A loan modification is an adjustment to the terms of your mortgage loan agreement. The goal is to reduce your monthly payments to an affordable amount so that you don’t default on your loan and lose your home.
Your options may include:
With the Homestead Law Firm expertise, we take a strong stance against the mortgage companies and aggressively work to find a loan modification program that will save you money and protect your home.
Harp 2.0 and Principal Balance Reductions
The highly antipated refinancing program, HARP 2.0, will allow underwater borrowers who are current on their loan payments to refinance into a lower interest rate. This is the perfect opportunity for borrowers who have managed to make their monthly mortgage payments but owe more on the home than its market worth.
We’ll help determine your qualifications and get the process started.
Loan Modification/Foreclosure
Arguably the easiest way to defend against a foreclosure is through a loan modification. A loan modification is any change to the original terms of your loan – and many mortgage companies are more than willing to work with homeowners on this process. Mortgage companies aren’t in the business of owning homes, and foreclosures often result in a loss on their books, so helping you stay in your home is actually beneficial for them, as well
In 2009 Congress stepped in to help by passing a temporary program specifically designed to give struggling homeowners easier access to load modifications, while ensuring that the lenders would be required to work cooperatively with homeowners through this process. Dubbed the Making Home Affordable (MHA) program, it offers modifications such as:
As soon as you apply for a loan modification with your lender, they’re required by law to freeze all foreclosure proceedings, usually for 30-days at a time. If your loan modification is approved, the foreclosure will be stopped permanently and you can move forward with your modified loan and payments. However, if your loan modification is declined, the foreclosure will proceed as normal, picking up right where it left off before it was stopped.
That’s why it’s important to stay diligent and work with our experts to explore other options while your loan modification application is pending. Not all homeowners qualify for a loan modification so you’ll want to have a back-up plan, just in case.
A word of caution about loan modifications and foreclosure, though; this is not a choice best made at the last minute. Unlike bankruptcy, a loan modification application is not an instant process. So, if your foreclosure sale is looming, just a few days away, a loan modification may not be your best option.
Loan Modification/ Bankruptcy
Depending on which type of bankruptcy you file for, you may be able to negotiate a loan modification for your mortgage at the same time. This would give you the opportunity to reduce or eliminate your unsecured debts, while focusing on making realistic payment plans for your priority debts, like house and car loans.
If keeping your home while eliminating your other debts seems like a solution you’d like to consider, please visit our Resources Center for more information or call for your free consultation.
Foreclosure
Foreclosure could result in you:
Owing the mortgage company the deficiency balance of the mortgage (the deficiency balance is the total remaining balance after the sale price of the home), Becoming ineligible for a government mortgage for at least 7 years, Owing a large amount of taxes to the IRS, additionally, Having to deal with the stress and embarrassment of it all. There are things that you can do to prevent your lender from initiating a foreclosure against you. Know your rights and protect your options! What should I expect if I’m facing foreclosure and what can I do about it? A foreclosure is the legal process where your mortgage company obtains ownership of your home (i.e., repossess the property). A foreclosure occurs when the homeowner has failed to make payments and has defaulted or violated the terms of their mortgage loan. A foreclosure can usually be avoided—even if you already received a foreclosure notice. However, you must take action as soon as you can.
There are two main types of foreclosure: Judicial foreclosure, and non-judicial foreclosure. California is a non-judicial foreclosure state where a foreclosure sale usually occurs as a private sale, not preceded by any judicial action, and is also known as a “trustee sale.” A trustee sale bypasses the courts altogether, which means the matter is handled with significantly less time and expense than judicial foreclosure. Trustee fees are often less than attorney fees, and the entire process can often be completed within about 4 months after the notice of default is issued.
Three months after the date on which the Notice of Default was recorded a trustee may then give notice of sale. The sale notice must be served at least 20 days before the date set for sale of the property. Thus, a trustee sale requires a total of 3 months (after the notice of default) plus 20 days (after the notice of sale). The foreclosure sale is to occur at a date, time, and place set by the trustee and as described in the Notice of Trustee Sale. The sale will be “cried” by the trustee or an authorized agent of the trustee. The term “trustee” appears on many mortgage loan and foreclosure documents, including the trustee’s deed issued to the successful bidder/buyer (either a third party bidder or the lender).
The most important thing – take action now. You have nothing to lose and everything to gain.
Note: A deed in lieu can favor the bank more than it favors the homeowner.
Of course, you would want to sell the home before considering a deed in lieu if you have equity, but some homeowners don’t because their mortgage is underwater.
Requesting a Deed in Lieu
Homeowners in distress can approach their lenders to find out if a deed in lieu of foreclosure is an option. This typically involves submitting an application along with documented proof of your financial situation.
Some banks require that the home must be listed for sale, allowing for a potential of a short sale, before they’ll entertain the idea of accepting a deed in lieu. You could be required to submit a copy of the listing agreement to prove that you’ve indeed listed the property for sale.
A common misconception about deeds in lieu is that the property must already be in foreclosure. In fact, the lender might or might not have filed a notice of default or started judicial proceedings to foreclose. It might still be open to discussing a deed in lieu.
Why Banks Reject Deeds in Lieu
Banks are under no obligation to accept deeds in lieu, and they might reject one for a few couple of reasons.
There Are Junior Encumbrances
Any encumbrances, judgments, or tax liens filed against the property will stay with the property if they’re not released prior to the agreement for a deed in lieu of foreclosure. They become the lender’s responsibility—the lender effectively inherits them. A property with only the original loan against it is typically the best candidate.
Foreclosure typically eliminates junior liens, so this could be an easier solution for the lender when any are in place. Junior liens are any that are recorded after the first mortgage. A second lender might accept a deed in lieu if the first loan is current and the property is worth more than the sum of its encumbrances.
The Terms Are Unacceptable
It’s also possible that an existing pooling and servicing agreement (PSA) might ask the borrower to make a financial contribution in exchange for acceptance of a deed in lieu. The borrower might refuse either due to principle or lack of principal.
Pros and Cons to a Deed in Lieu
Always seek legal advice before jumping to give your bank a deed in lieu of foreclosure. Remember, it’s in the bank’s best interest to obtain the deed from you. It might not be in your best interest to comply. You could be adversely affected in a few ways:
A deed in lieu will show up on your credit report, but the effect is usually less than the hit you would take for a foreclosure.
You won’t be able to buy another home for a while. Fannie Mae and Freddie Mac won’t buy a mortgage in the second market when it’s made by a borrower who signed a deed in lieu without extenuating circumstances in the last four years. This drops to two years with extenuating circumstances. Compare the wait to buying after a foreclosure, which is seven years without extenuating circumstances, five with, and you’ve essentially picked up a three-year gain.
Make sure that the deed in lieu specifically releases you from liability to repay all loans against the property. Otherwise, you could be liable for any loan deficiency even after turning the property over to the lender—the difference between the home’s value and the balance of your mortgage loan. There’s little point in handing over title if you’ll be pursued you for a deficiency, but this is typically negotiable. Just make sure you get any waiver in writing.
You could be required to give the lender cash in addition to title to make up some of the difference if your loan balance is significantly more than the home’s fair market value.
Potential Tax Effects
Ask your accountant whether the canceled debt from your home loan could result in a tax liability. The 2007 Mortgage Forgiveness Debt Relief Act offered protection from this through December 2017, and that legislation was renewed under the terms of the Further Consolidated Appropriations Act of 2020 but only through December 2020. Insolvency might be another exemption available if this legislation is eventually allowed to expire.
But many short sales don’t get approved. They fall through for a variety of reasons, particularly if there’s more than one lien against the property. All lien holders must consent to the short sale under the same terms. The process can admittedly be tricky, but an understanding of the steps involved can go a long way toward ensuring success for buyers and sellers.
Get a Property Valuation Analysis
A lender isn’t likely to approve a short sale if there’s enough equity in the property to allow it to sell and at least break even if it foreclosed instead. The homeowner must be upside-down on her loan—that is, she owes more on the mortgage than the home’s fair market value.This makes the first step critical—the value of the home must be established right at the start. It’s easier to come to a price agreement with the lender when the home’s value is close to the outstanding mortgage balance. Less than the balance is always workable, too, but success becomes unlikely when the house is worth more. Keep in mind that the lender will want proof of the value. A real estate agent can prepare a comparative market analysis (CPA), or a broker can provide a broker’s price opinion (BPO). A professional appraisal can be a powerful tool. The lender might request one of its own as well.
Get a Hardship Letter
The lender will want more than a value before it agrees to a short sale. It needs to know why the homeowner must sell. Why can’t he just continue living there? The seller must, therefore, prepare a hardship letter detailing the reasons that he’s unable to continue making mortgage payments. Drafting this letter should be the second step in the process, and the letter should be compelling. The short sale won’t be successful without it. It must be convincing and complete. The lender must immediately understand that the seller is in a position where it’s either a short sale, foreclosure or bankruptcy. The hardship he’s experiencing isn’t likely to be resolved in the near future. It might be unemployment, divorce, the death of a spouse, a serious illness, or an uninsured loss.
The more ammunition the seller has to convince the lender that his back is against the wall, the more likely he is to get a good response. He should include details about his income, other assets he might own, and all the debts he owes. The lender will want to see that he can’t qualify for another loan to hold him over until his financial situation improves. He doesn’t own any assets that he can sell to raise cash.
Throwing in a little emotion isn’t a bad thing, but try to keep the letter to one page and include documented proof of its statements if possible.
Contact the Lender for a Short Sale Application
This isn’t quite as cut-and-dried as it sounds. Lenders won’t talk to investors, potential buyers, or real estate agents unless they’re first instructed to do so by the borrower or homeowner. She’ll want to get the approval of all necessary parties in advance and in writing before anyone contacts the lender, then she can submit these consents along with the application and the short sale package.
These consents will allow the lender’s loss mitigation department to work with and discuss options with everyone involved and ultimately to express the lender’s terms if the short sale does indeed go through. An actual meeting or meetings might be scheduled with the loss mitigation department to iron out these details for commercial properties, but this is less likely with residential properties.
Don’t expect a warm welcome when you ask for an application to initiate the process. As a general rule, lenders aren’t excited about short sales. You might have to keep after them and make multiple calls to get the application and move forward.
Prepare the Sales Contract
The next step is to nail down a bona fide offer—a signed purchase agreement or sales contract between a buyer and seller. The lender needs something concrete to approve…or reject.
The contract should clearly and unequivocally state that the deal is contingent upon the lender’s approval. You might also want to include a copy of the listing agreement showing the commission due to the real estate agent upon sale, and proof of the buyer’s ability to purchase, such as a pre-approval letter from his lender or proof of cash deposits in an account.
An arm’s-length affidavit is also often required. This indicates that there’s no pre-existing relationship between the buyer and seller, so the proposed sales price is truly indicative of fair market value. The homeowner isn’t trying to help out the buyer by selling the property for a song.
Assemble the Short Sale Package Together
The more comprehensive your short sale package is, the better. Gather up and photocopy all the information you’ve gathered and submitted it to the lender.
The meat of your short sale presentation should back up the statements made in the hardship letter. Prepare a thorough and detailed set of documents and financial data to support the claim that a short sale is a good solution for the lender. You can use bank statements, proof of income (or lack thereof), proof of the value of any assets, credit card or other loan statements and tax returns. Additional examples include proof of a death in the family or illness. Be sure to use anything and everything that will substantiate the information outlined in the letter.
The CMA, BPO, or appraisal should indicate that the home isn’t going to sell for as much as or more than the short sale offer in the current market.
The Loss Mitigator Reviews Your Short Sale Package
The lender’s loss mitigator will evaluate your numbers if you prepared a thorough short sale package, and he’ll be gathering some numbers of his own. His goal is to ensure that this indeed is a situation that can best be saved by a short sale.
He’ll probably get a title report to ensure that no other liens are present against the property. He might want to meet with the broker who provided the BPO—another reason why those consent-to-talk letters are so important.
Don’t expect the mitigator to rush through this process. Remember, the bank doesn’t want this short sale as much as the buyer and seller do. There’s really no incentive for the mitigator to wrap up the review as quickly as possible. One or both agents involved in the short sale must typically stay on top of this part of the process with regular phone calls and queries.
Negotiate the Short Sale and Go to Closing
Ultimately, one of four things will happen after the loss mitigation review. The lender will approve the offer and issue a letter outlining its terms for the deal or it will reject the offer outright. But it might also reject the offer contingent upon certain circumstances that can be remedied, indicating that it will approve the deal if the remedies occur.
Finally, the lender might do nothing at all. It’s acceptable to keep hammering away until you get an outright rejection or at least some type of definitive response.
If the sale is a go, the lender should issue a preliminary settlement statement, detailing the date of closing, all closing costs, and if there are multiple lienholders, how much money each is to receive from the sale.
If there are no other lienholders, the lender collects all the proceeds at closing. The seller does not receive any money from the deal. Remember, by definition, she still owes a balance on the loan against the short sale property.
The seller should make sure that she gets a statement waiving the lender’s right to pursue a deficiency judgment against her if possible, relieving her of any liability for paying off the mortgage balance after the sale.
What’s in It for the Lender?
Lenders are sometimes overwhelmed with foreclosure properties, and they tend to be a little easier to deal with on short sale offers when this occurs. A successful short sale helps the lender to avoid yet one more foreclosed home on their books and all the cost and time involved in maintaining that home until its potential sale. A short sale can also reduce the likelihood that the borrower or homeowner will trash the property on his way out the door.
In a forbearance agreement, the loan owner (“lender”) agrees to reduce or suspend your payments for a set amount of time. With a repayment plan, the lender temporarily increases your monthly payment by adding part of the overdue amount to your current payments so that you can get caught up on the loan. In a modification, the lender typically lowers your monthly payment and brings the loan up to date by adding any past-due amounts to the balance of your debt.
How Forbearance Agreements Work:
While a loan modification is a permanent solution to unaffordable monthly payments, a forbearance agreement provides short-term relief for borrowers.
With a forbearance, the lender agrees to reduce or suspend mortgage payments for a while. During the forbearance period, the servicer (on behalf of the lender) won’t initiate a foreclosure. In exchange, the borrower must resume making the full payment at the end of the forbearance period, and typically get current on the missed payments, including principal, interest, taxes, and insurance.
You can usually:
The specific terms of a forbearance agreement will vary from lender to lender.
If a temporary hardship causes you to fall behind in your mortgage payments, a forbearance agreement might allow you to avoid foreclosure until your situation gets better. In some cases, the lender might be able to extend the forbearance if your hardship isn’t resolved by the end of the forbearance period to accommodate your situation.
In a forbearance agreement, unlike a repayment plan, the lender usually agrees in advance for you to miss or reduce your payments.
Coronavirus Mortgage-Payment Relief Under the Federal CARES Act
Under the federal “Coronavirus Aid, Relief, and Economic Security Act” or the “CARES Act” (H.R. 748), which President Trump signed into law on March 27, 2020, homeowners with federally backed mortgage loans, regardless of delinquency status, can get a forbearance by simply asking and affirming a financial hardship caused by COVID-19. The forbearance period will last up to 180 days and can be extended up to 180 additional days (360 days, or around 12 months, total).
Cash for keys in real estate refers to the timely and cost effective removal of a property’s inhabitants in exchange for cash considerations. It is ultimately nothing more than an alternative to a landlord’s worst nightmare: the eviction process. Understandably, most landlords will do anything they can to avoid initiating the foreclosure process, as it’s incredibly costly and time consuming. For all intents and purposes, the eviction process is rarely worth the anguish it causes most buy and hold investors. As a result, savvy landlords have come up with an alternative: cash for keys. In its simplest form, cash for keys is exactly what it sounds like: landlords will literally pay unwelcome tenants cash to incentivize their departure.
Most investors have found that it is easier to remove unwelcome tenants with a small sum of cash, and surprisingly cheaper. That’s right, it may literally pay to offer tenants money in return for a seamless exit. Cash for keys will, therefore, witness savvy real estate investors actually offer their unwelcome guests cash in return for the keys.
Consider the alternative: eviction. The eviction process has become synonymous with extended periods of litigation and expensive bills. What’s more, the tenant may continue to reside in the property while the proper authorities do their best to decide the fates of each party involved in the matter. In addition to legal fees and prolonged litigation, landlords may not be able to collect rent; the whole thing is a passive income investor’s nightmare.
HOW DOES A “CASH FOR KEYS AGREEMENT” WORK?
A successful cash for keys agreement isn’t the result of a quick discussion with tenants, but rather a well-devised strategy. In other words, you can’t simply show up on your tenant’s doorstep with a stack of money and ask them to leave. Instead, you will need to take several calculated steps, the first of which will require you to take drastic measures.
The first thing landlords should do, at least if they hope to get the tenant to agree to a cash for keys contract, is to send out an official eviction notice. That’s not to say you intend to evict the tenant (as I already alluded to, the whole idea between a cash for keys contract is to avoid the eviction process), but rather that you mean business. An eviction notice has a way of capturing the attention of tenants. Of course, if you threaten to evict your tenant, you must have legal cause. Do not threaten tenants with eviction if you don’t have a good argument for doing so. If you aren’t sure what constitutes a cause for eviction, here are some of today’s most common reasons tenants may be evicted:
Only once you are certain you are legally able to evict a tenant should you threaten them with one.
Again, the eviction notice is nothing more than to let the tenant know you are serious. The idea isn’t to evict them, but rather to give them an ultimatum. Once you are certain they know you are serious, proceed to offer them a better way out: cash for keys. The idea is to provide the difficult tenant with the “lesser of two evils.” If you have done your job, it should be more appealing for the tenant to take the cash in return for the keys than to wade through the eviction process.
Provided the tenant agrees to a cash for keys contract, the next step is to get their acceptance in writing. According to FitSmallBusiness, the next step is to “create or download a written agreement that spells out the details you agreed to. Make sure it’s as detailed as possible and bring two copies, one for them and one for your records.”
It is worth noting that the legal implications can’t be underestimated. The agreement you draw up carries significant weight, and is best left to a professional. I, therefore, recommend hiring a real estate attorney to draft your final cash for keys agreement.
WHEN IS A CASH FOR KEYS AGREEMENT USED?
While a cash for keys agreement may be enacted for a number of reasons, there are generally four scenarios in which it makes the most sense for landlords:
5 TIPS FOR A SUCCESSFUL CASH FOR KEYS AGREEMENT
5 MISTAKES TO AVOID IN A CASH FOR KEYS AGREEMENT
Cash For Keys Summary
Initiating a cash for keys agreement isn’t necessarily an investor’s favorite strategy to remove tenants, but it may be the easiest and most cost effective when eviction becomes a reality. Once again, no landlord will be thrilled with the idea of paying unwanted tenants to leave, but it may be the best available option at their disposal.
Full Scope Civil Litigation
Litigation gives everyday U.S. citizens a chance to speak their truth and defend their rights. A judge and jury is the cornerstone of our legal system and paves the way for due justice.
But effectively preparing for trial requires the expertise of a well-trained and qualified litigation attorney. We have the experience and resources necessary to faithfully stand by your side from the moment the complaint is first filed until the final statements are paid.
Settlement Negotiations
Most US cases never actually make it to trial, and by all means, they shouldn’t. Successful negotiations save everyone time and money while giving both parties some say in the outcome.
We have the patience, persistence and experience necessary to effectively negotiate the settlement of your case so you can move on with your life.
Mediation and Arbitration
Mediation and arbitration allow disputing parties to work with a neutral and expert third party to help facilitate fair negotiations and constructive conversations. Often used as a last ditch effort prior to commencement of a trial, mediation should be approached with organization and a clear set of goals in mind.
Our experts will make sure you get a fair outcome from mediation and arbitration.
