You’re behind on your mortgage and getting letter after letter from your lender. One of the documents mentions “Loss Mitigation in Maryland.” You desperately want to prevent foreclosure, but it can be hard to decipher all the legal jargon in each letter.
Loss Mitigation in Maryland refers to options your lender may offer you to prevent foreclosure. In this article, we will discuss 5 options for loss mitigation in Maryland so you can avoid foreclosure. These options include loan modification, deed-in-lieu of foreclosure, short-sale, temporary forbearance agreement, and repayment plan and reinstatement.
Table of Contents
(1) Loan Modification
Modifying your home loan is a comprehensive financial relief option that may allow you to keep your home. Unlike refinancing or taking out another loan, loan modification is a type of loss mitigation in Maryland where you change the terms of your existing home loan. This can help you to stop foreclosure without the need for bankruptcy proceedings.
This can be achieved by:
- Changing your loan term,
- Changing your loan structure,
- Modifying your interest rate, or
- Re-casting or re-amortizing your loan.
The loan modification process can be complicated. You will need to supply your lender with many documents, including a loss mitigation application, proof of income, tax returns, a household expense list, a list of other debts, a hardship affidavit, and more. You must also follow the strict deadlines for document submission and respond to requests for additional information. If you do not follow these requests, your loan modification application may not be reviewed by your lender at all.
An experienced loan modification attorney, like Steiner Law Group, can help by:
- Reviewing the best options for modifying your home loan,
- Helping you gather all the right paperwork and materials for submission,
- Preparing the loan modification package to send to your lender, including the application, hardship letter, and supporting documentation,
- Tracking where you are in the process and advising you on the status,
- Handling all the various issues that may come up, and
- Getting you the best deal possible to avoid both foreclosure and bankruptcy.
(2) Deed-in-Lieu of Foreclosure
Another option for loss mitigation in Maryland is a deed-in-lieu of foreclosure. It means that your lender will allow you to walk away from your home without owing anything on your mortgage, in exchange for you deeding your home to your lender. Deed-in-Lieu of Foreclosure can be an attractive option if you cannot afford your home and do not want a foreclosure or bankruptcy, which can affect your credit score significantly. Although a deed-in-lieu of foreclosure will not impact your credit as much as a foreclosure, you will have to wait 4 years before buying a new home.
Another issue that often arises is that your lender must first approve this option for loss mitigation in Maryland and will typically only do so if they stand to benefit from owning your home. This can happen if there is equity in your home or if your lender thinks they can sell your home for more than what is owed on the mortgage.
A better option may be filing for Chapter 7 bankruptcy and surrendering your home in the Statement of Intention. This will allow you to walk away from your home without involving your lender. It also has the additional benefit of eliminating unsecured debt, such as credit cards, personal loans, or car repossession deficiencies.
Although a deed-in-lieu of foreclosure may appear to be a good option, you are limited by the discretion of your lender and your other debt will not be eliminated.
(3) Short Sale
A short sale is another option for loss mitigation in Maryland, where your lender allows you to sell your home to a third party even though you owe more than the home is worth. In turn, your lender forgives the amount that you would have owed after the sale of the home. For example, if your house is worth $300,000 but you owe $350,000, a short sale would allow you to sell your home for $300,000 to a third party and your lender would forgive the remaining $50,000.
A short sale allows you to have a little more control over the home selling process, but your lender must first approve the sale. A short sale can also severely impact your credit score. Although a short sale may give you some control over the process of selling your home, Chapter 13 bankruptcy may be a better option. You can still sell your home in Chapter 13 bankruptcy and you will be protected by the automatic stay that comes with Chapter 13. Once the automatic stay goes into effect, your lender must obtain court approval before it can take any collection action against your home, which is unlikely if you make your regular mortgage payments on time.
(4) Temporary Forbearance Agreement and Partial Claim
If you are behind on your mortgage, you may be tempted to apply for a temporary forbearance agreement, which is another option for loss mitigation in Maryland. A temporary forbearance agreement allows you to temporarily stop making mortgage payments, without accruing any interest or late fees. Receiving a temporary forbearance was very prevalent during the COVID-19 pandemic.
However, the CARES Act provisions that required lenders to offer a temporary forbearance agreement have expired. This means that it’s much less likely that you will be approved for any kind of forbearance agreement if you apply now. The other problem is that once the forbearance period is over, you will have to pay your balance back in full. So unless you are certain you will be able to make up the payments, you might find yourself even more in debt; although you may be able to avoid this by obtaining a partial claim.
Depending on the kind of loan that you have, your lender may offer you a partial claim option. A partial claim takes the amount that you did not pay during the forbearance period and places a second lien on your home for the deficiency that you owe. You will have to pay this back when your loan matures or when you sell your home.
If you did not do a partial claim or otherwise address the payments that were deferred during the forbearance period, Chapter 13 bankruptcy can still allow you to keep your home and catch up on these missed payments.
(5) Repayment Plan and Reinstatement
Repayment plans and reinstatement are also good options for loss mitigation in Maryland, provided you can afford them.
Under a repayment plan, your lender may allow you to pay back your missed mortgage payments over a short period of time. However, repayment plans are unlikely to be granted by your lender.
Reinstatement means that you pay your lender the full amount at once and resume making regular mortgage payments. Most people who fall behind on their mortgage cannot afford to do this, and therefore this is often not a good option.
However, if you are unable to afford a repayment plan or reinstatement, Chapter 13 and Chapter 11 bankruptcy will allow you to keep your home.
Bankruptcy as an Alternative to Loss Mitigation in Maryland
Filing for Chapter 13 or Chapter 11 bankruptcy is the only certain way to halt foreclosure and repay your arrears due to the automatic stay, short of reinstating your loan. Once you file for Chapter 13 or Chapter 11 bankruptcy, an “automatic stay” goes into effect that prohibits your lender from foreclosing on your home. This also allows you to address all of your debts in one location. You can safeguard your assets in Chapter 13 and Chapter 11 by utilizing various bankruptcy exemptions.
Unlike loan modification or other options for loss mitigation in Maryland, your lender does not determine whether or not you qualify for Chapter 13 or Chapter 11 bankruptcy. By filing for bankruptcy to stop a foreclosure, you can take control of your finances and resolve your mortgage delinquency.
Don’t wait until your foreclosure progresses to the next step. Stop the foreclosure process today! It’s far better to stay ahead of the curve and speak with a knowledgeable bankruptcy lawyer before making any decisions, and before your foreclosure is already scheduled for auction. Bankruptcy is a complicated process, and Steiner Law Group aims to simplify it as much as possible.