It’s estimated that 33 million home owners are at least one month behind on their mortgage payments. If a homeowner falls behind on their mortgage payments, usually a foreclosure or short sale is coming soon. Most homeowners do not know their options in this situation. It can be very confusing, frustrating, and frightening. Often, the lender is aggressively contacting the homeowner, demanding payment and threatening legal action.
WHAT IS A SHORT SALE?
Some people mistakenly believe that a short sale implies that the sale will go very quickly. Ah, quite the contrary! In a short sale, the mortgage company is involved and must approve the terms of the sale (3rd party approval) thus making the process much longer than a typical sale. When homeowners must sell their home because they can no longer make the payments but the amount owed on the loan is greater than the current value of the home, the home can be sold for less than is owed. The proceeds go to the lender and usually the difference in the sale price and the amount owed is written off by the bank. The bank takes a shortage, which is why it’s called a short sale.
WHAT IS A FORECLOSURE?
When a homeowner defaults on their loan, the lender has the right to evict the homeowners and take possession of the home. This process is call foreclosure. The lender then owns the home and must sell it. This process usually takes six to nine months from the time the first payment is missed.
The first thing the homeowners should know is that there is help available to them. Most people do not even know where to begin to look for assistance, so here’s the Real (Estate) Scoop…
If a homeowner has faced a hardship (i.e. lost job, reduced hours, divorce, illness/disability, drastic rate increase) the first thing they should try to do is a loan modification. Loan Modification is NOT a refinance. There is no credit check or appraisal involved in the transaction. The homeowner keeps their same lender and same loan, the terms are simply modified so that the homeowner is better able to make the payments and the home does not go into short sale or foreclosure. The primary goal of a loan modification is to reduce monthly payments. There are three things that could possibly happen in a loan modification.
- The term of the loan is extended. For example a 30 year loan would be extended to a 40 year loan, thereby reducing the monthly payment.
- The interest rate is lowered. This also reduces the monthly payment.
- The principal amount of the loan is reduced. (This one is rare, but can be done.)
Many states require that an attorney be involved in a loan modification. Maryland is not one of those states, so there are options.
There are FREE or low cost resources available to assist homeowners in dealing with their lender in order to avoid foreclosure. These resources are non-profit organizations and consumer advocacy groups. It’s not necessarily going to be easy (as shown by this ABC News video), but it’s worth the effort to save your home and save your credit.
- Freddie Mac has a great website with links to credit counselors and foreclosure prevention resources. Check out their page.
- The U.S. Department of Housing and Urban Development (HUD) offers help finding a counseling agency near you. Check out their page or call 1-800-569-4287. (This page is also provided in Spanish).
- HUD also has a Guide to Avoiding Foreclosure.
If these options have been exhausted, or the homeowner does not feel comfortable doing the legwork needed to get the loan modification done, there are plenty of reputable lawyers out there who have lots of experience in dealing with lenders and often have much more success getting the loan modification done on behalf of the homeowner. There is a fee for this service. Usually the cost is a couple of thousand dollars. The advantages with this route are:
- The homeowner has no further communication with the lender. The attorneys & processors speak to the lender on the homeowner’s behalf.
- These lawyers & staff do this for a living. They have years of experience in this field and are good at it. The results (reduction in monthly payment) they get are usually much better than a homeowner could negotiate independently.
- A few reputable firms offer a money-back guarantee. If they are unable to get the loan modified to the client’s satisfaction, the homeowner receives their fees back. In essence, they have a great deal of motivation to get the loan successfully modified. If the deal doesn’t get done, they don’t get paid
Contact me for information on reputable lawyers!
The Loan Modification process takes anywhere from 21 to 90 days, so if a homeowner is just a few days from foreclosure, it could be too late to get this done. If a homeowner is just a couple of months behind on payments, the Loan Modification is a great option to try and should be pursued promptly.