COVID Mortgage Modifications
As the coronavirus continues to rage across the land, mortgage modifications are becoming more and more frequent.
The pandemic has presented many challenges for everyone, especially for those who find themselves struggling to pay their mortgage. Though there are programs in place to help—both from the government and lenders themselves—not everyone will qualify.
Here are your options for seeking mortgage modifications or your options if you do not qualify. Most importantly, reach out to your lender to see what options might be available to you.
What is a Mortgage Modification?
If you are delinquent on payments or are about to become delinquent, you may qualify for a mortgage modification to help you make payments. These are done through a program from your lender which is either “in house”, or through a government program implemented through your lender.
Typically, a modification means finding a way to lower your payments through changing interest rates, extending the length of your loan, forgiving principal, or a combination of these.
You may be wondering why a lender would do a modification rather than just foreclose. The answer is that the other options—foreclosure- are expensive options for the lender and it’s much easier for a lender to work with you to find a way through your troubles so you can keep paying regularly. Lenders would rather have to perform loans even with lower interest rates or an extended-term.
COVID Mortgage Modifications
Thanks to the Coronavirus Air, Relief, and Economic Security Act (CARES Act) from the federal government, you may qualify for mortgage relief if you’ve been affected professionally by the virus. This could potentially allow you to delay payments for up to 360 days if your mortgage is backed by the federal government.
You may also request a forbearance from your lender to lower or stop payments until you get back on your feet. This is primarily reliant on your lender working with you, but they are not necessarily required to do so.
What if You Cannot Obtain a Mortgage Modification?
Not everyone will qualify for federal aid or have a lender who is willing or able to work with them on refinancing or modification solutions. There are a few options that will allow you to be relieved from mortgage payment obligations as a last resort.
Short Sales
For those looking to get out from under a mortgage they can no longer afford, one option is a ‘short sale.’
A short sale is when a home is sold for less than the amount that is still owed to the lender. The lender must approve the short sale and will establish conditions under which you must sell the property. This involves the lender agreeing to accept less than the amount owed and allows you to end the mortgage agreement without having to pay the balance. In a short sale, the homeowner and/or home seller does not get any money out of the sale of the property.
The sale of the home usually involves the lender waiving the balance of the money owed to the lender, but this must be specifically agreed to by you and your lender.
This is usually done to avoid foreclosure and may negatively affect your credit score.
Deeds in Lieu of Foreclosure
A deed in lieu of foreclosure occurs when the lender agrees to accept a deed to the property in exchange for releasing the mortgage. With a deed in lieu, the borrower is relieved of their remaining payment obligations.
Typically, deeds in lieu are a “last resort” after exhausting other options such as modifications, refinancing, or a short sale. Deeds in lieu are done to avoid costly foreclosure and to relieve the homeowner of the obligation to pay the balance on the loan. Deeds in Lieu must be agreed upon by both parties. It is important to discuss deeds in lieu or short sales with your tax professional so that you are aware of possible tax ramifications.
COVID-19 has complicated our daily lives. Fortunately, there may be options available to homeowners seeking assistance. Be sure to reach out to your lender or mortgage servicer if you are having difficulty making your mortgage payments.
For more information on COVID-related mortgage modifications, reach out to a real estate attorney at Lee Scott Perres, P.C.
