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Loan Modification
This involves an application process with your lender(s) to reduce your interest rate and even principal balance so your monthly payment can be reduced. Each lender and investor have their own guidelines on the approval of the loan modification application. There are many government programs available in California and also federal programs, to help borrowers workout their hardship and still keep their home, from Unemployment Mortgage Assistance (UMA), Mortgage Reinstatement Assistance Program (MRAP), Principal Reduction Program (PRP), Home Affordable Modification Program (HAMP), and Home Affordable Refinance Program (HARP), etc.
Keep in mind once you miss your mortgage payments, sooner or later your lender will file for foreclosure (Notice of Default to Notice of Trustee Sale). Even if you have an on-going loan modification application and your lender is “supposed to” keep track of the foreclosure date, there are many cases the homes still ended up foreclosed anyway because the lender’s foreclosure department did not communicate with their loan modification department. It is easy to imagine how likely this could be the case when your lender handles hundreds of thousands of files at the same time. We provide FREE Foreclosure Tracking Service to help you keep track of your foreclosure sale date so you can have peace of mind that someone is looking out for you instead of relying on your lender alone. Calls us at 310-562-0310 or e-mail us to be added to our list of properties on foreclosure track.
Remember Loan Modification programs or Refinance are not guaranteed. In fact, most applicants who apply for loan modification are disappointed with the outcome after several months of waiting on approval. Statistically speaking, the chance of having loan modification approved with satisfying terms is extremely low, at about 5-10% only. Although Principal Reduction is most desirable to most applicants, despite the availability of some programs that some lenders may participate, the chance of having principal reduction approved is close to 0%.
Below is the link to the California Programs for more information:
KeepYourHomeCalifornia.org
Below is the link to the federal programs for more information:
MakingHomeAffordable.gov
Negotiating a settlement with your 2nd lender
Sometimes your hardship may be limited to only the 2nd lender, or Home Equity Line (HELOC), and not the 1st mortgage lender. In some cases, you may be able to work out the loan modification with your first lender but you are unable to get your 2nd lender to modify your loan. In this case, there is a chance you may be able to reach settlement with your 2nd lender to remove their lien on your property.
When your home is upside down, meaning your home value is lower than the total mortgage balance combined so there is no equity left, your 2nd lender usually encourages you workout a settlement with them, with a one-time payoff between 15%-40% of the current principal balance. If you are able to make this payoff, the lien is removed and you will no longer need to make any 2nd mortgage payment ever. However, you may see the challenge of this settlement. If you are able to come up with the cash payoff, or able to borrow from friends and family for this payoff, then you are really not in that bad of a financial hardship in the first place.
If you are unable to tap into savings or other resources to make this one-time payoff to your 2nd lien, but you just HAVE TO keep your home for whatever reason beyond more than saving your credit, you may consider filing Chapter 13 bankruptcy to wipe out your 2nd loan. The fee for filing bankruptcy should be much lower than the settlement amount demanded by your 2nd lender so it becomes more feasible for most people. However, the impact of filing bankruptcy obviously has its own downside on credit, loan application, and even employment application, etc. Attorneys will not recommend you to file bankruptcy unless you absolutely have to. So, if you do have very very compelling reason to file bankruptcy in order to get rid of your 2nd loan, you should consult a bankruptcy attorney. We work with several highly competent bankruptcy attorneys, you can visit the Bankruptcy Attorney page for more information.
Get your FREE Consultation on Short Sale and Loan Modification and FREE Short Sale Service by calling 310-562-0310 or click here
The above information was gathered by our research and work experience as real estate agents working on distressed properties. Please note we are not attorneys or accountants and we do not provide legal or tax advises. Please consult your own attorney and accountant for legal and tax advises.
