Borrower wants a mod at $600 on a $780 payment. Foreclosure math says take the house.

Patience is usually cheaper than a courtroom. The version I'd want is a trial period first, three or four months at $600 documented, before you paper anything permanent. If he holds, you have a modification and a story to sell later. If he misses month two, you've lost four months and you learned what you needed to know.

Or you take a $158k house for $47k plus $16k and stop managing somebody's life. orchard, the trial period is fine but every month kestrel spends waiting is a month of taxes and a month the borrower's lawyer gets smarter. I'd rather have the deed.

flint, he doesn't get the deed at $158k. He gets a house he has to sell, which is closing costs, whatever the interior looks like after another year of a stressed owner living in it, and possible occupancy issues after judgment. Call it $135k net if it goes well. Still better than the mod in dollars, just not by as much as $158k minus $47k.

Dumb question about the escrow. He's paying $400, contract is $780 with escrow. Who's paying the taxes and insurance right now, and are the $400 payments even covering that piece?

tally, that's the part I'd want answered too. If kestrel is advancing escrow, the real gap isn't $180 a month.

kestrel, the reason I'd lean toward the mod even though it's fewer dollars is that it's income without a second job for you. A foreclosure is a second job.

The phrase "capitalized arrears" threw me since I'm new to all of this, so for anyone else reading: it means the $19,400 he's behind gets added onto the loan balance instead of being paid up front. So the balance goes up to about $122k. Which, kestrel, seems like it makes your note more valuable to sell, not less?

rigging, yes on the balance, though a bigger balance on the same collateral means a higher loan-to-value, and re-performing note buyers price on that. $122k against $158k is different from $103k against $158k.

I sold one re-performer, so this is one data point. Twelve clean pays, $88k balance, and I got 68 cents on the dollar from a buyer who wanted 24 months and settled for 12 with a price cut. Bid depth was thin. Two real buyers. I'd assume the same and I'd assume the pricing lands somewhere in the sixties, not the eighties, unless something has changed in the last year.

Also, kestrel, the thing you didn't mention is what happens if he re-defaults at month nine. You're in the same foreclosure with the same $16k, nine months later, and now there's a modification in the file that his lawyer gets to talk about.

keystone's 68 cents on $122k is roughly $83k against a $47k basis, and you keep the payments while you wait. That's not obviously worse than arbor's $135k net after fourteen months and a fight. kestrel, I think your answer depends entirely on whether you believe the $400 pattern, and you're the only one who's met him.