The current real estate and foreclosure crisis began two or three years ago. Since then homeowners have been trying to modify their home loans. As a result, banks are overwhelmed with loan modification requests and short sale requests. Many banks were unprepared for the number of requests received. All of this equals up to homeowners who qualify for home loan modifications being left in limbo while they wait for answers. Often this process comes at the worst time... in the middle of a foreclosure proceeding.
The government did come through to help with this problem, which was President Obama's Home Affordable Plan. HAMP (Home Affordable Modification Program) is a $75 billion program designed to help people afford their mortgages and stay in their homes. One program it funds is a home loan modification program. Lenders are encouraged to assist borrowers who are having trouble keeping up with their monthly mortgage payments. The banks are rewarded $1000 for each home loan modification that they complete, so they are more than willing to help. Also, they are more than likely to make more from the renegotiated loan than they are from the foreclosure.
A home loan modification is a renegotiation of your mortgage. This modification can reduce your interest rate; change your rate from variable to fixed, or even both. It can extend the duration of the loan (usually up to between 30 and 40 years). It can even lower the principal for borrowers whose homes have lost their value. It can also take a mortgage arrearage and put it at the end of the mortgage, sometimes called a balloon. Any one of these changes can mean the difference between the homeowner keeping their house or losing their house. Fortunately for borrowers in Connecticut, mediation is mandatory in most foreclosure cases, and the banks must participate in good faith in the process. So there will be an opportunity to attempt a mortgage modification during the foreclosure process.
If the lender doesn't renegotiate, then the other alternatives could be a Chapter 13 Bankruptcy (see my recent article on bankruptcy) or a short sale.
A short sale is when the homeowner sells the house for less than what is owed to the bank, and the bank accepts the money and erases the rest of the debt. Banks will sometimes do this because it is preferable to them owning a house it may take months to sell under in the current housing market. Often a short sale is negotiated by an attorney with bank or its representatives (often their attorneys). But realtors are critical to this process. Often the bank will want to know how aggressively the property was marketed. The bank will want to know how long it has been on the market, how many showings, how many open houses and how many offers the owners have received. It is critical that the realtor maintain this information accurately and be able to deliver it quickly. The bank wants to be assured that the house is being sold for the highest possible price before it releases its mortgage.
I hope that this information has been helpful. If you have any questions, please fee free to contact me at firstname.lastname@example.org.