real estate boom.  Moreover, the mortgage industry has taken a much more responsible stance toward to who it lends money.

The end result of these factors is twofold:  home values are substantiated and grounded in fair market value, and buyers will be vetted by a clear ability to afford the purchase price.  As the market stabilizes, more lenders should then feel comfortable originating loans at higher loan-to-value ratios, relaxing FICO criteria, or eventually streamlining documentation requirements for qualified buyers. 

“Qualified buyers” is of course, a moving target as the housing market regains its confidence and equilibrium.  But the class of qualified buyer is sure to grow past what the standard conforming 30-year loan model can accommodate. Lenders will need to relax some standards and offer new or better monitored “old” products to fill the void.  

Is Refinancing at Lower Rates a Strong Enough Solution to Cure the Housing Crisis?

With no light at the end of the tunnel in the foreseeable future for the housing crisis, the Obama Administration hopes its latest iteration of the Home Affordable Refinancing Program (HARP) will provide not only relief, but hope. Aimed squarely at the borrower segment that owes more than their home is worth, the goal is to make payments more affordable by allowing mortgages in a negative equity status to be refinanced. But does this solution substantively influence a cure to the crisis, or simply suppress one of its symptoms?

When HARP debuted in 2009, it allowed borrowers with loan-to-value (LTV) ratios between 80% and 125% to refinance at prevailing interest rates (much lower than when the loans were originated) and have lower monthly payments in a tough economy. A number of obstacles stalled widespread success of HARP in its initial form, including:

• Borrowers with LTVs higher than 125% did not qualify for the program. As housing values plummeted in many parts of the nation, the class of “underwater borrowers” with negative equity exceeding the 125% cap skyrocketed, especially in states hardest hit by steep declines in housing prices.
• Only mortgages guaranteed by Fannie Mae and Freddie Mac qualified for refinancing under HARP, which excluded mortgages that didn’t conform to Fannie and Freddie’s criteria. In short, primarily 30-year fixed mortgages qualified for the program; jumbo loans, adjustable rate mortgage loans, and loans underwritten using subprime underwriting standards did not.
• Lenders and servicers were liable to buy back guaranteed loans that defaulted.

In two years, less than 900,000 households refinanced under the program of which less than 72,000 mortgages had LTVs over 100%.

In an attempt to widen the appeal of the program, “HARP 2.0” as it is now known in some circles, lifts the 125% LTV cap, removes appraisal requirements, significantly relaxes income documentation and underwriting requirements, and reduces or waives fees for borrowers who refinance into a lower term. As a result, borrowers at the extreme ends of the negative equity spectrum could get some much needed relief in the terms of lower monthly payments.

While a significant number of borrowers are breathing a sigh of relief, the root of the real estate crisis continues unabated. HARP 2.0 doesn’t address the over 6 million borrowers who are either seriously behind in payments or in some stage of foreclosure. Neither is it preventing lenders from pursuing an aggressive schedule of foreclosure filings after a long hiatus. HARP 2.0 is doing little to brake the descent of home values and associated negative equity status as an ever-growing inventory of foreclosed homes and REOs continue to plague the market; nor does it have any impact on the millions of loans not sold to Fannie and Freddie that are in a negative equity status.

While a lower monthly payment for a greater number of borrowers is a well-intentioned benefit of HARP 2.0, it provides too little light to guide the housing industry out of the darkness. Returning equity to home values, reducing the glut of distressed properties on the market, providing solutions that directly address the issues of the distressed borrower will provide the shot in the arm that’s needed to succeed.

The Middle Market Investor: Making the Best of an Elusive Market

By most accounts, commercial real estate is about the only bright spot in the ongoing housing crisis: commercial building values have appreciated significantly in key urban markets, multifamily unit investors are enjoying steady revenue streams (a result of lower vacancy rates), and lenders seem much more willing to extend credit to commercial investors than to residential consumers. These factors foster guarded optimism that the commercial sector is injecting life into the housing industry.

The real story, however, paints a picture of a divided commercial sector where it is only select parties reaping the benefits. Institutional investors, hedge funds, and real estate investment trusts - the major traders in large commercial building deals - are the ones receiving favorable treatment from lenders. The purported gains in commercial real estate mostly bypass another significant member of the investment community --- the middle market investor.

This middle-market investor typically deals in transactions from $5MM to $50 MM and whose scope may include the typical multifamily building, but often extends to office buildings, new or distressed developments and joint venture opportunities. Because their deals often don’t fit the traditional underwriting mold, capital for complex real estate projects can be elusive. This is where a strong relationship with a commercial broker can make the difference between affecting a successful venture or a missed opportunity.

Brokers can tap a number of different funding sources ranging from the traditional (commercial banks) to private equity and hedge funds to which the middle market investor does not have access. Depending on the capital requirements of any given transaction, brokers also have the ability to structure a financing package from a combination of funding sources. In a tight-credit environment, good brokers know their funding sources’ lending restrictions and procedures, and vet loan proposals prior to submitting full loan packages thereby saving their clients both time and money.

Good brokers are also able to tap a strong network of strategic partners to facilitate all of the ancillary components related to a transaction including appraisals, escrow services, and tax issues to name a few.

In the current environment, working with a broker should increase the odds for middle market investors to reap the benefits of commercial real estate’s success rather than just reading about it in the press.

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The Peak Corporate Network entities provide unparalleled access to conventional debt financing, joint venture equity, mezzanine financing, bridge financing and structured debt for the commercial real estate market as well as knowledge and expertise (including access to off-market properties) in both local and national markets.

With headquarters in Woodland Hills, California, in addition to commercial real estate solutions, including 1031 Exchange services, the Peak Corporate Network entities offer residential real estate services, escrow services, asset management and disposition, residential and commercial loan workouts, loan servicing, foreclosure services, REO solutions and more. For additional information, please visit www.peakcorp.com

Peak Corporate Network Entities to Host Free Seminar on the Implications of California SB 458 and NMLS SAFE Act for Real Estate Professionals

Woodland Hills, CA (PRWEB) August 31, 2011

The Peak Corporate Network lends its expertise to Southern California real estate agents and brokers to de-mystify recent regulations that impact their businesses in today's tough market.

The Peak Corporate Network entities will present "How To Navigate The Changing Regulatory Environment," a free seminar for real estate agents and brokers on Wednesday, September 14 at Peak's corporate headquarters in Woodland Hills, California. The session will explore recent California legislation governing the handling of junior lien short sale deficiencies (California SB 458) as well as SAFE Act licensing requirements from the standpoint of the real estate agent.

"Understanding how SB 458 changes the short sale game is critical for real estate professionals if they are to survive and thrive in this current cycle dominated by distressed properties," states Raffi Tal, EVP, I Short Sale, Inc., and one of the keynote speakers for this event. I Short Sale, Inc., led by Tal, has been negotiating short sales with borrowers, lenders and on behalf of realtors for over 20 years. Tal continued, "The recent legislation intended to benefit short sale sellers could prove to complicate the transaction and leave real estate agents in the lurch if they aren't prepared."

Keynote speaker on the SAFE Act is Kirk Jaffe, COO for the Peak entities. "There's a lot of confusion out there on how MLO license requirements impact the mortgage business and specifically, the impact on real estate agents," states Jaffe. "This program will help alleviate the confusion and will walk attendees through the steps they need to know."

Date: Wednesday, September 14, 2011
Time: 9:00 am - 10:30 am
Location: Peak Professional Plaza
5900 Canoga Avenue, Suite 110
Woodland Hills, CA 91367

Seating is limited.

To RSVP or for more information, contact: Eric Corbid, 818-836-6672, ericc@peakcorp.com.

The Peak Corporate Network, headquartered in Woodland Hills, California is a leading authority in the real estate industry and provides a full array of comprehensive real estate services nationwide including mortgage lending, loan servicing, short sale services, 1031 exchange, trustee work, foreclosure services, and residential and commercial real estate brokerage services. For more information, visit http://www.peakcorp.com/.

The Peak Corporate Network is not a business entity; the brand represents a group of related separate legal entities, each providing its unique set of real estate services.

Practice What You Preach

The Peak Corporate Network entities’ expertise is in both distressed and fully-valued residential and commercial real estate. With a list of specialized services under one roof that includes distressed note acquisitions and joint venture opportunities, loan servicing, financing solutions, commercial and residential mortgage services, foreclosure services as well as 1031 exchange services, to name a few, the Peak Corporate Network truly has no peers. The question becomes, can it in fact, deliver on its promise to be a one-stop resource for ‘Everything Real Estate?’ When we look at how the Peak Corporate Network relocated to its new headquarters earlier this year as an example, the answer is a resounding “yes.”

In January, 2011, the Peak entities relocated to the prestigious Warner Center in Woodland Hills, California. This relocation leveraged virtually every service in its platform of services. Here’s how:

One of Peak’s core strengths is the ability to identify distressed investment opportunities with growth potential. The mortgage on Peak’s soon-to-be-new headquarters was in default and Peak successfully acquired the note from the lender at a 50% discount. Utilizing its default servicing and foreclosure units, a foreclosure solution acceptable to both Peak management and the delinquent borrower was developed. Purchase financing was secured through Peak’s commercial financing unit, and escrow services were facilitated through the Peak affiliate.

Recognizing the property’s potential as both a corporate headquarters and for its ability to generate a strong ROI through rental income, Peak management rehabbed the entire 47,000 square foot structure utilizing internal contracting resources. Once completed, Peak took half of the building for its corporate offices and leased most of the remaining space. Peak is now, in addition to being an owner-resident, an owner-landlord managing the asset.

Next in the process was disposing of Peak’s original headquarters building. Peak’s commercial real estate brokerage specialists acted as listing agent and the property was sold within six months of the move. Employing the same value-added strategies as it does for its clients, Peak negotiated the sale of the property under the IRS’s 1031 Reverse Exchange provisions allowing for a “like-kind” exchange.

The Peak Corporate Network entities not only effect creative and flexible ideas and solutions through the pooling of resources and the array of services provided, in this scenario, Peak clearly demonstrates an affinity with its client base to experience the range and depth of ‘Everything Real Estate.’

Peak Corporate Network Entities Celebrate 20th Anniversary

Released via PRWeb

WOODLAND HILLS, CA, July 19, 2011.  As visionaries and innovators in the real estate industry, Eli Tene and Gil Priel, Co-founders and Managing Directors and Principals of the Peak entities, are celebrating twenty years in business together.


Starting with the creation of Peak Financial Partners, Inc. in 1991, Tene and Priel developed a winning formula over the past twenty years providing ‘Everything Real Estate’ for a diverse clientele of private investors, lenders, servicers, agents and brokers, homeowners and homebuyers. Developed to fill the ever-changing real estate needs in a complex market, Tene and Priel built a platform of Peak entities to offer real estate investments, brokerage and loan services, foreclosure processing, 1031 Exchange, escrows services, distressed workouts and loan modifications.

According to Tene, “Our desire to offer the best one-stop resource for real estate services was the driving force behind the formation of the Peak entities, and today, we are the only comprehensive, in-house real estate solution provider in the United States.”

“We’re unique because we’ve managed to maintain a personal, boutique feel to business while performing large and complex transactions,” stated Priel. He continued, “Our ability to offer the range and variety of services that we offer with a level of service uncommon in the industry has certainly led to our longevity and the long-standing relationships we enjoy with our clients.”

Committed to being the best in its field, the Peak Corporate Network entities have a reputation of performance, honesty, and providing the highest levels of security, privacy and excellence in process fulfillment.

Taking its success to the next level, Tene and Priel have an ambitious growth plan underway and have relocated the Peak Corporate Network entities to a new, larger corporate headquarters in Warner Center (Woodland Hills, California).

CONTACT:
Evon G. Rosen, EVP Marketing for the Peak entities
Phone: 818.591.3300
Fax: 818.591.2990
evon@peakcorp.com

Catching the Commercial Real Estate Wave with the Right Financing

In the event you haven’t noticed, commercial real estate is slowly starting to rebound. Dwindling vacancy rates and a predicted shortage of affordable dwellings is driving up values of multi-family properties. Moreover, office and retail markets primarily in major metropolitan areas show extreme promise as businesses expand. The resurgence in the commercial sector has not gone unnoticed by those fortunate enough to own commercial assets. Owners are beginning to exploit the rebound in demand.

In stark contrast to the austere lending climate in the residential arena, a small but growing number of commercial banks have taken note of commercial real estate’s new-found stability and are willing to loosen their purse strings. The bad news, however, is that traditional underwriting and terms for permanent debt financing often don’t offer the commercial borrower sufficient senior debt proceeds. Fortunately, other forms of financing are available. In addition to traditional “permanent debt financing, other options include bridge loans, hard money loans, mezzanine financing and joint venture financing

The challenge is twofold --- structuring financing to maximize the investment’s ROI, and gaining access to a full range of capital sources comfortable with the risk associated with commercial investments. Institutional funds, insurance companies, private pension funds, and REITs are returning to the market. Investors may not be able to tap all of the available resources alone. Commercial mortgage brokers can work with investors to not only craft a strong borrowing strategy, but also act as a conduit to the array of funding channels available.

Smart commercial brokers understand the relationship between the investor’s investment goals and the need to structure a financing solution that meets those goals within the parameters of a property’s cash flow and attributes. They recognize that every commercial property is as unique as its investor, and should look for a financing solution unique to the deal.

But the primary advantage of a broker in today’s booming commercial market is timely execution. They know how to tap the sources of funding that’s appropriate for any given investor. Loans for assets that are properly underwritten transactions with strong sponsorship are getting done today at extremely attractive rates, and today’s best deals in commercial real estate move too quickly and won’t wait for a protracted financing process.

It’s in the investor’s best interest to find a partner that’s able to not only package a loan that meets the needs of all parties concerned, but find a partner that can do so quickly.

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The Peak Corporate Network entities provide unparalleled access to conventional debt financing, joint venture equity, mezzanine financing, bridge financing and structured debt for the commercial real estate market as well as knowledge and expertise (including access to off-market properties) in both local and national markets.

With headquarters in Woodland Hills, California, in addition to commercial real estate solutions, including 1031 Exchange services, the Peak Corporate Network entities offer residential real estate services, escrow services, asset management and disposition, residential and commercial loan workouts, loan servicing, foreclosure services, REO solutions and more. For additional information, please visit www.peakcorp.com

Peak Corporate Network Entities Announce Appointment of Tami Kilpatrick as EVP, Sales and Business Development

WOODLAND HILLS, CA, June 16, 2011 (released via PRweb) With over twenty-five years of broad-spectrum sales experience in the real estate industry including, corporate relocation, finance, REO management, residential sales, leasing and sales management, Tami Kilpatrick joins the Peak Corporate Network as Executive Vice President, Sales & Business Development for the Peak entities. In this role, Kilpatrick will build and manage a team of sales professionals to expand the Peak brand and develop additional revenue opportunities.

According to Eli Tene, co-founder, Managing Director and Principal of the Peak entities, “ We embarked on a re-branding effort earlier this year to better highlight the depth of real estate services we provide. Tami will be instrumental in expanding the reach of the Peak brand and further delineating the Peak Corporate Network entities as a leading authority and comprehensive provider of real estate services in the industry.”

Gil Priel, co-founder, Managing Director and Principal of the Peak entities stated, “Tami’s wealth of experience and expertise dovetails beautifully with our goals for bringing the Peak Corporate Network to its next level of success.”
Prior to joining the Peak Corporate Network, Kilpatrick was Vice President of National Accounts for JPMorgan Chase, and Vice President of Business Development for GMAC where she was pivotal to the success of the “GM Family First” program.

“I’m thrilled to be joining such a first-rate organization. I have the utmost respect for Eli Tene and Gil Priel and the reputation they and Peak enjoy as innovators and leaders in the industry,” said Kilpatrick. She continued, “The ability to provide a one-stop resource for ‘Everything Real Estate’ is a huge benefit to clients and prospective clients, and a message I look forward to delivering.”

Reports on the Demise of Home Ownership May be Somewhat Exaggerated

Distressed homeowners aren’t the only ones suffering during the sluggish economic recovery. Add average homebuyers to the list. The glut of available foreclosed properties and undervalued homes yields fantastic opportunities for first-time buyers or for existing homeowners shopping for larger accommodations. The sobering truth is that today’s market favors cash-in-hand investors, not rank-and-file consumers. While homes are cheap, virtually all consumers need to borrow before they own and our post-recession lending environment has not been very accommodating to the consumer who needs a mortgage loan.

Even though tax incentives artificially boosted home sales in 2010, their departure saw home sales plummet. As government incentives ended, the slow rise of interest rates began. In addition to rising interest rates, lenders implemented tougher underwriting standards making it more difficult to qualify for a loan, and in some cases more expensive; closing costs and private mortgage insurance—often required by lenders when borrower down payments fall below 20% or for other “risky” scenarios --- increased. And pending regulatory recommendations seek to discourage lenders from originating loans at less than an 80% loan-to-value ratio. So despite the affordability of homes on the market, buyers have encountered obstacle after obstacle blocking their path to home ownership. It’s no wonder, then, that the goal of home ownership has lost significant appeal. In recent surveys, only 64% of Americans regard a home as a worthwhile investment. More and more would-be home buyers have taken a pass on the American Dream, choosing renting over owning.

Unfortunately, renters have few guarantees. One major consequence created by the mortgage meltdown is a scarcity of available rentals resulting from the absence of financing for new apartment construction. While apartment building owners profit from high demand and steady returns on their investment, apartment dwellers find themselves at the mercy of short supply, higher move-in costs and rising rents. While predictions on when the housing market will recover vary, the recovery is expected. Consumers locked in the cycle of monthly rent checks could miss an opportunity which is unfortunate as a monthly rent check doesn’t have the potential of building equity the way a monthly mortgage payment does.

The prospect of finding a mortgage in today’s environment, while difficult, is still feasible. A number of alternatives to the traditional 30-year fixed mortgage exist that don’t make the headlines including, but not limited to:

• Adjustable-rate mortgages (ARMs) typically charging interest rates lower than traditional 30-year fixed mortgages with no deferred interest
• “Hybrid” loan programs with an initial lower fixed rate for 3, 5 ,7 or 10 years, then adjusting on a regular basis over the remaining term of the loan
• FHA-insured loans, with more flexible qualifying criteria

Of the above options, FHA-insured loans provide buyers with both the fiscal security of a consistent payment schedule and easier ways to qualify for a loan. Unlike “portfolio” loans where the lender assumes complete risk for the loan, government-backed insurance on these types of loans indemnifies lenders against defaults. Lenders and borrowers may share the cost of insurance premiums.

As a result, lenders can offer FHA-insured loans to buyers with as little as a 3.5% down payment compared to the traditional 20% down, and may be willing to approve a loan for borrowers with lower credit scores. What’s more, with FHA-insured loans, lenders are more willing to investigate a borrowers’ ability to afford a mortgage instead of relying on standardized debt-to-income ratios to make a final decision. Originally intended to assist low and middle-income households to afford a home, FHA-insured loan amounts apply to the lion’s share of the market today thus increasing the program’s appeal to an enormous cross-section of buyers.

Home buyers --- take heart. If your dream is to own your own home, it’s possible. While finding the right loan may not be easy, you have more options than ever to help you achieve your dream.
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Peak Finance Company offers residential mortgage financing for the “A” through sub-prime borrower. We serve realtors, CPAs, business and financial planners as well as homeowners and new home buyers with the goal of making the process of obtaining a mortgage as easy, convenient and affordable as possible.

Toll-free: 1-877-874-7325
Website: http://www.peakfinanceco.com

Private Investors: The Forgotten Segment in the Foreclosure Crisis

That light at the end of the housing crisis tunnel isn’t getting any closer. America’s inventory of foreclosed properties is increasing. Financial institutions’ loss mitigation units are steaming full speed ahead with filing Notices of Default, and many analysts predict that as 2011 unfolds, these institutions will flood the market with even-more bank-owned properties that will continue to depress home values. An equally unappealing outlook is seen from the distressed homeowner’s perspective: high unemployment and other factors make it difficult for borrowers to satisfy their mortgage obligations and many are facing the threat of losing their homes. While Federal and State agencies have instituted programs to aid both major banks and borrowers through the crisis, for the private investor, income property may be left out in the cold.

A small, but potent segment of private investors comprise a niche industry that buy and rehab single-family properties and act as 1st lien-holders on the properties when they sell them at a higher price. As the fortunes of many trustors have changed with the economy, the initial circumstances under which deals were made between investors and trustors changed as well. What once seemed a smart and profitable risk to investors turns into an ugly liability as trustors miss their “payment due” dates, then miss the agreed-open grace period, and finally fall into the 30, 45, 60, and ultimately 90 day payment-delinquency pattern.

Private investors don’t have access to mortgage servicing platforms that generate automatic late notices to trustors and send delinquency reports to collection units as do the large banks. There is no “in-house counsel” to file liens; nor do private investors always have the capital base to easily absorb late payments.

The key for private investors is to partner with a default specialist at the first signs of trustor delinquency. As it’s in the best interest for the investor to keep a free-flowing revenue stream, default specialists will first look for alternatives that provide a win-win scenario for investor and trustor. The specialist can recommend a loan modification that provides the investor with cash flow and the trustor with a lower, more affordable payment. If a workout is not possible, specialists can explore short sale or a deed-in-lieu that affords the trustor an exit strategy from the loan.

If there is no viable alternative to foreclosure, the default specialist’s role still stands to act on the behalf of the private investor. The specialist will work through the complete cycle of the default including:

• Issuance of late notices and calculation of additional late fees if incurred
• Notice of Default filing and borrower notification
• Notice of Sale to borrower and publishing of Notice of Sale
• Eviction procedures
• Property rehab
• Sale of property to private party or through auction

Default specialists provide help for an unrepresented group, private investors that don’t get the attention or have access to the vast resources large lenders and distressed borrowers have. That light at the end of the tunnel just got a bit brighter for the small investor.

Asset Foreclosure Services, Inc. / Peak Foreclosure Services, a member of the Peak Corporate Network headquartered in Woodland Hills, California, specializes in a wide range of default servicing solutions to meet the needs of a diversified clientele including servicers, sub-servicers, banks, and private investors. We manage assets from a servicer's perspective to ensure cost-efficient and expeditious processing, whether it is a foreclosure, workout, short sale, bankruptcy, title claim, lien release, eviction, or other default scenario.

In addition to default servicing, the Peak Corporate Network offers mortgage lending, loan servicing, residential short sale, 1031 exchange, and real estate sale brokerage services. These services are available primarily throughout the Western United States for both residential and commercial real estate properties and loans.

Asset Foreclosure Services / Peak Foreclosure Services
5900 Canoga Avenue, Suite 220
Woodland Hills, CA 91367

Toll-free: 877-237-7878
Website: http://www.assetforeclosure.com/

Housing Industry Woes Means Opportunity for Investors with Access to Capital

The housing industry's got a full plate these days.  Foreclosure filings outpace sales 3 to 1. Government loan modification programs to keep millions of American in their homes have succeeded in helping only half a million. Mortgages cost more, and may require higher down payments.  And this is just the first course of bad news. The “double-dip” in home values as a result of banked-owned properties flooding the market looms, and Americans, for the first time, question the value of homeownership. But despite what appears to be dire news, smart real estate investors have found opportunity in the midst of the current turmoil.

The following are just a few issues perceived of as ills afflicting the real estate market that are creating favorable conditions for residential and commercial property entrepreneurs:

• Failure of government loan modification programs.  As a result of distressed homeowners failing to obtain permanent workouts through HAMP, many are opting for short sale options which put property on the market at steep discounts
• Increasing inventory of bank-owned properties on the market.  As the supply of homes for sale rises with the injection of more REOs, prices will continue to fall. Analysts have even predicted as high as a 25% drop by the end of 2011
• Increased demand for rentals.  As homeowners either lose their homes or strategically choose to “wait-and-see” on a home purchase, millions have decided to rent. Single-family home rentals are in high demand and the values (and rents charged) of apartment properties are soaring as a result of this increased demand.

Any increased activity in home sales in 2011 has been directly attributed to all-cash buyers entering a market that has excluded typical buyers due to stiffer underwriting guidelines and higher interest rates.  Current conditions favor the investor with available capital to take advantage of low prices and eager sellers.

Unfortunately, not all have the liquidity for cash deals, and often need flexibility and speed in obtaining financing for distressed or multifamily property opportunities --- factors usually absent if acquiring financing through traditional lending channels.  Direct asset-based lenders offer an alternative to the restrictive bank underwriting machine.  These “hard money” lenders allow prospective borrowers to leverage their existing portfolio of property investments as collateral toward financing of new property purchases.  Because an asset-based lender will evaluate each borrower as a unique relationship, it can craft underwriting guidelines and loan terms that allow fast decisions for faster closings for their clients. As an additional level of flexibility for select borrowers, hard money lenders may be able to offer asset-based credit lines toward the purchase of note and REO acquisitions. Hard collateral equates to fast access to capital that empowers investors to act quickly. 

If one believes the headlines, real estate could seem a risky investment.  But real estate, like the economy, is cyclical in nature.  Savvy investors are positioning themselves now for when conditions improve and property values rise. Having access to available, quick capital is the key to turning an economic downturn into a profitable advantage.

Bridgelock Capital / Peak Finance Company, a member of the Peak Corporate Network headquartered in Woodland Hills, California, provides fast, flexible, asset-based loans (also known as “hard money loans”) for borrowers and/or properties that do not meet conventional underwriting guidelines. As a direct lender, Bridgelock Capital / Peak Finance Company finds unique solutions to meet our clients’ nonconforming borrowing needs.

In addition to mortgage loan financing, the Peak Corporate Network offers loan servicing, residential short sale, 1031 exchange, trustee work, foreclosure services, and real estate sale brokerage services.  These services are available primarily throughout the Western United States for both residential and commercial real estate properties and loans.

Bridgelock Capital / Peak Finance Company

5900 Canoga Avenue, Suite 200

Woodland Hills, CA 91367

Toll-free: 877-623-4268

Website: http://www.bridgelockcapital.com

Peak Corporate Network Announces Re-branding of Key Business Entities

Woodland Hills, CA (via PRWEB released March 9, 2011)

The Peak Corporate Network announced today the re-branding of its group of related separate companies to promote a more unified message of the comprehensive real estate services it provides in the markets it serves. “We’ve made it our business to create companies to serve virtually every aspect of the real estate industry,” states co-founder, Managing Director and Principal of the Peak entities, Eli Tene, “We felt the time was right for a more cohesive brand strategy encompassing the depth of services we offer thereby demonstrating that we are a one-stop-shop for everything real estate.”

The Peak Network traces its roots back to 1991 with the creation of Peak Financial Partners, Inc. which purchases single family and portfolio assets nationwide, as well as providing bridge financing for commercial and industrial properties. To take advantage of emerging opportunities in related areas of the industry, a cadre of Peak entities were formed to include, but not limited to offer, residential and commercial loans, escrow services, short sale and foreclosure services, loan servicing, 1031 Exchange, and direct asset-based financing.

Many of these entities are changing their names to incorporate “Peak” as a brand identifier. The intent is to better highlight the services and benefits each company provides as well as further delineate the Peak Corporate Network as a leading authority and comprehensive provider of real estate services in the industry.

According to Peak co-founder and Managing Director and Principal of the Peak entities, Gil Priel, “While some of the names are changing, ownership, quality service and responsiveness to our clients remain the same and will continue to be the hallmark of how we conduct business.” Priel continued, “We not only bring creative ideas and solutions to our clients, we provide a shared culture of information thus allowing us to pool resources to personalize our service for maximum value.”

The Peak Corporate Network is not a business entity; the brand represents a group of related separate legal entities, each providing its unique set of real estate services.

Contact Person: Evon Rosen, Marketing Director
Telephone: (818) 591-3300
Fax: (818) 591-2990

Government-Sanctioned Loan Modifications More of a Bitter Pill than a Cure

Loan modifications are not the magic pill to cure America’s foreclosure crisis the government had hoped they would be. Its high-profile Home Affordable Modification Program (HAMP) at best has only stalled, not stemmed, the tide of defaults facing American homeowners. When introduced in March of 2009, HAMP aspired to provide much-needed relief during the economic downturn with a $50 billion war chest to incentivize lenders and servicers to offer loan modifications to distressed borrowers. The goal: 4 million loans modified under HAMP. The reality: out of only 1.7 million trial modifications, only 579,000 have become permanent modifications as of December, 2010. Approximately 1 million borrowers simply didn’t qualify for the program and are again staring down the barrel of default. The Federal Government’s program to fix the problem has been widely criticized as a failure, prompting Congress to introduce legislation in January, 2011 to kill the program.

What happened? Qualifications for HAMP seemed simple enough: if the loan was an owner-occupied first lien, originated before 2009, on a clear path to default, with a principal balance under $729,750 and monthly payments exceeding 31% of the borrower’s gross income, it would meet the program guidelines. The grim truth is that even with lower terms negotiated for homeowners, many of them still couldn’t make the monthly payments during the trial period due to economic hardship or they couldn’t submit the proper documentation required for income verification under HAMP. Approximately one year after HAMP’s debut in March, 2010, the government conceded loan modifications weren’t enough to tackle the crisis and introduced another program: HAFA.

HAFA, the Home Affordable Foreclosure Alternative, addressed distressed homeowners who couldn’t sustain monthly payments by making a short sale a viable option. In essence, the lender provides the short sale option if it appears that the HAMP-modified loan may default within a three-month period. As an incentive, individual borrowers walk away with $3,000 for relocation, their credit intact, and they are released from the burden of default. Lenders and investors walk away with one less banked-owned property along with financial incentives to cover some administrative costs and to help satisfy subordinate liens on the property.

And as of February 1, 2011, HAFA guidelines were modified to benefit investors as well: non-owner occupied properties now qualify for relief under HAFA. As long as the property has been unoccupied or used for rental income for no more than 12 months prior to the date of the Short Sale Agreement, and the borrower has not purchased a new property during that same time period, income property owners as well as homeowners can benefit from the program. FHA-insured loans, as well as loans guaranteed by Fannie Mae or Freddie Mac, are excluded from HAFA qualification.

When HAMP fails, the HAFA short sale alternative may be the right prescription for homeowners to free them from the burden of mortgages they cannot afford. Only time will tell if HAFA will be more effective than its older cousin in providing relief to homeowners seeking a way out of their mortgages.

Foreclosure Fiasco -- Las Vegas: Still the Foreclosure King

NEW YORK (CNN Money)
By Les Christie, staff writer January 27, 2011: 6:04 AM ET

Las Vegas is once again the foreclosure king.

One out of every 9 homes in Sin City received some kind of default notice in 2010, according a report released Thursday by RealtyTrac. That's five times higher than the national average.

But there is a silver lining: The foreclosure rate is actually dropping in Vegas, down 7% compared to the end of 2009.

In fact, rates fell in all top-10 foreclosure markets of 2010. In No. 2 Cape Coral, Fla., for example, filings dropped 28%. In third place Modesto, Calif., they fell 13%; and forth place Phoenix dipped 7%.

But even as foreclosures fell in the worst-hit areas, they rose in 72% of the 206 metro areas covered by RealtyTrac's report.

"It really says that the foreclosure problem has spread well beyond the core states," said Rick Sharga, spokesman for RealtyTrac.

Foreclosures have spread beyond the original bubble cities as the economy melted down. Unemployment rates spiked nearly everywhere, and people out of work can't make their mortgage payments.

As a result, there is now a cohort of metro areas that didn't enjoy the housing boom but are now enduring double-digit foreclosure spikes. For example, Houston foreclosures grew by 26% -- the biggest jump by any of the 20 largest metro areas -- to one for every 62 households. The city suffered from a bleak job picture, with unemployment rising to 8.6% in November from 8.1% a year earlier.

Atlanta rose to 25th place with a 21% jump in 2010 filings following a 42% spike in 2009. And Salt Lake City filings ballooned by 30% in 2010, good for 27th place.

Bubble markets still rule

Bubble state cities still dominate the top of the list, however, accounting for 19 of the 20 top markets. And the easing in these worst-hit markets may be temporary, said Sharga.

"The servicers are backed up with foreclosures and may have slowed down their actions until they could get the back-up out of the pipeline," he said.

He forecasts a foreclosure rise again in the Sand States this year as banks restart their engines. Overall, he thinks, foreclosures should plateau and stay at about the same level throughout 2012.

"Until jobs come back, we won't see much of a change," he said.

Lenders Reluctant to Modify Loans for a Lengthy Period

“Lenders usually are reluctant to modify a commercial real estate loan for more than 12-18 months,” stated Kevin Levine, Executive Vice President of Strategic Asset Solutions (SAS) of Woodland Hills, California. “In some instances, they will agree to consider an extension of the loan modification subject to review and at the lender’s sole discretion‚” Levine said.   

Levine explained that there are multiple modification alternatives available with regard to a problem commercial real estate loan. “The simplest loan modification is for the lender to reduce the interest rate, thereby limiting the monthly payment,” he said. “Another solution is to provide for interest-only payments for a time, then increase the monthly principal payments after the modification period ends or add the deferred principal to a balloon payment. The lender also can extend the loan term. And in a few cases, the parties may even negotiate a principal reduction.” Levine explained that the various loan modification alternatives are not mutually exclusive, and may be combined. “For example, the lender could agree to reduce the interest rate, allow interest-only payments, and extend the terms of the loan, all as provisions of one loan modification,” Levine explained.

“The benefit of any loan modification to the borrower is that it buys time for the economy and the real estate market to turn around and recover and, in the case of an owner-occupant, for the buyer’s underlying business to be restored to profitability,” Levine continued. “However, if the economic and real estate market fundamentals do not significantly improve during the modification period, the borrower may find it is back in the same untenable circumstance when the modification expires,” he said.

Levine reported that he is seeing many situations in which a loan modification was granted to an investor-borrower in hopes that the property’s rent roll would stabilize. But all too often, the borrower finds that even at full occupancy, gross rental income has been reduced due to the general decline in market rates. “Of course, this depends upon the quality of building, specific market, and other relevant factors,” Levine said. “The only constant is that every situation is different,” he commented.

“The barriers often present to achieving the borrower’s objectives through a loan modification are a principal reason we will attempt to negotiate a short sale of the property to a third party,” Levine said. “And a third choice, in appropriate situations, is to attempt to have a third party purchase the note from the lender. Each of these approaches has different legal, financial and tax consequences for the borrower depending upon his or her specific circumstances.”

Form 1099-C Cancellation of Debt

Borrowers whose debt is reduced or eliminated receive a year end statement (Form 1099-C) from their lender. The lender is required to furnish this form to the borrower by January 31. By law, this form must show the amount of debt forgiven and the fair market value of any property given up through foreclosure.

Borrowers need to check the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. Borrowers should pay particular attention to the amount of debt forgiven and the value listed for their home.


For additional information visit the IRS website
IRS Publication 4705 (2-2009)
Catalog number 51765 C