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BY AVI FRISCH
NEW JERSEYNEWSROOM.COM
New Jersey residents, hard hit by the recession and the collapse of the housing bubble, are finding themselves forced to struggle to stay in their homes.
Lately, a lot of these folks have been calling me already deeply in trouble with their mortgages. Somehow they have waited a long time to face up to their problems, longer than I would have liked to see them wait before getting in touch with me.
So how should they (or perhaps you) respond to such house-based financial difficulties?
Loan Modification
The first step many do take is to attempt to get a loan modification from their bank. This process often gets expensive as people find themselves hiring law firms and other loan modification companies to negotiate on their behalf.
The good news is that you can negotiate with the banks on your own. However, there are a few things you have to know before trying this.First, the banks are difficult to work with. They will demand a huge amount of paperwork; they will lose your paperwork; and then they will try anyhow to deny the modification – even after you have resubmitted the paperwork. Persistence, persistence and more persistence is the key to facing the morass of red tape spewed by the bank.
Another aspect of bank bureaucracy is that they will force you into default on your loan before they will seriously discuss modifying it. So you will have to begin skipping payments just to get their attention. It is vital, however, that you set the money that you would have been paying aside to serve as the seed money to get you a new payment plan.
Let me say, you must know the bank's purpose in giving a loan modification before considering an effort to obtain one. There is no point wasting your effort if you are not eligible for the process. You will not get a loan modification if you have no income, even though you need help, since there is no way for you to be able to repay the new monthly payment amount without income. That is how the bank will (correctly) see the picture.
In addition, banks do not like to waive the principal of a loan, so they will first try to extend your loan term and to fix the interest rate before they will consider cutting the principal.
Many people are disappointed with the reductions the banks are willing to offer them. The loan modification process is not a gift to you from the bank for falling behind on your payments or losing your job. It is a way to prevent foreclosure, which is expensive for the banks and which leaves them holding a house they then must to pains to sell off.
Finally, the federal loan modification programs only encourage the banks to give you one trial modification. If you get a trial modification, stick to it, make the payments and it will become permanent, but if you miss a payment or do not keep to the terms of the modification, it will be hard to get another one.
Foreclosure
During the period when you are negotiating your loan modification, the bank will likely begin foreclosure proceedings against you. This does not prevent you from getting a modification. In fact, the debt collection law firm that brings the foreclosure action has no authority to settle the case, so the loan modification process will be your only route to a settlement allowing you to keep your house.
Luckily for homeowners, the process for foreclosing a house in New Jersey is very slow. The complaint and answer are filed with a central foreclosure processing unit in Trenton and then after an answer is filed by the homeowner (more on that in a second), it will at some point a few months later be transferred to a judge in the county where the property is located. A few months after that, a judgment will likely be entered and the process of selling the house will begin. This process takes another 4-6 months.
Filing an answer in your foreclosure complaint is very important. Once you have been served, you have 35 days to respond. Most people should hire a lawyer to represent them, as they are not familiar with the court system, and will be very challenged to understand the proceedings. If you fail to file an answer, the foreclosure unit will enter judgment against you and start the process of selling your home a few months sooner. In addition, the foreclosure unit can deem your answer as non-contesting, which means they can enter judgment against you.
Do you want to keep your home?
To many (if not all) householders, the answer to this question is obviously yes, at least at first. Perhaps, though, the question requires more consideration than that. Many people owe so much more money on their mortgage than the value of their home that even after a modification they will be paying more for the home than an equivalent rental property would cost. They are, in a term that has become commonplace, underwater.
There are several ways to leave your home when you fall behind. One is to just walk away from the house, and to stop making payments. This is probably not the best approach, as it might leave you with personal liability to the bank and municipality in which the property is located. A second approach is to negotiate a short sale, which means finding a buyer for what the property is worth and then presenting it to the bank and asking them to waive the difference.
If you can find a buyer willing to undertake a short sale, then it is a good but time consuming option. Finally, you can ask the bank to take the property from you via a deed in lieu of foreclosure, and to just end your involvement with this property.
Why would you want to do this? Despite the American Dream aspect, homeownership is about making an investment, and if your home won't be increasing in value, all you are paying toward it is no different than paying rent.
The banks will ruthlessly pursue profit and their financial best interest, and so should you. You are not morally required to be more considerate than any other person or institution. The system exists as it is and you must make the most of it.
Avi Frisch is a lawyer in Paramus and Manhattan. He can be reached at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .
