Commonly, homeownership represents the biggest investments for consumers. Throughout the course of homeownership, there are a number of terms that are important to know in order to help to protect that investment. Here are a few:
- Mortgage vs. Note: Both of these documents are signed together at closing and may seem indistinguishable; however, there are very important legal differences between both. The simplest distinction between these two legal documents is that the mortgage follows the land and the note follows the individual. Stated another way, the mortgage allows the lender to pursue the property in the event of a non-payment or other default condition, while the note allows the lender to sue the borrower personally in order to collect on the outstanding balance of the defaulted mortgage. This distinction becomes particularly important for borrowers who received a Chapter 7 Bankruptcy discharge as such borrowers may have discharged their personal obligation under the note to repay the lender. That does not mean that the lender cannot foreclose on the home, however. It just means that the lender cannot sue the borrower personally in order to collect the outstanding mortgage balance.
- Principal Forgiveness vs. Deferred Principal: Principal forgiveness is almost every borrower’s dream as it means that the lender is “writing off” off a portion of the loan. Therefore, the borrower is not required to pay the portion of the mortgage that is written off. Conversely, the borrower will be required to repay deferred principal. Commonly called balloon mortgages, the lender in a deferred principal payment arrangement agrees to wait to collect a specified amount of the mortgage until the end of the mortgage term. At that time, the deferred principal is due in more likely than not, a lump sum payment.
- Forbearance vs. Mortgage Modification: Forbearance is an agreement that the lender makes with the borrower to not seek to collect the full monthly mortgage payments for a short period of time. The lender more commonly considers forbearance where there is a temporary condition that affects the borrower’s ability to pay such as illness, natural disaster and temporary job loss. Any offer of forbearance should be reviewed in detail to ensure that lender will not be seeking payment in lump sum immediately upon the expiration of the forbearance period. In modifications, on the other hand, the lender is agreeing to accept a permanent change in the mortgage terms. These changes may take the form of a change in the monthly mortgage payment amount or duration. Mortgage modification are commonly not granted unless the borrower is in default on the mortgage by about 90 days.
For more information about loan modifications, please visit our website here.
Loan Lawyers has helped over 5,000 South Florida homeowners and consumers with their debt problems. We have saved over 1,800 homes from foreclosure, eliminated $100,000,000 in mortgage principal and consumer debt, and have collected millions of dollars on behalf of our clients due to bank, loan servicer, and debt collector violations, negligence and fraud. Contact us for a free consultation to see how we may be able to help you.