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Stop Foreclosure through Loan Modification Chicago Tribune; August 2008 The companies that collect payments from homeowners, Mortgage Servicers, completed a record 181,000 mortgage workouts in June. This is an increase of 14,000 from May. In the second quarter of 2008, some 522,000 workouts were completed. Since July 2007, more than 1 million troubled borrowers have been helped.
What are Loan Modifications? Loan modification is a term very unfamiliar to homeowners but not for very long. What most people are coming to realize is that losing their home to foreclosure is becoming a real possibility. Home foreclosure in America today is at an all time high and is affecting many homeowners that never believed they could lose their home. Homeowners are feeling the crunch of higher interest rates, fuel costs, and a slowing economy. The Mortgage Meltdown has hurt our entire economy as many families are facing foreclosure due to toxic mortgages and declining property values. California, Florida, Nevada, Arizona homeowners are the main sufferers as well as many of the Midwestern states. Lenders are facing record losses and may not be willing to help homeowners unless they are forced to listen. A loan modification may be the only way for a homeowner to save their home. A loan modification is a modification to the terms of an existing loan made by a lender in response to a borrower’s long-term inability to repay the loan. Loan modifications typically involve a reduction in the principal balance, interest rate or an extension of the terms. In some cases a different type of loan or any combination of the three. Just a few months ago lenders were not open to loan modifications unless the borrower was behind on their mortgage payments at lease 3-4 months. By this time their credit is ruined and the lender or mortgage servicer could profit further by negotiating a forbearance agreement and collecting more fees.
A loan modification agreement is different from a forbearance agreement. Because a forbearance agreement generally requires a borrower to bring in some percentage of the arrearage. For example, if you were $16,000 behind in your mortgage payments you would likely be required to cough up $8,000 up front and the remainder would be added to your monthly payment until you were brought current. A forbearance agreement provides short-term relief for borrowers who have temporary financial problems, while a loan modification agreement is a long-term solution that usually remains for the term of the loan. Negotiating with the bank for a modification of your home loan can be an overwhelming process for many homeowners. Major lenders such as Countrywide, Indy Mac bank, Wells Fargo, Bank of America, WAMU, New Century, Quicken Loans, Aurora, Aegis, EMC Mortgage, CITI Mortgage, Chase Bank and Wachovia are overwhelmed with defaults and foreclosures. That is why retaining the services of an experienced Loan Modification Specialist is of extreme importance.
Benefits from a Loan Modification Some of the greatest benefits realized through a Loan Modification are that you get to stay in your home. A foreclosure is avoided, you retain title, reduce your payment, interest rate, balance or a combination of all three. Your credit report immediately reflects any past due payments are now current and you begin to rebuild your credit using your new mortgage history. You avoid the emotional stress of moving your family, seeing foreclosure signs in the front yard, uprooting your family and explaining to neighbors your dilemma. There are no legal notices in the paper as there are in foreclosure. In a foreclosure you have to vacate your home which means raising enough money to pay your first month, last month and damage deposit to your new landlord. You avoid the embarrassment of rental agents pulling your credit and landlords rejecting your rent request.
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How do I begin?
What If I Have Bad Credit?
First and foremost you embrace the reality that you must take action using Attorney’s that understand State and Federal laws as well as lending regulations and employing advanced legal techniques to achieve the most aggressive results. In some cases a forensic audit is performed to uncover RESPA or TILA violations. An Attorney can threaten a resission of the loan or litigation, causing the lender to return ALL fees and interest paid through the loan. If the lender has misrepresented the terms or worse yet committed bank fraud a Law Office can and should use the necessary means to motivate the lender into modifying the loan.
This is not a credit based solution; therefore your credit score will not play a part in the negotiation process.
What is a Forensic Audit? A Forensic Audit is a detailed analysis of the legal documents signed at the closing. The purpose is to review these documents and determine that the disclosures were properly executed and comply with State and Federal Regulations.
What If I'm Already In Foreclosure In most cases, we can get the foreclosure process stopped while the attorneys negotiate on your behalf for a loan modification solution.
Are lenders and banks really willing to negotiate? Definitely. Lenders do not want to foreclose on your home unless they have no other alternative. If you can present them with a realistic professional proposal that makes sense, they are very open and receptive to the loan modification process. Keep in mind that although this process is one of the most emotional times for you, to your Lender it is just another financial transaction and will make their decision based on a fiduciary responsibility to the shareholders. Simply stated… if it cost less to modify than to foreclose, then this is what the Lender will do.
Why would a Lender negotiate a Loan Modification?
Who qualifies for a loan modification? Anyone who can prove they are having a tough time. Especially those who are currently a few months behind, those with negative amortizing loans, those with loans that are about to adjust, those who are upside down on their loan and those who would rather keep their home than do a short sale. Basically, the bigger the hardship you are having, the more negotiating power you have with your lender. Remember, they don't want to foreclose on you. They would rather keep you in your home and create a solution that will be affordable to you rather than go through the cost and expense of foreclosing on your property. These reasons may include: • Payment increased due to ARM resetting (Payment Shock) • Anticipate an ARM reset shortly • Loss in equity and can’t refinance • Medical or health related issue (illness) • Divorce • Death in family • Loss of Job • A reduction in income • Failed business • Job relocation • Incarceration • Military duty • Medical bills • Damaged property (natural disaster or unnatural
In these market conditions, the banks and lenders have been mandated by the President as well as FNMA (Federal National Mortgage Association) and FHLMC (Federal Home Loan Mortgage Corp) to do everything they can to work out a payment plan with their borrowers and reduce the amount of foreclosures. This is a great thing for today's homeowners, especially for those who are running late on their payments or are having trouble making them on time or anticipate an ARM rate adjustment. The banks and lenders would rather take less money and keep you in your home making a payment that you can afford, rather than go through the expense of foreclosing on the home, hiring a listing agent, rehabilitating the home, and letting it sit empty on the market for months, only to lose thousands in the process. Recent studies show that a foreclosing Lender experiences approximately $40,000 in hard cost in addition to a 40% reduction in equity or Fair Market Value (FMV).
Lender will not be forthcoming. Let's face it; no bank is going to volunteer a balance reduction on a property. They are taking immediate losses and having to report them to upper management. Their in the business of refinancing loans and making thousands of dollars in the process. If you owe more than your home is worth there is a good chance that The Attorney Based Loan Modification Specialists, will be able to force them into lowering your principal balance or your interest rate.
The Loan Modification Guide
Loan Modification Specialists Help You Avoid Foreclosure We are dedicated, experienced professionals making sure that you receive the best possible outcome with a Loan Modification to avoid foreclosure. You do not have to be behind to get help. Banks don’t want your property back just as much as you don’t want to give it back. It's not too late. We have helped individuals that have been over eight months late, facing NOD and already in NOD! As long as the bank has not foreclosed upon and sold your property there is a good chance that we can save it! If there is anything that can be done, we will do it. With an experienced network of Attorneys and Loan Modification Specialists, you now have the upper hand.
Can I negotiate a loan modification myself? In short, yes you can. You can contact your lender or your bank and see about going through the process of loan modification. But, keep in mind that your bank has their best interest at heart not yours. They neither have the time nor the inclination to understand your troubles, educate you on the process and most importantly…reveal how to negotiate.
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What is the Loss Mitigation Department? The loss mitigation department is the Administrative Collection Department where modifications are negotiated. The fact is every bank is swamped with major real estate losses. One in four loans originated between 2005 and 2007 is predicted to default. They are charged with the responsibility to go through all pending cases. With so many files the bank mitagators simply toss poorly prepared files to the side or reject the request.
Will I have to meet or talk with my lender or deal with any of their paperwork? Absolutely not. Once the loan modification process starts, we will take care of all the paperwork and all legal negotiating on your behalf. Unless it is absolutely necessary for you to make a call, we’ll handle the dozens of calls that will be needed.
How long does the process usually take? It can be completed in as little as five days but usually takes from 2 - 6 weeks depending on the lender, type of loan, and individual situation.
How much time do I have?
This is why every lender has a loss mitigation department which serves to minimize the loss to the bank. Their goals are adverse to yours. Their experts in negotiating what’s best for the lender.
It depends solely on how many months you are behind in mortgage payments. If you have not been served foreclosure notices, you should have enough time to try to modify the mortgage. When foreclosure proceedings have started, we will need to move the process along quickly.
If they feel that you will be able to make your payments in the future they are going to offer you a short term modification solution. DO NOT TAKE IT!!! Your bank is not going to offer you something that is designed in your best interest. Simply stated, they are going to design a modification that favors their interest. Negotiating on your own would be like going to court and defending yourself without and Attorney, not the prudent thing to do.
What paperwork do I need to complete the process?
An attorney based loan modification program will force the banks loss mitigation department to analyze your situation in order to modify your loan into something that the bank and you can agree upon.
1) 2) 3) 4)
Confidential Agreement Client Authorization Form Your most current month's mortgage coupons Any other correspondence sent to you by your mortgage company 5) Your payment information 6) Financial Information 7) Copy of Mortgage Note After we receive these items from you, we can begin your loan modification process
The Loan Modification Guide
What are your options to avoid a foreclosure? 1) Reinstatement Plan - The lender will reinstate the original terms of your loan once you are caught up. 2) Repayment Plan - The lender will tack on an extra amount onto each payment for a set period of time.
3) Loan Modification - You negotiate a restructure of your current loan terms without refinancing.
4) Loan Refinance - Refinancing may be an option if you have the equity and the required credit scores. 5) Forbearance - The lender negotiates a repayment plan and may force you to list your home for sale. . 6) Sell your property at FMV – requires equity. 7) Move and rent home. 8) Take on additional employment to pay payments.
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All of the elections on the previous page are viable options but in reality the 2 most common and most likely to produce any real results are the Loan Modification or the Short Sale. To learn more about a Short Sales and how it works, call my office and request a copy of our free booklet, “Understanding Short Sale.”
Are there tax implications with a Loan Modification? If your lender forgives any portion or your debt they can report the amount lost as debt forgiveness to the IRS. If a formal tax form 1099c is filed, you may be responsible for paying taxes on the amount of debt forgiveness. However… there is good news. In December 20, 2007, Congress passed the “Mortgage Forgiveness Debt Relief Act.” In General the Act allows exclusion of income realized as a result of a Loan Modification, Foreclosure or Short Sale on your principal residence.
9) Sell home to investors and rent back w/ option to buy. 10) Short Sale - Sell your property for less than owed but your lender accepts it as payment in full. (Call my office and ask for our free booklet “ Understanding Short Sales ”. ) 11) Pre-Foreclosure Sale - You agree to sell your property before foreclosure takes place. (requires equity) 12) Deed-in-Lieu of Foreclosure - You agree to sign your property back over to your bank and walk away. Called a friendly foreclosure, however it still impacts your credit as a foreclosure. 13) Foreclosure – Lender forces takes title through Judicial action or Trustee Sale. 14) Bankruptcy - You have to file bankruptcy to protect yourself and your home, but if you miss one payment you will be right back in foreclosure. (Ask for our free booklet “Is Bankruptcy for Me”) 15) Denial… Not really a good option!
There are certain qualifications and I recommend you seek competent tax advice to know your rights. If you need assistance locating a tax expert we would be more than happy to refer you to tax professional.
The Loan Modification Guide
Mortgage Forgiveness Debt Relief Act What is the Mortgage Forgiveness Debt Relief Act of 2007? The Mortgage Forgiveness Debt Relief Act of 2007 (MFDRA) was enacted on December 20, 2007 and allows an exclusion of income realized as a result of a loan modification, foreclosure or short sale on your principal residence.
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Please contact us with any other questions or concerns Remember that time is not on your side, so if you are having problems or struggling to keep up with rising mortgage payments, don't delay and call us immediately for a free and confidential consultation.
“Let’s keep your home”
What does that mean? Usually, debt that is forgiven by a lender must be included as income on your tax returns and is taxable. The MFDRA allows you to exclude certain cancelled debt on your principle residence from taxation.
Does the MFDRA of 2007 apply to all forgiven or cancelled debts? No, the Act only applies to debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes. Any mortgage debt that was not used for these exact purposes would be taxable.
Call 866-420-5511 to request your FREE copy of any of our other books.
Does this provision apply to only the year 2007?
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It applies to qualified debt forgiven in 2007, 2008 and 2009.
Can I exclude debt forgiven on my second home, credit card or car loans?
* The Homebuyers Handbook
Not under this provision. Only cancelled debt used to buy, build or improve your principal residence or refinance debt incurred for those purposes
What If forgiven debt doesn’t qualify for exclusion is there help? Yes, you may qualify under the “insolvency” exclusion or under Title 11 bankruptcy. Normally, a taxpayer is not required to include forgiven debt if determined to be insolvent. Speak with a tax professional or a Bankruptcy Attorney for more information. (To learn more about your bankruptcy options ask for a free copy of our booklet titled “Is Bankruptcy for me”
The material contained in this booklet has been prepared by an independent third-party provider. The content is provided for use by real estate, financial services and other professionals only and is not intended for consumer distribution. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is not without errors.
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NOTES
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