LOSS MITIGATION

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LOAN MODIFICATION

A loan modification is a change made to the terms of an existing loan by a lender. It may involve a reduction in the interest rate, an extension of the length of time for repayment, a different type of loan, or any combination of the three.
Such changes usually are made because the borrower is unable to repay the original loan. Most successful loan modification processes are negotiated with the help of an attorney or a settlement company. Some borrowers are eligible for government assistance in loan modification.


Getting a mortgage loan modification could mean extending the length of your term, lowering your interest rate or changing from an adjustable-rate mortgage to a fixed-rate loan. Though the terms of your modification are up to the lender, the outcome is lower, more affordable monthly mortgage payments. Foreclosure is a costly process for lenders, so many are willing to consider loan modification as a way to avoid it.

What Are The Benefits Of Loan Modifications?


A loan modification is a solution for people who have missed at least three mortgage payments, but would like to remain in their home. If remaining in their home is not an option, a loan modification would not be their best course, unless they wanted to rent to someone else. If they want to remain in the home, there are two options. One is the full reinstatement of the loan, which means you make up all of the missed payments, plus any other fees that may have accrued, such as the filing of the lawsuit and attorney's fees. If you don't have a lump sum amount to pay all of that at once, then the loan modification is the preferred solution. You don't have to come up with a large down payment. You can basically just resume making mortgage payments, once it's been negotiated.




Can A Loan Modification Stop A Foreclosure? If So, How?


Once the contract is in place and the parties have signed that contract for a loan modification, it's supposed to prevent a foreclosure. There is a federal law that says if you get a complete package into the lender at least 37 days prior to them filing the foreclosure, the lender is required to stop the foreclosure while they evaluate your package. The trick is to get a lender to admit that they have a complete package. When people are applying for loan modifications on their own, a lender will constantly tell them that the package is incomplete. When you have an experienced attorney who has done many loan modifications, a lender is unable to consistently state that the package is incomplete.

Once the package is approved and the lender has agreed to provide for a loan modification, they're supposed to dismiss the foreclosure. In our experience of having completed over 3,000 loan modifications, we have seen a lender voluntarily dismiss without our intervention maybe a dozen times, at the most. Typically, we must remain engaged as a law firm. We must follow up with a lender and we must make sure that they actually dismissed the foreclosure action and that the loan modification is made permanent.




Do Loan Modifications Affect Your Credit?


If you're thinking about a loan modification, chances are your credit has already taken a hit. When you proceed with a loan modification, a comment code will appear on your credit report that says something like "paying by modified terms”. But getting back on track with payments could have enough of a positive effect on your credit over time to make up for this derogatory remark.





FREQUENTLY ASKED QUESTIONS

Short SALE

A short sale in real estate is when a financially distressed homeowner sells his or her property for less than the amount due on the mortgage. The buyer of the property is a third party not the bank, and all proceeds from the sale go to the lender. The lender either forgives the difference or gets a deficiency judgment against the borrower requiring them to pay the lender all or part of the difference between the sale price and the original value of the mortgage. For example: If a Seller still owes a bank $200,000 on their mortgage, but they may only be able to sell the home for $175,000 on the open market, then the home and seller may qualify for a short sale, and the bank may agree to accept $175,000 as full payment.
Why would anyone agree to do this?  The foreclosure process can be very lengthy and costly for the bank.  It can also be very frustrating and emotionally draining for the Seller.  Many homeowners who can no longer afford to keep mortgage payments current find that a short sale is the best alternative to bankruptcy or foreclosure proceedings.  It may also possibly save their credit from total disaster.  When lenders agree to a short sale in real estate, they are betting that they can avoid a lengthy and costly foreclosure process. It is supposed to create a win-win scenario for all parties involved. 

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What Are The Benefits Of Loan Modifications?


A loan modification is a solution for people who have missed at least three mortgage payments, but would like to remain in their home. If remaining in their home is not an option, a loan modification would not be their best course, unless they wanted to rent to someone else. If they want to remain in the home, there are two options. One is the full reinstatement of the loan, which means you make up all of the missed payments, plus any other fees that may have accrued, such as the filing of the lawsuit and attorney's fees. If you don't have a lump sum amount to pay all of that at once, then the loan modification is the preferred solution. You don't have to come up with a large down payment. You can basically just resume making mortgage payments, once it's been negotiated.




Can A Loan Modification Stop A Foreclosure? If So, How?


Once the contract is in place and the parties have signed that contract for a loan modification, it's supposed to prevent a foreclosure. There is a federal law that says if you get a complete package into the lender at least 37 days prior to them filing the foreclosure, the lender is required to stop the foreclosure while they evaluate your package. The trick is to get a lender to admit that they have a complete package. When people are applying for loan modifications on their own, a lender will constantly tell them that the package is incomplete. When you have an experienced attorney who has done many loan modifications, a lender is unable to consistently state that the package is incomplete.

Once the package is approved and the lender has agreed to provide for a loan modification, they're supposed to dismiss the foreclosure. In our experience of having completed over 3,000 loan modifications, we have seen a lender voluntarily dismiss without our intervention maybe a dozen times, at the most. Typically, we must remain engaged as a law firm. We must follow up with a lender and we must make sure that they actually dismissed the foreclosure action and that the loan modification is made permanent.




Do Loan Modifications Affect Your Credit?


If you're thinking about a loan modification, chances are your credit has already taken a hit. When you proceed with a loan modification, a comment code will appear on your credit report that says something like "paying by modified terms”. But getting back on track with payments could have enough of a positive effect on your credit over time to make up for this derogatory remark.





FREQUENTLY ASKED QUESTIONS

FOREBEARANCE

A mortgage forbearance agreement is an agreement made between a mortgage lender and a delinquent borrower in which the lender agrees not to exercise its legal right to foreclose on a mortgage and the borrower agrees to a mortgage plan that will—over a certain time period—bring the borrower current on their payments.


The coronavirus outbreak has triggered forbearance help from Fannie Mae and Freddie Mac, which, between them, guarantee more than two-thirds of all mortgages and 95% of mortgage-backed securities.


Forbearance provides the borrower time to repay delinquent mortgage sums. This is advantageous to the struggling borrower, but offering forbearance also benefits the loan owner, such as a bank, which frequently loses money on foreclosure after paying the fees associated with the process. However, loan servicers, which collect payments but do not own the loans, may be less willing to work with borrowers on forbearance relief because they do not bear as much financial risk.

What are the terms of a forbearance?


The terms of a forbearance agreement are negotiated between the borrower and the lender. The opportunity for such an agreement depends on the likelihood that the borrower will be able to resume monthly mortgage repayments once the temporary forbearance is over. The lender may approve a full reduction of the borrower's payment or only a partial one, depending upon the extent of the borrower's need and the lender's confidence in the borrower's ability to catch up at a later date.

In some cases, the lender grants the borrower a full moratorium on making mortgage payments for the forbearance period. Other times, the borrower is required to make interest payments but not pay down the principal. In still other cases, the borrower pays only part of the interest with the unpaid portion resulting in negative amortization. Another forbearance option is for the lender to reduce the borrower's interest rate on a temporary basis.




Will you receive forbearance?


Being awarded forbearance on a mortgage requires contacting the lender, explaining the situation, and receiving approval. Borrowers with a history of making payments on time are more likely to be granted this option. The borrower must also demonstrate the cause for repayment postponement, such as financial difficulties associated with a major illness or the loss of a job.

A borrower who worked the same job for 10 years and never missed a mortgage payment during that time, for example, is a good candidate to receive forbearance following a layoff, particularly if the borrower has in-demand skills and is likely to land a comparable job within weeks or months. Conversely, a lender is less likely to grant forbearance to a laid-off borrower with a spotty employment history or a track record of missing mortgage payments.





FREQUENTLY ASKED QUESTIONS

Repayment Plan

A repayment plan on a mortgage helps you get back on track after a period of missed payments. While your mortgage lender already charges you a fixed amount per month, a repayment plan adds a portion of the past-due amount to your bill for a period of several months until you're caught up. It's a strong option if you're now in a better financial situation and you're motivated to avoid falling further behind. You'll need to demonstrate to your lender that you can afford the repayment plan, which may incorporate late fees.

Bill

Conventional sale

A conventional sale is when the property is owned outright (has no mortgage remaining) or the owner owes less on their mortgage than what the market indicates the owner could sell their property for. Such conventional sales are often smoother transactions than non-conventional sales, such as foreclosures, probate related sales and short sales.

To learn more about your options, call (305) 969-3602 or send an email to schedule a confidential case consultation with our experienced foreclosure attorneys.

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PHONE: (305) 969-3602

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PHONE: (305) 969-3602

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