The loan modification process in Florida may be the answer for you if you purchased a home in Florida near the peak of the real estate market about six years ago. You, like many other borrowers, may have experienced problems building home equity over the past several years. You either have no equity in your property or an “underwater mortgage.”
An underwater or “upside-down” mortgage refers to a situation when the homeowner has negative equity in the home—the person owes more on the loan than the market value of the home.
According to the real estate website Zillow.com, 39.6 percent of the homes in Florida's largest counties (Broward, Miami-Dade and Palm Beach) were underwater in the fourth quarter last year. As real estate prices have increased, the number of borrowers with negative equity in their homes has declined—down 41 percent compared to the third quarter of 2012.
Foreclosures Trending Up
Despite the reduction in the number of underwater mortgages, upside-down loans remain an issue in Florida and across the country. Many hard working Floridians continue to struggle making their mortgage payments because they cannot refinance or sell their properties.
Other factors that negatively affect finances, such as unemployment, illness or divorce, combine with underwater mortgages to exacerbate the problem. These forces have a direct association with the spike in foreclosure activities in Florida.
RealtyTrac reports that Florida had the highest filing of initial foreclosure notices in the nation during the first quarter of this year with 85,671 cases recorded. This represents a 7 percent hike over the fourth quarter of 2012 and a 17 percent year-over-year increase.
A possible solution for eligible homeowners who have difficulty making their monthly mortgage payments or facing foreclosure is the loan modification process in Florida.
Understanding the Loan Modification Process
Some mortgage lenders employ loan modifications to assist homeowners who are facing financial difficulties and may become delinquent or are already behind on their loan payments. The lender modifies one or more items under the original loan agreement, such as:
1. Mortgage interest rate
2. Amortization (i.e. 20 or 30-year term)
3. Monthly mortgage payment
In addition, as part of the loan modification process, a lender may forgive missed mortgage payments, add delinquent payments on the back end of the loan to help bring the homeowner current with their mortgage freeze, or lower the interest rate on an adjustable-rate mortgage.
In some cases, banks may reduce the principal owed on loans to bring home values in line with market prices.
The changes can be temporary or permanent. The typical objective of a loan modification is to help borrowers reduce their monthly mortgage payments to 31 percent of their gross monthly income.
The process varies from lender to lender. Typically, you will have to provide the bank with a hardship letter that gives a financial overview and clearly explains why you want to enter the loan modification process in Florida.
You will also need to submit the following items:
- Tax returns
- Bank statements
- Utility bills
If the bank manages to evaluate your situation and approves your request, you will likely enter a “trial period.” During this phase, you must make the new monthly payments on time. After successfully completing the trial period, the agreement is made permanent.
New Law Speeds Up Foreclosure Process
If you meet the eligibility requirements, the loan modification process in Florida provides a viable option that can help you avoid foreclosure. However, time is of the essence.
On May 3, 2013, the Florida state Senate passed a bill designed to accelerate the foreclosure process. The legislation is currently on the Governor’s desk awaiting final approval.
Judges would be required to conduct an immediate review of foreclosure cases in chambers and without a hearing. The judge will ask the parties to show cause as to why a final judgment should be entered on the matter.
If a mortgage lender determines that the borrower does not have a case, it can ask the judge to enter a final judgment. The rules state that the judge must hear the defense of a homeowner who thinks he or she has a valid foreclosure defense.