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A lot of families are struggling to hang onto their loan in the current economic climate. It is believed that almost half of all homeowners in the United States are in financial difficulty. Getting your loan modified is one way of insuring you can pay your mortgage.

In normal times, when there are just a handful of foreclosures every day, the banks can absorb it. They just write those off and go on their way. However, when times are bad, or when times are really bad like they are now, not even the banks can ride it out. There is no way that the banks can keep foreclosing on homes at the current rate.

This financial crises is affording the battling homeowners an opportunity to rectify their financial problems. That opportunity is, for many, but not all, loan modification . With a loan modification, the terms of your loan are modified resulting in mortgage payments that are affordable. It is not to be confused with re-financing. In loan modification, someone works with your bank to cut the interest rate, and sometimes even the principal, down to something that's manageable. These cuts are often dramatic, 30%-50% in many cases.

It is not unheard of to represent yourself when seeking a loan modification but bear in mind that even experienced loan attorneys get turned down a lot of the time. If you are working with a lawyer who knows what he or she is doing, they will keep asking until they are heard. The bottom line is that when the banks realize they’re dealing with someone who knows the basics of the procedure, and their culpability in it, they tend it sit up a little bit straighter and be more receptive to working out a deal.

Loan modification has been in the news recently, and some reporters have said it doesn't work. They base this assumption on the fact that some people who have gotten loan modifications wound up back in trouble six months later. In these cases, it is normally found that the bank gave a token reduction in payment instead of a real loan modification. But now, with the banks desperate, and with experienced loan modification specialists out there, they're becoming more and more successful every day.

Choosing a loan modification company is quite tricky and there are a lot of shady loan modification outfits out there right now to choose from. A lot of these companies rely on a "best effort" clause, which means, they'll make an effort to get your bank to modify your loan. As long as they do, they've done their job. If the company you're looking at doesn't offer a guarantee, then don't go with them. That is the plain and simple truth about choosing a loan modification company.

Loan modification companies don’t get confused with the terminology your bank uses when talking to them. They are on the same page as your lender and know what needs to be done to get you approved. They are also experienced enough to tell the difference between a good loan modification and a bad one. In this regard, they will know which offers to accept and which to decline. They can handle everything on your behalf saving you hours on the phone every day.

A good loan modification company can do “instant” loan modifications with several major lenders. If this is achieved, the process can be completed in less than a week. The lenders include Bank of America, Countrywide, EMC, Wells Fargo and more. If you have one of these lenders, you should contact them for sure. They will gather some quick information, get authorization to speak to your lender and call them up.

The loan modification company will be able to tell you instantly what your new interest rate will be as well as what your new payments will be. They will then ask you if you want to go ahead with the loan modification based on the information they give you. If not, you can look for another alternative such as a short sale . With the loan modification process there is no risk involved and the loan modification companies do not charge any up-front fees.

If your lender is not one of the major lenders listed, there are other program available to you. There are companies that deal with the HAFA program who will be able to tell if you are in the window for the plan as well as how to qualify for it. In this process, your monthly payments are reduced to 31% of your net monthly income, including taxes. This process is carried out by either reducing your interest rate, extending the terms of the sale and sometimes by reducing the principal amount. The process is carried out in the above mentioned order until the cap is reached, this means that your interest rate will be cut and your terms will be extended before they even consider reducing the balance, this is only done in rare cases. The aim of this program is to lower your mortgage payments so that you can afford to stay in your home.

Homeowners whose mortgages are higher than the property’s market value and who cannot afford the mortgage payments because of job losses, or any other reasons, are faced with the decision to either short sale their home or just let the bank foreclose. It is far more beneficial for them to short sale their homes and with the new H.A.F.A program in place, the benefits became even greater.

In an attempt to reduce foreclosures, the Home Affordable Foreclosure Alternative Program aims to streamline the short sale process. Short sales, transactions in which a lender accepts a payoff less than the balance due on a home loan, have become more common as the housing market soured. According to California-based research firm CoreLogic, about one in four homeowners nationally owe more than their homes are worth.

The extent to which the program catches on remains to be seen. Homeowners and real estate agents are still familiarizing themselves with the new program. The impact on community banks may also be mixed. This new government program was implemented to help distressed homeowners avoid foreclosure by allowing a short sale of their homes without any long-term negative consequences.

This is a really good option for homeowners who qualify. Homeowners get 120 days in which to short sell and they are also given the option of renewing the listing for one year if required. The entire time you are in the program the servicer will not foreclose on your home. The servicer as well as the investor of the mortgage is also accepting the conditions of the short payoff. Therefore, there can be no deficiency judgment or promissory note asked of the homeowner. This is the true selling point for HAFA.

The Home Affordable Foreclosure Alternatives program was officially launched on the 1st August and its main aim is to streamline and standardize the short-sale process which in turn will help banks and homeowners avoid foreclosure. This program also offers incentives for homeowners who qualify as well as real estate professionals. These incentives include;

The homeowners will receive relocation costs up to the value of $3,000. This will make it less likely that the house will be damaged on the way out which is what happens with foreclosures.

The homeowners are released from future liability after the home is sold or deeded back to the bank in lieu of foreclosure. This means they can't be held responsible for the lender's loss on the loan.

Real estate agents cannot be asked to discount their commissions.

Servicers can receive incentives from $1,500 to $2,200 for successfully completing a short sale or deed-in-lieu-of-foreclosure.

Secondary lien holders can get up to 6 percent of the outstanding principal balance, awarded in order of lien priority, with an aggregate total of $6,000 to all lien holders.

On paper this program seems to be a perfect solution to the housing crisis. It will decrease the number of foreclosures, streamline the short sale process , and standardizing the forms used by all participating mortgage servicers. This is the first step in fixing or reversing the housing issues facing the United States.

You need to hire a realtor if you decide on doing a short sale. This is a prerequisite made by the lender. The realtor you choose can determine what type of experience you have so it is always in your best interest to choose a top realtor. When embarking on this process it is also always a good idea to seek out the services of an attorney and a tax professional.

The additional benefits of a short sale are;

You can buy a house immediately if you are not behind in your payments. However, if you are behind in your mortgage, you may have to wait for 2 years.

On submission of a short sale package, the foreclosure proceeding will be postponed and the homeowner will be given 2 - 4 months to complete the transaction.

You will not have the stigma of a foreclosure on your record.

Your credit score will only decrease by 30-200 points depending if you are behind in your mortgage or not. Rebuilding your credit score is easy if you stick to a good payment history and keep low credit balances.

When you apply for a loan, you do not have to disclose that you had a short sale whereas if you had foreclosure you have to disclose it. It is a federal offense if you don't.

With a short sale process you may be able to get the lender to forgive the equity loan or the non-purchase money loan. If the lender will not forgive the debt, you may be able to reduce the balance considerably.

What is a Deed in Lieu

A quick and easier way to deal with a defaulting home loan is a deed in lieu of foreclosure. It is a much easier method of dealing with a defaulting home loan for both the borrower and the lender, as compared to a formal foreclosure.

This process sees the borrower voluntarily handing over his keys to the lender. It is no longer imperative for the borrower to go through the foreclosure process. When the borrower hands over his keys to the lender it releases him from most of his financial obligations in respect of the defaulting loan. Such obligations include side effects such as public notoriety. Although the procedure cannot save the home, the deed in lieu of foreclosure has a comparatively lesser negative impact on the borrower’s credit rating than what a mortgage foreclosure would have. This leaves the borrower a better chance of getting a subsequent loan. The deed in lieu of foreclosure can also lead to your debt or deficiency being forgiven. This process also makes it easier for the borrower to get another mortgage loan in the future.

The lender is not obliged to accept the deed in lieu. However, it would be in the lenders best interest to accept the proposal should the value of the property be at least equal to the value of the overdue mortgage.

The merits of handling a defaulting home loan in this manner is that the lender can take control of the house immediately, whereas earlier he had to wait for the lengthy legal procedure to be finalized. This means that the borrower cannot live on the premises while the process is taking effect. This prevents the house from being sold for a profit during the foreclosure process.

The borrower is not in a position to get the go ahead for a deed in lieu foreclosure. Only a bank can make such a decision and it is at the bank's discretion. For the process to go smoothly, the borrower is advised to contact the bank when he first starts experiencing financial troubles.

The Deed in Lieu - Avoiding Foreclosure

Different mortgage companies have different rules. Typically, the mortgage company requires the home to have been listed with a real estate agent for a minimum of 30 days and to be free from any liens. Sometimes the mortgage companies insist on the property being vacant. In some instances, the mortgage companies needs an internal appraisal of the property to be done 60 days before the foreclosure sale.

The definition of a Deed in Lieu of Foreclosure is as follows; it is a disposition instrument in which a home owner voluntarily deeds the mortgaged property to the lender in exchange for a release from all obligations under the mortgage.

One draw- back with deed in lieu of foreclosure is with the relinquishing of all rights to sales proceeds in excess of the over-due balance. The homeowner has to forfeit any claims on surpluses if the property sells for more than the outstanding mortgage. However, a lender cannot initiate a deficiency judgment in case the property fails to fetch the money to sufficiently cover the loan balances.

Oftentimes. properties that could not be sold at auction are accepted by lenders against the deed in lieu by the owners. The lender becomes the legal owner of the property once the title deeds are in his name.

It is important for the defaulting home owners to know how long a deed in lieu of foreclosure will take to conclude. Once the foreclosure is set in motion, you will operate under the due diligence that is guided by definite time frames. The deed in lieu of foreclosure has a three month time limit in which to conclude.

Other Factors in the Deed in Lieu Process

It is advisable for the homeowner to contact a tax practitioner before deeding out his home in lieu of foreclosure. Though this is referenced to as a friendly foreclosure, you should make sure of your obligations or the absence of them.

If the borrower lacks any assets that makes a deficiency judgement worthwhile, the lender will often pursue a deed in lieu of foreclosure. If the property in question is worth more than the amount owed on it, the lender would be better off to simply liquidate the property rather than pursuing a deed in lieu of foreclosure.

Both the lender and borrower may decide to execute a deed in lieu of foreclosure as soon as the lender has decided to begin foreclosure proceedings. Securing a deed in lieu of foreclosure takes place outside the judicial system and is settled out of court.

The lender benefits from this process by saving on the costs of a formal foreclosure proceeding, having the ability to resell the property and to get paying occupants in to recoup some of the original loan. Borrowers will benefit from a deed in lieu of foreclosure because it will free them from the possibility of having a foreclosure marring their credit histories