loan modification

A “loan modification” is a highly searched term on the internet today. For good reason. As we all know, the foreclosure rate is at an all-time high and getting worse. Homeowners who can’t make their home payments on time are trying to figure out what their options are so they don’t lose their home to foreclosure.

All over the news we hear the term “loan modification” being mentioned with increasing frequency. What is it? How does it work? Do I qualify? Will my lender participate? What if my house is worth less than the current bonds? What if I am currently behind on my mortgage payments?

My goal is to help homeowners who are behind or having difficulty making their payments, facing foreclosure or notice of default to understand their resolution options and whether a loan would be right for their situation. If a borrower does not qualify or their lender will not participate in the program, other loan solutions should be considered.

A typical loan modification plan may include lowering the interest rate, adding any payments that are past due to the end of the loan, or even extending the terms of the loan. This solution would typically be for a borrower whose income has permanently changed (reduced) and they don’t expect it to go up again anytime soon. It would be best to show your lender that you’ve changed their habits and are spending less, paying off your debts, and taking other steps of good financial stewardship while they consider your application.

There are many other terms that fall under the concept of loan renegotiation, however, they do not modify the mortgage. Such terms you may have heard of include: Foreclosure, Forbearance, Deed-in-Lieu, NOD, Notice of Default, Cash for Keys, Short Sale, Home For Sale Listing, Payment Plan, Reinstatement, and Bankruptcy.

Here is a brief definition of each:

Foreclosure: Due to non-payment of the note, the trustee sells the house on the courthouse steps in an auction format.

Notice of Default (NOD): This notice is given to the borrower and states that payments have not been paid as agreed and that if the amount due plus certain expenses are not paid in full by a certain date, the home will be sold for auction.

Cash for Keys: The lender agrees to pay the defaulting owner a fixed amount of cash when the property is left in good condition. Clean and undamaged.

Deed-in-Lieu of Foreclosure – This option is where the homeowner returns the deed to the home to the lender to avoid foreclosure proceedings.

Forbearance: The lender can “stay” the foreclosure process with a forbearance agreement between the lender and the homeowner. When the homeowner is facing a temporary financial hardship, the lender may approve this option and allow the homeowner to recover (so to speak) and resume payments at a later date and catch up on missed payments within a certain amount of time. time frame. This would be used with “temporary hardship” conditions rather than a long-term financial problem.

Short Sale: The lender accepts a ‘short payment’, which means that the lender’s proceeds from the sale of the home are less than the current value of the mortgage. If there is a second or third mortgage, those lenders would also have to agree to a short payment or full payment of your loan(s).

Home For Sale Listing: Selling homes on the open market, usually through a local real estate agent using the MLS (multiple listing service).

Payment Plan: The amount that is past due can be broken down into smaller parts and paid over several months with your regular payment mortgage until you are “brought up” on your mortgage.

Reinstatement – ​​Once you have paid the lender the full amount of your past due payments plus any late fees, your mortgage will be reinstated.

Chapter 13 bankruptcy: This can give the homeowner time to reorganize their debts and enter into a payment plan that incorporates all of their monthly obligations.

A word of caution: always seek the advice of your attorney, financial planner, and accountant before proceeding with any type of loan modification or restructuring program on your current mortgage or selling your home. Don’t delay when you’re behind on payments – seek legal advice immediately and stay in constant communication with your lender until your situation is resolved.