Foreclosures; Mortgage Refinancing and Modification Information.

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FIRM BLOG ARTICLE:

FORECLOSURE 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.

What 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 you own).

What 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).

LOAN 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.

NOTES/COMMENTS: 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.

SHORT-SALES: 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.

NOTES/COMMENT: 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.

DEED-IN-LIEU: 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.

COMMENT: 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 matters.

FORECLOSURE 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.

E-Mail: rob@myfloridalawyer.com or Call (850) 650-0546 if you have specific questions.

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Helpful Links

Department of Housing & Urban Development: Making Home Affordable Program - Refinancing and Modification Options:

FINANCIAL STABILITY (Do You Qualify To Refinance Your Mortgage Under the New Obama Plan)

FORECLOSURE AVOIDANCE COUNSELING

HUD Programs & Information Related to " American Recovery and Reinvestment Act of 2009" (Recovery Act)

FDIC - Loan Modification Program for Distressed Indymac Mortgage Loans / IndyMac Federal Bank, FSB (“Indymac Federal”) will implement a new program to systematically modify troubled mortgages. The program is designed to achieve affordable and sustainable mortgage payments for borrowers and increase the value of distressed mortgages by rehabilitating them into performing loans. This in turn will maximize value for the FDIC, as well as improve returns to the creditors of the former IndyMac Bank and to investors in those mortgages. The new program will help IndyMac Federal improve its mortgage portfolio and servicing by modifying troubled mortgages, where appropriate, into performing mortgages.

Indymac Bank Clients - FDIC Mortgage Refinance/Modification Guidelines