Lois Maljak

Article / Updated 03-26-2016

If you’re worried about home foreclosure, obtain a loan modification application packet from your mortgage lender and provide everything your lender requests. Most lenders require the following before considering your request to modify your mortgage: Brief cover letter, along with a complete list of what’s included in your application Hardship letter Current financial statement Projected financial statement Home valuation (estimate of property value from an appraiser or other real estate professional in accordance with the laws of your state) Proof of hardship (birth certificate, death certificate, medical bills, divorce papers, or bankruptcy papers, for example) Federal tax returns (for the last two years) W-2s (for the last two years) Pay stubs (for the last four pay periods) Bank statements (for the last four periods)

Article / Updated 03-26-2016

When you apply for a home loan modification, you will need to prepare financial statements for the mortgage lender that list your household income and expenses. The decision of whether your lender agrees to a loan modification and the terms you ultimately agree on comes down to numbers. You should consider completing these two financial statements: One showing an accurate accounting of your finances at this very moment Another illustrating any cost-saving changes you’re planning to implement, such as going with the basic plan on your satellite TV service If your lender has its own financial forms, use those instead of preparing your own. Using the correct forms may make the difference between having your application approved or rejected. Contact your lender or visit their Web site to see whether it has downloadable financial forms. Painting your current financial portrait Many lenders require only one financial statement: a detailed account of your current monthly income and expenses along with a list of anything valuable you own and how much it’s worth. You can use the following sample financial form to supply the details that most lenders require. Click here to download and print this form. Some lenders want additional information, including your employer’s name, your current job title, and how long you worked at your current (or former) job. They may also want Social Security numbers, driver’s license numbers, and to know whether you’ve filed for bankruptcy. The only item in the above form that’s likely to trip you up is the first one under Monthly Expenses: 1st Mortgage (PITI). PITI stands for principal, interest, taxes, and insurance. If part of your monthly payment goes into an escrow account to pay your property taxes and homeowner’s insurance, the PITI amount is equal to your monthly payment. If you pay property taxes and insurance separately, total the amount you pay in taxes and insurance for the year, divide by 12 months, and add the result to your monthly house payment. When making estimates on your financial statements, don’t overanalyze. Use realistic numbers so you don’t end up committing to something you can’t really afford. Every lender has its own affordability thresholds to determine whether you have sufficient income to afford your house payment. If you’ve hired expert representation, your representative is likely to know the lender’s affordability threshold and be able to massage the numbers in your financial statement to qualify you while still providing an accurate representation of your budget. Projecting your post-modification finances Lenders often want to see a projected financial statement illustrating the budget sacrifices you’re willing and planning to make to regain your financial footing after the loan modification. For example, you may be planning to sell one of the family cars to eliminate a payment and save a little on auto insurance and maintenance, trim the grocery bill by a couple hundred bucks a month, cut back your dinner-and-a-movie dates from twice a week to twice a month, and so on. After you have a current financial statement, creating this projected statement should be much easier. Add income to the categories where you realistically think you’ll be pulling in more income (if any), and trim back in the expense categories where you realistically think you can save money. And don’t forget to account for that lower house payment resulting from the loan modification.

Article / Updated 03-26-2016

When applying for a home loan modification, a key component of the application is the hardship letter, the homeowners’ description of the financial setbacks they’ve experienced that resulted in their inability to pay their monthly mortgage. Recognizing eligible hardships Not everything qualifies as a bona fide financial hardship. You need to prove that you experienced a genuine hardship and that it compromised your ability to pay. Most lenders give consideration to the following hardships, among others: Job loss or relocation, such as a layoff or reduction in force (RIF). Income reduction, such as a wage reduction or loss of overtime. A failed business or one that’s suffering from an economic slowdown. Divorce or separation. Newborn child, namely maternity leave and the increased expense of having another dependent. Some lenders even consider adoption a hardship. Death in the family, especially if the person who passed away was helping to make the payments. Payment shock, as in a bump in the interest rate on an adjustable-rate mortgage. Illness or injury that either reduces income or increases medical expenses or both. Too much debt accumulated over time. Military duty. Gambling by one of the household’s wage earners who’s currently seeking treatment. Alcohol or drug dependency of one of the household’s wage earners who’s currently seeking treatment. Incarceration of one of the household’s wage earners. Questions your hardship letter should answer The people who read your hardship letter come to it with questions they want answered, so you’d better have the answers straight in your own mind first before you put them down on paper. Following are the questions your hardship letter needs to answer: What event or series of events caused the financial hardship that has made your monthly mortgage payments unaffordable? When did the hardship occur? Provide a specific date or range of dates. Is the hardship temporary or permanent? A temporary hardship could be medical bills not covered by insurance, an injury or short-term illness, or a job layoff. A permanent hardship is more like a death in the family or a divorce or separation. How badly do you want to keep your home? If you really don’t care about keeping the home, the lender may not care enough to try to negotiate a loan modification. Are you behind on your house payments? If yes, how many months are you behind? What’s the total dollar amount of your deficiency? Can you afford to make a house payment? If yes, how much can you afford to pay? What are you doing to address the root cause(s) of the hardship (if you have any control over them) and recover your financial footing? This can be anything from budgeting more carefully to finding a new job or liquidating assets. The goal of your hardship letter is to convince your lender that you’re worthy of a loan modification. It should show that you meet all the lender’s eligibility requirements and convince the lender that you’re committed to a long-term solution and able to follow through. Reviewing a sample hardship letter You should keep your hardship letter short — one page is plenty. Underline the most important points, including the terms of your current loan, the total deficiency amount (if any), the date on which the trouble began, anything you’ve done to resolve the problem, and so on. The following document provides a model for you to get started. Your hardship letter may look something like this. Click here to view this letter.

Article / Updated 03-26-2016

Real estate investors are sometimes willing to team up with homeowners to help them keep their homes — either permanently or temporarily. Although these investors normally purchase properties with the expectation that the previous owners vacate the premises, this isn’t always the case. You can usually find reputable investors through trustworthy real estate agents, attorneys (especially foreclosure and bankruptcy attorneys), and perhaps even local banks. Never deed your property away to a third party as part of a so-called foreclosure rescue. These are usually scams in which the third party claims to be able to save your home for you. Have your attorney review any and all documents before you sign. Selling your home and buying it back Assuming you’ve been a good steward to your home, an investor may be willing to purchase it at the foreclosure auction and then sell it back to you on contract. You can buy back a home using either of the following contracts: Contract for deed or other seller financing vehicles: With a contract for deed, the seller (in this case, the investor who purchased your property and is selling it back to you) acts as the bank. Instead of using a mortgage to secure interest in the property, the seller/lender retains possession of the property until the buyer fulfills the terms of the contract. Lease option agreement: With a lease option, you rent the property for a time (usually no more than about two years), at the end of which you have the option but not the obligation to purchase the property. This arrangement usually gives you some time to improve your credit rating so you can afford a conventional mortgage to finance the purchase of the property. Buying the property back on either type of contract is usually an option if you have some equity in the property and run out of other options; for example, your lender won’t modify your loan, you don’t have enough time to sell it, and you can’t qualify for refinancing. Work only with reputable investors in your area, and have your attorney review all the paperwork and explain it to you until you fully understand everything in the contract before signing it. Most land contracts and lease option agreements contain a forfeiture clause that could prevent you from purchasing the property unless you meet all the conditions specified. You want to make sure that those conditions are reasonable before you agree to them. Under certain circumstances, any liens against the property at the time of foreclosure could reattach to it when you buy it back, making you again responsible for paying off the lien holders. To prevent this from occurring, the investor must negotiate with the junior lien holders to release their liens. Selling your home and renting it back Bad stuff always seems to happen at the worst times, and foreclosure is no different. Maybe your kids are still in school, or you found a new job in another state but it doesn’t start for two months and you need a place to stay until then. In situations like these, selling to an investor and then renting the property for a short time can be a very attractive solution. Simply put, you sell your home now and move when it’s convenient for you. As long as you haven’t trashed the premises, an investor may be willing to go along with a deal. After all, it prevents him from having to line up tenants right away.