This article is intended to give general information only. It is not intended to give legal advice to any person on a specific case or controversy, and does not create an attorney-client relationship. If you are facing a mortgage default, foreclosure or other financial hardship, it is strongly recommended that you consult with qualified legal counsel or a HUD approved housing counselor
In the wake of the financial crisis beginning in 2007, many homeowners have faced financial hardships, including unemployment, disability, reduced working hours or income, higher utility bills, skyrocketing health insurance costs, and other financial burdens. At the same time, homeowners have seen their home values decrease by as much as 50% or more, leaving them significantly “under-water” on their mortgage obligations. These factors have combined to cause a significant increase in mortgage defaults and foreclosures, especially in states such as New Jersey. In response, the government has adopted certain programs to help homeowners catch up on their mortgage payments and keep their homes.
This article is intended to give a brief overview of the many legal options available to homeowners to deal with a mortgage default or foreclosure.
A. HOME AFFORDABLE MODIFICATION PROGRAM (“HAMP”)
Congress enacted HAMP for the purpose of assisting homeowners to modify their mortgage obligations with their mortgage companies. In a nutshell, for homeowners whose monthly mortgage payments exceed 31% of their monthly income, the government provides certain incentives to mortgage companies to modify the loans to bring the homeowners’ payment down to the 31% threshold.
To be eligible for a HAMP loan modification, a homeowner must meet the following eligibility requirements.
a. Your loan was originated prior to 1/01/2009
b. You have a documented financial hardship
c. The unpaid balance on your home is not greater than
1 unit dwelling - $729,750.00
2 unit dwelling - $934,200.00
3 unit dwelling - $1,129,250.00
4 unit dwelling - $1,403.400.00
d. Your loan was not previously modified under HAMP
e. Your loan is delinquent or default is reasonably foreseeable
f. The mortgaged property must be used as the homeowner’s principal residence. In other words, 2nd homes, vacation homes, and investment properties are not eligible for modification under HAMP.
g. You must have sufficient documented income to afford a modified payment.
A previous bankruptcy filing or discharge will NOT affect your eligibility for a loan modification under HAMP; and, in some cases, a bankruptcy discharge will improve your changes of obtaining a loan modification because it will eliminate most of your unsecured debt and make it easier for you to show you can afford a modified payment.
If you think you may be eligible for a loan modification under HAMP, you will need to submit a Request for Mortgage Assistance (“RMA”) and supporting financial documentation to your mortgage lender or loan servicer. Before beginning this process, it is strongly recommended that you consult with an experienced attorney or a HUD approved housing counselor.
B. HOME AFFORDABLE REFINANCE PROGRAM (“HARP”)
HARP is very similar to HAMP, but is designed for homeowners who have not defaulted on their mortgage obligations. Some homeowners have been able to maintain their mortgage payments, but because their homes have lost value due to the financial crisis, they have been unable to refinance their homes and take advantage of the historically low interest rates. HARP is designed to help these homeowners. Unfortunately, not all homeowners will qualify to participate in HARP. To qualify under HARP, you must meet the following eligibility requirements.
a. Your mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.
b. Your mortgage must have been sold to Freddie Mac or Fannie Mae prior to May 31, 2009.
c. Your loan was not previously refinanced under HARP.
d. The current loan-to-value (LTV) ratio must be greater than 80%. In other words, if you owe $100,000.00 on your mortgage, the value of your home must be $80,000.00 or more.
e. You must be current on your mortgage loan payments, and you must have a good payment history in the past 12 months.
C. HOME AFFORDABLE UNEMPLOYMENT PROGRAM (“HAUP”)
If you are unemployed, you may qualify for a loan forbearance under HAUP. In order to qualify for HAUP, a homeowner must currently be unemployed and must meet the same eligibility requirements as HAMP (see above). Additionally, mortgage lenders or servicers are not required to consider a homeowner for a forbearance program if the loan is already more than 12 months delinquent.
If a homeowner meets the HAUP eligibility requirements, the mortgage lender or servicer may grant a forbearance for a period lasting 12 months or until the homeowner has been reemployed. During the forbearance period, the mortgage lender may reduce the homeowner’s monthly payment to an amount no more than 31% of the homeowners income or may suspend payments altogether.
At the end of the forbearance period, the homeowner must either bring their loan payments current, including any deferred payments, or reapply for a HAMP modification.
D. HOME AFFORDABLE FORECLOSURE ALTERNATIVES (“HAFA”)
Home Affordable Foreclosure Alternative (“HAFA”) programs are designed for homeowners who would not be able to afford their mortgage payments even if the loan were modified, or who are so far under-water that it does not make sense to try to retain the home.
In order to qualify for HAFA program, a homeowner must meet the same eligibility requirements as HAMP (see above). If you qualify for participation in HAFA, you may sell the property by way of a short-sale, or transfer the home back to the mortgage company by way of a Deed-in-Lieu of Foreclosure. The major advantage to participating in HAFA is that the homeowner would be relieved of any responsibility for paying the deficiency balance on the loan and may quality to receive up to $3,000.00 in government financial assistance to defray moving expenses and the up-front costs of finding a new place to live.
Important Note: In 2007, Congress enacted the Mortgage Debt Forgiveness Act. Pursuant to this Act, there would be no tax consequences in the event a mortgage company forgave all or a portion of deficiency balance on a mortgage loan secured by the homeowner’s principal residence. This Act expired on December 31, 2013; and, so far, Congress has not extended the law. So, if you choose to pursue a short sale, Deed-in-Lieu of Foreclosure, or simply allow the mortgage company to foreclose (sometimes called a “strategic default”), there may be significant tax consequences to this decision. It is strongly recommended that you consult with an accountant, tax attorney or other tax professional before deciding to pursue a short sale, Deed-In-Lieu of Foreclosure, or strategic default.
E. NEW JERSEY HOME KEEPER PROGRAM – HARDEST HIT FUND
In the wake of the financial crisis, the federal government created the “Hardest Hit Fund” to provide financial assistance to individual states who were the most severely impacted by the collapse of the real estate market. New Jersey was one of the states targeted for participation in the “Hardest Hit Fund.” With this funding, New Jersey created the New Jersey Home Keeper Program (“NJHKP”). If you qualify to participate in this program, you may receive up to $48,000.00 in financial assistance from the state.
NJHKP is designed to help homeowners who have been unemployed or underemployed (i.e. experienced a loss of income of 15% or more) during the last 36 months. You must also meet the following additional eligibility requirements:
Your home must be located in the State of New Jersey
You must occupy your home as your principal residence
* Your home must be a 1 or 2 unit dwelling
* Your mortgage balance cannot be more than $429,619.00 for a 1 unit dwelling, or more than $550,005.00 for a 2 unit dwelling
* Your home must be the only residential real estate that you own
* You are not currently in bankruptcy. If your bankruptcy has been discharged and your case is closed, you may be eligible for assistance under NJHKP; but, if your bankruptcy case is still open, you will not qualify.
* You do not have significant savings or other financial resources (tax preferred retirement and educational savings are excluded)
Your mortgage servicer must participate in the NJHKP.
For more information on NJHKP, you may visit the state’s website at https://www.njhomekeeper.com/.
F. SUPERIOR COURT OF NEW JERSEY – FORECLOSURE MEDIATION
In response to the flood of foreclosure filings caused by the real estate market collapse, the New Jersey Supreme Court created the Foreclosure Mediation program. The purpose of the Foreclosure Mediation program is to help homeowners negotiate a loan modification or other workout agreement with their mortgage companies. To participate in the mediation program, a homeowner must submit a “Request for Mediation” within 60 days after being served with a foreclosure complaint. If you fail to file a Request for Mediation within this 60 day period, you may be deemed ineligible for the program unless you can demonstrate exceptional circumstances.
For more information on the Foreclosure Mediation program, you may visit the court’s website at
G. UNITED STATES BANKRUPTCY COURT – LOSS MITIGATION
The United States Bankruptcy Court has also created a Loss Mitigation Program to assist homeowners negotiate a loan modification with their mortgage lenders. For some homeowners, there may be advantages to participating in the bankruptcy court’s loss mitigation rather than the Superior Court’s Foreclosure Mediation program, such as
* In Foreclosure Mediation, the mortgage lender may continue its foreclosure proceeding during the negotiation process.
* In Bankruptcy Loss Mitigation, the mortgage lender is subject to the automatic stay and may not continue its foreclosure action without approval of the court.
* In Foreclosure Mediation, a homeowner will continue to fall behind on their mortgage payments during the negotiation process as each month goes by.
* In Bankruptcy Loss Mitigation, the homeowner may file a reorganization plan with the court to make “adequate protection” payments to the mortgage company. The adequate protection payments will prevent the homeowner from falling further behind on their mortgage payments during the negotiation process.
* In Foreclosure Mediation, homeowners will need to submit their paperwork by mail.
* In Bankruptcy Loss Mitigation, the bankruptcy court has set up a website portal so that homeowners may submit their documentation over the internet.
H. CHAPTER 13 BANKRUPTCY PROCEEDING
The most common reason a person may file a chapter 13 bankruptcy reorganization is to stop foreclosure proceedings. In a chapter 13, a person may file a plan with the bankruptcy court to cure their mortgage arrearages and bring their mortgage loan back into good standing. The plan must be at least 3 years and may be as long as 5 years depending on the circumstances. During the course of the bankruptcy plan, all foreclosure proceedings and other legal proceedings are stopped and cannot move forward without permission of the bankruptcy court. Under a Chapter 13 reorganization plan, the homeowner would make a monthly payment to the bankruptcy trustee to pay back the arrearages on their mortgage; at the same time, the homeowner would need to make their regular monthly mortgage payments to their mortgage company.
For more information on the advantages of a Chapter 13 Bankruptcy filing visit our previous article at http://ffhlaw.webs.com/chapter-13.
Before making your choice of attorney, you should give this matter careful thought. The selection of an attorney is an important decision.