Frequently Asked Questions About Mortgage Modification

These are commonly asked questions regarding seller financing, foreclosure, bankruptcy and mortgage modifications:

(click to open each topic)

Should you try to handle your own modification?

Mediation Law Will Help Modify Loans

On July 22, 2011, the state of Washington enacted the foreclosure mediation program, RCW 61.24.130. Among other things it states:

… the parties have a duty to mediate in good faith and that failure to mediate in good faith may impair the beneficiary’s ability to foreclose on the property …. [T]he mediator must require the participants to consider … [t]he net present value of receiving payments pursuant to a modified mortgage loan as compared to the anticipated net recovery following foreclosure …. [and] [a]ny affordable loan modification calculation and net present value calculation….

 If a servicer fails to approve a modification of a loan, I invoke this law and proceed to mediation. Read the full text of RCW 61.24.163. A request for mediation will stop a foreclosure. Only a non-profit housing counseling agency or an attorney can file a petition for mediation. You cannot do it yourself.

Have you already tried and failed?

Do It Yourself?

Most of my modification clients tried to modify their loans on their own. They tell me that after getting nowhere, they decided to hire me.

With the non-attorney modification firms there is either no attorney on staff or you never get to talk with the attorney. Most of those firms are out of business because of the new FTC rule that allows only attorneys to collect fees up front.

Ours is a small firm. My wife and I are the only employees. You work directly with us. We talk directly with your lender.

Even if modification can be done without a lawyer’s assistance, there are a lot of legal issues which come up at this time. Can you reinstate? How is income calculated? How can a foreclosure be stopped? When can suit be filed? What about those MERS loans and the “lost note” defense? How would foreclosure, short sale, or deed-in-lieu of foreclosure work? Will you be liable for a balance?

Should you go through mediation?

How are second mortgages handled? Can rates be reduced? Is it possible to settle seconds them for less?

What is likely to happen if you don’t pay your credit cards?

Is it possible to settle them for less?

Should you consider bankruptcy? Are you crazy not to file bankruptcy? Under what chapter should you file?

Can you handle your own modification? Yes. Your bank might ignore you for long periods of time. You might have trouble finding someone to talk with. You might not understand how to fill out the forms and generally speaking how the game is played.

And there are rules to this weird game. I have spent hundreds of hours studying them. You may be better off putting your time into your job and your family and letting us do what we do well.

Your lender might actually give you some concessions. Your lender might give you a glorified forbearance agreement or a temporary interest rate reduction. Your lender may not give you permanent reduction.

I have had people come to me for review of their modification, and often I see the lenders giving modifications but not giving the rock bottom modification that I know the people deserve – according to the math.

The reasons why most borrowers who receive modifications later end up in foreclosure is because their modifications have not dropped the borrower’s payments enough.

Lenders will discourage you from “wasting your money” by hiring a “third-party modification firm.” They make no differentiation between attorney modification and non-attorney modification.

For example, the Chase website disparages outside assistance and includes attorneys in its disparagement. With other lenders it is not clear whether they are discouraging borrowers from hiring attorney modifiers as well as non-attorney modifiers.

Maybe such lenders are disparaging any kind of representation. It is the same way insurance adjusters discourage you from hiring an attorney to negotiate your personal injury case. The lenders want to be free to take advantage of you. I believe that lenders who discourage borrowers from seeking counsel are setting themselves up for a class action suit.

My typical fee for a residential modification is $3,500 paid up front. The up front fee can be paid over a period of two, three, or four months. Paying this fee should not be difficult because you are going to stop paying your mortgage.

My contract calls for a bonus when the modification is done. You spend more than this anytime you do a refinance. This is not a lot of money in relation to the potential savings possible.

If I can get you an interest rate that is even a quarter percent better than what you could have gotten on your own, this will more than pay for my fee over the long term.

It is always better to have someone who knows the lay of the land negotiating for you. Even attorneys hire attorneys. When I am in a legal bind, I hire an attorney who specializes in the appropriate field. Attorneys have a saying: “One who acts as his own attorney has a fool for a client.” It is hard for you to be objective about your own case. It is hard for you not to be over-eager regarding your own case and give away too much information or settle for less than you could have gotten if represented or to get your feelings hurt and damage the negotiation process.

Most important, lenders know that I know how to sue them. They will take me more seriously than they will a non-attorney modification firm or you if you represent yourself.

You have a right to be represented in a crucial matter such as saving your home.

You may call me at 425-771-1110. You may fax me at 425-776-8081. You may click here to send me an e-mail.

Can You Qualify For Modification?

About Mortgage Modification Qualification

To qualify for modification you need to show that you are financially stressed. You should either be behind on your mortgage or likely to get behind due to financial circumstances.

The wisdom in the industry is that having an ARM loan with a high index and margin, on which the interest rate and payment could skyrocket, is a factor which would indicate that a hardship is building and therefore grounds for modification.

Conversely, you need to show you can keep up with your mortgage payments if your mortgage is modified. It is an unfortunate side of modification that there is no help for the person whose income has dropped so much that he lacks sufficient income to support even reduced payments.

Unemployment income can be counted as income provided your account has significant remaining eligibility and your state fund is strong.

I have convinced lenders to count as income a commitment from relatives who agree to subsidize payments through rent, gifts, or loans, despite the fact that such income cannot be used to qualify for a purchase in the first place or for a regular refinance. Rent paid by an unmarried partner who is not a co-owner of the property can be counted, in fact all of the partner’s income can be counted if the partner signs a statement that he or she is vouching for the loan. This commitment does not get recorded and does not create liability in the regular sense, nor does this cause payment or non-payment by the partner to be reported to credit reporting agencies.

Credit score is irrelevant. You do not need to have equity in your home. However, if you have too much equity in your home, and the lender could recover more money by foreclosing, the lender is not required to cooperate at all.

The lender is not obligated to modify your loan if you have substantial equity in your property. If the lender would do better by foreclosing than by modifying, the lender can foreclose. This sounds unfair, but that’s the way it is. A comparison is made using a Net Present Value test, referred to by its initials, NPV. This is why it is important to obtain a Broker Opinion of Value.

A lender is obligated to consider your modification proposal if it is one of the 30 or so which have signed an agreement to cooperate with the Making Home Affordable Program, frequently referred to as the HAMP program. Click here for a list of lenders who are part of the HAMP program.

But it’s not that simple. a lender who is on the HAMP list might not be the owner of the mortgage. If the actual owner of the mortgage has not agreed to be a part of the HAMP program, then that lender can turn the modification down.

Lenders who accepted government Troubled Asset Relief Program TARP money are required to cooperate with the HAMP program.

If you are self-employed, you will not always be required to prove your income on a fully documented basis. Most lenders will accept an unaudited profit and loss statement. Although the self-employed will have to produce their bank statements both personal and business for the past six months along with the last two years of personal and business tax returns.

The lenders’ changing financial situation, new federal regulations and new laws, whether the economy declines more or less, all make it impossible to give any exact guarantee as to what we can negotiate for you. The situation is too fluid for that. I can guarantee you that I will use all the experience and creativity at my disposal to negotiate the best possible modification for you.

You may call us at 425-771-1110. You may fax us at 425-776-8081. You may click here to send us an e-mail.

New mediation law is a tool which can force lenders to modify

Mediation Law Will Help Modify Loans

On July 22, 2011, the state of Washington enacted the foreclosure mediation program, RCW 61.24.130. Among other things it states:

… the parties have a duty to mediate in good faith and that failure to mediate in good faith may impair the beneficiary’s ability to foreclose on the property …. [T]he mediator must require the participants to consider … [t]he net present value of receiving payments pursuant to a modified mortgage loan as compared to the anticipated net recovery following foreclosure …. [and] [a]ny affordable loan modification calculation and net present value calculation….

If a servicer fails to approve a modification of a loan, I invoke this law and proceed to mediation.

Read the full text of RCW 61.24.163.

A request for mediation will stop a foreclosure.

Only a non-profit housing counseling agency or an attorney can file a petition for mediation. You cannot do it yourself.

What Is NPV?

Mortgage Modification Attorney
Mortgage Modification Attorney

What is Net Present Value, the NPV we hear about so much? And what is NPV analysis?

NPV is what your mortgage is worth to the bank in today’s dollars. In deciding whether to foreclose or allow modification the lender compares the amount of money it will net if it forecloses versus the present value of the income stream it will receive over the years if the lender allows modification. Future payments are reduced to present value. The math is a bit complex, but you could learn how to do it if you set your mind to it.

To make it simple, I will give an extreme example. If your home is worth $300,000 even in this difficult market and you owe only $100,000, then the lender will recover its entire $100,000 if it forecloses. If the lender modifies your loan by lowering the interest rate, it will not recover as much money. People with lots of equity in their home certainly will not get a Making Home Affordable HAMP modification. The rules do not allow it. Maybe they will get an in-house modification, but the lender is not obligated to give one. Generally a lender will give a borrower a forbearance agreement – which actually raises your payments by requiring you to make your regular payment plus a portion of the arrearage until you catch up.

What if your home is worth only $250,000, and you owe $300,000 on your mortgage, then the analysis gets complicated. Off the top the lender is going to lose $50,000 plus the cost of foreclosure plus possible costs for repairing the property. If the lender gives you the 2% rate for five years, followed by 3% for a year, 4% for a year, and the Freddie rate for the balance of the loan, the lender is going to lose interest it might earn by lending out the money to someone else. The two different losses must be compared.

Note: Your lender does not consider the balance owing on your second mortgage in doing its NPV analysis.

The lender must also factor in how likely you are to default over again. If your expenses are very high, if your income is low, if you have a poor record for paying your debts, those are factors which weigh in favor of a foreclosure.

In Washington lenders are required to perform an NPV analysis under the new law passed July 22, 2011. A borrower who has been denied modification and is facing foreclosure can stop the foreclosure by demanding mediation. If the lender is going to lose less by modifying than by foreclosing, then the lender cannot foreclose. See the bill which enacted this law. The steps involved in mediation are set forth in RCW 6.24.163.

The cost of mediation is $200. The application for mediation must be filed through an attorney or a licensed non-profit foreclosure mediation group.

See this example of an NPV analysis done by Wachovia, which now is owned by Wells Fargo. This borrower was turned down because his debt load was too high and his income was too low.

The property is further underwater now than when he was previously considered. Further, the Borrower has been through Chapter 7 bankruptcy and has shed a lot of debt. Also there is more income in the family because we are counting the income of the Borrower’s children – which is allowed.

We are confident that we can succeed in getting a modification for this client.

New Washington case may force lenders to foreclose MERS loans judicially

MERS Loans In Washington Must Now Be Foreclosed Judicially

In Bain vs. MERS, August 16, 2012, the Washington Supreme Court states:

A plain reading of the statute leads us to conclude that only the actual holder of the promissory note or other instrument evidencing the obligation may be a beneficiary with the power to appoint a trustee to proceed with a nonjudicial foreclosure on real property. Simply put, if MERS does not hold the note, it is not a lawful beneficiary.

The apparent effect of this ruling is that in the future all MERS loans will have to be foreclosed judicially.

Read the case at:  http://washingtonattorneybroker.com/wp-content/uploads/2012/08/Bain-vs-mers-wa-supreme-ct-8-16-2012.pdf

Mortgage Modification Articles

Mortgage Modification Articles


Mortgage Loan Modification

Welcome to my mortgage modification web site.

My name is James Robert Deal. I am an attorney in Lynnwood, Washington. My practice is devoted mostly to assisting the home owner who needs help with his or her mortgage.

I also help buyers and sellers set up lease-option, assumption, and wrap-around transactions.

I am also a bankruptcy attorney.

People have a lot of questions about how mortgage modification works, so I have posted this website to try to give the reader as much information as possible.

Please browse the pages by clicking on the drop down menus. Browse posts by clicking on the links to the right.

I look forward to helping you lower your interest rate and monthly payment and save your home or rental property.

You may call me at 425-771-1110. You may fax me at 425-776-8081. You may click here to send me an e-mail.

Should you consider bankruptcy or modification? Or both?

I genuinely enjoy practicing bankruptcy law. It is a powerful tool for helping my clients deal with their debts in this difficult economy. It can be used in conjunction with modification to provide a more comprehensive sollution for clients.

I am a member of the National Association of Consumer Bankruptcy Attorneys.

Should You File For Bankruptcy? When? Chapter 7? Chapter 13? Chapter 11?

The Unitied States Constitution authorizes Congress “To establish … uniform Laws on the subject of Bankruptcies throughout the United States.” Congress has chosen to do so. Therefore, you have a constitutional right to file bankruptcy. We do now allow debtor’s prison in the United States.

If you must file bankruptcy to protect yourself and your family, do so. There is no disgrace in it. Nevertheless, I recommend that you avoid bankruptcy if it is reasonably possible to do so.

File for bankruptcy if you are a few weeks away from having your home foreclosed. File for bankruptcy if your creditors are garnishing your paycheck or your bank account. File bankruptcy if you are being sued by credit card companies. File bankruptcy if you are losing your driver’s license because of unpaid tickets.

Otherwise, do not file bankruptcy. Try to work out a forbearance agreement, a payment plan, or a modification.

Many people stop paying their credit cards. All the credit card companies will all call incessantly. However, after around six months the account may be charged off and sold to a collector. Calls frequency may drop. If you are lucky, they will forget about you, and they may do that if you appear not to be a person with substantial earning power.

Some credit card companies file suit right away. The number one for filing suit is Citibank. Citibank forces many debtors into bankruptcy.

I negotiate credit card modification.

If you have to file bankruptcy to stop garnishments or foreclosure, you can still work on a modification from within the protection of the bankruptcy stay. New regulations require mortgage companies to allow mortgage modification even if a borrower is in bankruptcy.

Generally speaking, you will have more leverage in obtaining a mortgage modification, particularly on your second mortgage, if you are in bankrutcy or have completed a bankruptcy.

Will you file a Chapter 7, Chapter 11, or a Chapter 13 bankruptcy? What is the difference?

Chapter 7 bankruptcy is a “straight bankruptcy.” It is a liquidation, meaning that whatever non-exempt properties you own are sold and the proceeds paid to your creditors. If all your property is exempt, you pay nothing to your creditors.

Exemptions differ from state to state. Under Washington exemptions a debtor can exempt up to $125,000 in equity in a personal residence.

A Chapter 7 bankruptcy can be over and done with in 90 days. However, in order to qualify for Chapter 7, you income must not be too high. You must complete a means test. If you income is below the median income for a family the size of yours, you qualify for Chapter 7. If you exceed median income, you may still qualify because certain expenses may be subtracted. We are talking about passing the means test.

If you fail the means test because your income is too high, you must file Chapter 13 instead of Chapter 7. Even if you pass the means test and could file under Chapter 7, you might still want to file under Chapter 13, and that would be the case if you are behind on your house payments or car payments, or if you owe back child support or traffic tickets and need time to pay them off. Chapter 13 allows you to pay your arrearages over time.

In Chapter 13 you must start making current payments on your secured debts, and you must also make monthly payments toward your arrearages. Depending on how much disposable income you have, you might pay from 0% to 100% of your unsecured debt.

Chapter 13 plans can last for 36 to 60 months. Those with income above the median will be required to stay in bankruptcy for 60 months. Below median income borrowers can stay in bankruptcy for only 36 months. In come cases plans can be shorter. Those who want to spread their payments out in order to lower them may choose to stay in for 60 months.

If you file for bankruptcy you will receive a discharge on your mortgage debts. However, that does not mean you will receive a release on of the mortgage liens. That means that the lender will not be able to sue you for the debt. You will be free to walk away from the property with no further consequences. You will be free to continue making payments on your mortgages. But your first and second mortgage liens will still attach to the property, and your lenders may later foreclose one or the other if you fail to pay.

A major issue now is how bankruptcy will affect your second mortgage. In Chapter 7 your second mortgage lien will not be expunged, even if there is not enough equity in your property to secure the second mortgage. However, in Chapter 13, if there is less equity in the property than what you owe on your first mortgage, the second mortgage is therefore unsecured and the court can strip away the second mortgage.   This may require an appraisal and a special adversary action brought by your bankruptcy attorney.

In his campaign President Obama said he favored giving judges the power to “cram down” mortgage, that is to reduce the balance owing on a mortgage to what the property is worth. Obama failed to push this idea once he was elected. Congress is again debating whether to pass such a law.  If bankruptcy courts had the power to cram down mortgages, then lawyers would be able to negotiate cram downs for their clients without borrowers having to file bankruptcy.

Some people fail the means test and therefore cannot file under Chapter 7. However, there is also a means test of a different sort for Chapter 13.  If your secured debts exceed $1,081,400 or your unsecured debts exceed $360,475, you cannot file under Chapter 13. What is a person to do? File under Chapter 11, which is normally utilitized for business bankruptcies, but which also fills the gap between Chapter 7 and Chapter 13.

Whether you should file for bankruptcy depends on many more factors than I can outline here.

A wealth of information is found at this Western District of Washington Bankruptcy Court website.

You can read the federal bankruptcy rules here.

Western Washington local bankruptcy rules here.

A good source for information about Chapter 13 bankruptcy can be found at the National Academy for Bankruptcy Education website.

Likewise, see the www.Doney.net bankruptcy website.

And see the bankruptcy section of the www.legalconsumer.com website.

Bankruptcy is complex. Call me at 425-774-6611 and I will give you a free telephone consultation.

You may click here to send me an e-mail.

Cram down a second mortgage on rental property

Bank of America Now Supports Cramdown, Giving Judges Authority To Modify Home Mortgages (VIDEO)

Bank of America, the nation’s largest lender and its biggest bank by assets, now supports changing the law to give federal judges the power to modify mortgages in bankruptcy.

The bank joins Citigroup, the nation’s third-largest bank by assets, in supporting a change to existing law to give homeowners more leverage. Unlike other forms of debt, bankruptcy judges presently lack the power to change mortgage terms. The banking and home mortgage industry want to keep it that way — by not allowing judges the authority to change the terms, troubled homeowners are at the mercy of their lenders. They take what they get.

As a candidate Barak Obama favored giving bankruptcy courts the power to cram down residential mortgages. However, as president he has backed away from this idea.

Cramming down a second mortgage that is not underwater is allowed on investment properties in Chapter 13. For example, if there is $300k owing on the first mortagage and $150k owing on the second mortgage and the property is worth $320,000. The second mortgage can be stripped down to $20,000 – provided that the debtor pays the $20,000 in equity during the course of the Chapter 13 plan. See 11 USC 1322(b)(2). This is feasible if the equity is small, but obviously it gets more difficult if the remaining equity securing the second mortgage is large.

However, cramming down a second mortgage on a residence is not allowed.

For personal residences there is an alternative: If a second mortgage is completely underwater, for example, if the property is worth less than what is owing on the first mortgage, then the second mortgage can be stripped off in Chapter 13 bankruptcy.

Strip a second mortgage on a residence in Chapter 13

Stripping A Second

A debtor can used the bankruptcy laws to strip off a second mortgage.

This can only be done in chapter 13. It can only be done if the second mortgage is completely underwater, meaning that the property is worth less than what is owing on the first mortgage. And you cannot subtract commissions and other closing costs in calculating the property value.

Getting an appraisal is advisable. If you owe $300,000 on your first mortgage and $150,000 on your second mortgage, you can strip the second mortgage over the three or five year period of the chapter 13 bankruptcy.

The lender holding the second will be reduced to status as an unsecured creditor. You will make payments each month equal to your monthly surplus, and the lender holding the second will receive its pro rata share of the surplus along with all other unsecured creditors, for example, credit card companies.

Buy or sell using creative financing, seller-financing, lease-options. wrap around mortgages

Creative Financing

Read about creative financing, lease-option deals, seller-financed wrap-around deeds of trust, by clicking on the links below.

Read what I wrote to President Obama about creative financing.

Creative Financing

How does creative financing work?


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