There are so many options out there is you are struggling with paying your mortgage:

1. Loan Modification

I have written many blog posts about loan modifications and there is a ton of information out there about them. This is an option for you whether or not you are qualified under the MHA. Most banks have their own internal loan modification program, if you do not qualify for the MHA.

2. Refinance

Qualifying for a refinance is your biggest obstacle here. If your house has some equity in it, you want to talk to a licensed mortgage broker or your bank about the possibility of refinancing. Refinancing does have costs associated with it; however, with interest rates as low as they are, the costs may be worth it. You will also need to have a good credit score (620 or higher).

3. Streamlined Refinance

A Streamlined Refinance is a refinance of your existing loan with the same lender and the costs are significantly lower than in a traditional refinance.

4. Deed-in-Lieu of Foreclosure

If you are already behind on your mortgage, a deed-in-lieu of foreclosure may be an option. Under this option, you will need to contact your bank and determine if they are willing to take back the house.  You will turn over the deed back to them. The banks are sometimes willing to do this to avoid the foreclosure process and the fees that are associated with it. There is some negotiating that will have to be done here. You want to make sure that the bank releases you from the mortgage and any deficiencies. You do not want to turn your house back over to the bank to then find out that you still owe the balance of the mortgage.

5. Short Sale

A Short Sale is where you sell your house for less than you owe on it, pending approval of the bank. You will need an attorney to negotiate the short sale for you but here, there is also the opportunity to make sure that you do not owe anything to the bank. Your attorney should be able to help you negotiate this and make sure that any deficiencies in the sale price and mortgage amount are “wiped” away.

6. Cash for Keys

Some banks are now offering a program called “Cash For Keys.” This is a program where the bank pays you to move out of your home.  You are released from the mortgage and most of the time, any deficiencies between what you owe on the mortgage and what the bank sells the house for. Once again, all terms of this need to be negotiated before it is finalized.

There are so many options if you are in danger of losing your home.  Don’t just walk away. There are scams out there so you need to be careful, but you do have options.

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New York State law requires that anyone who charges an upfront fee to handle a loan modification be either a license attorney in the State of New York or a licensed mortgage broker in the State of New York.  There is a very good reason for this. New York State wants to make sure that you are receiving the best advice about your mortgage as possible. A loan modification is not always the best option for someone and an attorney can help you to determine what other options are available to you. A loan modification company only handles loan modifications and therefore, they are not in the business of telling you that they cannot get you a loan modification. 

There are no guarantees with a loan modification. The are many factors that are in play when a loan modification is submitted to a bank. The bank, your financials, the investor that holds your loan, the negotiator and many other factors will determine if your loan modification is approved. Further, if you do not qualify for the Making Homes Affordable Act, your lender has internal programs that you may qualify for and those internal programs change constantly.

There can be no guarantees. Anyone who offers you a guarantee is only setting you up for disappointment.

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Get in Front of It!

If you have the ability to foresee financial trouble, call your lender and get on a temporary modification or forbearance plan. You are not the first person to experience financial difficulties in your lenders portfolio and they have plans in place for short term help. You will need to document the problem and prove to the lender this is a real issue that will resolve in a short time, but they are typically willing to help.

Too Late

If you are already behind on your mortgage, the battle is more difficult but not altogether lost. Lenders do not want your home, they want your money! Therefore they are willing to help in most circumstances. The trick here is start as soon as possible, do not wait until the lender is calling you and begins the legal process. Try to be proactive and get a resolution. If you are unable to resolve the problem then you may need professional help to deal with the lender and try to help get things back on track. The further behind you are, the harder it is to get a resolution.

How it Works

Lenders work on a DTI (Debt To Income) ratio, this is your provable income verses your provable debt. The rent you get from the illegal garage apartment that you don’t claim on your taxes and the money you borrowed from Aunt Marie don’t count here. The further behind you are the more money you need to get out, plus you need fees, late payments, interest, principal and the all important but often overlooked escrow shortage.

Lenders will not help you unless you can afford to be helped. That means, if a lender has predetermined repayment plans and the longest plan adds more to the mortgage payment than you can afford then the repayment plan will not be offered to you. Lenders also feel like they are helping you, so if they offer a plan and you fail to make the payments they will not offer you a new one without extenuating circumstances.

Can’t afford repayment… Help

Next step is a loan modification or bankruptcy. Loan modifications offer a borrower the ability to rewrite the loan in terms that are affordable to the borrower and still give the lender some benefit of the mortgage. The Government Guidelines call for a lender to lower interest rates and extend the term of the loan so that the borrower is paying out 31% of their gross monthly income to mortgage payments. The issue here is that not all lenders are mandated to follow the guidelines and private modifications have been offered in many cases. These are typically shorter in duration and don’t offer the same relief, but some relief is better than none. Some investors will not offer modification terms and others require that the borrower be late before a modification may be offered. The Federal Guidelines specifically state that a borrower does not need to be late to obtain a loan modification and all participating lenders must abide by that rule.

Bankruptcy

There are two types of bankruptcy available to homeowners, Chapter 13 and Chapter 7. Homestead exemptions are different by state; however most states allow a debtor to keep their home if they do not have too much equity and can prove the ability to make the payments. The newest trend is the Bankruptcy Court’s willingness to move secured second mortgages and even portions of first mortgages from the secured creditor side to the unsecured creditor side. If a property has lost so much value that more is owed on the property than it is worth, then that portion that is no longer secured has beed seen by the Courts as unsecured and dischargeable debt.

Help is out there! It is not always easy to obtain and results vary. Professionals are available to help you meet the demands of this new and floundering economy but we are all wondering around in the dark a bit. Participating lenders are not obligated to help their borrowers unless forced to offer loan modification plans to their borrowers by the Government. However there is no rule that the banks have to make obtaining a modification easy. Delay, confusion and collection tactics are often used by lenders. It seems counter-intuitive for lenders to act they way they are acting because it is not profitable for a lender to own thousands of nonperforming loans or distressed properties. Although workout plans, temporary modifications, permanent modifications, and forbearance agreement are not ideal for the lender, it is good business sense to make some money than none at all.

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However, I will be tell you that over 50% of our clients have tried to get a loan modification on their own and have been unsuccessful at doing so. The process can be overwhelming and daunting. The banks can be frustrating. Understanding the process of loan modifications and how the banks and laws work together is important, but you can definitely apply for a loan modification without an attorney.  

If you are going to hire someone to handle your loan modification, in New York state if they charge you an upfront fee, they must be an attorney licensed to practice in New York or a mortgage broker licensed in New York. Make sure that you do your research and hire someone who can help you meet your goals.