Today the term “loan modification” is highly searched on the internet.
For good reason.  As we all know the rate of foreclosures is at an all
time high and getting worse.  Homeowners who are not able to make
their house payments on time are trying to figure out what their options
are so they don’t loose their home to foreclosures.

All over the news we hear the term “loan modification” being bandied about
with ever increasing frequency.  What is a loan modification?  How does
it work?  Do I qualify?  Will my lender participate?   What if my home is
worth less than the current liens?  What if I am currently late on my mortgage
payments?

My objective is to help homeowners who are behind or having a hard time
making their payments, facing foreclosure or notice of default to understand
their workout options and whether a loan modification would be right
for their situation.    If they don’t qualify or their lender won’t participate
than other workouts would need to be considered.

A typical loan modification plan may include lowering the interest rate,
adding the payments which are behind to the end of the loan – thus, increasing
the payoff balance or even extending the term of the loan.  This solution would
generally be for a borrower whose income has changed permanently (lowered)
and they do not expect it to go back up anytime soon.  It would be best
to show your lender that you have changed your habits and are spending less, paid
down debts, etc.. to show them good financial management as they consider
your request.

There are many other terms that fall under the concept of a loan workout, however,
they do not modify the home loan.   Such terms you may have heard of include:
foreclosure, forbearance, deed in lieu of foreclosure, NOD, Notice of Default,
Cash for Keys, Short Sale, Listing home for sale, Repayment plan, Reinstatement
and Bankruptcy.

A brief definition of each follows:

Foreclosure:   Due to non-payment of note the trustee sells home on courthouse steps
in an auction format.

Notice of Default (NOD):  this notice is delivered to the borrower and states that the
payments have not been paid as agreed and that if the amount owed plus certain
expenses is not paid in full by a certain date that the home will be sold at auction.

Cash for Keys:  The lender agrees to pay the defaulted homeowner a set amount
of cash when they leave the property in good condition.  Clean and undamaged.

Deed in lieu of Foreclosure:  This option is where the owner gives the deed of the home
back to the lender in order to avoid foreclosure proceedings.

Forbearance:  The lender can “stay” the foreclosure process with a forbearance agreement
between the lender and homeowner.  When the homeowner faces a temporary financial hardship the lender may approve this option and allow the homeowner time to get back on their feet (so to speak) and resume payments at a later date and catch up on payments in arrears within a certain time frame. This would be used with “temporary hardship” conditions rather than a long term financial problem.

Short Sale:  The lender accepts a ’short payoff’ meaning that the proceeds to the lender upon the sale of the home is less than the current mortgage value.  If there is a 2nd or 3rd mortgage those lenders would also have to accept a short payoff or complete write off of their loan(s).

Listing Home for Sale:  Selling home on the open market usually thru a local real estate
agent and using the MLS (multiple listing service).

Repayment Plan:  The amount you are behind can be broken up into smaller chunks and
repaid over several months with your normal mortgage payment till you are ‘current’ on your mortgage.

Reinstatement: Once you have paid the lender the entire amount of past due payments plus any late fees than your mortgage is reinstated.

Chapter 13 Bankruptcy:   This can give a homeowner time to reorganize their debts and enter into a repayment plan
that incorporates all of their monthly obligations.

A word of caution:  Always seek the advice of your attorney, financial planner and accountant before proceeding with any type of loan workout or modification program of your exiting mortgage or selling your home.   Don’t delay when behind on payments – seek legal advise immediately and be in constant communication with your lender till your situation is resolved.