Case Study 4 – December 2011

Client J had several obligations with Chase. This client was of the mind that everything should be with one bank. “It’s easier to keep track and manage”, he said. For the reasons forthcoming, you will soon see that this is not true. Client J was not the average American due to his large portfolio but you will see that his holdings only increased his risk. It took us 11 months but it was worth saving him $300k.

  1. $994,000 first mortgage – Chase Mortgage ( monthly payment $4400 )
  2. $95,000 second mortgage – Chase Mortgage ( monthly payment $980 )
  3. $279,000 variable mortgage for his rental investment property with Chase Mortgage
  4. *$134,000 land loan on a parcel of land – secured by his (6) Chase savings account
  5. $225,000 liquid in various mutual funds with Chase Brokerage account
  6. $209,000 in savings account with Chase

*notice how Chase had him use money he had in savings to “secure” the land loan. Chase knows that land is the first thing to lose value in tough economic times. How convenient they used his cash to secure the land instead of giving him a land loan. As the land lost value, Chase doesn’t lose anything, they still have it secured by his cash at 100% value. 

Client J loved his home. He paid $1,400,000 for it in 2004 and at that time he was earning $600,000 per year. In 2007 his income dropped to $350,000, and then by 2009 below $200,000. In 2010 he needed to re-negotiate the mortgage on his primary home because the payment was so high he had to draw money from savings each month just to pay is monthly obligations. He called his broker friend for help. Months of calls and requests to modify his loan went without action. No one at Chase would help him. This person had over $400,000 in liquid assets with Chase and they would not help him at all. Client J could not understand why his long time bank, the ones he had trusted with all his finances would not help him. This is a common dilemma. The fact is that when you have money, banks will not help you. Banks are in business for one reason, to use your money and make a profit.

After months of attempts he was referred to 360 Group. We discussed the entire picture in detail as I went over each item on his portfolio. The forensic audit showed all the risk. I explained that he had to move money from Chase in order to get them to act. This was hard for him to realize, but in time he got it. Eventually he took action and did the following.

  1. Sold his land in North Phoenix as the value had gone down to less than what he paid. Chase would not approve a short sale so he had to part with $7,000 cash to close the deal. So now (4) above, the $134k is gone.* had he gotten a loan on the land he would have lose $0.
  2. Refinanced his variable mortgage on the investment property with another lender, so the loan (3) above is now at a better rate, a fixed loan for 30 years PITI equaling less than what he gets in rent so he is positive each month.
  3. Submitted him for a modification on the primary, at this time the value had gone down to $850k on the home. The next 6 months we continued to submit financials to Chase showing that he only earned $60,000 a year, but that he had enough liquid funds to cover the loan if they would modify him. The danger is that when you make too little money the banks don’t want to modify as they see it as a risk that you will default eventually, so they typically decline the mod. I explained this to him up front and he wanted to try anyway. We had a 50/50 shot. After 6 months Chase was about to issue an internal mod as the high loan balance didn’t qualify for any government programs. Chase would not do a principal reduction (they are quite rare) but they would lower the rate to 2% for the first 5 years, then step the rate up 1% each year until 4% would stay for the balance of the loan. Not a bad mod. The value had gone down to $800k and I asked him, with a loan of $994k and $95k ( 1 & 2 above ) do you really want to attempt to pay this loan back? You will be upside down for the next 15 years or more. I explained that cash-flow is the most important thing right now and to preserve what cash he had left rather than throw it at this depreciating asset. I asked him a question. “Is this magnificent 4,000 sq ft home really worth you going broke over? The light finally went on as I stated at the beginning of this case study, and he told me that he really just wanted to get out of debt and re-group.
  4. He liquidated $434,000 ( 5 & 6 above ) from Chase and three months later we short sold his home successfully with no deficiency risk and both loans ( 1 & 2 above ) equaling $1,089,000 are gone from his credit. Due to the large second mortgage, he had to come in with $10,000 cash to close the short sale. But that was a gift not to have any deficiency and to also know the bank agreed in writing that all was forgiven.

Now his income is in-line with his debts. He no longer has to dig into his liquid cash each month to live, reducing stress, and he has never felt lighter and freer. Imagine having to draw $7,000 a month from your savings just to break even each month. Now client J is happy and we’re blessed to have been able to help him.

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