Understanding Mortgage Modification Options in NJ in the Era of the Coronavirus (COVID-19)
In normal circumstances homeowners in New Jersey and elsewhere do not have a legal right to obtain a mortgage modification, forbearance, short sale or other workout options, many if not most lenders and servicers have loss mitigation departments which evaluate homeowners for possible workout options to prevent the loss of homes in connection with foreclosures. Unfortunately these are not normal times. However, the State of New Jersey, the Federal Government and banks/servicers are beginning to expand programs intended to benefit distressed borrowers, with more related policies and programs being rolled out imminently.
Commonly Available Workout Options
As a homeowner you have commonly available workout options including but not limited to:
- Refinance: Refinancing could possibly be an option. HOPE for Homeowners is an FHA refinance loan options for qualifying homeowners. This was created to help protect qualified homeowners from foreclosure by preventing loan defaults. Refinancing is typically impractical for most homeowners without using a government program as the value of most homes are less than the amount that is owed on the loan.
- Reverse Mortgage: A reverse mortgage is commonly used by senior citizens. It helps them to access the equity in their home for retirement. To use a reverse mortgage to prevent foreclosure, you typically must be 62 years of age or older and have equity in the property.
- Mortgage Loan Assumption: A “due on transfer” provision is typically included in mortgage loans unless waived by the lender. If it is waived, it will allow an individual or entity to take over the obligation to make payments on the loan as long as they are qualified. Typically this is used to sell of the property to a third party. If the individual or entity assuming the payment obligation on the loan defaults, the lender can possibly release you from personal liability on the note.
- Loan Guarantee Partial Claim: If you have mortgage insurance, your lender may provide a interest-free loan in order to help you bring your account current.
- Reinstatement: You and your lender come to an agreement where you pay all amounts owed on the loan to bring your mortgage current including any and all late fees, attorney fees, taxes, insurance, etc. Once the amount is satisfied, then you will be back on your regular monthly payment schedule and the attorney for the lender will dismiss the foreclosure action against you.
- Repayment Plan: You and your lender come to an agreement where resume making your regular monthly mortgage payments, in addition to an agreed upon amount each month until you have paid the owed arrears to reinstate the loan.
- Loan Modification: This is where the lender agrees to make changes to the terms of your mortgage allowing you to remain in your home. The terms that may be subject to charge are extending the amount of time you have to pay off the loan in full, reducing your interest rate, converting an adjustable rate loan to a fixed rate loan, or adding the missed payments and late fees, etc. to the back end of your loan.
- Forbearance Agreement: A forbearance agreement allows borrowers to repay the delinquency of a loan over a period of time. Your regular monthly payment would be made an addition to an agreed upon monthly payment to apply to the delinquent amount. Once the amount of the delinquency is paid in full, your normal monthly payments will resume. Sometimes a forbearance plan will include additional incentives such as a suspension or reduction of payments for a period of time allow you to make up the default. They may also provide you time to pay you regular monthly mortgage payment only prior to the beginning of the repayment of the arrears. A repayment may be allowed for a period of six months and allow reasonable foreclosure and late fees to be included as part of the repayment schedule. However, they arrears may only be collected once the loan has been reinstated.
- Extension Agreement: This is where you pay a lump sum of the amount of your delinquency up front, and the remaining amount is added to the back end of your loan.
- Principal Forbearance: A Forbearance is the repayment of a portion of the principal interest-free. The original borrowed amount on your mortgage loan less any payments that you make until the loan is paid in full or the property is sold is the principal amount due and payable at maturity of the loan. The payments on the loan partially, amortize the loan.
- Principal Reduction: This is where the lender agrees to reduce the principal amount owed on the loan. This is possible if you have a negative amortization loan. A negative amortization loan is where you are paying less than is required to pay off the loan in full during the loan’s term. The lender would reduce the principal to the original loan amount. In exchange for the principal reduction, a shared appreciation mortgage (SAM) may be required. This is a fixed rate, fixed term loan. You would agree to release a portion of the home’s future value in exchange for a lower interest rate.
- Short Sale: This is the sale of the property for less than what you owe on the mortgage. Lenders may consent to you selling the property at a lesser amount and lose out on collecting the fees associated with foreclosure, because it preferable to foreclosure action as lenders face the risk of substantial loss from litigation and other related costs associated with a foreclosure action and including real estate taxes and insurance. With a short sale, the lender may agree to relieve you of liability for any deficiency.
- Deed in Lieu of Foreclosure: This is where you voluntarily agree to conveying your property to the lender in by executing a Deed. In exchange for you executing a deed the lender will cancel the debt you owe on the loan. The lender will typically agree to forgive the deficiency that may remain on after the house is sold. Once the deed is executed and returned, the lender will no longer move forward with foreclosure proceedings or dismiss any foreclosure action against you.
- Voluntary Surrender/Cash for Keys: This is where your lender may offer you money to vacate the premises prior to a sheriff sale. The house must be in good condition without any damages caused by you.
Existing Options Do Not Guarantee Your Servicer Will Offer These Workout Solutions
Please note that although each of the above referenced loss mitigations possibilities exists, this should not be taken to imply that your lender or servicer offers any or all of these workout solutions. Further note that in the event that your lender or servicer offers one or more of these solutions to some borrowers does not mean such solutions are available to all customers. Related to this, through the loss mitigation application process the finances of distressed borrowers are evaluated to determine whether the relevant borrowers have the financial wherewithal to make a payment that is satisfactory from the lender or servicer’s perspective. Moreover, when being reviewed in connection with the loss mitigation process, banks consider the reason a borrower default, the appraised value of the property and the amount of the arrearages, in addition to a borrower’s’ ability to pay.
If you are interested in learning more about mortgage modifications, forbearances, cash for keys or other mortgage workout option, or if you have any related questions call us today at (973) 500-8024 or (212) 960-8308, or submit your contact information below and we can contact you directly.