In dealing with a toxic mortgage you can no longer carry, so far I have identified three options:

• Stop making payments and let the bank foreclose on you.
• Find a buyer and negotiate a short sale with the bank
• Keep the property and get a loan modification

I’ve written about short sales previously in this blog.  The foreclosure option is the option of last resort.   Although I have no emotional attachment to the properties it appears the least harmful thing I can do to my credit is to try and negotiate a loan modification as a first step.  If that didn’t work I could look into a short sale or simply give the deed back to the lender.  This is called a “deed in lieu of foreclosure” and not quite the same as a foreclosure.

I belong to a few real estate mailing lists.  One poster to the group, claimed she was able to negotiate a loan modification that cut down on her payments and knocked $46K off the principal balance.  That sounded pretty good to me, so purchased the book she recommended: The Loan Modification Handbook

Written by Michael Albert and Rami Ibrahim, it arrived from Amazon a few days ago.  The Loan Modification Pamphlet would have been a better name for it.   So at first I was rather disappointed at the rather slim size for the price.  However it is a good introduction to the topic.  It provides examples of letters you write to the lender and good advice on how to get to the right decision maker (hint: it’s not the person that answers the customer service line).  A nice touch was a listing of the actual phone numbers for many banks’ loss mitigation departments.  That alone is quite useful, as anyone knows from navigating a large corporate bureaucracy by phone.

So far I haven’t acted on any of the steps in the book, but I will soon.   I read somewhere that a loan modification is 40% cheaper for a bank than a foreclosure.  For one of my houses in particular, the area is gutted with foreclosures and nothing is selling, if the lender has any sense at all they should be willing to work with me.