MORTGAGE RENEGOTIATION

Parties in mortgage transactions encounter a wide range of issues peculiar to the mortgage industry and may need lawyers that understand the challenges the industry poses. An example of such challenges is the Coronavirus Pandemic (COVID-19) which caused a halt in economic activities globally at some point and continues to hit revenues severely in the business sector: hence, compelling companies to renegotiate debts (secured by mortgages) with financial institutions or other lenders. At Cardenas Islam, we have peerless expertise and experience in helping clients in distress renegotiate key terms in their mortgage deeds. Cardenas Islam is a leading provider of legal services to the mortgage industry, representing the top mortgage originators and servicers in the United States. Our clients include some of the country’s largest financial institutions and lenders, private equity investors, start-up firms, warehouse lenders, mortgage insurers, specialty servicers, e-commerce vendors, home builders, and trade associations.

What is mortgage renegotiation?

A mortgage renegotiation is a deliberate alteration that lenders make to mortgage deeds when borrowers are about to miss a mortgage payment or after missing one or more mortgage payments. Lenders apply various techniques to modify mortgages, but the major aim is to prevent foreclosure: so that a borrower gets to remain in the mortgaged property, while the lender escapes the expense of having to resell the mortgaged property (i.e. foreclosure). 

Generally, a home mortgage can be renegotiated by a lender prior to its full repayment. It must be noted that a mortgage renegotiation will likely have a negative effect on borrowers’ credit, but it will be less severe than going through a foreclosure process.

Why mortgage renegotiation?

Mortgage renegotiation is intended to make it easier for a borrower to keep up with future payments and to ensure that the lender gets paid eventually and completely. So it is a win-win situation.

Homeowners usually qualify for renegotiation of an existing mortgage if they are experiencing hardship such as a disability, or are some months behind on their mortgage payments, or are ineligible to refinance, or are likely to have difficulty making mortgage payments due to conditions beyond them. Borrowers should be reminded that a renegotiation of their mortgage often has an adverse impact on their credit rating, even if they make all of their future monthly payments on time. However, it is much better than defaulting on the mortgage.

A synopsis of how mortgage renegotiation works

In a renegotiation, all parties agree to modify the original terms of the mortgage deed. Renegotiation may include an alteration in the interest rate or in the period of the mortgage agreement. In some cases, the rate structure can be modified by changing from a fixed-rate to an adjustable-rate loan or vice versa. Another renegotiation option is the forbearance or temporary stoppage of mortgage payments. Fortunately, most states in the United States have mediation programs to help borrowers renegotiate their mortgage if their lenders refuse to cooperate.

To initiate a renegotiation, the borrower must contact the lender directly. Banks and other lenders are often motivated to renegotiate because it is generally a preferable option to foreclosure, due to the costs and risks involved in a foreclosure process and the fact that the renegotiated mortgage will provide them with some cash flow. Lenders also tend not to want to take possession of physical properties like homes, which require regular upkeep and may take a while to sell. If the borrower is not successful in renegotiating a mortgage directly with the lender, Cardenas Islam can assist in initiating a mediation process under which the lender must meet with the homeowner in front of a court-appointed official to resolve the matter amicably.

Who is eligible for mortgage renegotiation?

Eligibility requirements for mortgage renegotiations vary from lender to lender, but borrowers typically must be behind by at least one regular mortgage payment or must show that missing a payment is imminent.

Borrowers must also provide evidence of significant financial constraint, for reasons such as:

• Natural or declared disaster (e.g. Covid-19)
• Long-term illness or disability
• Death of a family member (and loss of their income)
• Uninsured loss of property
• A sudden increase in housing costs, including hikes in property taxes or homeowner association fees
• Divorce

Do you have more questions? Contact Cardenas Islam now. Contact us and our lawyers will respond promptly!