Since the Helping Families Save Their Homes Act of 2009 was signed into law by President Barak Obama in May of 2009, thousands of homeowners became eligible to modify their loans. While the process is frustrating and often confusing, one question that many homeowners ask is whether they should sign modification agreements if they are offered by their lender. In order to determine the answer to that question, it is important to review your options and to understand what modification will mean.
New York foreclosure laws
New York foreclosure may only proceed through a process called judicial foreclosure. This means the lender must file a paper with the court to begin the foreclosure process and may take as much as 60 days before being finalized. In addition, borrowers who face foreclosure may find even after they lose their home they are liable for the difference between the amount of money the home sold for and how much the lender was owed. Lenders may request and be granted a deficiency judgment for this difference. Borrowers can save their homes in one of two ways: Loan modification or by filing bankruptcy.
Understanding modification concerns
There are many concerns that have been expressed by attorneys, lenders and bankruptcy courts regarding loan modifications. Some of the controversial aspects of mortgage modifications include:
- Length of time – many homeowners have complained about the time it takes to get a modification approved
- Rules for modification – most lenders require borrowers to be in default on their loans to qualify for modification
- Cram-down rules – a bill that would allow judges to reduce the principal owed by borrowers was soundly defeated which many saw as a win for Wall Street and a loss for consumers
Lenders are not all equal
Unfortunately, not all lenders are willing to offer loan modification agreements, and those that do often have clauses in the contracts that are less than consumer-friendly. Whenever a loan modification agreement is offered, it is important to carefully review the contract and understand how the language will impact you over the longer term. Many consumers are not aware that once you have modified your mortgage, you may be ineligible for a future modification which could create additional problems.
Determining the benefits
Borrowers should carefully review all modification documents and check for language that eliminates any liability for the lender as this can cause problems later. In addition, the terms of the modification should be reviewed for the following:
- Past due balances – Some lenders will simply change the loan documents to add the past due balances and fees to the end of the loan. For most borrowers, this does not change the amount owed, it simply puts the balance out further.
- Interest rate reductions – Lenders may offer a reduction in interest rates but may not do anything to modify the principal amount of the loan. This will reduce monthly payments but may extend the life of the loan.
- Principal write down – True loan modifications will include some write down of principal balances and perhaps an interest rate reduction. This type of modification is usually most beneficial for borrowers.
Determining whether or not a modification agreement should be signed is a complicated question with no easy answer. In most cases, borrowers who are facing foreclosure are advised to be in contact with a bankruptcy attorney who can not only help them with the foreclosure process but can evaluate loan modification documents to help borrowers understand what they are signing.