As Michigan home values have plummeted in lieu of the recent mortgage crisis, many homeowners have found themselves strapped with mortgages which exceed their homes current values. Known as an “underwater mortgage”, this debt can be crippling to the homeowner, whose “investment” has suddenly turned into a money pit.
Many Michigan homeowners burdened with underwater mortgages find that walking away from the mortgage is, in the long run, less financially damaging than continuing to make monthly payments. Mortgage foreclosures, however, pose serious damages to the homeowners credit history, and underwater homeowners who choose foreclosure may not be eligible to purchase another home for the next seven years.
Home foreclosures are equally damaging to the mortgage lender, which faces the high legal fees, potential property damage and liabilities associated with managing a foreclosed house.
Loan Modifications: an Alternative Solution
Loan modifications, also known as “short refinances”, in many cases offer a viable alternative to home foreclosures. During these transactions, the mortgage lender allows the homeowner to refinance his or her home at an amount which is less than the original loan amount. Although loan modifications create a “deficiency”, or difference between the refinanced loan amount and the original loan amount, this arrangement allows the original lender to avoid the high costs of foreclosure. Meanwhile, homeowners get to keep their homes without continuing to pay for an underwater mortgage.
Often, the original mortgage lender requires the homeowner to pay the deficiency, but this is not always the case. Depending on the size of the deficiency, the homeowners original credit score and other circumstances surrounding the mortgages underwater status, lenders may choose to release homeowners from the remaining debt.
Recent foreclosure laws and government incentives have made it more beneficial than ever for mortgage lenders to accept loan modifications as an alternative to foreclosing home with underwater mortgages. Before deciding to walk away from a bloated mortgage, homeowners should contact a company which specializes in foreclosure transactions to see if they might qualify for a loan modification.
Getting Help with Loan Modifications
Because foreclosure transactions are such a specialized and complex field, its a good idea to find a loan modification company or agency to walk with you through the process. Companies which specialize in Michigan loan modifications have experience drafting loan modification offers which have a higher chance of being accepted by the bank. A good loan modification company will also work to reduce the amount of time it takes for the short refinance to close with the new mortgage lender, increasing the homeowners chance of completing the refinance successfully.
Good loan modification companies will have a proven track record of success, so be sure to ask for references and successful case studies.
Tom Cronkright is co-founder of Sun Law Group, a Michigan law firm specializing in assisting homeowners and real estate agencies avoid home foreclosures. Sun Law Group offers fast, expert assistance to stop Michigan home foreclosures before they happen. Contact Sun Law Group at www.sunlawgroup.com to learn more about avoiding foreclosure.