Residential Loan Workout
A loan workout is plan of how to restructure debt in the face of foreclosure. It is also called loan modification or mortgage modification. In loan workouts, the home owner sits down with the lender to discuss modification of terms to the loan in order to make monthly payment minimums and sidestep foreclosure. The parties must mutually agree on modified loan terms for the loan workout to be successful.
What does the lender look for?
The lender will examine why the homeowner is unable to pay the loan and the likelihood that he or she will be able to pay if the terms are modified. Specifically, the lender will look at factors including:
• the nature of the hardship that has led to the homeowner’s inability to pay
• the total amount that is still owed on the loan
• how much equity has been earned on the property
• whether the homeowner has future financial prospects
• whether foreclosure or a loan workout would be more optimal for the lender.
In what ways can a loan be modified?
• missed payments can be added to the existing loan balance
• the lender may agree to change the interest rate, even making an adjustable rate into a fixed rate
• the total number of years allotted to repay the loan may be extended
Loan Workout Agreement
A workout agreement is a mutual agreement between a lender and borrower to renegotiate terms on a loan that is in default. Generally, the workout includes waiving any existing defaults and restructuring the loan’s terms and covenants. A workout agreement is only possible if it serves the interests of both the borrower and the lender.
How Loan Workout Agreements Work
A workout agreement intends to help a borrower avoid foreclosure, the process by which the lender assumes control of a property from the homeowner due to a lack of payment as stipulated in the mortgage agreement. Workout agreements apply to liquidation scenarios as well. A business that becomes insolvent and cannot meets its debt obligations may seek an arrangement to appease creditors and shareholders The renegotiated terms will generally provide some measure of relief to the borrower, in terms of reducing the debt-servicing burden through accommodative measures provided by the lender. Examples of relief can include such as offer as extending the term of the loan or rescheduling repayments. While the benefits to the borrower of a workout agreement are obvious, the advantage to the lender is that it avoids the expense and effort of payment recovery efforts, such as foreclosure.
When Negotiating Workout Agreements…
For borrowers, general best practices to consider when negotiating, or thinking about negotiating, a workout agreement with a lender includes the following.
• Provide ample notification: Giving lender advance notice of an inability to meet any and all debt obligations is a courtesy to extend. Most lenders will likely be more accommodating when borrowers seek a workout agreement if they are aware that default could be an issue. Providing notice engenders confidence that the borrower is on top of their loan management and interested in being a reliable business partner that the lender can trust.
• Workout agreement terms will vary: A lender is not under any obligation to restructure the terms of a loan, so it is incumbent on the borrower to be honest and direct. However, the lender will likely want to limit their losses and maximize recovery of the loan they granted, so it is likely in their best interest to help the borrower, to the extent that they can extent.
• There are tax considerations as well: Any type of adjustment to the terms of a loan in a workout scenario could affect the borrower’s tax situation. Typically, the Internal Revenue Service (IRS) treats any loan reduction or cancellation as taxable income.
Your lender may give you a fixed amount of time to repay the amount you are behind, plus any late fees, by adding a portion to your regular monthly payment. This is a good option if you only missed a few payments. If the borrower has equity in the home and income sources and expenses haven’t significantly changed, the borrower may be able to refinance with a more affordable mortgage.
Your Repayment Plan
Your lender may agree to suspend your payments for a period of time. At the end of this time, you will resume your regular monthly payments, and you may be required to either make one lump sum payment or additional partial payments. This may be a good option if you have a temporary reduction in income.
Getting A Loan Modification
Loan modifications are designed for a borrower that can’t afford a repayment plan. In a modification, the lender actually adjusts the terms of the loan to make it affordable on a temporary or permanent basis. These modifications may include:
• Extending the term of the mortgage to cut the monthly payments,
• lowering the interest rate to cut the monthly payments,
• rolling all or part of the past due amounts into the loan and re-amortizing the new balance to allow payment of the past due debt over time,
• changing an adjustable rate to a fixed rate of interest, and/or
• conditionally or unconditionally forgiving a portion of the debt. A lender is more likely to be receptive to this where the borrower has no equity or negative equity in the house, but wants to continue living there.
Forbearance To Allow Sale
If a borrower has equity in the house, and has experienced financial problems that appear long term in nature thereby preventing him or her from bringing the mortgage current even with a modification or repayment plan, the borrower may be able to get the lender to agree not to exercise its legal right to foreclose on a mortgage for a short period of time. This type of forbearance agreement would allow the borrower time to sell the house and recoup the equity. It would prevent the more serious damage to the borrower’s credit standing that a foreclosure would bring. The lender would benefit from avoiding the time and expense to go through the foreclosure process. If the borrower can’t convince the lender to give a forbearance period, and does not want to be forced into a fire sale, the borrower may also attempt to get a home equity line of credit to keep mortgage payments current until the sale.
Pre-foreclosure Or Short Sale
If a borrower owes more than the home is worth, it is sometimes in the lender’s best interest to accept a short payoff on the mortgage balance. This saves having a non-performing property on the lender’s books that continues to lose value in today’s declining market. A short sale will have less damaging effect on the borrower’s credit report as he or she is doing something to meet their obligations to the lender. In a short sale, the lender releases its mortgage and lets the borrower sell the house for less than the outstanding loan amount and takes the proceeds. Lenders may be willing to do so because they often lose less on these deals than they do in foreclosures. The lender will also avoid the additional expenditure of resources and ownership liability risk associated with a foreclosure. It is important to determine if the lender will completely release the borrower from any deficiency after the sale. The lender is not required to do so, and it is a common misconception that a short sale completely discharges the borrower’s obligations.
Deed In Lieu Of Foreclosure
A borrower as a final resort short of foreclosure can offer to sign over title to the property to the lender without the expense of foreclosure in exchange for being released from the mortgage obligation. The lender will then sell the property and retain any proceeds. This keeps the borrower from having to pay off the mortgage and the lender avoids the time delay and further legal costs to complete a foreclosure. The deed in lieu eliminates the redemption rights of the borrower and his or her right to control the property (and the resulting risk of the property condition and/or market values deteriorating) during this time. This may also allow the lender to avoid a bankruptcy by the borrower. However keep in mind that the lender does not have to accept a deed in lieu of foreclosure; the lender may require that the borrower try to sell the home first through a short sale. Always remember the lender has the right to foreclose on the property however there are procedural guidelines and notice requirements to the borrower which must be met in order to do so. In the event these aforementioned loss mitigation options fail, a borrower should consider foreclosure defense representation and possible bankruptcy options. It is advisable to consult with an attorney or housing counselor to discuss your options.
Overview of Utah Housing Market
Over 2019, Utah boasts the fastest growing population of any state, which led to a housing shortage in the Salt Lake City area. That makes for a quick real estate market and high prices, though you can avoid competing for housing if you look outside the state capital.
Factors in Your Utah Mortgage Payment
Two costs you’ll want to factor into your budget (on top of your mortgage payment) are property taxes and homeowners insurance. As long as you own the property, you’ll be responsible for those two recurring costs. The good news for homeowners is that Utah’s property taxes are among the lowest in the country, with an average effective property tax rate of just 0.66%. However, your primary residence must be in the state for you to access those low rates. Homeowners are only taxed on 55% of their home’s assessed value as long as the property they claim is their primary residence. Most property taxes in Utah are set at the county level. You home is appraised by a county assessor at least every five years. This determines the market value of your home, which is what your tax rate is based on. Within your county, there are different levels of government that also have the authority to level taxes, such as cities, school districts and water districts. In addition to the automatic 45% exemption, homeowners who are low income, disabled veterans, blind or active service members serving outside the state may qualify for further property tax exemptions. Another cost you’re responsible for is homeowners insurance. Utah, just like with property taxes, is a relative bargain for property owners. It’s one of the three-lowest in the nation in terms of average insurance premiums. Only Idaho and Oregon have cheaper rates. The average homeowner pays just $614 per year in homeowners insurance in 2019, according to our Most Affordable Places to Live study. Luckily, you won’t have to worry about hurricanes or coastal erosion with this landlocked state. However, you might still want to look into additional coverage for flood damage. Some areas in Utah experience a monsoon period during the summer and fall, which means seasonal flash flooding. Unfortunately, most homeowners policies exclude flood damage coverage. You have to purchase a separate policy, which you can find on through Utah insurance agencies selling National Flood Insurance Program policies. In addition to monsoons, the state also experiences wildfires which can cause widespread evacuations and home damage. You can find out more on the Utah Insurance Department website. A financial advisor in Utah can help you understand how homeownership fits into your overall financial goals. Financial advisors can also help with investing and financial plans, including retirement, taxes, insurance and more, to make sure you are preparing for the future.
Costs to Expect When Buying a Home in Utah
A one-time cost you’ll have to add to your expected home-buying budget is a home inspection. While home inspections aren’t mandatory, they are highly recommended and are beneficial to you as the buyer. It’s your chance to find out the condition of the home before you occupy it, and can save you money in the long run if underlying problems are found (and can be mitigated or negotiated) before you occupy the property. Home inspections in Utah will cost you around $300 to $400, and generally include plumbing, electrical, roofing and basement inspections. For further tests, you’ll have to pay extra, but can be helpful if you’re suspecting that the home has underlying problems. Some of these additional tests include radon, methamphetamine, mold and termite detection tests. Another one-time cost in the home buying process is actually a bundle of service fees and charges that are required by your mortgage lender, county and other various entities. These are known as closing costs. The exact total you’ll be responsible for paying depends on a number of factors including home price, mortgage lender and property location. However, the typical homeowner in Utah can expect to pay 2% of their home’s value in closing costs.
Mortgage Legal Issues in Utah
Utah doesn’t have the same explicit buyer protections as some states, such as California. However, that doesn’t mean a homebuyers are out of luck. In Utah, the only explicit disclosure sellers have to make is whether methamphetamines were used, stored or manufactured in the home. Federal mandates include disclosures for lead paint disclosure for any home built prior to 1978. However, Utah real estate agents generally have sellers fill out a property disclosure that helps prevent liability by making buyers aware of any problems prior to closing on the property. Taking a look at Utah foreclosure laws, you’ll find that the state mostly operates under title theory. This means the property title will remain in trust until the loan is paid in full. Title theory generally means non-judicial foreclosure, as the title is secured by a “deed of trust.” Generally, deeds of trust contain power of sale provisions, which is how the loan is sped up and foreclosed upon outside of court. Non-judicial foreclosure is a speedier process than judicial foreclosures. The general timeline starts about 36 days after a missed loan payment when a lender calls. Before 45 days, the borrower will receive a letter regarding the missed payment. During this time, the borrower can attempt to arrange a loan modification or pay the missed payments. If the borrower doesn’t pay the owed payments, after 120 the foreclosure can start. A Notice of Default is filed. The borrower has 90 days from the Notice of Default before the foreclosure sale notice. During this time, generally the borrower can “cure” the note by paying what’s due. Utah does allow lenders to sue for deficiency payment within three months of the foreclosure sale. What this means is that if the property sold for less than the loan owed, the lender can sue for the difference between the sale price and fair market value. Homeowners facing foreclosure can contact Utah Foreclosure Prevention Taskforce for free counselling and resources. As of May 2016, Utah legislature enacted two bills regarding foreclosure and eviction law. The first bill includes a number of updates to trustee requirements, as well as an update to Utah law regarding “dual-tracking.” Federal laws prevent mortgage lenders from the practice which was foreclosing on a borrower while simultaneously considering a loan modification. This update to Utah law brings the state into conformance with the federal consumer protection. The second bill protects tenants renting a foreclosed home. Under the bill, the tenants can continue to rent up to 12 months after the sale, as long as the rental agreement was agreed upon prior to the Notice of Default recording.
Mortgage Law in Utah
A loan is termed as “mortgage loan” when a piece of real property is kept to the lender in form of security for the sake of repayment of the loan. This makes the loan a “secured debt.” This kind of financial obligation is usually backed by the mortgage note involving contract between the two parties and a mortgage. The real property should be stated in the public records. The one who offers the property and signs in for the loan is termed as mortgagor and the one lends the loan and accepts the mortgage is termed as mortgagee. If the mortgage loan is unpaid—then the mortgagee is bestowed with the rights of real property and thus the rights of mortgagor are closed out. This assignment of mortgage loan is put in to effect by the written documents and further records are provided for the notice of this assignment. Ordinarily when this deed or the mortgage is paid then mortgagee has to fulfil the deed of assignment to exhibit that the property is no longer lien on the trust. On the general notice, this is done in written documents and furthermore records are provided for the notice. If this satisfaction of deed takes more than the require time then mortgagor even can sue for the property for the damages that might had incurred during the process by not fulfilling the statutes of lien of the properties and all. The name of this kind of satisfaction is variegating over the legislation of states. Some may call it just satisfaction, but there are other names too like Reconveyance, and cancellation. Some may call it marginal satisfaction as in this scenario lender has to go the public record office physically and has to sign on the satisfied to be recorded mortgage—which is later attested by the clerk.
Loan Workout Attorney
When you need a loan workout attorney, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506