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Foreclosure Workout Agreements

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  • Foreclosure Workout Agreements

    One option that is often overlooked for dealing with a foreclosure, is what is known as a foreclosure workout agreement. Given the current state of the real estate market and the increasing defaults, mortgage finance companies and banks are becoming more prone to offer these for those in limited financial trouble. A foreclosure workout is best for those that either have a short-term problem such as a temporary lay off, sudden illness or accident. However, even if your change is more long term, i.e. retirement, disability onset, you can still do a Foreclosure workout.

    Strictly speaking, it is probably best to hire an attorney to do this, for the main reasons, one who specializes in Foreclosure defense will know more of the options available, and it indicates to your creditors that you are serious. Also, I cannot cover all the possible options available in this post.

    First, who do you need to talk to. This is a deceptively complex question, however, the first line of attack will be to your loan servicer and you will want to ask for "loss mitigation". Most servicers will have authorization from the Mortgage Holder to complete a Workout within certain guidelines. However, you can go over the servicers head if they are being uncooperative. You can find out who the actual note holder is by sending a "Qualified Written Request Under RESPA" (scroll to the last page for a sample).

    Possible Workouts. The first thing YOU need to do is workout a reasonable budget, you need to know what you are aiming for, no point in agreeing to something with the bank if you cannot afford it. Second, assess your needs, is your situation a short term problem that will be resolved in 3-6 months, or more long term to permanent.

    Tip: It helps to document your financial issues with the loss mitigation department. If you were laid off, send them the info, if you get a new job, inform them and send them the info. etc. Also, it helps to start this process before the foreclosure process begins.

    Here are some Workout Agreement Options:
    1. Amortize your arrears over the next 3-6 months, plus make your regular mortgage payment. For example, if your regular monthly mortgage payment is $1,500 and you are $3,000 in arrears, the bank may offer that you pay your regular monthly payment of $1,500 PLUS $500 per month to cure the arrears. This is what the bank will initially suggest, but if you're facing foreclosure, odds are, you cannot afford to make a larger payment. But just realize, this is what the bank will push for. This option is known as a Reinstatement Agreement or Deferral Agreement.

    2. Temporary Interest Rate Reduction. You can request a temporary interest rate reduction. However, this is usually only accepted if your interest rate is above the current market interest rate. The other variant is to request to pay INTEREST ONLY for a few months, however, requesting interest only payments is something you typically need to do before you go into arrears.

    3. Recasting...This is a particular favorable option for borrowers, but fewer and fewer lenders are allowing it, but this is where you recast the loan. The bank cancels your missed payments and tacks them on to the end of your loan. Note, this option only works after you have missed payments. If you are able to go this route, you will also want the creditor to delete the missed payments on your credit report.

    4. Permanent Modification of the Loan Agreement. This option can take several forms, i.e. a permanent reduction in interest rate to current market rates, extension of the loan payment period, Re-amortization of the arrears, this is where the existing interest rate is applied to a new principal balance that includes the missed payments (essentially increasing your principal). Reduction in Principal...this is a rare one, but is possible when the existing principal due on the loan exceeds the value of the home. Deferred Junior Mortgages, DJM's are typically used in conjunction with Reduction in Principal Agreements. Basically, the lender agrees to reduce the overall principal owed on the house, but takes a 2nd (or 3rd) mortgage on the house for the amount of the reduction, the nice thing is, you do not make payments on this DJM, but you must pay it off if and when you ever sell the home.

    All the various government programs for mortgages have programs for loss mitigation, Fannie Mae, Freddi Mac, VA, etc. So, if your loan is handled or part of any of these agencies, they have fairly well established guidelines for Workouts. Finally, if Foreclosure has begun, you can request, in writing, a delay of the sale date. At the very least, if they don't grant it, and they negotiate in bad faith, you now have a legal claim against them for bad faith (among other things)

    Anyhow, those are some of the options available to you. Also, if you get stuck, HUD wants to know about lenders who have been unwilling to consider a workout and can often push the workout process forward.
    Last edited by HHM; 01-17-2007, 10:29 AM.

  • #2
    Interesting

    Hey, great post. I was unaware of any of this. I filed chapter 7 and closed/discharged in January 2006. I kept my home, but signed no reaffirmation on either the 1st or 2nd mortgage, which were included in the bk7.
    In order to try and bail myself out, years ago, I reluctantly took a 125% 2nd out. I owe $114,000 on the 1st (Saxon) at $922/mo and $42,000 on the 2nd (Homecomings) at $567/mo for a whopping total of $155,000 still owed. I do not recieve statements from either company after the bk, but have continued to pay on time. A year after the bk, these "monster" payments are getting tough. At almost $1490 a month, bk has definately helped, but things are still tight. I recently contacted Homecomings about trying to lower the amount owed so that i can refinance the first and second into one loan, if possible. I was treated like a third rate circus clown by them. They were rude, unproffesional and actually laughed at my questions. I had to bite my tongue to keep from getting ugly. Basically, he said that there were no programs available and that I should just continue to make payments and try down the road to let them refinance my 2nd. NO WAY! These guys were real jerks!
    I have been seriously thinking about giving up the house for something cheaper. I am paying $1490/mo for a house that will appraise for $5-8K less than what I even owe. They do not seem to want to work with me at all on this.
    Does anyone know if Saxon would possibly accept a deed in lieu for my property? It would save them the expense of forclosing, but i imagine that the second would have to agree also. If they did not and the house went into foreclosure, the second would basically get nothing anyway. If the house sold for $140,000 at auction, which i doubt, after the first settled at $114k and got their $10k in legal fees, there would be little left over for the second to recieve after eating their legal cost. Has anyone had experience with these "workout" options with either of these lenders? Thanks

    Comment


    • #3
      Highly doubtful they would ever consider a deed in lieu because legally the company in first place has to assume all other liens. In this case they'd be eating what the other are owed.

      In a situation in which the 2nd was small enough that it would be less to eat than foreclose they may consider it, but no way in your case.

      You have to make the decision yourself, if you can find a nice place/comparable to what you have now around 1300-1500 a month without worrying about repairs, taxes and homeowners you should consider it.

      We were faced with the same choice and decided to lease for at least a year before buying the home we are in. Keeping the existing home was not even a consideration seeing as we owed way more than it was worth due to an over agressive mortgage and savage home depreciation this year. To purchase the home we are now in would have been about $3400 a month with 10% down at the 7% we were quoted while in BK. We're paying 2k for up to 3yrs for the same home. The home would have to appreciate at over 15% for me to 'lose out' by not buying now because I'm pocketing about 17k a year in direct payment savings and another 3k in maintenance for a total of 20k. If the home runs up 40k in the next two years (which it won't) I still came out close to even.

      Talk to a lawyer, but if homecomings isn't willing to do anything now maybe a few months of missed payments will change their minds, who knows. Once they get serious about it and see that they are SOL if you stop paying they may take more interest in helping you.

      Comment


      • #4
        I think we are mincing words. We are talking about the "same" thing but using different terms. Thus, I am not sure it matters that much.

        Comment


        • #5
          Restructure/Forclosure

          I'm sorry, it may be just me but this is totally confusing wording.
          Last edited by Minnymouth; 07-01-2008, 03:20 PM. Reason: no need to include quote

          Comment


          • #6
            Originally posted by HHM View Post
            One option that is often overlooked for dealing with a foreclosure, is what is known as a foreclosure workout agreement. Given the current state of the real estate market and the increasing defaults, mortgage finance companies and banks are becoming more prone to offer these for those in limited financial trouble. A foreclosure workout is best for those that either have a short-term problem such as a temporary lay off, sudden illness or accident. However, even if your change is more long term, i.e. retirement, disability onset, you can still do a Foreclosure workout.

            Strictly speaking, it is probably best to hire an attorney to do this, for the main reasons, one who specializes in Foreclosure defense will know more of the options available, and it indicates to your creditors that you are serious. Also, I cannot cover all the possible options available in this post.

            First, who do you need to talk to. This is a deceptively complex question, however, the first line of attack will be to your loan servicer and you will want to ask for "loss mitigation". Most servicers will have authorization from the Mortgage Holder to complete a Workout within certain guidelines. However, you can go over the servicers head if they are being uncooperative. You can find out who the actual note holder is by sending a "Qualified Written Request Under RESPA" (scroll to the last page for a sample).

            Possible Workouts. The first thing YOU need to do is workout a reasonable budget, you need to know what you are aiming for, no point in agreeing to something with the bank if you cannot afford it. Second, assess your needs, is your situation a short term problem that will be resolved in 3-6 months, or more long term to permanent.

            Tip: It helps to document your financial issues with the loss mitigation department. If you were laid off, send them the info, if you get a new job, inform them and send them the info. etc. Also, it helps to start this process before the foreclosure process begins.

            Here are some Workout Agreement Options:
            1. Amortize your arrears over the next 3-6 months, plus make your regular mortgage payment. For example, if your regular monthly mortgage payment is $1,500 and you are $3,000 in arrears, the bank may offer that you pay your regular monthly payment of $1,500 PLUS $500 per month to cure the arrears. This is what the bank will initially suggest, but if you're facing foreclosure, odds are, you cannot afford to make a larger payment. But just realize, this is what the bank will push for. This option is known as a Reinstatement Agreement or Deferral Agreement.

            2. Temporary Interest Rate Reduction. You can request a temporary interest rate reduction. However, this is usually only accepted if your interest rate is above the current market interest rate. The other variant is to request to pay INTEREST ONLY for a few months, however, requesting interest only payments is something you typically need to do before you go into arrears.

            3. Recasting...This is a particular favorable option for borrowers, but fewer and fewer lenders are allowing it, but this is where you recast the loan. The bank cancels your missed payments and tacks them on to the end of your loan. Note, this option only works after you have missed payments. If you are able to go this route, you will also want the creditor to delete the missed payments on your credit report.

            4. Permanent Modification of the Loan Agreement. This option can take several forms, i.e. a permanent reduction in interest rate to current market rates, extension of the loan payment period, Re-amortization of the arrears, this is where the existing interest rate is applied to a new principal balance that includes the missed payments (essentially increasing your principal). Reduction in Principal...this is a rare one, but is possible when the existing principal due on the loan exceeds the value of the home. Deferred Junior Mortgages, DJM's are typically used in conjunction with Reduction in Principal Agreements. Basically, the lender agrees to reduce the overall principal owed on the house, but takes a 2nd (or 3rd) mortgage on the house for the amount of the reduction, the nice thing is, you do not make payments on this DJM, but you must pay it off if and when you ever sell the home.

            All the various government programs for mortgages have programs for loss mitigation, Fannie Mae, Freddi Mac, VA, etc. So, if your loan is handled or part of any of these agencies, they have fairly well established guidelines for Workouts. Finally, if Foreclosure has begun, you can request, in writing, a delay of the sale date. At the very least, if they don't grant it, and they negotiate in bad faith, you now have a legal claim against them for bad faith (among other things)

            Anyhow, those are some of the options available to you. Also, if you get stuck, HUD wants to know about lenders who have been unwilling to consider a workout and can often push the workout process forward.


            Do attorneys usually mail out the QWR letter when you contact them after receiving notice of foreclosure? I am wondering if this is exactly what they do.
            Last edited by HHM; 05-23-2010, 09:40 AM.

            Comment


            • #7
              We owe $230,00 on house worth now maybe $190.We've been trying for a year to get a modification from HSBC but have been turned down at least twice; have worked with 2 modification companies (one good one terrible but still no results) and now with HUD...still screwed due to amount of income and disposable income. If we pay half of the 16,000 in arrears they will work on a program for us, but not before. Said they were granted a motion for relief from stay but that was a lie.Suggested a short sale or deed in lieu of foreclosure.Payments won't be accepted until the delinquency is satisfied, so I gues we'll just pay ourselves that amount and put into savings Have appmnt. with our BK attorney on Tuesday to go over our options(said on phone would advise against either of their suggestions)..sigh, what a mess.
              04/04/08 filed Ch. 13
              5/08/08 341 hearing
              6/12/08 Confirmed

              Comment


              • #8
                It's even worse...talked to a local realtor who said values have plummeted since last appraisal...we'd be lucky to have it list for $155. I can see why people walk away
                04/04/08 filed Ch. 13
                5/08/08 341 hearing
                6/12/08 Confirmed

                Comment


                • #9
                  Someone suggested to me today to approach bank about getting the loan principal (and therefore monthly payment) be reduced to "Comparable Values"

                  Has anyone had such a "Comparable Values" discussion?
                  It might be worth it since the next step on the borrowers end would be "Default" and the bank does not want that.
                  Much thanks for all the support and information I receive on this forum.
                  Chapter 7 filed 11/21/2008
                  341 Meeting 01/05/2009
                  Discharged 03/06/2009

                  Comment


                  • #10
                    Originally posted by Flowers View Post
                    Someone suggested to me today to approach bank about getting the loan principal (and therefore monthly payment) be reduced to "Comparable Values"

                    Has anyone had such a "Comparable Values" discussion?
                    It might be worth it since the next step on the borrowers end would be "Default" and the bank does not want that.
                    That is practically not happening. You can always ask, but I have only heard of 1 or 2 where a principal reduction was actually granted.

                    Comment


                    • #11
                      Originally posted by parsoc48 View Post
                      We owe $230,00 on house worth now maybe $190.We've been trying for a year to get a modification from HSBC but have been turned down at least twice; have worked with 2 modification companies (one good one terrible but still no results) and now with HUD...still screwed due to amount of income and disposable income. If we pay half of the 16,000 in arrears they will work on a program for us, but not before. Said they were granted a motion for relief from stay but that was a lie.Suggested a short sale or deed in lieu of foreclosure.Payments won't be accepted until the delinquency is satisfied, so I gues we'll just pay ourselves that amount and put into savings Have appmnt. with our BK attorney on Tuesday to go over our options(said on phone would advise against either of their suggestions)..sigh, what a mess.
                      If your dealing with HSBC you wont get any help with a permenant mod. dont listen to them, save your money. HSBC is not participating in any mortgage relief programs, just temporary 6 month mods. they will take your money and do nothing to help you. thank god only my 2nd is with them
                      Stopped Paying CC's 2/2009. Retained Attorney 1/10/2010 Filed 1/23/2010. Discharged 5/19/10 $187K CC, $240K 2nd,$417K 1st, No asset Ch-7

                      Comment


                      • #12
                        Thanks...you've confirmed what other people have said about HSBC, even the HUD counselor!
                        So yes, we're going to be putting the mortgage payment into savings and wait out the foreclosure process. Attny. expects it to take 6-8 months. It's actually a relief in some ways but a little bittersweet....we've been here almost 18 years and have gotten it pretty comfortable, nice garden, etc. But again, it was never going to be our "forever" home so that takes some of the sting out of it.
                        04/04/08 filed Ch. 13
                        5/08/08 341 hearing
                        6/12/08 Confirmed

                        Comment


                        • #13
                          HELP?? If we had a loan mod once will they work with us again????

                          Comment


                          • #14
                            I live in Michigan and I went through Chap 7 over a year ago, did not reaffirm. Fell on unexpected hard times and mortgage company said they would work with us but the second we hit 3 months they started foreclosure through a lawyer. I called the lender and asked for assistance but they said no because we had a forbearance before BK and they will not help us unless we reaffirm which the home is really under so we will not do it.

                            1. Do they have to let us do a work out plan? We are pretty sure they are going to come back with a nothing offer to help but should we try? (Lawyer advised us to walk away because of the home being worth nothing and we are not held responsible for anything).

                            2. Does asking for work out plan extend the foreclosure process further? I replied to the 14 day letter so I was told that we have 90 days from that reply and then it goes to 4 weeks of advertising the sale, then after sold 6 month redemption.

                            Thanks!

                            Comment

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