To receive a loan modification and avoid a foreclosure, a debtor should immediately contact either the lender (or mortgage servicer) directly, or get help from a nonprofit housing counselor. We say immediately because there is currently significant delay in processing applications for loan modifications. At Benson Law Firm, we recommend using a housing counselor (e.g., Neighborhood Assistance Corporation of America at www.naca.com) if clients are not too far behind on their mortgages. In fact, major lenders and servicers provide funding to many of the counseling agencies in order to reduce the number of foreclosures currently in the pipeline. Of course, it is important to communicate to clients that getting assistance from a housing counselor does not guarantee that a loan modification will be accomplished. Counselors and their counterparts in the lender’s loss mitigation department are still limited by internal lending policies and agreements with investors.
What are my options?
If a foreclosure seems imminent or has already been initiated, a client has several options. First is to answer the foreclosure complaint and request mediation. In mediation, a debtor previously rejected for a loan modification may be able to get a second bite of the apple. And if the debtor has not yet applied for a loan modification, this may be the forum for initiating this process. Of course, mediation is not a cure-all and if negotiations fail here, the options are limited.
When loan modification efforts in mediation fail, the debtor basically has three choices: surrender the property, defend the foreclosure or file bankruptcy. If surrender is desired or necessary and a foreclosure complaint has been filed, we attempt to get “cash for keys.” Rather than go through judgment in the foreclosure, the lender will accept the keys to the property and provide a small stipend to cover the debtor’s moving expenses. This enables the lender to secure the property, foreclose, and move quickly to a sheriff sale.