Q: I was in foreclosure and my home was ready to go on the auction block when I notified the sheriff’s office that they were selling half a house. My loan is owned by one of the biggest banks.
We built the home on two parcels of land but the loan was taken out on only one parcel of land. I can prove that the loan was only on one of the parcels.
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 or will the bank just find a way around the issue they face with me? And what should I do about the remaining half a house?
A: Your lender will have a hard time foreclosing on the home when the home sits on some land that 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 use its legal rights to still force the sale of the home but 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 from the sale to pay off the debt.
If your lender was sloppy in evaluating the loan they were giving to you and failed to understand that the home was on two parcels of land and 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 they have a mortgage and then they 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.
While it would seem that your current lender has offered you a loan that may require monthly payments that are too high for you, you might want to work with them further to see if they can reduce those payments. You want a loan that gives you the chance to make payments on the loan 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 they would try to get a mortgage on the whole property when they modify the loan or change the loan terms for you in any way.
Given your strange circumstances with your lender, you’d be wise to talk to a real estate attorney to go over the documents you previously signed with the lender and determine what the best course of action would be for you going forward.
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 a loan modification they are offering. There are also a number of other loan programs out there with lenders that may benefit you given that your loan is owned by Fannie Mae. You may find a different mortgage lender or mortgage broker willing to give you a better deal than the one you have been offered by your lender.
As you have gone into foreclosure, your options might be limited to those lender programs in place that are 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 of the home 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. But 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. In your situation, your lender may offer you a financial incentive to move that would be much higher than that.
For qualification requirements, you should talk to a HUD approved housing counselor and get more details at www.MakingHomeAffordable.gov.