GENERAL INFORMATION ABOUT LOAN MODIFICATIONS FOR EDUCATIONAL PURPOSES:

If you want to keep your home the most important factors in stopping foreclosure is acting fast, regardless of whether you choose to represent yourself or seek help to contact your lender.

Here are some of the basic options available to you if you are having trouble with your mortgage payments.

 Loan Restructure (Most Popular Alternative-more below) - Involves negotiating with your lender to get your loan in good standing again. This can be accomplished through a separate payment plan for your delinquency or even adding the delinquency to the end of your loan. This may result in a lowered monthly payment.

 Reinstatement - Pay your lender(s) all of your past due payments to bring your mortgage current. This may be an option for you if you have some money saved up, or are able to borrow from friends or relatives.

 Refinance - A viable option if your home has equity or if you qualify for a negative equity refinance program with your lender.

 Sell Your Home - You may simply sell your home before the Foreclosure Sale Date. Sometimes the home owner is unable to sell the home outright at the desired sale price without falling short and so this may not be an option. 

 Short Sale - We may be able to negotiate a Short Sale on your behalf with your lender(s). In this instance the lender may take less than what you owe on the loan to avoid a lengthy and costly foreclosure process.  In this process when engaging a law firm you will work with an attorney and your Realtor in approaching your lender regarding your short sale, and in reviewing the approval contracts the lender will have you sign to have the short sale go through.

 Deed-in-lieu of Foreclosure - If you qualify we can arrange for you to simply give the home back to the lender and get a release for any deficiency judgment.

 Bankruptcy - This is a last resort for most, unless you have other debts that you are having trouble with. Filing for bankruptcy will not stop foreclosure completely, this is a common myth. It will only save your home temporarily. This may be an option for many, especially if you have very little assets and a lot of debt. We can help you file for  ch. 7 and ch. 13 bankruptcy as well.

 Foreclosure - You may elect to allow the home to be entered into mortgage foreclosure. See our foreclosure page and read more about our HomeFree Walk Away Toolkit, filled with information that will give you the answers you need to make the right decision for you. We also offer a 30 minute consultation to discuss all of your questions about foreclosure and the process and ramifications. 

For further information or to discuss getting help with bankruptcy, short sales, or foreclosure we invite you to schedule a free confidential consultation with our experienced California real estate and bankruptcy attorneys by calling us at 916.983.2941, or filling out our contact us form on our website. The confidential consultation is free.

 
Loan Restructure/ Loan Modification

One remedy available to a property owner facing delinquency and foreclosure is negotiating a loan restructuring, also called a workout or loan modification. Each negotiation has special objectives, which for most people can include one or several of the following:

• Discounted loan payoff (debt cancellation might be a taxable event). 
• Partial loan write-down with enhanced terms, such as extending a term to reduce the debt service, reducing the interest rate, placing a moratorium until property-performance improvement, capitalizing the accrued interest, restructuring the debt so net operating income is acceptable payment and negotiating for an advance. 
• Principal reduction.
• Full debt restructure of payment, rate and terms without a partial write-down. 
• Deed-in-lieu with with a negotiation for no potential future deficiency judgment.

The steps to planning a workout strategy may include:

1. Complete a financial analysis and evaluation of the expected recovery value that the lender would realize in a foreclosure. Acquisition dates and asset dispositions are projected. The analysis reviews property data such as loan-agreement copies, the promissory note, the deed of trust, the security agreement and all other liens secured by the property or borrower’s property operations, including real estate taxes and assessments. Also up for review are current rent rolls, copies of all current leases, a schedule of all rent concessions and current tenant improvements, copies of any current listing agreements and/or purchase offers from the past 12 months. Operating statements for the income and expenses face analysis for the previous three years to establish trends and calculate the current net operating income.

2. All appropriate expenses are analyzed and compared to expense models that lenders use to present a fair position on the owner’s behalf. Required capital expenses, leasing expenses for buyouts or brokerage commissions, the total debt service of senior debt and asset-management expenses then reduce the net-operating income. The results are the net proceeds from operations a lender may realize after acquiring title.

3. Establish market value. The operations proceeds are then added to the net-sale proceeds to create the expected recovery value available from the collateral.

4. Thoroughly review the borrower’s exposure to a deficiency judgment. Could include all borrowers’ federal tax returns for the three most current tax years — including all K1s, if partnership interests are owned — along with a current financial statement, including cash-flow statements showing income sources and expenditure categories. The purpose is to develop strategies that protect personal assets and establish that it is not in the lender’s best interest to pursue a judicial foreclosure. Once the personal exposure is analyzed, asset values that may be exposed are reduced by liquidation and litigation costs, as well as risk factors in losing a judgment. This reduced value is the expected recovery value from personal assets.

5. Combine and discount the future expected-recovery value from the collateral and personal assets to create a present value. The discount rate considers the cost of funds, administration and risk. It takes great work and thought to develop the present value of the expected combined recovery. Negotiations begin with this discounted value.

6. Negotiate with the lender. Documentation is prepared and reviewed in this final phase. Upon approval, escrow and title are opened, and the transaction is closed.

7. Proper preparation of the financial analysis, which can be placed on a spreadsheet, is a lot of the work in a successful negotiation. Although comprehensive packaging for the lender is essential, negotiations must be directed to the present value of maximum recovery. The cost of a lender’s asset-management burden can reduce the maximum recovery to less than what a property owner can provide. In addition to closing the lender’s economic risk, adjusting the capital structure of a property allows the owner to maintain ownership and operation or the possibility for sale at a much higher price than if the lender sells it as real estate-owned.

8. When structuring strategies and implementation, it is vital to understand forbearance, loan restructuring, debt cancellation, short sales, deeds in lieu of foreclosure with release from any personal responsibility, land trusts and bankruptcy. Knowing how such devices and actions can be used independently, sequentially and or concurrently is essential in structuring strategies and their implementation. It also is vital to coordinate relationship strategies with other professionals who implement other aspects of assimilating and analyzing data or processing actions.

For further information or to discuss getting help with bankruptcy, short sales, or foreclosures we invite you to schedule a free confidential consultation with our experienced California bankruptcy attorneys by calling us at 916.983.2941, or filling out our contact us form on our website. The confidential consultation is free.

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