There are many reasons why homeowners may face financial difficulties that affect their ability to make ongoing mortgage payments. The loss of a job, a serious illness, or unexpected expenses may cause a person to default on their mortgage, and they may be facing the threat of foreclosure. To prevent the loss of their home, a person will want to understand the available options, which may include negotiating loan modifications with their mortgage lender.

Options for Loan Modifications

In many cases, lenders will be open to working with debtors to determine how the terms of a loan may be adjusted. A foreclosure can be expensive and time-consuming, and a lender may not be able to recoup its losses after taking possession of a home and selling it to a new owner. As an alternative, a lender may make modifications to a mortgage loan that will ensure that a borrower will be able to make ongoing, affordable payments. Multiple types of loan modifications may be made, including:

• Forbearance - If a person is experiencing temporary financial hardship, a lender may agree to “pause” mortgage payments for a certain period of time, or the amount of monthly payments may be temporarily reduced. After the end of the forbearance period, payments will need to be made up. In some cases, the amount due may be paid in a lump sum, although it is more common for lenders to create payment plans or to add additional payments to the end of the loan.

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Difficulty in keeping up with mortgage payments is a common problem, especially at a time when so many people are facing financial hardship related to the economic crisis caused by the coronavirus pandemic. If you are finding it more and more difficult to pay your mortgage, or if you have already missed payments, you may fear that you will inevitably lose your home to foreclosure. However, there are ways to prevent this from happening, one of the most common of which is applying for a loan modification.

How to Apply for a Loan Modification

If you know that you are likely to miss a mortgage payment, it may be possible to be proactive in contacting your lender about a loan modification. Alternatively, if you have already missed at least one payment, federal law may require your lender to initiate contact and inform you of loss mitigation options, one of which may be loan modification. In either case, you will need to submit an application explaining the reasons for your financial hardship, such as the involuntary loss of your job, the effects of an illness, or the loss of an income provider in your household.

During the COVID-19 public health emergency, a foreclosure moratorium on federally backed mortgages has helped many homeowners who are struggling financially due to unemployment, loss of business, and healthcare expenses. Thanks in part to an executive order issued by President Biden soon after his inauguration, several federal agencies have extended this moratorium. Additionally, a bill passed in the New York Senate at the end of 2020 has established a foreclosure moratorium within the state. It is important to understand whether you may qualify for relief under the terms of the state or federal moratorium, as well as how you can use that extended time to your advantage.

Federal and State Foreclosure Moratoriums

On President Biden’s first day in office, he issued an executive order asking certain federal agencies to extend their existing foreclosure moratoriums until March 31, 2021. Several of those agencies promptly complied with the president’s request, including:

When you are struggling to make ends meet, the threat of foreclosure on your home only makes matters worse. Unfortunately, this is a threat that many homeowners are facing now and in the coming months due to financial struggles related to the COVID-19 pandemic. If you are having trouble making your mortgage payments in New York, you may be facing possible foreclosure. An experienced attorney can help you explore options that may prevent it from happening.

Strategies to Prevent Foreclosure

In a foreclosure, the homeowner’s mortgage lender takes possession of the home after the homeowner fails to make mortgage payments. The homeowner may also be issued a deficiency judgment if the lender is unable to sell the home for an amount greater than the remaining balance on the loan. If you find that you are having trouble keeping up with your mortgage, the following options may help you find relief, and in some case, keep your home:

Unfortunately, foreclosure may be your only option depending on your financial situation. This is especially true in times like these where unemployment is all too common. In 2019, New York City had approximately 3,000 first-time foreclosure cases and this number is likely to rise this year with COVID-19’s effect on employment and income. Many falsely believe that foreclosure is an instantaneous process once you miss a mortgage payment. Luckily, there is a mandatory 120-day waiting period for lenders or loan servicers to follow before they are able to file for foreclosure. Most lenders will then be required to provide you with notice that your loan is in default or unpaid, and that the amount will be accelerated if payment is not made. During this 120-day period, if you are threatened with foreclosure, you will receive a 90-day notice before the foreclosure officially begins. Once the foreclosure is filed, the process will start, so it is important to consult with an experienced real estate attorney to make sure your rights are protected.

The Foreclosure Process Explained

Foreclosure cases involve a lot of back-and-forth between you, your lender, and the court. First, a complaint will be filed against you requesting that your home be foreclosed. You are granted 20-30 days to respond and provide a defense for the late payments or lack thereof. The lender’s attorney must file a certificate of merit, which states that they have reviewed the mortgage agreement, promissory note, and any extensions/modifications of the mortgage. They will also file an affidavit of service. The court is then required to hold a settlement conference with both the lender and you as the homeowner in hopes that everyone can come to an agreement on the matter. In some cases, this works, but in many cases, you may still be unable to pay the lender.

If things are not resolved in the settlement conference, both the lender and you as the homeowner can do further digging on each other through official records and reports. Most lenders will then file a motion for summary judgment. This allows them to win the case without incurring trial fees. Your legal teams and the court-appointed attorney will work to determine how much you owe the lender. If the case does go to trial, the court will decide this with the evidence that they are provided. Once the amount owed is determined and the lender confirms the amount, an auction will be held. As the homeowner, you are still able to reinstate the loan by paying off your debts before the judgment of foreclosure and sale is made. However, if you are unable to do so, the foreclosure sale date will be selected and advertised to the public. On the date of the sale, whoever puts in the highest bid takes over ownership of the property.