Types of Loan Modifications
Loss Mitigation Services or Loan Modification Services have
been established by the Federal
Government and the mortgage industry in order to stop home foreclosures. They
help foreclosure victims in default on their mortgages to find alternatives to
home foreclosure. Every homeowner's situation is unique and each lender has
their own policies regarding the use of these programs to stop foreclosure.
Our
extensive experience and solid working relationships with mortgage lenders
along with our network of national attorneys allows us help you avoid the common pitfalls that many homeowners encounter
while trying to work things out directly with their lender.
After performing a
thorough assessment of your personal finances and analyzing your lender's
Loan Modification policies our professional Loan Modification attorneys and
other experts will negotiate with your
lender to get you the best possible solution to your home foreclosure problem.
We can help you save your home and credit history through a variety of
Loan Modification options:
Many homeowners with the 2/28 and 80%/20% purchase
loans are having a pay rate adjustment of 28% to 44% and many a homeowner can’t
handle the new payments and will not qualify for a new loan.
A loan workout is a
broad term used in the Loan Modification arena. It is used when you negotiate with
your lender any kind of plan that will benefit both you and the lender when you
are delinquent or in default. We construct a financial plan that considers your
current income and details a list of your monthly expenses and make
recommendations to improve your budget and cash flow so your income exceeds your
total monthly expenses each month.
The key to our 95% rate of success is
constructing a financial plan that you and your lender can approve and, most
importantly, that you are able to perform. We work with you to compose a
hardship letter that describes why the problem occurred and, why it won’t happen
again.
This term has been getting a lot of attention
lately and rightfully so. With millions of homeowners stuck in toxic adjustable
rate mortgages and no ways to refinance out of them, loan modifications may be
the only way to assist struggling borrowers. This term is used when your lender
modifies your current mortgage (same loan you have, only changes are made to the
note) in order to work with you and make your mortgage more affordable. A
modification to your rate, balance of loan, delinquent fees owed, term of loan
etc. can be made at the “discretion” of your lender. In the past this was only
used when a borrower was delinquent but now we will see it being used before
someone is delinquent. This is one of the best solutions available today, and is
the best way to help people avoid foreclosure.
This is used most of the time, when a Notice of
Default has been filed. You are allowed to delay or reduce payments for a short
period, with the understanding that another option will be used at the close of
that time to bring your account to a current status. Your lender, if in
agreement, will then temporarily cease legal actions. Typically 30% of sub-prime
lenders (with high interest rates) will only offer a workout program that
requires borrower to immediately pay at least 20% or more of the total
delinquencies including foreclosure fees, plus the balance of the delinquency
will be added to their regular monthly payments over a period of six to
forty-eight months. Forbearance plans do not remove a foreclosure action but
simply stop it in place until the loan is current.
FORBEARANCE PROGRAMS OFTEN FAIL IF THE LENDER IS NOT
FORCED TO CONSIDER THE ABILITY OF THE BORROWER TO PAY. WE REQUIRE THEM TO
CONSIDER YOUR ABILITY TO PAY.
Here is another tactic that is being pushed on
homeowners by over zealous real estate agents (not all agents are like
this) that profit from the sale of your home. Bottom line is that if you want to
save your home, then this should be one of the last methods you utilize in the
loan workout process. If you do not want to save your home and you have resigned
to the fact that you are way in over your head, then by all means, find an
experienced short sale agent (not just any real estate agent, but one with a
proven successful track record that can assist you in dealing with your lender
and getting your home sold.
A short sale is primarily used when all negotiations for a loan workout have
failed and you are upside down on your mortgage, meaning you owe more on the
mortgage than it’s worth. The lender basically agrees to cooperate in the sale
of your home and take a loss. You place the home for sale and any offers that
are obtained will be presented your lender. Unlike a traditional real estate
sale when the homeowner decides what offer to accept or not accept. Your lender
will control the negotiations and you will not be involved in the contract
negotiation of the sale of your home.
Many lenders are severely back logged in their short sale
departments. Many are simply not cooperating and making everyone’s lives very
difficult. Remember they are now debt collectors and you owe them money on a
contract and they plan to collect on that contract, even if it means taking your
home.
The best advice is to seek an experienced attorney about the possible
consequences of a short sale.
Deed-In-Lieu is a deed instrument in which a mortgagor (i.e., the
borrower) conveys all interest in a real property to the mortgagee (i.e., the
lender) to satisfy a loan that is in default and avoid foreclosure proceedings.
The deed in lieu of foreclosure offers several advantages to both the borrower
and the lender.
The principal advantage to the borrower is that it immediately releases him from
most or all of the personal indebtedness associated with the defaulted loan. The
borrower also avoids the public notoriety of a foreclosure proceeding and may
receive more generous terms than he would in a formal foreclosure.
Advantages to a lender include a reduction in the time and cost of a
repossession, and additional advantages if the borrower subsequently files for
Bankruptcy in order to be considered a deed in lieu of foreclosure, the
indebtedness must be secured by the real estate being transferred.
Both sides must enter into the transaction voluntarily and in good faith. The
settlement agreement must have total consideration that is at least equal to the
fair market value of the property being conveyed. Generally, the lender will not
proceed with a deed in lieu of foreclosure if the current fair market value of
the property exceeds the outstanding indebtedness of the borrower. Because of
the requirement that the instrument be voluntary, lenders will often not act
upon a deed in lieu of foreclosure unless they receive a written offer of such a
conveyance from the borrower that specifically states that the offer to enter
into negotiations is being made voluntarily. This will enact the parol evidence
rule and protect the lender from a possible subsequent claim that the lender
acted in bad faith or pressured the borrower into the settlement. Both sides may
then proceed with settlement negotiations.
Neither the borrower nor the lender is obliged to proceed with the deed in lieu
of foreclosure until a final agreement is reached.
As of the date of this writing, the
federal Bankruptcy courts do not have the authority to restructure mortgages.
However, this seems to be a popular method that is being used by homeowners and
attorneys to delay foreclosure on their home.
This is primarily used as a “stall” tactic and is not a “cure” all for your
mortgage problems. In some cases Chapter 13 Bankruptcy filings are being abused
and portrayed by some Bankruptcy attorneys as an effective way to “stop
foreclosure” when in fact it is only and effective method to “delay
foreclosure”.
In order to qualify for Chapter 13 Bankruptcy you will have to have a steady
income. The Bankruptcy petition would need to be filed before the sale date of
your property.
After filing, you will propose a plan to repay the amount you fell behind on the
mortgage. You will also begin to again pay your regular mortgage payments, which
under the operation of law must be accepted by your mortgage company.
A forced loan modification (non-mortgage) can be sanctioned by the courts if it
is proved that the borrower cannot afford the current payments. The concept is
similar to debt consolidation, but it permits you, the consumer(s), to pay
unsecured debt down without accruing interest (student loans are an exception)
and without having to deal with those annoying calls from debt collectors.
Under a typical plan, you make monthly payments to a court appointed Bankruptcy
trustee for generally three to five years. The amount of your monthly payment is
determined by several factors such as the amount of debt you have, your ability
to repay and the extent that you have assets. In exchange for stopping any and
all collections activity, one proposes to pay all or, in specific circumstances,
a portion of the debt through a Chapter 13 plan. The filing of a Chapter 13
Bankruptcy stops ALL collection activity though something called the automatic
stay. The automatic stay remains in effect during the life of the case unless
the court orders otherwise.
You can always refinance or sell your home while under Chapter
13 if you wish to pay off the Bankruptcy and move on with your life. The Chapter
13 stops the foreclosure immediately. Often, your only other option would be to
refinance, or enter into a repayment agreement with your mortgage company. All
too often, they want a double payment each month until you can catch up.
We
believe that Bankruptcy is the absolute LAST resort.
If you want to keep your home the most important factors in stopping foreclosure
is acting fast and working with the
right team of people.
Stop
Hesitating and Start Acting!
For further information or to discuss getting help with loss mitigation, loan
modification, bankruptcy, short sales,
or foreclosure we invite you to schedule a free confidential consultation with
one of our experienced Real Estate and bankruptcy
attorneys by calling us at 877-670-8822.
The confidential consultation is free.
Our Workout Planning, Task List, and Process:
Once you sign on for our services, we will guide you through the following tasks
and steps. Don't worry! It's not as complicated as it looks, and our advisors
will work with you personally and perform the "heavy lifting". We will guide you
every step of the way.
1. Complete a financial analysis and evaluation of the expected recovery value
that the lender would realize in a foreclosure. Acquisition dates and asset
dispositions are projected. The analysis reviews property data such as
loan-agreement copies, the promissory note, the deed of trust, the security
agreement and all other liens secured by the property or borrower’s property
operations, including Real Estate taxes and assessments. Also up for review are
current rent rolls, copies of all current leases, a schedule of all rent
concessions and current tenant improvements, copies of any current listing
agreements and/or purchase offers from the past 12 months. Operating statements
for the income and expenses face analysis for the previous three years to
establish trends and calculate the current net operating income.
2. All appropriate expenses are analyzed and compared to expense models that
lenders use to present a fair position on the owner’s behalf. Required capital
expenses, leasing expenses for buyouts or brokerage commissions, the total debt
service of senior debt and asset-management expenses then reduce the
net-operating income. The results are the net proceeds from operations a lender
may realize after acquiring title.
3. Establish market value. The operations proceeds are then added to the
net-sale proceeds to create the expected recovery value available from the
collateral.
4. Thoroughly review the borrower’s exposure to a deficiency judgment. Facing
analysis are all borrowers’ federal tax returns for the three most current tax
years — including all K1s, if partnership interests are owned — along with a
current financial statement, including cash-flow statements showing income
sources and expenditure categories. The purpose is to develop strategies that
protect personal assets and establish that it is not in the lender’s best
interest to pursue a judicial foreclosure. Once the personal exposure is
analyzed, asset values that may be exposed are reduced by liquidation and
litigation costs, as well as risk factors in losing a judgment. This reduced
value is the expected recovery value from personal assets.
5. Combine and discount the future expected-recovery value from the collateral
and personal assets to create a present value. The discount rate considers the
cost of funds, administration and risk. It takes great work and thought to
develop the present value of the expected combined recovery. Negotiations begin
with this discounted value.
6. An attorney will negotiate with the lender. Documentation is prepared and reviewed in this
final phase. Upon approval, escrow and title are opened, and the transaction is
closed.
7. Proper preparation of the financial analysis, which can be placed on a
spreadsheet, is 70 percent of the work in a successful negotiation. Although
comprehensive packaging for the lender is essential, negotiations must be
directed to the present value of maximum recovery. The cost of a lender’s
asset-management burden can reduce the maximum recovery to less than what a
property owner can provide. In addition to closing the lender’s economic risk,
adjusting the capital structure of a property allows the owner to maintain
ownership and operation or the possibility for sale at a much higher price than
if the lender sells it as Real Estate-owned.
8. When structuring strategies and implementation, it is vital to understand
forbearance, loan restructuring, debt cancellation, short sales, deeds in lieu
of foreclosure with release from any personal responsibility, land trusts and
bankruptcy. Knowing how such devices and actions can be used independently,
sequentially and or concurrently is essential in structuring strategies and
their implementation. It also is vital to coordinate relationship strategies
with other professionals who implement other aspects of assimilating and
analyzing data or processing actions.
We highly dissuade (advise against) attempting to handle the loan modification
process by yourself or with inexperienced guidance! The results
could be devastating and moreover, the process of working without an experienced
attorney could take months, digging you even deeper into the hole.
For further information or to discuss getting help with bankruptcy, short sales,
or foreclosures we invite you to schedule a free confidential consultation
with our experienced Real Estate and bankruptcy attorneys by
calling us at 877-670-8822.
Call 877-670-8822.
The confidential consultation is free.
Q: What will a Loan
Modification Accomplish?
A: A loan modification is a change that is permanent in one or more than of
the original loan terms on the original mortgage, which allows
reinstatement of the loan to stop foreclosure. As a foreclosure
prevention alternative the lender may consider modifications that:
We are the experts in determining what you best action should be and we
work for you to get the best possible option to stop foreclosure.
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Capitalize delinquent interest, escrow, fees,
and costs based on investor guidelines
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Implement a step rate mortgage
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Extend term of the mortgage
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Reduce or modify the interest rate on the mortgage
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A combination of one or more of the above.
Q: Why Would Someone Need a Loan Modification?
A: The following are some but not all the reasons one might
seek a loan modification:
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To remove a loan from foreclosure
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To bring the loan current
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To adjust the loan terms
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To reduce monthly payments
When making a choice to modify your loan be sure you use experts that really
know the business and care about you as the homeowner. We have been
successful at modifying loans from many different lenders.
Q: What Items
Should I Consider Before
Requesting a Loan Modification?
A: The following are some but not all the considerations
one might consider prior to seeking loan modification. You must:
-
Have experienced a
hardship resulting in a reduction in income that affects ability to make
monthly mortgage
-
Have a source of stable monthly income
-
Desire to retain ownership of property
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Want to occupy the property as primary residence
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