In these bleak economic times, it is not unusual to hear of or know someone in foreclosure. In response to this trend, the Government, the lenders, and private institutions are creating various programs to assist homeowners facing foreclosure. Determining which program suits you best is the difficult part, however.
Just a few years ago, refinancing your mortgage seemed to be the best option for the majority of homeowners. Refinancing was popular because homeowners counted on their homes’ appreciation value, and they withdrew equity out of their homes to repay debts. Interest rates were low and lenders exercised leniency toward those to whom they loaned. Unfortunately, the situation today is nearly the diametric opposite, and homeowners must consider other options as alternatives to foreclosure. Among those options are loan modification, short sale, repayment plan, forbearance, reinstatement, and bankruptcy (always a last resort).
Performing a loan modification on your mortgage can result in the terms of your loan being modified to something you can afford each month. There are many ways you can modify your loan, but there is only one best way of doing it. If you modify your loan based upon the terms your bank offers you, you simply won’t receive the best deal possible. This is why it is important to choose a party not affiliated with your bank to negotiate your loan modification. Borrowers must recognize that a bank or lending institution is a business that is driven by profit. Accordingly, they will always offer you a deal that benefits them far more than it benefits you. They’ll offer you a short-term solution to a long-term problem and most borrowers default on their loan again within six months of their modification. A properly performed loan modification can reduce your principal, monthly payments, and interest. It is not uncommon to hear stories about people who have had their principal balance or monthly payments cut in half! It’s critical to understand that every case is different and the final outcome is dependent upon many variables, including the lender’s cooperation. The lenders will only agree to a foreclosure alternative if they are losing less money than they would be if they foreclosed on the property. It is the job of your negotiator to help them reach this conclusion based upon the results of a mortgage audit, a statement of the homeowner’s hardships, and so forth.
Before negotiating any loan modification, it’s essential to get a forensic document audit performed on your mortgage. A mortgage audit determines if any laws were broken during the servicing of your mortgage. During the audit, your mortgage agreement is reverse-engineered to determine if all calculations are correct and if they adhere to state and federal lending laws. Most loans that were originated within the last 5-7 years contain at least one violation. You can use any violations found in your loan agreement as powerful leverage in the negotiation of your loan modification. Your bank will, almost magically, become far more willing to work with you after you present to them all the violations for which they are responsible. Homeowners can technically attempt to collect monetary damages through litigation; however, it almost always seems more cost-effective to exploit these violations to reduce your principal balance or interest rate via negotiation.
Another alternative to foreclosure is selling your home through a short sale. A short sale is when you sell your home for less than its current value and your lender forgives the difference. A short sale can present a welcome opportunity for someone who owes much more than their home is currently worth (in the industry, this is known as being “upside-down”). While there can be repercussions such as deficiency judgments and tax consequences, a properly considered and performed short sale can eliminate this. A short sale can potentially be an ideal alternative to foreclosure assuming the bank agrees to forgive the remaining balance of your mortgage. Banks typically agree to a short sale if the money they are losing in the sale is less than what they would be losing if they foreclosed on the home. If you are contemplating a short sale, finding an experienced individual to negotiate your short sale can save you hundreds of thousands of dollars, depending upon your situation.
So, as you can see, there are many options available to consumers that are alternatives to foreclosure. Unfortunately, many variables come into play during the qualification and negotiation phrases. The importance of having a knowledgeable individual to negotiate on your behalf cannot be understated. If you have ever attempted to communicate with your lender about your situation, you could probably agree that they attempt to railroad you: they subject you to an endless loop of hold music, transfer you multiple times, use confusing industry jargon, and often don’t know enough about your entire situation to reach an intelligent decision. Having an experienced individual to handle this for you can help rupture this vicious cycle.
The U.S. Attorney General and the White House both agree that the only organization you should employ to negotiate on your behalf is a law firm. A law firm is held up to much hirer standards then your typical loan modification company. An attorney will not risk their license to make a quick buck off a consumer. Having legal representation will demonstrate to the banks that you are serious and, for the first time, place them on the defensive side of the fence.
