FRIENDLY, AFFORDABLE AND KNOWLEDGEABLE Chapter 7 Chapter 13 Loan Modifications
Thinking about asking for a loan modification during the Covid-19 pandemic? This post may help guide you. To speak with our team directly, please do not hesitate to contact our office immediately with questions and concerns.

Since the first cases of the coronavirus in the United States in January 2020, healthcare providers, scientists and government leaders have grappled with treatment, finding vaccines or other defenses and limiting the spread. In the early months, state and local government officials in particular imposed state-at-home mandates and ordered the closure of many businesses. Since the late spring and into the summer, phased and limited openings have been allowed. Even with recent loosening of restrictions, COVID-19 has left many businesses and employees without income. The economic downturn has threatened many homeowners with the loss of their homes in foreclosure. In turn, the federal government and banks have adopted measures to help you keep your home in these challenging economic times.

A Temporary Halt to Foreclosures During Covid-19

If you have a loan backed by Fannie Mae, Freddie Mac, the Veterans’ Administration, the U.S. Department of Agriculture or the Federal Housing Administration, you have protection against foreclosure through at least August 31, 2020. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES) was enacted as an effort to mitigate against potential home loss. The law prohibits the initiation, continuation or finalization of foreclosure proceedings between March 18, 2020, and August 31, 2020, on loans backed by the federal government or by Government-Sponsored Enterprises (GSEs)--Fannie Mae, Freddie Mac or Ginnie Mae. You can find out whether your loan is backed by a GSE or the federal government and, thus, qualifies for CARES Act protection through a number of sources: *Contact your servicer. Your monthly statement should contain the name, address and telephone number of the servicer. You may also search through the site for Mortgage Electronic Registration Systems, which allows you to find the servicer based on your property address. Also, upon your written request, the mortgage servicer must furnish you the name, address and telephone number of the owner of your mortgage. *Lookup Tools. Both Freddie Mac and Fannie Mae have self-service look up tools for you to know if either owns your mortgage. To use the tool, you will need your property address and the last four digits of your Social Security Number.

Forbearance During Covid-19

With a federally-backed or GSE-backed loan, you qualify for a forbearance on payments under the CARES Act if the COVID-19 pandemic causes you financial hardship. While the specifics depend on the particular mortgage, the forbearance typically comes as a suspension of or reduction in your payments. The law gives eligible homeowners a period of 180 days, with an option to request an additional 180 days if the financial hardship continues. These programs do not relieve you of the repayment obligations. At the end of the suspension or reduction period, you will still owe the unpaid amounts. With GSE or federally-backed loans, you will not be required to make a lump-sum payment at the end of the period to cure the unpaid amounts. Instead, the loan servicers for these loans may offer options, such as: *A repayment plan *Deferrals, with the unpaid sums due either upon sale or refinance of the home or at the end of the term Once such deferral takes the form of a junior lien, otherwise known as a “COVID-19 Standalone Partial Claim,” is available to those whose loans are backed by the U.S. Department of Housing and Urban Development (HUD) or the Federal Housing Administration (FHA) and who were no more than one month behind as of March 1, 2020. Many banks and other lenders also afford forbearance plans. The length of the period and repayment terms vary by institution.

Loan Modifications During Covid-19

You can save your home through a loan or mortgage modification if you face the threat or imminence of foreclosure. The grounds for which you may claim a hardship are broader than allowed for protections offered under the CARES Act. Typically, these include: *Divorce *Illnesses or disability that result in the loss of income *Property losses not covered by insurance or other sources *Death of a family member who earned income *Hurricane, tornado outbreak, flood, earthquake or other event causing a natural or declared disaster In a modification, the lender does not grant a new loan as in a refinance. The original one still exists, but the lender agrees to change the terms. Changing the contractual agreement has as its ultimate goal lowering your monthly payment. Those engaged modifications or housing counseling often seek a payment such that the borrower’s monthly debt does not exceed 31 percent of gross income. In one approach, your bank or other lender may add the amount of delinquent payments to the unpaid balance and, in many cases, will generate a new repayment length. Your new monthly obligation will be calculated based on the new number of months and the recalculated balance. In effect, you borrow the amount of your delinquency and pay them over a period of time. Other changes may include: *Converting a variable or adjustable-rate to a fixed-rate. With this change, you seek to avoid higher monthly payments that result from increased rates. *Extending the term of the mortgage. The number of months you have to repay is increased, for example, from 30 years to 40 years. The lender then amortizes based upon the longer period of time. *Lowering the interest rate. Such changes can be temporary or permanent. *Reducing the principal balance. The lender decreases the amount of principal that you owe, so that you are paying back less. Such an agreement effectively is a partial forgiveness. You might have income taxes to pay on any reduction of principal.

Your Credit Report

The COVID-19 relief bill offers certain borrowers protection against negative credit report information arising from forbearances or modifications. By default, a lender may report payments not made under a forbearance agreement as delinquent. The CARES Act requires the lender or servicer to report your account as current if you were current on payments at the time you entered into a forbearance or modification arrangement. You get this protection even if Fannie Mae, Freddie Mac, Ginnie Mae, the Veterans’ Administration, HUD, or the U.S. Department of Agriculture does not back mortgage. If you were behind at the time the lender afforded you a forbearance or modification, the lender may continue to report your or account to the credit bureau as delinquent. Once you have cured the delinquency or default, the lender or servicer must tell the credit reporting agency that you are current. These protections apply to arrangements made between January 31, 2020, and 120 days after the end of the national coronavirus emergency.

Getting Your Credit Report

The information furnished to a credit bureau affects your score. Accurate credit reporting is crucial for a good score and your prospects of obtaining credit, insurance or even employment. For those reasons, you need to regularly review your credit report for errors that you can dispute and have removed from the report. In normal times, you get one free credit report per year from each of the major credit reporting agencies -- Equifax, Experian and Transunion. You can obtain the report through annualcreditreport.com. In response to the coronavirus pandemic, these credit reporting bureaus are providing you free weekly reports through April 2021. You may dispute errors on your report either by phone, mail or online. The Federal Trade Commission has a sample letter to guide your written dispute. If you contend that the servicer or lender has incorrectly reported you as behind rather than current, you likely need receipts or statements to show you were current at the time you sought relief. You may ask the credit reporting agency to include on your report a statement that you are presently unable to pay due to the coronavirus pandemic.

Finding the Best Option During the Pandemic

HUD approves agencies and people who offer housing counseling for homebuyers and those facing the possible loss of their home. As to foreclosure prevention, counselors assist you with getting information from the servicer or company on options for modification or forbearance. They explain those alternatives to you and help you determine what constitutes an affordable plan for you. To that end, if you seek housing counseling, you will need: *Your most recent payment *The regular monthly amount *The amount owed *Your recent paystubs or other information about your monthly income You can also contact your bank or lender directly to learn your options if you experience a financial hardship.
The vast majority of Americans have had their lives turned upside down by the coronavirus pandemic. They have not been able to perform their daily activities and go on any sort of vacation. Many people have also lost their jobs or faced some other sort of economic hardship. These individuals have been unable to pay all kinds of bills. Perhaps the most important bill for the vast majority of Americans to pay is their mortgage. These people want to do whatever they can to avoid foreclosure and stay in their homes. They may have to take extraordinary steps over the next few months in order to do so.

Access Temporary Mortgage Relief

One of the fastest ways to avoid foreclosure during the current COVID-19 pandemic is to access temporary mortgage relief. Millions of Americans have been thrown out of work or had their hours greatly reduced. These men and women are on hard times and a large number of American companies know this. Many mortgage companies have introduced a wide variety of plans to help people pay off their mortgages and stay in their homes. A lender has several reasons to take these steps. They want to retain customers and aid their image through such a stressful period. These companies also want to keep within government regulations. A large number of areas banned foreclosures and evictions for a significant period of time. Holding the court hearings and auctions associated with these events would have violated social distancing guidelines in places such as Long Island and New York and been dangerous for a number of people. In addition, the government also made billions of dollars in loans available to companies that have faced economic hardship from the pandemic. Many of the losses that mortgage companies suffer helping out their clients can be covered by a loan from the federal government.

Avoid Foreclosure

Home owners should try as hard as they can to structure their payments and stretch their budgets to where they do not have to foreclose on their house. Foreclosure is a terrible process that no family wants to endure. They are physically removed from their house with all of their possessions. Individuals have to find somewhere to live with little to no warning. They have a black mark on their credit that they cannot take off for several years. A person would often rather avoid all of their other payments then fall behind on their house. Avoiding many payments involve a company sending in threatening letters and bill collections phone calls. Not paying an internet bill may lead to an individual not having internet and having to go to the local cafe in order to get online. Having a car repossessed forces an individual to potentially take public transit to work. But all of these negative consequences pale in comparison to what would happen if an individual did not have their home anymore. Most people who suffer through foreclosure have to live in expensive motels until they can find an apartment of some kind. Many of the people who are foreclosed upon simply end up homeless. This is one of the worst financial tragedies that a person can endure and it does not have to happen in many cases.

Home Loan Modification

Some home owners will be eligible for home loan modification in order to help with avoiding foreclosure. This modification involves a home owner changing the structure of their loan to avoid current payments. It is particularly beneficial for individuals who are currently out of work but hope to go back soon. They can take the money they have now, save up, and eventually use extra income to pay off their mortgage at a later date. There are two main strategies that these companies have used to aid with this process. One of these is deferment. Deferment involves allowing a person to avoid a few mortgage payments now and simply tacking those payments onto the end of the mortgage. The bank may take a short-term hit but does not lose money in the long term. Individuals also expect to have more money later on and do not have to suffer any problems with their credit in most instances. The other approach is forbearance. In forbearance, an individual misses several payments and then have to pay them all back in a lump sum in the near future. If an individual can, they should emphasize taking deferment over forbearance in all cases. Many individuals cannot pay the lump sum involved in forbearance. But if it is all that a mortgage company will offer, it is certainly better than risking foreclosure with missed payments.

Filing for Bankruptcy to Prevent Foreclosure

In some rare cases, an individual's best option to avoid foreclosure is to declare some form of bankruptcy. This status is when a court declares that a person does not have the capacity to pay off their debts as they are currently constituted. There are two main options for an individual after the bankruptcy process. In Chapter 13 bankruptcy, a person sets up some sort of payment or refinance plan for at least a portion of their debt over a period of three to five years. In Chapter 7 bankruptcy, they often do not pay off a large number of their debts. Those debts are wiped clean. Bankruptcy is a problematic process for many reasons. First, it harms a person's credit immensely. They will often have this black stain on their credit report for many years. The records of their bankruptcy will be in the public domain for anyone to access. Also, there is no absolute guarantee that they will be able to keep their home. Some forms of bankruptcy do not allow a person to keep their home if they do not have a certain amount of equity. A person is basically trusting their attorney and a judge to make the best decision that helps them retain their home and avoid foreclosure. This risk is massive and is not a level of risk that most individuals should take on with their home.

Avoid Foreclosure Scams

Any individual who is potentially in the foreclosure process must look out for scams that try to take advantage of them. These scams come in many forms and mostly revolve around a person's desire to become whole with their mortgage company. Some scams promise to get an individual out of their underwater mortgage and many other debts. In a common form of the scam, the debt settlement agency advises that a person stop paying off all of their debts for a period of several months. Then, the agency advises that a person comes back with an offer to settle for all of those debts that they did not pay. The theory behind this is that the company will want something rather than nothing and negotiate with an individual. But banks often want to keep the mindset of people paying debts on time rather than gain every single time they can from a potential borrower. Therefore, they will simply foreclosed on an individual if they go too long without making their payments. This approach often costs a person several thousand dollars and is not particularly helpful in the long run.

Hire an Experienced Attorney for Guidance

Many of the options listed to help with foreclosure involve complex plans and the legal process. This process is especially true of bankruptcy. There are a number of concrete steps to take with bankruptcy that a person has to make sure that they follow. A lawyer can help with all of these steps. He or she can help a person settle their debts or argue their case in front of the judge. An experienced Long Island attorney can help you avoid potential foreclosure scams. Our team can represent you in any financial dealings that they have and can help shine the way forward on getting out of what looks to be insurmountable debt.

Take Action Today

Anyone who is looking at foreclosure is in a precarious position financially. They are understandably scared and perhaps desperate. These individuals are prime targets for a wide variety of scams and cons. They have to remain careful and diligent. They also need to secure the help of an experienced real estate attorney. For more information on how to avoid foreclosure during these difficult times, contact the office of Adam C. Gomerman today and speak with our experience Long Island legal team.
The thought of losing your Long Island home because of an unforeseen financial hardship can keep you awake at night. You might be struggling to make ends meet because of job loss or an unexpected financial setback. Anxiety sets in because you do not know how you are going to make your mortgage payments and cover your daily living needs. Take a deep breath. There are options available that will help you keep your home and gain control of your debt. You can choose to lower your monthly payments by obtaining a loan modification, refinancing your mortgage, or filing bankruptcy. Whichever option you choose, it is important to contact your mortgage servicer or bank as soon as possible. The longer you wait, the fewer options you have.

What Is Loan Modification?

A modification is a form of loss mitigation designed to protect both the borrower and the lender. The lender agrees to change the terms of the mortgage to make monthly payments more affordable. Lenders can permanently change the terms of the mortgage by:
  • Extending the duration of your agreement
  • Adding past due payments to the unpaid principal balance
  • Reducing your interest rate
  • Forbearing payments for a short-term
  • Changing your mortgage type (for example changing an Adjustable Rate Mortgage (ARM) to a Fixed-Rate Mortgage)
Some Long Island homeowners may benefit from the government-sponsored Flex Modification program created to assist borrowers who have Fannie Mae and Freddie Mac home loans. The program can reduce a borrower’s mortgage payment by around 20 percent by adding the past due amounts to the outstanding loan balance, modifying the interest rate, extending the loan terms, or setting aside some of the principal balance before recalculating the monthly payment. This is called a forbearance and is a temporary option to get you back on your feet. You may be eligible for the Fannie Mae or Freddie Mac Flex Modification program if:
  • The loan is a conventional first mortgage
  • The borrower has enough income to make the monthly payment, and
  • The loan was acquired at least 12 months before Flex Modification evaluation
There may be other programs offered by your state. For example, the New York State Mortgage Assistance Program (MAP) provides a zero percent interest deferred payment mortgage loan up to $80,000 to New York homeowners who have exhausted all other avenues of help. This program is available statewide, so it does not matter whether you live on Long Island or in Buffalo. According to the New York Housing Conference, you can use the funds to bring your mortgage current, get a modification, or pay off property tax arrears. Typical loan recipients are low- to moderate-income homeowners with an average household income of $53,311. Long Island residents can receive assistance and personal counseling through the Community Development Corporation of Long Island

Modification Eligibility for New York Homeowners

Eligibility varies from lender to lender, but the process begins by completing and submitting an application with the required documentation to the lender. The list of required documentation will vary but the following documents are generally required:
  • Proof of income and an expense finance worksheet
  • Tax returns for the last two to three years
  • Proof of additional income such as alimony, social security, disability, child support
  • Bank statements, and
  • Proof of your hardship which can be a hardship letter or affidavit
  • Proof of additional debt such as student loans, credit cards, and car loans
If find yourself having difficulty with the modification application or you feel your lender is not abiding by state laws, consider contacting our Long Island office and we can guide you through the process. You do not need to hire an attorney to obtain a loan modification, but employing a qualified professional can make the difference between keeping your home or losing it foreclosure.


Refinancing your loan replaces your old loan agreement with a new one and can be completed by either your current lender or a new one. To qualify for a refinance, you must be creditworthy and not owe more than the house is worth. While creditworthiness is not a major concern with a modification, a lender or bank does require that you be able to make the new payments. Unlike a modification, you may have to pay closing costs and other fees to complete the mortgage refinance process.

Mortgage Modification and Bankruptcy

Chapter 7 and 13 are the most common types of bankruptcy filed by individuals. Chapter 7 bankruptcy is a liquidation process in which the trustee sells non-exempt assets and uses the proceeds to pay creditors. There are no provisions in a Chapter 7 bankruptcy that allows you to keep your home, but it gives you time to find other housing or enter a loan workout plan with your lender. There is nothing that states your lender cannot agree to a modification after you file a Chapter 7. However, this is at the lender’s discretion. A Chapter 13 bankruptcy generally allows you to keep your home and pay creditors under a court-supervised repayment plan over three to five years. Once the court approves the repayment plan, the lender cannot foreclose. Additional advantages of a Chapter 13 bankruptcy include:
  • Automatic stay (an injunction that temporarily prevents creditors from pursuing or continuing credit collection actions)
  • Extending your secured debt over the life of the repayment plan
  • Protecting third parties such as co-signers
  • No direct contact with your creditors. Payments are made to the trustee who disburses the payments to the creditors
According to the United States Courts, you do not need an attorney to file bankruptcy. However, due to the long-term legal effects surrounding a bankruptcy, hiring a bankruptcy lawyer who will work to protect your rights, recommend the best bankruptcy for you, and guide you through the process adds an additional blanket of security should a problem arise.

If you would like more information on the home loan modification process, or if you have questions regarding bankruptcy filing, considering contacting The Offices of Adam C. Gomerman. Our Long Island based team of attorneys has years of experience in advising clients on the home loan modification process and personal bankruptcy process.
How a Loan Modification May Help Reduce Your Monthly Mortgage Payments For homeowners struggling to keep up with their mortgage payments,there are programs available to help avoid foreclosure. However, because these programs are legal agreements, it is prudent for borrowers to consult a lawyer. One viable alternative to foreclosure is a loan-modification program that is an adjustment to the terms of the existing mortgage. Loan modification is designed to provide either temporary or permanent financial relief by reducing the amount of the monthly payments via a reduction in the principle, interest rate or by extending the term of the loan.

Loan-Modification Options

There are several forms of loan modification, with some being better than others. However, the lender that holds the mortgage may not provide all the available loan-modification types.

The full list of options include:
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