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Alternatives To A Modification Of Your Home Loan

When a homeowner decides that it is no longer feasible to modify a home loan and continue living in a particular home, foreclosure is not necessarily inevitable. Rather, it's simply time to consider other alternatives to foreclosure that allow homeowners to mitigate a seemingly hopeless situation.

One alternative for borrowers suffering temporary hardships is forbearance of the loan by a lender. In this situation, the lender agrees to forego or not pursue foreclosure for a predetermined time period. Forbearance of a loan typically reduces monthly mortgage payments, provided some repayment plan is established for the amount of the discount or reduction. To qualify for a forbearance, the borrower's hardship must, in fact, be temporary like an illness or injury that prevents work for some finite duration.

A Chapter 13 bankruptcy which reorganizes debts and liabilities is an alternative since it may help delay foreclosure until some viable solution is arranged, such as obtaining a loan from a new lender. While Chapter 13 debtors may not modify the terms of a mortgage loan in a Chapter 13 bankruptcy case, they may reorganize mortgage debt by paying any mortgage loan arrearages in a Chapter 13 plan.

For homes that are "underwater," worth less than the total balance of a mortgage loan, a short sale may be a good option. A short sale is when the lender agrees to release a borrower from a mortgage in exchange for the proceeds from the sale of the home. Borrowers have no legal entitlement to a short sale. The terms of the short sale must be negotiated and approved by the mortgage lender, which holds most, if not all, of the bargaining power in this situation.

No Florida statute prohibits a lender from pursuing a deficiency judgment following a short sale, although the deficiency is limited to the difference between the outstanding debt and the fair market value of the property if the property is owner-occupied and residential.

Another option is a deed-in-lieu of foreclosure (DIL). A deed in lieu of foreclosure applies to a situation where a lender agrees to accept a deed to the property "in lieu of foreclosing" to obtain title to the subject real property. Before a lender accepts a deed in lieu of foreclosure, it will likely require that the house is on the market for some period of time, typically three months.

In some cases involving DILs, the lender may require the homeowner to vacate the property, sometimes in return for a cash payment to the homeowner. Similar to short sales and loan modifications, a homeowner must be approved by a lender. Also, a lender may pursue a deficiency judgment after a deed-in-lieu foreclosure.

Effective July 1, 2013 in Florida, a lender has one year to pursue a deficiency judgment after accepting a deed in lieu of foreclosure. Also, the period of time in which the lender may seek a deficiency judgment is reduced from five years to one year for residential properties with no more than four dwelling units.

To avoid a deficiency judgment in either of the above situations, any agreement for a short sale or deed-in-lieu of foreclosure must expressly state that the lender waives its right to the deficiency. The qualified and experienced attorneys at Loan Lawyers may help any borrower negotiate an agreement which waives the lender's right to a deficiency judgment.

At Loan Lawyers, our South Florida consumer rights and debt defense attorneys can help individuals determine their options regarding loan modifications. For a no-risk, no-cost consultation, contact one of our South Florida consumer defense attorneys today by calling (888) FIGHT-13 (344-4813).
  • ABC News
  • American Civil Liberties Union
  • CBS 4
  • CNN
  • Daily Business Review
  • Florida Trend's - Florida Legal Elite 2014
  • Florida Trend's - Florida Legal Elite 2014
  • National Association of Consumer Advocates
  • National Association of Consumer Bankruptcy Attorneys
  • NBC News
  • National Consumer Law Center
  • The New York Times
  • Avvo
  • Avvo
  • Avvo
  • Avvo
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