Loan Modification and Foreclosure Alternatives
A homeowner facing mortgage delinquency or foreclosure may have options other than immediate foreclosure litigation. Loss mitigation is the general term used for programs and procedures intended to address mortgage default and reduce foreclosure where an alternative is available.
- Depends on
- Loan owner/investor
- Coordinated with
- Foreclosure defense
- Governed by
- Dodd-Frank & Reg X
- Based in
- Miami, FL
Options
Not Every Option Applies to Every Mortgage
Depending upon the loan and the homeowner's circumstances, possible options may include:
- repayment plans
- temporary forbearance
- payment deferral
- loan modification
- partial-claim or similar program-specific remedies
- short sale
- deed in lieu of foreclosure
- other investor-authorized alternatives
Not every option applies to every mortgage.
Loan Ownership
Who Owns or Controls the Loan Matters
The loss-mitigation options available can depend upon the entity that owns, guarantees, or insures the loan. Applicable guidelines may come from:
- Fannie Mae
- Freddie Mac
- FHA
- VA
- USDA
- a private investor
- a securitized trust
- another mortgage owner or program
Identifying the applicable investor or program can therefore be an important first step.
Federal Procedures
Federal Servicing Procedures
Dodd-Frank mortgage-servicing reforms and RESPA's Regulation X framework establish procedural protections for many borrowers seeking loss mitigation. Depending upon the circumstances and coverage of the loan, these procedures can address:
- acknowledgement of applications
- identification of missing documents
- review of complete applications
- communication of decisions
- certain appeal rights
- restrictions on specified foreclosure activity while qualifying loss-mitigation procedures are underway
These federal rules do not guarantee that a particular loan modification will be offered or approved.
The substantive options available generally depend upon the investor or program governing the loan.
One Strategy
Loss Mitigation and Foreclosure Defense Should Be Coordinated
A homeowner should not necessarily view loan modification and foreclosure defense as completely separate tracks. The existence of a pending loss-mitigation application may affect foreclosure strategy. Likewise, information discovered during foreclosure litigation may affect how a modification application should be evaluated. The firm may examine:
- Which investor guidelines govern the loan?
- Was the borrower evaluated under the correct program?
- Were required documents received and considered?
- Were communications accurate?
- Did foreclosure activity occur while servicing protections potentially applied?
- Is the proposed modification financially workable?
- How does the loss-mitigation strategy interact with available defenses?
The appropriate strategy depends upon the individual homeowner's objectives, finances, property equity, loan history, and litigation posture.
Bankruptcy
Mortgage Litigation and Bankruptcy Considerations
In appropriate circumstances, loss mitigation may also need to be considered together with bankruptcy options.
Bankruptcy is not appropriate for every homeowner, but it may create additional procedures or remedies affecting mortgage arrears, creditor claims, junior liens, and the timing of foreclosure. The firm evaluates those issues individually rather than treating bankruptcy as an automatic solution.
Weighing a loan modification against fighting the foreclosure?
A consultation reviews which programs actually apply to your loan and how loss mitigation fits with your broader strategy.