Long Island & NYC Mortgage
Modification & Negotiation Lawyer

Mortgage loan modifications have become one of the most common ways to resolve a mortgage in arrears, and lenders now routinely offer them as an alternative to completing a foreclosure. The goal of a mortgage loan modification is to avoid foreclosure by restructuring the mortgage to combine it with the arrears and allow for an affordable, resumed monthly payment. The method of accomplishing this goal was to combine the principal of a loan with the arrears on the loan in order to absorb the missed payment arrears and join them with the principal resulting in a larger loan balance with better terms: a lower interest rate, a longer loan duration and with possibly some arrears deferred till the end of the loan. Under legislation passed during February of 2009, the Federal government had enacted a voluntary program to help homeowners facing “hardship” in paying their mortgage: The Home Affordable Modification Program (“HAMP”), was enacted to encourage mortgage lenders to modify mortgages for the “at risk” homeowner. The HAMP program expired on December 31, 2016, but it inspired lenders to have similar “in-house” modification programs which were more within their control and less subject to government regulation. Under HAMP and the “in-house” Modification programs the arrears on a mortgage would be combined with the remaining principal balance, with the interest reduced and the loan term extended, effectively creating a larger loan where the monthly payments are less. While the HAMP program had expired at the end of 2016, it has been largely replaced by the system of non-HAMP private bank modifications that almost every major lending institution offers. Whereas before borrowers needed to first be screened for a potential HAMP modification and only if they did not qualify for HAMP would the in-house modification be considered, now the “in-house” options offered by the particular lender are the only modification options available.

The requirements to qualify for most “in-house’ modifications is similar to the qualification for HAMP and are as follows:

• The loan must be a lien on the homeowner’s real property;
• The loan must be in default or in imminent default; and
• The loan default must be due to a hardship faced by the homeowners / borrowers but their finances need to be able to now sustain a payment level that is usually only slight less than the original monthly payment.

The methods by which lenders may help homeowners under “in-house” modifications are as follows:

• Mortgage arrears (including escrow arrears and the costs/fees from any legal proceedings if applicable) are absorbed into the principal balance creating a new loan that is larger in its new principal amount than the original loan, but is no longer in arrears and has better terms as to interest (which is lowered) and the duration of the loan term (which is extended), resulting in a monthly payment that is usually slightly less than what the borrower paid prior to their default.;
• Lenders may extend the loan term up to a term of 40 years; and/or
• Lenders may provide for deferment of some loan arrears in the form of a large balloon payment at the end of the loan term.

Most institutional lenders, offer several “in-house”programs, which are often modeled after the former HAMP program, but are less regulated than HAMP. Because navigating through these programs and dealing with the lenders’ bureaucracy can be difficult, successful modifications usually involve the client retaining a qualified professional, working on their behalf, and a concerted and a persistent campaign to urge the lender to modify a particular mortgage loan.

In the sections in this site focusing specifically with Modifications and Negotiations, these options are explored in more detail.

Short Sales require the Borrower in arrears to find a potential Buyer for the distressed property who willing to offer an amount to the Lender that is less than what is owed on the mortgage loan, but sufficient to the Lender given litigation issues, cost and delay, so that the Lender is willing to allow the Borrower sell the Property, and willing to close without the full payoff amount due on the loan. The Borrower is released from a possible deficiency judgment in return for the Borrower’s expediting the sale and transfer of the property.