Many homeowners are denied a mortgage modification, mainly due to insufficient monthly income; however, sometimes the lenders deny a modification in error. It is difficult to comprehend, but the bank employees are not always 100 percent knowledgeable when it comes to knowing all the rules and regulations. There are numerous programs and each has its own set of rules and regulations. Without knowing your situation, I can only speculate that your application was declined due to insufficient income; however, I will be happy to review your matter should you wish to meet with me. You only have thirty days to appeal the denial, and you should contact a experienced New York Foreclosure/Loan Modification attorney ASAP to determine if the denial was improper.
A deed in lieu of foreclosure is when the homeowner (mortgagor/borrower) conveys the mortgaged property to the bank and then the homeowner vacates the house. In return the bank discontinues the foreclosure and the mortgage is cancelled out. This method will typically work if there are no other liens against the property. If the homeowner has a judgment lien or a second mortgage against the property then the bank holding the first mortgage will likely not agree to a deed in lieu but may however consider a short sale. Typically a short sale is done when the mortgage amount exceeds the fair market value of the property, and as a result, the homeowner will need to have the bank agree to take an amount less than the full amount owed on the mortgage. The bank is under no obligation to consent to accepting a lesser amount in satisfaction of its mortgage. If it will consider taking less then it will order an appraisal to determine the value of the property and then decide what the sale price of the property shall be. At this point, the homeowner will typically retain a real estate broker to list the house at the price set by the bank. If the homeowner gets offers less than the listing price, the Bank will have to be notified, and it will have to agree to accept a lower amount. This is usually time consuming since the banks are slow to respond and the delay can result in losing the offer. Most homeowners are not aware of the deed in lieu option and real estate brokers typically will not mention this option since they will not receive a commission. Incidentally, any homeowner considering a short sale should have an attorney review the listing agreement before it is signed. Brokers will usually try and get the homeowner to commit to a one year or more listing agreement when in fact the time period is negotiable and the homeowner is better served by having a much shorter listing period, say for a few months. The broker commissions, attorney fees and other costs associated with the sale of the property will likely be netted from the gross sale proceeds at time of closing and the balance would go to the bank in return for it issuing a satisfaction or a release. Typically, the borrower will not receive any part of the net proceeds at closing; however, it is possible to push the bank for a payment that will help the homeowner find alternative housing after the closing, and this is usually a few thousand dollars. This type of payment may also apply in the deed in lieu of foreclosure situation. With respect to both the deed in lieu of foreclosure and the short sale options, the bank will likely forgive the portion of the unpaid mortgage debt, but it is recommended that this be put in writing so that there is no issue later on; however, if the bank agrees to issue a satisfaction as opposed to a mere release of the mortgage lien then the borrower should be protected. Since a short sale and a deed in lieu will almost always involve situations where the mortgage sum is greater than the value of the property, the homeowner must be mindful that the IRS and NYS Department of Finance may deem the forgiveness of part of the mortgage debt by the bank as income and that must be carefully considered before moving ahead with either option. I have addressed this issue previously in my blog under the heading: Mortgage Forgiveness Debt Relief Act and Debt Cancellation or Discharge of Indebtedness.
Arnold M. Bottalico is an experienced Long Island, NY foreclosure attorney with over 25 years of experience, and he welcomes your questions and comments.