Typically there is a higher risk of being pursued for a deficiency judgment when there is more than one mortgage obligation.

Since banks do not want to retain ownership of many homes with failing mortgages, they are becoming more open to modifying loans. So what is a loan modification?

A loan modification is where the lender and borrower agree on new terms of the loan and the loan is restructured so that the homeowner avoids losing the property.

A true loan modification is a good permanent solution to help the homeowner afford the mortgage on an ongoing basis and help them stay in their home.  It is different than a repayment plan or foreberance which are typical short term solutions “band-aid” temporary solutions.

The loan modification could include a reduction in interest rate, a change from a fully amortized Interest Only payment for 5 to 7 years with an extension of the loan term, or a reduction in principal balance (which can be rare).  The modification does not require an apprasial, title reports or credit reports and are simply a way to renegotiate the terms on the note without doing a refinance.

Loan modification offer quite a number of positive solutions to these difficult times by keeping families in homes, the house off the market and can be done quickly.

But who qualifies for a loan modification?

A loan modification is a viable solution if there is a hardship that left the homeowner unwilling to make the current mortgage payment or an increase in payment due to an ARM will make it difficult for the homeowner to pay.  There also needs to not be enough equity in the home to sell it and payoff the mortgage without the lender agreeing to take less on the mortgage.  Finally, the homeowner must prove they can afford the modified payment.

The most common ways to do a loan modification is to lower your interest rate to the current market rate or stretch the mortgage payments over a 40 year period.  You will still pay as much, but you will have longer to make those payment with the latter choice.

For those that have a higher adjusted rate, you may  have be a good candidate for a new modified loan, even if you’re already in the foreclosure process.  The overall goal of the bank is to calculate and meet a monthly payment that is no more equal to 31 percent of your monthly income.  Thus, you will still need to meet this requirement for a loan modification.

In some rare cases, lenders may be willing to lower the principal on the property to a level of your home’s current level due to the fact that many homes currently have mortgages bigger than what the home is worth.

The program is entirely voluntary, so it is up to the lender or the mortgage company servicing the loan for the investors.

For the time being, you will still need to figure out how make your mortgage payments and prevent losing your home.  How to do that?  Well there are a few loss mitigation programs that are available:

Repayment Plan: This program works for those that are experiencing short term financial difficulties.  If you are not able to pay your mortgage for a month or two due to being ill or unexpected but important expenses have come up, this may be the program for you.  Make sure to contact your bank or lender to know the guidelines for applying for this particular assistance.

Short Sale:   This option may be ideal for those already considering themselves desperate and do not have the capacity to pay their home loan.  The home will need to be sold at a discount.  Approval needs to be given by the lender(s) holding the mortgage loan(s) as they are the ones taking the loss on the loan(s).

Loan Modification:  The goal of this program is to make monthly payments for your property easier by negotiating for permanent changes in terms of the loan.  You may consider asking your lender to modify your loan’s payment schedule, the amount of the monthly payments and even the interest rate if it is not equal to today’s market interest rate.  In order to qualify for a mortgage modification, you need to prove to the lender that you can afford the new payment terms.

Foreclosures are not an end-all for those experiencing this unfortunate situation.  Here are some common myths regarding foreclosure:

• Bankruptcy is worse than Foreclosure – There are many people that may think that bankruptcy is worse than foreclosure.  Although with a bankruptcy, you can re-establish yourself within 12 months but on the other hand foreclosures will stay on your credit report for 7 long years.
• Deed in-lieu of Foreclosure – This will only have an effect on your credit report as this is a type of “settlement” on a mortgage.  In most cases, the property is still taken from the borrower, but their credit score is not hurt as much as with a foreclosure.
• Bankruptcy helps you avoid Foreclosure – Actually that isn’t right – it’s the opposite.  Bankruptcy will not help you avoid the foreclosure process.  If you do file for bankruptcy, the lender will get by with the help of automatic stay.  If the stay is granted, then the lender will attempt to complete the procedure of foreclosure and take the property ASAP.

Don’t give up if you are facing foreclosure.  There is a lot of information out there and banks want nothing more than for you to stay in the home and work out a deal.

California lenders are subject to 2 regulations tht work in favor of the borrower:

1. When pursuing any secured obligation like a home loan, they must collect from collateral first.
2. California has the One Action Rule, which one collecting a debt, you can only get one shot.

How does this help the borrower?  Most loans in California are secured with a Trust Deed which allows the lender to foreclosue on a house non-judicially, without going to court.  This route is much cheaper than foreclosure judicially, through the courts since the courts are slow and quite expensive.

In order for the lender to get a deficiency judgement, they have to go to court.

It goes to show in this economy, anyone can be effected as the row of dominoes fall down.  Anyone can be a victim, especially if the economy becomes more turbulent.

Before going into a panic, there are a few ways to prevent foreclosure.  There are a number of options available, but the best way to handle a foreclosure is by understanding how they work.

Here are some foreclosure basics:

• Foreclosures can be stopped, even when it may seem final.  There are measures that can be taken, such as: refinancing or loan modifications are some more popular ways.
• Foreclosures don’t happen right away.  The foreclosure process can take several months depending on your state.
• The law has rules on foreclosures.  Mortgage companies do not have their own set of rules.  Evicting a family from a home or foreclosing on a property is very much regulated by the law.
• When facing foreclosures it is highly recommended to seek professional legal advice.  Real estate lawyers will be able to provide you with valuable information to help you save your home.  In addition, the lawyer will be able to help you with your particular situation.
• Government and other institutions implement programs aimed at providing assistance to foreclosured homeowners.  You can probably find one that best suits your situation.