Forbearance Of Real Estate Loans

Forbearance Of Real Estate Loans

Forbearance, in the context of a mortgage process, is a special agreement between the lender and the borrower to delay a foreclosure. The literal meaning of forbearance is “holding back.” When mortgage borrowers are unable to meet their repayment terms, lenders may opt to foreclose. To avoid foreclosure, the lender and the borrower can make an agreement called “forbearance.” According to this agreement, the lender delays its right to exercise foreclosure if the borrower can catch up to its payment schedule by a certain time. This period and the payment plan depend on the details of the agreement that is accepted by both parties. Historically, forbearance has been granted for customers in temporary or short-term financial difficulty. If the borrower has more serious problems, e. g. the return to full mortgage payments in the long term does not appear sustainable, and then forbearance is usually not a solution. Each lender is likely to have its own suite of forbearance products.

Types of forbearance

Examples of the types of forbearance which lenders may potentially consider include:
• A full moratorium on payments
• Reduced payments:
• Above Interest-Only (termed Positive-Amortising)
• Below Interest-Only (Negative-Amortising)
• Interest Only
• Reduced interest rate
• Split Mortgage
It needs to be understood that the type of forbearance being granted is being provided based on the customer’s individual circumstances. For example, borrowers in short-term financial difficulty would be more likely to be approved of either a (short term) full moratorium or negative-amortising deal than customers in long-term financial difficulty, where the lender would at all times seek to ensure that the capital balance continues to be reduced (via an amortising forbearance arrangement). Negative-amortising forbearance arrangements are only suitable as short-term deals since failure to pay interest timely and/or on the whole loan balance is effectively is additional borrowing.

A lender who grants forbearance is refraining from enforcing its right to realize interest on securities under their agreement or contract with the borrower. This is done to assist the borrower in returning to a performing financial position as well as better position the lender to realize its security should the borrower fail to perform. The borrower does not escape their debt obligations by accepting the agreed forbearance amount and/or terms. On expiry of the agreed forbearance period the loan account reverts to its original form. In many instances, upon expiration of the forbearance period, the difference between the level of forbearance granted and the full repayment (which was missed) is recalculated over the remaining term and the customer’s new repayment is based on the current loan balance, rate and term. Some exceptions to this is where a reduced rate was given (where the possible intention here to reduce the capital balance as quickly as possible, thereby reducing the loan to value) or where the type of forbearance is for the lifetime of the loan, i.e. a split loan where part of the loan is parked until the expiry date, with the intention that at that time a suitable repayment vehicle (say, sale of asset) is in place for the repayment of the loan in full.

Forbearance internationally

The term ‘forbearance’ is addressed by different names in different countries. The norms of a foreclosure agreement also vary. Borrowers can ask their lenders to make changes to the terms of their loans. Borrowers can either opt for a short-term relief by having their mortgage payment suspended for a short period of time (known as forbearance in the U.S.), or they can apply for reduced payments over the life of the loan’s term (known as loan modification in the U.S.). Lenders are required to give a particular reason as to why an application for hardship variation was being turned down by them. Borrowers are encouraged to talk to their internal complaints section of their respective bank or file a dispute.

Receiving Forbearance

Being awarded forbearance on a mortgage requires contacting the lender, explaining the situation, and receiving approval. Borrowers with a history of making payments on time are more likely to be granted this option. The borrower must also demonstrate cause for repayment postponement, such as financial difficulties associated with a major illness or the loss of a job. For example, a borrower who worked the same job for 10 years and never missed a mortgage payment during that time is a good candidate to receive forbearance following a layoff, particularly if the borrower has in-demand skills and is likely to land a comparable job within weeks or months. Conversely, a lender is less likely to grant forbearance to a laid-off borrower with a spotty employment history or a track record of missing mortgage payments.

Mortgage Forbearance Agreement

A mortgage forbearance agreement is an agreement made between a mortgage lender and delinquent borrower in which the lender agrees not to exercise its legal right to foreclose on a mortgage and the borrower agrees to a mortgage plan that will, over a certain time period, bring the borrower current on his or her payments. A mortgage forbearance agreement is made when a borrower has a difficult time meeting his or her payments. With the agreement, the lender agrees to reduce or even suspend mortgage payments for a certain period of time and agrees not to initiate a foreclosure during the forbearance period. The borrower must resume the full payment at the end of the period, plus pay an additional amount to get current on the missed payments, including principal, interest, taxes, and insurance. The terms of the agreement will vary among lenders and situations. A mortgage forbearance agreement is not a long-term solution for delinquent borrowers; it is designed for borrowers who have temporary financial problems caused by unforeseen problems such as temporary unemployment or health problems. Borrowers with more fundamental financial problems such as having chosen an adjustable rate mortgage on which the interest rate has reset to a level that makes the monthly payments unaffordable must usually seek remedies other than a forbearance agreement. A forbearance agreement may allow a borrower to avoid foreclosure until his or her financial situation gets better. In some cases, the lender may be able to extend the forbearance period if the borrower’s hardship is not resolved by the end of the forbearance period to accommodate the situation.

Mortgage Forbearance Agreements vs. Loan Modifications

While a mortgage forbearance agreement provides short-term relief for borrowers, a loan modification agreement is a permanent solution to unaffordable monthly payments. With a loan modification, the lender can work with the borrower to do a few things (such as reduce the interest rate, convert from a variable interest rate to a fixed interest rate or extend the length of the loan term) to reduce the borrower’s monthly payments. In order to be eligible for a loan modification, the borrower must show that he or she cannot make the current mortgage payments because of financial hardship, demonstrate that he or she can afford the new payment amount by completing a trial period and provide all required documentation to the lender. The documentation the lender requires could include a financial statement, proof of income, tax returns, bank statements, and a hardship statement.

When should you ask for forbearance?

Forbearance is an option for people experiencing temporary financial hardship. This might be the loss of a job, the death of a spouse or secondary wage earner, a medical hardship, or an environmental disaster. In most cases, forbearance is for borrowers who haven’t defaulted on their loan yet. If you’re already in default, there may be other options, like a modification, that will better suit your needs. If you’re 270 days or more late on your loan, forbearance may not be an option. If you’re at risk of default or are unsure that you’ll be able to make your next payment, call your lender or servicer immediately and ask what options are available. The lender or servicing company will ask you to complete a form that verifies your income, assets, and debts or liabilities. You’ll also have to provide documentation to support your financial situation. If approved, you’ll sign a forbearance plan that outlines the terms of the forbearance, whether interest continues to accrue or not, and the length of the plan. A forbearance plan can negatively affect your credit score temporarily. However, it won’t affect your score as much as delinquency or default would.

How long does it last?

Most forbearance plans cover 12 months or less, though federal student loans can sometimes be given up to 36 months for forbearance. In the private sector, or with mortgage loans, the forbearance term is typically given in three-month increments with a maximum of 12 months. The exact length of the plan is determined by your lender or servicing company. If you’re experiencing financial hardship, learn about your options for avoiding delinquency or default. Forbearance can be a helpful option, but it may not be right for you. It depends on the financial hardship you’re experiencing, the type of loan you have, and the length of time over which you need assistance. Call your lender or servicing company to discuss your options. Before entering into a forbearance agreement, make sure you understand the fine print and the long-term implications for your loan.

Strategies, Techniques and Objectives

The forbearance agreement adheres to the following principle: In exchange for economic and legal concessions, the lender obtains certain credit or collateral enhancements and/or remedies. “Concessions” include:
• restraint or forbearance from accelerating the loan and/or pursuing foreclosure and other legal remedies;
• extension of the maturity date;
• waiver of economic or covenant defaults;
• suspension of principal amortization or interest payments;
• reduction of the interest rate;
• partial release of collateral;
• release of guarantors or reduction of their obligations;
• the opportunity to repay the indebtedness at a discount;
• modification or waiver of covenants or capital requirements;
• additional loan advances; or
• an exchange of debt for equity.
“Enhancements” in favor of the lender include:
• the cure of legal, document or perfection deficiencies;
• concessions or contributions from other lenders in the capital stack;
• additional collateral from a sponsor, guarantor or equity investor;
• an additional guaranty of a previously non-recourse loan, debt service, project completion or other financial obligations;
• an increase in the scope of guaranteed obligations, or new “recourse” events;
• more loan covenants, financial reporting or monitoring rights;
• control of the project revenue (cash collateral) through a cash management agreement;
• a cash flow sweep tied to an approved budget, controlled expenditures, or a new or improved revenue stream;
• a capital infusion to stabilize the project or reduce the indebtedness;
• ratification of the loan documents and lien priority;
• waiver and release of defenses and counterclaims; and
• Consent to remedies. Negotiating the trade-off of concessions for enhancements framed against the backdrop of uncertain market conditions or asset classes (such as retail, hospitality or high-end condominium construction), rising interest rates, densification of real estate, e-commerce, scarcity of institutional replacement financing, suffocating regulation and risk retention rules, backlogged courts, crafty lender liability defenses and judicial and legislative sympathy has become an art form like never before.

Who is Eligible for a Forbearance Agreement?

The lender’s goal in offering a forbearance agreement is to improve the chances of eventually receiving full payment, or at least a more significant amount than it could expect if it were to enforce the terms of the original loan documents. Generally if the business can establish that the cash flow problem is short-term and there is a substantial likelihood that timely payments will resume within an acceptable time frame or the loan be refinanced and paid in full, the lender will be more inclined to consider forbearance. On the other hand, if it appears to the lender that the company’s financial situation will only worsen and the best chance to minimize losses comes from pursuing its legal remedies immediately, a forbearance agreement is unlikely. Thus, one aspect of the request and negotiation regarding a commercial loan forbearance agreement will involve putting together a plan to demonstrate to the lender that the problem is short-term and that the company has a plan for stabilizing its finances and making good on the loan. Driving the debtor company into bankruptcy or dissolution is bad for the lender, but so is gambling on a business that is likely to deteriorate further rather than recover.

Concessions to the Lender in a Forbearance Agreement

The lender’s primary purpose in offering forbearance is not to help out the borrower. It is to maximize the lender’s recovery of the debt. Thus, when a lender offers forbearance, it is typical to include provisions designed to assist the lender in ultimately collecting on the debt. Of course, these vary depending upon the terms of the original loan, the extent of the default, the nature of the business, the duration of the problem, and the reason for the default. However, some common provisions include:
• A requirement that the debtor company affirm the amount of outstanding debt and the default
• A waiver of defenses to repayment of the loan
• Requirements that the debtor take certain actions to improve cash flow, such as: Working with an outside consultant to increase profitability, Seeking refinancing of the loan, Listing certain property for sale, whether real estate or excess inventory
• Additional security on the loan
• A representation from the debtor that it does not intend to file for bankruptcy protection

The Dangers of Forbearance Agreements with Lenders

In situations where commercial borrowers (developers, businesses, etc.) are in default on a promissory note, the lender may offer to enter into a “forbearance agreement” or some other form of deferment agreement with the borrower. These are often presented by the lender as a generous concession on their part in order to give the borrower additional time to try to work its way out of the problem. Although, forbearance agreements may provide the breathing space a borrower needs, more often than not, they are a means by which the lender improves its position to the detriment of the borrower. Forbearance agreements are used when the borrower is already in default on the loan and the lender could immediately begin to collect against collateral and file a lawsuit for any deficiency. In a forbearance agreement, the bank or other lender offers to forbear from collection efforts for a period of time in exchange for certain things from the borrower. All forbearance agreements involve borrowers and/or guarantors giving up certain rights or property in exchange for additional time or other considerations. It is of utmost importance that a borrower, or guarantor, understands the deal they are making before signing a forbearance agreement.

Forbearance Lawyer Free Consultation

When you need legal help with a real estate forbearance lawyer, call Ascent Law for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews


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Deed In Lieu Of Foreclosure

Deed In Lieu Of Foreclosure

Foreclosure means your creditor is trying to take your house and sell it to collect the money you owe. This happens when you get behind on your payments.

Understanding the legal terms used with foreclosure can help you help yourself. Some definitions are:
• Default: A mortgage or contract is in default and foreclosure proceedings can begin as soon as you are late on one payment. Depending on the language in your loan documents, the lender may have to give notice before beginning a foreclosure.
• Delinquent Payment: A mortgage payment is delinquent when it is not made on the day that it is due or within any “grace period” allowed by the lender.
• Forbearance: An agreement where the lender agrees not to foreclose if you catch up your past due payments over a period of time. These payments will loan current.
• Foreclosure Sale: The forced sale by which your lender sells your property to pay your loan. A foreclosure sale has a bad affect your credit rating and future loans. The foreclosure sale takes place at the county courthouse.
• Deed In Lieu Of Foreclosure: To avoid foreclosure when you know you will be unable to make your payments, you may consider handing over your deed to the lender. This is also called voluntary repossession. It means you are giving your house back to the lender. This may still affect your credit rating, but you may be able to avoid the cost of the foreclosure process.
• Judgment: This is an order saying you owe money to the lender. The lender is then able to get the money through a foreclosure sale. In a non-judicial foreclosure your lender is not required to obtain a judgment before holding a foreclosure sale.
• Deficiency Judgment: A lender may be able to obtain additional money from you to recover there losses if the house sells for less than loan and cost to recover the money.

How can I avoid foreclosure?

To avoid foreclosure, pay your monthly mortgage. The lender does not want to foreclose on your property because it takes time and money to go through the process. If you cannot make a payment, it is important to contact your mortgage company to agree to make payments. Be sure to get any payment plan in writing. Discuss with your lender how much you owe and how long it will take to catch up on any missed payments. Be prepared to answer
• why you fell behind on your payment,
• what your current financial resources are, and
• if you have a realistic plan for repaying the money you owe.
If you go to your lender with a good attitude and are honest, your problems will likely be easier to solve. You may also ask your lender about modifying the loan. That might reduce your monthly payments to an affordable level

Kinds of Foreclosure Procedures

In Utah, there are three different kinds of foreclosures. They are trust deed foreclosure, mortgage foreclosure, and uniform real estate foreclosure.

Trust Deed Foreclosure

To foreclose on a Trust deed, a creditor must follow these steps:
• A trustee records a Notice of Default at the county recorder’s office. The Notice of Default includes the reason the trustee believes your loan is in default. A trustee must give written notice of the default to the borrower and anyone who has filed a Request for Notice. This is usually done by registered mail. Always arrange to get letters sent by registered mail. The notice is valid even if you fail to sign for it or pick it up from the post office.
• You will receive a copy of the Notice of Default. If you suspect you are in default, you should check with the county recorder to see if a notice of default has been filed. You may also file a request for notice with the county recorder’s office so you are notified of any default. A notice of default does not mean you have to move out, but you will have to move once the sale of the property is final.
• After the Notice of Default is filed, you must make a payment plan with your creditor. You will have to pay any past due payments, late fees, collection fees, and legal fees. This must be done within three months of the recording of the Notice of Default. Otherwise, after three months the trustee can issue a Notice of Sale and you will have to pay the entire loan to avoid losing your property.
• If you do not cure the default, the trustee must give written notice of the time and place of the sale. This is done by: Placing an ad in a newspaper once a week for three straight weeks. The last notice must occur more than 10 days but less than 30 days before the date of sale; and, Posting a Notice of Sale at least 20 days before the date of sale on the property and in at least three locations in the county where the property is located.

• The sale can be postponed by the trustee. Once the Notice of Sale has been issued, you can only redeem the property if you pay the entire loan balance plate fees, collection fees, and legal fees.
• If the house sold for less than what you owe the lender, they may, within three months after the sale, sue you for the rest of the debt owing and expenses. This is called a deficiency judgment. The deficiency judgment is limited to the amount the debt, interest, costs, and expenses of sale is more than the fair market value of the property at the date of the sale. The fair market value is the value of the property to the normal buyer on the date of sale. The fair market value is not always the amount the property sold for at the Trustee’s Sale.

Deeds in Lieu of Foreclosure

Sometimes lenders will opt to obtain title by accepting a deed to your property instead of foreclosing on it. In this instance, the deficiency amount is the difference between the property’s fair market value and the total amount you owe. If the agreement does not state that accepting the need satisfies any debt, the lender can seek a deficiency judgment against you for the balance.

To deed in lieu of foreclosure is when a property owner surrenders the deed to the property to their lender in exchange for being relieved of the mortgage debt. A deed in lieu of foreclosure is a potential option taken by a mortgagor, usually as a means to avoid foreclosure. In this process, the mortgagor deeds the collateral property, which is typically the home, back to the lender that is serving as the mortgagee in exchange for the release of all obligations under the mortgage. Both sides must enter into the agreement voluntarily and in good faith. This is a drastic step, usually taken only as a last resort when the property owner has exhausted all other options and has accepted the fact that they will inevitably lose their home. Although the homeowner will have to relinquish their property and relocate, they will be relieved of the burden of owing the remainder of the loan. This process is also usually done with less public visibility than a foreclosure, so it may allow the property owner to minimize their embarrassment and keep their situation more private.

Advantages of a Deed in Lieu of Foreclosure

A deed in lieu of foreclosure has advantages for both a borrower and a lender. For both parties, the most attractive benefit is usually the ability to avoid a long, drawn-out period of time-consuming and costly foreclosure proceedings. In addition, the borrower can often avoid some public notoriety, depending on how this process is handled in their area. Since both sides reach a mutually agreeable understanding that includes specific terms as to when and how the property owner will vacate the property, the borrower also avoids the possibility of having officials show up at their door to evict them, as can happen with a foreclosure. In some cases, the property owner may even be able to reach an agreement with the lender that allows them to lease the property back from the lender for a certain period of time. The lender often saves quite a bit of money by avoiding the expenses they would incur in a situation involving extended foreclosure proceedings. In evaluating the potential benefits of agreeing to this arrangement, the lender needs to assess certain risks that may accompany this type of transaction. These potential risks include, among other things, the possibility that the property is not worth more than the remaining balance on the mortgage and that junior creditors might hold liens on the property.

How to Get Out From Under a Mortgage

Of all the complexities facing homeowners, knowing how to get out from under a mortgage legally without ruining credit may seem like one of the trickiest dilemmas imaginable. Few homeowners want to consider the idea of facing debt as a result of a mortgage loan. But circumstances change; whether it’s a result of losing a job, unforeseen medical bills or any other crisis many Americans face daily, you need to be prepared for very real consequences as a result of leaving your mortgage. A mortgage is, of course, a legally binding contract. Failing to pay it off can result in seizure and foreclosure as well as ruining your credit. The easiest option would be to sell your home short and pay off the difference, simply counting your losses. There are options available for homeowners to get out of a mortgage legally without necessarily breaking a contract. Here are two legit and legal ways to escape the burden of paying your mortgage:

• Strategic Defaults and Deeds In Lieu Of Foreclosure: A strategic default typically occurs when property is worth substantially less than the value of a mortgage. This negative equity is frequently referred to as having an “upside down mortgage.” Many homeowners simply choose to stop paying off their mortgage altogether. By negotiating with a lender, you can come to a flexible arrangement in terms of foreclosure. This will usually include additional time to vacate your property (some may actually pay your maintenance fees for upkeep) as well as coming to a mutual agreement on circumstances of negative equity which can alleviate some of the resulting strain on your credit. Many lenders, however, insist on a deed in lieu of foreclosure. A deed in lieu of foreclosure involves deeding property to a lender with an agreement of forgiving either the entire mortgage loan, or at least a substantial portion of it. One reason why this is more mutually beneficial is that lenders can typically recoup their unpaid mortgage by selling the property, and upside down homeowners are no longer legally bound by a contract.

• Home Buying Companies: You may have come across references to companies that buy houses for cash in Utah, both online and otherwise. And you may have even assumed they were a scam. But they’re not. There’s numerous houses buying companies & services out there which are legitimate, reputable and more importantly, willing to help you legally leave a mortgage contract without a short sale or potentially damaging or defaulting on your credit. A home buying company is exactly what it sounds like; a licensed company (as opposed to a homebuyer) which purchases homes from both distressed or simply eager sellers. They’ve become prevalent in recent years for various reasons; both to assist homeowners with mortgage obligations, but also with the intent of renovation and resale. And while you may receive less than the initial value of your home as a result, you don’t have to pay out of pocket or negotiate with a buyer, agency or lender. Most importantly, you avoid any negative credit impact as a result of foreclosure. The main benefit to using a home buying company isn’t just avoiding ruining your credit or defaulting on your mortgage, however. Because home buying companies typically pay full cash value for a home and frequently at a profit for sellers it’s an instant solution to mortgage lender obligations. The process of foreclosure can take weeks if not months to negotiate with a lender. And while that might seem like a minor inconvenience compared to going into debt, the impact it has on your credit rating can take years to resolve. The turnaround time in selling your Utah house for cash to a home buying company is typically a week; often sooner, since many legitimate home buying companies now offer online applications. This is probably the easiest and most convenient solution for homeowners who need to resolve their mortgage contracts or liquify assets quickly and legally; allowing them to start all over again with no negative impact.

Rejected Deed in Lieu of Foreclosure

A common misconception about deeds in lieu is that the property must be in foreclosure. The lender may or may not have filed a notice of default or started judicial proceedings to foreclose but may still be open to discussing a deed in lieu. However, banks are often reluctant to accept a deed in lieu of foreclosure if the homeowner is current, but being current doesn’t mean the bank will refuse. Banks are under no obligation to accept a deed in lieu of foreclosure. Here are a few reasons why a bank might refuse a deed in lieu:

• Such action is not profitable for the bank. If a bank believes it can make more money through foreclosure, because the property has equity or the federal government is providing financial incentives to the bank to foreclose, the bank might reject a homeowner’s offer to deliver the deed in lieu of foreclosure.

• Junior encumbrances, judgments, or tax liens. Any subsequent lien filed against the property will stay with the property and become the lender’s responsibility if not released prior to the agreement for a deed in lieu of foreclosure. Typically, a property with only one loan is the best candidate. Or, a second lender might accept a deed in lieu if the first loan is current and the property is worth more than the sum of its encumbrances.

• Servicing guidelines prohibit deeds in lieu. Many loans are serviced by PSAs, and the guidelines in those PSAs might prohibit a deed in lieu of foreclosure. PSAs are required to follow guidelines and those terms cannot be altered.

• Unacceptable terms. It is also possible that the PSA might ask the borrower to make a financial contribution in exchange for acceptance of the deed in lieu, and the borrower might refuse either due to principle or lack of principal.

Drawbacks to a Deed in Lieu of Foreclosure

Always seek legal advice before jumping at the bit to give the bank a deed in lieu of foreclosure. Remember, it is in the bank’s interest to obtain the deed from you. It might not be in your best interest to comply. In some ways, it can be argued that giving a bank a deed in lieu of foreclosure is just a step above walking away from your mortgage. Following are a few ways you could be affected with a deed in lieu of foreclosure:

• It will affect your credit: A deed in lieu will show up on your credit report. Some sources say the affect on credit is identical to that of a full-blown foreclosure. Each individual’s situation is different. When in doubt, call a credit bureau and ask.

• Ability to buy another home: There is no such thing as giving a deed in lieu and turning around to immediately buy another home.

• Compare the wait to buy after a foreclosure, which is seven years without extenuating circumstances, five with, and what you have picked up is essentially a three-year gain. Looking at it another way, a short sale may qualify you to buy a home within two years, in which case you may have lost two years if you are forced to wait four years after a deed in lieu.
• Release of liability: Make sure that the deed in lieu specifically releases you from liability to repay the loan. Moreover, there is little point in handing over title if you have a second lender that will pursue you for a deficiency.
• Potential Tax Effects: Be sure to ask your accountant whether the cancelled debt from your home loan could result in a tax liability. Temporarily, the 2007 Mortgage Forgiveness Debt Relief Act continues to offer protection due to an extension provided by the Bipartisan Budget Act of 2018, and that legislation gets renewed annually. Insolvency may be another exemption available.

Deed in Lieu of Foreclosure Documents

If approved for a deed in lieu of foreclosure, the bank will send you documents to sign. You will receive:
• a deed that transfers ownership of the property to the bank, and
• an estoppels affidavit. (Sometimes there might be a separate deed in lieu agreement.)
The estoppels affidavit sets out the terms of the agreement and will include a provision that you are acting freely and voluntarily. It might also include provisions addressing whether the transaction is in full satisfaction of the debt or whether the bank has the right to seek a deficiency judgment.

Deed In Lieu Of Foreclosure Attorney Free Consultation

When you need legal help with a deed in lieu of foreclosure in Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

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4.9 stars – based on 67 reviews


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Discounted Payoff

Discounted Payoff

A discounted payoff (DPO) is the repayment of an obligation for less than the principal balance. Discounted payoffs often occur in distressed loan scenarios but they can also be included as contract clauses in other types of business dealings.

Understanding a Discounted Payoff

Discounted payoff is a business term that may arise in several different scenarios. Most commonly it can be part of a negotiation to pay off a lender for an amount below the total balance due. It can also be used in some business dealings as an incentive to pay off an obligation early.

Distressed Debt

A Discounted Payoff can be one alternative for resolving issues involving delinquent debt. In the case of delinquent debt, the lender will usually agree to a discounted payoff after all other options have been exhausted. In some cases a discounted payoff may also be part of a bankruptcy court settlement in which an order is delivered for a pay off amount below the obligation as part of a final agreement. In most cases of distressed debt discounted payoff, the lender takes a loss for the value of the contracted debt and interest that the borrower is no longer obligated to pay.

Collateral backed loans that end in a discounted payoff offer a special case for settlement since they have collateral which reduces the risks for the lender. With an asset-backed loan discounted payoff the lender can agree to a discounted payoff level while also exercising the right to seize the underlying asset. In some instances the lender may be able to break even or take less of a loss because of the difference in equity value vs. payoff value of the asset being levied.

In some business dealings, including loan agreements, a lender may include a contract clause that offers a borrower a discounted payoff with no repercussions. In these instances the discounted payoff serves as an incentive for the borrower to pay off their obligations sooner. Some of the benefits to the lender are more upfront cash received and lower default risks since payments are made and obligations are met in a shorter time frame. Some accounts payable contracts may also fall under the discounted payoff category. For instance, a seller may include terms like 10 net 30 which give the buyer a 10% discount for paying their bill within 30 days.

Discounted Payoff Example

Each discounted payoff will have its own circumstances and terms. Discounted payoff can be beneficial when they offer a borrower or buyer an advantage. Oftentimes though they are negotiated to stop negative credit history or reach a final debt settlement. Once a distressed Discounted Payoff has been negotiated between a borrower and lender, the borrower usually has to raise the capital to pay off the loan in a lump sum payment by a specified date in the near future. One example of a situation where a discounted payoff can be especially useful in utilizing is in the involvement of a third-party bridge lender. A bridge loan involves a third party who provides the cash to the borrower to pay off the discounted payoff while also extending additional capital with new terms. This scenario can be helpful when maintaining collateral is important but it still leaves the borrower with an outstanding balance, often at a higher interest rate than previously held. The discounted payoff amount will usually form the new liability for the property. Bridge lenders may also require the borrower to pump in a substantial amount of equity into the asset, in order to have a sufficient margin of safety on the bridge loan.

Types of Default and the Consequences

Default is the failure to repay a debt including interest or principal on a loan or security. Default can have consequences for borrowers.

How Does Loan Modification Work?

A loan modification is a change made to the terms of an existing loan because the borrower is unable to meet the payments under the original terms.

Payoff Statement

A payoff statement is a statement prepared by a lender providing a payoff quote for prepayment on a mortgage or other loan.

Set-Off Clause Definition

A set-off clause is a legal clause that gives a lender the authority to seize a debtor’s deposits when they default on a loan.

Take-Out Commitment Definition

Take-out commitment is a written guaranty by a lender to provide permanent financing to replace a short term loan at a specified future date.

Non-Performing Asset (NPA) Definition

A non-performing asset refers to loans or advances that are in jeopardy of default.

Distressed Commercial Real Estate – Discounted Loan Payoffs

While the majority of commercial real estate loans scheduled to mature in the coming years are healthy and should have little trouble refinancing when they mature, distressed debt continues to present unique loan strategies and restructurings, including discounted loan payoffs. Some of these distressed loans were extended during the financial crisis of 2007/2008, offering modest pay downs and deferring their ultimate repayment.

A discounted loan payoff (DPO) is the repayment of a loan for less than the outstanding balance. DPOs are typically reserved for distressed assets that have declined significantly in value. The write-off of any portion of the loan principal is an expensive proposition to the lender. Prior to accepting any such loss, the lender determines that the borrower is unable to infuse additional equity and the prospect of foreclosing upon and selling the asset will not recover the principal. The payoff amount with the lender should approximate the value that the lender expects to recover from the asset through the foreclosure process. DPOs allow the bank in clearing troubled debt and create capital for future lending. DPOs can be financed with new debt or additional equity. A key consideration for any investor in a distressed debt transaction is identifying the cause of the distress. Pricing of distressed debt is driven primarily by loan resolution or exit strategies, loan terms, underlying cash flow and value, guarantees, capital needs and related risk and return factors. These variables are subject to due diligence. Targeted rates of return reflect the risk in the underlying property, market and loan resolution strategy. The underwriting of troubled debt typically involves cash flows for the loan resolution strategy. There are two general types of investors, namely yield or return investors and ownership driven investors. Investors who navigate these factors are presented with the opportunity to acquire interests in commercial properties at a discount. Borrowers are able to utilize any equity infusions to perform critical tenant improvements to retain and attract new tenants, thereby starting down the road of increasing the property’s value. The distressed commercial real estate market is complex. Many of these loans are intricately structured. There are also more stringent bank loan underwriting criteria and rising interest rate uncertainties. Due to these complexities, investors should consult with advisors and financiers who are experienced in distressed debt resolutions. Loan restructurings may have significant tax consequences to both the lender and the borrower. Generally, the cancellation of indebtedness by the lender results in taxable ordinary income to the borrower and the lender would reflect a corresponding loss. Investors should consult their partner to discuss these tax and other implications.

Default is the failure to repay a debt including interest or principal on a loan or security. A default can occur when a borrower is unable to make timely payments, misses payments, or avoids or stops making payments. Individuals, businesses, and even countries can fall prey to default if they cannot keep up their debt obligations. Default risks are often calculated well in advance by creditors. A default can occur on secured debt such as a mortgage loan secured by a house or a business loan secured by a company’s assets. If an individual borrower fails to make timely mortgage payments, the loan could go into default. Similarly, if a business issues bonds essentially borrowing from investors and it’s unable to make coupon payments to its bondholders, the business is in default on its bonds. A default has adverse effects on the borrower’s credit and ability to borrow in the future.

Default on Secured Debt

When an individual, a business, or a nation defaults on a debt obligation, the lender or investor has some recourse to reclaim the funds due to them. However, this recourse varies based on the type of security involved. For example, if a borrower defaults on a mortgage, the bank can reclaim the home securing the mortgage. Also, if a borrower defaults on an auto loan, the lender can repossess the automobile. These are examples of secured loans. In a secured loan, the lender has a legal claim on the asset to satisfy the loan. Corporations that are in default or close to default usually file for bankruptcy protection to avoid an all-out default on their debt obligations. However, if a business goes into bankruptcy, it effectively defaults on all of its loans and bonds since the original amounts of the debt are seldom paid back in full. Creditors with loans secured by the company’s assets, such as buildings, inventory, or vehicles, may reclaim those assets in lieu of repayment. If there are any funds left over, the company’s bondholders receive a stake in them, and shareholders are next in line. During corporate bankruptcies, sometimes a settlement can be reached between borrowers and lenders whereby only a portion of the debt is repaid.

Defaulting on Unsecured Debt

A default can also occur on unsecured debt such as medical bills and credit card debts. With unsecured debt, no assets are securing the debt, but the lender still has legal recourse in the event of default. Credit card companies often give a few months before an account goes into default. However, if after six months or more, there have been no payments, the account would get charged off meaning the lender would take a loss on the account. The bank would likely sell the charged-off account to a collection agency and the borrower would need to repay the agency. If no payments are made to the collection agency, a legal action might be taken in the form of a lien or judgment placed on the borrower’s assets. A judgment lien is a court ruling that gives creditors the right to take possession of borrowers’ property if they fail to fulfil their contractual obligations.

Alternatives to Default

A good first step is to contact your lender as soon as you realize that you may have trouble keeping up your payments. The lender may be able to work with you on a more attainable repayment plan or steer you toward one of the federal programs. It is important to remember that none of the programs are available to people whose student loans have gone into default. You may be sure the banks and the government are as anxious to get the money as you are about repaying it. Just make sure you alert them as soon as you see potential trouble ahead. Ignoring the problem will only make it worse.

Defaulting on a Futures Contract

Defaulting on a futures contract occurs when one party does not fulfil the obligations set forth by the agreement. Defaulting here usually involves the failure to settle the contract by the required date. A futures contract is a legal agreement for a transaction on a particular commodity or asset. One side of the contract agrees to buy at a specific date and price while the other party agrees to sell at the contract specified milestones.

Sovereign Default

Sovereign default or national default occurs when a country cannot repay its debts. Government bonds are issued by governments to raise money to finance projects or day-to-day operations. Government bonds are typically considered low-risk investments since the government backs them. However, the debt issued by a government is only as safe as the government’s finances and ability to back it. If a country defaults on its sovereign debt or bonds, the ramifications can be severe and lead to a collapse of the country’s financial markets. The economy might go into recession, or its currency might devalue. For countries, a default could mean not being able to raise funds needed for basic needs such as the food, police, or the military. Sovereign default, like other types of default, can occur for a variety of reasons.

Consequences of Default

When a borrower defaults on a loan, the consequences can include:
• Negative remarks on a borrower’s credit report and lowering of the credit score, which is a numerical value or measure of a borrower’s creditworthiness
• Reduced chances of obtaining credit in the future
• Higher interest rates on existing debt as well as any new debt
• Garnishment of wages and other penalties. Garnishment refers to a legal process that instructs a third party to deduct payments directly from a borrower’s wage or bank account.
When bond issuers default on bonds or exhibit other signs of poor credit management, rating agencies lower their credit ratings. Bond credit-rating agencies measure the creditworthiness of corporate and government bonds to provide investors with an overview of the risks involved in investing in bonds.

Loan Modification

Loan modification is a change made to the terms of an existing loan by a lender. It may involve a reduction in the interest rate, an extension of the length of time for repayment, a different type of loan, or any combination of the three. Such changes usually are made because the borrower is unable to repay the original loan. Most successful loan modification processes are negotiated with the help of an attorney or a settlement company. Some borrowers are eligible for government assistance in loan modification.

How Loan Modification Works

Although a loan modification may be made for any type of loan, they are most common with secured loans such as mortgages. A lender may agree to a loan modification during a settlement procedure or in the case of a potential foreclosure. In such situations, the lender has concluded that a loan modification will be less costly to the business than a foreclosure or a charge-off of the debt. A loan modification agreement is not the same as a forbearance agreement. A forbearance agreement provides short-term relief for a borrower with a temporary financial problem. A loan modification agreement is a long-term solution. A loan modification may involve a reduced interest rate, a longer period to repay, a different type of loan, or any combination of these.

There are two sources of professional assistance in negotiating a loan modification:
• Settlement companies are for-profit entities that work on behalf of borrowers to reduce or alleviate debt by settling with their creditors.
• Mortgage modification lawyers specialize in negotiating for the owners of mortgages that are in default and threatened with foreclosure.

Payoff Statement

A payoff statement is a statement prepared by a lender providing a payoff quote for prepayment on a mortgage or other loan. A payoff statement or a mortgage payoff letter will typically show the balance a borrower must pay to close their loan. It may also include additional details such as the amount of interest that will be rebated due to prepayment by the borrower. Payoff statements provide clear disclosure for a borrower on the total amount they must payoff to close a loan account. They can also include other important loan details such as the remaining payment schedule, rate of interest and money saved for paying early. A borrower can request a payoff statement on any type of loan.

How a Payoff Statement Works

Requesting a payoff statement is commonly the first step in paying off a loan. Different types of lenders will have varying formats for payoff statements. Online lenders will generally provide borrowers with a payoff quote that details the exact amount a borrower will need to pay on a specific day to repay the loan early. In loans issued by traditional financial institutions, a borrower may need to contact a customer service representative directly rather than obtaining a payoff quote online. What is a payoff quote? It is the amount of money left to pay off a loan.
Traditional financial institutions will usually create a more formal payoff statement that comprehensively details payoff information regarding the loan. Generally, payoff statements will base their prepayment quote on the next forward payment date. Some lenders may have certain penalties or fees associated with a payoff so borrowers should check their loan agreements prior to requesting a payoff statement to understand the terms. Payoff statements can be used in collection actions for all types of loans. If a borrower is negotiating a consolidation loan with a new lender they can request payoff statements from the creditors which they seek the proceeds of their new loan to go towards. In a consolidation loan deal, a financial institution may choose to pay off each loan with proceeds of the consolation loan according to the information provided in the payoff statements. A borrower may also be presented with a payoff statement from a creditor if collection action has been taken on a specific debtor account. Generally, payoff statements will be associated with serious collection action usually involving a lien.

Discounted Payoff Lawyer Free Consultation

When you need legal help with a discounted payoff, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

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1099 Tax Issues In Foreclosure

1099 Tax Issues In Foreclosure

As far as the Internal Revenue Service is concerned, a foreclosure is treated the same as the sale of a property. The bottom line is that once it was yours and now you no longer own it. The event can trigger a capital gain and, in some cases, you might also owe income tax on the amount of any part of the mortgage debt that’s been forgiven or canceled. The sale of real property normally goes through an escrow process. The seller receives statements showing how much the home was sold for. There’s no escrow period with foreclosures, however, lending bank simply takes possession of the home. The basic formula for calculating capital gains is to subtract the basis or cost of the property from the sales price. The difference is how much of a profit the seller made, or how much money was lost in the transaction.

In a foreclosure situation and without escrow statements, there’s no mutually agreed-upon sales price, but, there’s still a “sales price” for tax purposes. It will be either the fair market value of the property as of the date of the foreclosure, or the outstanding loan balance immediately prior to the foreclosure. It will depend on the type of mortgage loan you had. Your mortgage was either recourse or a non-recourse loan.

Recourse Loans

If you had a recourse loan, this means that you’re personally responsible for the debt. The lender can pursue you for repayment even after the property has been repossessed—it has “recourse.” In this case, the figure used as the sales price when calculating any potential capital gain is the lesser of the following two amounts:

• The outstanding loan balance immediately before the foreclosure minus any debt for which the borrower remains personally liable after the foreclosure
• The fair market value of the property being foreclosed
In addition to a capital gain, you can have canceled debt income from the foreclosure with this type of loan as well. Mortgages used to acquire homes tend to be non-recourse loans, while refinanced loans and home equity loans tend to be recourse loans. This is by no means an absolute rule, however. It can also depend on the state in which you reside.

Non-Recourse Loans

A non-recourse loan is one where the borrower isn’t personally liable for repayment of the loan. In other words, the loan is considered satisfied and the lender can’t pursue the borrower for further repayment if and when it repossesses the property. The figure used as the sales price is the outstanding loan balance immediately before the foreclosure of a non-recourse loan. The IRS takes the position that you’re effectively selling the house back to the lender for full consideration of the outstanding debt, so there’s generally no capital gain. You won’t have any canceled debt income, either, because the lender is prohibited by law from pursuing you for repayment. You’ll Receive Tax Reporting Documents

• Form 1099-A is issued by the bank after real estate has been foreclosed upon. This form reports the date of the foreclosure, the fair market value of the property, and the outstanding loan balance immediately prior to the foreclosure. You’ll need this information when you’re reporting any capital gains related to the property.

• Form 1099-C is issued by the bank after the bank has canceled or forgiven any debt on a recourse loan. This form will indicate how much debt was canceled. You might receive only a single Form 1099-C that reports both the foreclosure and the cancellation of debt instead of receiving both a 1099-A and a 1099-C if your lender both forecloses on the home and cancels the unpaid debt in the same year.

Reporting a Capital Gain or Loss

You can determine the sales price after you’ve determined what type of loan you had on your property. Report the foreclosure on Schedule D and Form 8949 if the foreclosed property was your primary residence. You might qualify to exclude up to $500,000 of gain from taxation subject to certain rules:
• The home was your primary residence.
• You owned the home for at least two of the last five years (730 days) up to the date of sale.
• You lived in the home for at least two of the past five years ending on the date of foreclosure.

Individual taxpayers can exclude up to $250,000 in gains, and married taxpayers filing jointly can double that amount. If the foreclosed property was mixed-use it was your primary residence at one time and a secondary residence at another time you can still qualify for an exclusion from capital gains tax under the modified rules for calculating your gain or loss. The rules are also relaxed somewhat for members of the armed forces.

Capital Gains Tax Rates

As of tax year 2019, the rate on long-term capital gains for properties owned one year or longer depends on your overall taxable income and filing status.
Single taxpayers:
• 0% if taxable income is under $39,375
• 15% if taxable income is from $39,375 to $434,550
• 20% if taxable income is over $434,550
Heads of household:
• 0% if taxable income is under $52,750
• 15% if taxable income is from $52,750 to $461,700
• 20% if taxable income is over $461,700
Married Filing Jointly and Qualifying Widow(er)s:
• 0% if taxable income is under $78,750
• 15% if taxable income is from $78,750 to $488,850
• 20% if taxable income is over $488,8503
These long-term capital gains income parameters are different from those that were in place in 2017. Rates were tied to ordinary income tax brackets before the Tax Cuts and Jobs Act (TCJA) went into effect. The TCJA assigned them their own brackets. It’s a short-term capital gain if you owned your home for less than a year. You must pay capital gains tax at the same rate that’s applied to your regular income in other words, according to your tax bracket.

When Discharged Debt Is Taxable Income

The Mortgage Forgiveness Debt Relief Act of 2007 (MFDRA) provided that taxpayers could exclude from their taxable incomes up to $2 million in discharged mortgage debt due to foreclosure a nice tax break indeed. Prior to 2007, discharged debt was included in taxable income. Then the MFDRA expired at the end of 2017, so discharged debt was once again considered to be taxable income by the IRS. Fortunately, this provision of the tax code is back again, at least for foreclosures that occur from Jan. 1, 2018 through Dec. 31, 2020. Title I, Subtitle A, Section 101 of the Further Consolidation Appropriations Act of 2020, signed into law by President Trump in December 2019, extends this provision through the end of 2020.5 You no longer have to concern yourself with paying income tax on debt discharged through foreclosure, at least through the end of 2020 and if your forgiven debt doesn’t exceed $2 million.

How Much Will a Foreclosure Affect a Tax Refund

Foreclosure is one of those difficult experiences certain homeowners may have to go through. Not only does foreclosure affect your credit rating, but it also can make it difficult to purchase another home in the immediate future. Additionally, there may be tax consequences attached to your foreclosure. In certain cases, foreclosed homeowners have been hit with a significant tax bill that often reduces or eliminates any tax refund due.

Foreclosure Tax Consequences

Often, the Internal Revenue Service (IRS) considers debt that’s forgiven by a lender because of foreclosure to be taxable income. Through calendar year 2012, the IRS is waiving taxation of mortgage debt forgiveness in certain cases. Because the IRS is waiving taxation of forgiven mortgage debt, any income tax refund isn’t affected by your foreclosure. However, foreclosures occurring in 2013 and beyond could affect the income tax refunds of those experiencing foreclosures. After foreclosure, the IRS could consider taxable any cash you took from your home as the result of a refinance. In addition to cash-out income, any income you took from a home equity line of credit (HELOC) could be taxable under IRS rules. Your forgiven mortgage debt and income gained from refinances or HELOCs might also be taxable at the state level.

Reporting Foreclosure Income

Taxable income resulting from forgiven mortgage debt and any cash-out refinances or HELOCs has to be declared in the year in which the foreclosure occurred. IRS taxation waivers of forgiven mortgage debt apply only to principal residences. However, money taken from a cash-out refinance or HELOC that’s applied to home renovation or improvement is often tax-exempt after foreclosure. Also, ensure the federal income reporting document (Form 1099) your mortgage lender gives you after your foreclosure is accurate.

Avoiding Taxation

Federal law considers debt discharged in bankruptcy, including potentially taxable forgiven mortgage debt, to be non-taxable as a result. Insolvency immediately before mortgage debt is forgiven also could exempt you from taxation of that debt. According to the IRS, insolvency is when the total of your liabilities exceeds the fair market value of your assets. Consult a tax professional if you’ve recently experienced foreclosure in order to discuss any income tax and tax refund implications.

Difference between A 1099-A and 1099-C

Selling real estate in this precarious market can be quite a task in and of itself. When the dust clears, sellers often are left to navigate through a maze of issues, not sure what to expect next. Many sellers have no idea what tax forms to expect from the lender, so they have no way of knowing if they received them. Two forms in particular, the 1099-A and 1099-C, create much of the confusion for sellers, their lawyers and their financial advisors. Every time real property is sold or transferred, the IRS must be notified. In a traditional sale of property, the seller will receive a Form 1099-S (Proceeds from Real Estate Transactions) to report the sale of the property to the IRS. This form is used to determine whether there is a gain or loss on the sale of the property. In a short sale or deed in lieu of foreclosure, the seller also receives a 1099-S because the property is sold willingly.

1099-A: Acquisition or Abandonment of Secured Property

However, in the case of a foreclosure, no 1099-S is issued because the “sale” is involuntary. Instead, the seller will receive a 1099-A (Acquisition or Abandonment of Secured Property) to report the transfer of the property. The 1099-A reports the date of the transfer, the fair market value on the date of the transfer and the balance of principal outstanding on the date of the transfer. Just like the 1099-S, the 1099-A is used to determine whether there is a gain or loss on the sale of the property. Many sellers mistakenly believe that if their property is sold in a foreclosure auction, they will not have any capital gain. This is not always the case. As a result of the adjustments to cost basis in certain situations, there may be a capital gain on property that is sold in a foreclosure auction. This may cause yet another source of unexpected tax liability that the seller is unable to pay.

1099-C: Cancellation of Debt

Now that short sales have become so common, many sellers understand they may receive a 1099-C (Cancellation of Debt), to report the cancellation of debt resulting from a short sale or deed in lieu of foreclosure. What comes as a surprise to many sellers is that they may receive a 1099-C as a result of foreclosure sale as well. Some sellers believe that if they allow their property to go into foreclosure, they will avoid the tax consequences of the cancellation of debt. However, the tax ramifications are the same for cancellation of debt income, whether it is generated from a short sale, deed in lieu of foreclosure or foreclosure. At the time the seller/borrower obtained the loan to purchase or refinance the property, the loan proceeds were not included in taxable income because the borrower had an obligation to repay the lender. When that obligation to repay the lender is forgiven or cancelled, the amount that is not required to be repaid is considered income by the IRS. The lender is required to report the amount of the cancelled debt to the borrower and the IRS on Form 1099-C, when the forgiven debt is $600 or greater. There are certain exclusions that can be used to reduce or eliminate the cancellation of debt income from taxable income. This includes discharge of the debt in bankruptcy, insolvency of the seller before the creditor agreed to forgive or cancel the debt, or, if the seller qualifies, relief pursuant to the Mortgage Forgiveness Debt Relief Act (MFDRA).

To summarize, any sale or transfer of property, whether voluntary or involuntary, must be reported to the IRS. Form 1099-S is used for a traditional sale, short sale or deed in lieu of foreclosure; Form 1099-A is used for a foreclosure. A lender may forgive or cancel debt in any case – where it’s a short sale, deed in lieu of foreclosure, or foreclosure – which will result in the issuance of a 1099-C. In order to properly report these transactions on the tax return, sellers should seek advice from an experienced tax professional. When homeowners fall into lender foreclosure, several things may end up affecting them, including potential tax issues. The Internal Revenue Service treats foreclosures as sales of property and those properties’ former owners could be liable for certain federal income taxes. After foreclosure your lender may send you IRS Form 1099-A, Acquisition or Abandonment of Secured Property. Form 1099-A is used to show three key pieces of information that helps foreclosed homeowners determine their tax liability, if any. The IRS considers canceled mortgage debt that results when a borrower is foreclosed as income to that borrower. To account for their cancellation of foreclosed mortgage borrowers’ debt, mortgage lenders send them IRS Form 1099-A. Foreclosed mortgage borrowers’ principal loan balances are shown on Form 1099-A’s Box 2 and the fair market value (FMV) of their foreclosed properties in Box 4. Box 5 of Form 1099-A indicates whether foreclosed borrowers are personally liable for repaying their mortgage loans. Whether you’ll owe taxes on your foreclosure’s lender-canceled debt also depends on Box 5 of Form 1099-A. Mortgage borrowers shown in 1099-A’s Box 5 to be personally liable for repayment of their mortgages could face taxable income liability. States such as California are non-recourse and lenders foreclosing no judicially or without the courts can’t pursue borrowers for negative loan balances or deficiencies. Foreclosed borrowers in non-recourse states might not be held personally liable for repaying their foreclosed mortgages, thus eliminating any tax liability.

The difference between a mortgage’s principal balance shown in IRS Form 1099-A’s Box 2 and Box 4’s FMV is important. For example, if your foreclosed mortgage loan’s principal balance is $100,000 and its FMV $50,000, that $50,000 difference could be taxable income. Your mortgage lender could also overestimate your former home’s FMV shown in Box 4 of your 1099-A. Consider an appraisal to obtain an accurate FMV of your foreclosed home if you’re concerned about possible future tax liability. Foreclosing lenders might issue IRS Form 1099-A to borrowers as a kind of placeholder until they decide whether to issue Form 1099-C. In some cases, foreclosing mortgage lenders need time to decide whether they’ll be canceling their foreclosed borrowers’ mortgage debt. Mortgage lenders may issue Form 1099-A to borrowers and file copies with the IRS to indicate a foreclosure has occurred and that a debt cancellation decision is pending. If you’re issued Form 1099-C after foreclosure your lender has definitely canceled your mortgage loan’s debt.

Taxable Income Exclusions

It’s possible to exclude from taxable income lender-canceled mortgage debt resulting from a home foreclosure. The most common exclusion to the tax liability resulting from lender-canceled mortgage debt comes from the Mortgage Debt Relief Act of 2007. Through Dec. 31, 2012, mortgage borrowers whose principal residences were foreclosed may be able to exclude up to $2 million of lender-canceled debt. Insolvent foreclosed mortgage borrowers, with debts exceeding assets, may also be able to exclude lender-canceled debt from taxable income. The foreclosure itself is treated as a sale of the home. So, you might need to report it on Schedule D. You should receive Forms 1099-A with information about the sale.

What you’ll report as the amount realized on the sale depends on which of these applies:
• If you were personally liable for the loan. This is called a recourse loan.
• If you weren’t personally liable for the loan. This is called a nonrecourse loan.

On a recourse loan, the amount realized on the sale is the lesser of:
• The outstanding debt right before the foreclosure. Subtract any amount for which you remain liable right after the transfer.
• The fair market value (FMV) of the property transferred
On a nonrecourse loan, the amount realized on the sale is the full amount of the debt outstanding. This is as calculated right before the foreclosure.

You might be able to exclude the capital gain under the sale-of-principal-residence exclusion if both of these are true:
• You have a gain on the sale.
• The home was your main home.

Cancellation of Debt

If you were liable for the loan, you might have cancellation of debt income. You should receive a Form 1099-C with this information. This is usually the total amount of debt owed right before the foreclosure, minus the property’s FMV. Cancellation of debt income from property secured by a recourse debt is taxable. This is true unless exclusion applies. There are exclusions for these:

• Debt cancelled in a bankruptcy proceeding
• Qualified principal residence indebtedness
• Insolvency (your debts are more than your assets)

Foreclosure Attorney Free Consultation

When you need legal help with a foreclosure in Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews


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Foreclosure Lawyer Riverton Utah

Foreclosure Lawyer Riverton Utah

By now the whole world has heard the story of the problems in the subprime mortgage market, which began to show up in the United States in 2007 and then spread to other countries. Home prices and homeownership had been booming since the late 1990s, and investing in a house had seemed a sure route to financial security and even wealth. Homeownership, for all its advantages, is not the ideal housing arrangement for all people in all circumstances. And we are now coming to appreciate the reality of this, for the homeownership rate has been falling in the United States since 2005.
What was the chain of events in the subprime crisis? Overly aggressive mortgage lenders, compliant appraisers, and complacent borrowers proliferated to feed the housing boom. Mortgage originators, who planned to sell off the mortgages to securitizers, stopped worrying about repayment risk. They typically made only perfunctory efforts to assess borrowers’ ability to repay their loans—often failing to verify borrowers’ income with the Internal Revenue Service, even if they possessed signed authorization forms permitting them to do so. Sometimes these lenders enticed the naïve, with poor credit histories, to borrow in the ballooning subprime mortgage market. These mortgages were packaged, sold, and resold in sophisticated but arcane ways to investors around the world, setting the stage for a crisis of truly global proportions. The housing bubble, combined with the incentive system implicit in the securitization process, amplified moral hazard, further emboldening some of the worst actors among mortgage lenders.

When mortgage rates begin to reset to higher levels after initial “teaser” periods ended, borrowers, particularly subprime borrowers, begin defaulting, often owing more than their homes were worth or unable to support their higher monthly payments with current incomes. If you are facing foreclosure, speak to an experienced Riverton Utah foreclosure lawyer. The lawyer can advise you on how you can save your home from foreclosure.

The term “subprime” has no distinct or universal definition. The Oxford English Dictionary explains that the concept historically referred to loans having preferential terms, but this is no longer the case. Subprime is now understood to reflect the credit status of the borrower (e.g., credit challenged), the conditions of the loan (e.g., higher interest rates and fees), or the characteristics of the lender (e.g., institutions which specialize in subprime loans). Lending institutions have their own determination of what borrower and loan characteristics qualify the parties and/or transaction as “subprime” based on how the transaction fits into their own portfolios or the portfolios of their secondary-market buyers and investors. For purposes of this study the term subprime should be considered within the context of the present setting – for example, referring to high-risk borrowers, loans, or lenders.

Three particular legislative actions have been credited with stimulating the birth of the subprime industry. These federal statutes included the Depository Institutions Deregulation and Money Control Act of 1980 (DIDMCA), the Alternative Mortgage Transaction Parity Act of 1982, and the Tax Reform Act of 1986. Taken in combination, these events essentially created the subprime business as it enabled lenders to begin charging higher interest rates and fees (exceeding state limits), to offer adjustable interest rate mortgages (ARMs) and balloon payment options, and allowed individuals to begin taking home mortgage interest tax deductions. Although other changes preceded these Acts in the late 1960s through the 1970s, such as the Fair Housing Act of 1968, Equal Credit Opportunity Act of 1974, Home Mortgage Disclosure Act of 1975, and the Community Reinvestment Act of 1977, Bitner notes it was not until the enactment of the DIDMCA that the business of subprime lending became a “legal” enterprise.

In addition to the legislative activity that positioned previously or otherwise under-qualified or credit-challenged borrowers to enter into exchange relationships with lenders, market changes also “contributed to the growth and maturation of subprime loans”. Brokerage and securitization were key elements in this growth (and in the industry’s segmentation), as it gave traditional and non-traditional (non-depository) lenders the ability to supply and deliver creative financing and credit, while simultaneously passing on its accompanying risk.

Fraud comes in many forms and has been credited with playing a substantial role in the downfall of the subprime mortgage market over the past decade. Mortgage fraud is a material misstatement, misrepresentation, or omission relied on by an underwriter or lender to fund, purchase, or insure a loan. This type of fraud is usually defined as loan origination fraud. Mortgage fraud also includes schemes targeting consumers, such as foreclosure
rescue, short sale, and loan modification.

Subprime mortgage innovation provided perceived improvements over traditional lending in that it: (1) increased economic profitability; (2) provided an avenue by which historically unqualified parties could qualify for home loans; (3) opened up new employment opportunities for mortgage and real estate practitioners; and, (4) enabled the creation of numerous alternative loan structures that were convenient and relatively easy to use.

First, subprime lending increased economic profitability. The innovation created opportunities for every facet of the mortgage food chain to benefit financially in terms of property or profit. In contrast to traditional loans, home buyers could now obtain property with little to no money down, home owners could use the equity in their property to cash-out and pay off higher interest debt, to purchase other desirable assets (e.g., car, boats), or to use the funds in any way they saw fit (e.g., vacations). Conventional and non-depository lenders could offer a wider variety of loan structure options, while allowing them to pass on the risk associated with these products out of their own portfolios and into the secondary market. In turn, they would benefit from the origination premiums and servicing fees of the subprime notes. And finally, the secondary market, including the investors, GSEs, rating agencies, financial institutions, and investment managers (e.g., hedge or pension funds) were provided with increased revenue alternatives that many perceived as having unlimited potential.

Subprime lending was relatively advantageous as compared to traditional lending as it provided an avenue by which historically unqualified buyers could now qualify for home loans. This created new opportunities for individuals who would not have normally been involved in mortgage transactions to benefit from their existence in terms of homeownership, and also increased opportunities for homeowners to take advantage of the refinance and cash-out options with fraudulent loan applications through the low/no document, stated income type products. The reduced credit and documentation restrictions and relaxed regulations of subprime lending enabled the creation of numerous alternative loan structures that were convenient and relatively easy to use.

In addition to the federal laws and regulations that offer some protection against predatory lending practices, state law—consisting of both common law (judge-made law) and state statutes—may provide a basis for challenging abusive practices. The state law claims made most often in predatory lending cases are based on common law fraud and state consumer protection statutes that prohibit unfair or deceptive trade practices. Each of these causes of action can be useful, but each has drawbacks and limitations.
Borrowers victimized by predatory lending practices often are victims of fraudulent misrepresentation, which long has been prohibited by state common law. Common law prohibitions against fraud in many instances are broad enough to cover predatory lending practices. A borrower who is successful in a fraud suit may recover compensatory damages and, in most states, punitive damages. The availability of punitive damages is particularly important where the actual damages resulting from the lender’s illegal conduct are relatively small; in such a situation an order limited to reimbursement will have no deterrent effect.

Fraud claims, however, are surprisingly difficult to win. Federal courts and many state courts require that allegations of fraud contain greater detail than allegations in a typical lawsuit. A plaintiff in a fraud case is commonly required to prove his or her case by “clear and convincing evidence,” rather than the customary “preponderance of the evidence” standard applicable in most civil cases. And many of the specific elements of fraud are particularly difficult to show. For example, a fraud claim requires a plaintiff to prove that the lender intentionally deceived him or her, and that he or she reasonably relied on the intentional misrepresentation. The need to prove individual reliance, in particular, may make it very difficult as a practical matter to bring a class action.
Even when they are successful, plaintiffs in fraud cases generally cannot recover attorneys’ fees. This fact, coupled with the general difficulty of proving fraud, creates a strong disincentive for private attorneys to bring fraud claims on behalf of individuals who do not have the means to pay an attorney and are also most likely to be the victims of predatory lending.
A second state law option for combating abusive lending practices rests with the many state statutes prohibiting unfair or deceptive trade practices. All 50 states and the District of Columbia have enacted statutes to prevent consumer deception and abuse. These statutes (known generally as “UDAP laws” because they prohibit unfair and deceptive acts and practices) tend to be both broad and flexible enough to cover a wide range of abusive practices.

State UDAP laws are generally enforced through state-initiated actions, but frequently include provisions for a private right of action by consumers. In a state enforcement action, state officials may seek an order preventing a company from engaging in illegal practices, and in most states may seek civil or criminal penalties, as well as restitution for injured consumers.68 In states that offer a private right of action, this need not prevent an individual borrower from suing a lender directly.

In general, state UDAP laws offer a variety of useful remedies to borrowers who file a private suit. Courts may order injunctive relief (i.e., an order that a company cease illegal practices), actual damages, and treble or other multiple damages (actual damages multiplied by three or some other factor). A minority of statutes explicitly authorize punitive damages. Most state UDAP laws also permit prevailing plaintiffs to recover attorneys’ fees.

Claims based on state UDAP laws are generally easier to prove than common law fraud claims because the standards that define the “deceptive,” “unfair,” “unconscionable,” “misleading” or “fraudulent” practices prohibited under these statutes are typically less stringent than the requirements of common law fraud. In most states, for example, a consumer need not prove an intent to deceive, actual deception, or reliance on a misrepresentation. The standard of proof is generally the typical “preponderance of the evidence” rather than “clear and convincing evidence.”

Although helpful, UDAP laws are not the answer to predatory lending. These laws vary by state, providing borrowers in some jurisdictions with a lower level of protection against predatory practices, or fewer remedies, than borrowers in other states. Some state UDAP laws offer little to no protection against predatory lending, due to specific exemptions for credit transactions, real estate transactions, financial institutions, or banks, or as a result of preemption by federal laws regulating credit transactions. Other UDAP laws may require consumers to file a complaint with a state agency before a state enforcement action can be initiated, and most lack provisions for punitive damages, significantly diminishing the impact these laws may have on a lender.

In short, state causes of action based on either common law fraud or UDAP laws are useful additions to available federal causes of action, but standing alone will not provide Mary with the protection she needs when confronted with the abuses of a lender like Acme. UDAP coverage is too uneven and unpredictable from state to state, and a fraud claim may well set too high a legal bar for an individual victim lacking experienced legal counsel. Clearly, neither is a proper substitute for comprehensive federal anti-predatory lending legislation.

Those victimized by predatory lending are primarily persons who already own their homes, although a certain portion of this nefarious activity is foisted upon renters desiring home ownership. And in this regard, we need to question the (bipartisan) push to have everyone attain “the American dream”—a political, advertising, and cultural campaign that unfortunately causes grief for all too many households. While the nation’s home ownership rate has been rising, so has the foreclosure rate—primarily, of course, for low-income households.

If you have defaulted on your mortgage payments and are facing foreclosure, speak to an experienced Riverton Utah foreclosure lawyer. You may be a victim of predatory lending or mortgage fraud and you may be able to fight foreclosure.

Riverton Utah Foreclosure Attorney Free Consultation

When you need legal help with a foreclosure in Riverton Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

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4.9 stars – based on 67 reviews


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What Is A Hardship Loan Modification?

What Is A Hardship Loan Modification

Some types of modification are better than others, and your lender might not offer all of them, although it might have additional options.

• Principal reduction: Your lender can eliminate a portion of your debt, allowing you to repay less than you originally borrowed. It will recalculate your monthly payments based on this decreased balance, so they should be smaller. Lenders are typically reluctant to reduce the principal on loans, however. They’re more eager to change other features which can result in more of a profit for them—not a loss. If you’re fortunate enough to get approved for a principal reduction, discuss the implications with a tax advisor before moving forward because you might find that owe taxes on the forgiven debt. This type of modification is usually the most difficult to qualify for.

• Lower interest rate: Your lender can also reduce your interest rates, which will reduce your required monthly payments. Sometimes these rate reductions are temporary, however, so read through the details carefully and prepare yourself for the day when your payments might increase again.

• Extended term: You’ll have more years to repay your debt with a longer-term loan, and this, too, will result in lower monthly payments. This option is commonly referred to as “re-amortization.” But longer repayment periods usually result in higher interest costs overall because you’re paying interest across more months. You could end up paying more for your loan than you were originally going to pay.

• Convert to a fixed rate: You can prevent problems by switching to a fixed-rate loan if your adjustable-rate mortgage is threatening to become unaffordable.

• Postpone payments: You might be able to skip a few loan payments. This can be a good solution if you’re between jobs but you know you have a paycheck out there on the horizon somewhere, or if you have surprise medical expenses that will be paid off eventually. This type of modification is often referred to as a “forbearance agreement.” You’ll have to make up those missed payments at some point, however. Your lender will add them to the end of your loan so it will take a few extra months to pay off the debt.

Government Loan Modification Programs

Depending on the type of loan you have, it might be easier to qualify for a loan modification. Government programs like FHA loans, VA loans, and USDA loans offer relief, and some federal and state agencies can also help. Speak with your loan servicer or a HUD-approved counselor for details. The federal government offered the Home Affordable Modification Program (HAMP) beginning in 2009, but that expired on Dec. 31, 2016. The Home Affordable Refinance Program (HARP) expired two years later at the end of 2018. But HARP has been replaced by Freddie Mac’s Enhanced Relief Refinance Program and by Fannie Mae’s High Loan-to-Value Refinance Option, so these might be a good place to start for assistance.

Why Lenders Modify Loans

Modification is an alternative to foreclosure or a short sale. It’s easier for homeowners and it tends to be less expensive for lenders than other legal options. You get to stay in your home, and your credit suffers less from modification than it would after a foreclosure. Otherwise, your lender has several unattractive options when and if you stop making mortgage payments and it must foreclose or approve a short sale. It can:
• Attempt to collect the money you owe through wage garnishment, bank levies, or collection agencies
• Write the loan off as a loss
• Lose the ability to recover funds if you declare bankruptcy

How to Get a Loan Modification

Start with a phone call or online inquiry, and let your lender know about your financial situation. Just be honest and explain why it’s hard for you to make your mortgage payments right now. Lenders will require an application and details about your finances to evaluate your request, and some require that you also be delinquent with your mortgage payments, usually by 60 days. Be prepared to provide certain information:
• Income: How much you earn and where it comes from
• Expenses: How much you spend each month, and how much goes toward different categories like housing, food, and transportation
• Documents: Proof of your financial situation, including pay stubs, bank statements, tax returns, loan statements, and other important agreements
• A hardship letter: Explain what happened that affects you making your current mortgage payments, and how you hope to or have rectified the situation. Your other documentation should support this information.
• IRS Form 4506-T: Allows the lender to access your tax information from the Internal Revenue Service if you can’t or don’t supply it yourself.
The application process can take several hours. You’ll have to fill out forms, gather information, and submit everything in the format your lender requires. Your application might be pushed aside or worse, rejected if something your lender asked for is missing or outdated, such as a tax return that’s three years old. It might be several weeks before your lender gives you an answer, and it can take even longer to actually change your loan when and if you get approved. Keep in frequent contact with your lender during this time. It might have questions and just hasn’t gotten around to calling you yet. It’s usually best to do what your bank tells you to do during this time, if at all possible. For example, you might be instructed to continue making payments. Doing so could help you qualify for modification. In fact, this is a requirement for approval with some lenders. Lenders have different criteria for approving modification requests, so there’s no way to know if you’ll qualify. The only way to find out is to ask.

Mortgage Modification Scams

Unfortunately, homeowners in distress attract con artists. Beware of promises that sound too good to be true. It’s best to work directly with your lender to be on the safe side. Some organizations will promise to help you get approved for a loan modification, but these services come at a steep price and you can easily do everything yourself. They typically charge you, sometimes exorbitantly, to do nothing more than collect documents from you and submit them to your lender on your behalf. In some states, they’re not legally permitted to charge a fee in advance to negotiate with your lender, and in other states, they’re not allowed to negotiate for you regardless of when you pay them. Of course, don’t count on them telling you this.

Refinance the Loan Instead

Modification is typically an option for borrowers who are unable to refinance, but it might be possible to replace your existing loan with a brand new one. A new loan might have a lower interest rate and a longer repayment period, so the result would be the same you’d have lower payments going forward. You’ll probably have to pay closing costs on the new loan, however, and you’ll also need decent credit.

Consider Filing For Bankruptcy Protection

If all else fails, you might have one other option filing for Chapter 13 bankruptcy. This isn’t the same as a Chapter 7 bankruptcy where the court takes control of your non-exempt assets, if any, and liquidates them to pay your creditors. Chapter 13 allows you to enter into a court-approved payment plan to pay off your debts, usually for three to five years. You can include your mortgage arrears if you qualify, allowing you to catch up and get back on your feet, but you must typically continue to make your current mortgage payments during this time period. This might be possible, however, if you can consolidate your other debts into the payment plan as well. You must have sufficient income to qualify.

Loan Modification: What Are Considered Hardships

Loan modification is the process of negotiating the terms of your loan for any number of varying factors. In the case of financial hardship, you are seeking a modification on your loan based on circumstances that have affected your ability to pay. Loan modifications are common on home loans today, but they may also be available on student loans, car loans and personal loans. In today’s economy, lenders are willing to work with people who claim financial hardship in order to keep those people in their homes and financially stable.

Unemployment For Loan Modifications

Unemployment is among the most common reason to seek loan modification for financial hardship. Many car dealerships are offering to make payments for purchasers for up to a certain amount of time in the case that purchaser loses his or her job. Even cable companies are reducing monthly fees for the unemployed. This does not just apply to a lost job, either. Students graduating from college or graduate programs who have been promised jobs that have been deferred for a certain amount of time can additionally defer their loans. For example, if you are graduating from law school and were promised a job starting in October which is now not starting until January, you may defer your loan repayments with the claim of financial hardship.

Reduced Income

If you are facing a reduced income for any reason, you may be able to negotiate the terms of your loan. Many people are facing a reduction to part-time employment in response to the recent recession. If you were forced to leave one job and take another in a lower pay bracket, consider writing a financial hardship letter to your lender for loan modification purposes. Your lender may likely already have forms and letter you can use as a sample.

Divorce or Family Problems

Divorce is one of the most common drains on a family’s income. Legal fees, splitting of assets and moving from one mortgage to two can drastically decrease a family’s ability to make ends meet. Likewise, if your spouse passes away you will be eligible for loan modification based on financial hardship. When you are speaking with your attorney regarding divorce settlement or estate settlement, discuss the loans you are currently repaying. Your attorney may be able to offer advice on programs to reduce your payments based on financial hardship.

Disability or Illness

You may be eligible for loan modification if you or your spouse is out of work for an extended period of time due to disability or illness. Many lenders will offer this same benefit to couples that are cohabitating, but not all lenders recognize this as a legitimate claim of financial hardship. You must be able to show how your disability or illness has affected your ability to receive the loan modification. You will likely additionally be required to show medical records stating the illness and treatments you received.

Hardship Letter Tips for your Loan Workout

If you are trying to obtain a loan modification or other loan workout plan, then your bank’s guidelines are going to require that you write a hardship letter.

A hardship letter is required by lenders when negotiating a loan modification or any loan workout. It is a letter you have to write explaining your financial distress and what caused you to fall behind in your mortgage payments. When writing your hardship letter remember that lenders will not modify your loan because they feel sorry for you, but rather because you have convinced them that you will be able to make future payments under the proposed loan modification. As a result, while you need specify your financial hardship, your letter should concentrate on how you plan to rectify your situation, rather than focusing on the causes of your financial distress and missed payments.

Acceptable Hardship

Make sure that when you write a hardship letter, you provide a specific cause for missing mortgage payments. Below are examples of acceptable hardships according to bank guidelines:
• Loss of job or reduction in income
• Death of the homeowner, spouse or family member
• Illness of homeowner or family member or other medical emergency
• Divorce or separation
• Job transfer (voluntary or involuntary)
• Adjustable rate reset-payment shock
• Military service
• Incarceration
• Increased expenses
• Unexpected home repairs

Instructions for Writing a Successful Hardship Letter

• Include your name, mortgage loan number, and property address at the top so your bank can locate your home loan easily.
• Describe your financial hardship and the circumstances that caused you to miss mortgage payments.
• Provide your mortgage lender with a specific plan to get back on track and remain in good standing to make mortgage payments..
• Assure the lender that you are a responsible homeowner who needs a second chance and that you are very motivated to save your home.
• Be concise – Do not exceed one page.
• Thank the lender for their time.
• Sign and date the bottom.

Hardship Mortgage Programs

Job loss, serious illness, increased expenses or reduced income can lead to a hardship that prevents your from paying the mortgage. In many cases, you can ask your mortgage lender for assistance. Hardship mortgage programs involve modifying one or more terms of your current loan program, replacing the loan with a new loan via a refinance, or restructuring the payment schedule to help you catch up.

Hardship programs vary by lender, loan type and your financial circumstances. For example, your lender may offer certain assistance programs if you have a reduction in income, and offer other types of hardship programs if you lose your job and have no income. Lenders typically require you to prove your financial hardship through pay stubs, income tax returns, bank statements and a hardship letter. Lenders use this information to evaluate the extent of your financial distress and determine eligibility for a hardship program.

Loan Modification Programs

A loan modification is a temporary-to-permanent solution to your mortgage hardship. Your lender may offer it on a temporary basis for three or four months. If you complete the trial run, it can make the modification permanent. Modification involves lowering your interest rate, extending your repayment term, switching your program from an adjustable-rate to a fixed-rate, or a combination of these methods to achieve an affordable payment. Lenders may offer their own brand of modification programs or participate in the government’s Home Affordable Modification Program, which streamlines guidelines among participating lenders.

Refinance Options

You may qualify for a traditional refinance if you have yet to miss a payment but anticipate financial hardship due to increased expenses, reduced income or an upcoming payment increase on your mortgage. A traditional refinance can lower your interest rate and monthly payment if you have sufficient equity and good credit. If your loan is not in good standing or have little to no equity, however, your lender may offer a refinance due to financial hardship. For example, the Federal Housing Administration offers the Short Refinance for borrowers who owe more than the value of their home. The government also offers a refinance if you have an “underwater” loan through the Home Affordable Refinance Program.

Forbearance, Reinstatement and Repayment

If you have a temporary financial hardship or are just recovering from one, your lender may offer a few options for getting your payments back on track. A forbearance entails temporarily reducing or suspending your payments for a set period of time without the threat of foreclosure. A lender may also reinstate your loan after several missed payments if you can pay the arrears in a lump sum and you can prove that you have overcome the financial hardship. Your lender may also offer a repayment plan if you have recovered from your hardship.

Loan Modification Lawyer Free Consultation

When you need legal help with a loan modification in Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews


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How Does A Loan Modification Work?

How Does A Loan Modification Work

A loan modification is a response to a borrower’s long-term inability to repay the loan. Loan modifications typically involve a reduction in the principal balance, interest rate or an extension of the length of the term of the loan. A lender might be open to modifying a loan because the cost of doing so is less than the cost of default or foreclosure. A loan modification agreement is different from a forbearance agreement. A forbearance agreement provides short-term relief for borrowers who have temporary financial problems, while a loan modification agreement is a long-term solution for borrowers who will never be able to repay an existing loan. Loan modification is a relatively new term to most homeowners. What most people are coming to realize is that losing their house to foreclosure is becoming a real possibility. Home foreclosure in America today is at an all time high and is affecting many homeowners that never believed they could lose their home to foreclosure. Homeowners are feeling the crunch of higher interest rates and a slowing economy. A loan modification may be the only way for a homeowner to save the biggest investment of their life; their home. Negotiating with the bank for a modification of your home loan can be an overwhelming process for many homeowners.

That is why retaining the services of an experienced loan modification company is of extreme importance. The reality of today’s market is one of steep drops in real estate values nationwide coupled with tighter credit requirements. The combination of the two makes a formidable opponent for someone facing an upcoming adjustment in their payments due to an adjustable rate mortgage (ARM). It’s not a good idea to take on your lender alone. In general, a mortgage loan modification is any change to the original terms of a loan. A loan modification is different from refinancing. Refinancing entails replacing your loan with a new mortgage, whereas a loan modification changes the terms of your existing loan. This could mean extending the length of your term, lowering your interest rate or changing from a variable interest rate to a fixed-rate loan. The terms of your modification are up to the lender and will depend on what’s best for the borrower. A modification ultimately results in lower monthly payments for the homeowner.

Who qualifies for a loan modification?

Not everyone struggling to make a mortgage payment can qualify for a loan modification. Hall says homeowners typically either must be delinquent for about 60 days, or they must be in imminent default, meaning they’re not delinquent yet, but there’s a high probability they will be. Homeowners usually must also demonstrate they’ve incurred a hardship, Hall says. This could be the loss of a job, loss of a spouse, a disability or an illness that has affected your ability to repay your mortgage on your original loan terms.

Types of loan modification programs

Some lenders and servicers offer their own loan modification programs, and the changes they make to your terms may be either temporary or permanent. Most servicing companies have programs designed to help borrowers who may be struggling to make their payments, driven by some of the hard lessons the industry learned during the housing collapse a few years back. in addition to modifications, offers some at-risk borrowers the ability to refinance to a lower rate at no cost, even if they haven’t endured a hardship. If your lender or servicer doesn’t have a program of its own, ask if you are eligible for any of the assistance programs that can help you modify or even refinance your mortgage. The federal government previously offered the Home Affordable Modification Program, but it expired at the end of 2016. Fannie Mae and Freddie Mac have a foreclosure-prevention program, called the Flex Modification program, which went into effect Oct. 1, 2017. If your mortgage is owned or guaranteed by either Fannie or Freddie, you may be eligible for this new program. The federal Home Affordable Refinance Program, or HARP, helped underwater homeowners refinance into a more affordable mortgage. This program is no longer available as of Dec. 31, 2018. Fannie Mae’s High Loan-to-Value Refinance Option and Freddie Mac’s Enhanced Relief Refinance replaced HARP.

How to get a loan modification

If you are struggling to make your mortgage payments, contact your lender or servicer immediately and ask about your options. The loan modification application process varies from lender to lender; some require proof of hardship, and others require a hardship letter explaining why you need the modification. It’s possible your lender will reach out to you about getting a loan modification. If you’re denied a modification, you’ll have to file an appeal with your servicer. Consider working with a HUD-approved housing counselor, who can assist you for free in challenging the decision and help you understand your options.

Know before you modify

One potential downside to a loan modification: “If the loan is being modified due to financial hardship, you may see a note about this added to your credit report, negatively impacting your credit score,”The result won’t be nearly as negative as a foreclosure, but could affect other loans you apply for in the future. Another thing to be aware of, he adds, is that depending on how your loan is modified, your mortgage term could be extended, meaning it will take longer to pay off your loan and will cost you more in interest. But for homeowners on the brink of losing their homes, the benefits of a loan modification can far outweigh the risks.

How Loan Modifications Work

Although loan modifications may occur with all types of loans, they are most common with secured loans, such as mortgages. Lenders may agree to a loan modification through a settlement procedure or in the case of a potential foreclosure. In these situations a lender typically believes that the loan modification will provide substantial savings in comparison to a charge-off alternative. A loan modification agreement is different from a forbearance agreement. A forbearance agreement provides short-term relief for borrowers who have temporary financial problems, while a loan modification agreement is a long-term solution for borrowers that adjust the terms of a loan from its original obligations. Loan modification procedures typically include the support of legal counsel or a settlement company. Loan modifications will usually involve a reduction in the interest rate on a loan, an extension of the length of the maturity of the loan, a different type of loan or any combination of the three. Loan modifications are most common with secured loans, such as mortgages, and usually involve a reduction in the loan’s interest rate, an extension of its length of maturity, a different type of loan or a combination of these three aspects. Settlement companies are for-profit entities that work on behalf of a borrower to help reduce or alleviate debt by settling with creditors. Borrowers also commonly work with mortgage modification lawyers who can help them to negotiate a loan modification for a mortgage that is threatened with foreclosure.

Mortgage Loan Modifications

Mortgage loan modifications are common in the credit market since larger sums of money are at stake. During the housing foreclosure crisis that took place between 2007 and 2010, several government loan modification programs were established for borrowers. The Home Affordable Modification Plan (HAMP) was one leading program, introduced under the Making Home Affordable program; it, along with the Home Affordable Foreclosure Alternatives Program (HAFA), expired at the end of 2016 for new modifications. Current loan modification programs include those from the U.S. Dept. of Veterans Affairs, the Federal Housing Administration and Fannie Mae (which also offers disaster relief modifications). Traditional lenders may have their own loan modification programs as well. All of these programs typically require an application.

Applying for a Mortgage Loan Modification

Borrowers and settlement parties can find information on mortgage loan modification programs through government-sponsored websites. A mortgage loan modification application will include a borrower’s financial information, mortgage information and specific details on their hardship situation. Each program will have its own qualifications and requirements. Qualifications are typically based on the amount the borrower owes, the property being used for collateral and specific features of the collateral property. When a borrower has been approved for a specific program, the approval will include an offer with new loan modification terms. As a general rule, you tend to modify a loan when your credit is bad enough that you can’t refinance the loan – so your lender changes the terms of how you’re borrowing for this current loan, so you can get back on your feet and continue paying off the loan. This almost always means that while your payments may become lower, the length of your loan stretches out much further.
There are 4 loan options within Utah Housing:
• First Home Loan
• Home Again Loan
• Score Loan
• NoMI Loan (No Mortgage Insurance)
Utah Housing helps eligible borrowers who do not have enough money to pay for a down payment and closing costs when purchasing a home. The average amount a home buyer must save for a down payment and closing costs is between 5% – 6% of the home purchase amount. Utah Housing allows an applicant to borrow up to 6% of the home purchase amount, which can help cover the down payment and closing costs. Please be aware the Score Loan and NoMI Loan offer 4% instead of 6% for the home buyer’s down payment or closing costs.

Individuals and families who otherwise are unable to purchase a home because of insufficient funds for a down payment and closing costs may still become homeowners by using Utah Housing. The following are important things to know when applying for Utah Housing:

• Your total gross household income must fall within the income limit restrictions. These limits vary by county
• Your credit history must indicate that you pay your bills on time. You must have at least a 620 credit score.
• You must be able to qualify for government (FHA) or conventional financing.
• You must live in the home – can’t purchase as a rental.
• Non-occupant co-signors are allowed (First Home Loan only).
The Utah Housing Loan Programs do not provide rental assistance of any kind. If you need rental assistance, please contact your city or county housing authority.

In Utah, all mortgage loan originators must be licensed at the state level. The licenses are regulated and supervised by the Utah Department of Financial Institutions (DFI). The license application process for mortgage entities and loan originators is managed by the Nationwide Mortgage Licensing System (NMLS). The NMLS system allows mortgage broker companies and individuals to apply, update, and renew licenses online.

In the state of Utah, there are two main types of licenses: Company and Individual. Each license type depends on the work you wish to perform.
Most Common Individual License
• Mortgage Loan Originator License – allows individuals to take mortgage loan applications and/or negotiate the terms of mortgage loans for residential properties.

All license applications must be submitted online through NMLS. Please note that some agency-specific documentation, such as the surety bond, must be sent directly to DFI at Utah Department of Financial Institutions Passing an exam is obligatory for some, but not all license types. In Utah, in order to obtain a Mortgage Loan license, you must complete a pre-licensure course and pass an examination. To enroll for the MLO test you must complete at least 20-hours of an NMLS-approved education course. After completing the pre-licensure course, you can enroll and pay the exam fee via NMLS. You can schedule an exam date either through NMLS or by contacting the exam administrator Prometric .The NMLS testing page provides more information on how to schedule, prepare, and take the Mortgage Loan

UT Mortgage Broker Bonds
Bonds for Individual Licenses
• Mortgage Loan Originator – All applicants are required to furnish a surety bond. The amount depends on the origination volume of the applicant during the prior calendar year.
• $12,500 surety bond for loan volume of up to $5,000,000.
• $25,000 surety bond for loan volume between $5,000,000 – $15,000,000.
• $50,000 surety bond if the loan volume exceeds $15,000,000.

Loan Modification Attorney Free Consultation

When You Need a Loan Modification, Please Call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews


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How Can I Get A Loan To Stop Foreclosure?

How Can I Get A Loan To Stop Foreclosure

If you’re facing foreclosure, an effective way of putting a halt to the problem is by getting loans to stop foreclosure. The reason is that foreclosures are extremely damaging to your credit score, not to mention the stress and hassle of being forced to move out of your home. However many homeowners facing foreclosure do not believe that they are eligible for the loans they need to save their homes. What can you do? It turns out your chances are better than you may think. Let’s look at the options.

Loans to Prevent Foreclosure

Traditional loans stop foreclosure effectively — if you can get them. A traditional lender like a bank or credit union will offer the best rates and look the best on your credit history when you later try to get financing for something else.

Unfortunately, traditional lenders can be extremely picky about whom they lend to. Homeowners facing foreclosure often do not have the best credit. In some cases, they may be facing foreclosure because of serious adverse life events that have cost them their jobs and income, leading them to tap out their credit to “stay afloat” — and which may be reflected in their credit scores.

In other cases homeowners are facing foreclosure because they came into things with sub-prime credit and obtained a mortgage from a sub-prime lender. Now, thanks to the housing crisis and its aftermath, sub-prime lenders have started closing their doors in Canada and calling in their loans. The borrowers who find themselves being asked to repay their mortgages often find there are no traditional lenders willing to take on borrowers with sub-prime credit.

Therefore, traditional loans are often not an option. Fortunately, they are also not the only option.

Getting a Loan to Stop Foreclosure

Learn the pros and cons of getting a new loan—either
If you’re facing a foreclosure, you might be able to refinance your loan or take out a reverse mortgage to save your home—although refinancing could be difficult and reverse mortgages are risky.

Refinancing usually isn’t possible if you’ve missed a lot of mortgage payments and have bad credit. While reverse mortgages don’t require credit qualification, taking out this kind of loan is usually a bad idea. Reverse mortgage loans are basically designed so that the lender eventually ends up with the home and have many other significant downsides as well.
Read on to learn more about refinances and reverse mortgages, why these options probably aren’t ideal ways to prevent a foreclosure, and alternatives to potentially consider.

Refinancing Your Loan to Stop a Foreclosure

With a refinance, you to take out a new loan to pay off the existing mortgage, including the delinquent amount, which will stop the foreclosure. You will need to have a stable income and, usually, equity in the home to qualify. By refinancing, you might be able to get a lower interest rate, which would reduce your monthly payment amount.

However, getting a better interest rate—or approved for a refinance at all—can be difficult if you’re facing foreclosure because you fell behind in your payments. Once you skip a payment, the lender will start reporting the delinquency to the three major credit reporting agencies: Equifax, Transition, and Experian. Your credit score will then fall. The more payments you’ve missed, the worse your score will be. People with bad credit generally can’t qualify for a mortgage refinance, let alone one with better terms than they already have. (To learn more about what happens after you stop making payments, see The Order of Events When You Stop Making Mortgage Payments.)

What’s a Foreclosure Bailout Loan?

A “foreclosure bailout loan” is a refinance loan that’s marketed to struggling homeowners to bring a home out of foreclosure. The homeowner takes out a new mortgage to pay off the loan that’s in default. You don’t have to have good credit, but these loans usually require you to have considerable equity in the property, and you’ll have to pay a very high interest rate. In almost all cases, you should avoid foreclosure bailout loans. People who can’t make their regular mortgage payments also tend to default on foreclosure bailout loans; you’ll probably find yourself back in foreclosure after getting this type of mortgage.

Also, you should be aware that some bailout lenders are scammers who are just trying to cheat you out of your money—or title to your home—and leave you in worse shape than you were in before.

Using a Reverse Mortgage to Stop a Foreclosure

If you can’t qualify for a refinance, another option—though not necessarily a good one—to stop a foreclosure is to take out a reverse mortgage to pay off the existing loan. The most widely available reverse mortgage is the FHA Home Equity Conversion Mortgage (HECM).

With a reverse mortgage, people who are 62 and older can get a loan based on their home equity. A reverse mortgage differs from a traditional mortgage in that the borrower doesn’t have to make monthly payments to the lender to repay the debt. Instead, loan proceeds are paid out to the borrower in a lump sum (subject to some limits), as a monthly payment, or as a line of credit. You can also get a combination of monthly installments and a line of credit. The loan amount gets bigger every time the lender sends a payment, until the maximum loan amount has been reached.

If you’re facing a foreclosure and you get a reverse mortgage, the reverse mortgage stops the foreclosure by paying off the existing loan. But reverse mortgages themselves are often foreclosed, and come with many disadvantages, like potentially losing your eligibility for Medicaid and high fees.

Alternative lenders are available who will take you on even if you have bad or no credit. As a rule, the main criteria are that you have at least 10% equity in your home and a steady source of income. Provided you have these things, alternative lenders can quickly write you a loan to stop foreclosure immediately.

Compared with traditional loans, alternative mortgages generally do not last as long. The idea is to use them as a “bridge” which allows you to stay in your home — and avoid seriously damaging your credit with a foreclosure — until you can get “back on your feet” financially. Since you retain up to 90% of the equity in your home, you can also refinance many of your other debts (such as property taxes) and help improve your credit score while you work back towards a traditional mortgage.

At HOS Financial, our Refinance Buy Back program will connect you with alternative lenders who will refinance your home even if you have bad credit. At the same time, we will also provide you with the credit mentoring you need to restore your credit record to good standing.
The result is that by the time you exit the program (usually in 2-3 years) you will have the kind of credit that allows you to walk into a bank and walk out with a regular mortgage. To make things even better, a part of the rent you pay while in the Refinance Buy Back program will be set aside to use as a down payment on your new mortgage.

Other Options to Consider

If you’re having trouble making your mortgage payments, consider looking into other foreclosure prevention options. A few different options to consider include getting a loan modification, reinstating the loan, working out a repayment plan, or giving up the property in a short sale or deed in lieu of foreclosure. You might also consider selling the home and moving to more affordable accommodations.

What Mortgage Foreclosure Solutions Are Available To Stop Foreclosure?

If you’re facing the prospect of losing your home, there are a number of mortgage foreclosure solutions available. Depending on your finances, these range from ways to keep your home (in many cases without needing to go to court) all the way to ways you can make a “clean exit” with minimum stress and damage to your credit report. Let’s look at what choices you have available to you.

The Price Of Doing Nothing

For many homeowners facing foreclosure, simply doing nothing is a very tempting option. Just the word foreclosure can be terrifying. As a result people often lose their homes, suffer terrible damage to their credit report (which may cost them the ability to get a loan on a car or even the ability to get a job), and may even find themselves staring down a sheriff armed with an eviction notice.

To make matters worse, if the home does not sell at a high enough price to satisfy the outstanding mortgage balance and court costs and legal fees and other expenses… you may find these bills hanging over your head long into the future.

The fact is that no matter how fearful the prospect of dealing with a foreclosure may be, doing something is always better than doing nothing. Even if you cannot afford to keep your home, simply talking to the lender and working out a “friendly foreclosure” will leave you far better off down the line.

If you can afford to keep your home in the long term but you are simply the victim of unfortunate circumstance, then this is an even better option.

Negotiating With the Lender

If your finances are in reasonably good shape but you happened to fall behind on your payments due to an emergency, there’s a very good chance your lender will be willing to negotiate. This is especially true if they have not actually brought the courts into play just yet. They may be willing to work out an alternative payment plan with you — this will allow you to stay in your home, and generally represents the best of all possible options.

Formal foreclosures are expensive and slow from the lender’s perspective. Therefore, if you can show them that you will be able to keep up with your payments in the future, the lender may be quite willing to work out a new schedule of payments that will bring you current again — and which will let you avoid foreclosure entirely.

Friendly Foreclosure or Short Sale?

Just as the name suggests, a “friendly foreclosure” does not involve an adversarial process where the lender tries to rip your home out from under you using the court system. Rather, in a friendly foreclosure you go to the lender and agree to hand over title and vacate the property in exchange for them calling it a “done deal.”

With a friendly foreclosure, you generally cannot be held liable for any excess expenses. While a friendly foreclosure will show up on your credit report, it isn’t nearly as damaging as a “formal” foreclosure.
Short sales are similar to a friendly foreclosure but usually you the homeowner are responsible for having the home sold. The proceeds of the sale go to the lender, who agrees that even if the home sells below market value they will consider the mortgage case closed. As with a friendly foreclosure, a short sale still hurts your credit — but, again, not as badly as the alternative.

Refinance to Keep Your Home

If you would prefer to stay in your home, or if your lender is not being cooperative, you can still save yourself from a court foreclosure. This works by simply paying the balance of the mortgage by refinancing.
In the event your credit is in good shape, you may be able to refinance with a traditional lender. If this is an option for you, it’s likely your best one. Unfortunately as a homeowner facing foreclosure you may not represent an attractive “credit risk” to traditional banks.

That’s why HOS Financial has a Refinance Buy Back program which does an “end run” around the traditional banking system by connecting you with private lenders. These lenders are willing to pay off your mortgage no matter what your credit score happens to be.

In fact, the HOS Financial program can stop foreclosures even if they’ve already begun to move through the court system. As long as your case is still inside the “Redemption Period,” HOS will pay the amount the judge has set — and put an end to the case.

After HOS Financials private lender takes over the mortgage, you keep living in your home. You don’t have to worry about any judgments on your record. Instead, a portion of your monthly rent is put aside to go towards a future down payment — so you will be able to smoothly transition back to a traditional mortgage in just a few years.

The Refinance Buy Back program does not stop there, either. While you’re in the program, you will work with HOS Financials expert credit counselors to bring your credit report back to good shape. As a result, by the time you are ready to go back to a regular mortgage, normal banks will be happy to see you walk through their doors.

If this sounds right for you, contact us immediately. Foreclosures mean that the clock is ticking, and you need to take action now or face losing your home forever.

Foreclosure Lawyer Free Consultation

When you need to stop a foreclosure, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews


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How Much Will A Loan Modification Reduce My Payment?

How Much Will A Loan Modification Reduce My Payment

Struggling homeowners are often under the misconception that a loan modification will lower payments. Missed payments, taxes, insurance, interest and late fees must be repaid. When you apply for a modification, the lender rolls all the money owed into the loan balance. A loan modification lowers the interest rate and may extend the length of the loan, but this may not reduce the mortgage payment. Contact your mortgage company before you fall too far behind. Typically, loan modifications result in a payment increase when a borrower is very delinquent.

Most lenders require you to miss at least two payments before considering a loan modification. If you haven’t yet missed any payments, consider refinancing or requesting forbearance. In forbearance, the lender agrees to temporarily postpone payments until you can get back on your feet. Certain banks offer borrowers a principal reduction to lower the total amount owed on the loan. In 2012, The U.S. Department of Justice and the state attorneys general agreed to the terms of a global settlement with mortgage lenders to offer qualified borrowers principal reductions. To qualify, you must be at least 60 days delinquent and your home must be worth less than you owe. The maximum forgiveness amount is 30 percent of the remaining principal balance. Although the most well-known modification is the Home Affordable Modification Program, lenders also offer private modifications. The lender will determine your eligibility and send you the proper paperwork. A loan modification application generally requires you to list all debt, expenses and sources of income.

The lender will pull a copy of your credit report just in case there is some debt you may have missed. Even if an old account is in collection, it counts towards your debt-to-income ratio. You may need to submit recent pay stubs, W-2 forms and income tax returns. For HAMP, applicants must complete a hardship affidavit. Possible hardships can include a loss in income or an increase in monthly expenses. Your lender may want a hardship letter explaining the circumstances, such as a medical condition or injury. Submit the paperwork and documents promptly. You want to act fast to avoid falling even further behind on the loan. Any errors can delay the process. Pay your mortgage on time after gaining approval. According to Realty Times, the loan modification process typically takes up to 90 days. Approval times can vary depending on the lender and whether or not further documentation is required. If your mortgage payment is lowered through the modification, you will need to prove you can afford the new payment. A three-month trial period is a standard part of HAMP. During the trial period, the foreclosure clock continues to click. During this stage, you aren’t in the clear. Even if a payment is lost in the mail, the lender can proceed with the foreclosure. HAMP rules give borrowers 30 days to respond and appeal to a non-approval notice before moving abead with the foreclosure.

Homeowners with modified mortgages that have step rate features will experience changes in their interest rate and monthly payment after a certain period of time, typically five years. The step rate feature will gradually increase the interest rate (usually no more than 1 percentage point per year), which will also change the monthly payment amount. Prepare yourself by reviewing documentation from your mortgage company to understand the specific details of your loan modification. Pay close attention to any changes noted for your interest rate, the payment amount, and the date the changes will take effect. If you use an electronic payment method to pay your mortgage, be sure to update it to the new payment amount before the due date. If you’re concerned—or anticipate challenges—with a new monthly payment, your mortgage company can review your options with you. The options include continuing to pay according to the terms of your loan modification agreement, or perhaps refinancing to lock-in an interest rate.

The sooner you take action, the more options you may have. Get started by contacting:

• Your mortgage company to review the changes to your modification and discuss payment options;
• The Homeowners HOPE Hotline (1-888-995-HOPE) to speak with a housing expert about your situation and an action plan;
• A HUD-approved housing counseling agency (www.HUD.gov) for financial and budgeting assistance, and to find an approved housing counselor; or

If your mortgage was modified with a step rate feature your interest rate was reduced below the prevailing market rate at the time your loan was modified. After a certain period of time (usually 5 years), your interest rate will begin to adjust, or step up, based on the terms of your modification agreement. It will continue to adjust (usually no more than 1 percentage point) each year until it reaches the interest rate cap. The cap is not your original mortgage interest rate, but the market rate at the time you received your modification. With a step rate, your interest rate will increase each year (which will change your monthly payment) until your modified loan reaches its interest rate cap. After that, your rate will be fixed for the remaining life of the loan.

Let’s use a simple example to illustrate how this works on a loan modification scheduled to reset this year. Assume the loan was modified five years ago and the rate was fixed during that five-year period. This is an example only—your loan terms will be different.
Example:

• The current modification interest rate is 3%.
• The interest rate cap is 5.125% (as defined above).
• The loan—according to the modification agreement—adjusts by a maximum of 1 percentage point every year until it reaches the interest rate cap. Therefore, the interest rate on the loan will:
• Adjust 1 percentage point this year to 4%.
• Adjust 1 percentage point next year to 5%.
• Adjust 0.125% percentage point the following year to 5.125%.
• Remain fixed at 5.125% for the remaining term of the loan (since 5.125% is the interest rate cap, this would be the final interest rate adjustment).

Several months before an adjustment happens, your mortgage company will send you a letter(s) with specific details about the step rate adjustment, your new interest rate, and new payment amount. If your loan was modified about five years ago, contact them immediately if you have not received a letter and/or would like to discuss your payment information with them. Once you receive a letter or talk with your Mortgage Company about the upcoming changes, pay close attention to the date your new payment amount is due. Be sure to pay the new amount by the due date to keep your loan from being past due and from being charged a late fee. If you use an electronic payment method to pay your mortgage, make sure to update it to the new amount before the due date. 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 loan owner (“lender”) might agree to do one of more of the following to reduce your monthly payment:

• reduce the interest rate
• convert from a variable interest rate to a fixed interest rate, or
• extend of the length of the term of the loan.
Generally, to be eligible for a loan modification, you must:
• show that you can’t make your current mortgage payment due to a financial hardship
• complete a trial period to demonstrate you can afford the new monthly amount, and
• provide all required documentation to the lender for evaluation.
Required documentation will likely include:
• a financial statement
• proof of income
• most recent tax returns
• bank statements, and
• a hardship statement.

If you’re currently unable to afford your mortgage payment, and won’t be able to in the near future, a loan modification might be the ideal option to help you avoid foreclosure.

Forbearance Agreements

While a loan modification agreement is a permanent solution to unaffordable monthly payments, a forbearance agreement provides short-term relief for borrowers. With a forbearance agreement, the lender agrees to reduce or suspend mortgage payments for a certain period of time and not to initiate a foreclosure during the forbearance period. In exchange, the borrower must resume the full payment at the end of the forbearance period, plus pay an additional amount to get current on the missed payments, including principal, interest, taxes, and insurance. The specific terms of a forbearance agreement will vary from lender to lender. If a temporary hardship causes you to fall behind in your mortgage payments, a forbearance agreement might allow you to avoid foreclosure until your situation gets better. In some cases, the lender might be able to extend the forbearance period if your hardship is not resolved by the end of the forbearance period to accommodate your situation. In forbearance agreement, unlike a repayment plan, the lender agrees in advance for you to miss or reduce your payments for a set period of time.

Repayment Plans

If you’ve missed some of your mortgage payments due to a temporary hardship, a repayment plan may provide a way to catch up once your finances are back in order. A repayment plan is an agreement to spread the past due amount over a specific period of time.

Here’s how a repayment plan works:
• The lender spreads your overdue amount over a certain number of months.
• During the repayment period, a portion of the overdue amount is added to each of your regular mortgage payments.

• At the end of the repayment period, you’ll be current on your mortgage payments and resume paying your normal monthly payment amount.
This option lets you pay off the delinquency over a period of time. The length of a repayment plan will vary depending on the amount past due and on how much you can afford to pay each month, among other things. A three- to six-month repayment period is typical.

Extended Payment Terms

One way to reduce the monthly payment on a mortgage without changing either the interest rate or the principal is to extend the term of the loan. For example, if a borrower has a $150,000 mortgage that they took out at an interest rate of 6 percent for 30 years, the payment on the principal and interest would be $899.33. If the terms of the loan were extended from 30 to 40 years, the payment would become $825.32, for a savings of $74.01 per month, or just under $900 per year. The savings each month are definitely a benefit, but the homeowners will now be making payments 10 years longer before their home is paid off. This may be a viable option though, given the alternative of foreclosure, especially if the borrower intends to move at some point in the future.

Interest Rate Reduction

Lenders will sometimes agree to reduce the interest rate on a mortgage, usually as a temporary measure. Reducing the interest rate on a mortgage for even a short period of time can help a homeowner through a financial crisis. A permanent interest rate reduction is more commonly achieved by refinancing the loan. Continuing the example from above, if a homeowner with a $150,000 mortgage for 30 years at 6 percent was to get a temporary rate reduction to 4.5 percent; the monthly payment would drop from $899.33 to $760.03. This is a savings of $139.30 per month. The interest that the lender forgoes during the period when the rate is reduced may be forgiven, but more typically is added to the back end of the mortgage, to be repaid when the loan matures or the property is sold.

A Principal Forbearance is where the lender forgives the interest on part of the principal. They in effect collect zero percent interest on part of the loan. The borrower still owes the entire principal to the lender, but will pay it back when the property is either sold or refinanced, or when the loan matures. A Principal Reduction is just as it sounds. The lender reduces the amount of principal that the borrower owes, with no expectation of repayment. Debt Forgiveness is analogous to a principal reduction. This is a more effective way to reduce payments than either lowering the interest rate on the mortgage, or extending the terms. Again in the example from above, if the same homeowner with a 6 percent, $150,000 mortgage for 30 years were to get a principal reduction to $125,000, the payment would go from $899.33 to $749.44, for a savings of $149.89 per month.

Loan Modification Lawyer Free Consultation

When you need legal help with a loan modification in Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews


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Foreclosure Lawyer South Jordan Utah

An experienced South Jordan foreclosure lawyer can review you case and advise you on your options. You could be a victim of mortgage fraud and an experienced South Jordan foreclosure lawyer can help you fight foreclosure.
Starting in the 1980s, financial institutions began lending credit to subpar creditworthy borrowers, but it was not until the early mid 1990s that subprime lending began to expand at an exponential rate. While many factors contributed to the growth of subprime lending, more than any other reason for the growth was Wall Street investors’ growing interest in subprime securities backed by loans from U.S. homeowners. Considered by many to be one of the greatest innovations in mortgage lending, the securitization of mortgages into mortgage backed securities dramatically changed the mortgage lending industry. Rather than one single bank supplying the money to fund a mortgage, securitization made it possible for multiple investors to fund mortgages. The banks simply supplied access to credit (mortgages, consumer loans, and auto loans), then sold the assets to investors through the securitization markets, allowing them to replenish their cash reserves. Over time, traditional financial institutions such as retail banks became loan originators.

Wall Street’s involvement in subprime lending through the secondary market changed the face of the primary lending industry in several ways. First, the underwriting standards deteriorated as financial institutions no longer had a stake in the loans they originated. As long as the loans originated by mortgage lenders fell within the guidelines set forth by their investors, they were considered good loans. The banks made money from fees they charged the investors for originating, underwriting, and funding the loan. Second, Wall Street’s involvement led to the growing number of mortgage brokers in the industry. The share of mortgage originations by brokers compared to banks also increased.

If a borrower wanted a refinance but did not have sufficient income, they would rely on their broker to get them qualified. The only thing that matters to most borrowers is getting the loan, and they depend on the loan agent to qualify them. It is important to note that the majority of the mortgage transactions during the last decade were refinances, where borrowers wanted to obtain cash from the equity of their homes. This was especially fueled by the year after year appreciation of the housing prices and low interest rates. The initial loan application or Uniform Residential Loan Application signed by the borrower/s contains detailed financial information of the borrower/s. In other words, it was described that borrowers are well aware that their income and/or asset is inflated on the loan application. The important question among various loan originators is how much money is required to get a particular client approved. Loan originators (brokers, processors, and loan officers) have the experience and knowledge necessary to determine the exact requirements of lenders and tailor the loan application and required documents to meet qualification requirements. Since everyone in this transaction benefited (the borrower gets the loan and the remaining parties (loan officer, broker, and lender makes a profit), it is easy to not see a victim. It wasn’t until the housing crash that countless victims of fraud became apparent.

Borrowers and their loan agents share the same goal, which is to obtain a mortgage successfully. Lenders (e.g., underwriters, account managers, and representatives) commonly ignore questionable financial claims or documentations submitted by brokers if the information seems reasonable. A broker may be approved with 30 different lenders, but will primarily use only a handful of lenders who are “willing to work with them.” Alternative mortgage products and low underwriting standards created conditions ripe for crime in legal institutions that might perceive blatant intentional misrepresentations, misstatements, and omissions as nothing more than creative or risky financing.

Alternative mortgage products, such as the popular low doc or no doc loans, commonly known in the industry as stated loans or liar loans, require crafty manipulation on the part of loan agents to qualify borrowers who do not meet lender requirements. The thin line between creative financing and outright criminal fraud is commonly crossed by loan agents who perceive their actions as acceptable in the industry. This is evidenced by many lenders’ circumvention of their responsibilities to thoroughly underwrite a loan when a stated loan is involved. There are various ways to get a client to qualify for a loan – many of which may be creative and led to fraud. For example, a loan agent may claim that funds from a refinance will be used to pay existing debts, and therefore reduce the client’s debt-to-income ratio of the loan. However, once a loan funds, a loan agent may instruct the escrow officer, whom he has an established relationship with, to not pay off the debts and establish falsified payoffs. Another example of the thin line between creative financing and criminality is the line between amounts that is inputted as income on a stated or a liar loan. Many loan agents in the industry presume that they can state any income amount on a loan application, as long as it “makes sense.” As such, loan agents will approach a stated loan by first determining the amount required to qualify and then figuring out ways to make sense of it to the lender. This often involves misrepresentations, falsifications, and fraud. Instead, loan agents should first determine their client’s income and present it to the lender in an honest and truthful manner.

When such practices are condoned within the working environment, and even promoted by their clients, colleagues, and superiors, questions of ethics and legality are easily suppressed.

No or low documentation loans, or stated loans, do not mean state whatever is realistic and whatever the lender will accept. Loan agents are bound by professionalism, ethical conduct, and fiduciary duties to their client to practice responsible financing. In this case, the client should have been instructed by the broker to reduce the loan amount to better suit his or her ability to repay. Whether the loan agent rationalized the act as accepted. within the organizational structure by colleagues or superiors, misrepresentations, such as overstating income or assets, was a crime. The borrowers obtained the home or credit they desired; loan practitioners profited from their tractions; and lenders, along with their investors, got their loans.

In the mortgage industry, the manipulation of borrower information in order to meet the qualifications of a mortgage loan is the most common type of fraud. Most of the time, the acts are very simple in nature and include adjustments to the financial information that the loan agent (a superficial term that applies to all official parties involved in the loan origination process) submits on behalf of the borrower. This may include adjusting income to fit the minimum requirements of the lender, despite being aware that the income is false, or having the appraiser inflate the value of the property, although industry practitioners, brokers, loan officers, and processors, are well aware of lending guidelines and requirements. More importantly, loan originators know exactly what will fly or pass with lenders. For instance, loan agents are well aware of actions that may raise eyebrows and may manipulate information accordingly. A stated income loan application submitted on behalf of a custodian claiming an annual salary of $I00K would raise suspicion. Therefore, to avoid suspicion, loan agents simply manipulate the employment title and income such as changing custodian to senior waste/recycling management officer and restating the income as $80–90K, annually. To compensate for the additional required income, the loan agent may simply create an additional income source by fabricating a fictitious job, such as a part-time home office income source.

Data fabrication involves the creation of false documentation in order to establish source(s) of income and assets. This type of fraud includes creating financial documents, such as W2’s, Verification of Deposits (VOD), Verification of Rent (VOR), or Certified Public Accountant (CPA) letters. Under many circumstances, the loan agent will establish bank statements from an existing account or create false rental income (VOD) from a home the borrower supposedly owns. Another example of this type of fraud includes generating a Letter of Explanation (LOE) to explain information submitted to lenders.

• The general or common process that borrowers go through to get a loan is described below. It is important to note that the following description is generic and not the experiences of all borrowers.

• Loan agents inform their borrower they can get the loan, but it will require that their income and/or assets be stated as a particular amount.

• Borrowers are informed that they qualify or not. If they do not qualify, they are either turned away (unlikely) or explained that certain actions will be necessary by either the loan agent or the borrower to get them “qualified.” For example, if borrowers lack the required assets, they are advised to have a friend or family member deposit a specified amount of funds into the bank and leave it for 2 months, or the loan agent has to establish a false verification of deposit (VOD).

It is common for borrowers to be unaware of the fraudulent acts committed by their loan agents. In certain circumstances, loan agents will not inform their borrower of the disqualifier(s) and questionable act(s) made by the loan agent. This occurs when the disqualifier and the corresponding act to get the loan approved is considered minor.

In most circumstances, loan originators are completely knowledgeable about the accuracy and credibility of the information they submit on behalf of their clients. There are cases where borrowers intentionally submit falsified information to their loan agents to misrepresent both their agent and their lender; however, fraud for profit, as defined in the industry and by the FBI, is uncommon. Loan agents and borrowers both stipulate that it is in their interest to be fully informed of anything important in a loan. Borrowers are required to sign and approve loan applications and documents and loan originators commonly express the importance of being straightforward and honest with their clients. Honesty between loan originators and their clients is good for business. Further, inconsistency of information by either party can raise red flags to a lender and result in a denial of a loan.

The job of the broker office is to gather the required information for a loan application and submit it to the lender on behalf of the borrower. Thus, crimes involving intentional misrepresentation and misstatement are much more common in the broker’s office. Lenders, on the other hand, are responsible for underwriting the application materials in accordance with the law and guidelines set by their investors. A major part of the duties and responsibilities of lenders include looking over application documents and verifying the information. It was not surprising that intentional oversight or acts of concerted ignorance were described as the most common forms of mortgage fraud among employees of financial lenders.

Once the loan file has been submitted to a prospective lender, it is overseen by an account manager or an underwriter. These loan agents are critical to the successful outcome or funding of a loan. Account managers and underwriters account for the majority of work involved in the origination process of the lending phase. Their duties and responsibilities include establishing loan approval conditions and ensuring that prospective loans adhere to lending guidelines. Account managers and underwriters work directly with their brokers, loan officers, and processors on a regular basis, and commonly coach them in structuring a loan or document to make the loan work. They are extremely knowledgeable about their employers’ guidelines and requirements, which makes them a valuable asset to brokers.
More importantly, account managers and underwriters are responsible for approving loan conditions once they have verified the information. For example, a loan approval may be predicated on verification of conditions such as an applicant’s employment and assets. It is common for these loan agents to overlook questionable information or sign off a condition(s) without verification.

Funders and appraisal reviewers also commonly overlook questionable information, such as an appraisal that lacks the required comparisons to justify the value of the property in question.

Having an appraiser willing to work with you is extremely important to a mortgage brokerage office. Most loan transactions are predicated on the value of the property. Appraisers who are conservative valuators can have a difficult time finding business, taking a conservative approach can be disastrous for an appraiser’s career. During the real estate boom, it was simple to justify appraisal values that exceeded the actual value of a property. For example, appraisers could avoid taking pictures that showed damage to the property, or use nearby properties with greater appreciation as comparables. If a garage were converted into a bedroom without a permit, the appraiser would include only an outside picture of the garage. Another common method with which appraisers inflate values is using comps, or comparables, that do not accurately reflect the value of the target property.

Victims of mortgage fraud are often subject to foreclosure for no fault of theirs. If you are a victim of mortgage fraud and facing foreclosure, speak to an experienced South Jordan Utah foreclosure lawyer.

South Jordan Utah Foreclosure Attorney Free Consultation

When you need legal help with a foreclosure in South Jordan Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506
Ascent Law LLC

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