When a homeowner is unable to make his mortgage loan payments, the mortgage lender (usually a bank) repossesses the home or forces the sale of the home as collateral for the loan. This legal process is called foreclosure. However, for the people going through it, it’s much more than a legal term - It is a stressful, often heart-wrenching, process.
Week after week, we meet with families who are desperate to stay in their homes. They ask us, “Is there anything I can do?” While the answer to that question depends on the specifics of each situation, the broad answer is, “Yes, you may have other options.” In today’s post, we are going to review those options.
A loan modification is a permanent restructuring of your mortgage.
One or more terms of your loan agreement are modified to make your monthly payment more affordable. Your lender might agree to extend the length of the loan, convert from a variable to a fixed interest rate, forgive or defer some of the principal balance, or reduce the interest rate.
In order to qualify for a loan, you usually need to show each of the following:
- You are facing financial difficulties due to a life changing event.
- You still have enough steady income to make modified payments.
- You have interest in keeping your home as your primary residence or as investment property.
Depending on when you bought your home, how far behind you are in your mortgage payments, and the type of loan you have, you may be eligible for the HARP Program or the FLEX Modification Program. Our legal team is well-versed in both programs and the loan modification process in general - Book your free legal consultation with us if you have questions about whether you’re a good candidate for obtaining a loan modification.
Loan modifications are permanent changes to your loan while a forbearance agreement offers temporary assistance.
In a forbearance agreement, your lender agrees in advance to either suspend or reduce your mortgage payments for a short time. At the end of that time period, you must resume full monthly payments AND pay the temporarily-overlooked amounts.
This can be a good option if you are suffering from a temporary hardship such as a being in-between jobs or if you have an extended illness/are in the hospital. In some cases, the lender may even be able to extend the forbearance period if your hardship is not resolved by the end of the forbearance period to accommodate your situation.
Another option available if you’ve suffered a hardship is a repayment plan. Repayment plans are agreements with your lender to make up missed payments.
This is usually achieved by spreading the overdue amounts over an agreed-upon time period that is usually six months or less. The extra payment amounts are added to your regular monthly mortgage payments until the delinquency is cleared.
Chapter 13 Bankruptcy
A Chapter 13 filing falls under the repayment category. This option lets you keep your property but you will be required to pay your unsecured creditors an amount equal to the value of your non-exempt property.
While it generally takes longer for you to pay off your debts, you will have more time to make your payments, and Chapter 13 trustees may be flexible on the terms of your payments. You may also be able to stretch out your debt payments, reduce the amounts of your payments, or give up an item of your property that you are making payments on.
The sooner you address your payment problems, the more options will be available to you. Whether you foresee future payment problems, are delinquent only a payment or two, have been served with a foreclosure lawsuit, or have received a notice to vacate your home from a marshal, we can help.