As a homeowner, any string of events that may ultimately result in mortgage foreclosure and eviction would be especially traumatic. For relief, a borrower may negotiate a mortgage restructuring, or loan modification, within the pre-foreclosure stage of the foreclosure process to save his home. Be advised, however, that the bank operates to serve its own best financial interests and is under no obligation to approve of any loan modification package.
A mortgage restructuring is a permanent change to the mortgage contract that is designed to help a borrower keep his home. A distressed homeowner should work to restructure the mortgage to require payments that are less than 30 percent of his gross income. When restructuring the mortgage, the bank may agree to an extended term. For example, the borrower may have 20 years left to pay off $250,000 on a 30-year mortgage. Through mortgage restructuring, the bank may extend the loan maturity date and allow you an additional 15 years to pay off the $250,000.
The mortgage must fall into default before the bank entertains any mortgage restructuring proposals. The full mortgage payment is due on the first of the month. The mortgage falls into default and pre-foreclosure following 30 days of missed payments. The pre-foreclosure stage generally grants an additional 150 days to secure a loan modification or to sell your home to avoid the property being foreclosed and auctioned off.
An organized financial inventory is necessary to back up a case for mortgage restructuring. The financial inventory should verify that the borrower has used up all available resources to keep the existing mortgage current. Prior to the loan modification negotiations, the borrower should consider selling off investments within taxable accounts and withdrawing banking deposits that are in excess of six months worth of living expenses to raise cash for mortgage payments.
Research of comparable real estate may also prove helpful. Chances for mortgage restructuring improve, if your property value has significantly declined to the point where more money is owed upon the mortgage than the home is actually worth. The bank may then offer a mortgage write-down, where it reduces mortgage principal to match the associated and underlying property value.
To keep his options open, a borrower may also put his home up for sale while working through the mortgage restructuring negotiations. In pre-foreclosure, you should offer your home at a 10 percent discount to comparable real estate. The discount should help to effectively compensate a prospective buyer for any minor repairs that he will need to pay for — due to your lack of funds for maintenance.
The lender will publish a notice of sale in the local newspaper, after 180 days of missed payments with no mortgage restructuring or home sale. The notice of sale schedules a time for your home to be auctioned off, which usually occurs within the next 30 days. Immediately after the auction, you will be subpoenaed with an eviction lawsuit and ordered to vacate the property.