Loan Modification Info

General Information About Loan Modifications For Educational Purposes:

If you want to keep your home the most important factors in stopping foreclosure is acting fast, regardless of whether you choose to represent yourself or seek help to contact your lender. Here are some of the basic options available to you if you are having trouble with your mortgage payments.

• Loan Restructure – Involves negotiating with your lender to get your loan in good standing again. This can be accomplished through a separate payment plan for your delinquency or even adding the delinquency to the end of your loan. This may result in a lowered monthly payment.
• Loan Reinstatement – Pay your lender(s) all of your past due payments to bring your mortgage current. This may be an option for you if you have some money saved up, or are able to borrow from friends or relatives.
• Refinance – A viable option if your home has equity or if you qualify for a negative equity refinance program with your lender, for example HARP.
• Sell Your Home Traditionally– If your home has equity or is at a break even point you may simply sell your home before the foreclosure sale date. Sometimes the homeowner is unable to sell the home outright at the desired sale price without falling short and so this may not be an option. Beware of scams that may target you or anyone who pressures you to sign over the deed to your home to them.
• Short Sale – If you are unable to modify your loan or if you decide you cannot afford the home we may be able to negotiate a short sale on your behalf with your lender(s). In this instance once the short sale is approved the lender will be accepting less than what you owe on the loan in order to avoid a lengthy and costly foreclosure process. In this process when engaging a law firm you will work with an attorney and your Realtor (we have an in-house affiliated brokerage StoneCrest Realty to assist you)  in approaching your lender regarding your short sale, and in reviewing the approval contracts the lender will have you sign to have the short sale go through.
•  Deed-in-Lieu-of Foreclosure – If your situation qualifies we can arrange for you to simply give/deed the home back to the lender and get a release for any deficiency judgment.  Please note that only specific situations qualify for a DILOF, contact us for more details.  You are unable to just mail back the keys, even if you do this the legal paperwork that is necessary to transfer your property to the banks has not been done and the property will remain legally yours until the foreclosure.
• Bankruptcy – This is a last resort for most, unless you have other debts that you are having trouble with. Filing for a ch. 7 bankruptcy will not stop foreclosure completely, this is a common myth. It will only save your home temporarily during the automatic stay, but once the lender gets the permission of the court they can foreclose on your home. This may be an option for many, especially if you have very little assets and a lot of debt. We can help you file for Chapter 7 and Chapter 13 bankruptcy as well. You CAN save your home with a Chapter 13 bankruptcy but have to prove to the bankruptcy trustee and Judge that you can not only afford your mortgage payments but the payments on your delinquent payments and Chapter 13 plan as well.
• Foreclosure – You may elect to allow the home to be entered into mortgage foreclosure. See our foreclosure page and read more about the process. We also offer a 30 minute low fee consultation to discuss all of your questions about foreclosure and the process and ramifications.  You should always get an attorney’s advice before allowing your home to foreclose in case you are liable for the difference.  Otherwise you face the very real possibility of getting a nasty surprise in the way of a lawsuit filed against you by your lender a few months to a few years down the road after the foreclosure.

For further information or to discuss getting help with bankruptcy, short sales, or foreclosure we invite you to schedule a free confidential consultation with our experienced Sacramento real estate and bankruptcy attorneys by calling us at 916-999-1376, or filling out our contact us form on our website. The confidential consultation is free.

Loan Modification – Helpful Information for Homeowners Attempting Loan Modifications On Their Own

What is a Loan Modification?

A loan modification happens when a borrower, who is facing great financial hardship, manages to work with the lender to change the terms of their mortgage loan. The changes may be permanent or temporary and usually focuses on the interest rate, length of the loan or the monthly payment.

Who Can Qualify for a Loan Modification?

Anyone facing serious financial hardship who expects to be in danger of home foreclosure should consider a loan modification. The final judge on who is eligible for a modification is the lender or investor holding the loan so the criteria changes from situation to situation and lender to lender/investor. There are also varying circumstances that can affect a homeowners chances if they have heavy debt or if they are filing for bankruptcy.  We assist our clients in determining when to apply for a loan modification if they are also in need of bankruptcy and we are advising them on the bankruptcy, some may need to file before, some after their loan modification.

In general, you can refer to the following guidelines or your lender’s published guidelines.

Most lenders will not approve a loan modification unless the borrower has a high rate of mortgage debt compared to income. In addition your home likely would have to be worth less than the total amount of outstanding mortgages on the property. In addition, a borrower would have to have a realistic chance of keeping up on the modified loan amount.

If a homeowner purchased a home and took out loans that they clearly could not afford at that time, a loan modification is not a likely outcome. People in this situation would instead likely need to pursue Foreclosure, Deed in Lieu of Foreclosure, Short Sale, Bankruptcy or a combination of these options.

How Does the Loan Modification Process Work?

The general process of a loan modification involves convincing the lender that you face a grave financial situation but that you can also keep up to date on the modified monthly payments.

In order to prove these, you need to present a complete picture of your current financial situation as well as an idea of what can be expected in the months and years ahead. A borrower would also need to speak to the correct people at the lender to make sure that the person has the authority to make decisions and enact any agreement made.

Once you have proven your current hardship and your future ability to keep up on payments an agreement is signed by all parties and a borrower will receive and outline of their new payment responsibility.

Loan Restructure/ Loan Modification

One remedy available to a property owner facing delinquency and foreclosure is negotiating a loan restructuring, also called a workout or loan modification. Each negotiation has special objectives, which for most people can include one or several of the following:

• Discounted loan payoff (debt cancellation might be a taxable event-consult a tax professional).
• Partial loan write-down with enhanced terms, such as extending a term to reduce the debt service, reducing the interest rate, placing a moratorium until property-performance improvement, capitalizing the accrued interest, restructuring the debt so net operating income is acceptable payment and negotiating for an advance.
• Principal reduction.
• Full debt restructure of payment, rate and terms without a partial write-down.

The Steps to Planning and Applying for a Workout Strategy May Include:

1. Complete a financial analysis and evaluation of the expected recovery value that the lender would realize in a foreclosure. Acquisition dates and asset dispositions are projected. The analysis reviews property data such as loan-agreement copies, the promissory note, the deed of trust, the security agreement and all other liens secured by the property or borrower’s property operations, including real estate taxes and assessments. Also up for review are current rent rolls, copies of all current leases, a schedule of all rent concessions and current tenant improvements, copies of any current listing agreements and/or purchase offers from the past 12 months. Operating statements for the income and expenses face analysis for the previous three years to establish trends and calculate the current net operating income.

2. All appropriate expenses are analyzed and compared to expense models that lenders use to present a fair position on the owner’s behalf. Required capital expenses, leasing expenses for buyouts or brokerage commissions, the total debt service of senior debt and asset-management expenses then reduce the net-operating income. The results are the net proceeds from operations a lender may realize after acquiring title.

3. Establish market value. The operations proceeds are then added to the net-sale proceeds to create the expected recovery value available from the collateral.

4. Thoroughly review the borrower’s exposure to a deficiency judgment. Could include all borrowers’ federal tax returns for the three most current tax years — including all K1s, if partnership interests are owned — along with a current financial statement, including cash-flow statements showing income sources and expenditure categories. The purpose is to develop strategies that protect personal assets and establish that it is not in the lender’s best interest to pursue a judicial foreclosure. Once the personal exposure is analyzed, asset values that may be exposed are reduced by liquidation and litigation costs, as well as risk factors in losing a judgment. This reduced value is the expected recovery value from personal assets.

5. Combine and discount the future expected-recovery value from the collateral and personal assets to create a present value. The discount rate considers the cost of funds, administration and risk. It takes great work and thought to develop the present value of the expected combined recovery. Negotiations begin with this discounted value.

6. Negotiate with the lender. Documentation is prepared and reviewed in this final phase. Upon approval, escrow and title are opened, and the transaction is closed.

7. Proper preparation of the financial analysis, which can be placed on a spreadsheet, is a lot of the work in a successful negotiation. Although comprehensive packaging for the lender is essential, negotiations must be directed to the present value of maximum recovery. The cost of a lender’s asset-management burden can reduce the maximum recovery to less than what a property owner can provide. In addition to closing the lender’s economic risk, adjusting the capital structure of a property allows the owner to maintain ownership and operation or the possibility for sale at a much higher price than if the lender sells it as real estate-owned.

8. When structuring strategies and implementation, it is vital to understand forbearance, loan restructuring, debt cancellation, short sales, deeds in lieu of foreclosure with release from any personal responsibility, land trusts and bankruptcy. Knowing how such devices and actions can be used independently, sequentially and or concurrently is essential in structuring strategies and their implementation. It also is vital to coordinate relationship strategies with other professionals who implement other aspects of assimilating and analyzing data or processing actions.

For further information or to discuss getting help with bankruptcy, short sales, or foreclosures we invite you to schedule a free confidential consultation with our experience Sacramento Real estate attorneys by calling us at 916-999-1376, or filling out our contact us form on our website. The confidential consultation is free.

We are experienced Sacramento Real Estate Attorneys and Sacramento Realtors. We are a unique and powerful combination and can help you with your real estate legal issues.  We have helped thousands of people with pressing real estate issues find solutions and relief through the use of short sales, deed in lieu of foreclosures, strategic foreclosures, mortgage debt settlements and legal real estate review and advice.  

Our real estate attorneys have achieved proven results and can give you the great legal advice and strategy needed to get you the results you want. Contact us today to schedule your complimentary attorney consultation by clicking HERE or by calling 916-999-1376. We look forward to helping you with all of your Sacramento real estate needs.

**Please note, unfortunately we are no longer assisting homeowners in directly negotiating on their behalf (outside of bankruptcy) with their lender for a loan modification. We do still offer a variety of real estate services; consultations and options as well as bankruptcy, short sale, mortgage debt settlement and lien stripping options that can assist homeowners with their mortgage issues. ***