Short Sale vs. Foreclosure: Holding the mortgagor responsible for the difference between mortgage principal and short sale offer

Question: We are selling our house via a short sale and have received an offer of 25% less than the mortgage principal we owe on the house. The bank has accepted the short sale offer but asked that we pay an additional $15,000 to the offer. The bank stated that if we pay the $15,000, we will be released from the remaining debt on our loan. What is the law regarding holding a mortgagor responsible for the difference between the mortgage principal and the short sale offer? Should we pay the $15,000 requested by the bank (we made a counter offer of 25% of what the bank requested), or should we let the house go into foreclosure? The foreclosure date has been scheduled within two months from now.

Response: Generally, conducting a short sale has tax consequences for the borrower in terms of the difference between the sale price and the mortgage amount. In today's economy, where the banks benefit a lot more from a short sale rather than waiting for many years to conduct a foreclosure sale, they are willing to negotiate with the borrower by releasing some or all of the additional debt. It is always a good idea to negotiate with the bank and you did the right thing by giving a counter offer. However, what is not clear to me is whether the bank has asked for additional $15,000 specifically to discharge additional debt or because they think the short sale offer is too low, i.e., they think they could receive $15,000.00 more if the bank conducted the sale itself (usually the banks look at today's fair market value when deciding what amount to settle for). As far as letting the home go into foreclosure, that too, may have severe financial consequences. The bank may obtain a deficiency judgment against you and go after your other personal assets to try to recover some of its money that were previously lent to you. Both short sale and foreclosure will adversely affect your credit but more so with foreclosure than the short sale. If the bank is willing to accept a deed-in-lieu of foreclosure, that could be more advantageous to you, as you could avoid a deficiency judgment and it would be less harmful to your credit. However, the banks are not generally willing to entertain the idea of a deed-in-lieu when a short sale is still a possibility. Between two evils you are currently faced with, I would definitely say that a short sale is a lesser evil than foreclosure. As a side note, if you need more time to go through with the short sale and your foreclosure sale date is approaching, bring an Order to Show Cause to court to stop the foreclosure sale on an emergency basis. For example, short sale will take place soon and you need more time.

In the legal blog, Attorney Svetlana Kaplun addresses typical questions our firm has received from our clients, or come across from homeowners related to foreclosure, foreclosure defense, loan modification and bankruptcy topics.


The information contained in the legal blog of Attorney Svetlana Kaplun is for informational purposes only, and should not be construed as a legal advice on any subject matter. Please read our full disclaimer or contact the Law Office of Svetlana Kaplun, P.C. by telephone at 718-444-1115 for more information.
Copyright © 2015 Law Office of Svetlana Kaplun, P.C.

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Refinancing vs. Loan Modification

Question: I am thinking of stopping to make mortgage payments so I could modify my loan. What's better: refinancing or loan modification?

Response: A lot of mortgage broker companies, as well as other types of real estate companies, that try to earn a living since the real estate market collapsed, will try to solicit you to get your loan modified with them. They might call or send you notices telling to that you are already approved to modify your loan at 2%. The actual process, however, is much more complicated before you have defaulted, i.e., stopped making your mortgage payments, your credit score may be good, if not excellent, to refinance your mortgage under today's fair market rate, which could often be similar, if not the same rate that is being offered once the loan is modified. If you go with the option of refinancing your loan, then your credit history stays untouched and you win twice. People who default on their mortgage payment should only be those who truly face some financial hardship (which is essentially a prerequisite to getting your loan modified). If you are experiencing financial distress and you defaulted or plan to default on your mortgage payments, the bank cannot commence a foreclosure action immediately as they must first give you 90 days to accelerate the entire remaining balance due under the note and mortgage agreements. Please beware that your credit score will start to drop immediately after you missed one payment and will progressively get worse, thus refinancing will no longer be an option. Modification then may be your only option to save your home and potentially lower your monthly payments (with FHA loans, it is very hard to lower monthly mortgage payments), however, you will not know if your loan will be modified until it is actually modified. Even after it is modified, it will take years for your credit history to recover. Before you default, you are in superior position--you have the time and resources to weigh all your options...

In the legal blog, Attorney Svetlana Kaplun addresses typical questions our firm has received from our clients, or come across from homeowners related to foreclosure, foreclosure defense, loan modification and bankruptcy topics.

The information contained in the legal blog of Attorney Svetlana Kaplun is for informational purposes only, and should not be construed as a legal advice on any subject matter. Please read our full disclaimer or contact the Law Office of Svetlana Kaplun, P.C. by telephone at 718-444-1115 for more information.
Copyright © 2015 Law Office of Svetlana Kaplun, P.C.

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Should I stop making home mortgage payments to get a loan modification?

Question: I keep on getting phone calls from mortgage brokers trying to convince me to stop making mortgage payments on my property in order to modify my loan at 2%. Should I actually stop making payments in order to get a loan modification?

Response: A lot of mortgage broker companies, as well as other types of real estate companies, that try to earn a living since the real estate market collapsed, will try to solicit you to get your loan modified with them. They might call or send you notices telling that you are already approved to modify your loan at 2%. Unfortunately, it is often true that banks themselves will also advise you to stop making mortgage payments in order to qualify for a loan modification. What they don't tell you is that you might not qualify. Most people do not realize that once you stop making monthly payments, a foreclosure action may be commenced after 3 months, and from that point on, a long, tedious process begins to save your home. Your unique circumstances will play a big role as to whether your loan will be modified. If you have not yet defaulted, first call your bank and see if they will even entertain an idea of working on a loan modification for you prior to default. It is always your best bet to consult with an experienced attorney and allow the attorney to negotiate with the bank on your behalf. Loan modification may save you up to 40% in your monthly mortgage payments but the process can also cause you a lot of stress and uncertainty (i.e. foreclosure). Weigh your options carefully before you voluntarily choose to default or believe someone that you are already approved for a loan modification!

In the legal blog, Attorney Svetlana Kaplun addresses typical questions our firm has received from our clients, or come across from homeowners related to foreclosure, foreclosure defense, loan modification and bankruptcy topics.

The information contained in the legal blog of Attorney Svetlana Kaplun is for informational purposes only, and should not be construed as a legal advice on any subject matter. Please read our full disclaimer or contact the Law Office of Svetlana Kaplun, P.C. by telephone at 718-444-1115 for more information.
Copyright © 2015 Law Office of Svetlana Kaplun, P.C.

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Can the bank go after my assets if my home is foreclosed upon?

Question: I own a second property that is under water. If the house is foreclosed on can the bank pursue any other assets that I have?

Response: If the house is foreclosed upon, the bank can get a deficiency judgment (the difference between what the bank recovered at a sale and what was owed) against you from the court and then try to go after your assets to try to satisfy such a deficiency. If you know in advance that you will not be resisting the foreclosure action taken by the bank, you might want to consider doing a deed-in-lieu of foreclosure, whereby you voluntarily transfer the deed of the property to the bank and they release you from any financial obligation to them. The bank will usually agree to a deed-in-lieu after you have tried other types of loss mitigation options, like a short sale. In a short sale, you would sell the property to a 3rd party at a fair market value but for less than is owed to the lender. Please note that unless a short sale is properly negotiated with the lender, there may be tax consequences to you as a result of a short sale. The banks typically prefer a short sale over a deed-in-lieu because they do not want be the ones then responsible for selling your home. If you can show to the bank that you tried to do a short sale but failed, they will consider a deed-in-lieu.

In the legal blog, Attorney Svetlana Kaplun addresses typical questions our firm has received from our clients, or come across from homeowners related to foreclosure, foreclosure defense, loan modification and bankruptcy topics.

The information contained in the legal blog of Attorney Svetlana Kaplun is for informational purposes only, and should not be construed as a legal advice on any subject matter. Please read our full disclaimer or contact the Law Office of Svetlana Kaplun, P.C. by telephone at 718-444-1115 for more information.
Copyright © 2015 Law Office of Svetlana Kaplun, P.C.

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Can second bank foreclose when first loan is already modified?

Question: I have two mortgages on my home. The first was recently modified under HAMP. The 2nd lien holder sent me a letter stating that they do not participate in the government program and I was denied for a modification for 2nd. My house appraises to $300,000.00. My first mortgage is $330,000.00 after modification. I cannot afford to make my second mortgage monthly payments and am now 2 1/2 months behind. The 2nd bank is threatening to foreclose on my property even though I am paying my first mortgage. What can I do?

Response: The 2nd mortgagee (2nd lender) is an unsecured creditor because there is no equity left in your home to preserve the 2nd mortgagee's interest. If they were to commence a foreclosure proceeding right now, they will incur fees and costs for foreclosure that they would not be able to recover. If the sale took place right now, the 1st lender would get around $300,000.00 that the home appraises to and would end up losing the other $30,000.00. The second lender would get nothing at all because everything would go to the first. Therefore, the second lender is in the worse situation. Some banks choose to extinguish these debts altogether or they might try to settle with you by agreeing to a haircut on the debt you owe them. Alternatively, just because the bank does not participate in the government program does not mean they cannot offer you their own traditional loan modification. After all, it is in their best interest to do so. It is in your best interest to conduct proper negotiations with the financial institution that owns your debt.

In the legal blog, Attorney Svetlana Kaplun addresses typical questions our firm has received from our clients, or come across from homeowners related to foreclosure, foreclosure defense, loan modification and bankruptcy topics.

The information contained in the legal blog of Attorney Svetlana Kaplun is for informational purposes only, and should not be construed as a legal advice on any subject matter. Please read our full disclaimer or contact the Law Office of Svetlana Kaplun, P.C. by telephone at 718-444-1115 for more information.
Copyright © 2015 Law Office of Svetlana Kaplun, P.C.

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Does bank review automatically put foreclosure on hold?

Question: Our bank said that our mortgage qualifies for a review. There are no motions that were granted by the judge yet. Actually, our court process is just in the beginning stages. I was wondering if a judge could make a decision while we are waiting for a review to be done? Can foreclosure be put on hold while we are in review?

Response: The review process that you are referring to is the bank's review of your financial documents for a loan modification. Foreclosure process, today, from start to finish, takes a quite long time. In NY, before a judge could render any decision (Judgment, Order of Reference, or Motion for Summary Judgment), you are first required to attend a mandatory court settlement conference. While you are in the settlement conference part, your foreclosure action is stayed, or put on hold. That means the bank cannot move forward with its foreclosure process, the judge cannot render any decisions, and definitely, no sale at an auction can be scheduled. However, even if you are past the settlement conference stage and are approaching a Judgment stage, the bank can still review and approve you for a loan modification, which would essentially end the entire foreclosure proceeding. Just remember: it is in the bank's best interest to try to modify your loan rather than to foreclose.

In the legal blog, Attorney Svetlana Kaplun addresses typical questions our firm has received from our clients, or come across from homeowners related to foreclosure, foreclosure defense, loan modification and bankruptcy topics.

The information contained in the legal blog of Attorney Svetlana Kaplun is for informational purposes only, and should not be construed as a legal advice on any subject matter. Please read our full disclaimer or contact the Law Office of Svetlana Kaplun, P.C. by telephone at 718-444-1115 for more information.
Copyright © 2015 Law Office of Svetlana Kaplun, P.C.

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