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Landlord Guide Modify Mortgage Loan
For most Landlords and Real Estate Property Owners, modifying or restructuring their current mortgage loan is a better alternative to foreclosure. At the landlord or property owner’s request, the lender or its servicing agent may agree to modify the original mortgage loan and adjust its terms in many ways.
To effectively modify or restructure your monthly mortgage loan payments that are within your budget, negotiations with your lender or its servicing agent will be necessary. Your negotiating strength includes that the lender will typically lose less money by working with you to modify or restructure your mortgage loan than will be lost by foreclosing on your home.
The steps to modify or restructure your current mortgage loan:
1. Contact Your Lender or its Servicing Agent.
Landlords and Real Estate Property Owners have had a difficult time contacting their lender or its servicing agent. Mortgage loans are often pooled together and sold assignees that designate servicing agents (some are located out of state) to collect mortgage loan payments. These servicing agents are often not the lenders or the assignees of the lenders, but may represent the only means of contacting a person authorized to act for your lender.
By calling the number of the servicing agent listed on your monthly mortgage loan statement, you should be able to make contact with the person assigned by the servicing agent to negotiate with you on the lender’s or the servicing agent’s behalf.
If you obtained your mortgage loan between January 1, 2003 and December 31, 2007, your lender or its servicing agent is required to contact you in person or by telephone (or show that a good faith effort has been made to do so). This contact is to occur at least 30 days before your lender or its servicing agent directs the trustee to record a NOD. However, you do not need to wait. You should contact your lender or its servicing agent even before you miss a single monthly mortgage loan payment.
Should the NOD have been recorded against your home prior to the date when California law became effective requiring you to be contacted, your lender or its servicing agent is obligated to contact you to explore alternatives or options to avoid foreclosure (or must list the good faith efforts made to contact you) prior to recording the Notice of Sale (NOS). A statement in the form of a declaration is to be included with the NOS that either contact was made with you or listing the good faith efforts to make contact with you.
If you obtained your mortgage loan before or after the 5-year window, your lender or its servicing agent is not required to contact you. You will need to take the initiative to begin negotiations with your lender or its servicing agent. The earlier you contact your lender or its servicing agent, the stronger your negotiating position will likely be.
Whether you contact the lender or its servicing agent, or they contact you, the purpose of this initial contact is to set up a telephone discussion or meeting where both parties can assess your financial condition with the goal of finding a monthly mortgage loan payment that you can afford and your lender or its servicing agent can accept.
When you contact your lender or its servicing agent, make sure to have the following information available:
Your name, Address, Telephone number, Email address, if available Name and address of the servicing agent where you mail your monthly mortgage payment, The mortgage loan number, Your current income and a list of monthly expenses, Reason for the delinquencies, Whether you are in bankruptcy proceedings (If you are, you will need to know your case number and attorney to inform the lender or its servicing agent of these facts and with whom their future communication should occur), Whether the property is currently owner occupied.
2. Prepare Your Proposed Solution
To negotiate a modified or restructured mortgage loan arrangement, you will need to provide your lender or its servicing agent with enough financial information to verify the monthly mortgage loan payment you can reasonably afford. Your proposed solution needs to include a financial statement reflecting all sources of household income and your overall economic situation. Based on your income, your lender or its servicing agent will apply general guidelines that will assist them to determine what you can afford.
Make sure to include documentation (a paycheck stub or bank statements showing electronic deposits) to verify your income. Remember to remove all personal financial information (social security and bank account numbers, etc.).
3. Your Lender or its Servicing Agent will want to Support their Decision to Modify
Most lenders and servicing agents understand that if you cannot make your monthly mortgage loan payments, you likely will not pay it. This gives your lender or its servicing agent an incentive to work with you to find a monthly mortgage loan payment that makes sense for both you and the lender. At the same time, the lender and its servicing agents want to avoid situations where Landlords and Real Estate Property Owners take advantage of them. Finally, in some instances a loan modification is not possible. For example, a lender is not likely to agree to a loan modification if your income is not sufficient to support the modified terms. It is unfortunate, but in some cases foreclosure may be the only option.
4. Understand What Your Lender or its Servicing Agent Can Reasonably Offer
Lenders and their servicing agents generally have the knowledge and skill to create different mortgage loan solutions. Landlords and Real Estate Property Owners should ask questions and get understandable answers regarding the proposed modified or restructured mortgage loan terms. Counseling services are also a resource of mortgage loan information available to Landlords and Real Estate Property Owners.
Lenders and their servicing agents can modify mortgage loan payments in several different ways. For example, your lender or its servicing agent may be able to:
- Extend the term (length in years) of your mortgage loan. This can slightly lower the monthly mortgage loan payment.
- Reduce the interest rate of your mortgage loan or convert the adjustable rate into a fixed rate.
- Reduce the principal amount of your mortgage loan.
- Change your monthly mortgage loan payment, lowering it now and increasing it later when your economic status expects to improve.
- Adjust your mortgage loan to a lower principal amount at a reasonable interest rate with lower monthly mortgage loan payments.
- Modify or restructure the mortgage in any combination of the above to achieve the desired mortgage loan payments and mortgage loan terms.
A prepared Landlord or Real Estate Property Owner might persuade a lender or its servicing agent to adjust the mortgage loan payments. The costs of foreclosure in a depressed market could produce a greater loss to the lender than modifying or restructuring the mortgage loan.
In the past, when a lender modified or restructured a mortgage loan by canceling or forgiving part of the principal, the reduction in principal owed was considered taxable income for the benefiting homeowner. In 2008, Congress adopted a law that excludes this implied income from a homeowner’s taxable income. Although this law expires in 2012, until then a lender or its servicing agent can modify or restructure your mortgage loan without creating taxable income. See IRS Publication 525 and IRS Form 982 for more information.
In addition, the State of California has conformed its tax code with the federal law, as such, debt forgiveness may not result in a taxable event on the state level. You should contact the California Franchise Tax Board or your tax planner for more information.
This is a blog post for Real Estate Professionals, Investors, Landlord, Property Manager, and Property Management Companies. Landlords and Real Estate Property Owners Guide Modifying Mortgage Loan is brought to you by SimplifyEm Pay Rent Online and Property Management SoftwareYou might also want to read:
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Has any one modified a mortgage on a rental single family home ??? Having a lot of difficulity with Bank of america. I am not surprised . If any one knows about this please respond.
Thanks