Loss Mitigation Services

LOSS MITIGATION

In late 2006, the U.S. had a dramatic increase in foreclosure filings nationwide. As many lenders went out of business due to the inability to sell/package their loans or loss of lines of credit due to high loss ratios, the surviving banks were forced to eliminate risky loan programs and to tighten lending guidelines.  Many homeowners could not refinance out of higher interest rate loans.  In 2007, many homeowners were subject to dramatic payment increases on adjustable rate and negative amortization loans causing millions of mortgage defaults across the U.S. The only option for homeowners  was loan modification coupled with foreclosure defense.

 

Different Types of Loss Mitigation:

• Loan modification: This is a process whereby a homeowner’s mortgage terms are modified. Both lender and homeowner are bound by the new terms of a new agreement. The most common modifications are lowering the interest rate, reducing the principal balance, ‘fixing’ adjustable interest rates, increasing the loan term, forgiveness of payment defaults and fees, recapitalization of accrued outstanding principal, interest, and fees, or any combination of these.
   

• Short sale: This is a process whereby a lender reduces the principal balance of a homeowner’s mortgage to permit the homeowner to sell the home for the actual market value of the home. This specifically applies to homeowners that owe more on their mortgage versus actual market value. Without such a principal reduction, the homeowner would not be able to sell the home.  The lender generally waives the deficiency balance.
   

• Short refinance: This is a process whereby a lender reduces the principal balance of a homeowner’s mortgage to permit the homeowner to refinance with a new lender. The reduction in principal is designed to meet the loan-to-value guidelines of the new lender (which makes refinancing possible).
   

• Deed-in-lieu: A deed-in-lieu of foreclosure (DIL) is anoption in which a mortgagor voluntarily deeds the collateral property back to the lender in exchange for a release from all obligations under the mortgage. A DIL of foreclosure may not be accepted from mortgagors who can financially make their mortgage payments.
   

• Cash-for-keys negotiation: This is a variation of the deed in lieu of foreclosure. The difference is that the lender will actually pay the homeowner to vacate the home in a timely fashion without destroying the property. The lender does this to avoid incurring the additional expenses involved in evicting such homeowners or additional losses on an unpaid loan.
   

• Special Forbearance: This is where you will make a reduced monthly payment. The lender will ask you to be put on a repayment plan when the forbearance has been finished to pay back what you missed, while other times they just modify your loan.
   

• Partial Claim: Under the Partial Claim option, a mortgagee will advance funds on behalf of a mortgagor in an amount necessary to reinstate a delinquent loan (not to exceed the equivalent of 12 months PITI). The mortgagor will execute a promissory note and a subordinate mortgage payable to United States Department of Housing and Urban Development (HUD). Currently, these promissory or “Partial Claim” notes assess no interest and are not due and payable until the mortgagor either pays off the first mortgage or sells the property.

 

LOAN MODIFICATION VERSUS FORECLOSURE DEFENSE

 

Often, homeowners experiencing hardships in paying their monthly mortgage obligations confuse the above terms.  Loan modifications are an adjustment of your original mortgage terms, which can be accomplished whether or not you are behind on payments or have already been served with a foreclosure lawsuit.  Loan modifications can also be achieved deep into the foreclosure process as well as in bankruptcy.  Foreclosure defense is always recommended although its goals are often confused. 

 

Our firm goal, given a few thousand successful loan modifications under our belt, is to retain clients who qualify for loan modifications and to attempt to modify your mortgage terms to bring the monthly payment to affordability.  Although we offer and represent clients in foreclosure defense, foreclosure defense in and of itself cannot provide a loan modification and vice versa.  Government programs were put into place to protect homeowners.  Our job is to ensure homeowners are given a fair underwriting of a loan modification and to push difficult or non-compliant lenders to modify when the homeowner legitimately qualifies.  

 

Our office will qualify each individual client to verify if the client can afford a modified mortgage payment and if not, will make recommendations as to how to achieve affordability within modification program guidelines.  This can be achieved by obtaining additional income through rentals, family contributors, additional job or just regaining lost income.  Additionally, foreclosure defense can aid a modification application by providing the homeowner with additional time to qualify. 

 

Understanding Foreclosure Defense

The economic troubles of the last few years due to real estate bubble and mortgage meltdown crisis have left thousands of New Yorkers in difficult financial straits -- particularly those homeowners locked into adjustable rate mortgages or high interest subprime loans. Decreased wages due to economic decline or increased interest rates make it difficult for homeowners to make mortgage payments on time. Once a homeowner falls behind on a minimum of 3 months of mortgage payments, a lender is permitted by New York law to start a foreclosure procedure. The collateral behind the loan that the lender made to you is your house.  A bank will attempt to protect their collateral by starting the foreclosure action which eventually can lead to a forced sale of the house by the lender to regain all or part of the collateral behind the loan. 

 

The process begins when a homeowners is served with a summons that outlines the lender’s complaint or reason for seeking legal action. From this moment on, time is of the essence; if a homeowner delays in responding to the summons, he or she may forfeit valuable legal rights.

 

WE OFFER YOU ALL OPTIONS

There are three key options are available to stop a foreclosure:

(1) Loan Modification,

(2) opposing the lender’s foreclosure proceeding in state court (this is referred to as Foreclosure Defense) or

(3) filing for bankruptcy in federal court.  

 

Our firm always focuses on options (1) coupled with (2). When filing for bankruptcy, in most cases, a debtor receives the protection of the automatic stay, which prohibits creditors from continuing a foreclosure action. One of the main advantages to filing Chapter 13 bankruptcy is that one may benefit reorganize one’s finances, thus allowing one to catch up on missed payments interest-free over a three-to-five-year period through a court ordered payment plan while staying current with mortgage payments going forward.  Bankruptcy ultimately may aid in repaying arrears but may not, in and of itself, bring your loan to a modification or to affordability.

 

 

A loan modification (or mortgage modification) is similar to a refinance. The primary difference between a mortgage modification and a mortgage refinance is that instead of looking for a new loan, the terms of your existing mortgage are modified. It is also helpful for those who may not have significant equity or for those with low credit scores. After a successful loan modification, you will no longer be under the threat of foreclosure as long as you continue to pay your mortgage payments based on the new modified terms.

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Your eligibility for a NY Mortgage Loan Modification depends first on your documentable income, expenses, etc. Most lenders and servicers have similar qualifications. These include, but are not limited to:

• Documenting a legitimate hardship or change in financial circumstances,

• Missing three payment or more (at least 90 days delinquent),

• that you own and occupy the property as a primary residence.

 

In order to receive a Loan Modification in New York you need to demonstrate to the bank that you will be able to afford the new modified loan terms. The bank will review your income, expenses and debt to income ratio. The equity or lack of equity in your house may also be a factor.

 

However, a Loan Modification is in no way guaranteed. A lender is not obligated to approve a mortgage modification.  However, a judge or court appointed referee have the power to oversee that banks are compliant with federal government loan modification guidelines.  In such instances of non-compliance, a judge has the power to recommend fines, penalties, tolling of interest, sanctions on the lender and its counsel.   It should be noted that if your house has no equity, you may be able to use a Chapter 13 bankruptcy to remove a second mortgage. This is known as a lien strip. If you are considering a mortgage modification, you may also want to consider a Chapter 13 bankruptcy.

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WE'RE  READY TO FIGHT FOR YOU.