Borrowers deal with financial distress in many different ways. Some seek legal guidance before the foreclosure process begins, while others seek help only after a foreclosure case is filed.
We can assist with both pre-foreclosure and post-foreclosure case filings. Let’s start with pre-foreclosure case filings. After the homeowner misses a loan payment, we can help the homeowner negotiate with their lender for a loan modification or a forbearance agreement, a repayment plan, a reduced payoff, a short sale, or a deed in lieu of foreclosure.
Under the loan modification, we would be modifying the loan so that any past due amounts are recapitalized, meaning they are basically spread out over the life of the loan, pushed to the very end of the loan as a deferred balloon payment, or in some cases, forgiven. In simple terms, a loan modification is just a restructuring of the loan so that the homeowner can begin making regular monthly payments again. The goal of a loan modification is always to lower the monthly mortgage payments.
Under a forbearance agreement, we try to get the homeowner some defined period of time where they don’t have to make any mortgage loan payments. For example, if someone just lost their job, they might need six months of forbearance, but at the end of that period, we would need to negotiate some settlement with the bank for the amount from those months that weren’t paid. Those amounts can be deferred to the end of the loan as a balloon payment, rolled into a loan modification, or even forgiven.
A repayment plan is really simple: the homeowner starts making their regular monthly mortgage payments again, but each month, they pay a little bit extra to cover the past due amounts. A typical repayment plan will require that all past due amounts be paid in 12 months.
In a reduced payoff scenario, we negotiate for a reduction of debt from the lender so that the lender will accept a reduced payoff as satisfaction in full. Usually, the amount of that payoff is tied to the value of the property, so if the homeowner owes $200,000 to the bank but the property is only worth $100,000, we will try to negotiate a reduced payoff for $100,000. If we are successful, the bank would forgive the other $100,000.
A short sale is a scenario where the homeowner is selling the property for less than what the total debt is. At the end of that sale transaction, the lender does not get paid off in full but agrees to accept that reduced amount and release its mortgage. Thus, the homeowner and anyone else obligated under the note is released from any personal liability.
The deed in lieu of foreclosure is a scenario where the homeowner doesn’t want to save the home, preferring instead to walk away from the property without any personal liability for the debt. The homeowner would sign the title of the property back to the bank, and in exchange, the bank would release the homeowner from any personal liability.
If a foreclosure case has already been filed, we start by analyzing the case and providing a quick preliminary evaluation of claims and defenses that might be available to a homeowner. We determine any time constraints the homeowner faces, like a foreclosure sale date, filing deadline, loss mitigation opportunities, etc. While the bank may want to finish the foreclosure process as quickly and efficiently as possible, it is our job to make sure that justice is being done at every step of the way, that no mistakes are being made, and that homeowners are not denied any rights or defenses they may be entitled to.
We protect and assert the homeowner’s rights in the foreclosure process by focusing on both the rules of procedure and the rules of law. That means we hold the bank accountable for not only following the proper procedures and rules inside the courtroom, but also following the actual laws governing loan originations, servicing, foreclosures, service of process, discoveries, etc. When our office identifies irregularities, mistakes, or problems in the foreclosure case, we raise them before the court (whether it is through a motion, subpoena, counter-lawsuit against the bank, etc.). This is how we assert and defend homeowner’s rights and create the leverage that allows them to come to the table with the bank as an equal.
We have cases where we took a process that may normally take seven months to complete from beginning to end and converted that into 11 years of litigation, though that type of timeline is obviously not appropriate or possible for every homeowner. No homeowner goes into foreclosure hoping that they will be in foreclosure for 11 years, though it can make financial sense for some. In short, what we do is take control of the process of the case by making sure that everything is being done properly.
In any foreclosure case, it’s critical to have exit strategies, whether the homeowner wants to save the home or not. Let’s look first at exit strategies for a homeowner who doesn’t care to save the home. Maybe they just need a stable shelter for a defined period of time before taking their next step. Maybe they need to manage some affairs first. Perhaps they want their children to finish at their current school. Those homeowners generally just need time before they’re okay with walking away, but they also want to walk away clean, with no personal liability for the loan. In any foreclosure case, there is always the risk of a personal deficiency judgment, which is the difference between how much a property sells for at a judicial auction and the total amount that’s owed to the lender under the judgment of foreclosure.
We can do a lot for this type of homeowner. We can negotiate a consent for foreclosure, a deed in lieu of foreclosure, a relocation assistance agreement, or a stipulated judgment of foreclosure. In any of these scenarios, we can negotiate a release of any personal liability of the homeowner, and sometimes, we can even negotiate cash payments to the homeowner to help them with that relocation process.
We can also do a lot for the homeowner who wants to save their property. Exit strategies, in this case, would include loan modifications, repayment plans, and reduced payoffs—many of the exit strategies we identified in the pre-foreclosure process carry over to post-foreclosure.
While it’s important to have an exit strategy in mind when you start the foreclosure process, it’s equally important to be flexible if you want to save your home. Your exit strategy might need to change. Maybe what you want at the beginning of the process is not what you need ten months in or two years in. The bank or the bank’s servicer can be very difficult to deal with, and it may initially appear that it’s impossible to get a loan modification or to settle with the bank. However, mortgage loans often get sold, and when that happens, the new investor or the new servicer (who will substitute in as the new plaintiff in the case) may negotiate more fairly or openly than the original plaintiff.
Frequently, mortgage loans get sold at discounts. If the total amount owed is $100,000, the plaintiff is probably not going to receive the full $100,000 on the loan value from the buyer. Instead, the buyer of your loan will negotiate some type of discount, and with each subsequent sale of the loan, that discount amount can increase because the debt is becoming stale and less collectible. As those discounts increase to the benefit of the new owner of the loan, it can also benefit the homeowner because it gives them more room for negotiating. Take the $100,000 loan example, and let’s assume it gets sold six times, with the sixth investor paying only $50,000 for the debt. The homeowner now has an opportunity to try to get a reduced payoff. As their lawyers, we might go to the sixth investor and offer $60,000, and the investor might be happy with that because their cost basis in the loan is only $50,000, meaning they can make $10,000. If we had made the same offer to the first owner of the loan, they never would have taken it. Staying alive, so to speak, long enough in a foreclosure case can have real benefits to the homeowner, especially when the loan is being sold during the pendency of the foreclosure case, as subsequent owners of the loan become more flexible in how they’ll settle the debt.
For more information on Assisting Clients in the Foreclosure Process, an initial consultation with our office is your best next step. Get the information and legal answers ’you need by calling (312) 600-8815 today.
79 W. Monroe
Chicago, Illinois 60603
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