Mortgage Refinancing and Modification Information.
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FAQs: Questions regarding alternatives to foreclosure generally fall into
one of two scenarios: (a) a foreclosure complaint is imminent or has been
filed and a defense to the foreclosure is sought; or (b) the mortgagor is
current on the mortgage but income can no longer support the debt service
and people are asking what to do, what are the alternatives, what are the
consequences Every situation is different depending on the type of loan, type
of property, value of the property, the lender, specific documentation, and
the details of the borrower’s financial and personal situation. Thus, this
article is not intended to be legal advice or relied upon as legal advice
by any person, but is offered only as general comments on foreclosure and
frequently asked questions.
will happen if I just walk away and don’t make any more payments?
Your credit score will be damaged and all matters tied or related to having
a good credit score will be damaged. The credit damage will be severe and
lasting. Foreclosure proceedings will be commenced, your property sold at
auction, and depending on the amount bid for the property - a deficiency judgment
could be entered against you (which could be foreclosed against other property
are the alternatives to foreclosure ? Generally, the alternatives are
either: (a) to seek a loan modification (see links to the left regarding
new federal government programs); (b) sell the property or short-sell
the property; or (c) seek to give the lender a deed-in-lieu of foreclosure.
This list does not provide all possible alternatives, just the most common.
For example: in some situations, people may desire to seek a defense against
the foreclosure, or seek protection through bankruptcy (a last resort alternative
in my opinion).
MODIFICATION: Call your lender’s loss mitigation department and ask if
they offer or have any options for modifying your loan. However, in my experience,
if you are current on your mortgage, the lender will not likely be receptive
to modifying a loan that is current. If you are behind on your mortgage (or
in foreclosure), be prepared to provide your lender with current financial
information (income, debts, assets, liabilities, etc.). Loan modification
relief generally means -possibly an interest rate reduction, a longer amortization,
interest-only payments for a short period of time, deferred payments for a
short period, or some other form or combination of loan modification to lower
your payments. However, understand, this is not automatic and it is up to
the individual lender and their guidelines as to whether or not you may qualify
for a loan modifications.
If Congress grants greater authority to bankruptcy courts to modify loan
documents in certain circumstances, lenders may become more receptive to
loan modification requests prior to actual defaults. We will have to wait
and see if this becomes reality though, as the bill is under review by congress
as of the date of this posting.
A short-sale is basically where a lender agrees to release their mortgage
for less than the current mortgage balance due on the property (thus allowing
the property to be sold for a price less than what is owed on it). I suggest
obtaining a current market analysis from a professional realtor or a real
estate appraiser to come to a current value of your property. If you are seeking
approval of a short-sale of your property, you will be required to obtain
your lender’s approval (a written contract detailing the terms of the sale
and closing). The lender will require your current financial information,
a proposed/draft settlement statement detailing the proposed sale and closing,
a hardship letter from you detailing your personal and financial reasons for
seeking the short-sale, and other documentation and agreements - all to determine
whether or not they will approve the short-sale and also to determine the
terms and conditions of their approval (including how deficiency will be handled).
In terms of deficiency amounts, I have heard of lenders forgiving the difference
(raises other tax issues), but more than likely (and depending on your particular
situation) the lender will either want to collateralize the deficiency with
other property you own and/or will require you to enter into an unsecured
promissory note for the difference. Of course, there is no standard here,
it’s all on a case-by-case and lender-by-lender basis.
Be aware of anyone trying to sell you assistance with a short sale negotiation
if their agreement or services contract gives them a right to place a lien
on your property to secure payment of their fees. First, short-sale approval
is never automatic, and if the short-sale is not approved, you could end
up with an additional lien on your property to secure payment of fees for
a failed attempt to negotiate a short sale. I would highly recommend a real
estate attorney to assist with short-sale negotiations and documentation.
In limited circumstances, you may be able to negotiate with your lender to
deed the property back to the lender in lieu of foreclosure. The usual reasons
why a lender would do this are to avoid time delay and the costs of litigation
and foreclosure proceedings. In reality, I have yet to see or hear of a single
institutional lender accepting a deed in lieu of foreclosure. However, I cannot
say it does not happen, especially where the mortgage is held by private companies
or among individuals. The advantages on the borrower side include less damage
to personal credit scores and, depending on the circumstances of the deed-in-lieu,
possible forgiveness of any deficiency amount.
If you are considering a deed-in-lieu of foreclosure, I would strongly recommend
you hire a real estate attorney to either prepare or review the actual deed-in-lieu
language prior to the execution and delivery of the deed - the deed language
ADVICE: If you are facing foreclosure you should contact a lawyer immediately.
Do not ignore a foreclosure complaint. You only have 20 days to respond. Each
case is different and there may be defenses available, it depends on the specific
circumstances. However, in addition to potential defenses, there may be options
regarding future deficiency judgments that may either avoid or reduce potential
deficiency judgment. Feel free to contact the firm to schedule a consultation.
or Call (850) 650-0546 if you have specific questions.
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