Chapter 11 Mortgage Workouts

One of the most effective ways to prevent foreclosure when you are having trouble making mortgage payments is to see if your lender will agree to a “workout.” A workout is a temporary or permanent change to your mortgage terms. There are many types of workouts. Some allow you to get caught up on your payments over time, others may reduce your monthly payments by changing the terms of your loan. You should always start the workout process as soon as possible.

The Importance of Getting Help It is possible to try to arrange a workout on your own. However, arranging workouts is a tricky business and the lender will have far more information about available options. It is a good idea to try to find a nonprofit counselor or lawyer who has experience with mortgage workouts to help you through the process. If someone unsolicited offers to help, make sure you are dealing with a legitimate nonprofit agency with experience in default and delinquency counseling.

Should You Consider a Workout? For many homeowners facing foreclosure, negotiating a workout is the best strategy for saving their home. But, it is not always the best approach for all homeowners. A workout does not make sense if you will lose the home due to other financial problems. Bankruptcy may be a better option than a workout because the bankruptcy process will allow you to deal with all your financial problems at the same time.

Should You Consider a Workout? Start workout discussions as early as possible. Why? There are some reasons to start early: 1)It is easier to negotiate a workout before you get too far behind in payments. 2)It could avoid the difficulty of negotiating at the last minute with a potential foreclosure sale date pending. 3)It will appear more responsible of you try to prevent the problem from getting out of hand. 4)It could avoid potential foreclosure fees and costs, which can be substantial. 5)It is better to begin negotiations before the lender has turned the matter over to a foreclosure lawyer.

Tips for Preparing for a Workout Gather Information Before You Contact the Lender. Prepare a Reasonable Budget for the Future. Re-examine the Budget to Determine If You Have Any Way to Increase Your Income or Reduce Your Expenses. Seek Out Any Available State or Private Sources of Funds for Foreclosure or Disaster Assistance. Develop a Plan to Deal with Other High-Priority Debt Problems. Prepare a “Hardship” Letter Which Explains Why You Defaulted. Gather Certain Information About the Property and Its Value. Decide Before You Contact the Lender What You Want and Why You Should Get it. Understand the Details of Your Loan and the Amount of the Default.

Some tips to understand in the foreclosure process 1) You need to know about the various parties involved with your mortgage to understand whom you should contact and what that individual’s role is in the foreclosure process. 2) There may be a mortgage holder, a mortgage servicer, a foreclosure attorney, and a mortgage insurer all involved with your mortgage. 3) Usually, you do not contact the mortgage holder. Instead you usually contact the mortgage servicer. 4) If you are referred to the foreclosure attorney, you should also contact any mortgage insurer.

Some tips to understand in the foreclosure process 5) HUD, VA, and RHS have substantial programs to avoid foreclosure. 6) Contact your mortgage insurer to see if they can help you with your mortgage workout plan. 7) Federal programs for distressed mortgages will help homeowners modify or refinance their mortgages. 8) Make partial payments on your mortgage if the lender will accept them. 9) Complete the mortgage workout application process and make sure to follow up with your lender.

What to Ask for in a Workout A workout negotiation - Consider using one or more of the following recommendations: 1) Request a delay of any impending foreclosure sale so that a workout application can be completed. This should be done right away so that the lender. This will allow you time to create a back up plan incase the request is denied. Make sure that you obtain a written response at least 10 days before the for foreclosure sale date. 2) Traditional payment agreements involves curing a default by making regular monthly payments as they are due together with partial monthly payment on the arrears (past due amount).

What to Ask for in a Workout 3) Temporary interest rate reduction plan generally requires that you have a reasonable plan for increasing your income in order to make full payments by a certain date. 4) Recasting of missed payments involves excusing your present obligation to catch up on missed payments, and instead delays your obligation to make those payments until the end of your loan term. 5) Permanent modification of loan terms could mean permanently changing the terms of your loan, such as permanent interest rate reduction, extension of the loan’s payment period, re-amortization, capitalization of arrears, cancellation of principle, or some combination of these.

What to Ask for in a Workout Other creative workout terms may also be considered by servicers or lenders. Pre-sales for more than you owe the lender A pre-sale is a sale or transfer of your home in lieu of a foreclosure. This is usually more beneficial than a if the home is sold through the foreclosure process. Short sales is when the lender agrees to let you sell your home through a realtor rather than a through foreclosure sale, and may agree to cancel all or almost all of what your owe after the lender receives the sale proceeds, even if the proceeds will not cover the amount due on the other mortgage.

Modification Fees, Foreclosure Fees, and Late Charges While modification fees are not permitted under some state and federal workout programs, lenders may charge a modification fee for handling workout applications. Minimize your modification fees by requesting a wavier or a fee reduction to make the modification affordable. Late charges will frequently be waived if you ask.

If your workout negotiation is not going well …. Appeal to Higher Ups Ask to speak to a supervisor if you are not getting cooperation. Complain directly to the mortgage holder or mortgage insurer. Contact at Fannie Mae and Freddie Mac who offer some free services to help homeowners. Fannie Mae, Freddie Mac, and some institutional investors have “loss-mitigation” departments that will intervene. Refinance with another lender for a lower term. Refinance with a reverse mortgage. Deed in lieu of foreclosure.

Tax Consequences of Short Sales and Workout Plans Some workout plans and almost all short sales involve an agreement by the lender to cancel some part of your debts. Some workout options, including pre-foreclosure sales (short sales) and deeds in lieu of foreclosure, potentially involve some form of forgiveness of the obligation to pay a debt. This forgiveness may be reported to the IRS as income given to you at the time the option was exercised.

Credit Consequences of Foreclosure and Workout Plans 1.Concerns about future credit should rarely influence how you address your current problem. 2.A completed workout plan of any type is likely to look better on your credit report than a completed foreclosure sale. 3.A completed foreclosure sale or bankruptcy is usual fatal to application for new mortgages from reputable lenders for at least 2 years. 4.A deed in lieu of foreclosure is not a big improvement over foreclosure in terms of how it effects your credit score.

Credit Consequences of Foreclosure and Workout Plans 5.It is a good idea to explain the reason for any mortgage delinquency and/or foreclosure when applying for credit, if you know it appears on your credit report. 6.Unsecured credit, such as credit cards, is often available even if you have a recent foreclosure on your credit record. 7.If you are in a high-risk credit group, it is especially important to shop around when you apply for credit.

Does it Make Sense to Try to Save Your Home? Making a decision not to save your home is a hard decision. Not saving your home may be your best financial choice if: Your home is worth substantially less than the combined amount of your mortgage; You are not able to negotiate an affordable monthly payment with your servicer; You do not have a strong legal claims relating to your mortgage that an attorney is pressing in court for you.

Federal Government’s Home Affordable Modification Program Home Affordable Modification Program (“HAMP”) made loan modification standards and provides incentive payments to servicers and lenders that met these standards. Basic eligibility -If you are not unemployed, but you’re still struggling to make your mortgage payments, you may be eligible. HAMP may lower your monthly mortgage payments in order to make them more affordable and sustainable for the long- term.

Basic Eligibility of HAMP Home Affordable Modification Program 1)The mortgage you are trying to modify must be the first lien and your primary residence; 2)The unpaid balance on your mortgage must be no more than $729,750 if it is a single-family residence; 3)You must have gotten the mortgage before Jan. 2009; 4)The total amount of your monthly mortgage payment must be no more than 31% of your gross monthly income; 5)You must be at risk of defaulting or already delinquent on your mortgage, or in foreclosure

Federal Government’s Home Affordable Modification Program You must make each payment during the trial period by the last day of the month in which it is due Principle reduction incentive: if you get a permanent modification and make your required payments, the US government may make payments directly to your servicer to reduce how much you owe. What to do if you are denied: the servicer must send you a notice of denial with in two weeks of deciding you are not eligible. What to do if your servicer is unresponsive: contact a HUD-approved housing counselor or an attorney to help you. Payment forbearance under the unemployment program (“UP”)-If you lose job, the servicer cannot foreclose on your house for 12 months. If a HAMP modification does not work for you, your lender must still consider you for other foreclosure alternatives

Refinancing Your Mortgage Under the Home Affordable Refinance Program If your mortgage is owned or securitized by Fannie Mae or Freddie Mac, you may qualify for the Home Affordable Refinance Program (HARP). This program is designed to help homeowners who are unable to refinance due to declining property values-including those who owe more on their home than it is worth. To be eligible, you can not have been more than 30 days late on your mortgage payment in the past 12 months.

The Hope For Homeowners (H4H) Program The Hope for Homeowners (H4H) program was created in 2008 to allow eligible homeowners to refinance into FHA-insured 30 year fixed rate mortgages. A FHA loan is a mortgage loan that is insured by the Federal Housing Administration (FHA). The details of the refinancing programs change frequently. To see what refinance options are available, visit rates/pages/default.aspx rates/pages/default.aspx