When a borrower defaults on their mortgage, the foreclosing lender considers the property a “non-performing asset”. Federal banking regulations require that the lenders hold money in reserve to cover the expenses associated with the non-performing assets in their inventories. Lenders make their profits by charging interest on the money they have loaned out. They are unable to lend out the money that is being held in reserve which reduces their profits.

Vacant properties are often the target of vandalism. Vacant properties are not properly maintained. In areas with colder climates, the winter months pose an additional threat of frozen pipes unless the property has been winterized, yet another expense for the lender. While bank owned properties remain vacant their condition and values continue to decline.

The lender is responsible for the monthly expenses for the maintenance of each property in their inventory until the property is sold. These expenses include homeowner’s insurance, liability insurance, property taxes, lawn care, snow removal, real estate appraisal fees, real estate broker fees and more.

A lender’s ability to borrow money from the Federal Reserve to make loans is based in part on the lender’s performance history. Lenders with a high number of foreclosures risk having the Federal Reserve reduce the amount of money they are able to borrow. The Federal Reserve may also charge a lender with a high number of foreclosure a higher interest rate on the money they borrow.

If your state allows for a deficiency judgment, then your lender may pursue a deficiency judgment whether they foreclose and your property sells at the sheriff’s sale, you short sale your property, or your lender accepts a deed in lieu.

Being sued for a deficiency judgment seems to be one of the biggest concerns of homeowners that are in foreclosure. Not only have the homeowners been struggling financially and are at risk of losing their home, they may be burdened with additional financial hardship having to repay tens of thousands of dollars years into the future. Futunately, this is not typically the reality for the majority of homeowners, lenders usually will not pursue a deficiency judgment.

After the foreclosure the lender would have to sue the foreclosed homeowner for the deficiency judgment. This means hiring an attorney, paying fees and court costs. Even with a deficiency judgment, the lenders know that they may never be able to collect on the judgment. After all, the lenders understand that the homeowners financial hardship may prevent them from making any payments towards the deficiency judgment. The lender has already lost money on the loan and on the costs of foreclosing, therefore they are reluctant to put any more money into a lawsuit.

The bottom line is that lenders rarely pursue deficiency judgments unless they know that the homeowners have other assets of value worth pursuing, such as cash, real estate and personal property. While the possibility of a deficiency judgment exists, the lenders recognize that suing the homeowners is not in their best interests in the majority of cases.

Sure they make claims about their experience and successes. They’re very personable and will act like your friend just to win you over. At $1,250 to $3,000 it is easy to see why they would, after all this is the only work they are going to do to get your money.

If you’re looking for someone to help you with a loan modification, then seek out companies that will only charge you when they are successful or companies that will hold your fees in escrow with a reputable title or escrow company. Google any loan modification company you are considering working with and find out what is being said about them.

If you are currently working with or are planning on working with a loan modification company, then contact your lender every couple of weeks to insure that the loan modification company has contacted them and are actively pursuing your loan modification.

While your situation may seem desperate, please don’t act desperately by making costly decisions that will cost you not only the money they steal from you but more importantly the valuable time you need to resolve your foreclosure.

Your lender is motivated to work with you to solve your foreclosure as it is also in their best interest. You should consider contacting your lender and negotiating your own loan modification. While you may not be comfortable with this idea at first, but who better to represent and protect your interests than you? Please see our post “How to Arrange a Loan Modification with Your Lender”.

Your lender does not want to foreclose on you. That’s because your lender is in the business of making money through loans. Your lender typically losses money if they foreclose. Usually they cannot sell your home for what you owe on it while the interest, legal and maintenance costs continue to add up.

Do I qualify for a workout plan?

In order to qualify for a workout plan, your current financial situation needs to be as good as or better than when you purchased your home.

Whatever situation caused you to get behind on your monthly mortgage payments must have been a temporary situation that has since been resolved.

A workout plan, also known as a forbearance plan, must make financial sense to you and your lender.

What steps do I take?

1. Start saving your monthly mortgage payment. Your lender will require at least half of your past due mortgage payments and penalties as part of your workout plan.

2. Contact your lender and notify them that you want to arrange a mortgage payment workout plan. Ask them what documents they will need from you in order to make a decision. It is critical to your success that you keep detailed notes with names, dates and times. Ask the representative for their phone number, fax number and e-mail address if possible. Make notes of what was discussed. The best time to call your lender is first thing in the morning. Remember that your lender could be in a different time zone.

3. Your lender typically requires the following documents from you in order to make a decision:

• Last 2 years of federal tax returns
• Last 2 pay stubs for each borrower
• Last 2 months of bank statements for checking and savings
• A Personal Financial Statement
• A Hardship Letter that explains your situation and what caused you to get behind on your payments. Explain that this was a temporary situation and that it has since been resolved. Include your offer to pay half of what is owed now and ask them to accept one of the following methods to pay off the remaining balance:

a. Ask them to accept additional monthly payments for the next 24 months. This is the most common workout plan that lenders typically will accept.

b. Ask them to add additional monthly payments to the end of your mortgage.

c. Ask for a loan modification to lower your monthly payment by extending the length of your mortgage.

4. Fax your workout documents to your lender. UPS Stores, Staples and Office Max offer fax services. Make notes of the date and time you faxed your workout documents. Your lender can lookup your workout documents by the fax number it was sent from, so make note of the fax number you are sending from.

Note: Write your loan number at the top of each document before faxing.

5. Wait 2 days and then call the representative at your lender. Verify that they have received your faxed workout documents. Re-fax your documents if necessary. Ask the representative if they need anything else from you in order to make a decision and when you can expect the decision to be made.

6. This is another critical piece. Contact the representative every 2 weeks to see if a decision has been made regarding your workout plan. Your representative may be handling a couple hundred workouts at a time, so it is your responsibility to contact them and to keep your workout plan moving towards a decision.

What if I am uncomfortable doing the steps myself?

We can negotiate a workout plan on your behalf. We charge a fee equal to one month’s mortgage payment for our service. While we cannot guarantee that your lender will work with us and that we will be able to negotiate a workout plan, we do provide a written guarantee that we will promptly refund our fee if we are unsuccessful.

What if a workout doesn’t make sense?

If a workout plan does not make financial sense to you or your lender, then we can “Short Sale” your property. We do not charge any fees or commissions if you decided to sell.