WHAT IS A MORTGAGE MODIFICATION?
A mortgage modification, also called a loan modification, is when the mortgage lender and you agree on a change to the terms or balances owed in connection with your current mortgage and note.
There are many variations to the types of mortgage loan modification depending on your circumstances. Some of the loan modifications available are:
- Modify or fix your interest rate
- Extend the term of the mortgage up to 50 years
- Add any delinquent debt to the end of your loan
- Forgive past due balances and late fees
- Predatory lending law suits
- No interest loans to bring your loan current
- Minimal interest only payments when selling the home
- A combination of these or many other alternatives that can result in stopping foreclosure and/or saving your credit
Loan modifications can make your home payments more affordable and even stop foreclosure. The requirements to qualify for a loan modification vary from lender to lender. Common qualifications are when a borrower can no longer afford to pay their monthly mortgage payments due to high interest rates, hardship such as unemployment or medical conditions, and the inability to refinance because of the current economic crisis to name a few. Because of the steep decline of home values across our country, you may learn that you owe more on the balance on your mortgage than the value of your home. In this situation, some lenders are permitting loan modification to reduce the balance of mortgages or allowing the sale of the property for less than is owed.
Attorney represented loan modifications are more successful due to the fact that banks are more willing to deal with attorneys who are experienced and knowledgeable with the mortgage loan modification process.
What is a Short Sale?
A short sale occurs when the proceeds of a real estate sale fall short of the balance owed on the property. In a short sale, the bank or mortgage company agrees to discount the loan balance due to an economic or financial hardship on the part of the mortgagor. This negotiation is all done through communication with a bank’s loss mitigation department. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender, sometimes, but not always, in full satisfaction of the debt. In such instances, the lender would have the right to approve or disapprove of a proposed sale.
Extenuating circumstances influence whether or not banks will discount a loan balance. These circumstances are usually related to the current real estate market climate and the individual borrower’s financial situation.
A short sale typically is executed to prevent a home from foreclosing. Often a bank will choose to allow a short sale if they believe that it will result in a smaller financial loss than foreclosing. For the home owner, the advantages include avoiding a foreclosure on their credit history and the partial control of the monetary deficiency. Additionally, a short sale is typically faster and less expensive than a foreclosure. Thus, a short sale is nothing more than negotiating with lien holders a payoff for less than what they are owed, generally on a piece of real estate, short of the full debt amount. It does not extinguish the remaining balance unless settlement is clearly indicated on the acceptance of offer.
Short sales are common in standard business transactions in recognition that creditors are not doing debtors a favor but, rather, engaging in a business transaction when extending credit. When it makes no business sense or is economically not feasible to retain an asset businesses default on their loans — called bonds. It is not uncommon for business bonds to trade on the after-market for a small fraction of their face value in realization of the likelihood of these future defaults.