Foreclosure Defense: Load Modification
If you would like to save your home, a loan modification can be a good option. If you have the income to pay a reduced mortgage payment, we can assist with your application for a loan modification. If you are approved for a loan modification, your foreclosure case will typically be put on hold while you make three “trial payments” to the bank to prove your ability to perform on the loan. If you make your three payments timely, you will then sign a permanent mortgage modification and your foreclosure case will be dismissed! Remember, while you are trying to apply for a loan modification, the bank will often still try to push forward with the foreclosure. This is illegal now, but the banks still do it. This practice is called “Dual Tracking.” This is why it is critical that you have a competent foreclosure defense attorney to defend you in court while, at the same time, assist you in getting your loan modification application approved.
A few things to keep in mind if you are interested in a loan modification. First, if you are approved for a loan modification, the lender will typically get the past due balance and put it on the back-end of the loan rather than forgive the past due balance. We do see clients get approved, from time to time, for loan modifications that include a principal balance reduction but nowadays this seems to be the exception rather than the rule.
The second thing to remember is that your past due balance may be much higher than you think. Many folks think you just get the amount of each payment and multiply that by the number of missed payments, and this gets you your past due balance. In most circumstances, this would be incorrect. This is because once your loan enters into default, you will often be charged a higher “default interest rate” and the lender will also add on attorney’s fees and costs for having to bring the lawsuit against you. Remember, too, that many folks’ mortgage loans have an escrow account so that your mortgage payments also include the funds for taxes and insurance. If you default on your loan, the taxes and insurance will not be getting paid. The bank will most likely cover those expenses for you but will then add those expenses onto your loan. This all means that the past due balance is often much higher than most people realize.
Third, you want to look at the total amount of your modified loan and compare that to the value of your property. Is your property still an investment? Or are you simply throwing good money after bad? Sometimes it makes the most sense to just walk away.
Reinstatement of the Loan
A reinstatement is when you pay the past due balance to the bank. At any point, after you fall behind on payments, you have the right to request and receive a reinstatement quote from the bank. You generally have the right to reinstate the mortgage up until the time that a foreclosure judgment is entered, but often lenders will accept a reinstatement post-judgment, as long as the reinstatement is received prior to the foreclosure auction. Under those circumstances, the bank would then move the Court to have the judgment vacated and the case dismissed. A reinstatement is a very speedy and quick resolution of your foreclosure matter if you can put together the funds to afford it. Before you pay a reinstatement, however, you will want to make sure that you will be able to resume making payments or else you will have spent the money and will be soon be back in foreclosure again.
“Cash for Keys”
A “cash for keys” deal is when you work out a deal with the bank where you give up your home in exchange for a cash payment for relocation assistance, a release from the mortgage debt, and an extension of time in which to move. For example, under a typical “cash for keys” deal, you may receive a check for $5,000.00 to assist you with relocation expenses, a release from the mortgage debt so you don’t owe the bank any more money, and another four months in which to vacate the property. If you are looking to walk away from the property, this could be an option for you.
Remember the credit reporting implications here too. If you do a “cash for keys” deal, you will agree to a Final Judgment of Foreclosure being entered against you so the lender can foreclose on the property and put it up for a public auction. You do this in exchange for the lender providing you with the monetary assistance and the extended period of time in the property. If the default on your loan was sometime in the last seven years, the Final Judgment will most likely report on your credit report as an adverse entry and will negatively impact your credit score. This could create problems for you when you try to get approved for an apartment or for another home. The upside, however, to a “cash for keys” deal is that these deals can usually happen pretty quickly, and you usually do not need to complete much paperwork. These agreements are usually negotiated by the respective attorneys.
A short sale is when you sell your home and the bank agrees to accept an amount that is less than the total amount due on the note and mortgage, hence the name “short sale.” Generally, with a short sale, you will be released from the debt as part of the deal. You always want to review the closing paperwork carefully to make sure you are being released from the debt. Sometimes, especially if it’s a smaller lender, they may try to get you to sign a promissory note for the difference between what is owed on the note and mortgage and what the lender is getting from the short sale. Do not sign that! You can list your property for a short sale even when you are in foreclosure, but you still need a competent defense attorney to litigate the case and get you the time you need for the short sale to be completed.
A deed-in-lieu can be a great option if you want to walk away from your property and reduce or eliminate your liabilities. A deed-in-lieu is only an option if you do not have any junior liens such as second mortgages, lines of credit, etc. A deed-in-lieu is where you sign your deed back over to the bank in exchange for a cash payment and a release from the debt, so you do not owe the bank any more money on the mortgage. You have to submit a deed-in-lieu application and get approved for it and our firm can assist you with your application for a deed-in-lieu.
A deed-in-lieu settlement allows you to deed your interest in the property back to the bank as opposed to agreeing to a Final Judgment of Foreclosure. So, with a deed-in-lieu, there is no foreclosure judgment on your record. Once the deed-in-lieu is completed, the foreclosure is dismissed, and the bank will sell the property. Often deed-in-lieu settlements come with a monetary settlement paid to the homeowner as well as an extended period of time to remain in the property. An additional 120 days in the property is pretty standard with a deed-in-lieu settlement.
These are the most common solutions to a foreclosure situation. It is always best to discuss your case with a competent foreclosure defense attorney because each case presents its own facts and your case may require a unique solution.