Saturday, March 17, 2012

Unaffordable mortgage payments: loan modification, short sale or deed-in-lieu of foreclosure

Question: My property is under water by about $150k and my monthly mortgage payments right now only include: interest, taxes and an association fee. My interest only mortgage expires later this year, which means I will have to pay principal and interest. I can barely afford my monthly payments right now. I am considering either listing the house up for short sale and then submitting the highest offer for bank's acceptance, or walking away from it. I wanted to know what my options would be if the bank did not accept the short sale offer? If I walk away from the property, can the bank hold me financially responsible? This loan is a result of refinancing several years ago, when my financial situation was more stable. Since then, the bank has denied all of my loan modification requests.

Response: Banks generally approve short sales where the purchase price is roughly equivalent to the fair market value of the property. If you believe you can get a short sale offer that would roughly match the fair market value of your property, then that's the amount that should be accepted by the bank. If this is your primary residence, then you will not suffer any financial consequences. You can also try to do a deed-in-lieu of foreclosure if you have bad luck selling your home. If you would like to get a loan modification, then you should consult with a professional who could determine if you are eligible for a loan modification based on your financials. For example, if you are unemployed and your only source of income is unemployment, then that would explain the denial. The bank, essentially, looks at your financials to determine whether you could pay off your loan at a lower interest rate and at a longer term (i.e. 2% interest rate over 40 years). It is possible that your paperwork was not properly filled out. If your priority is to save your home, you can always reapply for loan modification if you had a change in income (even if your paperwork was not properly filled out before and now it would be filled out correctly, that would be a change in income from the bank's perspective).

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.
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