A bad economy can have a devastating effect on the value of a home, more so after the market has peaked as what happened during the recent real estate market collapse. When home values are less than the original mortgage amount, which is what is happening in Long Island, this becomes known as an underwater mortgage. Exacerbated by a job loss or a medical emergency, an underwater mortgage can make many homeowners vulnerable to foreclosure.
A Long Island foreclosure lawyer can help a troubled homeowner facing foreclosure by exploring options in loan modification. A loan modification is a permanent restructuring of the mortgage where one or more of the terms of a borrower’s loan are changed to provide a more affordable payment. With a loan modification, the goal of the borrower is to reduce the monthly payments but this will result in a higher overall mortgage amount. This can be accomplished by a reduction in interest, conversion of a variable interest rate to a fixed interest rate, or extension of the length of the term.
To be eligible for a loan modification, the borrower has to prove that current mortgage payments cannot be made due to a financial hardship. The borrower must also complete a trial period to demonstrate that the new monthly amount is workable. To evaluate an application, the lender will require documentation in the form of proof of income, a financial statement, bank statements, most recent tax returns, and a hardship letter that a Long Island foreclosure lawyer can assist in providing to the lender on behalf of the borrower.
Under the Real Estate Settlement and Procedures Act, a homeowner may exercise legal rights with respect to loan modification. If a home was refinanced and the current mortgage was completed within the last three years, the homeowner may rescind the mortgage and annul the finance charges upon failure by the lender to furnish expedient announcements to the homeowner. A Long Island foreclosure lawyer should be consulted about this matter.
In more drastic circumstances, a forbearance agreement may offer temporary relief for borrowers. The lender may consent to a reduction or suspension of mortgage payments for a particular duration and abstain from further foreclosure proceedings during the forbearance period. In return, the borrower will agree to continue with the payment at the end of the forbearance period, including additional amounts covering missed payments to make the account current. A Long Island foreclosure lawyer will also ensure that payments regarding the principal, interest, taxes, and insurance are all included in the forbearance agreement.
The borrower must be reminded that a forbearance agreement is only an interim respite due to a momentary hardship that has caused a lapse in mortgage payments. Nevertheless, it allows avoidance of foreclosure until such time that the borrower’s standing improves. In some cases, depending on the ability of the Long Island foreclosure lawyer, the lender may be lenient enough as to extend the forbearance period if the adversity experienced by the borrower is prolonged.
On the other hand, a repayment plan allows a borrower to make reduced mortgage payments over a specified length of time with the end in view of making the account current after the given period. The idea is to spread the past due amount over several months so that payment is easily affordable but consistent with the overdue amount added to each of the monthly payments. The length of payment will vary depending on each borrower’s capacity to pay but the goal is for the mortgage to eventually become current. The amount of payments and duration of the repayment plan can be influenced by the competence of the lawyer handling the negotiations.