The lender just reapproved me for a loan modification but the modification would require half of my income to make the loan payments. With those payments, I wouldn’t have any money for my expenses, and I’d be one emergency away from falling behind again on the loan.
Would the loan modification help me in any way? And what should I do about the remaining half of a house?
Your lender will have a hard time foreclosing on the home if it sits partially on land on which the lender does not have a mortgage or a right to foreclose. Your troubles may not be over, however, as the lender could still use its legal rights to force the sale of the home. However, that course of action may be expensive for them.
When you take out a loan, you have to give a mortgage or other legal document to the lender that secures the payments to the lender. In some parts of the country, homeowners sign a mortgage to a lender, while in others they sign a trust deed or other document that effectively provides the lender a right to sell the property or foreclose on the property to then sell it and get money to pay off the debt.
If your lender was sloppy in evaluating the loan they gave you and failed to understand that the home was on two parcels of land, and if the lender was only obtaining a mortgage on one parcel, the lender can foreclose only on that parcel.
When the lender forecloses on the land and part of the home, the lender could become a co-owner of the home with you. As a co-owner, the lender could try to force the sale of the home. But the lender would have to first foreclose or get title to that part of the home on which it has a mortgage. Then it would have to start a separate action to force the sale of the home.
However, if the lender forces the sale of the home, you or the owner of the other parcel of land on which the home sits would be entitled to that share of the proceeds from the sale of the home. For this reason, the lender may find it easier to try to get you to refinance or modify your existing loan.
If your current lender has offered you a loan with monthly payments that are still too high, you might want to work with it further to see if it can reduce those payments. You want a loan that gives you the chance to make payments without ending up losing the home — or part of it — in foreclosure.
Since the lender might not have obtained a mortgage on the whole property, you’d want to know whether it will try to get a mortgage on the whole property when it modifies the loan or change the loan terms for you in any way.
Given your strange circumstances, you’d be wise to talk to a real estate attorney to go over the documents you previously signed with the lender and determine the best course of action.
Depending on your financial situation, if you can refinance the loan at current low rates, you might be able to get a better deal than the loan modification your lender is offering.
As you have gone into foreclosure, your options might be limited to lender programs offered through the Home Affordable Modification Program.
You can get more information at www.MakingHomeAffordable. gov. You can also consider trying to sell the home yourself and using the proceeds from the sale to get out from under the debt that you have now.
Your situation, however, has a wrinkle in that your sale of the home would result in all of the money going to pay off the lender. Nevertheless, current loan programs might allow a lender to give you a cash incentive to move from the home. Some of those cash incentives can be quite high. Lenders have been offering incentives of $3,000 and up.
Given your situation, your lender may offer you a financial incentive to move that would be much higher than that.
Ilyce R. Glink is an author and nationally syndicated columnist. Her latest book is “Buy, Close, Move In!”
Samuel J. Tamkin is a real estate lawyer in Chicago. If you have questions for them, write to Real Estate Matters Syndicate, P.O. Box 366, Glencoe, Ill. 60022, or contact them through thinkglink.com.