It doesn’t often happen that the lender declines to do a mortgage modification six times, and then out of the blue cancels the loan balance and releases the lien. In this case, the lender did just that, but the homeowner is still worried she might lose her mortgage.
Q: I’ve been working with my bank for over four years trying to modify a loan on an investment property. This has been an incredibly painful process. I have had to reapply at least six times due to expiring information, appeals, and the passing of my mother, who was a joint owner of the property.
My most recent attempt at a mortgage modification was just declined. Within a few weeks, I received a letter giving me the standard options of going through a short sale, foreclosure, or a pay off.
Today I received a letter from the bank stating that they are canceling the remaining balance and releasing the lien. They stated that they will forward the release of lien to my county records office. They included information on what I have to do such as pay for insurance and real estate taxes on my own. This was amazing news.
One thing the letter said is “you will have the right to occupy the property until you sell the home or the title is transferred.”
It seems odd that they fought with me for so long while urging me to do a short sale on the property or risk foreclosure only to deny my attempt to restructure my debt and then cancel all that I owe. I understand that I will have to claim the forgiven amount on my taxes and that they will write off the amount.
My main concern is whether I am still at risk of losing my property. It sounds like all is forgiven at the expense of my credit and an ugly upcoming tax return. I’m willing to take the trade off, but I want to know whether I’m still at risk of losing the property. Can you help ease my mind?
A: You’ve somewhat answered your own question. While it appears that the lender has issued some sort of lien release for your loan, there must be some conditions attached to the release. You need to get a copy of the lien release to understand what it is that they have done.
Perhaps the letter you received gives you all the information you need, but if you’re unable to decipher the lingo used by the bank, you might need to see an attorney that can go over the letter and its terms with you.
As for why this happened now? Well, we don’t understand mortgage lenders any better than you do. One day they’re willing to work with you, the next they have you jump through hoops to do crazy things, and then other days it looks like they give up and give you a deal.
It seems like they’ve given you a deal, but it’s worth trying to figure out what the deal actually is. In any event, you should know that if they have written off the loan, this action by the bank will affect your credit history and your credit score. We don’t know if your credit history was otherwise affected by non-payments or other issues relating to this loan, but in this case, most lenders will report that the loan was not paid as agreed and report that to the credit reporting bureaus.
If they have issued a conditional release of the debt, you might be in the clear and can move on with your life. We find it surprising that the lender would write off the loan unless you had stopped paying on the loan or the values of real estate in your area have not recovered and they felt that they would never get their money back without putting in more than it was worth in legal fees.
The catch in your letter is that they have conditioned the loan release on your continued living at the property. Now, in your letter you indicated that this property is an investment property so we assume you don’t live there. It may be possible that the bank got its wires crossed and released your loan thinking it was a personal residence of a 2 to 4 unit building in which you resided in one of the units. If they made this mistake, it may be irreversible for them to undo it if they have filed the releases papers.
Again, you need to get a copy of the release that they filed and understand what the terms are and how they affect you. While we’d love to give you more information, without all of the documentation — and by the way, we strongly encourage you to have an attorney review all of the documentation — we’re unable to give you any further insights.