The Department of Justice bails out underwater homeowners

Both the Department of Justice (DOJ) and the state attorneys general came up with a mortgage loan relief plan in consultation with the country’s most prominent mortgage lender, Bank of America (BOA). Under this plan, the federal government pledges all the necessary help and support to the bailout initiatives of BOA that are floated to assist struggling mortgage borrowers. This plan will increase the mortgage loan repayment term for all the eligible borrowers.

Global mortgage settlement plan – Some basic points

Here is a summarized version of the settlement terms:

1.      Loan modification – As per the settlement agreement, BOA will execute fresh loan modification program that will reduce the principal amount for eligible borrowers.

2.      Interest rate reduction – Eligible borrowers will get their interest rate reduced on the loans issued (owned) by BOA. However, borrowers should have made regular monthly payments and their mortgage loan must be underwater.

3.      Short sale/foreclosure assistance – BOA is willing to help those borrowers who have opted to short sale their property. It has created several assistance programs to do so. For instance, it will help a borrower to get a deed in lieu of foreclosure. Moreover, it is the in the sole discretion of BOA to give any kind of financial help to any eligible borrower.

The effect of settlement plan on the short sale agents

Under the mortgage settlement program, borrowers who are already going through the short sale process may become eligible for it. The DOJ will analyze the eligibility of those borrowers before enrolling them in the loan modification program. If a borrower obtains the approval of the DOJ, then he will have to decide whether or not he wants continue with short sale process or go for the loan modification.

Once a borrower accepts the settlement program, then the short sale of the property will be considered null and void. However, one has to weigh all the pros and cons of his decision to opt for the loan modification program. Moreover, some legal issues may arise due to cancellation of the short sale process after entering into a legal agreement with a prospective buyer. These borrowers will have to consult with the BOA and his real estate attorney before making the final decision. Furthermore, a borrower may or may not get the approval from the DOJ either for the short sale or loan modification program.

Essential facts about Deed in Lieu and Short sale

Here are certain facts that an underwater mortgage borrower should know:

        i.            Property owners must get legal advice from legitimate attorneys and financial advisors regarding all the legalities associated with the termination of the short sale agreement with a buyer.

      ii.            Property owners are liable to get a cheaper residential space, as per the mortgage settlement terms.

    iii.            In case a borrower willfully terminates the short sale or the deed in lieu, he will become ineligible for the settlement program.

Essential facts about DOJ’s loan modification program

Here are some facts about the mortgage loan modification program:

        i.            On getting the required approval, property owners can increase their home’s equity value.

      ii.            Property owners can continue to stay in their home with a reduced monthly mortgage repayment amount.

    iii.            Property owners whose home equity appreciation request was cancelled can apply in a fresh application at a later date or opt to short sale his property. However, it should be noted that foreclosure may start all over again. (Foreclosure procedure is subjected to the rules applicable in the property owner’s state and the mortgage lender’s terms)