There are several options available to those looking to Loan Modification or Loss Mitigation. What I am going to do is explain those options, the facts, eligibility, and the procedures involved. Each case is different and may have different factors involved, so here are the basics. My hope is to help you understand the options and what is involved.
LOAN MODIFICATION OPTION
The Loan Modification options provide either a temporary or permanent change in one or more of the terms of a Homeowners loan, which allows a loan to be reinstated and results in a payment the Homeowner can afford. Most loan modifications provide rate reductions, term extensions or principle reductions. The program specifics differ between lenders and often change on a daily basis.
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Facts
* A temporary or permanent change in the interest rate.
* Capitalization of delinquent principle, interest , or escrow items.
* Possible extension of loan term.
* Maximum interest rate adjustment to current market rate, however in some cases interest rates may be reduced below market.
* The modified principle balance may exceed 100% loan-to-value.
* The loan Modification must fully reinstate the loan.
Eligibility
* Lender seasoning requirements, most likely 12 months.
* The Homeowner must be 30 days delinquent (1 full payment due and unpaid) or more; unless an adjustable mortgage due to reset within 90 days or is Negatively Amortized. (case by case)
* Default due to a verifiable loss of income or increase in living expenses.
* Owner-occupant, committed to occupying the property as primary residence.
* Stabilized surplus/deficit must fully reinstate the loan.
Procedures
* Lender is required to assess the Homeowners financial condition.
* Lender must verify the property has no adverse physical conditions.
* Home repair costs may not be calculated into the loan Modification.
* Lender must comply with state and federal disclosure laws or notice requirements, including whether recordation is necessary to maintain first lien requirements.
* Loans reinstated using a Loan Modification within the past year require written justification prior to a subsequent modification.
* Subsequent reason for default cannot be related to the previous reason for default.
SPECIAL FORBEARANCE OPTION
The Special Forbearance is a written agreement between the Homeowner and the Lender that consists of a plan enabling the Homeowner to reinstate their loan.
Facts
* Leads to reinstatement of the loan.
* Lender sets maximum duration.
* Must be in writing and state the previously missed mortgage payments.
* Provides failure options.
Special Forbearance Type I
* Special Forbearance installment must be based on the homeowners ability to pay.
* May allow reasonable foreclosure costs and late fees accrued prior to execution of the agreement.
* Minimum duration of 2 months with a lender specified maximum length of time to repay the arrearage when required payments are increased.
* Allow the Homeowner to pre-pay the delinquency at any time.
Cause Of Default Is Unemployment
* Homeowner has good payment history and stable employment history.
*Based on Homeowners ability to pay, Lender may require a partial payment; such as monthly escrow requirement amount.
* Homeowner agrees to actively seek employment during term of Special Forbearance.
* Homeowner immediately notifies the Lender when employment status changes.
Special Forbearance Type II
A Special Forbearance Type II combines a short term Special Forbearance with a Loan Modification or Partial Claim as a single Loss Mitigation option.
* Loan must be due and unpaid three (3) months, maximum is lender specific of months unpaid delinquent.
* Requires monthly payments of minimum of three (3) installments before completing the Loan Modification or Partial Claim.
* Must have verifiable reduction in income or increase in living expenses, but has or will have sufficient monthly income to correct the delinquency and reinstate the loan within the duration of the plan.
Failure Options
The following provide the definition of Special Forbearance Option failure. These options must be listed within the written Special Forbearance Agreement.
* The Homeowner abandons the property.
* The Homeowner advises the Lender that he/she will not follow through and fulfill the terms of the Special Forbearance Agreement.
* The Homeowner allows two installments to become due and unpaid without any advisement to the Lender of any problems that rendered the Homeowner unable to stay current under the terms of the Forbearance.
PREFORECLOSURE SALES PROGRAM (SHORT SALE)
The Preforeclosure Sale Program allows a Homeowner in default to sell his or her home and use the sales proceeds to satisfy the mortgage debt, even if the proceeds are less than the amount owed.
Facts
* Outright sales to a third party. It must be an "arms length" transaction.
* Lenders may allow any reasonable cost of the sale including up to 6% sales commission, local/state transfer tax stamp and other customary closing costs such as the cost for a title search, appraisal and title insurances.
* The appraised value must be at least 55% of the outstanding mortgage. Mortgage indebtedness=principle and interest only.
* Net sales proceeds must be at least 65% of the property's "as is" appraised value, defined as selling price minus sales commission and consideration paid to seller, amount to discharge any lien (not to exceed $1,000), and customary sellers closing costs.
Eligibility
* The property must be owner occupied, no "walk-a-ways" or investment properties. Exceptions: when it is verifiable that the need to vacate was related to the cause of default (job loss, transfer, divorce, death), and the subject property was not purchased as a rental investment, or used as a rental for more than 12 months.
* The Homeowner must be 31 days delinquent or more at the time of the Preforeclosure sale closing.
* The Homeowner must provide documentation of a reduction in income or an increase in living expense, and documentation that verifies the Homeowners need to vacate the property.
Procedures
* The Homeowner agrees to show good faith in attempting to market and sell the property.
* The Homeowner must perform all normal property maintenance and repairs until closing of the pre-foreclosure sale.
* The Homeowner must list the property with a licensed Real Estate Broker, unrelated to the Homeowner. the listing agreement must include a specific cancellation clause in the event the terms of the sales are not acceptable to the lender.
DEED-IN-LIEU OF FORECLOSURE OPTION
The Deed-In-Lieu of Foreclosure allows a Homeowner in default, who does not qualify for any other Loss Mitigation option, to sign the house back over to the mortgage company.
Facts
* Homeowners proceeds must be applied to any lien(s) placed on the mortgage property.
* Homeowner must agree to "written" agreement of property conditions.
* Lenders may determine that a "current" Homeowner is eligible for the Deed-in-lieu of foreclosure option
Eligibility
* The property must be owner occupied, no "walk-a-ways", or investment properties. Exceptions: when it is verifiable that the need to vacate was related to the cause of default (job loss, transfer, divorce, death), and the subject property was not purchased as a rental investment, or used as a rental for more than 12 months.
* The Homeowner must be 31 days delinquent or more at the time of the Deed-In-Lieu Warranty Special Deed is executed.
* The Homeowner must provide documentation of a reduction in income or an increase in living expense, and documentation, which verifies the borrowers need to vacate the property.
*The Lender will develop a written Deed-In-Lieu of Foreclosure Agreement, which is to be signed by both the Homeowner and the Lender, which contain all of the conditions under which the Deed-In-Lieu will be accepted.
I hope this is helpful to those of you who are looking into some of these options. Knowledge of your options and the procedures involved are critical for you to stay on top of your situation. Please do your due diligence in obtaining help in these matters. Time is not on your side and the Lender has the Lenders best interest at heart, not you the Homeowner. Seek qualified, professional help in dealing in these matters. Your friends brothers best friends sister-in-laws Uncle may not be the best person to take your advise from!
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