Clearing Out Arrearages (And at Times Some or All of the Negative Equity From the Old Mortgage)
Clients retaining our services to apply for and hopefully procure a modified mortgage often have little equity or negative equity existing in their home or other property. Negative equity exists when the real estate market falls, i.e., lowering the value of a property below the amount owed on the mortgage loan. Wondering how you can save your home/property after falling behind on your mortgage payments and you have little equity, no equity or perhaps negative equity has knocked all the value out of your home/property? Consider mortgage modification.
It is a rare occurrence when a mortgage lender waives or forgives arrearages owed on a mortgage in connection with a modification approval; it is even rarer for a lender to forgive a portion of unpaid principal owed on the mortgage. I have been told by a past president of the New Jersey League of Mortgage lenders that this is done in only about 5% of all modification applications. Yet I have had residential mortgage modifications where lenders forgave more than $200,000 of mortgage arrears and unpaid principal through a successful modification. But these success stories do not happen if mortgagees don't take the initiative and ask for the relief they need.
When borrowers have a significant amount of negative equity in their homes and can show that there was a genuine good faith reason for the default, a strong financial incentive exists for the mortgage lender to waive part of the unpaid arrearages and even part of the unpaid principal balance as well when the lender would take a very significant loss, often hundreds of thousands of dollars, should the borrower walk away from the house and the lender be forced to foreclose or conduct some other form of distressed sale. Despite the very low nationwide success rate, as a result of close attention to detail, I have had great success in getting mortgage lenders to waive arrearages, and at times even part of the unpaid principal balance when the negative equity is significant enough. While I have never kept close track of the exact percentage of my modification cases where lenders have forgiven arrearages and/or part of the unpaid principal balances in these "negative equity" scenarios, it is probably much closer to 50% of the time, with more than one lender waving over $200,000 in arrearages and unpaid principal in their approval of the modified mortgage.
Tailoring the hardship letter and providing proof of the negative equity existing in the property – in other words, providing case-specific facts to the lender – has gone a very long way in achieving what one might think is unachievable.
If you need to find a way to clear out your negative equity, save your home, and restore your finances to a manageable level, contact The Law Office of Marc G. Alster. The Bergen County bankruptcy attorney has more than two decades' of legal experience, and is primarily focused on bankruptcy law and finding ways for people to escape insurmountable debt. Call 201.878.4630 to learn more.