Uncertain times for homeowners, renters

  • Published
  • By Steven Blickensderfer
  • 6th Air Mobility Wing Judge Advocate
MACDILL AIR FORCE BASE, Fla. --  Modification, forbearance, foreclosure - what do those terms mean to you and why should you care. If you're a current homeowner, or renter in a home affected by foreclosure, the information in this article is for you. Inevitably, the PCS season brings change and relocating this PCS season may prove especially difficult for service members who are upside-down on their mortgage or are unable to sell their homes. Servicemembers renting from a landlord in foreclosure are also understandably worried about how long they can stay in their homes and about future moving expenses.

To understand how these issues affect you, it is important to understand the process a loan goes through after the borrower signs the loan documents at closing. Once a loan is closed, or "originated," the loan is often sold by the bank to a pool of investors. The bank may opt to retain servicing rights on the loan, which means the bank continues to deal with the customer, or the bank may sell that right to another company. When multiple organizations originate the loan, hold the actual mortgage, and service the payment of the mortgage, it's difficult to know where to start when you have mortgage issues.

Banks are generally willing to work with borrowers to avoid foreclosure, so interested borrowers should contact the bank's loss mitigation department to begin the process. This can be done by either calling the bank's customer service number or the number provided on late notices. Borrowers do not have to be behind on their mortgage payments to begin dialogue with the bank, but they do have to demonstrate a financial hardship. Banks require a financial information packet to determine the borrower's financial situation. Despite a backlog of requests, banks are generally required to review financial packages within thirty days of receipt; prompt submission of the package is encouraged.

To avoid foreclosure, banks may agree to a number of options including a repayment plan, forbearance, or a modification plan to help homeowners retain their homes. If keeping the home is not an option, banks may agree to a short sale or deed in lieu of foreclosure (DIL) to dispose of the mortgage. If you are facing financial hardship, don't avoid the problem; contact your lender to determine whether any of the following options may be available to you.

Repayment: For the borrower that is not far behind on their payments, the bank may be able to structure a repayment plan to bring the account current within six months.

Forbearance: For the borrower that needs time to recover from a brief financial hardship, the bank may agree to postpone payments on the loan for a specified period to allow time for the borrower to regain income.

Loan Modification: For the borrower unable to pay the current loan but willing to continue paying, a loan modification may be an option. Under modification, the bank agrees to new terms for the loan that could lower the interest or principal balance. Generally, loan modifications are only allowed if the home is the borrower's principle residence.

Short Sale: A short sale may also be a viable option for borrowers that owe more on their home than their home is worth. A homeowner may be in this situation because the home has lost significant value since the time of the purchase. Under a short sale, the bank is willing to accept less for the property than the amount owed on the current mortgage. You should contact your bank to determine their short sale procedures. Short sales are often completed in sixty (60) to ninety (90) days, but they may take longer if there are multiple loans attached to the property that need to be negotiated.

Deed in Lieu of Foreclosure: For the borrower with one lien on the home and a pending foreclosure sale that is more than three months away, DIL is an option. Under this plan, the bank accepts the deed instead of pursuing foreclosure and the borrower walks away from the house.

Keep in mind that when banks forgive debts there may be unintended consequences. For example, any amount forgiven may constitute income for tax purposes. Also, any option that results in a deficiency may allow the bank to pursue the deficiency at a later date. The various options may also impact your credit rating.

Foreclosures not only affect homeowners, but tenants as well. Although being forced to move is never pleasant, tenants do have rights thanks to recent legislation that provides additional protection to tenants. If the property being rented is subject to foreclosure, the tenant is required to receive at least 90 days notice before being required to vacate the property.

Servicemembers occupying rental property affected by a foreclosure are encouraged to contact the Housing Office for information on moving expenses that can be paid by the Air Force if you're forced to move because of a foreclosure.

Keep in mind the law in this area is constantly evolving. However, despite all the changes that may occur this PCS season, one thing remains constant: the base legal office is here to help you with all your legal needs.