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Loan Modifications

Loan modifications may be sought at the pre-foreclosure stage, during the foreclosure process and in bankruptcy.  The loan modification process is best when started early.

Lenders were provided a large amount of federal funds to facilitate loan modification processes.  Although lenders have been required to proceed to modify loans in good faith, the decision to allow modification is up to the lender.  However, if a lender does not offer modification of your mortgage you can consider if you are eligible to strip off the lender’s mortgage or cramdown the terms of the mortgage in a bankruptcy.

A shortsale is when a borrower obtains the approval of a lender to sell the real property to a third party at a price below the actual amount owed.  Following the shortsale transaction, a lender may forgive or waive any potential deficiency.  A lender may give the borrower an incentive to proceed with the shortsale process.  The shortsale process usually begins with the borrower providing a completed shortsale package to the lender.  The lender will need evidence that the real property has been listed with a real estate broker and may require an executed contract for purchase and sale.

A deed in lieu is when a borrower agrees to sign title of their real property to their lender.  This reduces the lender costs because a lender may not be required to file a foreclosure action.  Usually a lender will provide forgiveness or waiver of any potential deficiency.

A successful loan modification will result in new payment terms that will permit the borrower to reinstate their mortgage so they can keep their real property.  Some mortgages increase the mortgage payment term, for example from 30 years to 40 years.  Some eliminate the arrears owed.  Others reduce or fix the interest rate.  Some may even reduce principal.  A successful loan modification is always one that keeps a family in their home.

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